Rule 4350(i)(1)(B): Each issuer shall require shareholder approval prior to the issuance of designated securities … when the issuance or potential issuance will result in a change of control.
Rule 4350(i)(1)(D)(ii): Each issuer shall require shareholder approval prior to the issuance of designated securities … in connection with a transaction other than a public offering involving the sale, issuance or potential issuance by the company of
common stock (or securities convertible into or exercisable [for] common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.
Rule 4310(c)(17)(D): The issuer shall be required to notify NASDAQ on the appropriate form no later than 15 calendar days prior to … entering into a transaction that may result in the potential issuance of common stock (or securities convertible into
common stock) greater than 10% of either the total shares outstanding or the voting power outstanding on a pre-transaction basis.
Relevant Facts: A company proposes a private placement (the “Unit Offering”). Pursuant to the Unit Offering, the company intends to sell units consisting of one share of common stock and one warrant exercisable into an additional share of common stock
to a number of accredited investors. The stock issuance will constitute approximately 50% of the company’s pre-transaction outstanding shares with 50% warrant coverage, or warrants exercisable into approximately 25% of the company’s pre-transaction shares
outstanding. The price of the Units will be fixed using the market value of the common stock immediately preceding the execution of the binding agreement (the “Market Price”), plus $0.0625 to allow for the attribution of $0.125 for each full warrant (i.e.,
50% multiplied by $0.125 equals $0.0625). The warrants will be exercisable at the Market Price at any time after issuance. The warrants will contain anti-dilution protection for stock splits and similar events, but will not contain price adjustments. According
to the terms of the transaction, no investor individually, or as part of a group, can beneficially own more than 19.9% of the company’s outstanding common shares or voting power as a result of the issuance. The company also would like to close the Unit Offering
prior to the conclusion of the 15 day notification period prescribed in Listing Rule 4310(c)(17)(D).
Issue: Does NASDAQ require shareholder approval for this transaction?
Determination: No. Pursuant to NASDAQ’s rules, shareholder approval is not required for the Unit Offering. Although the share issuance will exceed 20% of the company’s pre-transaction outstanding shares, the fixed issuance price of the stock and the
fixed exercise prices of the warrants will not be less than the greater of book and market value. Accordingly, shareholder approval is not required pursuant to Listing Rule 4350(i)(1)(D). Further, shareholder approval is not required pursuant to Listing
Rule 4350(i)(1)(B), because no participant in the Unit Offering can alone, or together with others, acquire more than 19.9% of the company’s outstanding common stock or voting power. Accordingly, there is no possibility of a change of control as a result
of the Unit Offering.
Issue: May the company complete the Unit Offering prior the end of the 15-day period contemplated by Listing Rule 4310(c)(17)(D)?
Determination: Given that the company submitted its Notification: Listing of Additional Shares and that NASDAQ has completed its review of the Unit Offering, the company may close the transaction prior to the expiration of the 15-day period referenced
in Listing Rule 4310(c)(17)(D).