On January 30, 2018, the Nasdaq Stock Market ("Nasdaq") filed notice with the SEC proposing to amend Rule 5635(d) regarding shareholder approval for certain securities issuances. The current Nasdaq shareholder approval requirements were adopted in 1990, and the rule generally requires shareholder approval when a listed company seeks to issue common stock equal to 20% or more of its outstanding common stock or voting power in a private placement (i.e., a transaction other than a public offering) at a price less than the greater of book or market value.
Nasdaq Rule 5005 currently defines "market value" as the closing bid price. Due to a number of complaints made by investors that this figure is not transparent and does not always reflect the actual price at which a security has traded, the proposed change would modify the measure of market value to the lower of "(i) the closing price (as reflected on Nasdaq.com) or (ii) the average closing price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the binding agreement."
Furthermore, the proposed change would delete the reference to "book value" in response to comments that book value is an accounting measure based on the historical costs of assets, as opposed to current value, and therefore not an appropriate measure of the dilutive effect of a potential transaction.
The text of the proposed rule change is available on the Nasdaq's website at:
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