Broc Romanek of TheCorporateCounel.net noted in this blog that “Recently, Nasdaq solicited comment on its shareholder approval rules. It’s a broad – and general – request since the rules haven’t changed much in the 25 years since they were adopted. Nothing specific is proposed – so this is sort of like a concept release.”

Some of the general requests for comments include:

  • Nasdaq Rule 5635(a) generally requires a listed company to obtain shareholder approval in connection with an acquisition if the potential issuance is equal to 20% of the number of shares of common stock or voting power outstanding, or, if insiders have an interest in the target entity, 5% of the number of shares of common stock or voting power outstanding.
  • It has been suggested that the 20% threshold is restrictive. Should Nasdaq consider changing the rule to allow companies to issue a higher percentage of total shares outstanding or voting power without shareholder approval in connection with an acquisition? Why or why not?
  • It has been suggested that given enhanced investor protection mechanisms and disclosure requirements surrounding related party transactions, the heightened shareholder approval rules governing insider interest in an acquisition are no longer necessary. Should Nasdaq consider changing the rule to allow companies to issue more than 5% of voting power or total shares outstanding without shareholder approval where insiders have an interest in the assets to be acquired? Why or why not?
  • Nasdaq Rule 5635(b) requires shareholder approval prior to the issuance of securities when the issuance or potential issuance will result in a change of control. Is Nasdaq’s presumption that a change of control would occur when, as a result of the issuance, an investor or a group of investors would own, or have the right to acquire, 20% or more of the outstanding shares of common stock or of the voting power and such ownership or voting power would be the largest position an appropriate threshold for purposes of the shareholder approval rules? If not, please indicate the level of ownership or voting power that you believe would represent a change of control for purposes of determining if shareholder approval should be required and list any other factors that you believe should be considered.