By Cydney Posner
Recently, the SEC posted Nasdaq's proposed rule change to modify an initial listing standard for the Nasdaq Global Select Market, a tier within the Nasdaq Global Market, The release states that the rule change became immediately operative upon filing with the SEC on April 1. Generally, the rule implements changes consistent with current NYSE rules.
Last year, the Nasdaq Global Select Market modified its listing requirements to permit initial listing if the company had: (i) $80 million in total assets; (ii) $55 million in stockholders' equity; and (iii) $160 million in market capitalization. This standard conforms to an NYSE listing standard, but sets higher thresholds. (Remember that the Global Select Market has the highest initial financial and liquidity listing standards "in the world.") Other requirements, including the ownership and market value requirements contained in Rule 5315(f) must also be met. However, unlike the NYSE requirement upon which the standard is based, Nasdaq required that "total assets" be measured at the end of the prior fiscal year based on the year-end financials. To conform to the NYSE standard, Nasdaq is deleting the requirement that assets be measured at the end of the most recent fiscal year. Nasdaq is also adding to the definitions in Rule 5310 an explanation of adjustments, comparable to those required by the NYSE, to be made to total assets and stockholders' equity to reflect the use of proceeds and acquisitions and dispositions.
In computing total assets and stockholders' equity under the rule, Nasdaq will rely on the most recent publicly reported financial statements, subject to these adjustments:
- Application of Use of Proceeds. For a company in registration for an equity offering, adjustments should be made to reflect the net offering proceeds and intended applications:
- To pay off existing debt or other financial instruments:
- Elimination of the actual historical interest expense on debt (or other financial instruments classified as liabilities under GAAP) being retired with offering proceeds for all relevant periods or by conversion into common stock at the time of an IPO in conjunction with the company's listing.
- If pro forma amounts are not included in the registration statement for all relevant periods, the company must provide adjusted historical financial data with a report, prepared in accordance with the AICPA standards, by its outside auditors on the application of agreed-upon procedures with respect to the adjustments.
- To fund an acquisition:
- With respect to acquisitions to be funded with offering proceeds, adjustments disclosed in accordance with Rule 3-05 and Article 11 of Reg S-X will be made for all the relevant periods for those acquisitions for which historical financial information of the target is required to be disclosed in the SEC registration statement.
- For any period for which pro forma numbers are not set forth in the registration statement, adjustments must be accompanied by adjusted financial data combining the historical results of the target (or relevant portion thereof) and acquiror, as disclosed in the company's SEC filing. The adjustments will include those necessary to reflect (a) the allocation of the purchase price, including adjusting assets and liabilities of the target to fair value recognizing any intangibles (and associated amortization and depreciation), and (b) the effects of additional financing to complete the acquisition. The company must provide the adjusted historical financial data with a report, prepared in accordance with the AICPA standards, by its outside auditors on the application of agreed-upon procedures with respect to the adjustments.
- Acquisitions and Dispositions. Where acquisitions (and related dispositions of part of the target) are not funded with offering proceeds, adjustments will be made for those acquisitions and dispositions that are disclosed in the financial statements in accordance with Rule 3-05 and Article 11 of Reg S-X. If the disclosure does not include pre-tax earnings from continuing operations, minority interest and equity in the earnings or losses of investees, then the outside auditors must provide that information to the Exchange, including an independent accountant's report, prepared in accordance with the AICPA standards, on the application of agreed-upon procedures.