NASDAQ recently filed a proposed rule change with the SEC that would provide the staff of NASDAQ's Listing Qualifications Department (Staff) with limited discretion to grant a listed company that failed to hold its annual meeting of shareholders an extension of time to comply with the requirement. The proposal would apply to limited partnerships as well as other listed companies. The proposal requires SEC approval.

The proposed rule change would amend NASDAQ Rules 5810(4), 5810(c), 5815(c) and 5820(d) to provide the Staff with limited discretion to grant a listed company additional time to solicit proxies and hold an annual meeting of shareholders. Currently, if a listed company fails to solicit proxies and hold an annual meeting within one year after the end of its fiscal year, as required by NASDAQ Rule 5620, the Staff has no discretion to provide the company a cure period to regain compliance. Instead, the Staff is required under Rule 5810(c)(1) to issue a delisting determination, which subjects the company to immediate suspension and delisting unless the company appeals to a Hearings Panel.

The proposal notes that currently the only other instance where a company is subject to immediate suspension and delisting is when the Staff makes a determination under the Rule 5100 Series that the company's continued listing raises a public concern. For all other deficiencies under the Rule 5000 Series, a listed company is provided with either a fixed compliance period within which to regain compliance or the opportunity to submit a plan to regain compliance, which the Staff reviews and can allow the company additional time to implement. The proposed rule change is intended to provide consistency with the administration of other continued listing standards where companies are provided a cure period or opportunity to submit a plan to regain compliance after they become deficient.

Under the proposal, companies that fail to solicit proxies and hold an annual meeting in accordance with Rule 5620 would be given the opportunity to submit a plan of compliance for the Staff's review. Following receipt of a deficiency notice from the Staff, a company would have 45 calendar days to submit a plan to regain compliance. A non-compliant company would also be required to publicly disclose, under both SEC and NASDAQ rules, that it had received a notification of non-compliance with the annual meeting and proxy rules. After reviewing the compliance plan, the Staff would have discretion to grant an extension of up to 180 days from the deadline to hold the annual meeting.

In determining whether to grant a company an extension to comply with the annual meeting requirement, the Staff would consider:

The proposal would also limit the maximum length of an extension that a NASDAQ Hearings Panel or the NASDAQ Listing and Hearing Review Council may grant for an annual meeting deficiency to no more than 360 calendar days from the date of non-compliance with the rule.

In addition, the proposal notes that a company that is not subject to NASDAQ's all-inclusive annual listing fee would be required to pay a $5,000 fee for the review of its compliance plan. Effective January 2018, all companies will be subject to the all-inclusive annual listing fee and the additional $5,000 fee will no longer apply to any company at that time. All companies, regardless of whether they participate in the all-inclusive annual fee program, are currently subject to a $10,000 fee for each of a panel hearing and an appeal to the Listing and Hearing Review Council. These fees would continue to apply after 2018 to companies that do not resolve their annual meeting deficiencies during the extension period. For more on NASDAQ's all-inclusive annual listing fee, see NASDAQ All-Inclusive Annual Listing Fee: Chart.

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