This section discusses the listing implications for a NASDAQ company, which becomes a "public shell" or which undertakes a business combination with a non-NASDAQ entity (public or private) resulting in a change of control.

Public Shells

NASDAQ believes that the securities of companies operating as "public shells" may be subject to market abuses or other violative conduct detrimental to the interests of the investing public. Therefore, in accordance with Listing Rule 5101, NASDAQ may determine to apply additional and more stringent criteria or move to delist such companies in order to preserve and strengthen the quality and integrity of The NASDAQ Stock Market and to protect prospective investors and the public interest. (Updated: July 14, 2009)

What is a "public shell"?
A company with no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal other assets is a "public shell". NASDAQ believes that there should be a "facts and circumstances" analysis applied in determining whether a company is a public shell and has not adopted a bright-line or qualitative test for determining whether a particular company is a public shell. Similarly, in adopting recent rules regarding shell companies, the Securities and Exchange Commission also declined to adopt a quantitative threshold to define a shell company, as doing so would, "present a serious potential problem, as [a quantitative threshold] would be more easily circumvented". [Exchange Act Release No. 52038 (July 15, 2005), 70 FR 42234 (July 21, 2005)]

In making its determination, NASDAQ will look to a number of factors, including, but not limited to:

• What percentage of the company's assets are active vs. passive;
• Does the company generate revenues;
• What is the nature of any revenues generated (passive vs. active);
• Are the company's expenses reasonably related to the revenues being generated;
• How many employees support the business operations;
• What is management's role in the company's investments;
• How long has the company been without material business operations;
• Is the company subject to registration under the Investment Company Act of 1940; and
• How has the company defined itself in its filings with regulators.

Listed companies determined to be public shells by NASDAQ may be subject to delisting proceedings or additional and more stringent criteria. If NASDAQ makes such a determination, the company will be notified in writing and may appeal NASDAQ's determination at that time. See Hearings Process for additional information. NASDAQ recommends that companies contact their Listing Analyst or Listing Qualifications at +1 301 978 8008 with any questions regarding the determination process.

Business Combinations With Non-NASDAQ Entities Resulting in a Change of Control

My company is seeking a business combination with a non-NASDAQ entity? What are the listing implications?
An issuer must apply for initial inclusion prior to consummating a transaction whereby the issuer combines with a non-NASDAQ entity, resulting in a change of control of the listed company and potentially allowing the non-NASDAQ entity to obtain a NASDAQ listing. When determining whether or not a change of control has occurred under Listing Rule 5110(a), NASDAQ will consider a variety of factors including, but not limited to: changes in the voting power and/or share ownership, management, board of directors, and financial structure of the listed entity. NASDAQ will also consider the nature of the businesses as well as the relative size of the entities involved in the transaction. (Updated: April 13, 2009)

May NASDAQ determine that a change of control under Listing Rule 5110(a) has occurred even though the non-NASDAQ entity or its shareholders did not obtain majority voting control of the listed company as a result of the transaction?
Yes. Even though the non-listed entity or its shareholders did not obtain majority voting control (or control of a majority of the board or management positions), NASDAQ may determine that a change of control has occurred based upon consideration of the totality of the factors involved in the transaction. (Updated: April 13, 2009)

What actions will NASDAQ take in the event it determines that a change of control under Listing Rule 5110(a) will occur as a result of a proposed transaction?
NASDAQ will provide written notice to the company if it determines that the transaction, as then proposed, will result in a change of control pursuant to Rule 5110(a), thereby advising the company that the combined entity will be required to submit an initial listing application and listing agreement prior to consummating the transaction, satisfy all initial inclusion criteria immediately upon consummation of the transaction and pay all required fees (application, entry, and annual). Please note that the initial listing application should be submitted approximately 6-8 weeks prior to the expected consummation of the transaction to allow sufficient time for Staff's review. Failure to submit the Listing Application, Listing Agreement and related fees prior to consummation may result in Staff issuing a determination of delisting to the company upon consummation of the transaction.

Upon receipt of this notification, the company will be entitled to appeal Staff's determination, notwithstanding the fact that the transaction has not yet been completed, and the company is not then subject to immediate delisting. If the company is successful on appeal, it may proceed with the transaction with the understanding that the combined entity will continue to be subject only to the maintenance criteria. If the company is unsuccessful on appeal, it may abandon the transaction. If the company chooses to proceed with the transaction after an unsuccessful appeal and does not satisfy the initial inclusion requirements upon consummation of the reverse merger, it will be subject to immediate delisting without the right to a new oral hearing. Prior to delisting, the company will, however, be provided written notice of the particular initial listing standard(s) that it does not satisfy and will be afforded an opportunity to make a written submission to the same Panel that made the original determination. The company's submission may, among other things, dispute the finding that it failed to satisfy the initial listing requirements or it may proffer a plan to achieve compliance with the applicable initial listing standard(s) within the near term. (Updated: April 13, 2009)

What action will NASDAQ take in the event it determines that a change of control has occurred as a result of a business combination and that the post-merger company fails to satisfy the requirements for initial inclusion upon completion of the transaction?
In order for Staff to determine whether the post-merger company meets all initial listing requirements, the company must submit its Listing Application approximately 6-8 weeks prior to the expected consummation of the transaction to allow sufficient time for Staff's review. If the company fails to do so, or if, upon review, Staff determines that the post-merger company does not meet all initial inclusion criteria, NASDAQ will notify the company in writing of its determination to delist the company's securities based upon the failure to satisfy the initial inclusion criteria upon completion of the business combination. However, the company may appeal Staff's determination to a Hearings Panel, which will stay the delisting action pending a Panel decision. (Updated: November 25, 2008)