Earlier this week, the SEC approved a temporary Nasdaq rule that would provide listed companies with a temporary exception from certain shareholder approval requirements through June 30, 2020 in order to streamline issuers’ access to capital. Here’s an excerpt from Nasdaq’s issuer alert summarizing the rule:
The exception is limited to circumstances where the delay in securing shareholder approval would:
– Have a material adverse impact on the company’s ability to maintain operations under its pre COVID-19 business plan;
– Result in workforce reductions;
– Adversely impact the company’s ability to undertake new initiatives in response to COVID-19; or
– Seriously jeopardize the financial viability of the enterprise.
In order to rely on the exception, among other requirements, the company would also have to demonstrate to Nasdaq that the need for the transaction is due to circumstances related to COVID-19 and that the company undertook a process designed to ensure that the proposed transaction represents the best terms available to the company.
No prior approval of the exception by Nasdaq is required if the maximum issuance of common stock (or securities convertible into common stock) issuable in the transaction is less than 25% of the total shares outstanding and less than 25% of the voting power outstanding before the transaction; and the maximum discount to the Minimum Price at which shares could be issued is 15% (the “Safe Harbor Provision”).
Companies that fit within this Safe Harbor Provision must notify Nasdaq as promptly as possible, and at least two days before issuing shares, but aren’t required to wait the required 15 calendar days after filing the listing of additional shares notification. If a transaction falls outside of the Safe Harbor Provision, Nasdaq must approve the company’s reliance on the exception before the company can issue any securities in the transaction. There’s a Nasdaq FAQ on the rule as well as its supplemental instructions to listed companies.
-John Jenkins, TheCorporateCounsel.net May 7, 2020
