[Federal Register Volume 85, Number 90 (Friday, May 8, 2020)]
[Notices]
[Pages 27464-27469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09827]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88805; File No. SR-NASDAQ-2020-025]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Provide Listed Companies With a Temporary Limited Exception From
Certain Shareholder Approval Requirements in Nasdaq Rules 5635(c) and
(d)
May 4, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 1, 2020, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt a rule, operative through, and
including, June 30, 2020, to provide listed companies with a temporary
exception from certain shareholder approval requirements, as described
below.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaq.cchwallstreet.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Given current market conditions, Nasdaq proposes to provide listed
companies with a temporary exception, limited in scope and time, from
certain shareholder approval requirements, as described below.
In December 2019, COVID-19 began to spread and disrupt company
operations and supply chains and impact consumers and investors,
resulting in a dramatic slowdown in production and spending.\3\ By
March 11, 2020, the World Health Organization characterized COVID-19 as
a pandemic.\4\ To slow the spread of the disease, federal and state
officials implemented social-distancing measures, placed significant
limitations on large gatherings, limited travel and closed non-
essential businesses.
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\3\ See, e.g., Chairman Jay Clayton, Proposed Amendments to
Modernize and Enhance Financial Disclosures; Other Ongoing
Disclosure Modernization Initiatives; Impact of the Coronavirus;
Environmental and Climate-Related Disclosure (Jan. 30, 2020),
available at https://www.sec.gov/news/public-statement/clayton-mda-2020-01-30. (``Yesterday, I asked the staff to monitor and, to the
extent necessary or appropriate, provide guidance and other
assistance to issuers and other market participants regarding
disclosures related to the current and potential effects of the
coronavirus. We recognize that such effects may be difficult to
assess or predict with meaningful precision both generally and as an
industry- or issuer-specific basis. This is an uncertain issue where
actual effects will depend on many factors beyond the control and
knowledge of issuers.'').
\4\ See WHO Director-General's Opening Remarks at the Media
Briefing on COVID-19 (March 11, 2020), available at https://www.who.int/dg/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19-11-march-2020.
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These necessary measures also have affected equity markets, which
have seen significant declines.\5\ In response, governments around the
world have acted swiftly and decisively to provide relief to regulated
entities and are undertaking efforts to stabilize the economy and
assist affected companies and their employees.\6\ The Commission,
[[Page 27465]]
in particular, has recognized the importance of functioning markets in
this environment \7\ and has granted issuers and broker-dealers relief
and extensions from existing deadlines, in order to allow these
entities, as well as the Commission itself, to focus on fighting the
deadly virus and preserving functioning capital markets.\8\
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\5\ In the United States, Level 1 market wide circuit breaker
halts were triggered on March 9, March 12, March 16, and March 18,
2020. See also Phil Mackintosh, Putting the Recent Volatility in
Perspective, available at https://www.nasdaq.com/articles/putting-the-recent-volatility-in-perspective-2020-03-05 (``Analysts showed
that we saw the fastest `correction' in history (down 10% from a
high), occurring in a matter of days. In the last week of February,
the Dow fell 12.36% with notional trading of $3.6 trillion.'')
\6\ See, e.g., the list of actions undertaken by the Board of
Governors of the Federal Reserve System at https://www.federalreserve.gov/covid-19.htm. See also Families First
Coronavirus Response Act, Public Law 116-127 and Coronavirus Aid,
Relief, and Economic Security Act, Public Law 116-136.
\7\ See, e.g., Chairman Jay Clayton, The Deep and Essential
Connections Among Markets, Businesses, and Workers and the
Importance of Maintaining those Connections in our Fight Against
COVID-19 (March 24, 2020) available at https://www.sec.gov/news/public-statement/statement-clayton-covid-19-2020-03-24 (``The
Securities and Exchange Commission and other financial regulators
are focused on two overriding and interrelated issues. First, we are
facing an unprecedented national challenge -- a health and safety
crisis that requires all Americans, for the sake of all Americans,
to significantly change their daily behavior and, for many, to make
difficult personal sacrifices. Second, the recognition that the
continuing, orderly operation of our markets is an essential
component of our national response to, and recovery from, COVID-19.
The interrelationship between these issues cannot be overstated. Our
health care, pharmaceutical, manufacturing, transportation,
telecommunications and many other private-sector industries are
critical to our collective response to COVID-19. The thousands of
firms and entrepreneurs in these industries--and the millions of
employees and contractors--that are working around the clock to
fight COVID-19 depend on continued access to payments and
credit.'').
\8\ See SEC Coronavirus (COVID-19) Response available at https://www.sec.gov/sec-coronavirus-covid-19-response, which is being
updated regularly with additional actions taken by the Commission.
As of April 14, 2020, the Commission response includes (but is not
limited to): Providing conditional relief for certain publicly
traded company filing and proxy delivery obligations (March 4 and
25, 2020); granting relief to reporting deadlines and in-person
meeting requirements for investment companies (March 13, 2020);
extending the industry compliance period for Consolidated Audit
Trail reporting due to the fact that ``disruptions as a result of
COVID-19 have placed new stresses and competing priorities on the
infrastructure and staff required to implement the Consolidated
Audit Trail'' (March 16, 2020); extending filing deadlines for
certain reports required under Regulation A and Regulation
Crowdfunding (March 26, 2020); and providing temporary relief for
Business Development Companies investing in small and medium-sized
businesses (April 8, 2020).
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Amidst this market uncertainty, Nasdaq proposes to temporarily
modify certain of its rules in an effort to streamline listed
companies' access to capital. Specifically, Nasdaq proposes to adopt
Listing Rule 5636T to provide a limited temporary exception to the
shareholder approval requirements in Listing Rule 5635(d) (Transactions
other than Public Offerings) \9\ and, in certain narrow circumstances,
a limited attendant exception to Listing Rule 5635(c) (Equity
Compensation).\10\
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\9\ Listing Rule 5635(d) states that shareholder approval is
required prior to a 20% Issuance at a price that is less than the
Minimum Price. The ``Minimum Price'' is defined in Rule
5635(d)(1)(A) as the lower of: (i) The Nasdaq Official Closing Price
(as reflected on Nasdaq.com) immediately preceding the signing of
the binding agreement; or (ii) the average Nasdaq Official Closing
Price of the common stock (as reflected on Nasdaq.com) for the five
trading days immediately preceding the signing of the binding
agreement. A ``20% Issuance'' is defined in Rule 5635(d)(1)(B) as a
transaction, other than a public offering as defined in IM-5635-3,
involving the sale, issuance or potential issuance by the Company of
common stock (or securities convertible into or exercisable for
common stock), which alone or together with sales by officers,
directors or Substantial Shareholders of the Company, equals 20% or
more of the common stock or 20% or more of the voting power
outstanding before the issuance.
\10\ Listing Rule 5635(c) requires shareholder approval, with
certain exceptions, prior to the issuance of securities when a stock
option or purchase plan is to be established or materially amended
or other equity compensation arrangement made or materially amended,
pursuant to which stock may be acquired by officers, directors,
employees, or consultants.
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Shareholder Approval Requirements
The Nasdaq shareholder approval rules generally require companies
to obtain approval from shareholders prior to issuing securities in
connection with: (i) Certain acquisitions of the stock or assets of
another company; \11\ (ii) equity-based compensation of officers,
directors, employees or consultants; \12\ (iii) a change of control;
\13\ and (iv) a 20% Issuance at a price less than the Minimum
Price.\14\
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\11\ See Listing Rule 5635(a) (Acquisition of Stock or Assets of
Another Company).
\12\ See Listing Rule 5635(c) (Equity Compensation).
\13\ See Listing Rule 5635(b) (Change of Control).
\14\ See Listing Rule 5635(d) (Transactions other than Public
Offerings). See also footnote 9 above.
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One unavoidable consequence of the actions being taken to reduce
the spread of COVID-19 is a reduction, or complete interruption, in
revenue for many companies. For example, many communities have mandated
that all restaurants and entertainment facilities close for a period of
time. Similarly, companies in the travel sector have seen significant
declines in bookings even if they are allowed to continue to operate.
Thus, these businesses will have no or greatly reduced revenue to
offset the operating costs or increased costs associated with the
crisis. As such, investors may be reluctant to enter into new equity
transactions, unless they are compensated for the risk through
discounts to the trading price of a security, and companies may be
forced by current circumstances to raise money through equity
financings that require shareholder approval under Nasdaq's rules. At
the same time, other companies have sudden, unexpected cash needs as
they undertake new or accelerated initiatives designed to address the
loss of business and supply shortages caused by COVID-19.
While an exception is currently available within Nasdaq's rules for
companies in financial distress where the delay in securing stockholder
approval would seriously jeopardize the financial viability of the
company,\15\ that exception is not helpful in most situations arising
from the COVID-19 pandemic. For example, while a company may need
additional cash so that it can continue to pay employees during a
period of decreased or no revenue, the company's viability may not
otherwise be in jeopardy.\16\ Further, the accelerated need for funds,
as well as the significantly curtailed operations of many businesses,
may make impractical the requirement to mail notice to all shareholders
ten days prior to issuing securities. As such, Nasdaq is concerned that
this exception does not adequately address the capital raising needs of
listed companies under current conditions.
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\15\ See Listing Rule 5635(f). Reliance by the company on a
financial viability exception must expressly be approved by the
company's audit committee, or a comparable body of the board of
directors comprised solely of independent, disinterested directors,
and the company must obtain Nasdaq's approval prior to proceeding
with the transaction. In addition, companies are required to mail a
letter (as opposed to relying solely on a press release or Form 8-K,
which are also required, or a website posting) at least ten days
prior to issuing securities in the exempted transaction alerting
shareholders to the company's omission to seek the shareholder
approval that would otherwise be required.
\16\ Similarly a company that needs capital to undertake, for
example, a new initiative designed to test for COVID-19 or to
develop a vaccine may not otherwise be facing a threat to its
viability.
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Proposed COVID-19 Exception
In view of the above, Nasdaq proposes to create a new temporary
exception from the shareholder approval requirements in Listing Rule
5635(d), accompanied by a limited exception from Listing Rule 5635(c)
by adopting Listing Rule 5636T. This proposed exception would be
available until and including June 30, 2020. Nasdaq notes that to rely
on this exception, the company must execute a binding agreement
governing the issuance of the securities, submit the notices required
by Listing Rules 5636T(b)(5)(A) and (e), and obtain the required
approval from Nasdaq under Listing Rule 5636T(b)(5)(B)(ii) (if
applicable), as described below, no later than June 30, 2020. The
issuance of the securities governed by such agreement in reliance on
the exception in Listing Rule 5636T may occur after June 30, 2020,
provided the issuance takes place no later than 30 calendar days
following the date of the binding agreement. If the company does not
issue securities within 30 calendar days, as described above, it may no
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longer rely on the exception in Listing Rule 5636T.
Under proposed Listing Rule 5636T(b), the exception is limited to
circumstances where the delay in securing shareholder approval would
(i) have a material adverse impact on the company's ability to maintain
operations under its pre-COVID-19 business plan; (ii) result in
workforce reductions; (iii) adversely impact the company's ability to
undertake new initiatives in response to COVID-19; or (iv) seriously
jeopardize the financial viability of the enterprise. In addition to
demonstrating that the transaction meets one of the foregoing
requirements, in order to rely on the exception, 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. Nasdaq also proposes, similar to
the requirement for the financial viability exception, to require that
the company's audit committee or a comparable body of the board of
directors comprised solely of independent, disinterested directors
expressly approve reliance on this exception. Nasdaq also proposes to
require such committee or a comparable body of the board of directors
comprised solely of independent, disinterested directors to determine
that the transaction is in the best interest of shareholders.
Unlike the requirement for the financial viability exception, no
prior approval of the exception by Nasdaq would be 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''). Nasdaq
notes that transactions that involve issuance of warrants exercisable
for shares of common stock are not eligible for the Safe Harbor
Provision.
For transactions that do not fall within the Safe Harbor Provision,
the Nasdaq Listing Qualifications Department must approve the company's
reliance on the exception before the company can issue any securities
in the transaction. This approval will be based on a review of whether
the company has established that it complies with the requirements of
Listing Rule 5636T(b) (and Listing Rule 5636T(c) if applicable). Upon
completion of the review of the company's submission, the Nasdaq
Listing Qualifications Department will notify the company in writing
whether the company's reliance on the exception was approved.
To provide shareholders with advance notice of the transaction,
Nasdaq proposes to adopt Listing Rule 5636T(d), which would require a
company relying on the proposed exception to make a public announcement
by filing a Form 8-K, where required by SEC rules, or by issuing a
press release disclosing as promptly as possible, but no later than two
business days before the issuance of the securities:
The terms of the transaction (including the number of
shares of common stock that could be issued and the consideration
received);
that shareholder approval would ordinarily be required
under Nasdaq rules but for the fact that the Company is relying on an
exception to the shareholder approval rules; and
that the audit committee or a comparable body of the board
of directors comprised solely of independent, disinterested directors
expressly approved reliance on the exception and determined that the
transaction is in the best interest of shareholders.\17\
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\17\ See Listing Rule 5635(f) requiring similar disclosure, for
a transaction for which a company relied on the financial viability
exception, alerting shareholders to the omission to seek the
shareholder approval that would otherwise be required.
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In addition, Nasdaq has long interpreted Listing Rule 5635(c) to
require shareholder approval for certain sales to officers, directors,
employees, or consultants when such issuances could be considered a
form of ``equity compensation.'' Nasdaq has heard from market
participants that investors often require a company's senior management
to put their personal capital at risk and participate in a capital
raising transaction alongside the unaffiliated investors. Nasdaq
believes that as a result of uncertainty related to the ongoing spread
of the COVID-19 virus, listed companies seeking to raise capital may
face such requests. Accordingly, Nasdaq proposes that the temporary
exception allow such investments under limited circumstances.
To that end, Nasdaq proposes to adopt Listing Rule 5636T(c), which
would provide for an exception from shareholder approval under Listing
Rule 5635(c) for an affiliate's participation in the transaction
described in Listing Rule 5636T(b) provided the affiliate's
participation in the transaction was specifically required by
unaffiliated investors. In addition, to further protect against self-
dealing, the proposed Listing Rule 5636T(c) would limit such
participation to a de-minimis level--each affiliate's participation
must be less than 5% of the transaction and all affiliates'
participation collectively must be less than 10% of the
transaction.\18\ Finally, any affiliate investing in the transaction
must not have participated in negotiating the economic terms of the
transaction.
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\18\ Cf. Listing Rule IM-5405-1(a)(3) similarly limiting
affiliates' participation in certain pre-listing trasactions in
order for such transactions to constitute compelling evidence of the
company's value.
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Listing Rule 5250(e)(2) requires a company to notify Nasdaq at
least 15 calendar days prior to certain events, including when the
company issues any common stock, or any security convertible into
common stock in a transaction that may result in the potential issuance
of common stock (or securities convertible into common stock) greater
than 10% of either the total shares outstanding or the voting power
outstanding on a pre-transaction basis (the ``Notification''). The
Notification allows Nasdaq additional time to review the proposed
transaction and assure that it complies with the shareholder approval
requirements, including those in Listing Rules 5635(c) and (d). Absent
a rule change, transactions described in proposed Listing Rules
5636T(b) and (c) would require such advance notification. Because a
transaction satisfying the proposed temporary rule will be excepted
from certain provisions of the shareholder approval rules, Nasdaq
believes that notification 15 days prior to issuance is unnecessary.
Accordingly, Nasdaq proposes to adopt Listing Rule 5636T(e) to provide
that a company that relies on the exception in this Rule 5636T is not
subject to the 15 day prior notification requirement described in Rule
5250(e)(2) but must still provide notification required by that rule to
Nasdaq, along with a supplement, as required by Listing Rule
5636T(b)(5)(A), certifying in writing that the company complied with
all requirements of Listing Rule 5636T(b), and Listing Rule 5636T(c) if
applicable. Such submissions must be made, as promptly as possible, but
no later than the time of the public announcement required by Listing
Rule 5636T(d) and in no event later than June 30, 2020, in accordance
with Listing Rule 5636T(a). In such certification, Nasdaq expects the
company to describe with specificity how it complies with Listing Rule
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5636T(b), and Listing Rule 5636T(c) if applicable. For transactions
described in Listing Rule 5636T(b)(5)(B)(ii) that require approval of
the Nasdaq Listing Qualifications Department before the company can
issue any securities in reliance on Listing Rule 5636T, Nasdaq expects
companies to submit the Notification, and a supplement required by
Listing Rule 5636T(b)(5)(A), with enough time to allow Nasdaq to
complete its review of the submissions.\19\ The proposed rule also will
remind companies that a transaction that violates other Nasdaq rules
could subject the company to delisting and Nasdaq Staff would review
transactions covered by proposed Listing Rule 5636T for compliance with
all other Nasdaq listing requirements. As noted below, the proposed
exception would not be available for the shareholder approval
requirements related to equity compensation in Listing Rule 5635(c)
(except for the limited circumstances described above for insider
participation in transactions covered by the proposed exception),
acquisitions in Listing Rule 5635(a) and a change of control in Listing
Rule 5635(b).
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\19\ Nasdaq notes that in such cases the company may not issue
any securities until it receives the approval from the Nasdaq
Listing Qualifications Department, which may take more than two
days. Of course, if the Nasdaq Listing Qualifications Department
does not approve reliance on the exception, any issuance of
securities must comply with the shareholder approval requirements in
Listing Rule 5635.
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Finally, Nasdaq proposes to aggregate issuances of securities in
reliance on the exception in proposed Listing Rule 5636T with any
subsequent issuance by the company, other than a public offering under
IM-5635-3, at a discount to the Minimum Price if the binding agreement
governing the subsequent issuance is executed within 90 days of the
prior issuance. Accordingly, if following the subsequent issuance, the
aggregate issuance (including shares issued in reliance on the
exception) equals or exceeds 20% of the total shares or the voting
power outstanding before the initial issuance, then shareholder
approval will be required under Rule 5635(d) prior to the subsequent
issuance.
Nasdaq believes that this temporary suspension will permit
companies to raise capital quickly to continue running their businesses
and address the immediate health crisis caused by the COVID-19
pandemic, including its impact on their employees, customers, and
communities. Nasdaq notes that the proposed exception would not be
available for the shareholder approval requirements related to equity
compensation in Listing Rule 5635(c) (except for the limited
circumstances described above for insider participation in transactions
covered by the proposed exception), acquisitions in Listing Rule
5635(a) and a change of control in Listing Rule 5635(b).
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\20\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\21\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest. As a result of uncertainty related to the ongoing spread of
the COVID-19 virus, the prices of securities listed on U.S. exchanges
are experiencing significant volatility. Nasdaq believes that the
proposed rule change is designed to remove an impediment to companies
addressing certain immediate capital needs as a result of the COVID-19
pandemic and reduce uncertainty regarding the ability of companies to
raise money quickly through equity financings during the current highly
unusual market conditions and general economic disruptions. Nasdaq
believes that in this way, the proposed rule change will protect
investors, facilitate transactions in securities, and remove an
impediment to a free and open market. All companies listed on the
Exchange would be eligible to take advantage of the proposed
suspension.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(5).
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In addition, Nasdaq believes the proposed rule change is designed
to protect investors by limiting the exception from the shareholder
approval requirements to situations where 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. The exception is
also limited to circumstances where the delay in securing shareholder
approval would (i) have a material adverse impact on the company's
ability to maintain operations under its pre-COVID-19 business plan;
(ii) result in workforce reductions; (iii) adversely impact the
company's ability to undertake new initiatives in response to COVID-19;
or (iv) seriously jeopardize the financial viability of the enterprise.
Further, the proposed rule requires that the company's audit committee
or a comparable body of the board of directors comprised solely of
independent, disinterested directors expressly approve reliance on this
exception and determine that the transaction is in the best interest of
shareholders.
Nasdaq also notes that to the extent the company relies on the Safe
Harbor Provision instead of Nasdaq's review and approval of the
company's reliance on the exception, as described above, the maximum
issuance of common stock (or securities convertible into common stock)
issuable in the transaction must be 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%.
Notwithstanding the proposed exception from certain shareholder
approval requirements, as described above, important investor
protections will remain as the proposed exception would not be
available for the shareholder approval requirements related to equity
compensation in Listing Rule 5635(c) (except for the limited
circumstances described above for insider participation in transactions
covered by the proposed exception), acquisitions in Listing Rule
5635(a) and a change of control in Listing Rule 5635(b).
Finally, Nasdaq notes that the proposed rule is a temporary
exception from certain shareholder approval requirements, as described
above, operative through, and including, June 30, 2020.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. All companies listed on the
Exchange would be eligible to take advantage of the proposed
suspension. In addition, the proposed rule change is not designed to
have any effect on intermarket competition but instead seeks to address
concerns Nasdaq has observed surrounding the application of the
shareholder approval requirements, as described above, to companies
listed on Nasdaq. Other exchanges can craft relief based on their own
rules and observations.
[[Page 27468]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) thereunder.\23\
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \24\ normally
does not become operative for 30 days after the date of the filing.
However, pursuant to Rule 19b-4(f)(6)(iii),\25\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative immediately upon filing. The Exchange
stated that waiver of the operative delay would allow companies to
quickly raise money through equity financings to maintain operations or
financial viability, compensate its workforce, or undertake new
initiatives in response to COVID-19 during the current highly unusual
market and economic conditions and ongoing uncertainty relating to the
global spread of the COVID-19 virus. In addition, the Exchange stated
that the proposed exception from the shareholder approval requirements
is limited to situations where the need for the transaction is due to
circumstances related to COVID-19 and the company undertook a process
designed to ensure that the proposed transaction represents the best
terms available to the company. The Exchange stated that the proposed
exception is further limited to circumstances where the delay in
securing shareholder approval would (i) have a material adverse impact
on the company's ability to maintain operations under its pre-COVID-19
business plan; (ii) result in workforce reductions; (iii) adversely
impact the company's ability to undertake new initiatives in response
to COVID-19; or (iv) seriously jeopardize the financial viability of
the enterprise. The Exchange also noted that the proposed rule requires
that the company's audit committee or a comparable body of the board of
directors comprised solely of independent, disinterested directors
expressly approve reliance on this exception and determine that the
transaction is in the best interest of shareholders. Finally, the
Exchange stated that the proposed exception would not be available for
the shareholder approval requirements related to equity compensation in
Listing Rule 5635(c) (except for the limited circumstances described
above for insider participation in transactions covered by the proposed
exception), acquisitions in Listing Rule 5635(a) and a change of
control in Listing Rule 5635(b).
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\24\ 17 CFR 240.19b-4(f)(6).
\25\ 17 CFR 240.19b-4(f)(6)(iii).
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The Commission notes that while the proposed rule change would
provide a temporary exception to certain shareholder approval
requirements, it is limited to situations where the need for the
transaction is related to COVID-19 circumstances and only where the
delay in obtaining shareholder approval meets one of the four specified
conditions for the transaction set forth in the temporary rule and
described above. In addition, the Commission notes that there are
important investor protections built into the proposed temporary rule.
For example, the exception from the shareholder approval requirements
is limited to situations where the company undertook a process designed
to ensure that the proposed transaction represents the best terms
available to the company. In addition, the proposed rule change
requires that the company's audit committee or a comparable body of the
board of directors comprised solely of independent, disinterested
directors expressly approve reliance on the exception and determine
that the transaction is in the best interest of shareholders. Companies
that are using the Safe Harbor Provision, and therefore do not need
prior Exchange approval, will also be limited to a maximum issuance of
less than 25% of the total shares outstanding and voting power
outstanding before the transaction and a maximum discount to the
Minimum Price of no more than 15%. Further, the Commission notes that
shareholder approval would continue to be required for transactions
that do not qualify for the proposed temporary exception, such as for
acquisitions of stock or assets of another company (Nasdaq Rule
5635(a)), for changes of control (Nasdaq Rule 5635(c)), and for equity
compensation (Nasdaq Rule 5635(c)), except in the limited circumstances
provided for in Rule 5636T(c)). The Commission also notes that the
proposal is a temporary measure designed to allow companies to raise
necessary capital quickly in response to current, unusual market
conditions. For these reasons, the Commission believes that waiver of
the 30-day operative delay is consistent with the protection of
investors and the public interest. Accordingly, the Commission hereby
waives the 30-day operative delay and designates the proposal operative
upon filing.\26\
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\26\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \27\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\27\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2020-025 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2020-025. This
file number should be included on the subject line if email is used. To
help the
[[Page 27469]]
Commission process and review your comments more efficiently, please
use only one method. The Commission will post all comments on the
Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2020-025 and should be submitted
on or before May 29, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-09827 Filed 5-7-20; 8:45 am]
BILLING CODE 8011-01-P