Existing Nasdaq Shareholder Approval Rules
Under the Nasdaq shareholder approval rules (the Shareholder Approval Rules),1 listed companies must obtain shareholder approval prior to issuing securities in connection with: (i) certain acquisitions of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees, or consultants; (iii) a change of control; and (iv) a 20% Issuance2 at a price less than the Minimum Price.3 A listed company’s failure to comply with the Shareholder Approval Rules could result in the delisting of the issuer’s securities on Nasdaq.
Nasdaq Rule 5635T provides a temporary exception to the Shareholder Approval Rules
In light of COVID-19 and listed companies’ increased need for additional funding, Nasdaq adopted Listing Rule 5635T (Rule 5635T), which provides a temporary, limited exception to the Shareholder Approval Rules for companies impacted by the global pandemic.
To rely on Rule 5635T, a listed company needs to: (1) execute a binding agreement governing the issuance of securities; (2) provide their shareholders with at least two business days’ notice before the consummation of the proposed transaction, either through the filing of a Current Report on Form 8-K (if required under SEC rules) or the issuance of a press release that contains certain information (the Shareholder Notice),4 and (3) if applicable, obtain approval from Nasdaq if the transaction falls outside of the Safe Harbor Provision (described below). Notably, a company may issue securities in reliance on Rule 5635T after June 30, 2020, so long as the issuance occurs no later than 30 calendar days following the date of the binding agreement.