May 7, 2020

Virtual Annual Meetings: Proposed Legislation Would Aid Delaware Companies

Yesterday, I blogged about the bind that some Delaware companies find themselves in when it comes to switching their annual meetings from a physical location to a virtual only meeting. The problem stems from the fact that public companies that first gave notice of their annual meeting after the date of Gov. Carney’s April 7th order providing relief from DGCL notice requirements for such a switch aren’t eligible to rely on it.

That means that these companies can’t be certain that merely complying with the SEC’s guidance on providing notice of  a change to a virtual meeting will be compliant with the DGCL’s notice requirements.  Many are concerned about their ability to provide the formal notice of a change required by the DGCL in a timely manner.

Help for these companies may be on the way in the form of proposed 2020 amendments to the DGCL recently endorsed by the Corporate Law Section of the Delaware Bar. While the legislature needs to act on the proposal, Section 4 of the proposed legislation would amend Section 110 of the DGCL to provide the board of a public company with the authority during an emergency to:

Notify stockholders of any postponement or a change of the place of the meeting (or a change to hold the meeting solely by means of remote communication) solely by a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to § 13, § 14 or § 15(d) of [the Exchange Act] and such rules and regulations.

Section 23 of the proposed legislation would make this authority retroactive to January 1, 2020  “with respect to any emergency condition occurring on or after such date and with respect to any action contemplated by Section 4 of this Act and taken on or after such date by or on behalf of the corporation with respect to a meeting of stockholders held . . . during the pendency of such condition.”

I’m told that the Delaware Bar is seeking immediate consideration of these emergency amendments, but that the legislature has not yet reconvened from its Covid-19 imposed hiatus.

Nasdaq Temporarily Eases Approval Requirements for Covid-19 Share Issuances

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 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. Here’s a Nasdaq FAQ on the rule as well as its supplemental instructions to listed companies.

PPP Loans: Borrowers Get Another Week to Decide to Whether to “Hold’em or Fold’em”

In the latest chapter of the Paycheck Protection Program saga, the SBA issued FAQ #43, which extends the deadline for borrowers to take advantage of the safe harbor for repayment of PPP loans from May 7th to May 14th.  The SBA says that it will provide additional guidance on the PPP’s need certification requirement prior to that deadline. Yeah, sure, that should clear things up. . .

John Jenkins