Capital Markets Alert | April.23.2020
The SEC declared immediately effective, as of April 17, 2020, a Nasdaq rule proposal providing relief to listed companies that, in light of market conditions resulting from the impact of COVID-19, have fallen out of compliance with two Nasdaq continued listing standards. The relief provides companies with an extended period to regain compliance with both the bid price and “market value of publicly held shares” continued listing requirements (the “Price-Based Requirements”) by tolling the compliance periods through June 30, 2020. Nasdaq believes that the temporary tolling of the Price-Based Requirements will permit companies to focus on running business operations and the health and safety of their employees, customers and communities, rather than on Nasdaq listing requirements. In addition, Nasdaq believes that temporary tolling will allow investments in these shares without concern for very near-term delisting.
Currently, for primary equity listed on The Nasdaq Global Market, continued listing standards require that companies maintain a minimum $1 bid price and market value of publicly held shares of at least $5 million or $15 million, depending on the standard. The Nasdaq Capital Market minimum bid price is also $1, but the market value of publicly held shares is at least $1 million. In the event of a failure to meet the Price-Based Requirements for a period of 30 consecutive business days, the Nasdaq Listing Qualifications Department promptly notifies the company of the failure (which triggers an obligation to make a filing on Form 8-K under Item 3.01). The company then has a period of 180 calendar days from the notification to achieve compliance by meeting the applicable standard for a minimum of 10 consecutive business days during the applicable compliance period (unless Nasdaq staff exercises its discretion to extend this 10-day period). Nasdaq will also continue to maintain and add to its list of non-compliant companies during the tolling period.
In the proposed rule, Nasdaq advises that it is seeing an increase in non-compliance given the current market uncertainty and that, under continuing volatile market conditions, it is difficult for non-compliant companies to regain compliance through the usual means such as a reverse stock split (difficult to determine proper ratio in volatile market conditions) or sale of additional equity (selling shares at an artificially low price would harm existing shareholders). Accordingly, Nasdaq proposes to give companies additional time to regain compliance with the Price-Based Requirements by tolling the compliance periods through June 30, 2020. Throughout the tolling period, Nasdaq will continue to monitor the requirements and to notify companies about new instances of non-compliance with either of the Price-Based Requirements in accordance with existing Nasdaq rules. As set forth in Nasdaq Rule 5810(b), notification by Nasdaq triggers a requirement to make a public announcement disclosing receipt of the notification by filing a Form 8-K, where required by applicable SEC rules or by issuing a press release.
Following expiration of the tolling period on July 1, 2020, companies will still have available the balance of any pending compliance period that remained at the start of the tolling period to come back into compliance with the applicable Price-Based Requirement. As Nasdaq explains, “If a company is 120 days into its first 180-day compliance period for a bid price deficiency when the tolling period starts and the company does not regain compliance before June 30, 2020, the company would have an additional 60 days, starting on July 1, 2020, to regain compliance. The company may be eligible for a second 180-day compliance period if it satisfies the conditions for eligibility at the conclusion of the first compliance period.”
Companies initially identified as non-compliant during the tolling period will have 180 days to regain compliance after the expiration of the tolling period. Nasdaq will continue to monitor securities to determine if they regain compliance with the Price-Based Requirements during the tolling period.
For companies that are in the hearings process as of April 17, 2020, following expiration of the tolling period, they will return to the hearings process at the same stage at which they were in when the tolling period began. If the company had received a temporary exception from the Hearings Panel before the tolling began, the company would receive the balance of the exception period following expiration of the tolling period (i.e., July 31, 2020). There are, however, limitations: if a company in the hearings process as of April 17, 2020 has had an oral or written hearing before a Hearings Panel and such Panel has reached a determination to delist, even if the Hearings Panel has not issued the written decision required by Nasdaq Rules 5815(d)(1) and 5840(c) prior to the proposed rule change taking effect, the company would still be delisted and not receive the benefit of the tolling period.
Other recent Nasdaq guidance is available here.
Please contact any member of Orrick's Capital Markets Group for further assistance regarding coronavirus implications for public companies and other legal impacts of the coronavirus on your company.
 The relief applies to common stock, preferred stock, secondary classes of common stock, shares or certificates of beneficial interest of trusts, limited partnership interests, ADRs, subscription receipts and their equivalents