In certain situations, NYSE and NASDAQ rules require a shareholder vote before a company can issue equity or convertible securities. However, the shareholder approval process adds both time and expense that may not be compatible with the capital or strategic needs of the issuer. According to Skadden Partner and Practice Center Contributor, Brian Breheny, understanding these rules is particularly important if a company seeks speedy access to the equity markets to fund a strategic acquisition or execute an opportunistic change in its capital structure. A recent Skadden memo on the topic says:
The shareholder approval requirement may be triggered by securities issuances involving:
• 20 percent or more of the common stock or voting power of an issuer (especially since the exchanges may aggregate several separate issuances into a single transaction for the purpose of calculating the 20 percent threshold);
• Related parties (such as directors, officers, affiliates or significant shareholders);
• A change of control (often in the context of funding an acquisition); or
• Convertible securities, options or warrants (in which case determining whether shareholder approval is required is especially complicated).
The following discussion outlines the rules that any NYSE- or NASDAQ-listed issuer should consider in structuring an equity offering if it hopes to avoid triggering a shareholder vote. The charts at the end of this discussion outline the questions an issuer should ask when contemplating an equity or convertible offering.
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