On May 4, 2020, the SEC granted immediate effectiveness to a Nasdaq rule change exempting specified private placements from a shareholder approval requirement under its listing standards. The standards require a listed company to obtain shareholder approval before issuing in a private placement common stock equaling 20% or more of the shares outstanding at less than the “minimum price,” as determined under Nasdaq rules. However, given the time needed to secure shareholder approval, compliance with the requirement could prevent companies from obtaining cash needed to pay employees or to address other critical needs.
The rule change is subject to various conditions, including that the company must enter into a binding agreement covering the issuance by June 30, 2020 and must issue the new shares within 30 calendar days following the date of the binding agreement. In addition, the company must demonstrate that the need for the issuance relates to COVID-19 and that it has undertaken a process to ensure that the transaction represents the best available terms. The exception does not apply to issuances related to executive compensation, changes of control, and acquisitions of other companies.
The exemption is similar to, but more extensive than, action taken in April by the New York Stock Exchange, discussed in a previous Gunster posting.
If you have any questions, please contact Gunster securities law and corporate governance practice leader Bob Lamm.
