by Cydney Posner
Release of no-review letters. As you know, the SEC has been releasing the give and take of comment letter correspondence with registrants for a number of years. Now the SEC has announced that, beginning July 1, 2015, Corp Fin will begin releasing no-review letters on EDGAR with respect to registration statements that go effective on or after June 1, 2015.
Pay up first. The NYSE has proposed to amend Section 804.00 of the Listed Company Manual to specify that issuers seeking a review of a delisting decision must have paid all prior fees owed to the NYSE before it will accept payment of the applicable $20,000 appeal fee. Although all NYSE fees are due immediately when billed, companies occasionally fall behind. If companies repeatedly fail to pay their fees, they can be subject to delisting. In addition, the NYSE’s experience is that companies that are non-compliant with NYSE rules are often also struggling financially and delinquent in payment of their NYSE fees. The NYSE believes that it is fair to require payment of delinquent fees, especially given that the appeals process requires a significant investment of time and effort by NYSE staff. This amendment was effective immediately.
No shareholder approval for related-party issuances for cash by early-stage companies. The NYSE proposes to amend the shareholder approval rules (Sections 312.03(b) and 312.04) to exempt an “Early Stage Company” from having to obtain shareholder approval before issuing shares for cash to related parties (or their affiliates or entities in which they have a substantial interest), so long as the company’s audit committee (or a comparable committee comprised solely of independent directors) reviews and approves of the transactions prior to their completion. An “Early Stage Company” is defined as a company that has not reported revenues greater than $20 million in any two consecutive fiscal years since its incorporation; however, the company will lose that designation (and will not be able to regain it) at any time after listing on the NYSE that it files a Form 10-K with the SEC in which it reports two consecutive fiscal years (including periods prior to listing) in which it has revenues greater than $20 million in each year.
The NYSE recently adopted a new initial listing standard (see this PubCo post) that facilitates listing by early stage companies (with a global market capitalization of at least $200 million), and believes the proposed rule change is necessary to allow it to compete with Nasdaq for the listing of these companies. The NYSE recognizes that these companies often depend on raising funds through private placements of equity to their insiders to finance their operations until they generate revenues. However, under the current rules, generally, if the private placement is to any “Related Parties” (directors, officers or substantial security holders) or their affiliates or entities in which any of them has a substantial interest, and exceeds either 1% of the number of shares of common stock or 1% of the voting power outstanding before the issuance, the company would be required by Section 312.03(b) to obtain shareholder approval prior to the issuance — a process that can be time-consuming and expensive and, therefore, problematic. Accordingly, the NYSE has proposed this exemption. Any issuance that is not for cash, including any issuance in connection with an acquisition of another company, will remain subject to the current rules. The other rules requiring shareholder approval for issuances of 20% or more (including aggregation of smaller sales, where appropriate) or in event of a change in control will also continue to apply.
Listed companies must conduct broker searches in compliance with Rule 14a-13. SEC Rule 14a-13 requires, among other things, that, in connection with solicitation of proxies for shareholder meetings, issuers distribute broker search cards 20 business days in advance of the record date for the meeting. The NYSE proposed to amend Section 402.05 of the Manual to clarify that companies soliciting proxies through brokers must make that inquiry of brokers in compliance with Rule 14a-13 to determine the number of sets of proxy soliciting materials necessary to enable brokers to supply each beneficial owner with a set. Prior to the amendment, in recognition that Rule 14a-13 allows a shorter period where necessary for searches prior to special meetings, this Section specified that a 10-day advance search was an absolute minimum. Apparently, there was some confusion about the implications of the 10-day advance period. Accordingly, the Section was revised to clarify that companies must comply with Rule 14a-13, to eliminate the reference to the 10-day advance absolute minimum, to make clear that the NYSE does not impose any additional requirements with respect to the broker inquiry (by eliminating the notice to the NYSE in the event that a 10-day-advance inquiry cannot be met) and to state that the NYSE does not have a process by which issuers can seek an exemption to the requirements of Rule 14a-13 (as described in Rule 14a-13(a)(3)(iii)). This amendment was effective immediately.
Announcement of listing denial. At the end of last year, Nasdaq filed with the SEC a rule proposal that would require companies to disclose denial of listing applications. Under the proposal, a company that receives a written determination denying its application for listing must, within four business days, make a public, FD-compliant announcement about the receipt of the determination and the specific bases for the determination and the concerns expressed by Nasdaq. If the announcement satisfying the requirements is not made on a timely basis, Nasdaq will make the public announcement. See this PubCo post. The SEC approved that rule change.