In early April, the SEC approved and declared immediately effective an NYSE rule change to waive, through June 30, 2020 and subject to compliance with conditions, application of certain of the shareholder approval requirements in Section 312.03 of the NYSE Listed Company Manual. That waiver was extended through September 30. Now, the SEC has proposed to extend the waiver through December 31, 2020, and the SEC has declared the proposal immediately effective.
The waiver was designed to address the concern that, as a result of the impact of COVID-19, many listed companies would have urgent liquidity needs as a result of lost revenues and maturing debt obligations, but necessary additional capital might not be available in the public equity or credit markets. Consequently, these companies might need to seek additional capital from insiders. However, the NYSE’s shareholder approval requirements could have created impediments to quickly satisfying those capital needs. Since the implementation of the original waiver in April, the NYSE notes, “a number of listed companies have completed capital raising transactions that would not have been possible without the flexibility provided by the Waiver.” While the equity markets have generally recovered from their initial precipitous declines, the NYSE observes, many listed companies continue to be adversely affected by economic disruption and uncertainty.
The extended waiver relates to NYSE Manual Section 312.03(b) and Section 312.03(c). Generally, Section 312.03(b) requires shareholder approval of issuances to “related parties” in excess of 1% of the outstanding or voting power except for cash sales up to 5% to “substantial” shareholders that satisfy a “minimum price” test. The NYSE is temporarily waiving these requirements for related-party sales that meet the minimum-price test and have been approved by the company’s audit committee, allowing companies to sell to related parties without complying with the numerical limitations of Section 312.03(b). However, as before, the waiver will “not be applicable to a sale of securities by a listed company to any person subject to the provisions of Section 312.03(b) in a transaction, or series of transactions, whose proceeds will be used to fund an acquisition of stock or assets of another company where such person has a direct or indirect interest in the company or assets to be acquired or in the consideration to be paid for such acquisition.”
Generally, Section 312.03(c) requires shareholder approval of issuances of 20% or more, with an exception for cash sales that satisfy the minimum price requirement and are “bona fide private financings,” financings conducted through a registered broker-dealer or to multiple purchasers, with none purchasing in excess of 5%. Generally, the NYSE is temporarily waiving the 5% limitation for purposes of the bona fide financing exception, permitting companies to undertake a bona fide private financing regardless of its size or the number of participating investors or the amount of securities purchased by any single investor, so long as the sale is for cash at a price that meets the minimum price requirement. If any purchaser is a “related party,” the transaction must be approved by the audit committee.
The general effect of the waiver, according to the NYSE, is to make these NYSE shareholder approval requirements more comparable to the similar Nasdaq requirements on a temporary basis. These listing standards and the related earlier waiver and its limitations are described in more detail in this PubCo post.