NYSE Adopts Temporary Rule Modifying Shareholder Approval Requirements for Equity Issuances
The SEC has approved, effective immediately, new Section 312.03T of the NYSE Listed Company Manual. Section 312.03T provides a limited, temporary exception from the shareholder approval requirements in Section 312.03(c), accompanied, in certain narrow circumstances, by a limited exception from Sections 312.03(a) and (b) and Section 303A.08. The exception in Section 312.03T is available until and including June 30, 2020.
Among other things, and subject to certain exceptions, Section 312.03(c) of the Manual requires shareholder approval for certain issuances of over 20% of outstanding shares or voting power. Section 312.03(a) references the requirement for shareholder approval of equity compensation plans set forth in 303A.08 of the Manual. Section 312.03(b) requires shareholder approval for issuance of equity securities to certain related parties.
Under Section 312.03T, the NYSE’s newest exception would be limited to circumstances where the delay in securing shareholder approval would:
- have a material adverse impact on the company’s ability to maintain operations under its pre-COVID-19 business plan;
- result in workforce reductions;
- adversely impact the company’s ability to undertake new initiatives in response to COVID-19; or
- seriously jeopardize the financial viability of the enterprise.
In addition to demonstrating that the transaction meets one of the foregoing requirements, the company would have to demonstrate to the NYSE that the need for the transaction is due to circumstances related to COVID-19, that the proceeds would not be used to fund any acquisition transaction, and that the company undertook a process designed to ensure that the proposed transaction represents the best terms available to the company. The NYSE also requires that the company’s audit committee or a comparable committee comprised solely of independent, disinterested directors expressly approve reliance on the exception. The NYSE also requires the approving committee to determine that the transaction is in the best interest of shareholders.
The NYSE must approve all transactions by countersigned application in advance of any issuance of securities in reliance on Section 312.03T. To obtain approval the company must submit a supplemental listing application. The NYSE advises companies to commence discussions with the NYSE and provide the required documentation as far in advance of the proposed transaction as is possible.
The NYSE requires a company relying on the exception to make a public announcement by filing a Form 8-K, where required by SEC rules, or by issuing a press release disclosing as promptly as possible, but no later than two business days before the issuance of the securities and certain other details.
The carve out from the related party and equity compensation shareholder approval rights is limited to the following circumstances:
- The affiliated purchaser’s participation in the transaction was specifically required by unaffiliated investors.
- To protect against self-dealing, Section 312.03T limits such participation to a de-minimis level. Each affiliated purchaser’s participation must be less than 5% of the transaction and all affiliated purchasers’ participation collectively must be less than 10% of the transaction.
- Any affiliated purchaser investing in the transaction must not have participated in negotiating the economic terms of the transaction.
The NYSE previously waived certain of the shareholder approval requirements under Section 312.03 through June 30, 2020. Specifically, the NYSE waived:
- A provision limiting a related party or other purchaser affiliated with a related party to purchasing securities representing no more than 5% of the company’s then-outstanding shares or 5% of the company’s voting power before the issuance in a transaction meeting minimum price requirements; and
- Certain requirements for meeting the bona fide financing exception to Section 312.03(c) where minimum price requirements are met, including waiving requirements that there must be multiple purchasers in the transaction and that no purchaser may acquire securities representing more than 5% of the company’s then-outstanding shares or 5% of its voting power before the issuance.