The Securities and Exchange Commission recently approved changes to the NYSE listing rules that temporarily suspend the $15 million minimum market capitalization requirement and waive the application of the shareholder approval rules for certain capital raising transactions as a result of the coronavirus (“COVID-19”) pandemic.
Noting that as a result of the unprecedented market-wide declines in equity values due to the ongoing spread of COVID-19 an unusually high number (as compared to historical levels) of NYSE-listed companies are in imminent danger of immediate suspension and delisting for having an average global market capitalization over a consecutive 30 trading-day period of less than $15 million as required under Section 802.01B of the NYSE Listed Company Manual, the NYSE has suspended this minimum market capitalization requirement through June 30, 2020. Following the temporary suspension, any new events of noncompliance with the minimum market capitalization requirement would be determined based on a consecutive 30 trading-day period commencing on or after July 1, 2020.
Separately, the NYSE believes that in the coming months, as a result of economic and market conditions related to the spread of COVID-19, many NYSE-listed companies will have urgent liquidity needs due to lost revenues and maturing debt obligations and that these companies will need to access additional capital that may not be available in the public equity or credit markets. In an effort to provide flexibility to NYSE-listed companies that may experience urgent liquidity needs, the NYSE has waived some of its shareholder approval requirements for stock issuances through June 30, 2020.
Related Party Issuances
Section 312.03(b) of the NYSE Listed Company Manual requires shareholder approval of any issuance to “related parties,” including directors, officers or substantial security holders or to an affiliate of a related party, if the number of shares of common stock to be issued (or into which the securities may be convertible or exercisable), exceeds either 1% of the number of shares of common stock or 1% of the voting power outstanding before the issuance. There is a limited exception for issuances to related parties that are only substantial shareholders for cash sales of up to 5% of the company’s outstanding common stock if the sales satisfy the recently amended “minimum price” test.
The NYSE has waived the application of Section 312.03(b) of the NYSE Listed Company Manual through June 30, 2020 for transactions that (1) involve the sale of the company’s securities for cash at a price that meets the recently amended minimum price test referenced above and (2) have been reviewed and approved by the company’s audit committee or a comparable committee composed solely of independent directors. The NYSE stated that the waiver is not applicable "to any transaction involving the stock or assets of another company where any director, officer or substantial security holder of the company has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the company or assets to be acquired or in the consideration to be paid in the transaction or series of related transactions and the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, could result in an increase in outstanding common shares or voting power of 5% or more (i.e., a transaction that would require shareholder approval under NASDAQ Marketplace Rule 5635(a)).”
Transactions of 20% or More
Section 312.03(c) of the NYSE Listed Company Manual requires shareholder approval of any transaction relating to 20% or more of the company’s outstanding common stock or 20% of the voting power outstanding before such issuance other than a public offering for cash. Section 312.03(c) includes an exception to this shareholder approval requirement for a transaction involving a cash sale of the company’s securities that complies with the recently amended minimum price requirement referenced above and is also a “bona fide private financing,” which is a sale that either:
- a registered broker-dealer purchases the securities from the issuer with a view to the private sale of such securities to one or more purchasers; or
- the issuer sells the securities to multiple purchasers, and no one such purchaser, or group of related purchasers, acquires, or has the right to acquire upon exercise or conversion of the securities, more than 5% of the shares of the issuer's common stock or more than 5% of the issuer's voting power before the sale.
The NYSE has waived through June 30, 2020 the 5% limitation for any sale to an individual investor in a bona fide private financing pursuant to Section 312.03(c) of the NYSE Listed Company Manual to permit companies to undertake a bona fide private financing during that period in which there is only a single purchaser. The effect of this waiver would be that an NYSE-listed company would be exempt from the shareholder approval requirement of Section 312.03(c) of the NYSE Listed Company Manual in relation to a private placement transaction regardless of its size or the number of participating investors or the amount of securities purchased by any single investor, provided that the transaction is a sale of the company’s securities for cash at a price that meets the recently amended minimum price requirement. If any purchaser in a transaction benefiting from this waiver is a related party or other person subject to Section 312.03(b) of the NYSE Listed Company Manual, such transaction must be reviewed and approved by the company’s audit committee or a comparable committee comprised solely of independent directors.
At this time, the Nasdaq has not enacted any Nasdaq-specific temporary relief to its listing rules as a result of COVID-19, but has stated it will consider the impact of disruptions caused by COVID-19 in its review of any requests for a financial viability exception to its shareholder approval rules. The Nasdaq has stated that companies adversely impacted by COVID-19 or the resulting market conditions, or that have any questions regarding the application of the Nasdaq Listing Rules, may contact their Nasdaq Listing Analyst.