As discussed in our earlier Viewpoints advisories, the New York Stock Exchange temporarily allowed NYSE-listed companies to complete certain capital raising transactions involving related party issuances or the issuance of 20% or more of a company’s stock without shareholder approval under limited circumstances. As a result of the continuation of the coronavirus (“COVID-19”) pandemic, on September 28, 2020, the Securities and Exchange Commission approved a further extension of the NYSE’s waiver of these shareholder approval rules in the circumstances discussed below through December 31, 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 NYSE’s “minimum price” test set forth in Section 312.04 of the NYSE Listed Company Manual.
The NYSE has waived the application of Section 312.03(b) of the NYSE Listed Company Manual through December 31, 2020 for transactions that (1) involve the sale of the company’s securities for cash at a price that meets the minimum price test 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% of 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 minimum price requirement and is also a “bona fide private financing,” which is a sale in which 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 December 31, 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 in which there is only a single purchaser. The effect of this waiver is that an NYSE-listed company is 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 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.