NYSE Amends Shareholder Approval Requirements

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On April 2, 2021, the Securities and Exchange Commission (SEC) approved the proposed rule change filed by the New York Stock Exchange (NYSE) to amend certain of the shareholder approval requirements in the NYSE Listed Company Manual. These amendments are intended to align the NYSE's shareholder approval requirements more closely with the requirements of the Nasdaq Stock Market and the NYSE American, and are similar in effect to the temporary relief that was provided to NYSE-listed companies in light of the COVID-19 pandemic. The temporary relief was discussed in our previous alert.

Section 312.03 of the NYSE Listed Company Manual requires NYSE-listed companies to obtain shareholder approval prior to the issuance of common stock, or securities convertible into or exercisable for common stock, in certain circumstances. The amendments modify the shareholder approval requirements relating to 1) certain related party equity issuances and 2) private placement transactions involving the issuance of 20 percent or more of the company's common stock or voting power outstanding before the issuance.

Related Party Issuances

Section 312.03(b) of the NYSE Listed Company Manual requires NYSE-listed companies to obtain shareholder approval for the issuance of common stock, or of securities convertible into or exercisable for common stock, in any transaction or series of related transactions, to 1) a "related party," 2) a subsidiary, affiliate, or other closely related person of a related party, or 3) any company or entity in which a related party has a substantial direct or indirect interest, if the number of shares to be issued exceeds either 1 percent of the number of shares of common stock or 1 percent of the voting power outstanding before the issuance. Related parties include directors, officers, or substantial security holders (i.e., 5 percent or more of the shares of common stock or voting power outstanding) of the company.

The amendments modify Section 312.03(b) as follows:

  • Class of persons for which approval is required. Shareholder approval will only be required for issuances to a related party, and will not be required for issuances to 1) a subsidiary, affiliate, or other closely related person of a related party, or 2) any company or entity in which a related party has a substantial direct or indirect interest.

    Notwithstanding the foregoing, shareholder approval will be required where securities are issued as consideration in a transaction or series of related transactions in which 1) any related party has a 5 percent or greater interest (or such persons collectively have a 10 percent or greater interest), directly or indirectly, in the company or assets to be acquired or in the consideration to be paid and 2) the present or potential issuance of common stock, or securities convertible into common stock, could result in an issuance that exceeds either 5 percent of the number of shares of common stock or of the voting power outstanding before the issuance. Thus, while the NYSE has eliminated the shareholder approval requirement for issuances to a subsidiary or affiliate of a related party, under this amended provision, shareholder approval may be required where a related party has an interest in the company or assets to be acquired.

  • Cash sales at minimum price. Shareholder approval will not be required for issuances to a related party if the transaction is a cash sale for a price that is at least the "minimum price." The minimum price is the price that is the lower of 1) the closing price immediately preceding the signing of the binding agreement or 2) the average closing price for the five trading days immediately preceding the signing of the binding agreement.1 This expands upon the exception to the shareholder approval requirement for cash sales, which, prior to these amendments, was limited to 1) related parties that were substantial security holders (and not directors or officers) and 2) cash sales relating to no more than 5 percent of the shares of common stock or voting power outstanding that meet the minimum price requirement.

    Shareholder approval will continue to be required for 1) any non-cash sales to related parties and 2) any cash sales to related parties at a price that is lower than the minimum price, in each case, in transactions where the number of shares to be issued exceeds either 1 percent of the company's common stock or voting power prior to the issuance.

In addition to the amendments to Section 312.03(b), the NYSE also amended Section 314.00 to require that transactions with related parties be reviewed in advance by the company's audit committee or another body of independent directors. Any such transaction will be prohibited if the audit committee or other body of independent directors determines that it would be inconsistent with the interests of the company and its shareholders.

Although the amendments to Section 312.03(b) provide some flexibility for companies seeking to raise capital in the private markets, 1) any sales to employees, directors, or service providers will continue to be subject to the equity compensation rules in Section 303A.08 of the NYSE Listed Company Manual, which require shareholder approval of equity compensations plans and material revisions thereto, and 2) shareholder approval will still be required if any of the other subsections of Section 312.03 require such approval, notwithstanding these amendments.

20 Percent or Greater Issuances

Section 312.03(c) of the NYSE Listed Company Manual requires NYSE-listed companies to obtain shareholder approval for the issuance of common stock, or of securities convertible into or exercisable for common stock, in any transaction or series of related transactions if the number of shares of common stock to be issued will equal or exceed 20 percent of the number of shares common stock or 20 percent of the voting power outstanding before the issuance, except for 1) any public offering for cash or 2) any "bona fide private financing" involving a cash sale of the company's securities that complies with the minimum price requirement.

A bona fide private financing is a sale in which either 1) a registered broker-dealer purchases the securities from the company with a view to the private sale of securities to one or more purchasers or 2) the company 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 percent of the shares of the company's common stock or voting power before the sale.

The amendments modify Section 312.03(c) as follows:

  • Bona fide private financing. The term "bona fide private financing" has been replaced with "other financing (that is not a public offering for cash)." This change has the effect of expanding this exception to the shareholder approval requirement by eliminating both 1) the requirement in the exception that there be multiple purchasers and 2) the 5 percent limit for any single purchaser, or group of related purchasers, in cash sales meeting the minimum price requirement.
  • Issuances in connection with acquisitions or stock. Shareholder approval will be required if the securities in such "other financing" are issued in connection with an acquisition of the stock or assets of another company if the issuance of the securities alone or when combined with any other present or potential issuance of common stock, or securities convertible into common stock in connection with such acquisition, is equal to or exceeds either 20 percent of the number of shares of common stock or the voting power outstanding before the issuance.

    Shareholder approval will continue to be required for 1) any non-cash sales and 2) any cash sales at a price that is lower than the minimum price, in each case, in transactions relating to 20 percent or more of the company's common stock or voting power outstanding before such issuance.

What to Do Now?

These amendments provide increased flexibility for NYSE-listed companies seeking to raise capital in private placement transactions, potentially resulting in broader and quicker access to private capital. As always, prior to undertaking private financings, NYSE-listed companies should review the shareholder approval requirements to confirm whether the transaction will require shareholder approval under any of the applicable provisions of the NYSE Listed Company Manual or state law.


[1] See Section 312.04(i) of the NYSE Listed Company Manual.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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