NYSE Temporarily Waives Certain Shareholder Approval Requirements in Response to COVID-19

On April 3, 2020, the New York Stock Exchange (the “NYSE”) filed a notice with the Securities and Exchange Commission (the “SEC”) of its intent to waive certain shareholder approval requirements in Section 312.03 of the Listed Company Manual (the “LCM”) as a result of the novel coronavirus (COVID-19) pandemic. The NYSE’s notice can be found here. These waivers are intended to help companies raise cash quickly in private placements by removing roadblocks that the NYSE saw many companies encounter following the 2008 recession.

The waiver became immediately effective upon filing on April 3 and extends through (and including) June 30, 2020.

The shareholder approval requirements waived by the NYSE through June 30, 2020, are as follows:

• Certain Issuances to Related Parties.
  • Transactions with a director, officer, or their affiliates in which the number of shares of common stock (or shares of common stock into which the securities may be convertible or exercisable) to be offered exceeds 1% of the company’s outstanding common stock (or 1% of the voting power outstanding) will not require shareholder approval.
  • Transactions with a 5% holder in which the number of shares of common stock (or shares of common stock into which the securities may be convertible or exercisable) to be offered exceeds 5% of the company’s outstanding common stock (or 5% of the voting power outstanding) will not require shareholder approval.
• 5% Limitation on “Bona Fide Private Financings” that Exceed 20%. Private placements in which the number of shares of common stock to be offered is 20% or more of the company’s outstanding common stock (or 20% of the voting power outstanding) that qualify as a “bona fide private financing”¹ will not require shareholder approval regardless of the transaction size or the number of participating investors. Prior to the waiver, shareholder approval was required if any individual investor could acquire, or had the right to acquire, more than 5% of the company’s outstanding common stock (or 5% of the voting power outstanding).

To take advantage of the temporary waivers above:

• The sale of the company’s securities must be (i) for cash and (ii) exceed the “Minimum Price”²;
• If the transaction is with a related party, the transaction must be approved by the company’s audit committee (or another comparable committee made up of independent directors);
• The proceeds from the transaction cannot be used to fund the acquisition of stock or assets of another company in which a related party has a direct or indirect interest in such other company or assets to be acquired; and
• Shareholder approval must not be required under any other applicable NYSE rule, including the equity compensation and change of control requirements of LCM Sections 303A.08 and 312.03(d), respectively.

The Nasdaq Stock Market currently does not require shareholder approval for the types of transactions subject to the temporary waivers listed above, so the NYSE waiver simply aligns the two exchanges for the time being.

In a sign that more help may be on the way, the NYSE also indicated on April 6, 2020, that it is in talks with the SEC to provide temporary relief from compliance with certain continued listing requirements (specifically, the requirements to maintain (i) a share price of more than $1.00 and (ii) both total stockholder’s equity and average global market capitalization for 30 consecutive trading days above $50 million), which would be a welcome relief for listed companies that have fallen out of compliance with these requirements as a result of the market volatility seen in the wake of the COVID-19 pandemic. These proposed waivers are in addition to the NYSE’s March 19, 2020, announcement that it was temporarily waiving compliance through June 30, 2020, with the requirement to maintain an average global market capitalization of $15 million for 30 consecutive trading days.

¹ A “bona fide private financing” is any sale in which (i) 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 (ii) 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. LCM Section 312.04(g).

² The “Minimum Price” means a price that is the lower of: (i) the Official Closing Price immediately preceding the signing of the binding agreement or (ii) the average Official Closing Price for the five trading days immediately preceding the signing of the binding agreement. LCM Section 312.04(i). The “Official Closing Price” means the official closing price on the NYSE as reported to the Consolidated Tape immediately preceding the signing of a binding agreement to issue the securities. LCM Section 312.04(j).

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Shelly Heyduk, an O’Melveny partner licensed to practice law in California, John-Paul Motley, an O’Melveny partner licensed to practice law in California, and Lauren Jaeger, an O’Melveny associate licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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