On December 16, 2020, the New York Stock Exchange (“NYSE”) filed a proposed rule change to certain of its shareholder approval requirements, which would bring the NYSE’s shareholder approval rules into closer alignment with those of Nasdaq. Last year, the NYSE temporarily waived certain requirements under Section 312 in order to provide listed companies with greater flexibility to raise capital during the COVID-19 crisis (the NYSE has proposed to extend these temporary waivers through March 31, 2021). The NYSE’s proposed rule change includes amendments that are identical to such waivers.
Section 312.03(b) requires shareholder approval for certain issuances of common stock to specified related parties. Approval is required if the shares to be issued exceed 1% of the shares outstanding before the issuance. However, a limited exception permits sales to related parties that are only substantial security holders of the issuer so long as no more than 5% of outstanding shares are issued and the shares are issued at no less than the minimum price. The NYSE proposes to amend this rule to limit the class of related parties that would trigger the requirement to obtain shareholder approval. Section 312.03(b) as amended would require prior shareholder approval only for sales to directors, officers and substantial security holders and would no longer require approval for sales to such related party’s subsidiaries, affiliates or other persons closely related or to entities in which a related party has a substantial interest. Further, Section 312.03(b) as amended would no longer require shareholder approval for issuances of more than 5% of outstanding shares to a related party so long as these are issued at the minimum price. Instead, the NYSE proposes to require that any listed company obtain shareholder approval for a transaction in which a director, officer or substantial security holder has a 5% or greater interest (or such persons collectively have a 10% or greater interest) in the company or assets to be acquired or in the consideration to be paid in the transaction and the issuance of shares could result in an increase in outstanding shares of 5% or more.
Section 312.03(c) requires shareholder approval of any issuance of 20% or more of outstanding shares before such issuance, excluding (i) any public offering; or (ii) any bona fide private financing (defined as no one purchaser acquiring more than 5% of outstanding shares) that complies with the minimum price requirement. The NYSE proposes to replace the reference to “bona fide private financing” with “other financing in which the company is selling securities for cash.” This change would effectively eliminate the 5% limit for any single purchaser but retain the minimum price requirement.
See the NYSE’s proposed rule and the SEC’s notice to solicit public comment here.