August 4, 2021

Volume XI, Number 216

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August 03, 2021

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August 02, 2021

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NYSE Amends Shareholder Approval Rules

In April 2021, the Securities and Exchange Commission approved amendments to the New York Stock Exchange’s shareholder approval rules for related party issuances and the issuance of 20% or more of a company’s stock. The amendments bring the NYSE’s shareholder approval requirements into closer alignment with those of the Nasdaq and are similar to the temporary COVID-19 waivers of the NSYE's shareholder approval rules that expired in 2020 discussed in our earlier Viewpoints advisories.[1]

Related Party Issuances

Before the new amendments, Section 312.03(b) of the NYSE Listed Company Manual generally required prior shareholder approval of any issuance to (1) a director, officer or substantial security holder, (2) a subsidiary, affiliate or other closely related person of a director, officer or substantial security holder or (3) any company or entity in which a director, officer or substantial security holder has a substantial direct or indirect interest, in each case, if the number of shares of common stock to be issued (or into which the securities issued may be convertible or exercisable) exceeded either 1% of the number of shares of common stock or 1% of the voting power outstanding before the issuance. There were limited exceptions to this rule for (1) issuances by “early stage companies” for cash and (2) issuances of up to 5% of the company’s outstanding common stock to substantial security holders for cash at a price equal to at least the NYSE’s “Minimum Price”.[2]

As amended, Section 312.03(b) now requires prior shareholder approval for issuances relating to more than 1% of the number of shares of common stock or voting power outstanding before the issuance to a director, officer or substantial security holder (each a “Related Party”) if the transaction is a cash sale for a price that is less than the Minimum Price. The amendments remove the shareholder approval requirement for issuances to a subsidiary, affiliate or other closely related person of a Related Party or any company or entity in which a Related Party has a substantial direct or indirect interest (except where a Related Party has a 5% or greater interest in the counterparty as described below). Issuances to Related Parties in non-cash transactions above the 1% threshold continue to be subject to shareholder approval. Cash sales to Related Parties that meet the Minimum Price requirement remain subject to the same limitations as cash sales to all other investors as discussed in more detail under “Transactions of 20% or More” below.

The amendments also provide that shareholder approval is required for any transaction or series of related transactions in which any Related Party 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 and the present or potential issuance of common stock, or securities convertible into common stock, could result in an increase in either the number of shares of common stock or voting power outstanding of 5% or more before the issuance. Even if the issuance to a Related Party meets the Minimum Price, the issuance can still be subject to shareholder approval under this new rule.

As a result of the amendments, the new rules remove the previous exceptions to the NYSE’s related-party shareholder approval requirements for “early stage companies” and up to 5% issuances for cash to substantial security holders meeting the Minimum Price requirement which are no longer relevant.

Section 312.03(b) continues to require that any sale of stock to an employee, director or service provider is also subject to the equity compensation rules in Section 303A.08 of the NYSE Listed Company Manual and that shareholder approval is required if any of the other provisions of Section 312.03 require such approval.

Transactions of 20% or More

Before the new amendments, Section 312.03(c) of the NYSE Listed Company Manual required shareholder approval of any transaction relating to 20% or more of the company’s outstanding common stock or the voting power outstanding before the issuance other than a public offering for cash. Section 312.03(c) included an exception to this shareholder approval requirement for a transaction involving a cash sale of the company’s securities that complied with the Minimum Price requirement and was also a “bona fide private financing”.[3]

As amended, Section 3.12.03(c) continues to require shareholder approval for issuances equal to or above the 20% threshold that are not a public offering for cash, but replaces the “bona fide private financing” exception with a new exception for issuances meeting the Minimum Price requirement in any financing (that is not a public offering for cash) in which the company is selling securities for cash. The amended rule provides, however, that, if the securities in such a financing are issued in connection with an acquisition of the stock or assets of another company, shareholder approval will be required if the issuance of the securities alone or when combined with any other present or potential issuance of common stock in connection with such acquisition, is equal to or exceeds the 20% threshold.

Section 312.03(c) continues to require that any sale of stock to an employee, director or service provider is also subject to the equity compensation rules in Section 303A.08 of the NYSE Listed Company Manual and that shareholder approval is required if any of the other provisions of Section 312.03 require such approval.

Deletion of Section 312.03T (Temporary COVID-19 Exception)

The amendments also delete Section 312.03T from the NYSE Listed Company Manual. Section 312.03T was adopted in May 2020 to provide temporary relief through June 2020 from certain of the requirements of Section 312.03 during the COVID-19 pandemic.


[1] See Viewpoints advisories dated April 13, 2020May 19, 2020July 7, 2020 and October 2, 2020.

[2] Section 312.04(i) of the NYSE Listed Company Manual defines “Minimum Price” as a price that is the lower of: (1) the Official Closing Price immediately preceding the signing of the binding agreement; or (2) the average Official Closing Price for the five trading days immediately preceding the signing of the binding agreement. Section 312.04(j) defines “Official Closing Price” as 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. For example, if the transaction is signed after the close of the regular trading session at 4:00 pm Eastern Standard Time on a Tuesday, then Tuesday’s official closing price is used. If the transaction is signed at any time between the close of the regular trading session on Monday and the close of the regular session on Tuesday, then Monday’s official closing price is used.

[3] Section 312.03(g) defined a “bona fide private financing” as a transaction in which either (1) 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 (2) 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.

©1994-2021 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume XI, Number 146
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About this Author

Daniel T. Kajunski, Mintz Law firm, Corporate Attorney
Member

Dan is a corporate and securities attorney whose practice spans the full gamut of corporate law. He has advised clients for nearly two decades in public and private equity and debt financings, securities law matters, mergers and acquisitions, and strategic advice on a broad range of other corporate matters. He capably counsels public and private companies with offerings, compliance, and securities questions and leads buyers and sellers throughout the transaction process. Dan represents life sciences companies as well as clients in other technology fields, financial...

617-348-1715
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