October 25, 2021

Volume XI, Number 298


October 22, 2021

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SEC Approves Temporary NYSE Waiver of Stockholder Approval Rules to Facilitate Capital Raising in the Wake of COVID-19

On April 6, the Securities and Exchange Commission issued a release (the Release) announcing that the New York Stock Exchange (NYSE) had issued temporary and partial waivers from the requirement that NYSE-listed companies obtain stockholder approval in connection with certain related party and 20 percent equity issuances (the Waiver). In the Release, the NYSE acknowledged the “unprecedented disruption” caused by the COVID-19 pandemic and the great likelihood that many listed companies will “have urgent liquidity needs in the coming months due to lost revenues and maturing debt obligations,” which may mean that listed companies will “need to access additional capital that may not be available in the public equity or credit markets.” The Waiver provides NYSE-listed issuers with greater flexibility to engage in capital raising transactions, such as private investment in public equity (PIPE) transactions and registered direct offerings, that may otherwise be constrained by the NYSE’s existing stockholder approval rules. The Waiver remains in effect through June 30, 2020.

The chart below provides a summary of the NYSE’s shareholder approval requirements applicable to certain related parties and 20 percent equity issuances by NYSE-listed companies, as well as the related changes temporarily effectuated by the Waiver.

Related Party Transactions

Existing NYSE Rule

Modification Effectuated by the Waiver through June 30, 2020

Shareholder approval is required for any issuance by an NYSE-listed company to company insiders, including directors, officers and holders of 5 percent or more of the company’s common stock (Significant Holders) and certain of their affiliates (collectively, Related Parties), if the shares of common stock to be issued, including upon the conversion or exercise of the securities, exceeds 1 percent of either the common stock or the voting power, in either case, that was outstanding immediately prior to the issuance (the 1 percent Test).

However, no shareholder approval is required for an issuance to one or more Significant Holders (but not to directors or officers) involving no more than 5 percent of the issuer’s common stock or voting power prior to the issuance so long as the securities are sold for cash at a price that satisfies the Minimum Price Condition (the 5 percent Test).

The “Minimum Price Condition” means that the per share sale price (or the conversion price, as applicable) must be at least equal to the lesser of (1) the official closing price of the issuer’s stock on the trading day immediately preceding the signing of the binding agreement; and (2) the average closing price of the issuer’s stock for the five trading days immediately preceding the signing of the binding agreement.

Pursuant to the Waiver, an issuance of common stock (or securities convertible into or exercisable for common stock) that would otherwise require shareholder approval under the 1 percent Test and would not satisfy the 5 percent Test will be exempt from such shareholder approval requirement if (1) the sale is for cash; (2) the Minimum Price Condition is satisfied; (3) the issuance is reviewed and approved by the issuer’s audit committee or a comparable committee of the issuer’s board that is comprised solely of independent directors; (4) proceeds from the sale of securities to the Related Party will not be used to fund an acquisition of stock or assets of another company in which the Related Party has a direct or indirect interest; and (5) the issuance does not implicate a change of control.


20 Percent Rule

Shareholder approval is required for any issuance by an NYSE-listed company of 20 percent or more of its common stock or voting power, in either case, that was outstanding immediately prior to the issuance, unless the securities are issued for cash in either (1) a public offering; or (2) a “bona fide private financing” that complies with the Minimum Price Condition.

For purposes of the 20 percent rule, a securities offering will not be considered a “public offering” merely because it is effected pursuant to a registration statement (e.g., in the case of a “registered direct” transaction). Rather, the status of a particular transaction as a public offering will depend on several factors, including the manner in which the offering is marketed.

A “bona fide private financing” is an issuance in which either (1) a registered broker-dealer purchases securities from the issuer for the purpose of effectuating a private sale of those securities to one or more purchasers (e.g., in a Rule 144A offering); or (2) the issuer sells the securities to multiple purchasers, and no one purchaser or group of related purchasers acquires or has the right to acquire (upon the exercise or conversion of the securities) more than 5 percent of the issuer’s common stock or voting power outstanding immediately prior to the issuance.

Pursuant to the Waiver, the 5 percent limit for sales to any one purchaser or group of related purchasers to constitute a bona fide private financing will not apply. Additionally, if a private placement is effected other than through a broker-dealer acting as the initial purchaser, the offering may constitute a bona fide private financing even if there is only a single investor rather than multiple investors.

The Waiver is consistent with other recent efforts by the NYSE to reduce uncertainty for companies in the current economic environment, including its recent proposal to temporarily suspend its continued listing requirement that issuers maintain a share price of greater than $1 and an average global market capitalization above $50 million for 30 consecutive trading days.

The Release is available here.

©2021 Katten Muchin Rosenman LLPNational Law Review, Volume X, Number 108

About this Author

Mark D. Wood, corporate securities lawyer Katten Muchin Chicago Law firm

Mark D. Wood is head of Katten's Securities practice and concentrates in corporate and securities law. Mark represents public companies, issuers and investment banks in initial public offerings (IPOs) and other public offerings, private investment in public equity (PIPE) transactions, debt securities and other securities matters.

Mark also represents clients in complex corporate transactions, including tender offers, mergers, acquisitions, dispositions, going-private transactions, private equity investments, joint ventures and...

Jonathan D. Weiner, securities, transactional lawyer, Katten Muchin Law firm

Jonathan Weiner concentrates his practice in securities, transactional and general corporate matters. He has represented investors and issuers in public and private financings (including private investments in public equity), tender offers, recapitalizations and going private transactions, as well as targets and acquirers in mergers and acquisitions. He also advises clients on a day-to-day basis regarding corporate governance, securities law compliance, disclosure and other general corporate matters. Jonathan has counseled a wide array of businesses, ranging from...


Alyse Sagalchik concentrates her practice on corporate matters, with an emphasis on mergers and acquisitions, joint ventures, private equity and securities transactions. Alyse also advises companies on a broad range of general corporate, federal securities laws and corporate governance matters, including Securities Exchange Act of 1934 reporting and disclosure matters. She has represented strategic and financial buyers and sellers in M&A transactions ranging in value from $10 million to more than $15 billion and spanning a wide variety of industries, including health...