The NYSE recently issued a proposal to amend Sections 312.03 and 312.04 of the Listed Company Manual (the “NYSE Manual”) to change the circumstances in which NYSE-listed companies are required to obtain shareholder approval for certain share issuances. The NYSE’s proposed amendments are similar to shareholder approval rule changes recently approved for Nasdaq and discussed in our earlier blog post here.
The NYSE Manual requires shareholder approval for share issuances in several circumstances, including certain issuances (i) to a related party (see Section 312.03(b)) and (ii) if the shares to be issued will equal or exceed 20% of the number of shares, or voting power, outstanding (see Section 312.03(c))(commonly referred to as the “20% Rule”). Both of these shareholder approval requirements are subject to exceptions if, among other things, the issuance relates to a sale of common stock, for cash, at a price at least as great as each of the book value and market value of the company’s common stock. For purposes of these exceptions, the NYSE utilizes the definition of “market value” set forth in Section 312.04(i). Section 312.04(i) defines the “market value” of a company’s common stock as “the official closing price on the Exchange as reported to the Consolidated Tape immediately preceding the entering into of a binding agreement to issue the securities.”
The NYSE proposes to replace the definition of market value in Section 312.04(i) with a new definition to be known as the “Minimum Price”. Similar to the Nasdaq’s new rules, Minimum Price will be defined as 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.” Also like Nasdaq, the NYSE proposes to eliminate the “book value” measure from the shareholder approval exceptions. As recognized by Nasdaq, the proposed amendments will simplify the shareholder approval requirements and provide NYSE-listed companies with more flexibility to negotiate and price an offering.