Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The SEC has approved amendments to Sections 312.03 and 312.04 of the NYSE Listed Company Manual that modify the price requirements for certain exceptions to shareholder vote requirements related to issuances of securities set forth in Section 312.03. The amendments replace the former “book and market value” minimum pricing threshold with a new defined Minimum Price threshold. The revised Rules are similar in principle to those approved by the SEC last year relating to NASDAQ Rule 5635(d).

Among other things, NYSE Rule 312.03(b) requires that shareholder approval be received prior to the issuance of securities to designated related parties when the issuance involves greater than one percent of the number or voting power of the common stock outstanding before the issuance. However, under the revised rules, sales to a “Related Party” purchaser do not require shareholder approval if the purchaser falls in the definition of a “Related Party” because it is a “substantial security holder” (greater than 5%) of the company so long as the sale of stock will be for cash at a price greater than the Minimum Price and the amount sold does not exceed five percent of the number or voting power of common stock outstanding before the issuance.

Similarly, amended Rule 312.03(c) incorporates the new Minimum Price threshold into the exception to shareholder approval requirements for a 20% Issuance made as a bona fide private financing at or above the Minimum Price. A 20% Issuance in this case means any offering of securities (that is, common stock, or securities convertible or exercisable into common stock) in number or voting power equal to or greater than 20% of pre-issuance number or voting power.

For each amended exception, “Minimum Price” means 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. “Official Closing Price” is the price reported most recently on the NYSE consolidated tape.

The revised rules no longer include a requirement that the price exceed the book value of the common stock. The NYSE also eliminated the statement that average price over time is not acceptable as a measure of market value, as inconsistent with the new formulation of the Minimum Price threshold. Finally, the new rules change previous references to “entering into” a binding agreement to “signing,” to conform the language throughout the rule without altering the interpretation.