NYSE Proposes Amendments to Notice Requirements under the 20% Rule | Practical Law

NYSE Proposes Amendments to Notice Requirements under the 20% Rule | Practical Law

The NYSE proposed amendments to its Listed Company Manual that would modify the process and minimum time period to provide notice that the company is relying on the financial viability exception to the rule requiring stockholder approval to issue 20% or more of its common stock or voting power.

NYSE Proposes Amendments to Notice Requirements under the 20% Rule

Practical Law Legal Update 2-522-0029 (Approx. 3 pages)

NYSE Proposes Amendments to Notice Requirements under the 20% Rule

by PLC Corporate & Securities
Published on 22 Oct 2012 • USA (National/Federal)
The NYSE proposed amendments to its Listed Company Manual that would modify the process and minimum time period to provide notice that the company is relying on the financial viability exception to the rule requiring stockholder approval to issue 20% or more of its common stock or voting power.
On October 19, 2012, the NYSE proposed amendments to its Listed Company Manual that would modify the notice period required under Section 312.05 of the Manual and provide that companies must comply with that notice requirement by issuing a notice consistent with the NYSE's immediate release policies under Section 202.06 of the Manual.
The NYSE requires, under certain circumstances, stockholder approval of transactions that may result in the issuance or sale of 20% or more of a listed company's outstanding common stock or voting power. Section 312.05 of the Manual provides a financial viability exception to this requirement. To qualify for the exception, the company must obtain prior approval from the NYSE and:
  • Show that the delay in obtaining stockholder approval would seriously jeopardize the financial viability of the company.
  • Receive express approval to rely on this exception from the audit committee of its board of directors.
Currently, after receiving approval from the NYSE, any company using the financial viability exception must also, at least ten days prior to the issuance of the securities, mail to all stockholders a letter informing them that:
  • The company is relying on the exception where stockholder approval would otherwise be required.
  • The company's audit committee has approved the reliance on the exception.
The proposal replaces the stockholder mailing with a requirement that notice be disseminated in a Regulation FD-compliant manner. This would commonly be satisfied with the broad dissemination of a press release or a Form 8-K filing with the SEC. The proposal also modifies the notice period to require at least three full NYSE trading days between the dissemination of the notice and the issuance of the securities relying on the exception.
The SEC has 45 days to take action on the proposed amendments.
For more information on the NYSE 20% Rule and the financial viability exception, see Practice Note, NYSE 20% Rule: Stockholder Approval Requirements for Securities Offerings.