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On May 4, 2020, the Securities and Exchange Commission (“SEC”) approved a temporary exception to The Nasdaq Stock Market LLC’s (“Nasdaq”) shareholder approval requirements found in Nasdaq Listing Rule 5635. Nasdaq’s temporary exception comes on the heels of a partial waiver of certain of the New York Stock Exchange’s (“NYSE”) shareholder approval requirements found in Section 312.03 of the NYSE Listed Company Manual, approved by the SEC on April 6, 2020. The two stock exchanges noted that the easing of certain  shareholder approval requirements is designed to assist companies that are facing revenue shortfalls as a result of the COVID-19 pandemic.

The partial waiver to NYSE’s shareholder approval requirements impacts the approvals generally required for certain (i) issuances to related parties, (ii) issuances of 20% or more of a company’s listed securities (“20% Rule”),

Generally, Section 312.03(c) of the NYSE Listed Company Manual and Nasdaq Listing Rule 5635(d) require shareholder approval of certain non-public issuances of 20% or more of a company’s listed securities (“20% Rule”). The temporary changes to each of NYSE’s and Nasdaq’s 20% Rules are discussed below.

Partial Waiver to NYSE 20% Rule 

The NYSE’s 20% Rule contains an exception for “bona fide private financings” at or above the current market price, calculated as set forth in the Listed Company Manual. A bona fide private financing is a sale in which either (i) a registered broker-dealer purchases the securities from the listed company with a view to the private sale of such securities to one or more purchasers or (ii) the listed company sells the securities to multiple purchasers and no single purchaser acquires more than five percent of the company’s listed securities.

Under the temporary waiver to the NYSE’s 20% Rule, through June 30, 2020, the NYSE will (i) waive the five percent limitation for any sale to an individual investor and (ii) permit companies to undertake a bona fide private financing in which there is only a single purchaser. The effect of the NYSE’s waiver is that a listed company is exempt from the shareholder approval requirement of the 20% Rule in relation to a private placement transaction regardless of size, the number of participating investors, or the amount of securities purchased by any single investor, so long as the sale is at or above the current market price.

Temporary Exception to Nasdaq 20% Rule

Nasdaq’s 20% Rule specifically prohibits the issuance of 20% or more of a company’s listed securities if the issuance is at a price below the current market price, calculated as set forth in the Nasdaq Listing Rules.

In contrast to the NYSE waiver, the temporary exception to Nasdaq’s 20% Rule goes further in that it allows companies to exceed the 20% threshold even if the issuance is at a price below the current market price. The temporary exception to Nasdaq’s 20% Rule is also available to companies through June 30, 2020.

For a Nasdaq-listed company to avail itself of the temporary exception, in addition to filing the Listing of additional Shares notification with Nasdaq, the company must certify to Nasdaq that it is relying on the exception due to COVID-19-related hardships and file a Form 8-K or press release in advance of the issuance disclosing the transaction and the reliance on the temporary exception.

The SEC’s April 6, 2020 approval of the temporary NYSE waiver can be found at this link and the SEC’s May 4, 2020 approval of the temporary Nasdaq exception can be found at this link.


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