NYSE and Nasdaq provide temporary listing compliance and private offering relief

Mark PetersPartner, Waller Lansden Dortch & Davis, LLP

The New York Stock Exchange (NYSE) and the Nasdaq Stock Market (Nasdaq) recently granted temporary relief and issued guidance to assist companies that are in imminent danger of immediate delisting and/or that are experiencing urgent liquidity needs as a result of the COVID-19 pandemic. The relief and guidance are designed to reduce uncertainty regarding the ability of certain companies to remain listed on the exchanges during the current, highly unusual market conditions, thereby protecting investors, facilitating transactions in securities, and removing impediments to free and open markets.

NYSE

Temporary Suspension of the $15 Million Standard. Section 802.01B of the Listed Company Manual provides, among other things, that the NYSE will promptly initiate suspension and delisting procedures with respect to a listed company if that company is determined to have an average global market capitalization over a consecutive 30 trading-day period of less than $15 million (the “$15 Million Standard”). The SEC recently approved the NYSE’s proposal to suspend the application of the $15 Million Standard to listed companies through June 30. Notably:

  •  The suspension of the $15 Million Standard will not affect the status of any listed company that had been formally notified of noncompliance with the $15 Million Standard and was in the NYSE’s delisting appeal process prior to March 19.
  •  Listed companies will not be notified of noncompliance with the $15 Million Standard if the noncompliance occurs on or prior to June 30.
  •  After June 30, the noncompliance of a listed company with the $15 Million Standard would be determined based upon a consecutive 30 trading-day period commencing on or after July 1.

Proposed Suspension of the $50 Million and $1.00 Standards. Further, the NYSE has also proposed to suspend the application of its $50 million market capitalization standard set forth in Section 802.01B (the “$50 Million Standard”) and $1.00 price per share of common stock standard set forth in Section 802.01C (the “$1.00 Standard”). The $50 Million Standard provides that a listed company will be in non-compliance if it has an average global market capitalization over a consecutive 30 trading-day period that is less than $50 million and, at the same time, shareholders’ equity that is less than $50 million, and the $1.00 Standard provides that a listed company will be in non-compliance if the average closing price of its common stock falls below $1.00 over a consecutive 30 trading-day period.

Temporary Waiver of Shareholder Approval – Related-Party Transaction Rule. Section 312.03(b) of the Listed Company Manual generally requires shareholder approval of any issuance of shares of common stock (or securities convertible into or exercisable for common stock) to a director, officer or a substantial shareholder, or any affiliate of the foregoing (each, a “Related Party”), if the number and/or voting power of the shares being offered exceeds 1% of the number and/or voting power of the company’s then- outstanding shares of common stock (the “Related-Party Transaction Rule”). A limited exception to the Related-Party Transaction Rule permits cash sales of no more than 5% of the then-outstanding shares of the company’s common stock to a Related Party (who is a Related Party solely because such individual or entity is a substantial shareholder) at a price that generally equals or exceeds the current market price (the “Minimum Price Requirement”).

The NYSE waiver permits, until June 30 and without the need for prior shareholder approval, cash sales of common stock that comply with the Minimum Price Requirement to Related Parties in excess of the thresholds of the Related-Party Transaction Rule, provided that the sale is reviewed and approved by the listed company’s audit committee or a comparable committee comprised solely of independent directors. Notably, the waiver of the Related-Party Transaction Rule does not apply to (i) any sale to a Related Party where the proceeds will be used to fund an acquisition of another company in which the Related Party has a direct or indirect interest or (ii) transactions that would otherwise require shareholder approval under any other applicable rule, including the equity compensation requirements of Section 303A.08 and the change of control requirements of Section 312.03(d).

Temporary Waiver of Shareholder Approval – 20% Rule. Section 312.03(c) of the Listed Company Manual provides that a listed company must obtain shareholder approval prior to any issuance of common stock (or securities convertible into or exercisable for common stock) if the number and/or voting power of the shares being offered exceeds 20% of the number and/or voting power of the company’s then outstanding shares of common stock (the “20% Rule”). A primary exception to the 20% Rule allows a cash sale of a listed company’s common stock that complies with the Minimum Price Requirement in a bona fide private offering to multiple purchasers, none of whom are acquiring more than 5% of the company’s common stock or voting power as determined prior to the sale.

The NYSE waiver permits, until June 30 and without the need for prior shareholder approval, cash sales of common stock that comply with the Minimum Price Requirement in a bona fide private offering, regardless of its size, the number of participating investors or the amount of securities purchased by any single investor. If any investor is a Related Party, the offering must be reviewed and approved by the listed company’s audit committee or a comparable committee that consists solely of independent directors. Notably, the waiver for the 20% Rule does not apply to transactions that would otherwise require shareholder approval under any other applicable rule, including the equity compensation requirements of Section 303A.08 and the change of control requirements of Section 312.03(d)

Nasdaq

Nasdaq recently released, and continues to update, an information memorandum, which provides guidance to listed companies that are grappling with the disruptions caused by the COVID-19 pandemic.

Periodic Reporting Obligations. Nasdaq confirmed that listed companies that satisfy the conditions of the SEC’s 45-day filing extension will not be deemed deficient under Nasdaq Rule 5250(c) for failing to file certain reports by the existing deadlines and will not receive a deficiency letter from Nasdaq.

Annual Meetings and Proxy Statements. Nasdaq confirmed that listed companies that satisfy the conditions of the SEC’s relief for the mailing of proxy materials will satisfy Nasdaq Rule 5250(d), which requires listed companies to make available their annual, quarterly and interim reports to shareholders, and Nasdaq Rule 5620(b), which requires that a listed company solicit proxies and provide proxy statements for all meetings of shareholders.

Security Offerings During Financial Distress. Nasdaq reminded listed companies that Nasdaq Rule 5635(f), requiring shareholder approval in connection with certain securities offerings, includes an exception for “companies in financial distress where delay in securing shareholder approval would seriously jeopardize the financial viability of the company.” To qualify for the exception, a listed company must, among other preconditions, (i) complete a Rule Interpretation Request Form electronically through the Nasdaq Listing Center, (ii) have its audit committee approve the company’s reliance on the financial viability exception, and (iii) provide notice to shareholders at least ten days prior to issuing securities in the exempted transaction.

Other Nasdaq Rules. Nasdaq confirmed that its rules allow listed companies that do not meet specific rules additional time to regain compliance and that, although Nasdaq has not sought to suspend any of its rules (like the NYSE), it is closely monitoring the impact of COVID-19, including the resultant market volatility, on listed companies. Nasdaq also encouraged listed companies to seek guidance with respect to any other situations that may warrant an exception to Nasdaq’s rules.

If you have any questions regarding this post, please contact any of the Related Professionals, any other member of Waller’s Capital Markets & Securities practice or your regular Waller contact at (615) 244-6380.