On May 14, the Securities and Exchange Commission announced the adoption and immediate effectiveness of Section 312.03T of the NYSE Listed Company Manual. Recognizing that existing exceptions to the shareholder approval requirements in the NYSE Listed Company Manual are “not helpful in most situations arising from the COVID-19 pandemic,” Section 312.03T provides a temporary exception to shareholder approval requirements applicable to certain issuances of equity securities (or convertible or other securities that may result in the issuance of equity securities) representing 20 percent or more of a New York Stock Exchange (NYSE)-listed company’s common stock or voting power, as well as narrow exceptions from shareholder approval requirements in connection with issuances to a related party or equity compensation. Section 312.03T is scheduled to expire on June 30, 2020.

To rely on the temporary relief provided by Section 312.03T, among other things, an NYSE-listed company must demonstrate that the delay that would result from the need to obtain shareholder approval for a 20 percent equity issuance would (1) have a material adverse impact on its ability to maintain its operations under its pre-COVID-19 business plan; (2) result in workforce reductions; (3) adversely impact its ability to undertake new initiatives in response to COVID-19; or (4) seriously jeopardize the enterprise’s financial viability. The company also must show that “the need for the transaction is due to circumstances related to COVID-19, that the proceeds would not be used to fund any acquisition transaction, and that the company undertook a process designed to ensure that the proposed transaction represents the best terms available to the company.”

Section 312.03T also imposes certain procedural requirements. Among other things, an issuer relying on the temporary exception must publicly announce (by filing a Form 8-K where required by SEC rules or by issuing a press release), no later than two business days prior to the issuance of securities, the terms of the transaction (including the number of shares of common stock that could be issued and the consideration received); that shareholder approval would ordinarily be required under NYSE shareholder approval rules; and that the audit committee or a comparable committee comprised solely of independent, disinterested directors expressly approved reliance on the exception and determined that the transaction is in the best interest of shareholders.

The adoption of Section 312.03T follows the NYSE’s partial waivers, effective through June 30, 2020, from the requirement that NYSE-listed companies obtain stockholder approval in connection with certain related party and 20 percent equity issuances (the “April Waivers”). Like the April Waivers, Section 312.03T provides NYSE-listed issuers with greater flexibility to engage in capital raising transactions, such as private investment in public equity (PIPE) transactions and registered direct offerings, that may otherwise be constrained by the NYSE’s existing stockholder approval rules. The April Waivers were summarized in the April 17, 2020 edition of Corporate & Financial Weekly Digest. Prior to the adoption of Section 312.03T, on May 4, The Nasdaq Stock Market LLC adopted similar relief from certain shareholder approval requirements for Nasdaq-listed companies.

The SEC release regarding the adoption of Section 312.03T is available here.