SEC Approves Temporary Waiver of NYSE Shareholder Approval Rules to Provide Companies Additional Flexibility to Raise PIPE Financing

On April 6, 2020, the Securities and Exchange Commission (the “SEC”) announced the approval and immediate effectiveness of a proposal from the New York Stock Exchange LLC (the “NYSE”) to temporarily waive certain shareholder approval requirements applicable to certain private investment in public equity (“PIPE”) transactions. During a time where listed companies may have urgent liquidity needs in the coming months due to lost revenues and maturing debt obligations, a PIPE can be a timely and efficient way for a public company to seek private financing to provide additional liquidity. A PIPE investment can be implemented quickly because the front-end of the transaction is privately negotiated and the transaction is completed pursuant to an exemption from SEC registration requirements.[1] Given the current unusual economic and market conditions, the NYSE is providing this temporary waiver to provide listed companies with some incremental flexibility to urgently obtain new capital through sales of equity securities in private placements.

The waiver effectively makes the NYSE shareholder approval rules align with the Nasdaq Stock Market LLC’s existing shareholder approval rules with respect to issuances at or above the Minimum Price[2] (i) in bona fide private financings in excess of 20% of the listed company’s outstanding common stock or voting power and (ii) to a director, officer or substantial shareholder in excess of 5% of the listed company’s outstanding common stock or voting power. Issuances must still comply with the NYSE’s shareholder approval rules in relation to change of control and equity compensation plans.

The waiver will provide some incremental flexibility for NYSE-listed companies to raise equity from related parties and in PIPE financings completed at or above the Minimum Price through June 30, 2020.

The NYSE’s shareholder approval rules effectively limit a listed company’s ability to engage in large PIPE transactions without shareholder approval, including the following restrictions which are subject to the temporary waiver:

  • Transactions of 20% or More – Commonly known as the “20% Rule,” the NYSE requires shareholder approval for any transaction relating to 20% or more of the company’s outstanding common stock or 20% of the voting power outstanding before such issuance other than in a public offering for cash. The 20% Rule also includes an exception for transactions involving a cash sale of the company’s securities that comply with the Minimum Price requirement and also meet the definition of a “bona fide private financing.” The waiver lifts a limitation that more than 5% of the company’s shares could be allocated to an individual investor in order to satisfy the “bona fide private financing” exception.
  • Issuance to a Related Party – In addition, listed companies are also required to seek shareholder approval of any issuance to a director, officer, or substantial security holder (generally 5% holders) if the number of shares of common stock be issued, or if the number of shares of common stock into which the securities may be convertible or exercisable, exceeds either 1% of the number of shares of common stock or 1% of the voting power outstanding before the issuance. An exception permits cash sales to substantial security holders, or their affiliates, at or above the Minimum Price and that relate to no more than 5% of the company’s outstanding common stock. The waiver lifts both the 1% and 5% limits in this rule so long as the transaction is reviewed and approved by the company’s audit committee or comparable committee comprised solely of independent directors. Note that this waiver is not applicable to any transaction involving the stock or assets of another company where any director, officer, or substantial security holder of the company has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the company or assets to be acquired or in the consideration to be paid in the transaction or series of related transactions and the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, could result in an increase in outstanding common shares or voting power of 5% or more.

Importantly, while the incremental flexibility may provide listed companies with additional flexibility to execute on dilutive transactions without shareholder approval, the waiver is limited to the terms of the 20% Rule and any proposed transaction will still need to be evaluated for compliance with the other NYSE shareholder approval rules, including the change of control rule. These rules, among other things, may require a company to seek stockholder approval before issuing shares which would result in a shareholder exceeding 20% ownership. In evaluating any specific transaction, listed companies, investors and their counsel should review the proposed transaction under all the shareholder approval rules of the NYSE.

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PIPE transactions can be an effective and time-efficient path for a public company to seek additional liquidity, especially during times of economic stress. We expect these waivers to provide NYSE-listed companies with additional flexibility to seek PIPE financing.

Proskauer’s market leading Global Capital Markets Practice has experience acting for issuers, investment banks and investors in a wide variety of capital markets financing transactions, including PIPE financings, both in the US and in Europe. Please contact us if we can be of assistance.

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[1] Note, however, that a resale of the securities issued pursuant to a PIPE transaction will need to be separately registered or subject to an exemption and, as such, many PIPE transactions require a resale registration statement to become effective at or promptly following the closing of the initial sale.

[2] Minimum Price is generally the lower of (a) the closing price and (b) the average closing price of the five trading days, in each case immediately preceding the signing of a binding agreement to issue securities.

Photo of Peter Castellon Peter Castellon

Peter represents issuers, underwriters and selling shareholders in connection with offerings of securities, including IPOs, follow-on and secondary offerings, block trades, rights offerings and offerings of convertible and exchangeable bonds.

Peter is active in bar association activities and has served as an officer…

Peter represents issuers, underwriters and selling shareholders in connection with offerings of securities, including IPOs, follow-on and secondary offerings, block trades, rights offerings and offerings of convertible and exchangeable bonds.

Peter is active in bar association activities and has served as an officer of several committees, including the IBA Capital Markets Forum, the International Securities Matters Subcommittee of the ABA Committee on the Federal Regulation of Securities and the ABA International Securities & Capital Markets Committee.

Peter has written several articles on securities law topics, including the following:

  • US Private Placements: When Rule 144A is unavailable, PLC, July, 2015.
  • SAS 72 letters: Seeking comfort, PLC, May, 2013.

  • Another way in, IFLR, March, 2012.

Before joining Proskauer, Peter was Deputy General Counsel for Citi and advised the Equity Capital Markets Division and Investment Banking Division. While at Citi, Peter worked on most of Citi’s ECM transactions in Europe, the Middle East and Africa.

Photo of Michael Choate Michael Choate

Michael Choate is a partner in the Corporate Department and is a member of the Capital Markets Group and both Real Estate Capital Markets and Private Equity Real Estate Groups. Michael’s practice is broad and includes a focus on transactional matters involving both…

Michael Choate is a partner in the Corporate Department and is a member of the Capital Markets Group and both Real Estate Capital Markets and Private Equity Real Estate Groups. Michael’s practice is broad and includes a focus on transactional matters involving both public and private offerings as well as private equity and joint venture transactions along with mergers and acquisitions, corporate governance issues and federal securities compliance matters.

Photo of Steven A. Fishman Steven A. Fishman

Steven A. Fishman, a senior counsel in the Corporate Department, concentrates his practice in real estate securities, real estate private equity investments and finance matters. Steve has extensive experience in connection with acquisitions and dispositions of public and private limited partnerships and limited…

Steven A. Fishman, a senior counsel in the Corporate Department, concentrates his practice in real estate securities, real estate private equity investments and finance matters. Steve has extensive experience in connection with acquisitions and dispositions of public and private limited partnerships and limited liability companies, the formation of real estate joint ventures and private equity funds, the sale of hotel companies, and debt and equity financings.

Steve also has broad experience representing public and private corporations in all aspects of their securities filings and commercial transactions.

Photo of Daniel Forman Daniel Forman

Daniel Forman is a partner in Proskauer’s Capital Markets Group. His practice focuses on securities offerings and related transactions, and he regularly represents issuers, sponsors, investors and underwriters in securities transactions including initial public offerings, secondary equity offerings, debt offerings, convertible note offerings…

Daniel Forman is a partner in Proskauer’s Capital Markets Group. His practice focuses on securities offerings and related transactions, and he regularly represents issuers, sponsors, investors and underwriters in securities transactions including initial public offerings, secondary equity offerings, debt offerings, convertible note offerings, tender offers and consent solicitations, debt restructurings and private placements. He also counsels public companies on general corporate representation, SEC compliance, disclosure matters, mergers and acquisitions and complex securities law issues. Daniel has significant experience advising on transactions for companies in the life sciences, technology, consumer/retail, industrial, financial institutions and real estate sectors.

Photo of Karen J. Garnett Karen J. Garnett

Karen Garnett is a partner in the Corporate Department, and a member of the Capital Markets Group.

Karen’s practice focuses on regulatory matters under the federal securities laws, equity finance transactions and public company advisory services. Karen has extensive experience in applying and…

Karen Garnett is a partner in the Corporate Department, and a member of the Capital Markets Group.

Karen’s practice focuses on regulatory matters under the federal securities laws, equity finance transactions and public company advisory services. Karen has extensive experience in applying and interpreting federal securities laws and regulations, including requirements governing public company registration, reporting and disclosure.

Karen joined Proskauer following almost 24 years on the staff of the U.S. Securities and Exchange Commission. Most recently, she was an Associate Director in the Division of Corporation Finance, where she led the disclosure review program. Karen routinely provided guidance on a broad range of complex transactions and disclosure matters. She oversaw the work of several industry-focused review teams and has significant expertise in disclosure relating to REITs and commodity pools. As a senior officer, Karen helped develop many of the Division’s policies and procedures, and she worked closely with staff across the SEC on matters involving broker-dealers, investment companies, and novel financial products.

Photo of James Gerkis James Gerkis

James P. Gerkis is a partner in the Corporate Department with extensive experience in sophisticated U.S. and global corporate transactions, including mergers & acquisitions, capital markets, venture capital, media, real estate and restructuring transactions.  He has represented a wide variety of financial institutions…

James P. Gerkis is a partner in the Corporate Department with extensive experience in sophisticated U.S. and global corporate transactions, including mergers & acquisitions, capital markets, venture capital, media, real estate and restructuring transactions.  He has represented a wide variety of financial institutions, Fortune 500 companies and growth companies.  James currently focuses on matters for clients in the technology, media and real estate industries.

Among other clients, James has represented iHeartMedia, Preferred Apartment Communities, Financial Guaranty Insurance Company, Oxford Analytica, Olshan Properties, the Creditors Committee in the chapter 11 cases of Westinghouse Electric Company, Lightstone Group, Neuberger Berman and Suburban Propane Partners.

James received his law degree from Columbia University School of Law in 1983, where he was a Harlan Fiske Stone Scholar and a Teaching Fellow.  He did his undergraduate work at Columbia College, where (having been admitted without finishing high school) he received a BA degree in Political Science in 1980.

James has made presentations at numerous industry and bar association conferences and has authored many articles on different legal topics.

James is the President of the Columbia University Club of New York, is active in other Columbia University alumni affairs and has been chosen to receive a 2018 Columbia University Alumni Medal.

James is on the Board of Directors of HABA-Hellenic American Association for Professionals in Finance.  James received the 2017 Attorney of the Year Award from The Hellenic Lawyers Association.

Photo of Steven L. Lichtenfeld Steven L. Lichtenfeld

Steven L. Lichtenfeld is co-head of our market-leading Real Estate Capital Markets and Real Estate Finance Groups and a founding member of our Private Equity Real Estate Group. He regularly advises real estate funds, REITs, sovereign wealth funds, institutional lenders, specialty lenders, hedge…

Steven L. Lichtenfeld is co-head of our market-leading Real Estate Capital Markets and Real Estate Finance Groups and a founding member of our Private Equity Real Estate Group. He regularly advises real estate funds, REITs, sovereign wealth funds, institutional lenders, specialty lenders, hedge funds, and pension advisors regarding public offerings and private placements of real estate-related debt and equity securities, real estate-related mergers and acquisitions, real estate preferred equity investments and joint ventures, real estate-related senior and mezzanine financings and other corporate, partnership and limited liability company matters.

Steven has been widely recognized as a driving force in the real estate capital markets and finance space during his more than thirty-five year career. He has garnered several prestigious accolades in this area, including receiving a coveted ranking from Chambers USA, which has described him as “a brilliant real estate attorney with experience in many asset classes.” Chambers has also described Steven as “highly analytical and highly strategic” and “encyclopedic in terms of his knowledge” in handling a broad spectrum of public and private debt offerings, M&A, joint venture and other corporate real estate matters. Steven is also recommended for Real Estate and REITs by Legal 500 United States and is consistently recognized as a leading real estate lawyer in Best Lawyers in America and Super Lawyers.

Photo of Matthew O'Loughlin Matthew O'Loughlin

Matthew O’Loughlin is a partner in the Corporate Department and is a member of the Mergers & Acquisitions Group. Matthew counsels clients on corporate, strategic and transactional matters, representing public and private companies, entrepreneurs, high-net worth families, investors, private equity groups and investment…

Matthew O’Loughlin is a partner in the Corporate Department and is a member of the Mergers & Acquisitions Group. Matthew counsels clients on corporate, strategic and transactional matters, representing public and private companies, entrepreneurs, high-net worth families, investors, private equity groups and investment banks. He acts as outside corporate counsel, advises boards of directors and assists companies with their day-to-day legal needs. This includes public and private securities offerings, mergers and acquisitions, joint ventures, and other strategic and complex transactions and liquidity events. He also advises clients on SEC reporting matters and corporate governance.

Matthew’s clients are principally in the life science/healthcare, food and beverage, health and wellness, consumer products, technology and entertainment industries. He also has particular experience in cross border transactions.

Photo of Ben Orlanski Ben Orlanski

Ben Orlanski is a partner in the Corporate Department and is a member of the Mergers & Acquisitions Group and the Capital Markets Group. Ben focuses on major corporate transactions and strategically solving critical business challenges. He has significant experience in securities and…

Ben Orlanski is a partner in the Corporate Department and is a member of the Mergers & Acquisitions Group and the Capital Markets Group. Ben focuses on major corporate transactions and strategically solving critical business challenges. He has significant experience in securities and public company representation; mergers and acquisitions; capital markets transactions; special committee, board of directors and general corporate representation; and corporate governance. His experience covers a wide range of industry sectors, including software-as-a-service, REITs, digital media, specialty manufacturing and consumer products.

Capital Formation and Securities

Ben has significant experience in managing, structuring and executing sophisticated securities and capital raising transactions. His approach reflects understanding of market operation, well-designed capital structure and the practical realities of the capital raising process. He represents public companies and investors in public offerings, registered direct transactions, self-tenders, warrant exchanges/flush transactions, recapitalizations, defensive strategies and secondary offerings. He also advises clients on corporate finance transactions for private businesses, ranging from venture capital and private placements to public offerings and debt restructurings.

Mergers and Acquisitions

Ben has completed scores of transactions representing buyers, sellers, investment bankers and financiers through all phases of the M&A process. He is actively involved in planning, structuring, negotiating and documenting strategic merger and acquisition transactions as well as dispositions of sophisticated enterprises.

General Counsel, Public Reporting and Strategic Advice

Ben acts as outside general counsel for numerous public and private companies, applying a business-like approach to produce practical legal solutions to both day-to-day and exceptional legal challenges. In representing his public clients, Ben has successfully guided the public reporting process for clients facing accounting and SEC challenges, proxy contests, cash flow issues, litigation, shareholder activism and strategic alternatives. He frequently advises on issues related to compliance with insider trading laws and major compliance challenges. He also represents boards of directors and special committees of public companies in special situations, including “interested” transactions, investigations, executive succession planning and sensitive corporate governance issues.

Photo of Nicole Runyan Nicole Runyan

Nicole Runyan counsels registered funds and their independent board members, as well as investment advisers and sponsors, across a wide range of regulatory, transactional and compliance matters.

Nicole advises on the creation, registration and operation of new and existing products designed for institutional…

Nicole Runyan counsels registered funds and their independent board members, as well as investment advisers and sponsors, across a wide range of regulatory, transactional and compliance matters.

Nicole advises on the creation, registration and operation of new and existing products designed for institutional or retail investors. Most recently, she has counseled clients on the design and offering of alternative investment products and strategies, such as BDCs and private equity, requiring innovative legal analysis and a broad business understanding.

Additionally, she advises on the full range of issues facing funds, their boards and advisers. These include regulatory and compliance matters, trading and conflicts issues, disclosure matters, financing transactions, and extraordinary events such as restructurings and acquisitions.

Co-chair of the Women’s Investment Management Forum, a networking and educational organization for women in the investment management industry, Nicole is active in the industry and publishes articles on topics of current interest, including new SEC regulations.

Nicole serves on the Firm’s New York Hiring Committee and, before joining Proskauer, was the hiring partner for a New York-based national law firm.

Photo of William J. Tuttle William J. Tuttle

William Tuttle is a partner in the Corporate Department and focuses his practice on capital markets and corporate matters. Will represents business development companies (BDCs), asset managers, issuers, closed-end funds and underwriters/investment banks. His experience includes facilitating public and private securities transactions for…

William Tuttle is a partner in the Corporate Department and focuses his practice on capital markets and corporate matters. Will represents business development companies (BDCs), asset managers, issuers, closed-end funds and underwriters/investment banks. His experience includes facilitating public and private securities transactions for investment banks and strategic mergers and acquisitions for companies. In addition, Will counsels investment advisers on structuring and forming new investment funds, with an emphasis on leveraged loan funds.

Photo of Frank Zarb Frank Zarb

Frank Zarb is a partner in the Corporate Department, where he concentrates his practice on regulatory matters under the U.S. federal securities laws, as well as on equity finance transactions regulated under those laws.

He counsels public and private companies, broker-dealers, hedge funds…

Frank Zarb is a partner in the Corporate Department, where he concentrates his practice on regulatory matters under the U.S. federal securities laws, as well as on equity finance transactions regulated under those laws.

He counsels public and private companies, broker-dealers, hedge funds, as well as other investors, on a wide range of transactional and securities regulatory compliance matters

Photo of Michael Saliba Michael Saliba

Michael Saliba is an associate in the Corporate Department and a member of the Private Equity and Mergers & Acquisitions Groups. His practice encompasses general corporate and business law, with an emphasis on advising issuers and investment banks in public and private offerings…

Michael Saliba is an associate in the Corporate Department and a member of the Private Equity and Mergers & Acquisitions Groups. His practice encompasses general corporate and business law, with an emphasis on advising issuers and investment banks in public and private offerings of equity and debt securities, and providing counseling to corporate clients on an ongoing basis with respect to, corporate governance, securities law compliance and other corporate matters.

Prior to joining Proskauer, Michael was an associate at Cravath, Swaine & Moore LLP.