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Summary
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 NYSE
and Nasdaq rules require shareholder approval
of specified equity issuances
These
rules can go
beyond requirements of
state corporate law
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Developments
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NYSE
approved rule change to eliminate
treasury
stock exception
- NYSE order published by SEC
- NYSE proposal published by SEC 10.05.06
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NYSE submission to SEC
5.04.06
- Following criticism of Sovereign Bancorp's
avoiding a shareholder vote under NYSE Rule 312
NYSE
required changes to Santander's
investment in Sovereign Bancorp
- Strategic
investment to support acquisition was structured
to avoid a shareholder vote
- Objected to by activist shareholder - Relational
Investors
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Letter to NYSE
11.08.05
- Challenged avoidance of shareholder vote
- Argued that various rights given to Santander,
together with stock purchase, were a change of control requiring
shareholder approval per NYSE 312(d)
- Also argued that size of stock purchase triggered
NYSE 312(c) -- Sovereign wasn't counting sale of treasury shares as "issued" for
purposes on NYSE 312(c)
- NYSE required changes to terms of investment
- Relational brings SEC challenge over NYSE action
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NYSE Listed Company Manual
Section 312.00
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Text of Rule
Shareholder
approval required for:
- Equity compensation plans
- Equity issuances to a related party
- Equity issuances of 20% or more of
- Voting power
- Shares outstanding
- Issuance that will result in a change of
control
Use
of treasury shares
- NYSE rule amended in December 2006 to eliminate
treasury stock exception
- Access the amended rule and related information
in Developments
section
Use
of cash
- Buyers can use cash to avoid NYSE 312(c)
- E.g., SBC - AT&T
($1B special dividend)
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Nasdaq Online Manual Rule 4350(i)
Financial Viability Exception
SEC_CODE_REF_0090001192884
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NYSE
exception
- Exceptions may be made to the shareholder approval policy in Para. 312.03 upon application to the Exchange when (1) the delay in securing stockholder approval would seriously jeopardize the financial viability of the enterprise and (2) reliance by the company on this exception is expressly approved by the Audit Committee of the Board.
- A company relying on this exception must mail to all shareholders not later than 10 days before issuance of the securities a letter alerting them to its omission to seek the shareholder approval that would otherwise be required under the policy of the Exchange and indicating that the Audit Committee of the Board has expressly approved the exception.
Nasdaq
exception
- Exceptions may be made upon application to
Nasdaq when:
(A) the delay in securing stockholder approval would seriously jeopardize the
financial viability of the enterprise; and
(B) reliance by the company on this exception is expressly approved by the audit
committee or a comparable body of the board of directors.
A company relying on this exception must mail to all shareholders not later than
ten days before issuance of the securities a letter alerting them to its
omission to seek the shareholder approval that would otherwise be required and
indicating that the audit committee or a comparable body of the board of
directors has expressly approved the exception.
Precedent
examples
- Bear Stearns - JPMorgan Chase
- Moneygram International Recap
- The NYSEs shareholder approval policy contains
an exceptionto this requirement when the delay in securing stockholder approval
would seriously jeopardize
the financial viability of the enterprise. NASDAQ has a similar exception to
its shareholder
approval policy. In each case, the issuers audit committee must approve the
reliance on the
exception, and the issuer must notify shareholders that it is relying on the
exception.
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NYSE Treasury Stock Exception Eliminated 2006
Related Topics
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