On January 15, 2025, the SEC approved amendments to NYSE Listed Company Manual Rule 802.01C to allow for an accelerated delisting process where a listed company uses a reverse split to regain compliance with the bid price requirement for continued listing, but that as a result of the reverse split, the company falls below other listing standards, such as the minimum number of round lot holders, or minimum number of shares in the publicly held float. In October 2024, the SEC approved a similar rule change for Nasdaq – see HERE.
The SEC also approved amendments to Rule 802.01C such that: (i) if a listed company has effected a reverse stock split over the prior one-year period; or (ii) has effected one or more reverse stock splits over the prior two year period with a cumulative ratio of 200:1 or more, the company shall not be eligible for any compliance period and will face immediate suspension and delisting.
Background
The NYSE bi-furcates continued listing criteria such that a company that falls below the minimum price criteria has an automatic 180 days to regain compliance but a company that falls below other listing standards has the opportunity to submit a plan of re-compliance and generally will have up to 18 months to effectuate such a plan. Listed Company Manual Rule 802.02 sets forth the notification process and procedures for plans of re-recompliance for domestic listed companies, and Rule 802.03 sets forth the rule for foreign private issuers. I have summarized Rules 802.02 and 802.03 at the end of this blog.
A company that falls below the minimum price requirement is not eligible to rely on Rules 802.02 or 802.03 but rather receives a 180 day cure period. Prior to the rule change, if a company effectuated a reverse split to regain minimum price compliance, but as a result, fell below other listing criteria, it could then rely on Rules 802.02/802.03 to submit a plan of re-compliance and have up to 18 months to effectuate that plan. That is no longer the case.
Amended Listed Company Manual Rule 802.01C
The NYSE has amended Listed Company Manual rule 802.01C to provide that: a listed company that falls below the price criteria and effects a reverse stock split to regain compliance will not be eligible for a compliance period in certain circumstances, and (ii) a listed company may not effectuate a reverse stock split if it would result in the company falling below other continued listing requirements.
Like Nasdaq, an NYSE listed company will fall below the minimum price criteria if the average closing price of its trading security is below $1.00 over a consecutive 30-day trading period (“Minimum Price”). Also, like Nasdaq, once a company is notified it has fallen below the Minimum Price, t has a 180-day period in which to regain compliance. The only precondition to availing itself of the 180-day cure period, is a requirement to notify the NYSE, within 10 days of receipt of a deficiency notice, that it intends to cure the deficiency. A company can regain compliance if on the last trading day of a calendar month its closing price is above the Minimum Price, and it had an average closing price above the Minimum Price during the prior 30-day trading period.
Other than organic price increases, the most common way for a company to regain compliance is to effectuate a reverse stock split. NYSE Rule 802.01C provides that if the company plans to regain compliance by taking an action requiring shareholder approval, such as a reverse split, it must notify NYSE of same, hold the meeting no later than its next annual meeting, and implement the action promptly thereafter.
The NYSE Rule change is written a little differently than the Nasdaq rule. In particular, the NYSE amended rule would prohibit a company from effectuating a reverse stock split, where such split would result in the company failing to meet other continued listing standards, such as minimum float or market capitalization. Further, if a company proceeds with a reverse stock split under these circumstances, the NYSE will immediately commence suspension and delisting procedures.
The SEC also approved amendments to Rule 802.01C such that: (i) if a listed company has effected a reverse stock split over the prior one-year period; or (ii) has effected one or more reverse stock splits over the prior two year period with a cumulative ratio of 200:1 or more, the company shall not be eligible for any compliance period and will face immediate suspension and delisting. This new rule more closely aligns with Nasdaq rules that provide that Nasdaq may issue a desilting determination, despite any otherwise available compliance period, if: (i) a company’s security has a closing bid price of $0.10 or less for 10 consecutive trading days; or (ii) a company fails to meet the bid price requirement and the company has effected one or more reverse stock splits over the prior two year period with a cumulative ratio of 250 shares or more to one. Nasdaq has also proposed adding the ability to immediately delist if a listed company has effected a reverse stock split over the prior one-year period, which proposal is still pending before the SEC (see HERE).
Rule 802.02
Rule 802.02 sets for the procedures to be followed by domestic companies that fall below NYSE’s continued listing criteria, other than the Minimum Price requirement. NYSE provides notice to a company of its failure to meet a continued listing requirement within 10 days of determining such deficiency which notice must be reported in a press release and Form 8-K. The initial notice provide the company with the opportunity to submit a plan of compliance, which plan must be effectuated within 18 months. Within 10 business days after receipt of the letter, the company must contact the Exchange to confirm receipt of the notification, discuss any possible financial data of which the Exchange may be unaware, and indicate whether or not it plans to present a plan of compliance; otherwise, suspension and delisting procedures will commence.
Plans of compliance must provide specific quarterly milestones which will be reviewed by the NYSE each quarter. The plan must include quarterly financial projections, details related to strategic initiatives, and market performance support. The actual plan must be submitted within 45 days of receipt of the deficiency notice and thereafter the NYSE has 45 days to notify the company if the plan is acceptable. If the plan is unacceptable, the NYSE will initiate suspension and delisting procedures.
If the NYSE accepts the plan it will monitor the company’s performance including quarterly reviews. If the quarterly milestones or other aspects of the plan are not being achieved, the company can discuss variances with the NYSE, however, if these are not acceptable the NYSE will begin delisting procedures. A company that regains compliance with the listing criteria for two consecutive quarters will be removed from the plan, even prior to the end of the 18 month period.
If the company, within twelve months of the end of the Plan period, is again determined to be below continued listing standards, the Exchange will examine the relationship between the two incidents of falling below continued listing standards and re-evaluate the company’s method of financial recovery from the first incident. It will then take appropriate action, which, depending upon the circumstances, may include truncating the procedures described above or immediately initiating suspension and delisting procedures.
Rule 802.03
Rule 802.02 sets for the procedures to be followed by foreign private issuers that fall below NYSE’s continued listing criteria, other than the Minimum Price requirement. NYSE provides notice to a company of its failure to meet a continued listing requirement within 10 days of determining such deficiency which notice must be reported in a press release within 30 days of receipt. The initial notice provide the company with the opportunity to submit a plan of compliance, which plan must be effectuated within 18 months. Within 30 business days after receipt of the letter, the company must contact the Exchange to confirm receipt of the notification, discuss any possible financial data of which the Exchange may be unaware, and indicate whether or not it plans to present a plan of compliance; otherwise, suspension and delisting procedures will commence.
Plans of compliance must provide specific quarterly milestones which will be reviewed by the NYSE each quarter. The plan must include quarterly financial projections, details related to strategic initiatives, and market performance support. The actual plan must be submitted within 90 days of receipt of the deficiency notice and thereafter the NYSE has 45 days to notify the company if the plan is acceptable. If the plan is unacceptable, the NYSE will initiate suspension and delisting procedures.
If the NYSE accepts the plan it will monitor the company’s performance including semi-annual reviews. If the semi-annual milestones or other aspects of the plan are not being achieved, the company can discuss variances with the NYSE, however, if these are not acceptable the NYSE will begin delisting procedures. A company that regains compliance with the listing criteria for two consecutive quarters will be removed from the plan, even prior to the end of the 18 month period.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony, Linder & Cacomanolis
A Corporate and Securities Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony, Linder & Cacomanolis, PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALC legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including the American Red Cross for Palm Beach and Martin Counties, Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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