When Delta Air Lines announced its latest maneuvers designed to avoid bankruptcy, it said, among other things, that it was able to use an exception to a New York Stock Exchange rule so it could issue up to 75 million shares of common stock.

RELATED RULE

Excerpt from NYSE Listed Company Manual Section 312.00, "Shareholder Approval Policy," Sub-Section

312.05, titled "Exceptions":

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.

Specifically, this exception allows the embattled airline to issue about 63 million shares upon the exercise of stock options granted to 57,000 employees.

“In taking this action, the audit committee determined that the delay necessary in obtaining shareowner approval would seriously jeopardize the financial viability of the company,” the company said in a statement. “The New York Stock Exchange has accepted Delta's reliance on the exception to the Exchange's shareowner approval policy.”

Delta said it is mailing a letter to all its shareowners notifying them of the company's intent to issue common stock without seeking shareowner approval. It stressed that it will not issue any of these shares until at least 10 days after the letter is mailed. The securities will not be registered and may not be sold in the United States until they are registered or until it receives an exemption from registration requirements.

How It Works

How unusual is it for a company to receive this kind of exception to an Exchange rule? And how does a company even go about obtaining this kind of exception?

“You can’t say Delta is an aberration,” says one lawyer. “They [the Exchange] will make solvency exceptions.”

A Big Board spokesperson says “it’s not infrequent” at all. However, when pressed, she adds, “there are several a year,” the implication being that this is not exactly a routine event. In fact, not one among a handful of lawyers can recall other examples.

The Exchange spokesperson wouldn’t provide more details and knowledgeable NYSE officials were not available to comment.

Delta wouldn’t comment either.

Here’s how this exception to the rule works, though.

Under NYSE rule 312.05, exceptions may be made to the shareholder approval policy when the delay in securing stockholder approval would seriously jeopardize the financial viability of the enterprise and reliance by the company on this exception is approved by the audit committee of the board.

Delta apparently qualifies since it has been widely rumored to be on the verge of bankruptcy and has been implementing a number of measures in recent weeks to avoid going this route. And, as its press release noted, the airline received approval for the rule exception from its audit committee.

So, how does a company go about obtaining an exception to the rule?

The Stock Exchange rule adds that a company relying on this exception must mail to all shareholders no later than 10 days before issuance of the securities a letter alerting them to its omission to seek the shareholder approval and indicating that the audit committee has expressly approved the exception.

Then the Exchange must approve the arrangement. But, this is no rubber stamp, assures one lawyer. The Stock Exchange doesn’t automatically approve these requests.

“It’s not a knee-jerk reaction,” assures the lawyer. “You have to show the Exchange there is a requirement that you must have it. Delta didn’t get a freebie.”