[Federal Register Volume 62, Number 113 (Thursday, June 12, 1997)]
[Notices]
[Pages 32135-32136]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15402]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38176; File No. SR-NYSE-97-14]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change Relating to Amendments to the
Shareholder Approval Policy
June 5, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on May 16, 1997, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the NYSE. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ 17 CFR 240.19b-4 (1994).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NYSE is proposing to modify its shareholder approval policy
(``Policy''), contained in Paragraphs 312.03 through 312.05 of the
Exchange's Listed Company Manual (``Manual''). The Exchange believes
the proposal will provide greater flexibility for listed companies to
sell stock at a price at least as great as the higher of book and
market value to substantial security holders, or in non-public sales,
while preserving the significant shareholder rights afforded under the
Policy.\3\
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\3\ The complete text of the proposed rule change is attached as
Exhibit A to File No. SR-NYSE-97-14, and is available for review at
the principal office of the NYSE and in the Public Reference Room of
the Commission.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NYSE included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The NYSE has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
(a) Purpose
Currently, the Exchange's shareholder approval policy requires a
listed company to obtain shareholder approval in four situations:
Related-Party Transactions: when selling more than one
percent of the company's stock, for either cash or other assets, to
a ``related party,'' defined to mean officers, directors and holders
of five percent or more of the company's common stock (or stock with
five percent or more of the company's voting power);
Private Sales: when selling 20 percent or more of the
company's stock, other than in a public offering for cash;
Stock Option Plans: when adopting stock option plans
that are not ``broadly-based''; or
Change of Control: with respect to any issuance of
stock that results in the change of control of the company.
The purpose of the rule change is to modify the first two of these
requirements to provide listed companies with flexibility in their
financing plans, while still substantially preserving the significant
shareholder rights afforded under the Policy. In addition, the rule
change restructures the wording of the Policy in order to simplify the
language.
Related-party transactions. Issuers sometimes seek cash financing
from one or more of their ``substantial'' security holders (which the
Exchange defines as a person holding either five percent of the
company's stock or five percent of the company's voting power). The
Exchange now requires shareholder approval if a sale to a substantial
security holder results in a one percent dilution.
The Exchange proposes that cash sales of stock to a substantial
security holder be exempt from the Policy if the issuance is limited to
five percent of the issuer's stock. The Exchange believes that cash
sales do not give rise to the same valuation concerns as do sales of
stock for non-cash assets. The exemption would apply only if the sale
is at a price at least as high as each of the book and market value of
the stock. The Exchange would continue to require shareholder approval
for the following issuances that result in a dilution of more than one
percent of the issuer's stock: sales of stock to any related party
(including substantial security holders) for assets other than cash;
and cash sales to officers and directors. The Exchange believes the
proposed exemption from the policy would provide issuers with more
[[Page 32136]]
flexibility when selling stock for cash to a substantial security
holder.
Private sales. The Exchange requires approval of all issuances that
result in a 20 percent dilution, except for public offerings for cash.
However, market practices have blurred the differences between public
and private sales. For example, public offerings can resemble private
placements, such as sales pursuant to a shelf registration to a small
group of purchasers. In contrast, a company can engage in broad-based
unregistered sales of stock, or securities convertible into stock,
through private placements or pursuant to Commission Rule 144A under
the Securities Act of 1933, as amended.\4\ Thus, certain types of
private sales now are very similar to public offerings.
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\4\ 17 CFR 230.144A.
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The Exchange proposes to make a private sale of 20 percent or more
of a company's stock exempt from the policy if (i) the sale is at a
price at least as high as each of the book and market value of the
stock and (ii) the sale is a ``bona fide financing.'' A bona fide
financing would be either a sale through a broker-dealer acting as an
intermediary (such as pursuant to Rule 144A) or a sale to multiple
parties in which no one person acquires more than five percent of the
issuer's stock. The five percent limit ensures that control persons do
not disproportionately increase their ownership in a listed company
through privately-negotiated sales, even if the sale price is at the
market.\5\
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\5\ The rule change also clarifies that shareholder approval is
required if any one of the four requirements is triggered,
notwithstanding the fact that the other requirements of the Policy
have not been triggered. For example, a direct sale by a company of
more than 20 percent of its stock in a bona fide financing still
would require shareholder approval as a related-party transaction if
the company sells more than one percent of the stock to an officer
or director.
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(b) Basis
The Exchange believes the basis under the Act for this proposed
rule change is the requirement under Section 6(b)(5) \6\ that an
exchange have rules that are designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest.
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\6\ 15 U.S.C. Sec. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes this proposed rule change does not impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the 1934 Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members of other interested
parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which the self-regulatory organization consents,
the Commission will:
(A) By order approve such proposed rule change or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the NYSE. All
submissions should refer to File No. SR-NYSE-97-14 and should be
submitted by July 3, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-15402 Filed 6-11-97; 8:45 am]
BILLING CODE 8010-01-M
