[Federal Register Volume 60, Number 195 (Tuesday, October 10, 1995)]
[Notices]
[Pages 52712-52716]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25019]



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[[Page 52713]]


SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36326; File No. SR-Amex-95-28]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange, Inc. Relating to Updates to the 
Exchange's Company Guide

October 3, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), \1\ notice is hereby given that on July 19, 1995, the 
American Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change, and on September 28, 1995, filed an Amendment No. 
1 to the proposed rule change, \2\ as described in Items I, II, and III 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ See Letter from Geraldine M. Brindisi, Vice President and 
Corporate Secretary, Amex, to Glen Barrentine, Team Leader, SEC 
(Sept. 28, 1995).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing various updating revisions to the 
Exchange's Company Guide. The text of the proposed rule change is 
available at the Office of the Secretary, the Amex, and at the 
Commission.

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 self-regulatory organization 
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 self-regulatory organization 
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

I. Purpose
a. Preferred Stock
    Section 103 of the Company Guide contains the listing guidelines 
for preferred stock and, as a general rule, only permits the listing of 
convertible preferred stock if the underlying common stock is listed on 
the Amex or the New York Stock Exchange, Inc. (``NYSE''). This however, 
dates from a time when there was no last sale reporting other than for 
stocks traded to the Amex or NYSE and, thus, it was difficult to trade 
convertible preferred stock without the availability of such last sale 
information on the underlying equity. In view of the advent of last 
sale reporting for Nasdaq securities, the Exchange proposes that 
Section 103 be amended to permit the listing of convertible preferred 
stock so long as the underlying common stock of the company is subject 
to real-time last sale reporting. This also would be consistent with 
Section 104 of the Company Guide which permits the listing of 
convertible bonds and debenture issues so long as current last sale 
information is available with respect to the underlying security. \3\ 
In addition, the Exchange proposes that the references to ``aggregate 
market value'' in Section 103 be changed to read ``aggregate public 
market value'' to clarify that the particular numerical guidelines are 
applicable to the market value of publicly held shares only.

    \3\ See Securities Exchange Act Release No. 22714 (Dec. 20, 
1985), 50 FR 51958 (permitting the listing of convertible bonds and 
debentures if the underlying issue into which the bond or debenture 
is convertible is subject to last sale reporting).
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b. Warrants
    The Exchange's listing guidelines for warrants are set forth in 
Section 105 of the Company Guide. The Exchange, however, also requires 
warrant issuers to execute a related agreement with the Exchange prior 
to listing, and this relating agreement is not referenced in Section 
105. This agreement specifies the applicable notice provisions that 
warrant issuers must adhere to regarding changes with respect to the 
expiration date or call date of the warrants or both. In order to 
simplify the listing process, the Exchange proposes that these matters 
be incorporated into Section 105. In addition, the Exchange proposes 
that a new paragraph (e) be added to specify that the Amex must receive 
advance notice (preferably two months) of any extension of the 
expiration date of a warrant issue. The Exchange also proposes that 
Section 508 of the Company Guide, which requires under certain 
circumstances that warrants be split in the same proportion as the 
underlying common stock, be deleted and incorporated into Section 105. 
Further, the Exchange proposes to amend Section 105 to reference the 
guidelines applicable to redeemable (callable) issues that are 
contained in Section 902 of the Company Guide.
c. Conflicts of Interest
    Section 120 of the Company Guide concerns conflicts of interest 
between companies and their officers, directors, or principal 
shareholders. In determining whether to approve a company's listing 
application, the Exchange reviews any such conflicts of interest. As 
specified in Section 120, all pertinent factors are considered and, in 
many cases, a company is able to eliminate a conflict situation prior 
to listing or within a reasonable period of time thereafter. Section 
120 also authorizes the Exchange to require a company to enter into a 
special agreement designed to reduce the possibility of abuse of a 
conflicted situation that could not be terminated immediately or that 
may arise in the future.
    This special agreement was utilized in the past by the Amex and the 
NYSE prior to the time when the exchanges required listed companies to 
establish and maintain an audit committee.\4\ This provision is now 
obsolete because audit committees are responsible for reviewing 
transactions presenting potential conflicts of interest and, as a 
practical matter, the Exchange no longer utilizes it. Accordingly, the 
Exchange proposes that Section 120 be amended to delete such a 
reference. The NYSE previously deleted its similar provision \5\ and, 
at the present time, neither the NYSE nor the NASD reference such 
agreements in their rules.

    \4\ See Amex Company Guide Sec. 121 (requiring a listed company 
to maintain an audit committee).
    \5\ Securities Exchange Act Release No. 20767 (Mar. 20, 1984), 
49 FR 11275 (approving File No. SR-NYSE-83-11).
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d. Original and Annual Listing Fees
    Section 140 of the Company Guide specifies the original listing 
fees applicable to issuers listed on the Exchange. Due to an oversight 
by the Exchange, the schedule contained in Section 140 is unclear with 
respect to the original listing fee payable for exactly one million 
shares (i.e., it refers only to the fee for less than one million 

[[Page 52714]]
and more than one million). Therefore, the Exchange proposes that the 
original listing fee schedule be amended to refer to ``one million--two 
million shares,'' clarifying that the appropriate fee for exactly one 
million shares is $10,000.
    The Exchange also proposes that Section 141 of the Company guide be 
amended to clarify that the annual listing fee for a warrant issue is 
based on the number of warrants issued, not the number of shares 
underlying the warrants.
e. Opinion of Counsel
    Section 213 of the Company Guide requires a company seeking to list 
stock on the Exchange to provide a opinion of counsel addressed to the 
Exchange that addresses a variety of issues, including (if applicable) 
the company's qualification to conduct business in jurisdictions other 
than that of its state of incorporation.\6\ The American Bar 
Association (``ABA'') recently sponsored a study of third-party legal 
opinions that resulted in various recommendations as to the format and 
coverage of such opinions.\7\ One of its recommendations was that an 
opinion as to a corporation's qualification to do business in 
jurisdictions other than that of incorporation was generally not cost 
effective or necessary. In view of the position taken by the ABA, and 
because this is essentially a factual rather than a legal issue, law 
firms are increasingly reluctant to provide this opinion. Therefore, 
the Exchange proposes that Section 213 be amended to delete this item 
from the opinion of counsel guidelines. The Exchange notes that the 
NYSE does not have a comparable guideline.

    \6\ The opinion of counsel also must express an opinion as to: 
the legality of organization and valid existence of the applicant; 
the validity of authorization and issuance (or proposed issuance) of 
the securities applied for; whether the securities are (or will be) 
fully paid and non-assessable, and whether the outstanding 
securities were registered or issued pursuant to an exemption under 
the Securities Act of 1933.
    \7\ See American Bar Association, Third-Party Legal Opinion 
Report, Including the Legal Opinion Accord, of the Section of 
Business Law, 47 Bus. Law. 167 (Nov. 1991).
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f. Listing Resolution
    Section 213 of the Company Guide also requires the board of 
directors of a prospect company listing stock or warrants to provide a 
listing resolution authorizing the filing of the listing application. 
This requirement is often burdensome to comply with and can delay a 
listing if a prospect company's board of directors is not scheduled to 
meet for a month or more. The requirement to obtain a listing 
resolution is essentially ceremonial in nature and does not serve any 
significant purpose. Therefore, the Exchange proposes that this 
requirement be deleted. The Exchange also proposes that Section 330 of 
the Company Guide be amended similarly to delete this requirement with 
respect to additional listing applications.
g. ``Backdoor'' Listings
    Section 341 of the Company Guide sets forth the Exchange's policy 
with respect to ``backdoor'' listings, i.e., any plan of acquisition, 
merger, or consolidation, the net effect of which is that a listed 
company is acquired by an unlisted company even though the listed 
company is the nominal survivor. Currently, the literal language of 
this section can be read to preclude the Exchange from listing the 
additional shares issued to effect such a combination unless the 
company resulting from the combination meets the Exchange's original 
listing guidelines in all respects.
    The Exchange's longstanding practice, however, has been to evaluate 
a ``backdoor'' listing on the same basis that an original listing is 
reviewed, i.e., an application may be approved even though the company 
does not meet all of the numerical guidelines.\8\ To conform Section 
341 to Exchange practices, the Exchange proposes that this section be 
amended to provide that the Exchange will apply its original listing 
guidelines when evaluating the listing eligibility of a ``backdoor'' 
listing.

    \8\ Conversely, the fact that an issuer may meet the numerical 
guidelines does not necessarily mean that its application will be 
approved.
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h. Fractional Shares
    Section 507 of the Company Guide outlines the procedures companies 
should follow to settle fractional share interests as a result of 
issuing stock dividend and urges companies to pay cash in lieu of 
fractional share interests. The Exchange's practice is to require 
companies that do not choose to settle such interests with a cash 
payment to ``round up'' to a full share in payment for the fractional 
amount. This practice is based on the premise that if the issuer were 
to ``round down'' the holder would essentially be deprived of assets 
due him or her. The Exchange proposes to amend Section 507 to conform 
to the Exchange's practice.
i. Listing Agreement
    Companies seeking to list securities are required to execute a 
listing agreement with the Exchange. In its present form, the agreement 
specifies a number of obligations that a listed company is subject to 
by virtue of listing its securities on the Amex. Most of these matters, 
however, also are addressed by specific provisions in the Company 
Guide. This has proven to be confusing to company representatives. The 
Exchange, therefore, has reviewed and greatly simplified the listing 
agreement by eliminating all of the redundancies.\9\ In order to ensure 
that all matters previously covered by the listing agreement are 
adequately reflected in the Company Guide, the Exchange also proposes 
that: Section 132 of the Company Guide be amended to require a listed 
company to furnish to the Exchange, upon request, such information 
concerning the company as the Exchange may require; Section 340 of the 
Company Guide be amended to clarify that a listed company must disclose 
promptly to the holders of listed securities any information with 
respect to the allotment of rights or benefits pertaining to the 
ownership of listed securities; Section 340 also be amended to require 
that listed companies issue all transferable rights or benefits 
pertaining to listed securities in a form approved by the Exchange and 
make them assignable, exercisable, and deliverable in the Borough of 
Manhattan, City of New York; Section 610 of the Company Guide be 
amended to clarify that a listed company's annual report must contain 
audited financial statements prepared in conformity with SEC 
requirements; Section 610 also be amended to require the company to 
disclose in its annual report to security holders, for the year covered 
by the report, the number of unoptioned shares available at the 
beginning and at the close of the year for the granting of options 
under an option plan and any changes in the exercise price of 
outstanding options, through cancellation and reissuance or otherwise, 
except price changes resulting from the normal operation of anti-
dilution provisions of the options; Section 623 of the Company Guide be 
amended to clarify that a listed company must publish quarterly 
statements of sales and earnings on the basis of the same degree of 
consolidation as the annual report, and such statements must disclose 
any substantial items of an unusual or 

[[Page 52715]]
nonrecurrent nature and will show net income before and after federal 
income taxes; Section 920 of the Company Guide be amended to require a 
listed company to notify the Exchange, at least 20 days in advance, of 
any change in the form or nature of any of its listed securities or in 
the rights, benefits, and privileges of the holders of any such 
security; Section 1102 of the Company Guide be amended to require a 
listed company to file with the Exchange all proposed amendments to and 
certified copies of its Certificate of Incorporation, By-Laws, or other 
similar organization documents, all SEC filings, and all materials sent 
to shareholders or released to the press.

    \9\ The listing agreement will now simply contain the company's 
agreement to ``comply with all Exchange rules, policies and 
procedures which apply to listed companies as they are now in effect 
and as they may be amended from time to time, regardless of whether 
the company's organization documents would allow for a different 
result.'' In addition, several other forms associated with the 
listing process also are being streamlined.
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    In addition, the Company Guide will be amended to delete references 
to Form SD-1, the old listing agreement.
j. Interim Reports
    Section 623 of the Company Guide specifies that a company whose 
stock is listed on a national securities exchange is not required to 
send interim (usually quarterly) statements to its securities holders, 
but must disseminate such information in the form of a press 
release.\10\ Some listed companies elect to send such reports to 
shareholders, but many send them to record holders (i.e., ``street 
name'' (not beneficial) holders) only. In contrast, the Exchange 
requires that annual reports be mailed to both record and beneficial 
holders.\11\

    \10\ A company whose common stock is not listed on a national 
securities exchange, however, must send unaudited quarterly 
statements to holders of its Exchange-listed securities. Amex 
Company Guide Sec. 623.
    \11\ Amex Company Guide Sec. 610.
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    Various groups, including the NYSE, the American Society of 
Corporate Secretaries, and the Securities Industry Association, have 
been reviewing this area in an attempt to achieve uniformity among 
listed companies with respect to their dissemination of interim 
earnings reports to shareholders. The NYSE recently amended its rules 
to provide that while a company could continue to elect not to mail 
interim reports to shareholders, if the company chose to make such a 
mailing, it should send the reports to both the record and the 
beneficial owners.\12\ This change strikes an appropriate balance 
between the benefit of requiring that these reports be mailed to all 
shareholders against the high cost of doing so with respect to 
beneficial holders of securities held in ``street name.'' Therefore, 
the Exchange proposes that Section 623 be amended to conform to the 
NYSE change described above.

    \12\ Securities Exchange Act Release No. 35373 (Feb. 14, 1995), 
60 FR 9709 (approving File No. SR-NYSE-94-42).
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k. Legending Requirements
    Section 980 of the Company Guide requires that listed securities 
that are issued in reliance upon an exemption from the registration 
requirements of Section 5 of the Securities Act of 1993 \13\ bear a 
legend specifying that sale or transfer restrictions apply to such 
securities. Issuers have occasionally complained that the Exchange 
requirement is unnecessary and, on occasion, more restrictive than the 
applicable laws. In order to avoid placing an undue burden on 
prospective listed companies, the Exchange proposes that the 
requirement be withdrawn. The Exchange notes that the NYSE does not 
impose an independent legending requirement on its listed companies.

    \13\ 15 U.S.C. 77e.
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l. Delisting
    Section 1003 of the Company Guide specifies certain numerical 
guidelines that the Exchange will consider in determining whether to 
delist a particular security. It provides that the Exchange will 
normally consider delisting common stock ``if the total number of round 
lot shareholders of record is less than 300. . . .'' \14\ In recent 
years, the proportion of beneficial holders to record holders has 
increased dramatically because brokerage firms are increasingly holding 
securities for their customers in ``street name,'' and fewer customers 
are demanding physical delivery of their securities.\15\ 
Notwithstanding the fact that a company may have well over 300 round-
lot beneficial shareholders, the present guideline suggests that a 
company will be subject to delisting for failing to satisfy the 
requirement with respect to record holders. Accordingly, the Exchange 
proposes that Section 1003(b)(i)(B) will be amended to refer to 
``public shareholders'' (or warrantholders, in the case of warrant 
securities). This term will include both shareholders of record and 
beneficial holders, but exclude officers, directors, controlling 
shareholders, and other concentrated (i.e., 5% or greater), affiliated, 
or family holdings. In addition, the Exchange proposes that conforming 
changes be made to Sections 102, 103, 105, 106, 107, 110, and 118.

    \14\ Amex Company Guide Sec. 1003(b)(i)(B).
    \15\ This change in practice is in accordance with 
recommendations for increased safety and soundness in the securities 
industry made by the Bachmann Task Force. See Bachmann Task Force, 
Report of the Bachmann Task Force on Clearance and Settlement Reform 
in the U.S. Securities Markets 24-26 (May 1992) (recommending the 
reduction in use of physical certificates).
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)\16\ of the 
Act in general and furthers the objectives of Section 6(b)(5)\17\ in 
particular in that it is designed to promote just and equitable 
principles of trade and facilitate transactions in securities.

    \16\ U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change will impose no 
burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such other period (i) as the Commission may 
designate up to 90 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 the 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 submission 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, DC 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. 552, will be available for inspection and copying at the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 

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Washington, D.C. 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of the American 
Stock Exchange. All submissions should refer to File No. SR-Amex-95-28 
and should be submitted by October 31, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\

    \18\ 17 C.F.R. 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.

[FR Doc. 95-25019 Filed 10-6-95; 8:45 am]

BILLING CODE 8010-01-M