[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