Document ID: SEC-2007-0780-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2007-06-06T04:00Z

[Federal Register: June 6, 2007 (Volume 72, Number 108)]
[Notices]               
[Page 31355-31357]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06jn07-131]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55837; File No. SR-Amex-2006-99]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval to Proposed Rule Change and Amendment No. 1 Thereto 
Relating to Reverse Mergers and Shareholder Approval for Change of 
Control Situations

May 31, 2007.

I. Introduction

    On October 5, 2006, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act (``Act''), and Rule 19b-4 thereunder,\2\ a proposed rule 
change relating to reverse mergers. On February 14, 2007, the Exchange 
filed Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change was published for comment in the Federal Register on March 22, 
2007.\4\ The Commission received no comments on the proposed rule 
change. This order approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 makes revisions to the proposed rule text, 
including revisions conforming the proposed rule text to a filing 
submitted by The NASDAQ Stock Market LLC (``Nasdaq'') and approved 
by the Commission in the period following submission of the original 
filing (Securities Exchange Act Release No. 55052 (January 5, 2007), 
72 FR 1569 (January 12, 2007) (SR-NASDAQ-2006-047)) and revisions 
incorporating an immediately effective filing submitted by Amex in 
the same period (Securities Exchange Act Release No. 55096 (January 
12, 2007), 72 FR 2563 (January 19, 2007) (SR-Amex-2007-03)). 
Amendment No. 1 replaces and supersedes the original filing in its 
entirety.
    \4\ See Securities Exchange Act Release No. 55477 (Mar. 15, 
2007), 72 FR 13542.

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[[Page 31356]]

II. Description of the Proposal

    The Exchange proposes to amend (i) Section 341 of the Amex Company 
Guide (``Guide'') to clarify the circumstances under which a listed 
issuer will be deemed to have engaged in a reverse merger thereby 
requiring the post-transaction entity to satisfy the initial listing 
standards and the process a listed issuer must follow when applying for 
initial listing in connection with a reverse merger and (ii) Section 
713 of the Guide to require shareholder approval in connection with the 
issuance or potential issuance of additional listed securities that 
will result in a change of control of a listed issuer.
    Section 341 of the Guide currently provides that if an issuer 
listed on the Amex engages in any plan of acquisition, merger or 
consolidation, the net effect of which is that the listed issuer is 
acquired by an unlisted entity, even if the listed issuer is the 
nominal survivor, the post-transaction entity is required to satisfy 
the initial listing standards. Such transactions are typically referred 
to as ``Reverse Mergers.'' Because the issuer resulting from a Reverse 
Merger is essentially a different entity from the listed issuer, 
Section 341 does not permit the post-transaction entity to remain 
listed on the Amex unless it qualifies as a new listing. The Exchange 
stated that this prohibition is intended to prevent ``back door 
listings'' whereby an unqualified entity attempts to obtain an Amex 
listing. Both the New York Stock Exchange LLC (``NYSE'') \5\ and Nasdaq 
\6\ have comparable provisions.
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    \5\ Section 703.08(E) of the NYSE Listed Company Manual.
    \6\ Nasdaq Rule 4340(a).
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    The Exchange stated that many Reverse Mergers are entered into for 
bona fide business reasons; however, in some cases listed issuers that 
are not in compliance with the continued listing standards, and face 
potential delisting, attempt to enter into Reverse Mergers with private 
entities in order to retain their Amex listing. In other situations, 
the Exchange explained that a listed issuer may be in compliance with 
the continued listing standards but the post-transaction entity would 
not satisfy the initial listing standards. In both of these cases, a 
change of control occurs but the listed issuer attempts to structure 
the transaction so that it will not be deemed a Reverse Merger under 
the current rule.
    The Exchange proposes amending Section 341 to provide greater 
clarity and transparency as to (i) What constitutes a Reverse Merger, 
(ii) the factors the Exchange will consider in determining whether a 
transaction or series of transactions constitute(s) a Reverse Merger, 
(iii) the consequences of entering into a Reverse Merger and (iv) the 
process a listed issuer must follow in connection with a Reverse 
Merger. The proposed rule change will provide that, in addition to 
meeting the initial listing standards, a listed company entering into a 
Reverse Merger will need to obtain shareholder approval in accordance 
with Section 713 in order to issue additional listed securities in 
connection with such Reverse Merger. In addition, while the 
determination of whether a Reverse Merger has occurred or will occur is 
to some degree subjective, the Exchange proposes to amend Section 341 
to more clearly delineate the factors that will be considered by the 
Exchange in its analysis of a transaction.\7\
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    \7\ The Exchange's proposed Section 341 states that a ``Reverse 
Merger'' is: ``any plan of acquisition, merger or consolidation 
whereby a listed company combines with, or into, a company not 
listed on the Exchange, resulting in a change of control of the 
listed company and potentially allowing such unlisted company to 
obtain an Exchange listing. In determining whether a change of 
control constitutes a Reverse Merger, the Exchange will consider all 
relevant factors, including, but not limited to, changes in the 
management, board of directors, voting power, ownership, and 
financial structure of the listed company. The Exchange will also 
consider the nature of the businesses and the relative size of both 
the listed and the unlisted companies.'' See proposed Section 341 of 
the Guide.
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    Section 341 currently recommends that listed issuers submit any 
proposed plan which could constitute a Reverse Merger to the Exchange 
for an informal opinion prior to the plan's promulgation. The Exchange 
stated that the intent of such provision is to permit Exchange staff to 
review the proposed transaction in order to determine if it constitutes 
a Reverse Merger and, in the case of a Reverse Merger, to review the 
post-transaction entity in order to confirm that it will meet initial 
listing standards. The Exchange proposes to make such process more 
transparent by requiring a listed issuer to submit an initial listing 
application with sufficient time to permit the Exchange to complete its 
review of the post-transaction entity and providing that delisting 
proceedings will be commenced if such initial listing application has 
not been approved prior to consummation of the Reverse Merger. The 
Commission approved a similar rule change filed by Nasdaq.\8\
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    \8\ See supra note 3.
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    In association with the proposed changes to Section 341, the 
Exchange also proposes to amend Section 713. Section 713 currently 
requires shareholder approval as a prerequisite to Exchange approval of 
applications to list additional shares issued in connection with a 
transaction (other than a public offering) which would involve the 
application of the initial listing standards in evaluating an 
acquisition of a listed company by an unlisted company under Section 
341 of the Guide. The Exchange proposes revising Section 713 to require 
shareholder approval as a prerequisite to Exchange approval of 
additional listing applications when the issuance or potential issuance 
of additional securities will result in a change of control of a listed 
issuer, regardless of whether such change of control also constitutes a 
Reverse Merger. Additionally, the Exchange proposes changes to Sections 
341 and 713 to clarify the relationship between their respective 
requirements. Both NYSE \9\ and Nasdaq \10\ require shareholder 
approval for change of control transactions and the Exchange believes 
it is necessary and appropriate to require listed issuers to obtain 
shareholder approval of any issuance or potential issuance of 
additional listed securities that will result in a change of control.
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    \9\ Section 312.03(d) of the NYSE Listed Company Manual.
    \10\ Nasdaq Rule 4350(i)(1)(B).
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III. Discussion

    After careful review of the proposal, the Commission finds that the 
proposed rule change, as amended, is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\11\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\12\ 
which requires, among other things, that the rules of an exchange be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
the national market system, and, in general, to protect investors and 
the public interest.
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    \11\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition and 
capital formation. See 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal will help listed 
companies by providing greater clarity as to the process a listed 
company must follow in connection with a reverse merger. More 
specifically, the Commission notes that the proposed rule change 
provides guidance to issuers on what constitutes a Reverser Merger 
under the Exchange's rules, as well as the consequences of such a 
transaction, including potential

[[Page 31357]]

delisting. This additional guidance may be helpful to investors as 
well.
    Finally, the Commission notes that the Exchange is clarifying and 
broadening its shareholder approval rules by requiring shareholder 
approval in all change of control situations, not just Reverse Mergers, 
which will protect investors and the public interest. This should allow 
investors of listed issuers to participate in important corporate 
decisions involving a change of control. While certain change of 
control situations would require shareholder approval under other 
provisions of the Guide, this proposal ensures that all change of 
control situations must be approved by shareholders, thereby 
strengthening the Exchange's shareholder approval requirements, and is 
consistent with comparable rules of the New York Stock Exchange and 
Nasdaq.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-Amex-2006-99) be, and hereby 
is, approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-10871 Filed 6-5-07; 8:45 am]

BILLING CODE 8010-01-P