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Notice

Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to Removal of Separate Exchange Requirements Regarding the Use of Consent Solicitations

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Start Preamble October 11, 2002.

On January 3, 2002, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1] and Rule 19b-4 thereunder,[2] a proposed rule change to remove separate NYSE requirements regarding the use of consent solicitations. The NYSE submitted Amendment No. 1 to the proposed rule change on May 23, 2002.[3] The proposed rule change was published for comment on June 26, 2002.[4] The Commission received no comments on the amended proposal. This order approves the proposed rule change, as amended.

The proposed rule change would amend Section 306 of the NYSE Listed Company Manual (“NYSE Manual”) to remove separate NYSE requirements regarding the use of consent solicitations. Currently, Section 306 of the NYSE Manual requires NYSE listed companies to obtain NYSE's permission to use consents in lieu of special meetings as proper authorization for shareholder approval of corporate action. In addition, Section 306 of the NYSE Manual currently sets forth the following guidelines that NYSE listed companies must follow in order to receive NYSE's permission: (1) A record date must be used; (2) consent material must be sent to all shareholders; (3) corporate action can not be taken until the solicitation period has expired—even if the required vote is received earlier; (4) a 30-day solicitation period is recommended and a minimum of 20 days is required; and (5) consent material must conform to normal proxy statement disclosure standards. In effect, these guidelines require corporations to solicit the consent of all shareholders.

Under the federal securities laws, when a corporation is permitted under state law to take corporate action without a shareholder meeting upon the written consent of a specified percentage of shareholders, such corporation is not required to solicit the consent of all shareholders. Instead, under certain circumstances, under Section 14(c) of the Exchange Act and Regulation 14C thereunder, the corporation is required to furnish to all shareholders an information statement that contains the same disclosure as a proxy or consent solicitation at least 20 days prior to the earliest date the corporate action can be taken.[5] The NYSE believes that under certain circumstances, the current requirements of Section 306 of the NYSE Manual are more onerous than those of the federal securities laws. Accordingly, the Exchange proposes to modify Section 306 of the NYSE Manual to eliminate the separate Exchange requirements with respect to use of consents in lieu of special meetings. Under the proposal, NYSE listed companies will no longer be required to obtain Exchange approval before using consents in lieu of special meetings as proper authorization for shareholder approval of corporate action. NYSE listed companies will be permitted to either: (1) Hold a special meeting of shareholders, or (2) use consents in lieu of special meetings when and as permitted by applicable law.[6]

The Exchange represents that it would, however, retain its traditional policy that listed companies may not use written consents in lieu of the annual meeting of shareholders at which directors are to be elected.[7]

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 [8] and, in particular, the requirements of section 6 of the Start Printed Page 64688Act.[9] The Commission finds specifically that the proposed rule change is consistent with section 6(b)(5) of the Act [10] because the proposed rule change requires NYSE listed companies to obtain shareholder consent in a manner that is consistent with federal securities laws.

As noted above, listed companies would be permitted to hold a special meeting of shareholders to take corporate action and nothing in NYSE rules require companies to use one method over the other to obtain shareholder approval of corporate action. Rather, the changes being approved to the NYSE rules simply permit listed companies to utilize consent as an alternative to shareholder approval only when and as permitted by applicable federal securities laws and state laws. Shareholder approval at a special meeting and consent under the conditions noted above would be the only two ways for listed companies to take corporate action under NYSE rules when shareholder approval is required. In approving the proposal, we note that the federal security law requirements help to ensure, among other things, that all shareholders receive adequate disclosure prior to such corporate action being taken.

Based on the above, the Commission believes the changes should remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest; and are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.

It is Therefore Ordered, pursuant to section 19(b)(2) of the Act,[11] that the proposed rule change (SR-NYSE-2002-01), as amended by Amendment No. 1, is approved.

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For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[12]

Margaret H. McFarland,

Deputy Secretary.

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Footnotes

3.  See letter from Darla C. Stuckey, Corporate Secretary, NYSE, to Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated May 22, 2002 (“Amendment No. 1”). In Amendment No. 1, the Exchange: (1) Added the following language to the proposed rule text: “(including interpretations thereof), including, without limitation,” and (2) added language to the purpose section clarifying the two options available to listed companies for obtaining shareholder approval.

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4.  See Securities Exchange Act Release No. 46092 (June 19, 2002), 67 FR 43199.

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6.  As amended, Section 306 of the NYSE Manual specifically states that listed companies must comply with “applicable state and federal law and rules (including interpretations thereof), including, without limitation, SEC Regulations 14A and 14C.”

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7.  See Section 306 of the NYSE Manual.

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8.  In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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[FR Doc. 02-26683 Filed 10-18-02; 8:45 am]

BILLING CODE 8010-01-P