SECURITIES AND EXCHANGE COMMISSION Washington, D.C. SECURITIES EXCHANGE ACT OF 1934 Rel. No. 38999 / September 2, 1997 Admin. Proc. File No. 3-9064 : In the Matter of the Application of : : RYAN-MURPHY INCORPORATED : 774 Yates Drive, Suite 100 : Westminster, Colorado 80030 : : For Review of Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : : OPINION OF THE COMMISSION REGISTERED SECURITIES ASSOCIATION -- DELISTING OF SECURITY FROM THE NASDAQ SMALLCAP MARKET Failure to Satisfy Requirements for Continued Inclusion Registered securities association delisted a security because the issuer failed to meet the $1 minimum bid price requirement and failed to qualify for exception to the minimum bid price requirement. Held, review proceeding is dismissed. APPEARANCES: Bruce T. Hissom, President and Chief Executive Officer of Ryan-Murphy Incorporated, for that company. Robert E. Aber and Sara Nelson Bloom, for the Nasdaq Stock Market, Inc. Appeal filed: August 12, 1996 Last brief received: November 13, 1996 I. Ryan-Murphy Incorporated ("RMI" or the "Company") appeals the decision of the National Association of Securities Dealers, Inc. ("NASD") to delist the Company's securities from the Nasdaq Stock Market, Inc. ("Nasdaq") SmallCap Market ("Nasdaq SmallCap"). The NASD found that RMI had failed to maintain either the required $1 minimum bid price or, in the alternative, a public float market value of $1 million and capital and surplus of $2 million (the "alternative listing criteria"). <(1)> The NASD further <(1)> For continued inclusion of a security on Nasdaq SmallCap, Section 1(c)(4) of Part II of Schedule D to (continued...) found that those securities were not entitled to an exception from these listing criteria. Our findings are based on an independent review of the record. II. RMI is a Colorado corporation, which provides environmental remediation, investigation, construction management, and consulting services to clients with properties contaminated with petroleum and waste. The Company's shares were listed on the Nasdaq SmallCap beginning in 1986. On April 24, 1995, the Nasdaq staff informed RMI that, based upon review of price data from the previous ten consecutive trading days, RMI's shares had failed to maintain the $1 minimum bid price required for continued listing on Nasdaq SmallCap. The Nasdaq staff likewise noted that the Company had not met the alternative listing criteria. The Nasdaq staff gave RMI ninety days in which to demonstrate eligibility for continued listing on Nasdaq SmallCap. <(2)> During the subsequent ninety days, the bid price for RMI's shares remained below $1. On July 25, 1995, the Nasdaq staff informed the Company that its shares would be delisted from the Nasdaq SmallCap as of the close of the market on August 8, 1995 unless RMI was granted a temporary exception to the minimum bid price requirement. <(3)> The Company <(1)>(...continued) the NASD's By-Laws [new Rule 4310(c)(4)] requires that the security maintain a minimum bid price of $1. This requirement is waived if the issuer maintains a market value of public float of $1 million and $2 million in capital and surplus. The NASD has revised and renumbered its Rules. At that time, no substantive changes were made to the particular rules at issue here. On March 27, 1997, the NASD filed with this Commission a proposed rule change affecting the NASD listing rules applied in this proceeding. On April 2, 1997, the Commission published a notice soliciting comments on the proposed rule change from interested persons. See Securities Exchange Act Rel. No. 38469 (April 2, 1997), 64 SEC Docket 621. <(2)> Section 1(c)(8)(b) of Part II of Schedule D to the NASD's By-Laws [new Rule 4310(c)(8)(B)] provides that, once the NASD determines that an issuer's securities have failed to maintain the minimum bid price and market value of public float required for continued inclusion, the NASD must notify the issuer promptly and give the issuer 90 calendar days in which to "achieve compliance with the applicable continued inclusion standard." <(3)> Section 3(d) of Part II of Schedule D to the NASD's By- Laws [new Rule 4330(d)] permits the NASD to grant (continued...) ======END OF PAGE 2====== requested a hearing before the Nasdaq Listing Qualifications Committee ("Qualifications Committee"). RMI asked the Qualifications Committee for an exception, acknowledging that it was not then in compliance with the minimum bid price requirement. On August 24, 1995, the Nasdaq staff informed RMI that, since, as of June 30, 1995, the Company had reported capital and surplus of $935,513, RMI would also require an exception to the capital and surplus requirement. <(4)> At a September 7, 1995 hearing, the Company proposed to remedy its bid price deficiency by seeking shareholder approval for a 1-for-30 reverse stock split, which would reduce the number of RMI's outstanding shares of common stock from 17,728,526 to 590,951. The Company represented that it planned shortly to file a proxy statement with this Commission. RMI projected that the reverse split would become effective October 11, 1995, less than five weeks after the hearing. RMI proposed to remedy its capital and surplus deficiency through an anticipated agreement with a Venezuelan firm, Ambiente Americas, C.A. ("Ambiente"). Upon completion of the transactions contemplated by the agreement, RMI would acquire 51% of Ambiente's outstanding shares. RMI would, in turn, receive $900,000 in assets, consisting of a permit to open a waste treatment facility in Venezuela, and the buildings and land on which the facility would be operated. <(5)> Prior to the projected reverse stock split, the Company would issue approximately 71 million (pre- reverse split) new shares of RMI common stock to Bruce T. Hissom, the owner of Ambiente, and certain of his affiliates, in exchange for Hissom's ownership interest in Ambiente. After the consummation of these transactions and the reverse stock split, Hissom and his affiliates would own approximately 80% of RMI's outstanding common stock. In a pro forma balance sheet giving effect to the proposed Ambiente transaction, the Company projected total assets of $4,688,000, liabilities of $2,092,000, and capital and surplus of $2,040,000. RMI admitted at the hearing that the audits accompanying its Annual Reports on Form 10-K for the year ending December 31, 1994 had expressed doubt about the Company's ability to continue as a going concern. RMI detailed its plans to institute cost-cutting measures and to enter into a new contract which, RMI represented, with other existing contracts, would <(3)>(...continued) exceptions to certain inclusion requirements "where [the NASD] deems it appropriate." <(4)> Section 1(c)(3) of Part II of Schedule D to the NASD's By-Laws [new Rule 4310(c)(3)] provides that an issuer must maintain at least $1 million in capital and surplus for continued inclusion in Nasdaq. <(5)> RMI represented at the hearing that the waste treatment facility would begin operations in the first or second quarter of 1996. In RMI's annual report on Form 10-K for 1995, however, the Company reported that operations would not begin until the third or fourth quarter of 1996. ======END OF PAGE 3====== provide a revenue stream for the Company for the foreseeable future. <(6)> The Company forecast that it would break even and return to profitability by the end of 1995. On September 12, 1995, the Qualifications Committee informed RMI that it had determined not to grant the requested exceptions. The Qualifications Committee explained that it had not been convinced of the Company's ability in the future to regain and/or maintain compliance with the listing requirements. As a consequence, the Qualifications Committee delisted RMI's securities from the Nasdaq SmallCap effective September 13, 1995. RMI appealed the Qualification Committee's decision to the Nasdaq Hearing Review Committee ("Review Committee"). In a decision dated January 23, 1996, the Review Committee affirmed the Qualifications Committee's denial of RMI's exception requests. The Review Committee noted that, while RMI's shareholders had, by the time of its decision, approved the 1-for-30 reverse stock split, the Company had not effected either the reverse stock split or the proposed transactions with Ambiente, Hissom, and Hissom's affiliates. The Review Committee also found that, between November 28, 1995 and December 12, 1995, the Company's bid price had not achieved the minimum $1 bid price requirement. <(7)> In its most recent quarterly report on Form 10-Q for the quarter ended September 30, 1995, moreover, RMI had reported capital and surplus of $514,727, substantially less than the $1 million required for continued listing on the Nasdaq SmallCap. RMI's reverse stock split was effected on February 12, 1996. On February 15, 1996, RMI requested that the Review Committee reconsider its decision. RMI informed the Nasdaq staff that, since January 13, 1996: (a) the 1-for-30 reverse stock split had been effected; (b) the Company's bid price was approximately $2.10; (c) the transactions with Hissom and his affiliates had been completed; and (d) the Company's assets exceeded $3.3 million and its capital and surplus exceeded $1.2 million. RMI also provided pro forma balance sheets reflecting these changes. On February 21, 1996, the Review Committee agreed to reconsider its decision on the condition that RMI file by March 31, 1996 its annual report on Form 10-K for the year ending December 31, 1995 with the NASD and this Commission. RMI, however, did not file its annual report on Form 10-K until April 11, 1996. This filing did not include audited financial <(6)> In its quarterly report on Form 10-Q for the period ended September 30, 1995, the Company subsequently reported that this contract had been terminated. <(7)> During this period, the Company's reported bid price was $.05. The Review Committee did not explain why it chose this particular ten-day period. ======END OF PAGE 4====== statements. <(8)> On April 26, 1996, RMI filed an amended annual report on Form 10-K including audited financial statements. Despite RMI's failure to file timely its annual report, the Review Committee, on May 7, 1996, notified RMI that the Nasdaq Listing and Hearing Review Committee ("Listing Review Committee") would reconsider the Review Committee's January 23 decision denying the Company's request for exceptions, and requested that any supplemental materials for this committee's consideration be provided by May 10, 1996. The Company submitted additional materials to the Listing Review Committee between May 29 and June 6, 1996, including: (a) recently secured contracts in the United States, Europe, and South America; (b) a business plan describing the Company's internal reorganization and operations in Venezuela; (c) information about RMI's engagement of a financial advisory firm to obtain bridge financing; and (d) information about RMI's engagement of a public relations firm to increase RMI's profile in the investment and brokerage communities. On July 12, 1996, the Listing Review Committee affirmed the January 23, 1996 decision and determined to deny RMI's "request to relist" on the Nasdaq SmallCap. The Listing Review Committee concluded that, although the Company appeared to have been in compliance with the capital and surplus requirement as of December 31, 1995, the end of the period covered by RMI's annual report on Form 10-K, the Company's minimum bid price had fallen and remained below $1 during the period under review. <(9)> The Listing Review Committee also expressed concern about the Company's ability to maintain long-term compliance with the capital and surplus requirement, given its recurring losses and working capital deficiency. The Listing Review Committee also observed that the Company's business plan appeared speculative. It noted that, despite the steps taken by RMI's management, in the Company's Form 10-K for the year ending December 31, 1995, RMI's auditors had continued to express substantial doubt as to the Company's ability to continue as a going concern. The Listing Review Committee concluded that -- in light of the recent agreements to issue approximately 80% of the company's outstanding common stock to Hissom and his affiliates -- there had been both a change in control and a change in RMI's financial structure, which would, in any event, necessitate a new application by the <(8)> RMI filed a Notification of Late Filing on Form 12b-25 with this Commission on March 29, 1995, explaining that the late filing of its annual report on Form 10-K was due to the fact that RMI's auditors needed additional time to travel to Venezuela to complete their review of the Company's recently-acquired assets located there. The Company did not provide the NASD with a copy of its Form 12b-25 until May 1996. <(9)> Between May 25 and July 1, 1996, RMI's bid price ranged between $.13 and $.63, with virtually no trading volume. ======END OF PAGE 5====== Company for initial inclusion in the Nasdaq SmallCap. <(10)> This appeal followed. III. RMI seeks reversal of the NASD's action and an order directing the NASD to relist the Company's shares on the Nasdaq SmallCap. In general, on review of an action of this nature, we determine whether the specific grounds on which the NASD's action is based exist in fact, whether such action is in accordance with applicable NASD rules, and whether those rules are, and were applied in a manner, consistent with the purposes of the federal securities laws. <(11)> We find that, based on the three factors identified in Section 19(f) of the Securities Exchange Act of 1934, the NASD acted properly in denying RMI's request for exceptions to the minimum bid price and capital and surplus requirements, and in delisting RMI's shares from the Nasdaq SmallCap, thus warranting dismissal of this appeal proceeding. <(12)> The specific grounds on which the NASD acted in delisting RMI are supported by the record. The Nasdaq staff first notified RMI in April 1995 that the bid price for the Company's shares was below the $1 level for ten consecutive trading days. Thereafter, the Nasdaq staff monitored the bid price of RMI's shares on at least three separate occasions: (a) between April and July 1995, (b) between November and December 1995, and (c) between May and June 1996. <(13)> During each monitoring period, the shares' bid price remained below $1. Thus, it appears that RMI failed consistently to meet the $1 minimum bid price requirement. Moreover, RMI was unable to show its eligibility for a waiver of <(10)> See Section 3(f) of Part II of Schedule D to the NASD's Bylaws, [new Rule 4330(f)]. <(11)> Section 19(f) of the Securities Exchange Act of 1934, 15 U.S.C.  78s(f). <(12)> RMI has not alleged, and based on the record we do not believe, that Nasdaq's actions were not taken in accordance with NASD rules or that such rules were, or were applied in a manner, inconsistent with the federal securities laws. <(13)> The record does not explain how the Nasdaq staff chose these three particular periods. We believe that, in the future, an explanation of the Nasdaq staff's choice of time periods would be useful. ======END OF PAGE 6====== the minimum bid price requirement because the Company had failed to demonstrate compliance with the alternative listing criteria. RMI contends that it satisfied the $1 minimum bid price criteria for continued listing for a full ninety-day period between February 12, 1996 and May 23, 1996, and thus contends that the NASD unfairly selected a ten- day period during which its minimum bid price was less than $1 in deciding to deny the Company's request for continued listing. RMI claims that, had the Listing Review Committee met to consider its exception request "on a timely basis, i.e., within thirty days after granting the Company's request for reconsideration," (in or around March 1996), the Company would have been found in compliance with the $1 minimum bid requirement. We have interpreted the NASD's listing requirements to require more than mere temporary compliance with the minimum bid price requirement in order to protect the interests of prospective investors. <(14)> The Company's minimum bid price, moreover, was far below $1 for the period from April 1995 to February 1996. This recurrent failure to meet the minimum bid price criteria supported the NASD's decision to delist RMI's shares. The NASD also considered the supplemental materials provided by RMI and concluded that they did not demonstrate that RMI could regain and maintain minimum listing criteria. <(15)> Concerns about RMI's financial situation were subsequently confirmed by RMI's poor financial performance even after the Ambiente and Hissom transactions were consummated and the reverse stock split was effected. By July 1996, the Company's bid price was once again below the $1 minimum required for continued listing on the Nasdaq SmallCap and its capital and surplus were below the level required to satisfy the alternative listing criteria. Even assuming that the Nasdaq committees had determined that the Company was temporarily in compliance and were to relist RMI, the precipitous decline in RMI's bid price and erosion of its capital would have, in all likelihood, subjected RMI to a subsequent delisting. RMI contends that it was unfairly and adversely affected by delays caused by the NASD's corporate restructuring. <(16)> While we note that the basis of the NASD's evaluation of whether RMI complied with the listing criteria changed during the course of this proceeding, we observe <(14)> See Prairie Pacific Energy Corporation, Securities Exchange Act Rel. No. 37919 (November 4, 1996), 63 SEC Docket 447, 452 n.9 (temporary rise in share price above $1 was not sufficient to justify re-listing on Nasdaq SmallCap). <(15)> See, e.g., Gunther International Ltd., Securities Exchange Act Rel. No. 37073 (April 5, 1996), 61 SEC Docket 2081, 2087 (NASD was well-founded in its concern for firm to meet listing requirements in the future). <(16)> RMI claims that consideration of its exception requests was delayed because the NASD transferred the responsibility for considering such requests from the Review Committee to the newly-constituted Listing Review Committee in April 1996. ======END OF PAGE 7====== that RMI had ample notice of the Nasdaq's minimum listing requirements and was given numerous opportunities to demonstrate its eligibility for listing. Moreover, RMI was given several opportunities to provide supplemental information to the various Nasdaq committees. RMI, however, failed timely to effectuate transactions or to meet deadlines for filing its annual report on Form 10-K for the year ending December 31, 1995, and failed to maintain more than temporary compliance with the minimum listing criteria. Under these circumstances, we do not see how RMI was prejudiced in any way by the Nasdaq reorganization. RMI claims that it relied to its detriment on the belief that the NASD merely required it to comply with the minimum listing requirements for an isolated ten-day period in order for the Company to be relisted. RMI asserts that, as of June 1, 1996, the Company was "well positioned" for "relisting" on the Nasdaq SmallCap because it had -- in accordance with the plan it submitted to the Review Committee -- registered new market makers, completed financial agreements and contracts, and engaged a public relations firm to promote the Company's stock. RMI argues that it made these and other commitments "with the understanding that it met the compliance requirements set forth by the [NASD] and would therefore be relisted." As discussed above, RMI had a continuing obligation to satisfy the maintenance requirements for listing. While the continued delisting of RMI's securities may have an adverse impact upon the Company's existing shareholders, primary emphasis must be placed on the interests of prospective future investors. <(17)> In any event, we note that RMI could continue to list its securities on the Nasdaq Over-The- Counter Bulletin Board. RMI appears to suggest that the Review Committee's decision to delist RMI may have been unfairly influenced by the Company's change in ownership subsequent to the Ambiente and Hissom transactions. RMI admits that these transactions resulted in a change of its ownership, but contends that its management nevertheless remained the same. We do not see how this argument supports RMI's request to be relisted on the Nasdaq SmallCap. We note that Nasdaq Rule 4330(f) requires any company entering into a merger or consolidation resulting in a change in ownership or control, and either a change in business or financial structure, to comply with all initial listing requirements. As described above, we sustain the finding that RMI failed to satisfy the Nasdaq's maintenance listing criteria, which are considerably lower than the initial listing criteria. We do not read the Review Committee's decision to have been based on anything other than RMI's failure to satisfy these objective criteria and we therefore conclude that the Company was not prejudiced by RMI's change in ownership. <(17)> See Gunther International Ltd., 61 SEC Docket at 2087 (primary emphasis should be placed on future investors); DHB Capital Group, Inc., Securities Exchange Act Rel. No. 37069 (April 5, 1996), 61 SEC Docket 2049, 2056 (same); KLH Engineering Group, Inc., Securities Exchange Act Rel. No. 36422 (October 26, 1995), 60 SEC Docket 1714, 1720 (same); Biorelease Corporation, Securities Exchange Act Rel. No. 35575 (April 6, 1995), 59 SEC Docket 84, 92 (same). ======END OF PAGE 8====== IV. We find that a sufficient factual basis existed to delist RMI's securities from the Nasdaq SmallCap, that the NASD acted fairly and in accordance with its rules and that those rules are, and were applied, consistent with the purposes of the federal securities laws. Accordingly, we have determined to dismiss this review proceeding. An appropriate order will issue. <(18)> By the Commission (Chairman LEVITT and Commissioners WALLMAN, JOHNSON, and HUNT). Jonathan G. Katz Secretary <(18)> All of the contentions advanced by the parties have been considered. The contentions are rejected or sustained to the extent that they are inconsistent or in accord with the views expressed herein. ======END OF PAGE 9====== UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Rel. No. 38999 / September 2, 1997 Admin. Proc. File No. 3-9064 : In the Matter of the Application of : : RYAN-MURPHY INCORPORATED : 774 Yates Drive, Suite 100 : Westminster, Colorado 80030 : : For Review of Action Taken by the : : NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. : : ORDER DISMISSING REVIEW PROCEEDING On the basis of the Commission's opinion issued this day, it is ORDERED that the application for review filed by Ryan-Murphy Incorporated be, and it hereby is, dismissed. By the Commission. Jonathan G. Katz Secretary