76690 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Notices

8 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 7s(b)(1).

2 17 CFR 240.19b–4.

3Letter dated November 20, 2000 from Cindy L.

Sink, Senior Attorney, PCX, to Nancy Sanow,

Assistant Director, Division of Market Regulation,

Commission (‘‘Amendment No. 1’’). Amendment

No. 1 specifies an implementation plan for the

proposed rule change.

change if it appears to the Commission

that such action is necessary or

appropriate in the public interest, for

the protection of investors, or otherwise

in furtherance of the purposes of the

Act.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposal is

consistent with the Act. Persons making

written submissions should file six

copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, NW., Washington, DC

20549–0609. 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 in

the Commission’s Public Reference

Room, 450 Fifth Street, NW.,

Washington, DC. Copies of such filing

will also be available for inspection and

copying at DTC’s principal office. All

submissions should refer to File No.

SR–DTC–00–19 and should be

submitted by December 28, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–31139 Filed 12–6–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43641; File No. SR–PCX–

00–40]

Self-Regulatory Organizations; Notice

of Filing of a Proposed Rule Change

and Amendment No. 1 Thereto by the

Pacific Exchange, Inc. Relating to

Audit Committee Requirements for

Listed Companies

November 29, 2000.

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 October

23, 2000, the Pacific Exchange, Inc.

(‘‘PCX’’ or ‘‘Exchange’’), through its

wholly-owned subsidiary, PCX Equities,

Inc. (‘‘PCXE’’), 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 PCXE. The Exchange filed

Amendment No. 1 to the proposed rule

change on November 22, 2000.3 The

Commission is publishing this notice to

solicit comments on the proposed rule

change, as amended, from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PCXE proposes to amend its rules

pertaining to composition of audit

committees of listed companies as

recommended by the Blue Ribbon

Committee on Improving Effectiveness

of Corporate Audit Committees. The text

of the proposed rule change is set forth

below. New text is in italics. Deletions

are in brackets.

Corporate Governance

Rule 5.3(a) Conflicts of interest—No change.

Rule 5.3(b) Independent Directors/Audit

Committee

The Corporation shall require that each

listed domestic issuer have at least two

independent directors on its board of

directors. Such issuer must maintain an audit

committee. [a majority of which] All audit

committee members must be independent

directors that satisfy the audit committee

requirement set forth below.

(1) Audit Committee Charter. The board of

directors must adopt and approve a formal

written charter for the audit committee. The

audit committee must review and reassess

the adequacy of the formal written charter on

an annual basis. The charter must specify the

following:

(i) The scope of the audit committee’s

responsibilities and how it carries out those

responsibilities, including structure,

processes, and membership requirements;

(ii) That the outside auditor is ultimately

accountable to the board of directors and the

audit committee of the company, that the

audit committee and board of directors have

the ultimate authority and responsibility to

select, evaluate, and, where appropriate,

replace the outside auditor (or to nominate

the outside auditor to be proposed for

shareholder approval in any proxy

statement); and

(iii) That the audit committee is

responsible for ensuring that the outside

auditor submits on a periodic basis to the

audit committee a formal written statement

delineating all relationships between the

auditor and the company and that the audit

committee is responsible for actively

engaging in a dialogue with the outside

auditor with respect to any disclosed

relationships or services that may impact the

objectively and independence of the outside

auditor and for recommending that the board

of directors take appropriate action in

response to the outside auditors’ report to

satisfy itself of the outside auditors’

independence.

(2) Composition/Expertise Requirement of

Audit Committee Members.

(i) Each audit committee will consist of at

least three independent directors, all of

whom have no relationship to the company

that may interfere with the exercise of their

independence from management and the

company (‘‘Independent’’);

(i) Each member of the audit committee

must be financially literate, as such

qualification is interpreted by the company’s

board of directors in its business judgment,

or must become financially literate within a

reasonable period of time after his or her

appointment to the audit committee; and

(iii) At least one member of the audit

committee must have accounting or related

financial management expertise, as the

Board of Directors interprets such

qualification in its business judgment.

(3) Independence Requirement of Audit

Committee Members. In addition to the

definition of Independent provided in

5.36(2)(i), the following restrictions shall

apply to every audit committee member:

(i) Employees: A director who is an

employee (including non-employee executive

officers) of the company or any of its

affiliates may not serve on the audit

committee until three years following the

termination of his or her employment. In the

event the employment relationship is with a

former parent or predecessor of the company,

the director could serve on the audit

committee after three years following the

termination of the relationship between the

company and the former parent or

predecessor. ‘‘Affiliate’’ includes a

subsidiary, sibling company, predecessor,

parent company, or former parent company.

(ii) Business Relationship. A director (a)

who is a partner, controlling shareholder, or

executive officer of an organization that has

a business relationship with the company, or

(b) who has a direct business relationship

with the company (e.g., a consultant) may

serve on the audit committee only if the

company’s board of directors determines in

its business judgment that the relationship

does not interfere with the director’s exercise

of independent judgment. In making a

determination regarding the independence of

a direct pursuant to this paragraph, the

board of directors should consider, among

other things, the materiality of the

relationship to the company, to the director,

and, if applicable, to the organization with

which the director is affiliated. ‘‘Business

relationships’’ can include commercial,

industrial, banking consulting, legal,

accounting and other relationships. A

director can have this relationship directly

with the company, or the director can be a

partner, officer or employee of an

organization that has such a relationship.

The director may serve on the audit

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Notices 76691

4See Securities Exchange Act Release Nos. 42231

(Dec. 14, 1999), 64 FR 71523 (Dec. 21, 1999)

(approving SR–NASD–99–48); 42232 (Dec. 14,

1999), 64 FR 71518 (Dec. 21, 1999) (approving SR–

AMEX–99–38); and 42233 (Dec. 14, 1999), 64 FR

71529 (Dec. 21, 1999) (approving SR–NYSE–99–39).

The proposed rule changes were, in large part,

adapted from NYSE Listed Company Manual

Sections 303.00, 303.01, and 303.02.

committee without the above-referenced

board of directors’ determination after three

years following the termination of, as

applicable, either (a) the relationship

between the organization with which the

director is affiliated and the company, (b) the

relationship between the director and his or

her partnership status, shareholder interest

or executive officer position, or (c) the direct

business relationship between the director

and the company.

(iii) Cross Compensation Committee Link.

A director who is employed as an executive

of another corporation where any of the

company’s executives serves on that

corporation’s compensation committee may

not serve on the audit committee.

(iv) Immediate Family. A director who is

an Immediate Family member of an

individual who is an executive officer of the

company or any of its affiliates cannot serve

on the audit committee until three years

following the termination of such

employment relationship. ‘‘Immediate

Family’’ includes a person’s spouse, parents,

children, siblings, mothers-in-law and

fathers-in-law, sons and daughters-in-law,

and anyone (other than employees) who

shares such person’s home.

(v) Notwithstanding the requirements of

subparagraphs (3)(i) and (3)(iv), one director

who is no longer an employee or who is an

Immediate Family member of a former

executive officer of the company or its

affiliates, but is not considered independent

pursuant to these provisions due to the threeyear restriction period, may be appointed,

under exceptional and limited

circumstances, to the audit committee if the

company’s board of directors determines in

its business judgment that membership on

the committee by the individual is required

by the best interests of the corporation and

its shareholders, and the company discloses,

in the next annual proxy statement

subsequent to such determination, the nature

of the relationship and the reasons for that

determination.

(4) Written Affirmation. As part of the

initial listing process, and with respect to any

subsequent changes to the composition of the

audit committee, and otherwise

approximately once each year, each

company should provide the Exchange

written confirmation regarding:

(i) any determination that the company’s

board of directors has made regarding the

independence of directors pursuant to any of

the subparagraphs above;

(ii) the financial literacy of the audit

committee member;

(iii) the determination that at least one of

the audit committee members has accounting

or related financial management expertise;

and

(iv) the annual review and reassessment of

the adequacy of the audit committee charter.

(5) ‘‘Officer’’ has the meaning specified in

Rule 16a–1(f) under the Securities Exchange

Act of 1934, or any successor rule.

(6) Initial Public Offering. Companies

listing in conjunction with their initial public

offering (including spin-offs and carve outs)

will be required to have two qualified audit

committee members in place within three

months of listing and a third qualifier

member in place within twelve months of

listing.

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

PCXE 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 Exchange 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

1. Purpose

The proposed rule change modifies

PCXE Rule 5.3(b), on audit committee

requirements of listed domestic issuers,

to conform to recommendations made

by the Blue Ribbon Committee on

Improving Effectiveness of Corporate

Audit Committees and rule changes

adopted by other SROs.4 The proposed

rule change specifies four requirements

for a qualified audit committee, defines

certain terms for purposes of the

proposed audit committee requirements,

and sets forth requirements for

companies listing on the Exchange in

conjunction with an initial public

offering.

First, proposed Rule 5.3(b)(1) requires

the board of directors of companies

listed on the Exchange to adopt and

approve a formal written charter for the

audit committee. The audit committee

must review and reassess the adequacy

of the formal written charter on an

annual basis. The charter must specify:

(i) The scope of the audit committee’s

responsibilities and how it carries out

those responsibilities, including

structure, processes, and membership

requirements; (ii) that the outside

auditor is ultimately accountable to the

board of directors and the audit

committee of the company, that the

audit committee and board of directors

have the ultimate authority and

responsibility to select, evaluate, and,

where appropriate, replace the outside

auditor (or to nominate the outside

auditor to be proposed for shareholder

approval in any proxy statement); and

(iii) that the audit committee is

responsible for ensuring that the outside

auditor submits on a periodic basis to

the audit committee a formal written

statement delineating all relationships

between the auditor and the company;

that the audit committee is responsible

for actively engaging in a dialogue with

the outside auditor with respect to any

disclosed relationships or services that

may impact the objectivity and

independence of the outside auditor;

and for recommending that the board of

directors take appropriate action in

response to the outside auditor’s report

to satisfy itself of the outside auditor’s

independence.

Second, proposed Rule 5.3(b)(2) sets

forth the composition and expertise

requirements of audit committee

members. The proposal requires: (i)

Each audit committee to consist of at

least three independent directors, all of

whom have no relationship to the

company that may interfere with the

exercise of their independence from

management and the company

(‘‘Independent’’); (ii) each member of

the audit committee to be financial

literate, as such qualification is

interpreted by the company’s board of

directors in its business judgment, or to

become financially literate within a

reasonable period of time after his or her

appointment to the audit committee;

and (iii) at least one member of the audit

committee to have accounting or related

financial management expertise, as the

Board of Directors interprets such

qualification in its business judgment.

Third, proposed Rule 5.3(b)(3)

provides the independence

requirements of audit committee

members. In addition to the definition

of Independent provided in Rule

5.3(b)(2)(i), the following restrictions

apply to every audit committee member.

(i) Employees. A director who is an

employee (including non-employee

executive officers) of the company or

any of its affiliates may not serve on the

audit committee until three years

following the termination of his or her

employment. In the event the

employment relationship is with a

former parent or predecessor of the

company, the director could serve on

the audit committee after three years

following the termination of the

relationship between the company and

the former parent or predecessor.

‘‘Affiliate’’ includes a subsidiary, sibling

company, predecessor, parent company,

or former parent company.

(ii) Business Relationship. A director

(a) who is a partner, controlling

76692 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Notices

5See Amendment No. 1, supra note 3. 6 15 U.S.C. 78f(b)(5).

shareholders, or executive officer of an

organization that has a business

relationship with the company, or (b)

who has a direct business relationship

with the company (e.g., a consultant)

may serve on the audit committee only

if the company’s board of directors

determines in its business judgment that

the relationship does not interfere with

the director’s exercise of independent

judgment. In making a determination

regarding the independence of a director

pursuant to this paragraph, the board of

directors should consider, among other

things, the materiality of the

relationship to the company, to the

director, and, if applicable, to the

organization with which the director is

affiliated. ‘‘Business relationships’’ can

include commercial, industrial,

banking, consulting, legal, accounting

and other relationships. A director can

have this relationship directly with the

company, or the director can be a

partner, officer or employee of an

organization that has such a

relationship. The director may serve on

the audit committee without the abovereference board of director’s

determination after three years

following the termination of, as

applicable, either (a) The relationship

between the organization with which

the director is affiliated and the

company, (b) the relationship between

the director and his or her partnership

status, shareholder interest or executive

officer position, or (c) the direct

business relationship between the

director and the company.

(iii) Cross Compensation Committee

Link. A director who is employed as an

executive of another corporation where

any of the company’s executives serves

on that corporation’s compensation

committee may not serve on the audit

committee.

(iv) Immediate Family. A director

who is an Immediate Family member of

an individual who is an executive

officer of the company or any of its

affiliates cannot serve on the audit

committee until three years following

the termination of such employment

relationship. ‘‘Immediate Family’’

includes a person’s spouse, parents,

children, siblings, mothers-in-law and

fathers-in-law, sons and daughters-inlaw, and anyone (other than employees)

who shares such person’s home.

(v) Notwithstanding the requirements

of subparagraphs (3)(i) and (3)(iv) of

Rule 5.3(b), one director who is no

longer an employee or who is an

Immediate Family member of a former

executive officer of the company or its

affiliates, but is not considered

independent pursuant to these

provisions due to the three-year

restriction period, may be appointed,

under exceptional and limited

circumstances, to the audit committee if

the company’s board of directors

determines in its business judgment that

membership on the committee by the

individual is required by the best

interests of the corporation and its

shareholders, and the company

discloses, in the next annual proxy

statement subsequent to such

determination, the nature of the

relationship and the reasons for that

determination.

Fourth, proposed Rule 5.3(b)(4) sets

forth on ongoing written affirmation

requirement. The proposal provides that

as part of the initial listing process, and

with respect to any subsequent changes

to the composition of the audit

committee, and otherwise

approximately once each year, each

company should provided the Exchange

written confirmation regarding: (i) any

determination that the company’s board

of directors has made regarding the

independence of directors pursuant to

any of the subparagraphs above; (ii) the

financial literacy of the audit committee

number; (iii) the determination that at

least one of the audit committee

members has accounting or related

financial management expertise; and

(iv) the annual review and reassessment

of the adequacy of the audit committee

charter.

Proposed Rule 5.3(b)(5) defines

‘‘Officer’’ to have the meaning specified

in Rule 16a–1(f) under the Act, or any

successor rule. Moreover, proposed Rule

5.3(b)(6) provides that companies listing

in conjunction with their initial public

offering (including spin-offs and carve

outs) will be required to have two

qualified audit committee members in

place within three months of listing and

a third qualified member in place

within twelve months of listing.

Finally, the Exchange proposes to

implement a transition period in order

to provide its issuers with sufficient

time to come into compliance with the

proposed rule change.5 Specifically, the

Exchange proposes (i) to ‘‘grandfather’’

all public company audit committee

members qualified under current PCX

rules until they are re-elected or

replaced and (ii) give companies

eighteen months from the date of SEC

approval of this rule filing to recruit the

requisite members for their audit

committees. Issuers listed on the

Exchange as of the effective date of the

proposed rule change will have six

months to adopt a formal written audit

committee charter.

2. Statutory Basis

The PCXE believes that the proposed

rule change is consistent with Section

6(b)(5) of the Act,6 which requires,

among other things, the Exchange’s

rules to be designed to prevent

fraudulent and manipulative acts and

practices and, in general, to protect

investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The PCXE does not believe that the

proposed rule change will impose any

burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The PCXE did not solicit or receive

written comments on the proposed rule

change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 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

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 Exchange 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,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. 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 in

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Notices 76693

7 17 CFR 200.30–3(a)(12).

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to the File No.

SR–PCX–00–40 and should be

submitted by December 28, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–31140 Filed 12–6–00; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF STATE

[Public Notice 3491]

Bureau of Educational and Cultural

Affairs; College and University

Affiliations Program for Algeria;

Request for Grant Proposals

SUMMARY: The Office of Global

Educational Programs of the Bureau of

Educational and Cultural Affairs

announces an open competition for an

assistance award program to support the

development of programs of instruction

and faculty training at one or more

universities in Algeria in business

management and entrepreneurship,

public administration, or another field

with significant potential impact on the

Algerian economy. Accredited, postsecondary educational institutions

meeting the provisions described in IRS

regulation 26 CFR 1.501(c) may apply to

pursue institutional or departmental

objectives in partnership with (an)

Algerian institution(s) with support

from the College and University

Affiliations Program. The means for

achieving the objectives of the applicant

and its partner(s) may include

mentoring, teaching, consultation,

research, distance education, internship

training, and professional outreach to

public and private sector managers and

entrepreneurs.

Overview and Project Objectives: The

project is designed to assist one or more

Algerian universities to develop a

modern curriculum and program in

business management or public

administration to facilitate the

development of business activity and

the quality, efficiency and integrity of

the private and public sectors in

Algeria. While priority will be given to

competitive proposals in business

management, proposals in public

administration and other fields are also

eligible if the proposals demonstrate

their potential impact on the Algerian

economy.

In business management, proposals

emphasizing practical strategies to assist

the faculty to develop a new curriculum

in business management focusing in

accounting, finance, banking, and

entrepreneurship are particularly

encouraged.

In public administration proposals

with potential economic impact through

assistance with curriculum reform and

faculty training in fields such as

taxation, financial management, land

registry/ownership and property rights

are also eligible. All proposals should

explain potential impact on the Algerian

economy.

For each project, applicants are

encouraged to develop outreach to and

collaboration with practitioners by

including them, together with junior

and senior instructors, in working

groups for faculty development and

curriculum design and development.

Bureau policy stipulates that awards

to organizations with less than four

years’ experience in conducting

international exchanges are limited to

$60,000. The Bureau anticipates

awarding one or two grants from a total

of $240,000 that is expected to be

available to support this program. Funds

will be awarded for a period up to three

years to defray the costs of exchanges,

to provide educational materials, and to

increase library holdings and improve

Internet connections. Up to 25% of the

grant total may be used to defray the

costs of project administration. Indirect

administrative costs are not an eligible

expense for Bureau funding under this

competition, but may be presented as

part of the U.S. institutional

contribution.

The project should pursue these

objectives through a strategy that

coordinates the participation of junior

and senior level faculty, administrators

or graduate students for any appropriate

combination of teaching, mentoring,

internships, in-service training and

outreach, for exchange visits ranging

from one week to an academic year.

Visits of one semester for participants

from Algeria are strongly encouraged

and program activities must be tied to

the goals and objectives of the program.

Proposals may also include English

language training for selected

participants whose prior knowledge of

English needs to be activated or

refreshed. Visits by representatives of

the American partner institution to

Algeria are not required, but short visits

may be proposed for eventual

implementation should conditions

permit. All applicants should read the

U.S. Department of State Travel

Warning for Algeria dated March 31,

2000.

U.S. Institution and Participant

Eligibility: In the United States,

participation in the program is open to

accredited two and four-year colleges

and universities, including graduate

schools, as well as to other

organizations meeting the provisions

described in IRS regulation 26 CFR

1.501(c). Applications from consortia or

other combinations of U.S. colleges and

universities are eligible. Secondary U.S.

partners may include governmental and

non-governmental organizations, as well

as non-profit service and professional

organizations. The lead U.S. university

in the consortium or other combination

of cooperating institutions is

responsible for submitting the

application. Each application must

document the lead organization’s

authority to represent all U.S.

cooperating partners.

Participants representing the U.S.

institution must be U.S. citizens. With

the exception of an outside consultant

reporting on the degree to which project

objectives have been achieved,

participants who are traveling under the

Bureau’s grant funds must be teachers,

advanced graduate students, who are

teaching or research assistants, or

administrators from the participating

institution(s). Advanced graduate

students are eligible for Bureau-funded

participation in this program only if

they are working under the direction of

an accompanying faculty participant.

Algerian Institution and Participant

Eligibility: In Algeria, the partner must

be a recognized institution of postsecondary education. Secondary foreign

partners may include relevant

governmental and non-governmental

organizations, as well as non-profit

service and professional organizations

concerned with issues in business

development or public administration

training in Algeria.

Foreign participants must be citizens

or permanent residents of Algeria and

qualified to receive a J–1 visa.

Budget Guidelines: Applicants may

submit a budget of up to $240,000.

Requests for amounts smaller than the

maximum are eligible. Budget and

budget notes should carefully justify the

amounts needed. There must be a

summary budget as well as a breakdown

reflecting the program and

administrative budgets including unit

costs. Cost sharing will be considered an

important indicator of institutional

commitment.

Please refer to the Solicitation

Package for complete guidelines and

formatting instructions.