9398 Federal Register / Vol. 66, No. 26 / Wednesday, February 7, 2001 / Notices

16 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Future Priced Securities are private financing

instruments which were created as an alternative

means of quickly raising capital for issuers. A

Future Priced Security is generally structured in the

form of a convertible security and is often issued

via a private placement. See IM–4300.

4This provision is designed to address situations

where a company attempts to obtain a ‘‘backdoor

listing’’ on Nasdaq by merging with a Nasdaq issuer

with minimal assets and/or operations.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–3112 Filed 2–6–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43907; File No. SR–NASD–

01–01]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc. To Amend NASD Rule

4330(f) To Require a Nasdaq Issuer To

Apply for Initial Inclusion Following a

Reverse Merger With a Non-Nasdaq

Entity

January 30, 2001.

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 January 9,

2001, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), through its wholly

owned subsidiary, the Nasdaq Stock

Market, Inc. (‘‘Nasdaq’’), filed with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’) the proposed

rule change as described in Items I, II,

and III below, which Items have been

prepared by Nasdaq. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

Nasdaq has filed with the

Commission a proposed rule change to

amend NASD Rule 4330(f) to require a

Nasdaq issuer to apply for initial

inclusion following a reverse merger

with a non-Nasdaq entity. Nasdaq also

proposes to make conforming changes to

IM–4300, Interpretive Material

Regarding Future Priced Securities.3

Below is the text of the proposed rule

change. Proposed new language is

italicized; proposed deletions are in

brackets.

* * * * *

IM–4300. Interpretive Material

Regarding Future Priced Securities

* * * * *

[Change of Control and Change in

Financial Structure] Reverse Merger

NASD Rule 4330(f) provides:

[Nasdaq shall require a Nasdaq

SmallCap Market issuer to comply with

all applicable requirements for initial

inclusion under this Rule 4300 Series

and shall require a Nasdaq National

Market issuer to comply with all

applicable requirements for initial

inclusion under the Rule 4300 Series

and Rule 4400 Series in the event that

such issuer enters into a merger,

consolidation, or other type of

acquisition with a non-Nasdaq entity

(including domestic and foreign

corporations and limited partnerships),

which results in a change of control and

either a change in business or change in

the financial structure of the Nasdaq

SmallCap Market or Nasdaq National

Market issuer.]

An issuer must apply for initial

inclusion following a transaction

whereby the issuer combines with a

non-Nasdaq entity, resulting in a change

of control of the issuer and potentially

allowing the non-Nasdaq entity to

obtain a Nasdaq Listing (for purposes of

this rule, such a transaction is referred

to as a ‘‘Reverse Merger’’). In

determining whether a Reverse Merger

has occurred, Nasdaq 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 issuer. Nasdaq will also consider the

nature of the businesses and the relative

size of the Nasdaq issuer and nonNasdaq entity.

This provision, which applies

regardless of whether the issuer obtains

shareholder approval for the

transaction, requires issuers to qualify

under the initial inclusion standards

following a Reverse M[m]erger [or

consolidation that results in a change of

control if there is also a change in either

the business or the financial structure of

the issuer].4 It is important for issuers to

realize that in certain instances, the

conversion of a Future Priced Security

may implicate this provision. For

example, if there is no limit on the

number of common shares issuable

upon conversion, or if the limit is set

high enough, the exercise of conversion

rights under a Future Priced Security

could result in a [change of control in

a deemed] Reverse M[m]erger [or

consolidation] with the holders of the

Future Priced Securities. [In addition,

the issuance of the Future Priced

Security and the large increase in the

number of common shares outstanding

after conversion of the Future Priced

Security may be viewed as a change in

financial structure.] In such event, an

issuer may be required to re-apply for

initial inclusion and satisfy all initial

inclusion requirements.

* * * * *

Rule 4330. Suspension or Termination

of Inclusion of a Security and

Exceptions to Inclusion Criteria

(a)–(e) No change.

(f) [Securities issued in connection

with the merger, consolidation, or other

type of acquisition of at least one issuer

of qualifying securities shall be

promptly included in Nasdaq, provided

that the conditions of Rule 4310(c) or

rule 4320(e) for securities that have

already been included are satisfied.

Nasdaq shall require a Nasdaq SmallCap

Market issuer to comply with all

applicable requirements for initial

inclusion under this Rule 4300 Series

and shall require a Nasdaq National

Market issuer to comply with all

applicable requirements for initial

inclusion under the Rule 4300 Series

and Rule 4400 Series in the event that

such issuer enters into a merger,

consolidation, or other type of

acquisition with a non-Nasdaq entity

(including domestic and foreign

corporations and limited partnerships),

which results in a change of control and

either a change in business or change in

the financial structure of the Nasdaq

SmallCap Market or Nasdaq National

Market issuer.]

An issuer must apply for initial

inclusion following a transaction

whereby the issuer combines with a

non-Nasdaq entity, resulting in a change

of control of the issuer and potentially

allowing the non-Nasdaq entity to

obtain a Nasdaq Listing (for purposes of

this rule, such a transaction is referred

to as a ‘‘Reverse Merger’’). In

determining whether a Reverse Merger

has occurred, Nasdaq 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 issuer. Nasdaq will also consider the

nature of the businesses and the relative

size of the Nasdaq issuer and nonNasdaq entity.

* * * * *

Federal Register / Vol. 66, No. 26 / Wednesday, February 7, 2001 / Notices 9399

5See Securities Exchange Act Release No. 32264

(May 4, 1993), 58 FR 27760 (May 11, 1993)

(ordering approving File No. SR–NASD–93–07).

6 It is not necessary to obtain a majority interest

in order for a change of control to occur. 7 15 U.S.C. 78o–3(b)(6).

8 17 CFR 200.30–3(a)(12)

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

Nasdaq 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. Nasdaq 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 purpose of the proposed rule

change is to amend NASD Rule 4330(f)

(the ‘‘Rule’’) which provides, in

pertinent part, that a Nasdaq issuer must

comply with all applicable initial

inclusion requirements under Nasdaq

rules in the event that the issuer enters

into a merger, consolidation, or other

type of acquisition with a non-Nasdaq

entity, which results in a change of

control and either a change in business

or a change in the financial structure of

the Nasdaq issuer.

Nasdaq originally adopted the Rule in

1993 to address the trend of non-Nasdaq

entities seeking a ‘‘backdoor listing’’ on

Nasdaq through a business combination

involving a Nasdaq issuer.5 In these

combinations, a non-Nasdaq entity

purchased a Nasdaq issuer in a

transaction that resulted in the nonNasdaq entity obtaining a Nasdaq listing

without qualifying for initial listing or

being subject to the background checks

and scrutiny normally applied to issuers

seeking initial listing.

Some issuers and their counsel have

expressed uncertainty regarding the

exact circumstances under which the

Rule is applicable. Therefore, Nasdaq

proposes to amend the Rule to more

clearly define that it is intended to

apply to business combinations between

a Nasdaq issuer and a non-Nasdaq entity

in which there is a change of control of

the Nasdaq issuer 6 and the potential for

the non-Nasdaq entity to acquire a

Nasdaq listing (for purposes of this rule,

such a transaction is referred to as a

‘‘Reverse Merger’’). To provide further

clarification, the proposed Rule would

also set forth a list of non-exclusive

factors to be considered when

determining whether a Reverse Merger

has occurred. These factors include

changes in the management, board of

directors, voting power, ownership, and

financial structure of the Nasdaq issuer.

The nature of the businesses and the

relative size of the Nasdaq issuer and

non-Nasdaq entity would also constitute

additional factors to be considered.

Nasdaq believes that these proposed

amendments will clarify the Rule for

issuers while continuing to prevent

‘‘backdoor listings’’ on Nasdaq.

Nasdaq also proposes to make

conforming changes to IM–4300,

Interpretive Material Regarding Future

Priced Securities.

2. Statutory Basis

Nasdaq believes that the proposed

rule change is consistent with Section

15A(b)(6) 7 of the Act, in that the

proposal is designed to prevent

fraudulent and manipulative acts and

practices, and to protect investors and

the public interest. As noted above, the

proposed rule change is aimed at

clarifying NASD Rule 4330(f), which

prevents non-Nasdaq entities from

obtaining a ‘‘backdoor listing’’ on

Nasdaq through a business combination

involving a Nasdaq issuer.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

Nasdaq does not believe that the

proposed rule change will result in 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

No written comments were solicited

or received with respect to 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 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,

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, N.W.,

Washington, D.C. 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. Copies of such filing will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to File No.

SR–NASD–01–01 and should be

submitted by February 28, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–3113 Filed 2–6–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43911; Filed No. SR–PCX–

00–46]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Pacific Exchange, Inc. Relating to

Prohibition of Harassment

January 31, 2001.

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 December

13, 2000, the Pacific Exchange, Inc.

(‘‘PCX’’ 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