[Federal Register Volume 62, Number 214 (Wednesday, November 5, 1997)]
[Notices]
[Pages 59928-59932]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29197]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39284; File No. SR-NASD-97-38]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Granting Approval to Proposed Rule Change, and 
Amendment No. 1 thereto, Relating to the Application of the NASD 
Corporate Financing Requirements To Exchange Offers, Mergers and 
Acquisitions, and Other Similar Transactions

October 29, 1997.
    On May 23, 1997, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') submitted to the Securities and 
Exchange Commission (``SEC'' or ``Commission''), 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 clarify the application 
of Rules 2710 and 2720 to exchange offers, merger and acquisition 
transactions, and other similar corporate reorganizations. On June 19, 
1997, the NASD submitted Amendment No. 1 to the proposed rule 
change.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the NASD amended Rule 2710(b)(7)(F)(i) 
to replace the phrase ``listed on the Nasdaq National Market, the 
New York Stock Exchange, or American Stock Exchange'' with 
``designated as a Nasdaq National Market security or listed on the 
New York Stock Exchange or American Stock Exchange.'' Letter from 
Suzanne E. Rothwell, Chief Counsel, Corporate Financing, NASD 
Regulation, to Kathy England, Assistant Director, Division of Market 
Regulation, SEC (June 18, 1997).
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    The proposed rule change and Amendment No. 1 were published for 
comment in Securities Exchange Act Release No. 38822 (July 8, 1997), 62 
FR 38150 (July 16, 1997). No comments were received on the proposal. 
This order approves the proposed rule change as amended.

I. Introduction

    Rule 2710 of the Conduct Rules of the NASD (``Corporate Financing 
Rule'') requires that members file with the Corporate Financing 
Department of the NASD public offerings of securities for review of the 
proposed underwriting terms and arrangements, which terms and 
arrangements must comply with that rule. Rule 2720 of the Conduct Rules 
(``Conflicts Rule'') establishes standards in addition to those in Rule 
2710 to address the conflicts-of-interest that occur in connection with 
a public offering of the securities of a member, the parent of a 
member, an affiliate of a member, or other issuer with whom the member 
has a conflict-of-interest. For an offering to be subject to filing 
under the Corporate Financing and Conflicts Rules, a member must be 
considered to be ``participating'' in the offering and the offering 
must be one that is subject to the filing requirements. Paragraph 
(a)(5) of Rule 2710 defines ``participation or participating in a 
public offering'' to include participation in the preparation of the 
offering or other documents, participation in the distribution of the 
offering on an underwritten, non-underwritten, or any other basis, 
furnishing of customer and/or broker lists for solicitation, or 
participation in any advisory or consulting capacity to the issuer 
related to the offering, but not the preparation of an appraisal in a 
savings and loan conversion or a bank offering or the preparation of a 
fairness opinion pursuant to Rule 13e-3 under the Act.\4\
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    \4\ 17 CFR 240.13e-3.
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    With respect to offerings subject to compliance with the Rules, the 
Corporate Financing and Conflict Rules apply to most ``public 
offerings'' of securities, which is defined in Rule 2720(b)(14) to 
include, among other things, ``offerings made pursuant to a merger or 
acquisition.'' Neither the Corporate Financing Rule nor the Conflicts 
Rule currently identifies the types of mergers and acquisitions subject 
to filing and compliance with those rules. The NASD has, therefore, 
determined to amend Rules 2710 and 2720 to clarify the application of 
the requirements of the Corporate Financing and Conflicts Rules to 
exchange offers, mergers and acquisitions, and similar corporate 
reorganizations and make other related amendments. In view of the 
increasing amount of merger and acquisition activity, the NASD believes 
that the proposed amendments to Rule 2710 and 2720 will provide 
certainty and eliminate confusion regarding their application to such 
transactions.
    With respect to the time-sensitive nature of many mergers and 
acquisitions, exchange offers, and similar corporate reorganizations 
that would become subject to filing as a result of approval of the 
proposed rule change, the NASD previously announced a policy to 
expedite the review of such offerings by the Corporate Financing 
Department.\5\ In general, it is anticipated that a comment letter will 
be issued by the Corporate Financing Department of the NASD within 48 
hours of receipt of the filing

[[Page 59929]]

of the documents related to such a transaction, so long as the 
documentation and related information submitted meet the requirements 
set forth in subparagraphs (b) (5) and (6) of Rule 2710 and the 
appropriate filing fee is included.
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    \5\ See Notice to Members 95-73 (September 1995) (``NTM 95-
73''). A copy of NTM 95-73 was submitted as Exhibit 2 to the NASD's 
proposal and is available for inspection and copying in the 
Commission's Public Reference Room.
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II. Description of the Proposal

    The NASD is proposing to amend the Corporate Financing and 
Conflicts Rules to clarify their application to exchange offers, merger 
and acquisition transactions, and other similar corporate 
reorganizations and make other related changes. The amendments limit 
the application of the rules to narrow situations where pre-offering 
review under the Corporate Financing Rule or the application of the 
Conflicts Rule is believed necessary to protect investors. Thus, in 
general, an exchange offer will be subject to the Conflicts Rule and 
required to be filed with the Corporate Financing Department for review 
when a member is participating in solicitation activities related to an 
offer involving securities that are exempt from SEC registration. In 
addition, exchange offers, merger and acquisition transactions, and 
other similar corporate reorganizations will be subject to the 
Conflicts Rule, and required to be filed for review, if there is an 
issuance of securities that results in the direct or indirect public 
ownership of a member.

Description of Proposed Rule Change to Rule 2710

    The filing requirements of the Corporate Financing Rule subject an 
offering to compliance with that rule and, if the offering consists of 
securities issued by a member, the parent of a member, an affiliate of 
a member, or an issuer with which the member has a conflict-of-interest 
(as that latter term is defined in Rule 2720), to compliance with the 
Conflicts rule. Paragraph (b)(9) of Rule 2710 is intended to provide 
clarification of certain types of public offerings required to be filed 
with the Corporate Financing Department of the NASD for review. 
Paragraph (b)(9) is proposed to be amended to add new subparagraph (H) 
that would require the filing of exchange offers exempt from 
registration under Sections 3(a)(4), 3(a)(9), and 3(a)(11) of the 
Securities Act of 1933 (``Securities Act''),\6\ where the member 
engages in active solicitation, and exchange offers registered with the 
Commission if a member acts as a dealer manager.\7\ Active solicitation 
occurs when a member directly solicits or contacts securityholders, 
acts as a dealer manager, performs tasks that are performed by investor 
relations firms (i.e., contacts securityholders to determine the action 
they intend to take), contacts securityholders to determine whether 
they have received the offering materials, answers unsolicited 
contacts, and participates in meetings with securityholders or their 
advisors before or after an exchange offer begins.\8\ In contrast, 
active solicitation does not encompass the delivery of a ``fairness 
opinion,'' advice as to the structure and terms of the exchange offer, 
assistance in the preparation of the offering documents to be sent to 
securityholders, nor any other functions that do not involve direct 
solicitation or direct contact with securityholders.
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    \6\ 15 U.S.C. 77c(a)(4), 77c(a)(9), and 77c(a)(11).
    \7\ In this context, the term ``exchange offer'' is intended to 
refer to transactions where one security is issued in exchange for 
another security of the issuer or another entity, and is 
distinguished from mergers, acquisitions and other corporate 
reorganizations (except if accomplished through an exchange offer) 
registered on a Form S-4 or F-4.
    \8\ The concept of ``solicitation'' in rules 2710 and 2720 is 
different than in Section 3(a)(9) of the Securities Act. For 
example, activities by a broker/dealer that would not be 
``soliciting'' for purposes of Section 3(a)(9) may nonetheless come 
within the concept of ``solicitation'' for purposes of the 
requirement to file an offering with NASD Regulation for review 
under Rules 2710 and 2720. See applicable SEC no-action letters on 
Section 3(a)(9). Further, the application of the filing requirements 
of Rule 2710 does not depend upon whether remuneration is paid to 
the member. Thus, regardless of whether a member is paid for 
soliciting the exchange, an exchange offer would be subject to 
filing if the member engages in solicitation activities as described 
in this rule filing.
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    The NASD is not extending the filing requirement to other public 
exchange offers exempt from registration because such offerings are 
either subject to the oversight of a court or of another review 
authority, such as the Comptroller of the Currency or the Federal 
Deposit Insurance Corporation.\9\
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    \9\ See 15 U.S.C. 3(a)(5), 3(a)(6), 3(a)(10), and 3(a)(12).
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    With respect to exchange offers registered on Forms S-4 or F-4, 
filing is expressly limited to those distributions where the member is 
engaged by the company to act as dealer manager and solicits consents 
on behalf of the company to the proposed reorganization and to 
otherwise facilitate the exchange of securities. In such exchange 
offers, the member generally acts as a financial advisor to help 
structure the transaction and will receive a fee, as well as 
distribution-related compensation for services rendered.
    To the extent an exchange offer exempt under Sections 3(a) (4), 
(9), and (11) of the Securities Act or registered with the SEC does not 
fall within the filing requirement in new subparagraph (b)(9)(H) to 
Rule 2710 because the member is not engaging in solicitation activities 
or is not acting as dealer manager, respectively, the exchange offer is 
considered exempt from compliance with the Corporate Financing and 
Conflicts Rules because the member is not considered to be 
``participating in the offering.''
    The NASD, however, is also proposing to add subparagraph (b)(7)(F) 
to Rule 2710 to exempt from filing exchange offers where the securities 
to be issued or the securities of the company to be acquired are 
designated as a Nasdaq National Market security or listed on the New 
York Stock Exchange (``NYSE'') or American Stock Exchange (``Amex'') or 
where the company issuing securities qualifies to register securities 
on SEC Registration Form S-3, F-3 or F-10.
    The exemption for companies qualified to register securities on SEC 
Registration Form S-3, F-3, or F-10 applies to those companies that 
meet the standards for the Forms in subparagraphs (C) (i) and (ii) of 
paragraph (b)(7) of Rule 2710 in order to restrict the exemption to 
domestic companies that meet the standards for Forms S-3 and F-3 prior 
to October 21, 1992 and to Canadian-incorporated foreign private 
issuers that meet the standards for Form F-10 approved in Release No. 
34-29354.\10\ This provision would require, in general, that a domestic 
company have a three-year history as a public reporting company, and be 
in compliance with the current year's periodic reporting requirements 
of the Act (with respect to the timely filing of Forms 10-Qs and 10-
Ks). In addition, the minimum required market value of a company's 
common stock must be as follows: Form S-3, $150 million (or $100 
million market value of voting stock and three million shares annual 
trading volume); and Form F-3, $300 million held world-wide. For Form 
F-10, Canadian private issuers must have (CN) $360 aggregate value of 
voting stock and a public float of (CN) $754 million.
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    \10\ See Securities Exchange Act Rel. No. 29354 (June 21, 1991), 
56 FR 30036 (July 1, 1991); and Notice to Members 93-88 (December 
1993), which includes a copy of Forms S-3 and F-3 as those Forms 
existed prior to October 21, 1992 and Form F-10 as approved by the 
SEC on June 21, 1991.
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    Paragraph (b)(7) of the Corporate Financing Rule, which includes 
the two filing exemptions for exchange offers discussed above, lists 
those public offerings not required to be filed for review with the 
Corporate Financing Department. However, the underwriting terms and 
arrangements of such exempt offerings must be in compliance with the 
requirements of Rule 2710 or 2810,

[[Page 59930]]

as applicable. Moreover, any offering exempt from filing under 
paragraph (b)(7) must nonetheless be filed if the offering is subject 
to Rule 2720, the Conflicts Rule, and is subject to review by the 
Corporate Financing Department for compliance with Rules 2710 and 
2720.\11\
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    \11\ See infra note 14.
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    Paragraph (b)(9) of the Corporate Financing Rule is also proposed 
to be amended to add subparagraph (I) to require the filing of any 
exchange offer, merger or acquisition transaction, and similar 
corporate reorganization that involves an issuance of securities that 
results in the direct or indirect public ownership of a member.\12\ 
Such offerings would be subject to compliance with Rule 2710 and Rule 
2720.\13\ The NASD has long held the view that pre-offering review is 
vital to protect investors when the member and the issuer are in a 
control relationship that is addressed through the application of Rule 
2720. The NASD has previously clarified that mergers or acquisitions 
involving an issuer and a member or its parent that result in the 
direct or indirect public ownership of a member are subject to 
compliance with Rule 2720, regardless of whether the merger or 
acquisition occurs subsequent to the issuer's initial public 
offering.\14\
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    \12\ This latter filing requirement does not, it is important to 
note, require the filing of exchange offers, mergers, acquisitions, 
and corporate reorganizations involving an offering of securities of 
an affiliate of a member other than a parent or of an issuer that 
otherwise has a conflict-of-interest with a member.
    \13\ Paragraph (n) of Rule 2720 provides that all offerings of 
securities included within the scope of that Rule are also subject 
to the provisions of Rule 2710, even though an exemption from filing 
may be available under Rule 2720.
    \14\ See Notice to Members 88-100 (December 1988). In that 
notice, the Association expressed its special concerns regarding the 
merger of blank check companies in the penny stock market with 
privately held holding companies of members, indirectly creating a 
publicly-held NASD member without having to comply with Rule 2720.
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    Paragraph (b)(8) of Rule 2710 lists those offerings that, although 
within the definition of ``public offering,'' are exempted from 
compliance with Rule 2710 and 2720. The NASD is proposing to add 
subparagraphs (I) and (J) to paragraph (b)(8) to provide an exemption 
from filing and compliance with Rules 2710 and 2720 for:
    1. Spin-off and reverse spin-off transactions involving a 
subsidiary or affiliate of the issuer, where the securities are issued 
as a dividend or distribution to current shareholders; and
    2. Securities registered with the SEC in connection with a merger, 
acquisition, or other similar business combination, except if the 
offering would be filed under subparagraph (b)(9)(I), described above, 
because it involves a transaction that results in the direct or 
indirect public ownership of a member.
    In addition, the NASD is proposing to add subparagraph (c)(6)(B)(v) 
to Rule 2710 to provide that it is an unreasonable term and arrangement 
for a member to receive a right to receive a ``tail fee' arrangement 
that has a duration of more than two years from the date the member's 
services are terminated, in the event an offering is not completed and 
the issuer subsequently consummates a similar transaction. Such 
arrangements are currently only provided in connection with exchange 
offers. It is believed that the real benefit derived by a company that 
grants a ``tail fee' arrangement is the creativity of the strategic 
advice given by the member for the particular transaction that may 
include, among other things, assisting the company in defining 
objectives, performing valuation analyses, formulating restructuring 
alternatives, and structuring the offering. In particular, in the case 
of an exchange offer, a member providing financial advance will 
generally have provided considerable ongoing financial advisory 
services to the company.
    The proposed ``tail fee'' prohibition also, however, would permit a 
member to demonstrate on the basis of information satisfactory to the 
NASD that an arrangement of more than two years is not unfair or 
unreasonable under the circumstances. The ability of the staff of the 
Corporate Financing Department to grant exceptions upon request is 
intended to be used where the member can demonstrate that the 
creativity of the strategic advice provided by the member has a 
potential benefit to the company for more than two years. In the case 
of exchange offers exempt from filing but subject to compliance with 
the Rule under subparagraph (b)(7)(F), where the ``tail fee'' 
arrangement is proposed to have a duration of longer than two years, a 
member would be required to request an opinion of the staff as to 
whether the arrangement is permissible under the Rule. In the case of 
any other offering exempt from filing under subparagraph (b)(7), a 
member is required to request an opinion of the staff as to whether it 
has ``no objections'' as to any proposed ``tail fee'' arrangement.
    As set forth above, although ``tail fee'' arrangements are 
currently granted only in connection with exchange offers, the 
provision is written to regulate such an arrangement in connection with 
any type of public offering subject to compliance with the Corporate 
Financing Rule. Where a ``tail fee'' arrangement is proposed in 
connection with public offerings that are not exchange offers, the NASD 
staff will consider whether the arrangement is justified by the 
services provided by the member to the issuer. Where the member does 
not appear to have provided the type of substantial structuring and/or 
advisory services to the issuer similar to those that are described 
above, other than those services traditionally provided in connection 
with a distribution of a public offering, a proposed ``tail fee'' 
arrangement will be considered to be unfair and unreasonable on the 
basis that the arrangement would violate Rule 2110 (the Association's 
basic ethical rule) and Rule 2430 since the member is proposing to be 
paid for services that the member has not provided to the issuer. This 
position is consistent with subparagraph (c)(6)(B)(iv) of Rule 2710, 
which prohibits a member from receiving compensation in connection with 
an offering of securities that is not completed, except for 
compensation received in connection with a transaction (i.e., a merger 
transaction) that occurs in lieu of the proposed offering as a result 
of the member's efforts and the reimbursement of the member's 
reasonable out-of-pocket accountable expenses.

Description of Proposed Rule Change to Rule 2720

    The NASD is proposing to amend the Conflicts Rule to conform the 
scope section of the Rule to the amendments to the filing requirements 
of Rule 2710 and to clarify the responsibilities of a qualified 
independent underwriter in an exchange offer subject to compliance with 
rule 2720. Paragraph (a) of Rule 2720 is proposed to be amended to add 
subparagraph (3) to provide that in the case of an exchange offer, 
merger and acquisition transaction, or similar corporate 
reorganization, compliance with Rule 2720 is required only if the 
offering comes within subparagraph (b)(9)(h) of Rule 2710, where the 
issuance of securities is by a member or the parent of a member or if 
the offering comes within subparagraph (b)(9)(I). As set forth above, 
proposed subparagraph (b)(9)(H) would require the filing of exchange 
offers exempt under Section 3(a)(4), 3(a)(9), and 3(a)(11) of the 
Securities Act, if the member's participation involves active 
solicitation activities, and of exchange offers registered with the 
SEC, if the member is acting as dealer manager. Thus, the exemption 
from filing for such exchange offers provided by proposed

[[Page 59931]]

subparagraph (b)(7)(F), where the securities are designated as a Nasdaq 
National Market security or listed on the NYSE or Amex or the issuer 
qualifies to register the securities on Form S-3, F-3, or F-10, is not 
available if the exchange offer is by a member or parent of a 
member.\15\ As further set forth above, proposed subparagraph(b)(9)(I) 
would require the filing of any exchange offer, merger and acquisition 
transaction, or similar corporate reorganization involving an issuance 
of securities that results in the direct or indirect public ownership 
of a member.\16\
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    \15\ See supra note 13.
    \16\ This filing requirement is consistent with the position 
announced in Notice to Members 88-100 (December 1988) and paragraph 
(i) of Rule 2720 which states: ``* * * if an issuer proposes to 
engage in any offering which results in the public ownership of a 
member * * * the offering shall be subject to the provisions of this 
Rule to the same extent as if the transaction had occurred prior to 
the filing of the offering.''
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    The NASD is also proposing to amend Rule 2720 to clarify the 
obligations of a qualified independent underwriter \17\ that would be 
required by subparagraph (c)(3) of Rule 2720 to perform due diligence 
with respect to the offering document and provide a recommendation with 
respect to the exchange value of an exchange offer, merger and 
acquisition transaction, or similar corporate reorganization. 
Currently, the Conflicts Rule requires that the price at which an 
equity issue or the yield at which a debt issue is to be distributed to 
the public be established at a price no higher or yield no lower than 
that recommended by a qualified independent underwriter (who shall also 
participate in the preparation of the registration statement and shall 
exercise the usual standards of ``due diligence'' in respect thereto). 
The NASD is proposing to amend subparagraph (c)(3)(A) of Rule 2720 by 
adding a new exception to state that in any exchange offer, merger and 
acquisition transaction or corporate reorganization subject to Rule 
2720, the provision which requires that the price or yield of the 
securities be established based on the recommendation of a qualified 
independent underwriter shall not apply and instead, the exchange value 
of the securities being offered in the transaction shall not be less 
than that recommended by a qualified independent underwriter.
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    \17\ A member must meet a number of requirements in order to be 
qualified independent underwriter under subparagraph (b)(15) of Rule 
2720, including the requirement that the member ``has agreed in 
acting as a qualified independent underwriter to undertake the legal 
responsibilities and liabilities of an underwriter under the 
Securities Act of 1933, specifically including those inherent in 
Section 11 thereof.'' Participation of a qualified independent 
underwriter is not required by Rule 2720 if the offering is of 
equity securities that meet the test of having a ``bona fide 
independent market'' or is of debt that is rated investment grade.
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    Finally, in order to make clear that the offerings that are exempt 
under subparagraph (b)(8) of Rule 2710 (that include exemptions for 
offerings of securities issued in a spin-off or in a merger registered 
with the SEC on Form S-4 or F-4) are also exempt from Rule 2720, 
paragraph (o) of Rule 2720 is being amended to reference the exemptions 
from Rule 2720 that are provided in subparagraph (b)(8) of Rule 2710.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to the Association, and, in particular, with the 
requirements of Section 15A(b) of the Act.\18\ Among other things, 
Section 15A(b)(6) of the Act requires that the rules of a national 
securities association be designed to foster cooperation and 
coordination with persons engaged in regulation, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and in general, to 
protect investors and the public interest.\19\
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    \18\ 15 U.S.C. 78f(b).
    \19\ In approving this rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
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    Specifically, the Commission believes that the proposed amendments 
to Rules 2710 and 2720 should reduce confusion regarding the 
application of the NASD's Corporate Financing and Conflicts Rules to 
exchange offers, mergers and acquisitions, and other similar corporate 
reorganizations. The Commission supports efforts by the NASD to 
streamline the process for participation by members in public offerings 
by clarifying when pre-offering review is necessary and in the public 
interest.

A. Amendment to Rule 2710

    The Commission believes that it is appropriate to amend Rule 2710 
to require filing of exchange offers exempt from registration under 
Sections 3(a)(4), 3(a)(9), and 3(a)(11) of the Securities Act,\20\ 
where the member engages in active solicitation, and exchange offers 
registered with the Commission if a member acts as a dealer manager. 
When a member actively solicits securityholders with respect to 
exempted exchange offers, or acts as a dealer manager with respect to 
exchange offers registered on Form S-4 or F-4, pre-offering review is 
necessary to prevent fraudulent and manipulative acts and practices, 
and protect investors.
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    \20\ 15 U.S.C. 77c(a)(4), 77c(a)(9), and 77c(a)(11).
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    The Commission believes that it is appropriate to amend Rule 2710 
to exempt from filing exchange offers where securities to be issued or 
the securities of the company to be acquired are designated as a Nasdaq 
National Market security or listed on the NYSE or Amex or where the 
company issuing securities qualifies to register securities on SEC 
registration Form S-3, F-3 or F-10. The Commission notes that the 
listing standards of the three markets require a minimum number of 
independent directors on the Board of Directors. This requirement 
should ensure that the independent directors of the acquiror or target 
will evaluate the offer and that sufficient information will be 
distributed to shareholders and markets, so that investors can make an 
informed decision regarding whether to sell or hold securities.
    The Commission also believes that it is appropriate to amend Rule 
2710 to exempt from filing spin-off and reverse spin-off transactions 
involving a subsidiary of affiliate of the issuer, where the securities 
are issued as a dividend or distribution to current shareholders, and 
securities registered with the SEC in connection with a merger, 
acquisition, or other similar business combination. The Commission 
agrees that spin-off transactions to existing securityholders as a 
dividend or other distribution may not involve an investment decision 
by shareholders and, consequently, any member acting as a financial 
advisor to the parent company is not generally involved in any public 
solicitation in connection with the transaction.\21\ Further, merger 
transactions and similar business combinations registered with the SEC 
generally only involve a member in providing financial advice to the 
Board of Directors of the acquiror or target, that may include an 
obligation that the

[[Page 59932]]

member issue a fairness opinion regarding the acquisition price.
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    \21\ It should be noted, however, that where a spin-off is 
followed by a traditional public offering by the spun-off company to 
raise capital, the company's initial public offering would be 
subject to the Corporate Financing Rule's filing requirements and to 
compliance with Rule 2720. This analysis would require the filing of 
any public offering to raise capital that follows a merger, 
acquisition, exchange offer or other corporate reorganization that 
would be exempt from filing under Rule 2710 or exempt from 
compliance with Rules 2710 and 2720. In the latter case, the 
offering may fall within another exemption from filing, such as the 
filing exemptions provided by subparagraphs (b)(7) (A), (C) or (D) 
of Rule 2710.
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B. Amendment to Rule 2720

    The Commission believes that it is appropriate to amend Rule 2720 
to state that in any exchange offer, merger and acquisition transaction 
or corporate reorganization subject to Rule 2720, the provision which 
requires that the price or yield of the securities be established based 
on the recommendation of a qualified independent underwriter shall not 
apply and, instead, the exchange values of the securities being offered 
in the transaction shall not be less than that recommended by a 
qualified independent underwriter. The Commission believes that the 
proposed new provision would clarify that the obligation of the 
qualified independent underwriter is to ensure that the recipient of 
the exchange offer, which is the party intended to be protected by the 
participation of a qualified independent underwriter, shall not receive 
fewer of the securities being issued in exchange for each security held 
by the recipient than is recommended by the qualified independent 
underwriter.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-NASD-97-38) is approved.

    \22\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-29197 Filed 11-4-97; 8:45 am]
BILLING CODE 8010-01-M