[Federal Register Volume 65, Number 199 (Friday, October 13, 2000)]
[Notices]
[Pages 61011-61012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26381]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43420; File No. SR-NASD-00-50]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
the Definition of ``Public Offering'' for Purposes of Nasdaq's 
Shareholder Approval Rules

October 6, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 11, 2000, 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 the NASD.\2\ On October 4, 2000, the Nasdaq filed Amendment No. 1 to 
the proposed rule change.\3\ The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ The American Stock Exchange, Inc. has filed a similar 
proposed rule change SR-Amex-00-46. See Securities Exchange Act 
Release No. 43419 (Oct. 6, 2000).
    \3\ Amendment No. 1 changes the section under which the proposed 
rule change was filed from Section 19(b)(3) to Section 19(b)(2) of 
the Act and made other technical changes. See Letter from Edward 
Knight, Executive Vice President and Chief Legal Officer, Nasdaq, to 
Katherine A. England, Assistant Director, SEC (Oct. 2, 2000).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq is filing with the Commission a proposed rule change 
regarding the adoption of interpretive material defining ``Public 
Offering'' for purposes of Nasdaq's shareholder approval rules. Below 
is the text of the proposed rule change. All text is being added.
* * * * *

IM-4310-2. Definition of a Public Offering

    Marketplace Rules 4310(c)(25)(G)(i)(d), 4320(e)(21)(G)(i)(d), 
and 4460(i)(1)(D) provide that shareholder approval is required for 
the issuance of common stock (or securities convertible into or 
exercisable for common stock) equal to 20 percent or more of the 
common stock or 20 percent or more of the voting power outstanding 
before the issuance for less than the greater of book or market 
value of the stock. Under these rules, however, shareholder approval 
is not required for a ``public offering.''
    Issuers are encouraged to consult with Nasdaq staff in order to 
determine if a particular offering is a ``public offering'' for 
purposes of the shareholder approval rules. Generally, a firm 
commitment underwritten securities offering registered with the 
Commission will be considered a public offering for these purposes. 
Likewise, any other securities offering which is registered with the 
Commission and which is publicly disclosed and distributed in the 
same general manner and extent as a firm commitment underwritten 
securities offering will be considered a public offering for 
purposes of the shareholder approval rules. However, Nasdaq staff 
will not treat an offering as a ``public offering'' for purposes of 
the shareholder approval rules merely because they are registered 
with the Commission prior to the closing of the transaction.
    When determining whether an offering is a ``public offering'' 
for purposes of these rules, Nasdaq staff will consider all relevant 
factors, including but not limited to:
    (i) the type of offering (including whether the offering is 
conducted by an underwriter on a firm commitment basis, or an 
underwriter or placement agent on a best-efforts basis, or whether 
the offering is self-directed by the issuer);
    (ii) the manner in which the offering is marketed (including the 
number of investors offered securities, how those inventors were 
chosen, and the breadth of the marketing effort);
    (iii) the extent of the offering's distribution (including the 
number and identity of the investors who participate in the offering 
and whether any prior relationship existed between the issuer and 
those investors);
    (iv) the offering price (including the extent of any discount to 
the market price of the securities offered); and
    (v) the extent to which the issuer controls the offering and its 
distribution.

* * * * *

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 NASD 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 statement may be examined at the places specified in Item 
IV below. The NASD 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

(a) Purpose
    Nasdaq rules require shareholder approval for stock issuances of 20 
percent or more of an issuer's total shares outstanding, offered at 
less than the greater of book or market value. The applicable rules 
further provide, however, that shareholder approval is not required for 
a ``public offering,'' although that term is not defined in the rules. 
Recently, a number of issuers have inquired as to whether certain 
large, below-market offerings were ``public offerings'' because the 
transactions, which were initiated pursuant to exceptions to the 
registration requirements, were registered with the Commission prior to 
closing the transactions.\4\ Historically, for purposes of assessing 
the applicability of the shareholder approval rules, Nasdaq staff has 
interpreted ``public offering'' as a broadly distributed, registered 
offering based on a firm commitment underwriting. Conversely, staff 
does not consider a transaction to be a ``public offering'' for these 
purposes when the transaction is of limited distribution and/or is not 
based on a firm commitment underwriting, even if the offering was 
registered. Because the offerings described had limited distributions 
and, in some cases, the offerees were pre-determined by the issuer, 
Nasdaq believed that these transactions were not ``public offerings'' 
for purposes of the shareholder approval rules.
---------------------------------------------------------------------------

    \4\ Nasdaq understands that the Commission believes that this 
activity is not appropriate under Section 5 of the Securities Act of 
1933. See 15 U.S.C. 77e.
---------------------------------------------------------------------------

    In order to ensure that all issuers understand how Nasdaq will 
determine whether a transaction is a ``public offering'' for purposes 
of the shareholder approval rules, Nasdaq has prepared the proposed 
Interpretative Material. Determinations as to whether a transaction is 
a ``public offering'' for purposes of these rules will be made based on 
the facts and circumstances surrounding each particular transaction.

[[Page 61012]]

The proposed Interpretative Material identifies a number of factors 
that will be considered when determining whether an offering is a 
``public offering,'' including: the type of offering; the marketing of 
the offering; the extent of the offering's distribution; the offering 
price; and the extent to which the issuer controls the offering and its 
distribution.
(b) Statutory Basis
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) \5\ of the Act, which requires, 
among other things, that the Association's rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and, in general, to protect investors 
and the public interest. The Interpretative Material is designed to 
educate issuers and other interested parties as to how Nasdaq defines a 
``public offering'' in order to ensure that issuers are aware as to 
which transactions require shareholder approval under the NASD's rules, 
thus promoting just and equitable principles of trade and protecting 
investors and the public interest.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The NASD 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

    Written comments were neither solicited nor received.

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 NASD 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. 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. 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-00-50 and should 
be submitted by November 3, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-26381 Filed 10-12-00; 8:45 am]
BILLING CODE 8010-01-M