
[Federal Register: November 9, 2010 (Volume 75, Number 216)]
[Notices]               
[Page 68846-68848]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09no10-97]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63239; File No. SR-NASDAQ-2010-137]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Amend IM-5101-2 To Provide 
Acquisition Companies the Option To Hold a Tender Offer in Lieu of a 
Shareholder Vote on a Proposed Acquisition

November 3, 2010.
    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 22, 2010, The NASDAQ Stock Market LLC (``Nasdaq'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to provide acquisition companies an option to hold 
a tender offer in lieu of a shareholder vote on a proposed acquisition. 
Proposed new language is in italics; proposed deletions are in 
[brackets].\3\
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    \3\ Changes are marked to the rule text that appears in the 
electronic manual of Nasdaq found at http://
nasdaqomx.cchwallstreet.com.
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IM-5101-2. Listing of Companies Whose Business Plan is to Complete One 
or More Acquisitions

    Generally, Nasdaq will not permit the initial or continued 
listing of a Company that has no specific business plan or that has 
indicated that its business plan is to engage in a merger or 
acquisition with an unidentified company or companies.
    However, in the case of a Company whose business plan is to 
complete an initial public offering and engage in a merger or 
acquisition with one or more unidentified companies within a 
specific period of time, Nasdaq will permit the listing if the 
Company meets all applicable initial listing requirements, as well 
as the conditions described below.
    (a)-(c) No change.
    (d) Until the Company has satisfied the condition in paragraph 
(b) above, if the Company holds a shareholder vote on a business 
combination for which the Company must file and furnish a proxy or 
information statement subject to Regulation 14A or 14C under the Act 
in advance of the shareholder meeting, the[each] business 
combination must be approved by a majority of the shares of common 
stock voting at the meeting at which the combination is being 
considered. If a shareholder vote on the business combination is 
held,
    [(e) Until the Company has satisfied the condition in paragraph 
(b) above,] public Shareholders voting against a business 
combination must have the right to convert their shares of common 
stock into a pro rata share of the aggregate amount then in the 
deposit account (net of taxes payable and amounts distributed to 
management for working capital purposes) if the business combination 
is approved and consummated. A Company may establish a limit (set no 
lower than 10% of the shares sold in the IPO) as to the maximum 
number of shares with respect to which any Shareholder, together 
with any affiliate of such Shareholder or any person with whom such 
shareholder is acting as a ``group'' (as such term is used in 
Sections 13(d) and 14(d) of the Act), may exercise such conversion 
rights. For purposes of this paragraph [(e)] (d), public Shareholder 
excludes officers and directors of the Company, the Company's 
sponsor, the founding Shareholders of the Company, and any Family 
Member or affiliate of any of the foregoing persons, or the 
beneficial holder of more than 10% of the total shares outstanding.
    Until the Company completes a business combination where all 
conditions in paragraph (b) above are met, the Company must notify 
Nasdaq on the appropriate form about each proposed business 
combination. Following each business combination, the combined 
Company must meet the requirements for initial listing. If the 
Company does not meet the requirements for initial listing following 
a business combination or does not comply with one of

[[Page 68847]]

the requirements set forth above, Nasdaq will issue a Staff 
Delisting Determination under Rule 5810 to delist the Company's 
securities.
    (e) Until the Company has satisfied the condition in paragraph 
(b) above, if a shareholder vote on the business combination is not 
held for which the Company must file and furnish a proxy or 
information statement subject to Regulation 14A or 14C under the 
Act, the Company must provide all Shareholders with the opportunity 
to redeem all their shares for cash equal to their pro rata share of 
the aggregate amount then in the deposit account (net of taxes 
payable and amounts distributed to management for working capital 
purposes), pursuant to Rule 13e-4 and Regulation 14E under the Act, 
which regulate issuer tender offers. The Company must file tender 
offer documents with the Commission containing substantially the 
same financial and other information about the business combination 
and the redemption rights as would be required under Regulation 14A 
of the Act, which regulates the solicitation of proxies. Until the 
Company completes a business combination where all conditions in 
paragraph (b) above are met, the Company must notify Nasdaq on the 
appropriate form about each proposed business combination. Following 
each business combination, the combined Company must meet the 
requirements for initial listing. If the Company does not meet the 
requirements for initial listing following a business combination or 
does not comply with one of the requirements set forth above, Nasdaq 
will issue a Staff Delisting Determination under Rule 5810 to delist 
the Company's securities.
* * * * *

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
    In March 2009, Nasdaq adopted rules to permit the listing of 
companies whose business plan was to complete an initial public 
offering and engage in a merger or acquisition with one or more 
unidentified companies within a specific period of time (``Acquisition 
Companies'' or ``SPACs'').\4\ These listing requirements included 
additional protections designed to protect investors from certain risks 
unique to this type of company, including that the Acquisition Company 
obtain a vote of shareholders prior to consummating any acquisition and 
offer shareholders voting against the acquisition the ability to redeem 
their shares in exchange for a pro rata share of the cash held by the 
Acquisition Company.\5\ Similar protections have been voluntarily 
adopted by other Acquisition Companies that have not listed on Nasdaq.
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    \4\ IM-5101-2.
    \5\ The Listing Rules also require that at least 90% of the 
gross proceeds from the SPAC's initial public offering and any 
concurrent sale of equity securities must be deposited in a trust 
account; that within 36 months of the effectiveness of the SPAC's 
IPO registration statement, the SPAC must complete one or more 
business combinations having an aggregate fair market value of at 
least 80% of the value of the deposit account; and, that each 
business combination must be approved by a majority of the SPAC's 
independent directors.
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    As a result of the required vote, in a number of cases, hedge funds 
and other activist investors acquired an interest in an Acquisition 
Company and used their ability to vote against a proposed acquisition 
as leverage to obtain additional consideration not available to other 
shareholders. For example, they may negotiate the sale of their stake 
to an affiliate of the Acquisition Company's management for a price 
higher than their pro rata share of the deposit account. In other 
cases, the withheld votes caused the proposed acquisition to fail 
altogether. In order to prevent this type of ``greenmail,'' recent 
Acquisition Companies, which went public and did not list on an 
exchange, adopted a modified structure under which they would not seek 
a vote on the acquisition, unless otherwise required by law. Instead, 
these Acquisition Companies would conduct a redemption offer pursuant 
to Rule 13e-4 and Regulation 14E under the Act after the public 
announcement and prior to the completion of the business combination, 
enabling shareholders who are opposed to the transaction to tender 
their shares in exchange for a pro rata share of the cash held by the 
Acquisition Company. This is the same outcome available to public 
Shareholders who vote against the acquisition pursuant to Nasdaq's 
existing rule.
    Under this new alternative, shareholders would still maintain the 
ability to ``vote with their feet'' if they oppose a proposed 
transaction and would, as just noted, also obtain their pro rata share 
of the Acquisition Company's cash through the tender offer pursuant to 
Rule 13e-4 and Regulation 14E under the Act. As such, Nasdaq believes 
that the protections provided by the existing rule would continue to be 
available. Further, this tender offer alternative would help prevent 
shareholders who support the acquisition and elect to retain their 
shares from being denied the benefits of the transaction by the actions 
of the activist investors. Accordingly, Nasdaq proposes to modify IM-
5201-2 to allow an Acquisition Company to conduct a tender offer for 
all shares of all Shareholders \6\ in exchange for a pro rata share of 
the cash held in trust by the Acquisition Company in compliance with 
Rule 13e-4 and Regulation 14E under the Act instead of soliciting a 
shareholder vote.
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    \6\ The term ``Shareholder'' is defined broadly by Rule 
5005(a)(37) as ``a record or beneficial owner of a security listed 
or applying to list.''
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    In addition, the proposed rule change would require an Acquisition 
Company that is not subject to the Commission's proxy rules to conduct 
a tender offer for shares in exchange for a pro rata share of the cash 
held in trust by the Acquisition Company in compliance with Rule 13e-4 
and Regulation 14E under the Act and provide information similar to 
that required by the Commission's proxy rules, even if the Acquisition 
Company seeks a shareholder vote. This change will assure that 
investors, in all cases, get comparable information about the proposed 
transaction.
    Last, Nasdaq is amending paragraph (d) of IM-5101-2 to include 
within the definition of ``public Shareholder,'' for purposes of the 
paragraph, the beneficial holder of more than 10% of the total shares 
outstanding. The term ``public Shareholder'' was meant to closely 
mirror the defined term ``Public Holders,'' but to also include 
Acquisition Company-specific classifications as well. Public Holders is 
defined by the Listing Rules as holders of a security that includes 
both beneficial holders and holders of record, but does not include any 
holder who is, either directly or indirectly, an Executive Officer, 
director, or the beneficial holder of more than 10% of the total shares 
outstanding.\7\ Accordingly, Nasdaq is making the rule clear by adding 
language consistent with the definition of Public Holders.
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    \7\ Rule 5005(a)(34).
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\8\ in general and with Section 
6(b)(5) of the

[[Page 68848]]

Act,\9\ in particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, 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. The proposed rule change is 
consistent with these requirements in that it provides an alternative 
mechanism for an acquisition vehicle to complete a transaction in a 
manner that minimizes the disruptive effect of certain shareholders, 
while maintaining protections which are designed to protect investors 
and the public interest and prevent fraudulent and manipulative acts 
and practices.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
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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, as amended.

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 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate 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 or disapprove the 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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2010-137 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2010-137. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml). 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 Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street, NE., Washington, DC 20549, on official business days between 
the hours of 10 a.m. and 3 p.m. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
NASDAQ-2010-137 and should be submitted on or before November 30, 2010 
in the Federal Register.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-28247 Filed 11-8-10; 8:45 am]
BILLING CODE 8011-01-P

