New Requirements - Effective Immediately - Re Issuing Companies' Notification of NASD Regarding Material News

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EXECUTIVE SUMMARY

The Securities and Exchange Commission (SEC) recently approved changes to Part II of Schedule D to the NASD By-Laws requiring NASDAQ companies to notify the NASD of material news prior to release of the news to the public. Material news includes information regarding corporate events of an unusual or nonrecurring nature that may affect the value of the issuing company's securities or influence investors' decisions.

Compliance with the new requirements may affect a company's continued NASDAQ qualification status.

BACKGROUND AND EXPLANATION

On August 8, the SEC approved changes to Part II of Schedule D to the NASD By-Laws requiring NASDAQ companies to notify the NASD of material news announcements prior to their release to the public. The NASD recommends that issuers notify the NASD of material news at least 10 minutes in advance.

Another provision of the rule requires NASDAQ issuers to provide full and prompt responses to all requests for information by the NASD.

Compliance with this new requirement may affect a company's continued NASDAQ qualification status.

The rule change also eliminates the previous requirement that information released after 5 p.m., Eastern Time, be reported by 9 a.m., Eastern Time, the following day. The NASD Market Surveillance Section now has the ability to receive information 24 hours a day. In addition, oral notification must be confirmed promptly in writing.

The purpose of this rule is to assist in maintaining a stable and orderly market for NASDAQ securities. One of the methods used by the NASD to accomplish this is the institution of NASDAQ trading halts. A trading halt benefits current and potential shareholders by halting trading in the NASDAQ System until there has been an opportunity for the information to be disseminated to the public. This decreases the possibility of some investors acting on information known to them but not known to others.

A trading halt normally lasts about 30 minutes after the appearance of the news on the wire services, but it may last longer if a determination is made that the news has not been adequately disseminated. A trading halt provides the public with an opportunity to evaluate the information and consider it in making investment decisions.

Upon receipt of the information from the company, the NASD, after consultation with the company, will immediately evaluate the information, estimate its potential impact on the market, and determine whether a trading halt in the security is appropriate.

EXCERPTS FROM THE RULE LANGUAGE

Schedule D requires NASDAQ companies to disclose promptly to the public through the press any material information that may affect the value of their securities or influence investors' decisions, and that NASDAQ companies notify the NASD of the release of any such information prior to its release to the public through the press. The Board of Governors recommends that NASDAQ companies provide such notification at least 10 minutes before such release.

Schedule D, Part n, Section l(c)(13)

The issuer shall make prompt disclosure to the public through the press of any material information that may affect the value of its securities or influence investors' decisions and shall, prior to the release of the information, provide notice of such disclosure to the NASD Market Surveillance Section. The issuer shall provide full and prompt responses to all requests for information by the NASD.

Section 2(e)(14)

The issuer shall make prompt disclosure to the public in the United States through international wire services or similar disclosure media of any material information that may affect the value of its securities or influence investors' decisions and shall, prior to the release of the information, provide notice of such disclosure to the NASD Market Surveillance Section. The issuer shall provide full and prompt responses to all requests for information by the NASD.

Section 5(b)(2)

Notification shall be provided directly to the NASD Market Surveillance Section by telephone. Information communicated orally by authorized representatives of a NASDAQ issuer should be confirmed promptly in writing.

ADVANTAGES OF RULE CHANGE

At its June 29 meeting, the NASD Corporate Advisory Board (CAB) considered the material news matter and concluded that the rule would be in the best interest of the investing public. The CAB is composed of 15 NASDAQ company representatives who advise the NASD Board of Governors on matters of interest to issuers.

This rule will aid the NASD in facilitating the recent changes mandating the use of its Small Order Execution System for transactions in NASDAQ/NMS securities. By requiring issuers to notify the NASD of material news releases prior to notification to the press, the NASD will be better able to keep market participants informed.

In the event that a trading halt would be an appropriate response to the news, prior notification will give the NASD an opportunity to make such a judgment and order a trading halt before the news becomes public.

WHAT IS MATERIAL NEWS?

Material information that might reasonably be expected to affect the value of a company's securities or influence investors' decisions would include information regarding corporate events of an unusual and nonrecurring nature.

The NASD developed the following list of events, which is not exhaustive, to help determine whether information is material. Not all developments in these areas would warrant a trading halt.

• A merger, acquisition, or joint venture.
• A stock split or stock dividend.
• Unusual earnings or dividends.
• The acquisition or loss of a significant contract.
• A significant new product or discovery.
• A change in control or a significant change in management.
• A call for redemption of securities.
• The public or private sale of a significant amount of additional securities.
• The purchase or sale of a significant asset.
• A significant change in capital investment plans.
• A significant labor dispute.
• Establishment of a program to purchase a company's own shares.
• A tender offer for another company's securities.
• An event requiring the filing of a current report under the Securities Exchange Act.