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http://www.thestandard.com/article/display/0,1151,21477,00.html

January 15, 2001, 9:45 AM PST

Evictions Loom for Nasdaq Stocks

As their share prices fizzle, hundreds of new-economy companies
suddenly find themselves at risk of being booted off the exchange.

By Cory Johnson

BEHIND THE DATA
In compiling this list, FactSet researchers applied the Nasdaq
National Market's continued listing criteria. That standard
(www.nasdaq.com/about/nnm1.stm) flags companies that fail to meet one
of two sets of criteria. The first: net tangible assets of $4
million; public float of 750,000; a $5 million market value of public
float; a $1 bid price, 400 shareholders and two market makers.
Failing that, a company must meet the second criteria; market
capitalization greater than $50 million or total assets and revenue
of $50 million each; public float over 1.1 million, market value of
public float over $15 million, a $5 bid price, 400 shareholders and
four market makers.

If this logic seems tricky, you're right. For example, a stock price
below $1, failing Standard One, can't possibly pass Standard Two,
which requires a $5 stock price. "It might seem complicated,'' says
FactSet's Michael Altmeier. "But once you plug in the Nasdaq's
criteria, there's really not much to it." - C.J.

Of all the documents Jana Wilson fed into the paper shredder earlier
this month, one was destroyed with particular satisfaction. It was a
one-page fax from the Nasdaq stock exchange, dated Nov. 9, informing
the Garden.com (GDEN) chief financial officer that her company would
be delisted - that is, removed from the Nasdaq.

"When you're told you're being kicked off, it kind of bums you out,"
said Wilson, as she packed her office things into boxes, preparing
for Garden.com's liquidation. "I was glad to get rid of that letter -
I really don't want it haunting me any further."

But for an alarming array of new-economy companies, the nightmare is
just beginning. An investigation by The Standard has revealed that
hundreds of companies no longer meet the Nasdaq's basic requirements
for listing on the exchange, falling into jeopardy of being delisted.
At imminent risk: the survival of more than 5 percent of the stocks
on the Nasdaq national market.

Nasdaq officials decline to acknowledge which, or even how many,
member companies have received such warnings. But The Standard asked
FactSet Data Systems to compile a list of companies that no longer
meet the Nasdaq's standards. The result is startling. According to
FactSet, 257 companies have fallen below the Nasdaq's listing
standards in the last six weeks alone.

But this may be just the tip of the iceberg. Another study by San
Francisco investment bank Epoch Partners reveals that 38 more
companies are just days away from such a fate.

The Nasdaq's listing standards can be arcane, and the secretive
nature of the delisting process makes it even more confounding.
Struggling companies are not automatically kicked off the exchange.
But when Nasdaq-listed companies fail to meet two complicated sets of
criteria, they can be delisted.

This was far from the minds of new-economy companies as they rushed
to file IPOs; in recent years, the Nasdaq welcomed these young firms
with open arms. But as the stock market has melted down over the last
few months, many of these companies have seen their share prices
tumble. And as they burned through IPO cash, they had little left by
way of tangible assets. The upshot: As the market fell, the stocks
dipped below the Nasdaq's minimums.

Of all the complicated requirements, the most damning is the $1
rule. "If a company's share price is below $1 for 30 consecutive
business days," says Nasdaq spokesman Wayne Lee, "we will properly
notify the company that it is not in compliance."

That's the dreaded fax. Essentially, it's like getting kicked out of
an apartment; first comes the eviction notice, then the actual
eviction follows 90 trading days later, though that can be delayed by
appeals and hearings.

To stave off getting the boot, a company must hoist its stock price
back above $1 and keep it there for 10 days. And it has only 90 days
to meet this hurdle. This struggle happens behind closed doors: The
Nasdaq doesn't let the public know when these notices go out, and the
firms aren't terribly forthcoming either. The Standard called
hundreds of companies; several acknowledged receiving a warning
letter from Nasdaq. But the response of Tickets.com (TIXX) was more
typical: "Discussions we may or may not have had with Nasdaq are
between the two entities," said investor relations representative
Randall Oliver. "There is no obligation to disclose the content of
any discussions that may have taken place."

Since these warnings can preclude an actual delisting, the Nasdaq
insists the warnings are a private matter. "The Nasdaq is entrusted
with the authority to maintain the quality and the public confidence
in the market," says Lee. "Do you have any idea what would happen to
public confidence if we were to print a list like this? Put yourself
in the shoes of an investor in these stocks. This could do serious
damage to these share prices."

THE BIG BOARD PICTURE
Although 5 percent is a substantial chunk of the Nasdaq, it's not
unprecedented. Over the last decade, the Nasdaq has lost, on average,
12.7 percent of its listings each year. (The Nasdaq's official tally
is not limited to delistings; it also includes companies that merge
or are bought out.) In recent years, however, the Nasdaq has been
able to replenish itself with a new crop of IPOs. But given the
overwhelming weakness in the current market, observers say it's
unlikely that the IPO market will come back in any significant way.

"This was an overinvestment story," says John Skeen, director of
portfolio strategy at Banc of America Securities. "There was too much
money chasing the opportunity. There were too many IPOs. There were
too many companies that shouldn't have been public, and now the
market is taking care of that."

But one place where the rout isn't on is the venerable New York Stock
Exchange. Critics have long charged the NYSE with being stodgy, and
its listing standards as too lofty. But the current market
environment has the NYSE looking like a calm port in the storm.

"The problem is that when these companies drop below the listing
standard, sometimes they're just too far gone to pull up," says
Thomas Rathjen, the New York Stock Exchange's western division VP and
a former executive at the Nasdaq. "So yes, getting into the NYSE is a
pretty significant hill to climb, but once you're up there, well,
you're going to have fewer companies fail on the NYSE than you would
on Nasdaq."

Rathjen, whose job is to sell the NYSE to large technology companies,
says that the rampant Nasdaq delisting is making his job a lot
easier. "I think we are perceived by many as a safe haven during
times of trouble," he adds. "So I think there is a higher level of
receptivity to our story these days."

NO WAY OUT
So how can companies fight delisting? The reverse stock split is the
most dramatic, immediate method to fight delisting. PlanetRx.com
(PLRX) tried it. On Dec. 1, the company said it would convert every
eight shares into one share. The effect should have increased the
share price eightfold. But by the time shareholders approved the
deal, the stock was trading at 13 cents. When the reverse split took
effect, the stock instantly dropped from $1 to 53 cents.

PlanetRx scheduled a hearing with the Nasdaq to appeal the delisting,
but announced in mid-January that it wouldn't even show up for the
hearing - the company had run out of defenses and opted not to press
its case.

Companies that are kicked off the Nasdaq national market have a
number of options, few of them good. According to analysts, the
bylaws of most mutual funds and hedge funds do not permit ownership
of stocks not listed on the major exchanges. So there are few buyers
for delisted stocks.

Those companies can join the OTC Bulletin Board, a lesser exchange
set up by the National Association of Securities Dealers, where penny
stocks abound. Failing that, they can even fall to the Pink Sheets, a
thinly traded exchange where share prices are quoted on printed, pink
sheets distributed among certain Wall Street firms.

Many new-economy companies might try to make it on their own as
privately held concerns. And over time, these damaged goods can
reapply for a Nasdaq listing. But it's rare that such companies
regain the trust of the Street. Another strategy to fight delisting
is for a company to buy back its shares in the market, hoping to
shore up the price. But that assumes companies have a pile of cash
lying around. If that cash is spent buying back shares, it's not
available to pay employees, develop new products, pay salespeople or
keep the business running.

Of course, many of these businesses are barely running as it is. The
fact that the stocks are even worth pennies is a wonder to many on
Wall Street. "The music has stopped, but people are still dancing,"
says J. Carlo Cannell, of the San Francisco-based Cannell Capital
hedge fund. Cannell is an expert in small stocks, and expects few of
these stocks to survive. "The fact that these things have any market
cap at all is what's crazy - they're in their grave, the earth has
been thrown on top of them, and yet someone still thinks the stock is
worth a few pennies. They won't for long."

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Elinor Abreu, Meredith Alexander, Lessley Anderson, Blair Clarkson,
Jen Davis, Miguel Helft and Lisa Shuchman contributed to this story.

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