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Release No. 34-4979
January 6, 1954
Adoption of Amendments to Proxy Rules
January 6, 1954
Amendment of Rules X-14A-3, X-14A-6, and X-14A-8, and Items 6, 7 and 8 of
Schedule 14A.--
On October 9, 1953, the Commission announced (in Securities Exchange Act Release
No. 4950) that it had under consideration proposed amendments to its proxy rules
under the Securities Exchange Act of 1934, and invited all interested persons to
submit views and comments in writing with respect to the proposals.
Subsequently, on December 4, 1953, the Commission gave notice (in Securities
Exchange Act Release No. 4971) that a public hearing would be held at which
interested persons would have an opportunity to present their views on the
proposed amendments, and such a hearing was held on December 16, 1953.
The Commission has considered all of the comments and suggestions received in
writing and at the public hearing, and has determined that the amendments set
forth below should be adopted. The principal changes made are described below.
I. Rules X-14A-3 and X-14A-6
In order to make available at the Commission an adequate number of copies of
definitive proxy statements and annual reports, Rules X-14A-3, and X-14A-6 are
amended to require the furnishing to the Commission of four copies of such
material, instead of the three copies now required. In addition, the amendment
to Rule X-14A-6 provides that copies of definitive proxy material be filed with
each exchange upon which any security of the issuer is listed and registered.
The existing requirement in Rule X-14A-6 that three copies of preliminary
material be filed with the Commission is not changed.
II. Rule X-14A-8
This rule now provides that any stockholder proposal submitted with respect to
an annual meeting more than 30 days in advance of the corresponding date on
which proxy material was released for the last annual meeting shall prima facie
be deemed to have been submitted within a reasonable time. The rule is amended
to extend this period from 30 days to 60 days, so as to give more time for the
consideration of security holder proposals.
The Commission has determined not to adopt the proposed amendment which would
have authorized the omission from the management's proxy material of the name
and address of a security holder submitting a proposal for action at the meeting
of security holders.
The present rule provides for submission of proposals which are proper subjects
for action by security holders but does not specifically provide that state law
is the standard for determining what is a proper subject for such action. In a
prior release, however, the Commission has so stated. (Securities Exchange Act
Release No. 3638, January 3, 1945.) To clarify this point, the amended rule
specifically provides that a security holder's proposal may be omitted from the
management proxy material if it is one which, under the laws of the issuer's
domicile, is not a proper subject for action by security holders. The amended
rule thus specifically provides that state law is to be the standard of
eligibility of a proposal under the rule. The, Commission wishes to make it
clear that it considers this standard consistent with the decision of the Court
of Appeals in the case of S. E. C. v. Transamerica Corporation (163 F. 2d 511,
C. A. 3, 1947). Under the provisions of the amended Rule X-14A-8(c)(5),
management would also be permitted to omit from its proxy material a proposal
which is a recommendation or request with respect to the conduct of the ordinary
business operations of the issuer.
The rule places the burden of proof upon the management to show that a particular
security holder's proposal is not a proper one for inclusion in management's
proxy material. Where management contends that a proposal may be omitted because
it is not proper under state law, it will be incumbent upon management to refer
to the applicable statute or case law and furnish a supporting opinion of
counsel.
Under the present rule where the management contests the propriety of a security
holder's proposal, it is required to furnish the Commission with a copy of the
proposal together with a statement of the reasons why it believes the proposal
may be omitted from its proxy material. This information at present must be
furnished not later than the date preliminary copies of the proxy material are
filed with the Commission. So that the Commission will have more time to
consider the problems involved in such cases and security holder will have an
opportunity to consider the management's position and take such action as may be
appropriate, the amended rule provides that a copy of the proposal and a
statement of reasons for its omission must be furnished to the Commission and
the security holder not later than 20 days prior to the date of filing the
management's preliminary proxy material. However, the Commission may authorize a
shorter period where it is shown that there is good cause for failure to comply
with the 20-day requirement.
Under the present rules a proposal must be repeated in the management's proxy
material if it received 3% of the total number of votes cast at the last annual
or subsequent special meeting. This has resulted in the repetition year after
year of proposals which have evoked very modest stockholder interest. The rule
is now amended to provide that a proposal may be omitted for a period of three
years from the last previous submission if it was submitted within the previous
five years and received less than 3% in the case of a single submission, less
than 6% upon a second submission or less than 10% upon a third or subsequent
submission during such five year period.
III. Items 6, 7 and 8 of Schedule 14A
Item 6 calls for information with respect to the nominees for election as
directors of the issuer. The amended item requires information also with respect
to directors whose terms of office continue beyond the date of the meeting. The
purpose of this requirement is to give to security holders information with
respect to the board of directors as a whole as it will exist after the meeting.
Item 7 calls for information with respect to remuneration and other transactions
with management and other persons. Since the previous revisions of the item,
certain interpretative and reporting difficulties have arisen. The amendments to
this item are intended to eliminate these difficulties.
The requirements relating to pension and retirement benefits are separated from
those relating to other deferred remuneration payments. This should aid in
distinguishing between the two types of payments and result in a simplification
of the applicable instructions. For the same reason the requirements regarding
disclosure with respect to options are separated from those with respect to
other transactions with insiders. Also, a new instruction has been added which
permits the omission of information where the aggregate market value of
securities covered by options granted or exercised is not more than $10,000 for
any one person or $30,000 for officers and directors as a group.
The instructions to the paragraph relating to indebtedness of insiders have been
amended to provide that information need not be given where the aggregate
indebtedness of any one person does not exceed $10,000 or 1% of the issuer's
total assets, whichever is less, at any time during the period specified. At
present, indebtedness must be described if it exceeded $1,000 during the period.
The scope of the paragraph relating to transactions with insiders has been
limited by revising the instructions thereto to permit the omission of
information in certain cases. The revision also presents a more precise
statement of the requirements relating to such transactions.
Where action is to be taken at the meeting with respect to the selection of
auditors, Item 8 requires a brief description of any material relationship
between such auditors or any of their associates and the issuer or any of its
affiliates. This item has been amended to make it consistent with the
requirements of Regulation S-X relative to the independence of accountants.
Statutory Basis
The action herein described is taken pursuant to the Securities Exchange Act of
1934, particularly Sections 14(a) and 23(a) thereof.
Text of Amendments
[Omitted]
Effective Dates
These amendments shall be effective as to any solicitation of proxies commenced
on or after February 6, 1954, except that the amendment to the second sentence
of Rule X-14A-8(a) shall be effective only as to a solicitation commenced on or
after March 6, 1954. However, the amendments to Schedule 14A may be made
effective at the option of an issuer as to any proxy solicitation commenced on
or after January 6, 1954.
By the Commission.
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