August 1, 1989
TO: SEC RULES COMMITTEE NO. 45-89
UNIT INVESTMENT TRUST COMMITTEE NO. 43-89
CLOSED-END FUND COMMITTEE NO. 31-89
INVESTMENT ADVISERS COMMITTEE NO. 30-89
RE: BILL ON TAKEOVER REFORM/PROXY VOTING INTRODUCED
__________________________________________________________
S. 1244, the "Corporate Takeover Reform Act of 1989", has
been introduced by Senators Metzenbaum and Armstrong. Many of
the bill's provisions have been introduced before or are based on
provisions in prior bills. However, the provision relating to
confidential proxy voting is new. The bill and the floor
statements of its sponsors are attached. A summary of the
provisions of the bill is set forth below.
Change of Exchange Act Section 13(d) Threshold and 10-day Window
Securities Exchange Act Section 13(d) requires persons who
acquire, directly or indirectly, more than five percent of the
shares of any class of most equity securities to notify the
issuer of the security, the exchanges upon which the security is
traded and the Commission of the acquisition and certain
additional information. S. 1244 would require a person to notify
the issuer, the exchanges and the Commission within one day if
the person acquires more than four percent of a class.
Waiting Period
S. 1244 would amend Section 14 of the Securities Exchange
Act to require most tender offers to be open for 60 days.
Certain issuer tender offers would not be subject to the 60 day
requirement.
Provisions Applicable to Certain Issuers
The following provisions would apply to issuers of
securities registered pursuant to Section 12 of the Securities
Exchange Act, insurance companies which issue equity securities
that would be required to be so registered except for the
exemption contained in Section 12(g)(2)(G) and closed-end
investment companies registered under the Investment Company Act.
a. Greenmail
Enactment of the bill would prevent such issuers from
acquiring the securities of any person who holds more than 3
percent of a class of their securities unless the acquisition is
approved by a shareholder vote or the acquisition is as a result
of a tender offer to all of the holders of that class.
b. Poison Pills
Enactment of the bill would prevent such issuers from
granting rights to any securityholders that are contingent upon
the acquisition of securities of the issuer by a person other
than the issuer unless the granting of the rights has been
approved by a shareholder vote. Moreover, such rights that have
already been granted would have to be submitted to shareholders
for ratification within three years of enactment of the bill.
c. Golden Parachutes
Enactment of the bill would prevent such issuers from
entering into agreements to increase the compensation of any
officer or director upon change of control of the issuer in an
amount that would constitute an "excess parachute payment"
without a shareholder vote. Moreover, such agreements into which
a company has already entered would have to be submitted to
shareholders for ratification within three years of the enactment
of the bill. The term "excess parachute payment" is defined in
Section 280G(b)(1) of the Internal Revenue Code.
Confidential Proxy Voting
If S. 1244 were enacted the Securities and Exchange
commission would be required to adopt rules within 11 months to a
year of the bill's enactment to require tabulation of proxies by
independent third parties and to otherwise ensure the integrity
and fairness of the proxy voting process. Unless the Commission
were able to devise other methods to protect the process, it
would have to adopt rules requiring confidentiality in the
granting and voting of proxies.
Increased Access to Proxy Statements for Shareholders
The bill would also require issuers to include in proxy
statements proposals, and descriptions and statements relating to
such proposals or proposals of the issuer, from shareholders
representing 3 percent or more of the outstanding voting
securities of the issuer.
Damages for Securities Fraud
Finally, the bill would provide that a person could recover
up to twice the amount of actual damages arising out of a
violation of Section 10 of the Securities Exchange Act if the
violation demonstrated wanton disregard for the rights of that
person.
* * *
If you have comments on the foregoing, please provide them
to the undersigned.
Mary K. Bellamy
Associate General Counsel
Attachments