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difficulties encountered by independent accountants in preparing certified financial statements within the prescribed time where prior financial statements had not been certified.
During the year the Commission adopted rules defining terms which are key factors in determining whether an issuer is required to register its securities. Pursuant to its authority under Section 3(a) (11) of the Act to include within the term "equity security" securities it deems similar to those specified in that section, the Commission adopted Rule 3a11-1 which includes within that term a broad range of equity interests. Rules 12g5–1 and 12g5–2 define the terms "held of record” and “total assets.” 4 Generally speaking, Rule 12g5–1 includes as a separate holder each person identified on records maintained in accordance with accepted practice as the owner of the security. However, if the issuer knows or has reason to know that the form of holding securities of record is used primarily to circumvent the provisions of the Exchange Act, the rule as adopted provides that the beneficial owners shall be deemed to be the record holders thereof.
At the time of the adoption of Rule 12g5–1 the Commission indicated that it would continue to evaluate the rule to determine in the light of experience whether it may be necessary or appropriate, in order to prevent circumvention of the Act and to achieve the intended coverage on a uniform and acceptable basis, to count securities held in customers' accounts, but registered in the name of a broker, dealer or bank, as being "held of record” by the number of separate accounts for which they are held. The Commission also indicated it would give similar consideration to the necessity of including as record holders employees who have a direct beneficial interest in securities held by an employee plan.
Rule 12g5–2 defines "total assets" to mean the total assets as shown on the issuer's balance sheet or the balance sheet of the issuer and its subsidiaries consolidated, whichever is larger, prepared in accordance with the pertinent provisions of Regulation S-X.
As a result of the 1964 amendments, the date on which securities become “registered” pursuant to Section 12 assumes great importance. That date determines the applicability of the periodic reporting, proxy solicitation and insider reporting provisions of Sections 13, 14 and 16 of the Act. In addition, Section 15(d) of the Act, as amended, provides that the obligation of an issuer to file periodic reports thereunder is suspended if and so long as the issuer has a class of security "registered" pursuant to Section 12. In order to resolve any uncertainty as to when a security is "registered,” the Commission adopted Rule 12b-6 which provides that for the purposes of the above Sections
* Securities Exchange Act Release No. 7581 (April 23, 1965). Securities Exchange Act Release No. 7492 (January 5, 1965).
and the rules and regulations thereunder, securities are not deemed to be registered pursuant to Section 12 until an application for exchange registration or a registration statement filed with respect to over-the-counter securities has become effective.5
The rules of the Commission adopted under Section 14(a) of the Act governing the solicitation of proxies were redesignated as Regulation 14A and were amended to apply to solicitations with respect to securities registered pursuant to Section 12(g) as well as securities registered on a national securities exchange. However, the amendment applies only to solicitations commenced on or after July 1, 1965, and the proxy rules therefore did not apply to over-the-counter securities registered during the fiscal year.?
As a result of the extension of the proxy rules to over-the-counter securities, the Commission also amended Rule 14a-3, relating to the information to be furnished to security holders in connection with the solicitation of proxies. This rule previously provided, in part, that where the management of an issuer solicits proxies with respect to an annual meeting of security holders at which directors are to be elected, its proxy statement must be accompanied or preceded by an annual report to such security holders containing such financial statements for the last fiscal year as will in the opinion of management adequately reflect the financial position and operations of the issuer, and if such statements differ materially from those filed with the Commission, an explanation of the effect of the difference. As amended, the rule also requires an issuer which has not previously submitted to its security holders an annual report pursuant to the rules and regulations under Section 14 to include in its first such annual report such information as to its business operations during the past fiscal year as will, in the opinion of management, indicate the general nature and scope of the business of the issuer and its subsidiaries. In connection with the adoption of the amendment the Commission indicated that after it gained additional experience with respect to the reporting practices of unlisted companies, it would consider whether such companies should be required to include a description of their business in each annual report to security holders.
Section 14(c) of the Exchange Act, which was added by the 1964 amendments, provides that issuers of registered securities shall, in accordance with rules and regulations prescribed by the Commission, transmit to security holders from whom proxies are not solicited in
5 Securities Exchange Act Release No. 7500 (January 5, 1965). • Securities Exchange Act Release No. 7566 (April 8, 1965).
? Although not required, preliminary proxy statements of 17 such issuers were received and processed during the fiscal year.
8 Securities Exchange Act Release No. 7508 (January 15, 1965).
connection with meetings of security holders information comparable to that which would be furnished in proxy material. During the fiscal year, the Commission announced that it has under consideration a new Regulation 14C to implement Section 14(c), and invited public comments. The proposed regulation would provide that in connection with every annual or other meeting of holders of a class of registered securities, the issuer shall transmit a written information statement containing substantially the same information as that which would be required in a proxy statement to every security holder who is entitled to vote in regard to any matter to be acted upon at the meeting and from whom a proxy is not solicited on behalf of the management. In the case of an annual meeting the issuer would also be required to transmit an annual report including financial statements which with some exceptions would have to be certified by independent public or certified public accountants.
Section 16(a) of the Act, as amended by the Securities Acts Amendments of 1964, requires the directors, officers and principal equity security holders of listed companies and companies registered pursuant to the new Section 12(g) of the Act to file reports of their beneficial ownership of equity securities of their respective companies. The rules under this Section were amended during the fiscal year to make them applicable to the additional reports required by the amended section.10
Section 16(b) of the Act provides that profits realized by persons beneficially owning more than 10 percent of any class of equity security registered pursuant to Section 12, or any director or officer of the issuer of such security, from the purchase and sale, or sale and purchase, of any equity security of such issuer, whether or not registered, within a period of less than 6 months, inure to and are recoverable by or on behalf of the issuer. In interpreting this Section, the courts have indicated that recovery may be allowed of profits realized by a director or officer as a result of the purchase (sale) of an equity security before the effective date of the first registration of an equity security of the issuer under Section 12 and a sale (purchase) made subsequent to such effective date. In order to provide directors and officers of issuers registering under new Section 12(g) with an opportunity to become familiar with the provisions of Section 16(b), the Commission adopted Rule 12h-3 which exempts from the operation of Section 16(b) any acquisition or disposition of an equity security by a director or officer of the issuer of such security made prior to the first registration of
Securities Exchange Act Release No. 7512 (January 18, 1965).
Securities Exchange Act Release No. 7525 (February 5, 1965). The majority of registration statements filed under Section 12(g) was not effective until late in the fiscal year, and in many instances no reports were required to be filed during the fiscal year. See p. 54, infra.
an equity security by the issuer under Section 12(g).11 The exemption is limited to transactions by directors or officers of issuers which first file a registration statement under Section 12(g) on or prior to October 31, 1967.12
The revision of Section 15(d) and the addition of Section 12(g) necessitated certain amendments to Rule 12f-4, which provides exemptions from Sections 13, 14 and 16 of the Act for issuers having securities admitted only to unlisted trading privileges on a national securities exchange.18 Prior to the 1964 amendments, some companies exempt under that rule were required to file with the Commission certain annual and periodic reports pursuant to Section 15(d). Since Section 12(f) (6) of the Act provides that securities admitted to unlisted trading privileges are deemed to be "registered on a national securities exchange," the amendment to Section 15(d) suspending the obligation to file reports if any security of the issuer is registered pursuant to Section 12” had the effect of eliminating the need for issuers to file under that Section where they had a class of securities admitted to unlisted trading privileges. The effect of the amendment to Rule 12f-4 is to subject such issuers to the reporting requirements of Section 13 if they would be subject to the equivalent requirements under Section 15(d) but for the fact that they now are deemed to have a class of security "registered on a national securities exchange."
The General Rules and Regulations under the Exchange Act were amended to make them applicable to issuers required to register pursuant to Section 12(g) of the Act.14 And various forms heretofore used for the registration of securities on a national securities exchange and for periodic reports by the issuers of such securities were amended or otherwise made available for the registration of securities pursuant to Section 12(g) and for periodic reports by the issuers of such securities.15 Regulation 15D, containing certain special rules relating
11 Securities Exchange Act Release No. 7598 (May 10, 1965). The rule makes no reference to transactions by persons beneficially owning more than 10 percent of a registered class of equity security because the exception in the last sentence of Section 16(b) makes further exemption unnecessary.
12 The 1964 amendments redesignated Section 16(d) of the Act as Section 16(e). Rule 16d-1, which relates to arbitrage transactions under Section 16, was redesignated as Rule 16e-1 and made applicable to securities registered pursuant to Section 12(g). Securities Exchange Act Release No. 7525 (February 5, 1965).
** Securities Exchange Act Release No. 7491 (January 5, 1965). 1 Securities Exchange Act Release No. 7525 (February 5, 1965).
16 The forms referred to are Form 10 (Securities Exchange Act Release No. 7544, March 5, 1965); Form 8-A (Release No. 7508, January 15, 1965); Form 8-B (Release No. 7615, June 3, 1965); Form 8-0 (Release No. 7616, June 3, 1965); Form 10-K (Release No. 7545, March 5, 1965); and Forms 7-K, 8-K and 9-K (Release No. 7525, February 5, 1965). In addition, proposed amendments of Forms 16 and 16-K were published for comment on the last day of the fiscal year (Release Nos. 7636 and 7637).
to the filing of periodic and other reports required by Section 15(d), was amended to conform such rules to the provisions of Section 15(d) as amended. In addition, Rule 15d-20, containing an exemption for certain closely held issuers from the reporting requirements of Section 15(d), was rescinded as no longer necessary under the amended Section. 16
Section 12(i) provides, in effect, that with respect to securities issued by banks, the functions and duties of administering and enforcing Sections 12, 13, 14(a), 14(c) and 16 are vested in the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation with respect to banks under their respective primary supervisory jurisdiction. The Commission understands that information regarding the operation of the Securities Acts Amendments of 1964 with respect to banks under the supervision of these agencies is discussed in their respective annual reports or is otherwise available from them.17 Exemptions From Registration
Section 12(h) of the Act authorizes the Commission, either by rules and regulations, or by order upon application of an interested person, to grant exemptions from the provisions of Section 12(g) or Sections 13, 14, 15(d) or 16, if it finds that such action is not inconsistent with the public interest or the protection of investors by reason of the number of public investors, the amount of trading interest in the securities, the nature and extent of the activities of the issuer, the income or assets of the issuer, or otherwise. Pursuant to this authorization, the Commission adopted Rule 12h-2 which exempts from registration pursuant to Section 12(g) any interest or participation in an employee stock bonus, stock purchase, profit sharing, pension, retirement, incentive, thrift, savings or similar plan if the interest or participation is not transferable except in the event of death or mental incompetency, as well as any security which is issued solely to fund such plans.18 Other exemptions may be provided by rule as the Commission gains experience under the new requirements of the Act. In addition, 43 applications for complete or partial exemptions from the above provisions of the Act were filed during the fiscal year. Of these, 16 were granted, 3 were denied and the remainder were pending at the close of the fiscal year.
In addition to the broad exemptive authority conferred on the Commission by Section 12(h) of the Exchange Act, Section 12(g) (2) ex
Securities Exchange Act Release No. 7598 (May 10, 1965). The rule makes
See 51st Annual Report of Board of Governors of Federal Reserve System, pages 50–51 ; Statement of Operations (1964), Federal Deposit Insurance Corporation, page 20; Annual Report for 1964 of Federal Deposit Insurance Corporation, page 67.
18 Securities Exchange Act Release No. 7581 (April 23, 1965).