(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

SEC Proposes Disclosure Requirements for Director Nominations

The SEC voted to propose rule changes intended to strengthen disclosure requirements relating to the nomination of directors and concerning shareholder communications with directors. The proposals follow the recommendations made by the Division of Corporation Finance in its recent report of the division's review of the proxy process regarding the nomination and election of directors (¶86,938 ).

According to the SEC, these disclosure proposals represent the first step in the implementation of the recommendations in the staff report, and the agency anticipates further rule proposals later this year regarding enhanced shareholder access to companies' proxy statements and forms of proxy for nomination of directors.

Nomination Disclosure Requirements

As proposed, the rules would require issuers to disclose whether they have a separate nominating committee and, if not, the reasons why it does not. The disclosure would also answer whether members of the nominating committee satisfy specified independence requirements.

Companies would also be required to identify the persons who determine the nominees for the board and to discuss the process for identifying and evaluating candidates to be nominated as directors. Any third party fees paid to assist in the process of identifying and evaluating candidates would also have to be disclosed, and the company would have to advise if it considers candidates for director nominees put forward by shareholders. The issuer would also have to provide information concerning the process for shareholder nominations and disclose whether it has rejected candidates put forward by large long-term institutional shareholders or groups of shareholders.

Shareholder Communications with Directors

The proposals would also require disclosure of information regarding shareholder communications with directors. As proposed, companies would be required to disclose 1) whether a company has a process for communications by shareholders to directors and, if not, the reasons why it does not, 2) the procedures for communications by shareholders with directors, 3) whether such communications are screened and, if so, by what process and 4) whether material actions have been taken as a result of shareholder communications in the last fiscal year.

Both proposals would also apply to proxy statements of registered investment companies in the same manner that they apply to other companies. Comments are due to the Commission by September 15, 2003.

¨ Release No. 34-48301 will be published in a forthcoming REPORT .