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SEC Issues Amendments to E-Proxy Rules

January 1, 0001

 

On February 22, 2010, the Securities and Exchange Commission adopted amendments to its e-proxy rules. The e-proxy rules establish the notice and access model for the delivery of proxy materials to shareholders. The notice and access model requires issuers and soliciting persons to post their proxy materials on a website and either:

  • send a Notice of Internet Availability of Proxy Materials (the "Notice") to shareholders regarding the availability of materials on the Internet (the "notice-only option"); or
  • deliver to shareholders the Notice as well as a complete set of proxy materials (the "full set delivery option").

The amendments to the e-proxy rules are intended to increase shareholder response rates to the notice-only option by providing additional flexibility regarding the Notice and by permitting the use of additional explanatory materials to improve communication with shareholders. More specifically, the amendments to the e-proxy rules:
  • provide greater latitude for issuers and other soliciting entities in the content and format of the Notice;
  • allow the Notice to be accompanied by explanatory materials regarding the reasons for the use of the notice and access model;
  • allow the Notice to be accompanied by explanatory materials regarding the process of receiving and reviewing proxy materials and voting;
  • revise the delivery timeframe for delivering a Notice to shareholders when a non-issuer soliciting person relies on the notice-only option; and
  • make certain technical and conforming revisions.

Content and Format of the Notice

Under Rule 14a-16(d), the Notice must address certain topics. For example, it must identify each separate matter intended to be considered at the meeting. The amendments allow for increased flexibility by eliminating the requirement that specific language or a detailed legend be used to address these topics. This change is intended to enhance communication with shareholders by avoiding "boilerplate" language. The rules continue to include one exception to this more flexible approach — the Notice still must state, in bold-face type, "Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held On [meeting date]."

The amendments impose a new disclosure requirement on the Notice — the Notice must state specifically that it is not a form for voting. The SEC indicated that this revision is intended to mitigate the reported instances of shareholders mistakenly attempting to vote by mailing back their Notices.

The amendments also allow for flexibility in the format of the Notice. As a result of the amendments, there is no required uniform design for the Notice. Further, the Notice need not mirror the proxy card formatting and content requirements of Rule 14a-4.

Inclusion of Explanatory Materials with the Notice

The amendments permit issuers and other soliciting persons (but not other parties) to provide explanatory materials along with the Notice. Under new Rule 14a-16(f)(2)(iv), these explanatory materials may address:
  • the process of receiving and reviewing the proxy materials;
  • voting under the notice and access model; and
  • the reasons for the use of the notice and access model.

Materials designed to persuade shareholders to vote in a particular manner or to change the method of the delivery of proxy materials are still prohibited.

Revision of Timeframe for Non-Issuer Soliciting Persons

The amendments require a non-issuer soliciting person to file a preliminary proxy statement within 10 calendar days after the issuer files its definitive proxy statement and send the Notice to shareholders no later than the date on which it files its definitive proxy statement. Previously, non-issuer soliciting persons were required to send the Notice within 10 calendar days after the date that the issuer first sent its proxy materials to shareholders. This revision to Rule 14a-16(l)(2)(ii) is intended to increase a non-issuer soliciting person’s ability to use the notice-only option.

Inclusion of Mutual Fund Prospectus with the Notice

The SEC adopted technical amendments that permit mutual funds to accompany the Notice with a summary prospectus. This change conforms the e-proxy rules to prior amendments that permitted mutual funds to send a summary prospectus to investors to fulfill their prospectus delivery obligations.

Conforming Changes to Full Set Delivery Option

The amendments include technical conforming changes under the full set delivery option (Rule 14a-16(n)). These changes include the deletion of the reference to legend requirements, as the legend is no longer required under Rule 14a-16(d)(1).

Investor Education Initiative

In conjunction with the amendments to the e-proxy rules, the SEC published an Investor Alert entitled "New Shareholder Rules for the 2010 Proxy Season." The SEC also announced the creation of new resources on its website, including a "Spotlight" page providing general information for investors on proxy matters.