SEC Proposes Amendments to the E-Proxy Rules

November 18, 2009


On October 14, 2009, the SEC provided guidance and issued proposed amendments to its e-proxy rules. The e-proxy rules require Internet posting of proxy materials and set forth the notice and access model for furnishing proxy materials to shareholders. Under the current rules, issuers and other soliciting persons can chose to deliver proxy materials using the “notice-only option,” under which shareholders are sent only a Notice of Internet Availability of Proxy Materials, or the “full set delivery option,” under which shareholders are sent a complete set of proxy materials.

The SEC’s guidance and proposed amendments were issued in part to address recent reports that retail shareholder participation is noticeably lower under the notice-only option as compared to retail shareholder participation under the full set delivery option. In an effort to address this disparity, the SEC:

  • Provided guidance regarding the format used in the Notice to identify matters to be considered at the annual meeting; and

  • Proposed amendments to:

    • provide issuers and other soliciting persons with more flexibility in drafting the Notice;

    • allow an explanation of the notice-only model to accompany the Notice; and

    • revise the delivery timeframe for non-issuer soliciting persons electing to use the notice-only option.

Format of the E-Proxy Notice

Exchange Act Rule 14a-16(d)(3) requires that the Notice used under the notice-only option include disclosure of the matters to be considered at the meeting. In response to reports that shareholders have confused the Notice with the actual proxy card, and in certain instances returned a marked copy of the Notice indicating their voting instructions, the SEC provided interpretive guidance clarifying that the Notice is not required to directly mirror the language or format used in describing the matters on the proxy card. Rather, the SEC indicated, the Notice is required only to “identify each matter that will be considered at the meeting.”

Language Used in the E-Proxy Notice

Current Rule 14a-16(d) requires that a detailed legend be included on any Notice under the notice-only option. The proposed amendments would eliminate the requirement to use specific language (other than the sentence “Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting on [meeting date]”) and, instead, would require only that certain topics be addressed in the Notice. The SEC indicated that this proposed flexibility is intended to prevent shareholders from viewing the explanation on the notice as “boilerplate” language and help them to better understand the purpose of the Notice and the means by which to access proxy materials online.

Inclusion of Explanatory Materials with the Notice

The proposed amendments would allow issuers and other soliciting persons to include explanatory materials with the Notice that clarify the process for accessing proxy materials online and voting under the notice-only option. These explanatory materials may not be drafted in a way that could persuade shareholders to vote in a particular manner.

Revision of Timeframe for Non-Issuer Soliciting Persons

Under Exchange Act Rule 14a-16, a non-issuer soliciting person using the notice-only option must send its notice by the later of 40 calendar days before the shareholder meeting or 10 calendar days after the issuer first sends its Notice or proxy materials to shareholders. To provide non-issuer soliciting persons with greater ability to use the notice-only option, the proposed amendments would allow a non-issuer soliciting person to file its preliminary proxy statement within 10 days after the issuer files its definitive proxy statement and send its Notice not later than the date on which the non-issuer soliciting person files its definitive proxy statement with the SEC.

Comment Period for Proposed Amendments

The SEC established November 20, 2009 as the end of the comment period for the proposed amendments. However, the SEC accepts comments after this period and has historically considered comments received after the stated deadline in crafting its final rules. The SEC is seeking comment on, among other issues, the following:

  • What factors have caused lower retail shareholder response rates for individual shareholders when the notice-only option is used;

  • Whether an issuer’s use of the notice-only option should be limited if the issuer has experienced a decrease in shareholder participation while using the notice-only option; and

  • The costs and savings for issuers using the notice-only model, including supporting data.

When submitting comments to the SEC, it is important that issuers provide individual examples of the impact of the notice-only option, including quantifying changes in shareholder participation and costs and savings to the issuer. Further, to fully inform the SEC’s rulemaking, we recommend that issuer comments include suggestions regarding the appropriate means to increase retail shareholder participation under the notice-only option — such as permitting the inclusion of the proxy card (or voter instruction form) in the mailing of the Notice — even if those alternatives were not proposed by the SEC.