20 October 2009
On October 14, 2009, the US Securities and Exchange Commission proposed amendments to its rules requiring Internet availability of proxy materials, often referred to as the e-proxy rules, and provided guidance concerning certain requirements under the present rules. The e-proxy rules give issuers and other soliciting persons the option to provide proxy materials to shareholders under a notice and access option, where shareholders receive a notice that proxy materials are available on the Internet (with printed copies delivered only upon request), or under a full set delivery option, where shareholders are mailed the complete set of proxy materials. For a more detailed description of the SEC’s current e-proxy rules, see our August 24, 2007, Securities Update, “E-Proxy: Understanding the New Delivery Options for the 2008 Proxy Season.”
Summary of Proposed Rule Changes
The proposed rule changes would:
- Improve clarity of the notice of Internet availability of proxy materials — The proposed amendments would eliminate the specific wording of the current detailed legend requirement (other than the single line “Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on [insert meeting date]”). Instead, the proposal would require that the notice address specific topics, without mandating the exact language for such disclosure.
- Provide guidance regarding identification of matters to be acted upon — The SEC has provided further flexibility for the design of the notice of Internet availability of proxy materials by clarifying that while the notice must identify each matter that will be considered at the meeting (such as election of directors, ratification of auditors, approval of a stock option plan, etc.), the notice does not have to directly mirror the formatting and content of the proxy card.
- Allow for explanatory materials — The proposed amendments would also permit the notice of Internet availability to be accompanied by an explanation of the process for receiving or reviewing the proxy materials. These explanatory materials could be separately prepared by issuers, but the SEC expects that many issuers will use standardized materials prepared by proxy professionals.
- Revise deadlines for soliciting persons, other than the issuer — Currently, a soliciting person, other than the issuer, that opts to use the notice-only option must send its notice to shareholders by the later of 40 calendar days before the shareholder meeting to which the proxy materials relate or 10 calendar days after the issuer sends its notice or proxy statement to shareholders.
The proposed amendments would revise the notice of Internet availability requirement for a soliciting person that is not the issuer so that the soliciting person relying on the notice and access model would file a preliminary proxy statement within 10 calendar days after the issuer files its definitive proxy statement, with such soliciting person’s notice of Internet availability sent to shareholders not later than the date on which the soliciting person files its definitive proxy statement with the SEC. This proposed rule change is designed to build sufficient time into the schedule to enable the soliciting person to rely on the notice and access model, taking into account the time frame of the SEC review process.
Request for Comments
The proposing release asks for comments in a number of areas. For example, while the only
e-proxy deadline affected by the proposed rule changes is the one for soliciting persons other than the issuer, the SEC understands that a number of issuers have been discouraged from using the notice and access model because of the difficulty of meeting the 40-day mailing requirement for the notice. Accordingly, the SEC has requested comment as to whether a 30-day deadline would encourage use of the notice and access model, while still allowing sufficient time for shareholders who prefer hard copies to have such proxy materials delivered to them.
The SEC has solicited views on whether the fees charged by proxy distribution service providers have affected use of the notice and access model. The SEC also asked whether it should consider requirements that would limit an issuer’s ability to use the notice and access model where the issuer has experienced a decrease in shareholder participation as a result of using the notice and access model. Comments on the SEC’s proposed changes to its e-proxy rules are due November 20, 2009.
The proposed amendments to the e-proxy rules reflect the SEC’s current interest in reviewing the proxy disclosure and solicitation process. While the proposing release does not address an anticipated effective date for the rule changes, the short time frame given for comments may suggest that these amendments could be effective for the upcoming proxy season. Therefore, public companies and other soliciting persons considering the notice and access model should carefully monitor the SEC’s actions in this area.
If you have any questions about the SEC’s proposed amendments to its rules requiring Internet availability of proxy materials, please contact the author of this Alert, Laura D. Richman, at +1 312 701 7304, or any other member of our Corporate & Securities practice.
Learn more about our Corporate & Securities practice.