March 1, 2010
The Securities and Exchange Commission ("SEC") recently approved amendments to its notice and access (e-proxy) rules that are designed to increase participation in the e-proxy process. Under the prior e-proxy rules, the SEC mandated the exact form and content that had to appear on the Notice of Internet Availability (the "Notice"). Concerns have been expressed that the Notice rules limited the ability of issuers to communicate effectively about the e-proxy process, which resulted in lower shareholder participation rates for e-proxy, particularly among retail investors.
The new rules approved by the SEC last week attempt to address this concern by providing enhanced flexibility to the issuer and other soliciting persons in determining the form and content of the Notice. The SEC’s amendments also permit materials that explain the e-proxy process to accompany the Notice. Separately, the SEC launched an educational initiative last week aimed at increasing investor understanding of, and participation in, the e-proxy process.
The SEC’s e-proxy amendments become effective on March 29, 2010. (The SEC’s release was silent as to whether early adoption of the amended rules is permissible.) The SEC’s release adopting the e-proxy rules is available at http://www.sec.gov/rules/final/2007/34-56135.pdf.
Discussion of the Amendments to the E-Proxy Rules
Amendments to the Notice Requirements
The SEC’s amendments resulted in three principal changes to the Notice requirements. First, the amended e-proxy rules modify and shorten the legend that must appear on the Notice: the legend now must read "Important Notice Regarding the Internet Availability of Proxy Materials for the Shareholder Meeting to be Held on [insert meeting date]." Second, while the SEC’s amendments require that certain topics must be addressed in the Notice, issuers and other soliciting persons now have flexibility in describing and presenting this information within the Notice. The topics that must be addressed in the Notice are as follows:
Third, in a change from the proposed rules, the Notice also now must clearly indicate that it is not a form for voting and only presents an overview of the more complete proxy materials. Although not required by the amended rules, given the confusion surrounding the purpose of the Notice, issuers may wish to indicate in bold that the Notice is not a form for voting. The amended rules did not change the requirement that the Notice must clearly and impartially identify each matter that will be acted upon and considered at the meeting.
Explanatory Materials Can Now Accompany the Notice
The SEC’s amendments also now permit issuers and other soliciting persons to include explanatory materials along with the Notice. The explanatory materials that accompany the Notice are allowed to explain the process of receiving and reviewing proxy materials and the voting process under the e-proxy rules. The explanatory materials also can set forth the reasons the issuer or the other soliciting person is distributing proxy materials using the e-proxy process. The content of the explanatory materials, however, cannot extend beyond these topics, and, in particular, issuers and soliciting persons cannot include any discussion in the explanatory materials that is intended to influence the vote of shareholders or change the method of delivery of the proxy materials. Issuers are not specifically required to forward the explanatory materials to intermediaries and their agents for distribution to shareholders. Under the amended rules, it does not appear that the explanatory materials have to be filed with the SEC.
Notice Deadlines for Soliciting Persons Other Than Issuers
The e-proxy amendments also changed the deadline for soliciting persons (other than issuers) to send the Notice to shareholders. Previously, the deadline was the later of (1) forty calendar days before the meeting to which the proxy materials relate or (2) ten calendar days after the issuer first sent proxy materials to the shareholders. These deadlines, however, effectively limited the ability of soliciting persons (other than issuers) to use the e-proxy rules because comments on preliminary proxy statements filed by such soliciting persons could take more than ten days to resolve. The amendments address this practical complication by tying the deadline to the filing of the preliminary proxy statement by the soliciting person. Specifically, under the new rule, soliciting persons (other than issuers) must file a preliminary proxy statement within ten calendar days after the issuer files its definitive proxy statement and must send the Notice to shareholders no later than the date on which the definitive proxy statement is filed with the Commission.
SEC’s Initiative to Enhance Education About the Proxy Process
In addition to amending the e-proxy rules, the SEC also announced educational efforts aimed at enhancing shareholder understanding of the proxy system generally and the notice and access model of delivering proxy materials. One initiative is the publication of a new Investor Alert, New Shareholder Rules for the 2010 Proxy Season (available at http://sec.gov/investor/alerts/votingrules2010.htm), which provides investors with information related to the recent changes to broker voting rules and the impact of those new rules on proxy voting.
The SEC also launched a new Spotlight on Proxy Matters (available at http://sec.gov/spotlight/proxymatters.shtml) page, which provides investors with information on the mechanics of proxy voting, the e-proxy rules, corporate elections and other general proxy matters.
Gibson, Dunn & Crutcher lawyers are available to assist in addressing questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or any of the following attorneys:
Ronald O. Mueller (202-955-8671, [email protected])
Amy L. Goodman (202-955-8653, [email protected])
Lisa A. Fontenot (650-849-5327, [email protected])
Michael J. Scanlon (202-887-3668, [email protected])
Elizabeth A. Ising (202-955-8287, [email protected])
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