On October 14, 2009, the SEC proposed changes to the current "notice and access" proxy rules in an effort to reduce confusion arising from the existing rules and to increase shareholder-response rates when issuers and other soliciting persons use the "notice-only" proxy solicitation option.
Proposed Amendments to Notice and Access Proxy Rules
Under the notice and access proxy solicitation model adopted by the SEC in 2007, issuers and other soliciting persons are required to post their proxy materials on an Internet site and are provided with two methods for delivering those materials to shareholders.
The first method is referred to as the "notice-only" option. This option requires the delivery to shareholders of a Notice of Internet Availability of Proxy Materials, which must contain certain information regarding how to access the proxy materials online, how to request a paper copy of the proxy materials, and how to vote. Much of the language required to be included in the notice is specifically mandated in the current rules. Under the notice-only option, no other document (except a notice of security holder meeting required under state law) may be included with or incorporated into the notice.
The second method available for delivery of proxy materials is the "full set delivery option," which requires the delivery of the traditional full set of proxy materials, in paper form, accompanied by a similar notice regarding the availability of proxy materials on the Internet.
While the notice-only option has been widely adopted and has resulted in significant cost savings for issuers, the SEC is concerned that certain aspects of the rules may create shareholder confusion and may be contributing to lower proxy-voting participation rates by shareholders. As a result, the SEC proposes to revise the rules in the following ways:
- The SEC proposes to give issuers and other soliciting persons additional flexibility in drafting the language to be used in the notice. Specifically, rather than requiring a detailed boilerplate legend, the SEC would require the notice to address certain topics without specifying the precise language required (other than the current legend "Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on [insert meeting date]," which would remain mandated language).
- The SEC also proposes to allow (and to strongly encourage, though not require) issuers and other soliciting persons to include with the notice an explanation of the notice and access model. While the specific language of this explanation will not be prescribed by the SEC, it is expected that issuers will work together with the SEC staff, intermediaries, and proxy distribution service providers to develop standardized educational materials.
Proposed Change to Deadline for Notice-Only Delivery by Soliciting Persons Other Than the Issuer
Under SEC Rule 14a-16, if a soliciting person other than the issuer wants to use the notice-only option, it must send its notice to shareholders by a date that is the later of (a) 40 calendar days before the shareholder meeting to which the proxy materials relate, or (b) 10 calendar days after the issuer first sends its notice or proxy statement to shareholders. The SEC believes that this timing requirement can limit the ability of a soliciting person other than the issuer to use the notice-only option in a contested solicitation because the SEC's process of reviewing soliciting materials may not be completed in time to allow the soliciting person to comply. Accordingly, under the proposed revisions, the SEC would change Rule 14a-16(l)(2)(ii) to require a soliciting person other than the issuer who relies on this alternative to file a preliminary proxy statement no more than 10 days after the issuer files its definitive proxy statement and to deliver the soliciting person's notice to shareholders no later than the date that it files its definitive proxy statement.
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