On February 22, 2010, the U.S. Securities and Exchange
Commission ("SEC") published final amendments, initially
proposed in October 2009, to its notice and access proxy rules, or
"e-proxy" rules. The SEC's e-proxy rules require all
companies subject to the proxy rules under the U.S. Securities
Exchange Act of 1934 to post their proxy materials on their
websites and to send a Notice of Internet Availability of Proxy
Materials ("Notice"), either alone (the "notice-only
option") or accompanied with a full set of proxy materials, to
their shareholders. The amendments are effective March 29,
2010.
Although companies have experienced significant cost savings in
using the notice-only option due primarily to reduced printing
costs, statistics have shown lower shareholder response rates when
that option is used, perhaps due to confusion among some investors
as to how the e-proxy process works. By permitting issuers (and
other persons soliciting proxies) to better communicate with
shareholders, the SEC hopes to reduce any investor confusion and
improve proxy response rates, particularly among retail
investors.
In perhaps the most significant change effected by the amendments,
companies and other soliciting persons may now accompany the Notice
with an explanation of the e-proxy process, including explanations
of the process of receiving proxy materials and voting under the
e-proxy rules and of the reasons for the use of those rules. As
under the current rules, materials designed to persuade
shareholders to vote in a particular way are not permissible.
Several other changes to the rules were adopted. First, to reduce
the "boilerplate" appearance of the Notice, the
requirement to include a prescribed detailed legend in bold-face
type has been replaced with a requirement to address certain topics
in the Notice (e.g., that the Notice is not a form for voting and
presents only an overview of the complete proxy materials) but
without prescribing the language to be used. Similarly, although
not an amendment to the existing rules, the SEC confirmed its prior
guidance that the Notice need not directly mirror the proxy card
provided it "clearly and impartially" identifies each
matter to be voted on at the meeting.
The amendments also attempt to eliminate a timing advantage enjoyed
by companies over other persons soliciting proxies. Under the
current rules, other soliciting persons desiring to use the e-proxy
process are required to send their Notices no later than 10
calendar days after the company first sends its proxy materials to
shareholders. This limits a soliciting person's ability to use
e-proxy if, as a result of SEC comments on its preliminary proxy
statement, it could not file its definitive proxy statement (and
send its Notice) by that deadline. Under the amended rules, a
soliciting person must file its preliminary proxy statement with
the SEC within 10 calendar days after the company files its
definitive proxy statement and has until the date on which it files
its definitive proxy statement to send its Notice to shareholders.
However, the effect of this change may be limited by the reluctance
of many non-company soliciting persons to use the e-proxy process
in proxy contests due to the lower shareholder response rates that
process has apparently engendered.
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