Originally published March 2, 2010

Keywords: E-Proxy amendments, Securities and Exchange Comission, internet, proxy materials, e-proxy rules, shareholders

The US Securities and Exchange Commission has amended its rules requiring Internet availability of proxy materials, often referred to as the e-proxy rules, and has provided guidance concerning certain requirements under those rules. See Release Nos. 33-9108; 34-61560; IC-29131. 

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. The amended e-proxy rules become effective on March 29, 2010. For a detailed description of the SEC's e-proxy rules as in effect prior to this amendment, see our August 24, 2007, Securities Update, "E-Proxy: Understanding the New Delivery Options for the 2008 Proxy Season".

Summary of Rule Changes

The rule changes:

  • Allow soliciting persons to improve the clarity of the notice of Internet availability of proxy materials—The amendment of Rule 14a-16(d) moves away from boilerplate by eliminating the specific wording of the detailed legend requirement (other than maintaining the single line heading "Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on [insert meeting date]"). Instead, the revised rule requires that the notice of Internet availability address specific topics. For example, the notice must specify that it is only an overview and that more complete information is contained in the proxy materials, which are available on the Internet or by mail. The notice must also encourage stockholders to access the proxy materials before voting and provide the company's Internet web site address. It must contain instructions for requesting a paper or e-mail copy of the proxy materials, including the date by which such a request must be made it order to facilitate timely delivery of the proxy materials, and it must indicate that the shareholder will not receive a paper or e-mail copy of the proxy materials unless such a request is made. The notice must also indicate that it is not a form for voting. However, under the amendment, the e-proxy rules no longer mandate 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 clearly and impartially identify each separate 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 amendments also permit the notice of Internet availability to be accompanied by an explanation of the process for receiving and reviewing the proxy materials and voting, as well as the reasons for the use of the notice and access rules. However, materials designed to persuade shareholders to vote in a particular manner or to change the method of delivery of proxy materials are not permitted to accompany the notice of Internet availability when the notice and access model of proxy delivery is used.
  • Revise deadlines for soliciting persons other than the issuer—Previously, a soliciting person, other than the issuer, that opted to use the notice-only option had to 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 sent its notice or proxy statement to shareholders. Under the amended rule, a soliciting person, other than an issuer, that relies on the notice and access model both must file a preliminary proxy statement within 10 calendar days after the issuer files its definitive proxy statement and must send its notice of Internet availability to shareholders not later than the date on which such soliciting person files its definitive proxy statement with the SEC. 

Practical Considerations

Issuers that are relying on the notice and access model for their proxy materials, and that are delivering their notice of Internet availability on or after March 29, 2010, may take advantage of the new rule to prepare their corporate communication in a style they believe to be clearest and most effective for their shareholders. As long as they use the prescribed language for the heading, they may choose their own wording and format to address the topics required to be covered in the notice of Internet availability.

Companies that will be using the notice and access model following the effective date of the rule change should consider whether their shareholders would find it useful to receive an explanation with the notice of Internet availability that details the process for receiving and reviewing the proxy materials and the reasons why the company is using the notice and access model for proxy delivery.

Although the notice need not mirror the formatting and content of the proxy card, when discussing the items to be acted on at the meeting, it may be a good idea for state-law notice purposes to follow the content of the notice of the meeting included in the full set delivery materials.

The amendments did not address issues such as reducing the amount of time for sending the notice of Internet availability of proxy materials to shareholders prior to the annual meeting or concerns about the lack of competition for proxy service providers, but the SEC indicated that it is still considering these and other ways to encourage informed shareholder participation in the proxy process. The SEC staff has been directed to conduct a comprehensive review of the mechanics by which proxies are voted and the way in which information is conveyed to shareholders. The SEC will be issuing a concept release to seek public comment on such issues.

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