On February 22, 2010, the SEC published final changes to its “notice and access” proxy rules that will go into effect on March 29, 2010. The final rules, which are primarily an effort by the SEC to increase shareholder-response rates when issuers and other soliciting persons use the “notice-only” proxy solicitation option, differ only slightly from the proposed rules that were issued on October 14, 2009.
The 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 a Web 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 was specifically mandated in the prior 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.
Amendments to the Notice and Access Proxy Rules
While the notice-only option has been widely adopted and has resulted in significant cost savings for issuers, the SEC has been concerned that certain aspects of the rules may have created shareholder confusion and contributed to lower proxy-voting participation rates by shareholders. As a result, the SEC has amended the prior rules in the following ways:
1. The amended rules 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 amended rules require the notice to address certain topics, including an indication that the notice is not a form for voting and presents only an overview of the complete proxy materials, 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 will remain mandated language). The SEC also has confirmed that while the notice must clearly and impartially identify each matter to be acted on and considered at the meeting, it is not required to directly mirror the proxy card.
2. The amended rules also allow (and the SEC strongly encourages) issuers and other soliciting persons to include with the notice an explanation of the notice and access model, which, if provided, must be limited to an explanation of (a) the process of receiving and reviewing the proxy materials and voting and (b) the issuer's reasons for using the notice and access rules.
Change to Deadline for Notice-Only Delivery by Soliciting Persons Other Than the Issuer
Under SEC Rule 14a-16 (before giving effect to the amendments), 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, the SEC has modified 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.