Alert March 02, 2010

SEC Amends Rule Requiring Internet Availability of Proxy Materials

The SEC approved amendments to the notice and access proxy rules (the “e-proxy Rules”).  In general, the e-proxy Rules require that proxy materials are made available on the internet and that shareholders receive notice regarding the availability of those materials (the “Notice”).  (For more detail on these requirements, see the July 31, 2007 Alert.)  Issuers have two options for distributing proxy materials to shareholders: (i) send only the Notice (the “Notice Only Method”) or (ii) use the traditional method of mailing full proxy materials along with, or including, a Notice.  In October 2009, the SEC proposed amendments to the e-proxy Rules designed primarily to facilitate the response of shareholders who have received a Notice under the Notice Only Method.  The final rule amendments, as set forth in the SEC adopting release, largely track the proposed amendments, with only a few changes made in response to comments received by the SEC on its October 2009 proposal.

Notice Requirements and Explanatory Materials.  The final rule amendments provide companies and other soliciting persons with additional flexibility regarding the format of the Notice by eliminating the specific legend requirements.  Instead, in an effort to avoid boilerplate disclosure, the information appearing in the Notice is required to address certain topics, without specifying the exact language to be used.  The final rule amendments also permit companies and other soliciting persons to accompanying the Notice with an explanation of (i) the process for the use of the Notice Only Method and (ii) the process of receiving and reviewing the proxy materials and voting under the Notice Only Method.  The explanatory materials may not, however, be designed to persuade shareholders to vote in a particular manner or change the method of delivery of proxy materials. 

In response to comments, the SEC revised the proposed amendments to allow an explanation of the reasons the Notice is being used and to require that an issuer or other soliciting person indicate that the Notice is not a form for voting.  The adopting release notes that the SEC is not specifically requiring intermediaries and their agents to forward explanatory materials prepared in reliance on the amended rules, but observed that to the extent materials accompanying a Notice are “other soliciting materials” then the proxy rules specifically require that intermediaries and their agents distribute them.  The adopting release also confirms guidance provided in the proposing release to the effect that a Notice need not directly mirror the proxy card.  A Notice must clearly and impartially identify each separate matter intended to be acted on that will be considered at the shareholder meeting, but it does not have to conform to the specific formatting and content requirements for proxy cards.

Notice Deadlines for Non-Issuers.  The deadline for a soliciting person other than an issuer using the Notice Only Method to send the Notice has been changed.  Under the current rules, a soliciting shareholder must send its proxy materials by the later of (i) 40 calendar days before the shareholder meeting to which the proxy materials relate or (ii) 10 calendar days after the issuer first sends proxy materials to shareholders.  The SEC staff review process for preliminary proxy materials may limit the ability of a soliciting shareholder subject to the latter deadline to use the Notice Only Method if there are outstanding comments more than 10 calendar days after the soliciting shareholder has initially filed its preliminary proxy materials.  The final rule amendments address this issue by substituting a requirement that the soliciting person send its Notice to shareholders no later than the date on which it files its definitive proxy statement with the SEC and have filed its preliminary proxy statement within 10 calendar days after the issuer files its definitive proxy statement. 

Summary Prospectus Accompanying the Notice.  As proposed, the final rule amendments permit registered open-end funds using the Notice Only Method to accompany the Notice with a summary prospectus. 

Ongoing SEC Focus on Proxy Process.  In the adopting release, the SEC acknowledged that it was not addressing broader concerns with the proxy system and the e-proxy Rules expressed by those who commented on its October 2009 proposal, but was continuing to consider these and other concerns that have been raised regarding the proxy process.  The adopting release also noted that, at the direction of the SEC Chairman, the SEC staff is conducting a comprehensive review of the mechanics by which proxies are voted and the way in which information is conveyed to shareholders, in order to issue a concept release seeking public comment on these issues. 

Effective Date.  The effective date for the final rule amendments is March 29, 2010.