SEC Amendments to E-Proxy Rules

By Cydney Posner

The SEC has posted the recent final amendments to the e-proxy rules.  These amendments become effective on March 29. The changes are designed to address the concern that the eproxy rules may be reducing response rates for retail shareholders, some of whom may be confused by the notice the eproxy Notice they receive. The amendments provide additional flexibility regarding the format and content of the e-proxy Notice to shareholders and allow companies to include explanatory materials regarding the notice-and-access model.

Rather than requiring the company to include a detailed boilerplate legend, the amendments will now require instead that the information appearing on the Notice address certain topics, without specifying the exact words to be used. The rules will also require that the company indicate that the Notice is not a form for voting. New Exchange Act Rule 14a-16(f)(2)(iv) also allows the Notice to be accompanied by additional materials that contain an explanation of the process of receiving and reviewing the proxy materials and voting under the notice-and-access model plus, in a change from the proposal, an explanation of the reasons for the use of notice and access. Materials designed to persuade shareholders to vote in a particular manner or to change the method of the delivery of proxy materials are not permitted. The new rules also make a technical conforming change to Rule 14a-16(n)(4), which describes the notice-and-access disclosures that companies are not required to include in proxy materials when they follow the full-set model. The release also confirms the guidance provided in the proposing release that the Notice need not directly mirror the proxy card. Rather, Rule 14a-16(d)(6) provides that the Notice must clearly and impartially identify each separate matter intended to be acted upon that will be considered at the meeting, but it does not have to conform to the formatting and content requirements of Rule 14a-4 for disclosure of matters on the proxy card.

The new amendments also change the timing requirements for soliciting persons, other than the issuer, who use the notice-only option. The current requirement in Rule 14a-16(l)(2) is that soliciting persons send the Notice to shareholders 10 calendar days after the date that the company first sends its proxy materials to shareholders. This requirement can pose a compliance problem if the SEC staff issue comments on a soliciting person's preliminary proxy statement. Accordingly, revised Rule 14a-16(l)(2)(ii) requires soliciting persons other than the issuer to file a preliminary proxy statement within 10 calendar days after the company files its definitive proxy statement and to send its Notice to shareholders no later than the date on which it files its definitive proxy statement with the SEC.