SEC Proposes Amendments to Notice and Access Proxy Rules

On October 14, 2009, the Securities and Exchange Commission proposed amendments to its notice and access proxy rules designed to improve the model for furnishing proxy materials to shareholders electronically (also known as "e-proxy"). Specifically, the amendments would, among other things:

• give a registrant or soliciting shareholder greater flexibility to determine the language and formatting of the Notice of Internet Availability of Proxy Materials (“Notice”) that it can mail to shareholders in lieu of a full printed set of proxy materials; and

• permit a registrant or soliciting shareholder to include explanatory materials regarding the notice and access process with the Notice.[1]

In addition to these proposed amendments, the SEC requested comments on a number of different aspects of the notice and access model and other ways that the SEC could reduce regulatory impediments to shareholder participation in the proxy solicitation process. Although the timing is tight, it appears that the SEC intends to adopt these amendments in time to be effective for the 2010 proxy season. Certain of these proposals are discussed in greater detail below.

Background

Currently, Exchange Act Rule 14a-16(d) requires the content and format of a Notice to follow a prescribed model.[2] In addition, under Exchange Act Rule 14a-16(f), the Notice may be accompanied only by a reply card for requesting printed proxy materials and the notice of meeting that is required by the law of the registrant’s jurisdiction.

Recent statistics regarding the use of the notice and access model suggest that these content and format requirements may have contributed to lower shareholder response rates to proxy solicitations, especially among “retail” shareholders. Additionally, it appears that the prescribed form of Notice may be confusing for shareholders, some of whom have mistaken the Notice for the proxy card itself. As a result, the SEC determined to propose “limited modifications” to the notice and access proxy rules in an attempt to help address these problems.

The Proposed Amendments

To improve the clarity of the Notice, the SEC proposes to amend Rule 14a-16(d) to require that the information appearing in the Notice address certain topics generally, as opposed to specifying the exact language to be used in the Notice. Under the amended rule, a registrant or soliciting shareholder would have the flexibility to select the language and format to be used for its Notice, as long as the Notice addresses each of the specified topics.[3] This flexibility would, the SEC hopes, allow registrants and soliciting shareholders to better explain the purpose of the Notice and how a shareholder can electronically access proxy materials and vote his or her shares.

In addition, the SEC proposes to revise Rule 14a-16(f) to permit a registrant or soliciting shareholder to include certain explanatory materials in the same mailing as its Notice. These extra materials would be limited to explaining the notice and access model itself, and could not, for example, elaborate on the meeting agenda or encourage shareholders to vote in a certain manner. The SEC believes that these explanatory materials would better educate shareholders about the operation of the notice and access model.[4]