The Securities and Exchange Commission ("SEC") recently published final regulations on Shareholder Choice Regarding Proxy Materials. The amendments to the proxy rules under the Securities Exchange Act of 1934 ("Amendments") require issuers and other soliciting persons to post proxy materials on a publicly accessible Internet web site and to provide notice to shareholders of the availability of those materials. Issuers and other soliciting persons must follow a notice and access model, which allows two options to issuers to provide proxy materials to shareholders: (1) the "notice only" option and (2) the "full set delivery" paper option. If the issuer chooses to post its proxy materials on the Internet web site, under the "notice only" option, shareholders may elect to receive these proxy materials in paper copy format.
Notice and Access Model
The Amendments require issuers furnishing proxy materials to shareholders to post proxy materials1 on a publicly available Internet web site and to provide all shareholders of record with Notice of Internet Availability of Proxy Materials ("Notice"). Intermediaries, such as broker-dealers and banks, must follow the notice and access model and furnish an issuer's proxy materials to beneficial owners.
An issuer choosing the "notice only" option must post its proxy materials on an Internet web site and send a Notice to its shareholders informing them of the availability of proxy materials. This Notice must be sent at least 40 days prior to a shareholder meeting. Under this option, issuers must provide paper copies to shareholders who request them and also must provide paper copies to shareholders who make a permanent request for paper copies. Also, this option may not be used for business combinations.
Under the "full set delivery" option, an issuer must deliver a full set of printed paper proxy materials to its shareholders with the Notice and need not prepare a separate notice if it includes all of the information required by the SEC proxy rules in its proxy statement and proxy card. In addition to sending proxy materials to shareholders under the traditional paper method, an issuer choosing this option must (a) send a Notice accompanied by a full set of materials, or incorporate all of the information required to appear in the Notice into the proxy statement or proxy card, and (b) post the proxy materials on a publicly accessible Internet web site no later than the date the Notice was first sent to shareholders.
Issuers may use each of these options for different groups of shareholders and need not follow only one option for all shareholders. The issuer must maintain the Internet web site on which it posts its proxy materials in a manner that does not infringe on the anonymity of the person accessing the Internet web site. The issuer may not disclose a shareholder's email address to any person. The issuer may not install cookies and other tracking features on the Internet web site. The details related to each of these options are described in Table 1.
The "full set delivery" option differs from the "notice only" option in that an Issuer using the "full set delivery" option:
- may accompany the Notice with a copy of the proxy statement, annual report and proxy card. By contrast, the "notice only" option does not permit an issuer to accompany the Notice with any other documents, although an issuer may send the Notice and proxy card together 10 days or more after it initially sends the Notice.
- need not prepare a separate notice if all information is in the proxy statement and proxy card.
- is not required to provide a copy of proxy materials in the Notice.
- need not send the Notice and full set of proxy materials at least 40 days in advance of shareholder meeting.
- is not required to provide alternative means for voting at the time of the Notice.
- is not required to include the part of the prescribed legend relating to security holder requests for copies of the documents and instructions on how to request copies of proxy materials.
Soliciting persons other than the issuer must also comply with the notice and access model described above, but with the following differences:
- A soliciting person other than an issuer is not required to solicit every shareholder or furnish information to shareholders not being solicited; and
- If a soliciting person elects the "notice only" option, then it must send a Notice to shareholders by the later of (1) 40 calendar days prior to the meeting, or if there will be no meeting, then 40 calendar days prior to the effectuation of corporate action; or (2) 10 calendar days after the date the issuer first sends its proxy materials to shareholders. These timing requirements are not applicable to the "full set delivery" option.
Phased-in Compliance Deadlines
The new rules will be phased in for different types of persons soliciting proxies. "Large accelerated filers," not including registered investment companies, must comply with the Amendments commencing on or after January 1, 2008. All other issuers (including registered investment companies) and other soliciting persons may begin complying commencing January 1, 2008, but must begin commencing January 1, 2009.
Effect on Financial Intermediaries
Financial intermediaries, such as broker-dealers ("Intermediaries"), must comply with either the "full set delivery" option or the "notice only" option, as the case may be. An issuer, or other soliciting person, must provide each Intermediary with sufficient time to comply with such obligations. In the case of the "full set delivery" option, the Intermediary must forward the proxy materials to the beneficial owner within five business days following receipt of the materials. This is the same as the current practice. Any requirements set forth in the Notice which are not in the proxy materials must be incorporated into the voting instructions transmitted to the beneficial owners. In the case of the "notice only" option, the Intermediary must tailor the Notice to the beneficial owners. This Notice must be transmitted 40 days prior to the meeting in the case of issuer solicitations, and in other cases must be by the later of such 40-day period and 10 days following the issuer's sending of the Notice.
The Shareholder Choice Regarding Proxy Materials amendments create new notice and publication requirements for issuers and other soliciting persons, requiring them to post proxy materials on a publicly accessible Internet web site and to provide Notice to shareholders of the availability of those proxy materials. Issuers and other soliciting persons may also, and, if requested by a shareholder, shall, continue to provide those proxy materials in paper copy format.