In 2007, the SEC adopted Rule 14a-16, referred to as the “E-Proxy Rules,” which provides that a proxy statement, a proxy card, the “"glossy”" annual report and any other soliciting materials may be made available to shareholders free of charge via a publicly accessible Internet website, other than the SEC’s website, in lieu of physical delivery. The E-Proxy Rules were revised in 2010 by the SEC with respect to the content of the required Internet notice and to permit the inclusion of certain limited explanatory materials. All public companies must now post proxy materials on the Internet and choose among the different delivery options under the E-Proxy Rules: the “"notice and access option,”" the “"full set delivery option”" or a hybrid of these options, as discussed below.
Notice and Access. Under the notice and access option,” an issuer can satisfy the proxy delivery requirements by delivering a Notice of Internet Availability of Proxy Materials (the “"Notice”") to shareholders at least 40 calendar days before the annual meeting date, and posting the complete proxy materials on an Internet website. To enhance the readability of the Notice, an issuer must use plain English principles in the organization, language and design of the Notice, and the Notice may not be accompanied by a proxy card or any other information. Further, even though proxy materials are deemed electronically delivered under the notice and access option, issuers must deliver paper proxy materials to any shareholder upon request.
A form of the Notice must be filed with the SEC no later than the date that an issuer first sends the Notice to shareholders. The information that can be included in the Notice is specifically limited under Rule 14a-16(d) to the following:
- A prominent legend in boldface type that states “Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting To Be Held on [insert meeting date]”;
- An indication that the communication is not a form for voting and presents only an overview of the more-complete proxy materials, which contain important information and are available on the Internet or by mail, and a statement encouraging a security holder to access and review the proxy materials before voting;
- The Internet website address where the proxy materials are available;
- Instructions regarding how a security holder may request a paper or e-mail copy of the proxy materials at no charge, including the date by which the security holder should make the request to facilitate timely delivery, and an indication that a paper copy or e-mail will not otherwise be received;
- The date, time and location of the meeting, or if corporate action is to be taken by written consent, the earliest date on which the corporate action may be effected;
- A clear and impartial identification of each separate matter intended to be acted on and the soliciting person’s recommendations, if any, regarding those matters, but no supporting statements;
- A list of the materials being made available at the specified website;
- A toll-free telephone number, an e-mail address and an Internet website where the shareholder can request a copy of the proxy statement, annual report to security holders and form of proxy, relating to all the issuer’s future shareholder meetings and for the particular meeting to which the proxy materials being furnished relate;
- Any control/identification numbers that the shareholder needs to access his or her form of proxy;
- Instructions on how to access the form of proxy, provided that such instructions do not enable a shareholder to execute a proxy without having access to the proxy statement and the annual report; and
- Information on how to obtain directions to be able to attend the meeting and vote in person.
Unless an issuer chooses to follow the full set delivery option in the ordinary course, it must provide all nominee record holders with the information listed above in sufficient time for the record holders to prepare, print and send a similar Notice of Internet Availability of Proxy Materials to beneficial owners at least 40 calendar days before the meeting date.
In designing the Notice, an issuer may include pictures, logos or similar design elements, so long as the design is not misleading and the required information is clear. Notwithstanding the prohibition of including other materials with the Notice, however, an issuer may accompany the Notice with (i) a preaddressed, postage-paid reply card for requesting a copy of the proxy materials; (ii) a copy of any notice of shareholder meeting required under state law if that state law notice is not combined with the Notice; and (iii) an explanation of the reasons for an issuer’s use of the E-Proxy Rules and the process of receiving and reviewing the proxy materials and voting.
Finally, an issuer may send a form of proxy to shareholders if (a) at least 10 or more calendar days have passed since the date it first sent the Notice to shareholders and the form of proxy is accompanied by a copy of the Notice, or (b) the form of proxy is accompanied or preceded by a copy, via the same medium, of the proxy statement and any annual report that is required by the general proxy rules.
Full Set Delivery. Under the full set delivery option, issuers can use existing methods to deliver copies of proxy materials in paper or electronic form; however, they must also post a copy of such materials on the Internet. The delivery must include all proxy materials., i.e., proxy statement, proxy card and glossy annual report. In addition, the proxy materials must either be accompanied with a Notice or incorporate the information required in a Notice in the proxy statement and the form of proxy. When using this delivery method, issuers need not comply with the 40-day notice period required under the notice and access option.
Quorum and Voting; Hybrid Approach. It has been widely reported that the numbers of retail votes declined significantly for issuers using the notice and access option, in some cases creating a risk of failure to achieve sufficient support for a proposal being voted upon or possibly even achieving a quorum necessary for the annual meeting. To counteract this problem, some companies adopt a hybrid approach using the full set delivery option for some or all of their retail shareholders and, in some cases, for international shareholders. Also, to facilitate voting, some issuers send out a second Notice 10 days after sending out the first Notice, along with a proxy card and return envelope.
Limited Explanatory Materials Can Now Accompany the Notice. In its 2010 revisions to Rule 14a-16, the SEC permitted issuers to include certain explanatory materials along with the Notice. These materials may explain the process of receiving and reviewing the proxy materials and the voting process under the E-Proxy Rules, as well as the reasons the issuer is distributing its proxy materials using the E-Proxy Rules. The content of the explanatory materials, however, cannot extend beyond these topics. Moreover, issuers and soliciting persons cannot include any discussion in the explanatory materials that is intended to influence the vote of shareholders or change the method of delivery of the proxy materials. It does not appear under the rule’s revisions that the explanatory materials have to be filed with the SEC.