As registrants approach the 2008 annual meeting proxy season, it is important to be mindful of the Securities and Exchange Commission’s recent amendments to the proxy rules. The new rules provide registrants with two compliance alternatives for delivering materials: a notice only option; or a full set delivery option.
Large accelerated filers must comply with the new rules commencing January 1, 2008. Registrants that are not large accelerated filers may electively comply with the new rules commencing January 1, 2008 and must comply with the new rules commencing January 1, 2009. The new rules are available at: http://www.sec.gov/rules/final/2007/34-56135.pdf.
Notice Only Option
Under the notice only option, the registrant must (1) send a “Notice of Internet Availability” of proxy materials to all shareholders, (2) provide anonymous website access to the proxy materials, (3) provide a method of voting and (4) provide a paper or e-mail copy of the proxy materials upon request. Registrants selecting this option will have to make significant changes to their existing proxy procedures and timelines and therefore should start to plan early for their 2008 annual meeting proxy solicitation.
In addition to any notice information required under state corporation law, the SEC requires that the Notice contain the following in plain English:
- A prominent legend in bold-face type reading:
“Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be Held on [insert meeting date].
- This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting.
- The [proxy statement] [information statement] [annual report to security holders] [is/are] available at [insert Web site address].
- If you want to receive a paper or e-mail copy of these documents, you must request one. There is no charge to you for requesting a copy. Please make your request for a copy as instructed below on or before [Insert a date] to facilitate timely delivery.”
- the date, time and location of the meeting;
- a clear and impartial identification of each separate matter to be acted upon, including the registrant’s recommendation, if it chooses to include one, but no supporting statements;
- a list of materials available at the specified website;
- (1) a toll free telephone number, (2) e-mail address and (3) Internet website where the shareholder can request a copy of proxy materials for the meeting to which the Notice relates and all future meetings;
- instructions on how to access the proxy card, with any control or identification numbers necessary to do so; and
- information (such as directions to the meeting) about attending the shareholder meeting and voting in person.
The registrant must file the Notice on EDGAR no later than the date it first sends the Notice to shareholders. Registrants using the notice only option are required to ensure that the Notice is mailed to shareholders 40 calendar days before the meeting. No other documents may accompany the Notice. Delivery of the Notice to intermediaries is not considered mailing to shareholders. Registrants will therefore need to deliver the notice to intermediaries—and have proxy materials ready—more than 40 calendar days prior to the meeting, since intermediaries will require additional time to prepare their own notices and voting instructions.
The new proxy rules require that registrants make all proxy materials identified in the Notice available free of charge on a publicly accessible website, in addition to the SEC’s EDGAR website, no later than the date the Notice is first sent to shareholders. Proxy materials must be conveniently available on the website for online reading, as well as downloading and printing, through the conclusion of the shareholder meeting. The website must be anonymously accessible by shareholders. This will require that the registrant use software that does not attach “cookies” or other tracking features that identify users. The registrant may use its own website. However, if it decides to do so, it should work with its information technology department or outside service provider well in advance of proxy season to confirm that its website complies with SEC requirements.
Method of Voting
Under the new proxy rules, registrants are required to provide shareholders with a method of executing proxies as of the time the Notice is first sent to shareholders. Registrants can satisfy this requirement by providing an electronic voting platform, a toll-free telephone number for voting or a printable or downloadable proxy card on the website. The new rules prohibit sending a paper or e-mail proxy card to a shareholder until 10 days after the Notice is sent, unless the proxy card is accompanied by or preceded by the proxy statement and any required annual report sent by the same medium. A copy of the Notice must be attached to the proxy card, reminding shareholders where they can access the proxy materials.
Requests for Copies
The registrant must provide a toll-free number, e-mail address and Internet website for shareholders to request copies of proxy materials or make an election to receive proxy materials on a continuing basis with respect to all meetings. Upon request by a shareholder, a registrant must provide paper copies of its proxy materials via first class mail or e-mail copies of its proxy materials within 3 business days. The obligation to furnish materials upon request lasts for one year after the meeting, except that the first class mailing and 3 business day requirement do not apply post-meeting. Shareholders must be allowed to make a permanent election to receive paper or e-mail copies of all future proxy materials of the registrant, and the registrant must maintain records of those elections. Absent specific instructions from the shareholder, the default assumption under the notice only option is that the shareholder will rely on electronic access.
Full Set Delivery Option
This option is substantially the same as the current system of disseminating proxy materials, except that the registrant will also have to:
- include a version of the Notice in the full set mailing or incorporate the required Notice information into the proxy statement and proxy card; and
- post its proxy materials on an SEC compliant website indicated in the Notice on or before the date it sends the proxy materials to shareholders; the materials must remain available on the website through the conclusion of the shareholder meeting.
This option does not accelerate the timing for delivering proxy materials. In addition, the registrant is not required to provide paper or e-mail copies upon request to shareholders under the full set delivery option, since shareholders already would have received a copy of these materials as part of the initial distribution.
Intermediaries must provide proxy materials to the beneficial owner of the shares using the method chosen by the registrant. The information to be included in the intermediary’s notice is generally the same as the information in the Notice above, although it may be tailored specifically for beneficial owners, directing them to either the intermediary’s website or the registrant’s website to access the proxy materials. The registrant must provide the necessary materials to the intermediary a sufficient amount of time in advance of when the intermediary is required to provide the Notice and proxy materials to the beneficial owner, as described above.
Choosing an Option
The threshold question raised by the new rules is which option to use. The advantage of the notice only option is that the registrant does not incur the expense of printing and mailing a full set of proxy materials to all shareholders. However, paper copies are still required for shareholders that request them. In addition, under the notice only option, the registrant will incur costs relating to processing requests for proxy materials. For most registrants, it is expected that the notice only option will be the more cost-effective option and in many cases, dramatically so.
Because the notice only option is still relatively new and untested, it is too early to tell whether the notice only option will have an impact on shareholder voting patterns. Therefore, at least for this year, registrants should consider following the full set delivery option if there are non-routine items which require a high voter turnout.
In any case, the new rules afford registrants with a fair amount of flexibility. A registrant is not required to use the same delivery option for all shareholders. It may instead use the delivery option most appropriate for a specific type of shareholder. Registrants also may switch from one option to the other.