On July 26, the SEC adopted amendments to the proxy rules under the Securities Exchange Act to provide shareholders with the ability to choose the medium in which they will access proxy materials. The amendments build on the voluntary “notice and access” delivery model adopted by the SEC in January 2007 and discussed in our SEC Update of January 31, 2007. Under the amendments, issuers and other soliciting persons generally will be required to post their proxy materials on an Internet web site and provide shareholders with a notice of the Internet availability of the materials. The soliciting person may then elect to furnish shareholders with paper copies of the proxy materials under the traditional delivery method or to deliver the materials electronically via the Internet. The new rules do not apply to proxy solicitations in connection with business combination transactions.

Large accelerated filers (issuers having a worldwide public float of $700 million or more) must comply with the amended rules for proxy solicitations beginning on or after January 1, 2008. Issuers that are not large accelerated filers and soliciting persons that are not issuersmay comply with the amendments for proxy solicitations beginning on or after January 1, 2008 and must comply with the amendments for proxy solicitations beginning on or after January 1, 2009. The new rules are discussed in Release No. 34-56135.

Two DeliveryModels

The amendments permit an issuer or other soliciting person to select one of two options to provide proxy materials to shareholders: 

  • Under what the SEC styles as the “notice only” option, the issuer or other soliciting person must post its proxy materials on an Internet web site and send a notice to shareholders at least 40 days before the shareholder meeting date to inform them of the Internet availability of the proxy materials. If the soliciting person uses this option, it must respond to shareholder requests for copies, including a shareholder’s permanent request for paper or e-mail copies of the proxy materials for all shareholder meetings. 
  • Under the “full set delivery” option, the issuer or other soliciting person may elect to furnish a full set of the proxy materials in paper to shareholders, as under the previous delivery regime. The soliciting person, however, also must post the materials on an Internet web site and provide shareholders with a notice of the Internet availability of the materials,
  • unless it incorporates into the proxy statement and proxy card the information required to appear in the notice. A soliciting person electing delivery by this method will not have to respond to shareholder requests for copies of the proxy materials, as under the “notice only” option.

The amendments thus provide shareholders with a choice in accessing proxy materials. Shareholders may request paper copies of proxy materials if the soliciting person elects only to post the materials on an Internet web site and send a notice of Internet availability, or they may access the materials online.

A soliciting person is not limited to one option as the exclusive means for providing proxy materials to shareholders. Rather, the soliciting person may use the “notice only” option to provide proxy materials to some shareholders and the “full set delivery” option to provide proxy materials to other shareholders.

The “Notice Only” Option: Sending a Notice Without a Full Set of Proxy Materials Under the “notice only" option, issuers will follow the same procedures established by the SEC pursuant to its “notice and access” model, as summarized in our earlier SEC Update. Notice. Under this model, issuers must send a “Notice of Internet Availability of Proxy Materials” to shareholders at least 40 calendar days before the shareholder meeting date, indicating that the issuer’s proxy materials are available on an Internet web site and explaining how to access those materials. The notice must be written in accordance with the SEC’s “plain English” principles, include a prominent legend in the form prescribed by the SEC relating to the purpose of the notice and the availability of paper or e-mail copies of the proxy materials, and provide the following information: 

  • The date, time, and location of the meeting;
  • A clear and impartial identification of each separate matter intended to be acted upon and the issuer’s recommendations regarding those matters, if any, but not including any supporting statements; 
  • A list of the materials being made available at the specified web site; 
  • A toll-free number, an e-mail address and an Internet web site where the shareholder may request a copy of the proxy materials for all meetings and for the particular meeting to which the notice relates; 
  • Any control or identification numbers the shareholder may need to access the shareholder’s proxy card;
  •  Instructions on how to access the proxy card, so long as the instructions do not enable a shareholder to execute a proxy without having access to the proxy statement and annual report; and 
  • Information on how to obtain directions to attend the meeting and vote in person.

The notice may contain any other information that may be required by state law applicable to the issuer. The notice may not contain any other information, including telephone numbers or Internet web sites for voting purposes, or be accompanied by a proxy card or any other documents, other than a reply card for requesting paper or e-mail copies of the proxy materials. Although a proxy card may not be sent with the notice, an issuer must provide a means for executing a proxy at the time the notice is sent, which may be satisfied by providing an electronic voting platform or a printable and downloadable proxy card on the web site. The notice constitutes additional soliciting material that must be filed with the SEC no later than the date on which it is first sent to shareholders. Issuers may “household” the notice of Internet availability by sending a single copy of the notice to one or more shareholders residing at the same address, but must provide a separate proxy card to each shareholder at the shared address.

Web Site Posting. All proxy materials, except for additional soliciting materials, must be posted on a publicly accessible web site (other than the SEC’s EDGAR web site) on or before the time that shareholders receive the notice of Internet availability and must remain accessible on the web site free of charge through the conclusion of the shareholder meeting. Additional soliciting materials must be posted on the web site no later than the date on which they are first sent to shareholders or made public. The proxy materials must be posted on the web site in a format or formats that will be convenient for both printing and viewing. In addition, issuers must maintain the web site in a manner that does not infringe on the anonymity of any person accessing the site, such as permitting tracking features on the web site on which the proxy materials are posted.

Proxy Card. As noted above, an issuer may not send a proxy card along with the notice of Internet availability. Instead, to ensure that the proxy materials are electronically available at the time shareholders receive the notice, the issuer must post the proxy card on the web site with the proxy statement and any annual report no later than the time at which the notice is sent to shareholders. Further, to re-solicit shareholders who have not yet voted, the issuer may send a proxy card ten calendar days or more after sending the notice. If the issuer chooses to send a proxy card under this provision, and the proxy card is not accompanied by a copy of the proxy statement and annual report, a copy of the notice must accompany the proxy card so that recipients can access the specified web site without referring to the earlier notice. An issuer may send a proxy card to shareholders before the end of the ten-day period only if the proxy card is accompanied or preceded by a copy, via the same medium, of the proxy statement and annual report to shareholders.

Shareholder Request for Copies. Although the “notice only” option permits issuers to satisfy their requirement to furnish proxy materials through the web site posting and delivery of the notice, issuers are required to deliver a paper or e-mail copy of the proxy materials directly to any shareholder so requesting, at no charge. Issuers also must allow shareholders to make a permanent election to receive paper or e-mail copies of the materials, and maintain a record of these elections. Issuers must provide paper or e-mail copies within three business days after receipt of the shareholder request, provided that if the request is made after the date of the shareholder meeting (and prior to one year after the conclusion of the meeting), copies do not need to be sent within three business days.

The “Full Set Delivery” Option: Sending a Notice With a Full Set of Proxy Materials Under the “full set delivery” option, an issuer will follow procedures that are substantially similar to the traditional process of providing proxy materials in paper form. Pursuant to this option, in addition to sending shareholders paper copies of proxy materials as under the traditional delivery method, an issuer must: 

  • Send a notice of Internet availability accompanying the full set of proxy materials, or incorporate all of the information required in the notice (with the exceptions described below) into the proxy statement and proxy card; and 
  • Post the proxy materials on an Internet web site no later than the date on which the notice was first sent to shareholders.

For purposes of the “full set delivery” option, a “full set” of proxy materials consists of a proxy or information statement, as applicable, an annual report, if required, and a proxy card. The differences between the “notice only” and “fully set delivery” options are discussed below. Notice. A separate notice of Internet availability is not required if the issuer presents all of the information required in the notice in its proxy statement and proxy card. The information required in the notice, or proxy materials if no separate notice is prepared, includes all of the information required under the “notice only” option, with the following exceptions: 

  • The SEC-prescribed legend referred to above may be modified to reflect the fact that shareholders have been provided a full set of the proxy materials in paper form; and 
  • The notice will not have to provide a means by which shareholders can request an e-mail or paper copy of the proxy materials, or instructions on how to access the proxy card, since the shareholder will have received the proxy materials simultaneously with receipt of the notice.

Significantly, because shareholders will not need extra time to request paper or e-mail copies of the proxy materials under the “full set delivery” option, issuers are not required to send the notice of Internet availability (if not incorporated in the proxy statement and proxy card) and full set of proxy materials at least 40 days before the shareholder meeting date. Thus, an issuer is required to comply with the 40-day period only if it intends to comply with the “notice only” option.

As under the “notice only” option, if an issuer chooses to send a separate notice of Internet availability to shareholders and not incorporate this information into the proxy statement and proxy card, the notice must be in plain English, be limited in what additional information it may contain and be filed with the SEC as additional soliciting material no later than the date on which it is first sent to shareholders. In addition, because the proxy card will be delivered to shareholders under the “full set delivery” option, issuers are not required to provide shareholders with an additional method to execute proxies as of the time the notice is first sent to shareholders.

Proxy Card. As under the “notice only” option, issuers may deliver another copy of the proxy card to shareholders who have not yet voted. Unlike the process under the “notice only” option, however, the reminder proxy card will not have to be accompanied by the notice, because shareholders will have previously received the proxy statement via the same medium. The reminder proxy card may be sent at any time after the full set of proxy materials has been delivered. Other than these differences, the requirements with respect to the web site posting of proxy materials discussed under the “notice only” option above, including the requirements relating to investor anonymity, are applicable to the “full set delivery” option.

Brokers, Banks and Other Intermediaries

The SEC’s shareholder communications rules impose obligations on issuers and intermediaries, such as brokers and banks, to ensure that beneficial owners of shares receive proxy materials and are given the opportunity to vote. Issuers and other soliciting persons must provide intermediaries with the information necessary to prepare and send the intermediary’s notice of Internet availability within the period required under each delivery model. Under the “notice only” option, issuers must provide the intermediaries with this information in sufficient time for the intermediary to prepare its own notice of Internet availability for distribution to beneficial owners and send the notice to beneficial owners at least 40 days before the shareholder meeting date. Issuers electing the “full set delivery” option are not required to comply with this 40-day deadline and need only provide the notice information to the intermediary in sufficient time for the intermediary to prepare and send its notice along with the full set of materials provided by the issuer.

The intermediary’s notice generally must contain the same information as an issuer’s notice, with revisions required to reflect the differences between registered holders and beneficial owners of the issuer’s shares. If beneficial owners receive a notice under the “notice only” option, the intermediary also must forward paper or e-mail copies of the proxy materials upon request, permit the beneficial owners to make a permanent election to receive paper or e-mail copies and keep records of any such requests, and provide a means to access a request for voting instructions for beneficial owners no later than the date on which the notice is first sent. If a beneficial owner requests copies of the proxy materials from an intermediary, the intermediary must request a copy of the proxy materials from the issuer within three business days after it receives the request and must forward those materials to the beneficial owner within three business days after its receipt of the materials from the issuer.

When the issuer is delivering materials to beneficial owners under the “full set delivery” option, the intermediary either must prepare a separate notice and forward it with the full set of proxy materials, or incorporate any information required in the notice, but not appearing in the issuer’s proxy statement, in its request for voting instructions.

Non-Issuer Soliciting Persons

A soliciting person other than the issuer must also comply with the SEC’s requirements concerning Internet availability of proxy materials and thus may choose between the “notice only” or “full set delivery” option. Consistent with existing proxy rules and the voluntary model, however, the amendments treat such soliciting persons differently from the issuer in some respects.

A soliciting person other than the issuer is not obligated to solicit proxies from all shareholders. As a result, a soliciting person other than the issuer may choose to send a notice of Internet availability only to those shareholders who have not requested paper copies of the proxy materials. If a soliciting person other than the issuer elects to follow the “notice only” option, it must send its notice of Internet availability to shareholders by the later of 40 calendar days before the shareholder meeting or ten calendar days after the issuer first sends out its proxy materials to shareholders. This timing requirement does not apply to a solicitation under the “full set delivery” model.

If, at the time the notice is sent, a soliciting person other than the issuer is not aware of all matters on the shareholder meeting agenda, the notice must provide a clear and impartial identification of each separate matter to be acted upon at the meeting, to the extent known by the soliciting person, and a clear statement that there may be additional agenda items of which the soliciting person is not aware. If the soliciting person’s proxy card does not refer to all matters to be acted upon at the meeting, the notice also must clearly state whether execution of the proxy card would invalidate a shareholder’s prior vote using the issuer’s proxy card on matters not presented on the soliciting person’s proxy card.

Discussion

The amendments further the SEC’s efforts to promote the use of the Internet as a reliable and costefficient means of making disclosure documents available to shareholders and others. Some companies already have begun to solicit proxies using the voluntary “notice and access” model. For many issuers that already post their proxy materials on an Internet web site, the amendments will not require extensive changes to their current proxy delivery method, although issuers should consult with their IT departments to ensure that the investor anonymity requirements of the rules are met. For issuers electing to continue the traditional method of delivering proxy materials in paper form, the amendments may require minor changes to the information included in the proxy statement if no separate notice of Internet availability is sent to shareholders. Issuers also will need to confirm that compliance with the SEC’s new delivery regime will satisfy notice requirements under state law for shareholder meetings.