In 2007, the SEC adopted amendments to its proxy rules that would require reporting companies and other persons soliciting proxies to post their proxy materials on a publicly accessible Internet website and provide shareholders with a written notice of the Internet availability of the proxy materials, except in connection with a business combination. Large accelerated filers (other than registered investment companies) were required to comply with the e-proxy rules starting January 1, 2008. All other reporting companies (including registered investment companies) and other soliciting persons must comply starting January 1, 2009.
The e-proxy rules provide two alternatives for the delivery of proxy materials: (1) the notice only option; and (2) the full set delivery option. An issuer or other soliciting person may use the notice only option for some shareholders and the full set delivery option for others.
Notice Only Option
Under the notice only option, an issuer must send a Notice of Internet Availability of Proxy Materials to all shareholders and must post its proxy materials on a publicly accessible Internet website (other than the SEC's EDGAR website), in both cases at least 40 calendar days before the meeting date. The Notice must contain:
- A prominent legend in bold-face type that encourages shareholders to access and review the proxy materials before voting; the Internet website address at which the proxy materials are available; and instructions for requesting a paper or e-mail copy of the proxy materials at no charge to the shareholder;
- The date, time, and location of the meting or, if action is to be taken by written consent, the earliest date on which the action may be effected;
- A clear and impartial identification of each separate matter to be acted on and the issuer'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 phone number, e-mail address, and Internet website where the shareholder can request a copy of the proxy materials relating to the meeting referred to in the Notice or make a permanent election to receive proxy materials for all of the issuer's future meetings;
- Any control/identification numbers that the shareholder needs to access his own proxy card;
- Instructions on how to access a proxy card, provided that such instructions do not allow a shareholder to execute a proxy prior to having access to the proxy materials; and
- Information about attending the shareholder meeting and voting in person.
The Notice must be in plain English and may contain only the information set forth in the SEC's rules. The Notice may not be accompanied by a proxy card or any other information or document, other than (1) any notice required by state corporate law, or (2) a pre-addressed, postage-paid reply card for requesting a paper or e-mail copy of the proxy materials. The Notice must be filed with the SEC as additional soliciting material no later than the date on which it is first sent to shareholders.
Shareholders must be provided with a method to execute proxies as of the time the Notice is first sent to shareholders, either by providing an electronic voting platform, a toll-free telephone number for voting, or a printable or downloadable proxy card on the website. Such a telephone number may appear on the website, but not on the Notice. A proxy card may not be sent until at least ten calendar days after the date the Notice is first sent unless accompanied or preceded by a copy of the proxy statement and any required annual report sent via the same medium, and must be accompanied by another copy of the Notice.
An issuer must provide paper or e-mail copies of the proxy materials to shareholders upon request, without charge, for one year after the meeting; must provide these materials within three business days of the request if the request is made before the meeting; must allow shareholders to make a permanent election to receive paper or e-mail copies of proxy materials in connection with future proxy solicitations and maintain a record of those elections; and must provide a toll-free telephone number, e-mail address, and Internet website address where the shareholder can make such request or permanent election.
Full Set Delivery Option
Under the full set delivery option, an issuer may continue to use the traditional method of furnishing a full set of proxy materials on paper to shareholders, provided it also (1) includes the form of Notice with the proxy materials or incorporates into the proxy statement and the proxy card all the information required in the Notice, and (2) posts the proxy materials on a publicly accessible Internet website (other than the SEC's EDGAR website) no later than the date the Notice is first sent to shareholders. Because a full set of proxy materials accompanies, or incorporates the information in, the Notice, the issuer is not required to provide a shareholder with proxy materials upon request under the full set delivery option. While the notice only option requires an issuer to file the proxy materials with the SEC and post the proxy materials on the website at least 40 calendar days before the meeting date, under the full set delivery option the 40 day requirement does not apply because shareholders will not need extra time to request paper or e-mail copies. Under the full set delivery option, a proxy card or instructions regarding an alternate method of executing a proxy may be included in the proxy materials, and therefore the issuer does not need to provide another means of voting unless it chooses to do so. An issuer relying on the full set delivery option may deliver a subsequent copy of the proxy card; the reminder card does not need to be accompanied by the Notice.
Both the notice only option and the full set delivery option require the posting of the proxy materials on a publicly accessible Internet website no later than the date the Notice is sent to shareholders. The proxy materials must remain on the website through the conclusion of the meeting. Any subsequent additional soliciting materials must be posted on the website no later than the date on which they are first sent to shareholders or made public. The website address must be specified in the Notice and be specific enough to take shareholders directly to the proxy materials without having to browse other material, including a home page or other section of the website. Electronically posted proxy materials must be substantially identical to paper versions. They must be presented in a format or formats convenient for both reading online, such as HTML, and printing on paper, such as PDF, and must be readily searchable. If additional software is needed to review a document, the website must contain a link enabling the shareholder to obtain the software free of charge. The website must be maintained in a manner that does not infringe upon the anonymity of a shareholder accessing the website. E-mail addresses provided solely for the purpose of requesting proxy materials may not be used for any other purpose and may not be disclosed to others. The website may not track the identity of persons accessing the proxy materials or permit the installation of "cookies" or other software to collect information about those persons.
Other Soliciting Persons
A soliciting person other than the issuer is not required to solicit every shareholder or to furnish information to shareholders not being solicited. If a soliciting person other than the issuer elects to follow the notice only option, it must send a Notice and post its proxy materials before the later of (1) 40 calendar days before the meeting date, and (2) ten calendar days after the date the issuer first sends its proxy materials or Notice to shareholders.
An issuer or other soliciting person must provide information to banks, brokers and other intermediaries holding shares on behalf of beneficial owners in sufficient time to allow the intermediary to prepare and send a Notice and to post the proxy materials within the timeframes applicable to the issuer or the other soliciting person, as the case may be. An issuer or other soliciting person that complies with the full set delivery option need not comply with the 40 day deadline, but needs only provide information to the intermediaries in sufficient time for the intermediaries to prepare and send the Notice along with the full set of materials provided by the issuer or other soliciting person.
Electronic delivery of proxy materials potentially can reduce printing and postage costs associated with the delivery of a full set of proxy materials on paper. However, under the notice only option, the Notice must be sent at least 40 days before the meeting date. If preliminary proxy materials must be filed with the SEC, the preliminary materials must be filed at least 50 days before the meeting date. Furthermore, the website must comply with the SEC's rules regarding functionality. Finally, in 2008 the number of retail shares voted, and the number of retail accounts voting, under the notice only option declined substantially, reducing the likelihood that a quorum would be available or that a proposal would obtain sufficient support for approval.