SEC Approves Internet Distribution Of Proxy Materials

Sunday, April 1, 2007 - 01:00

Beginning on July 1, 2007, issuers and other soliciting persons will have the option to post their proxy materials on a publicly available Internet Web site to satisfy their delivery obligations under the proxy rules of the Securities Exchange Act of 1934, as amended (proxy rules), provided that appropriate notice is sent to shareholders.1 Pursuant to amendments to the proxy rules (amendments) recently adopted by the U.S. Securities and Exchange Commission (SEC), issuers and other soliciting persons may utilize the SEC's "notice and access" proxy model to distribute proxy materials to shareholders via an Internet Web site. The amendments incorporated the "notice and access" proxy model into the existing regulatory framework of proxy distribution to provide issuers and other soliciting persons with a reliable and cost-efficient process to distribute proxy materials via the Internet. The amendments, as adopted, are voluntary and do not affect the availability of any existing method of furnishing proxy materials to shareholders, including obtaining affirmative consents for electronic delivery pursuant to previous SEC interpretative guidance.2

"Notice and Access" Proxy Model Of Distribution

If an issuer decides to utilize the "notice and access" proxy model for the distribution of its proxy materials, the issuer must prepare and distribute a "Notice of Internet Availability" (Notice) to shareholders and provide appropriate access to the proxy materials via an Internet Web site (other than the SEC's EDGAR Web site). Under the "notice and access" proxy model, shareholders must be given the opportunity to request and receive paper or electronic copies of proxy materials for the current and all future solicitations by the issuer. The "notice and access" proxy model under the amendments will be available for all types of solicitations, with the exception of solicitations related to business combination transactions.

Notice of Internet Availability

The amendments require an issuer utilizing the "notice and access" proxy model to distribute a Notice to shareholders by mail (or e-mail if the shareholder has previously consented to electronic delivery) at least 40 days before the shareholder meeting. The Notice should indicate that the proxy materials are available and explain how to access the proxy materials via the Internet Web site. The Notice must include certain mandatory information in clear and understandable terms, including:

1. a specific prominent legend;

2. the date, time and location of the meeting;

3. a clear and impartial identification of each separate matter intended to be acted on and the issuer's recommendations regarding those matters;

4. a list of the materials being made available at the specified Web site;

5. a toll-free telephone number, e-mail address and an Internet Web site address where the shareholder can request a copy of the proxy materials, for all meetings and for the particular meeting to which the Notice relates;

6. any control/identification numbers that the shareholder needs to access his or her proxy card;

7. instructions on how to access the proxy card; and

8. information on how to obtain directions to attend the meeting and vote in person.3

The amendments provide that no other materials may accompany the Notice other than a notice required under state law or a reply card for requesting paper or e-mail copies of the proxy materials. Other materials and information, such as proxy cards, are not permitted to be included in or with the Notice. In addition, a form of the Notice must be filed with the SEC no later than the date on which it is first sent to shareholders.4

Proxy Materials

Under the "notice and access" proxy model, all proxy materials must be posted to the specified Internet Web site by the time the issuer sends the Notice to shareholders. The Internet Web site must provide at least one method of allowing a shareholder to immediately execute a proxy as of the date on which the Notice is sent, such as a telephone number or electronic voting. The proxy materials must remain on the Web site, and be accessible free of charge to shareholders through the conclusion of the related shareholder meeting.

As noted above, an issuer may not include a proxy card with the original Notice, but it may send a proxy card to shareholders no earlier than 10 calendar days after the Notice is sent. If after the 10-day waiting period an issuer chooses to send a proxy card to shareholders without the proxy statement, the proxy card and any subsequent proxy cards must be accompanied by the original Notice. If the proxy card is preceded or accompanied by the proxy statement, the issuer does not have to comply with the 10-day waiting period.

Internet Web Site

The amendments require that the Internet Web site address included in the Notice be specific enough to lead shareholders directly to the proxy materials, rather than to the issuer's home page, so that shareholders do not have to browse the Web site to find the materials. The amendments also require the electronically posted proxy materials to be presented on the Internet Web site in a format, or formats, convenient for both:

1. printing (which must reflect the replication of all charts, tables, graphics, and similarly formatted information in a substantially identical format as the paper version of the materials); and

2. viewing online (which must be presented in a readily searchable format, such as HTML).

To the extent that a shareholder may need additional software to view the documents, the Web site must contain a link to enable the shareholder to obtain the software free of charge.

In addition, the amendments require the issuer to maintain the Web site in a manner that does not infringe on the anonymity of a shareholder accessing that Web site (i.e., the issuer may not track the identities of persons accessing the Web site to view the proxy statement). The issuer or other soliciting person also may not require the installation of any "cookies" or other software that might collect information about accessing persons. In addition, to protect shareholder privacy, the issuer cannot use or transfer the e-mail addresses of shareholders except in connection with the distribution of proxy materials.

Requests for Proxy Materials

Upon the receipt of a request from a shareholder for a copy of the proxy materials, the issuer must send a copy (in paper or by e-mail, as requested) of the proxy materials to the shareholder within three business days after receiving the request, even if the request is made after the date of the shareholder meeting to which the proxy materials relate.

Until the issuer receives requests for paper copies from shareholders after distributing Notices for a particular meeting, an issuer may be unsure of the number of requests it may receive, which could result in increased costs to the issuer if it had underestimated or overestimated the quantity of printed proxy materials needed. To address this issue, the SEC specifically noted in the Adopting Release that there is nothing in the rules that would prevent an issuer from sending shareholders a communication well in advance of a proxy solicitation to determine shareholders' interest in receiving paper copies under the "notice and access" proxy model. An issuer would then be able to more accurately estimate the number of printed proxy materials that may be needed for a solicitation. Such a communication would not be considered a Notice under the amendments provided it did not relate to any particular solicitation.5 Requirements Of Other Persons Soliciting Proxies Under The "Notice And Access" Proxy Model

Under the amendments, shareholders and other persons conducting their own proxy solicitations also may choose to utilize the "notice and access" proxy model. For such persons, the mechanisms and requirements of a solicitation under the "notice and access" proxy model are similar to those of an issuer, with a few exceptions.

For instance, the amendments provide different timing requirements with respect to distributing Notices for such soliciting persons. Shareholders and other persons conducting their own proxy solicitations in accordance with the "notice and access" proxy model must distribute Notices to shareholders by the later of:

1. 40 calendar days prior to the meeting; or

2. 10 calendar days after the issuer first sends out its proxy statement or Notice to shareholders.

In addition, such soliciting persons will only be required to provide in their Notice the agenda items known or solicited by such person, provided that the Notice indicates whether the execution of the proxy by a shareholder will invalidate such shareholder's earlier proxy submission.

Under the current proxy rules, issuers have the choice to either provide soliciting persons with a list of its shareholders or distribute proxy materials for such persons. If an issuer chooses to provide a soliciting person with a list of shareholders, the amendments require the issuer to indicate to the soliciting person which shareholders have permanently requested paper copies of proxy materials.

Period Of Reliance On "Notice and Access" Proxy Model

The decision by an issuer or other soliciting person to satisfy its delivery obligations under the proxy rules by utilizing the "notice and access" proxy model will be effective only with respect to a particular meeting. Issuers and other soliciting persons must make a determination to rely on the "notice and access" proxy model for each proxy solicitation and follow all of the applicable rules with respect to each solicitation.

Compliance Date

Issuers may not send Notices to shareholders under the "notice and access" proxy model before July 1, 2007.1 See Internet Availability of Proxy Materials, SEC Release Nos. 34-55146 and IC-27671 (Jan. 22, 2007) (the Adopting Release). The full text of the Adopting Release is available at

2 The SEC, however, concurrently proposed rules to require issuers and other soliciting persons to furnish proxy materials to shareholders by posting them on an Internet Web site and providing shareholders with notice of the availability of the proxy materials. See Universal Internet Availability of Proxy Materials, SEC Release Nos. 34-55147 and IC-27672 (Jan. 22, 2007) (the New Proposing Release). The full text of the New Proposing Release is available at

3 See 17 CFR 240.14a-16(d).

4 The Notice would be considered "other soliciting material" pursuant to Rule 14a-6(b) under the Securities Exchange Act of 1934. See Adopting Release at 40.

5 See Adopting Release at 31-32.

Amy C. Fitzsimmons is an Associate in the Philadelphia office of Stradley Ronon Stevens & Young, LLP, where she assists investment management clients in all aspects of legal representation. She can be reached at (215) 564-8711.

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