The Securities and Exchange Commission recently adopted amendments to the proxy rules under the Securities Exchange Act of 1934. As amended, the rules will require public companies both to furnish proxy materials to shareholders via publicly accessible Internet web sites and to notify shareholders of the availability of such materials on the Internet. These amendments transform the "Notice and Access Model" adopted in January 2007, which is currently voluntary, into a mandatory requirement for public companies. According to the SEC, the amendments will provide shareholders with easier and better access to proxy materials, lower the costs of proxy solicitations over the long run, and improve shareholder communications.
The compliance dates for the amendments are:
- January 1, 2008, for large accelerated filers other than registered investment companies; and
- January 1, 2009, for all other issuers, including small business issuers and registered investment companies.
The current Notice and Access Model was adopted on January 22, 2007, and went into effect on March 30, 2007. This voluntary system permitted issuing companies to furnish proxy materials to shareholders by posting them on the Internet. Issuers that have opted to follow this model are required to, among other things, distribute a "notice" to shareholders at least 40 days prior to the shareholders meeting.
The primary purpose of the notice is to inform the shareholders of the Internet availability of the proxy materials, how to access the proxy materials on the Internet, and how to request paper or e-mail copies of the proxy materials.
Also on January 22, 2007, the SEC proposed the amendments that would make the Notice and Access Model mandatory. This Client Update addresses SEC Release No. 34-56135, issued on July 26, 2007, which adopted the proposed amendments.
Application of the Amendments
Under the amendments, an issuer may furnish proxy materials (proxy statements, proxy cards, annual reports to shareholders, and any additional soliciting materials) in accordance with the "Notice Only Option," the "Full Set Delivery Option," or a combination of the two methods. As under the current Notice and Access Model, soliciting parties are not permitted to furnish proxy materials pursuant to these options with respect to a merger. Both options are described below.
Notice Only Option
The requirements under the Notice Only Option are similar to those adopted under the voluntary Notice and Access Model. Under these requirements, an issuer must:
- mail (or e-mail if the shareholder has affirmatively consented to such delivery) a notice to shareholders informing them of the Internet availability of the issuer's proxy materials at least 40 days prior to the shareholder meeting;
- post its proxy materials on an Internet web site on or before the distribution date of the notice;
- provide information to shareholders in the notice on how to request paper or e-mail copies of proxy materials; and
- respond to shareholder requests for paper or e-mail copies of proxy materials, including requests applicable to future shareholder meetings.
The Full Set Delivery Option is substantially similar to the traditional means of providing proxy materials in paper format (or e-mail format if the shareholder has affirmatively consented to such delivery). Under the Full Set Delivery Option, an issuer can still distribute proxy materials in paper format, but the issuer must also:
- send a notice to shareholders along with the proxy materials to inform them of the Internet availability of proxy materials; and
- post the proxy materials on an Internet web site no later than the date the notice was first sent to the shareholders.
- prepare a separate notice of the availability of the materials if the issuer incorporates all of the necessary notice information into the proxy statement and proxy card;
- provide the notice regarding Internet availability of proxy materials at least 40 days prior to the shareholder meeting, as required under the Notice Only Option; or
- respond to shareholder requests for copies of proxy materials.
Under the amendments, the furnishing of proxy materials via an Internet web site is now mandatory, and the Full Set Delivery Option provides a new, alternative method of complying with the Notice and Access Model. Further, in order to streamline and clarify certain aspects of the Notice and Access Model, the amendments also effect the following changes:
- Issuers may, but are not required to, make recommendations in the notice on a particular matter to be acted upon by shareholders at the shareholder meeting;
- While an issuer is still required to fulfill shareholder requests for copies of its proxy statement during the one-year period following its shareholder meeting, the issuer is no longer required to use first class mail for or respond within three business days to requests during such period;
- The requirement under the voluntary Notice and Access Model that the methodology of the model be described by an issuer using the model to solicit proxies has been eliminated.
Large accelerated filers other than registered investment companies must comply with the amendments regarding proxy solicitations commencing on or after January 1, 2008. For all other issuers, including accelerated filers, small business issuers and registered investment companies, the compliance date under the amendments is January 1, 2009.
The modifications related to the ability of issuers to include recommendations in the notice and issuer responses to shareholder requests for proxy statement copies during the one-year period following the shareholder meeting go into effect on October 1, 2007.
Set forth below are the general requirements for notices of Internet availability of proxy materials and the Internet posting of such materials under the amendments. Also included is a brief description of changes made by the amendments to the current, voluntary Notice and Access Model.
Notice of Internet Availability of Proxy Materials
The amendments carry over the requirements under the current, voluntary Notice and Access Model to the Notice Only Option except for one change noted below under the third bullet. Under the Notice Only Option, the notice informing shareholders of the Internet availability of proxy materials must be sent to shareholders at least 40 calendar days before the shareholder meeting and must include the following information in clear and understandable terms:
- a prominent legend in bold-face type specified by the SEC explaining the purpose of the notice, the Internet availability of the proxy materials, how to access the proxy materials on the Internet, and how to request a paper or e-mail copy of the proxy materials;
- 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, at the option of the issuer, inclusion of the issuer's recommendations, without any supporting statements regarding those matters (issuers had generally deemed the inclusion of issuer's recommendations as mandatory under the current Notice and Access Model);
- a list of the materials being made available at the specified web site;
- a toll-free telephone number, an e-mail address, and an Internet web site address where shareholders can request a copy of the proxy materials for all future meetings and for the particular meeting to which the notice relates;
- any control/identification numbers that shareholders need to access proxy cards;
- instructions on how to access proxy cards, provided that shareholders must not be permitted to execute proxies without having access to the proxy statement and annual report; and
- information on how to attend the meeting and vote in person.
- The notice need not be submitted at least 40 calendar days before the shareholder meeting; instead it is sent along with the proxy materials whenever proxy materials are typically distributed to shareholders under the traditional method;
- The issuer need not provide instructions on the notice as to how the shareholders can request paper or email copies of the proxy materials, as