SEC Approves Web Site Delivery of Proxy Materials, Proposes Mandatory Internet Availability

Issuers Permitted to Use Internet Delivery Beginning July 1

On January 22 the SEC published new rules (Rel. No. 34-55146) permitting Internet "delivery" of proxy statements and annual reports.

Currently, issuers must provide proxy materials in hard copy unless a shareholder specifically consents to electronic delivery. Effective July 1, 2007, issuers will have the option of using a "notice and access" model to satisfy their delivery obligations for all meetings not involving business combination transactions. At this time, issuers are not required to employ web site delivery; all issuers can use traditional distribution methods without providing Internet access.

Requirements for the Web Site

If an issuer elects to satisfy its delivery obligations using the "notice and access" system, it must post its proxy materials on a publicly accessible web site other than EDGAR. The materials must be presented in formats convenient for both reading online and printing in hard copy, and must remain available on the web site through the conclusion of the shareholder meeting. The web site must offer shareholders at least one means of voting a proxy, such as an electronic voting platform or a telephone number for submitting a proxy vote. An issuer must maintain the web site in a manner that will not infringe on the anonymity of shareholders accessing it.

Requirements for the "Notice of Internet Availability of Proxy Materials"

A "Notice of Internet Availability of Proxy Materials" must be mailed to shareholders at least 40 calendar days prior to the meeting.

The Notice must disclose specific information, including the date, time, and location of the meeting and the materials available at the web site. The Notice also must provide a clear and impartial description of each matter to be voted on and explain the procedures shareholders can use to vote by proxy and in person. The Notice may only be accompanied by a notice of shareholder meeting required under state corporate law.

Issuers may send a proxy card 10 calendar days or more after sending the Notice, or earlier if they also send hard copies of the proxy statement and annual report. If paper copies of the proxy statement and annual report do not accompany or precede the proxy card, a copy of the Notice must be sent along with the card.

Shareholders Still Entitled to Paper Copies

The Notice must also provide means for shareholders to obtain free paper or electronic copies of the proxy materials for that meeting, and to require such delivery for all future meetings. While the SEC believes that the new rules may permit issuers to significantly lower the cost of proxy solicitations, actual savings will be difficult to predict since shareholders can still demand hard copies.

Intermediaries and Soliciting Persons Other Than the Issuer

A parallel set of rules delineate how the notice and access model will apply to beneficial owners who hold their securities through a broker, bank, trustee, or other intermediary. A notice and access model will also be available to soliciting persons other than the issuer, which could make it easier and cheaper for shareholders to wage a proxy contest.

Notice Relates Only to SEC Rules, Not Any State Requirements

The notice and access model relates only to SEC regulations and does not affect any requirements imposed by state law. Each issuer must confirm that its proposed notice and access delivery will comply with its state corporation code.

SEC Proposes Mandatory Universal Internet Availability Model

In a companion release (Rel. No. 34-55147), the SEC proposed to require that issuers publish proxy materials on the Internet for matters not involving business combination transactions.

If adopted as proposed, this "universal Internet availability model" would impose requirements similar to the voluntary model described above and would be effective January 1, 2008, with respect to large accelerated filers (generally, issuers with aggregate worldwide market value of common equity held by non-affiliates of $700 million or more) other than registered investment companies. All other issuers would be required to comply on January 1, 2009. Comments on this proposal must be submitted to the SEC by March 30, 2007.

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