The SEC's New E-Proxy Rules

Saturday, September 1, 2007 - 00:00

The SEC recently amended the proxy rules to permit electronic delivery of proxy materials.1 Under the new "e-proxy" rules, companies conducting proxy solicitations, other than solicitations involving business combinations, have a choice on how to provide proxy materials to shareholders. Under the notice only option, companies can post their proxy materials, including the proxy statement, proxy card and annual report, on a publicly available Web site (other than the SEC's EDGAR Web site) and send a notice to shareholders informing them of the electronic availability of the materials. Alternatively, companies can continue to use the traditional method of delivering printed copies to shareholders. However, beginning January 1, 2008 for large accelerated filers and January 1, 2009 for all other companies, companies that wish to deliver proxy materials in paper will be required to:


post those materials on a publicly available Web site; and


include a notice to shareholders informing them of the electronic availability of the materials or include the information in the proxy statement and proxy card.

By using the notice only option, companies should be able to realize cost savings by printing and mailing fewer copies of the proxy materials. However, companies using the notice only option will need to revise their timeline for preparing the proxy materials because the materials will need to be posted on the Web site 40 days before the meeting and will need to be provided to brokers, banks and other intermediaries 45-50 days before the shareholder meeting so that they can prepare and send notices to the beneficial holders.

Notice Only Option: Sending A Notice Without A Full Set Of Proxy Materials

Companies using the notice only option must post the proxy materials on the Web site and send a notice to shareholders at least 40 calendar days before the meeting date. Upon request, companies must deliver copies of the proxy statement, in paper or by e-mail, to shareholders within three business days.

Contents Of Notice

The notice must be filed with the SEC on the same day that the notice is sent to shareholders. The notice must be written in plain English and contain the following information:


A prominent legend in bold-face type that states:

"Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on [insert meeting date].



This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting.


The [proxy statement] [information statement] [annual report to security holders] [is/are] available at [Insert Web site address].


If you want to receive a paper or e-mail copy of these documents, you must request one. There is no charge to you for requesting a copy. Please make your request for a copy as instructed below on or before [Insert a date] to facilitate timely delivery."



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 the company's recommendations, if any, regarding those matters, but no supporting statements;


A list of the materials being made available at the specified Web site;


(1) A toll-free telephone number; (2) an e-mail address; and (3) 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;


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


Instructions on how to access the proxy card, provided that such instructions do not enable a shareholder to execute a proxy without having access to the proxy statement; and


Information about attending the shareholder meeting and voting in person.

Web-Site Design

The proxy materials must be accessible, free of charge, at the Web site specified in the notice on or before the date the notice is sent to shareholders. The Web site may not be the SEC's EDGAR system. The proxy materials must remain available on the Web site through the conclusion of the shareholder meeting.

Companies must maintain the confidentiality of shareholders using the Web site. In addition, companies cannot install cookies or other tracking features on the Web site on which the proxy materials are posted. If a company's current Web site has such tracking features, the company may need to set up a separate Web site or use a third party provider to post their proxy materials.

Companies need to ensure that the Web site is easy to use and that the materials are in a format that is convenient for both reading online and printing on paper. If shareholders have difficulty navigating the Web site or reading the proxy materials, they will not use the Web site and will request paper copies of the proxy materials, which will negate the cost savings of using e-proxy.

Means To Vote

At the time the notice is sent to shareholders, companies must provide shareholders with a method to execute proxies. Companies can satisfy this requirement through a variety of methods, including providing an electronic voting platform, a toll-free telephone number for voting, or a printable or downloadable proxy card on the Web site. Companies cannot, however, send a paper or e-mail proxy card to shareholders until 10 calendar days after the date the notice was sent to shareholders.

Full Set Delivery Option: Sending A Notice With A Full Set Of Proxy Materials

Under the full set delivery option, companies can continue to send printed proxy materials to shareholders in the same manner that they traditionally have. The only difference is that once they are subject to the new rules (January 1, 2008 for large accelerated filers and January 1, 2009 for all other companies), companies must also:


Send a notice with the full set of proxy materials or include the information required to be in the notice into the proxy statement and the proxy card; and


Post the materials on a publicly accessible Web site no later than the date the notice was sent to shareholders.

The full set delivery option varies from the notice only option in the following ways:


A company may deliver the notice with a copy of the proxy statement, annual report to security holders, if required, and a proxy card;


A company need not prepare a separate notice if the company includes all of the notice information in the proxy statement and proxy card;


Because the company already has provided shareholders with a full set of proxy materials, the company need not provide the shareholder with copies of the proxy materials upon request;


Because shareholders will not need extra time to request paper or e-mail copies, the company need not send the notice and full set of proxy materials at least 40 days before the meeting date;


Because the full set of proxy materials includes a proxy card or request for voting instructions, the company need not provide another means for voting at the time the notice is provided unless it chooses to do so; and


The company need not include the part of the prescribed legend relating to shareholder requests for copies of the documents and instructions on how to request a copy of the proxy materials.

Intermediaries

Many shareholders hold their securities in street names with brokers, banks and other intermediaries. The intermediaries send out their own form of request for voting instructions from the street name holders. Companies must provide the intermediaries with the information necessary so the intermediary can prepare and send its notice to the street name holders within the timeframes of the new rules. Companies using the notice only option will need to get the materials to the intermediaries 45-50 days before the shareholder meeting. Companies should consult with their intermediaries regarding specifically how far in advance of the shareholder meeting they will need to receive the proxy materials. Companies using the full set delivery option will not need to comply with the 40 day deadline, but will need to provide the information to the intermediary with sufficient time for it to prepare and send the notice along with the full set of proxy materials provided by the company.

Conclusion

When determining whether to use the notice only option or the full set delivery option, a company needs to consider the potential cost savings of the notice only option and its ability to finalize the proxy materials within the required time frame. Although there are cost savings with the notice only option, companies should be aware that there will be costs associated with printing a minimum number of proxy materials to provide copies to shareholders who request them. Companies which decide to use the notice only option will need to review their Web site to make sure it is user friendly, does not contain any tracking features and will maintain the confidentiality of the shareholders.

In addition, companies need to consider the nature of its shareholder base. At least initially, it may be difficult using the notice only option to get smaller retail and record shareholders to vote. Companies which are concerned with obtaining the required vote may want to use the notice only option for institutional investors and mail printed copies to smaller retail and record holders. 1 Release 34-56135 (July 26, 2007), available at http://www.sec.gov/rules/final/2007/34-56135.pdf.

Laurie L. Green is a Partner in the Ft. Lauderdale office of Holland & Knight LLP where she practices in the firm's Public Companies & Securities Group. She advises public companies on the corporate governance requirements of the NYSE, AMEX, and NASDAQ, and the SEC's corporate governance standards under Sarbanes-Oxley. Before entering private practice, Ms. Green spent 11 years at the SEC and served as Special counsel in the SEC's Division of Corporation Finance in Washington, D.C. in its Office of Mergers and Acquisitions. She may be contacted at (954) 468-7808.

Please email the author at laurie.green@hklaw.com with questions about this article.