News

SEC proposal re internet availability of proxy materials

News Brief
December 10, 2005

By: Cydney Posner

The SEC has just posted its 106-page proposal regarding internet availability of proxy materials . The proposed amendments would provide an alternative method for furnishing proxy materials to shareholders based on a "notice and access" model. "Proxy materials" include proxy statements, proxy cards, information statements, annual reports to shareholders, notices of shareholder meetings, additional soliciting materials and any amendments to these materials. The proposals would allow an issuer, in lieu of mailing some or all of the proxy materials, to elect to post its proxy materials on a specified, publicly accessible website (not EDGAR) and to provide shareholders with a notice, at least 30 days before the meeting, informing them that the materials are available and explaining how to access them on the internet or to obtain a paper copy. Issuers could still follow the existing rules, which would not be affected by the proposal. Issuers would still have to file on EDGAR and to provide paper copies to shareholders upon request. Non-issuers would also be able to use the alternative model, but would not have to provide paper copies if the person is conducting a conditional "electronic only" proxy solicitation and soliciting proxy authority only from shareholders willing to electronically access the soliciting person’s proxy materials. A soliciting person would be required to furnish the proxy card together with, and using the same medium as, either the notice of internet availability or the proxy statement. The proposal would not be available for business combinations or if the law in the state in which an issuer is incorporated would not permit reliance on the alternative model. If the proposal is adopted, the SEC intends to review Rule 14a-8 (shareholder proposals) internal processing procedures and timetables to ensure that issuers are able to comply with the proposed 30-day deadline

Notice of Internet Availability

An issuer relying on the proposed "notice and access" model would be required to send to shareholders a "Notice of Internet Availability of Proxy Materials" at least 30 days in advance of the shareholder meeting date or, if no meeting is to be held, 30 days in advance of the date that votes, consents or authorizations may be used to effect the corporate actions to be voted upon. The Notice could be sent electronically under existing permitted methods, i.e., with advance consent of the shareholder. The purpose of the 30-day period is to provide shareholders with sufficient time to request and review hard copies of the materials, if desired. The Notice would have to be filed as additional soliciting material under Rule 14a-6(b) no later than the date it is first sent or given to shareholders. The Notice could be combined with the notice of shareholder meetings required under state corporation law, unless prohibited by state law, but not with any other document. The Notice would be required to be sent separately from other types of shareholder communications and could not accompany any materials other than the proxy card (including a request for voting instructions from an intermediary) and return envelope.

The Notice of Internet Availability of Proxy Materials would be required to include the following information in clear and understandable terms:

  • 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 shareholders] [proxy card] 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 that is two weeks or more before the meeting date] to facilitate timely delivery. If you hold your shares through a broker, bank or other intermediary, you may request delivery of a copy of the proxy materials through that intermediary, but it likely will take longer to receive your materials through an intermediary than directly from the company."
  • 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 upon and the issuer’s recommendations regarding those matters, but no supporting statements;
  • A list of the materials being made available at the specified website; and
  • A toll-free telephone number and e-mail address where the shareholder can request a copy of the proxy materials.
If written consents are being used, the Notice should be revised accordingly. The Notice is required to be in "Plain English." The identification of matters to be acted upon is intended to be as brief as on a proxy card..

As proposed, an issuer must post its proxy materials on a publicly accessible website on or before the time that shareholders receive the Notice. If there are revised proxy materials and the issuer wishes to rely on the proposed alternative model to furnish them to shareholders, the issuer would need to furnish another Notice to inform shareholders that the revised proxy materials were available. Issuers would be required to provide a hard copy of the proxy materials to shareholders upon request. Issuers would be permitted to "household" the Notice pursuant to Rule 14a-3(e) (i.e., with consent, send a single copy of the Notice to one or more shareholders residing at the same address) if the issuer satisfies all of the Rule 14a-3(e) conditions. If the Notice is sent via e-mail, the householding rules do not permit the sending of only one copy. To household the Notice, the issuer would not have to re-solicit consent from shareholders that already have consented to householding; however, the issuer would have to make available a separate proxy card to each shareholder at the shared address, as required by the current householding rule.

Mechanics

Proxy Card. The proposed rules would permit, but not require, an issuer to furnish the proxy card together with the Notice by means of the same delivery medium. However, the proxy card would have to be either:

  • Furnished together with, and through the same medium as, the Notice; or
  • Furnished together with, and through the same medium as, the proxy statement, for e.g., by posting them both on the website in accordance with the proposed model.
Website posting of proxy materials. All proxy materials, other than additional soliciting materials, to be furnished through the "notice and access" model would have to be posted on a specified publicly accessible website (other than EDGAR) by the time the issuer sends the Notice to shareholders. These materials would have to remain posted and be accessible, at no charge to shareholders. through the time of the related shareholder meeting, The Notice must identify the website address with sufficient specificity to lead shareholders directly to the proxy materials, rather than to a home page or other section of the website. (EDGAR would not be allowed because issuers do not usually furnish their glossy annual reports on EDGAR and because EDGAR does not provide versions in the identical format used.) Issuers still would be required to file their proxy materials on EDGAR as before.

Period of reliance. An issuer’s choice to rely on the "notice and access" model for one meeting would not be determinative for subsequent meetings. Similarly, a shareholder that does not request a copy of the proxy materials for one meeting would not be bound by that decision with respect to any other shareholder meeting. Each time that an issuer chooses to rely on the proposed "notice and access" model for a shareholder meeting, it would have to comply again with all of the applicable requirements, including delivery of the Notice and the 30-day notice period.

State law notices. The proposed rules are not intended to affect any applicable state law requirement for delivery. As a result, if state law requires that a notice of meeting or proxy materials be delivered by a particular method, such as paper, those state law requirements would continue to apply. The proposal would permit any information necessary to satisfy state law requirements to be combined with the Notice.

Additional soliciting materials. Issuers would be required to post any additional soliciting materials on the same website as the proxy materials are posted no later than the day on which the additional soliciting materials are first sent to shareholders or made public. (Rule 14a-6 currently requires an issuer or other soliciting person choosing to deliver additional soliciting materials to file them with the SEC in the same form as sent to shareholders, no later than the date that they are first sent or given to shareholders.) Beyond posting of the additional soliciting materials on the website, issuers would continue to be able to select which additional means, if any, would be most effective for disseminating these materials.

Requests for copies

Proposed Rule 14a-3(g)(7) would require issuers to deliver a copy of the proxy materials (in paper or by e-mail, as requested) to a requesting shareholder within two business days after receiving the request, even if the request is made after the date of the shareholder meeting or corporate action to which the proxy materials relate. When a paper copy is requested, the issuer would be required to use first class mail or other reasonably prompt means of delivery. It is the shareholder's responsibility to request a copy in sufficient time to review it and vote.

Under the proposals, the shareholder may request its intermediary to obtain and forward a copy of the proxy materials from the issuer on the shareholder’s behalf.

Intermediaries

An intermediary, such as a bank or broker, would be permitted to follow the "notice and access" model only if the issuer requests it to do so and, if the issuer so requests, it must furnish proxy materials using the "notice and access" model. An issuer or other soliciting person relying on the "notice and access" model would have to deliver a sufficient number of copies of its Notice to intermediaries at least five business days prior to the proposed deadline for furnishing the Notice. (For issuers, this deadline would be 30 days prior to the shareholder meeting.)

Thereafter, the process for forwarding the Notice by intermediaries to their beneficial owner customers would be similar to the current process. The intermediary would be required to forward the Notice to beneficial owners within five business days after receipt of the Notice from the issuer or other soliciting person. At its option, the intermediary could either include its request for voting instructions with the Notice or post that request on a website. If the intermediary chooses to post the request on its own website, it would need to direct beneficial owners to that website rather than to the issuer’s website and to post the issuer’s proxy statement and all other proxy-related material from the issuer’s website, other than the proxy card, on its own website. The intermediary could direct owners to its website by either supplementing or replacing the issuer’s Notice with its own complete Notice, making clear in either case that beneficial owners should return voting instructions to the intermediary, rather than execute a proxy card and return it to the issuer or tabulator. The intermediary could also deliver the same version of the Notice to both registered holders and beneficial owners, if the proxy card is delivered with the Notice to registered holders and a request for voting instructions is delivered with the Notice to beneficial owners.

Below is the SEC's summary of the responsibilities of intermediaries that are requested to follow the "notice and access" model:

  • The intermediary would have to forward the issuer’s Notice to beneficial owners, unless it prepares its own Notice;
  • If the issuer posts its proxy card on the website, the intermediary would have to supplement the issuer’s Notice or create and send its own Notice to clarify how beneficial owners can return their voting instructions;
  • If the intermediary chooses to post its request for voting instructions on a website, it would have to maintain a website for posting that request for voting instructions, as well as the issuer’s proxy materials, other than the proxy card;
  • If the intermediary chooses not to post its request for voting instructions on a website, it would have to prepare and send, with the Notice, a copy of the intermediary’s request for voting instructions; and
  • The intermediary would have to request and forward a copy of the proxy materials from the issuer in response to requests from its beneficial shareholder customers.
A beneficial owner could request a hard copy of the proxy materials from either the company or the intermediary, at the beneficial owner’s option. If a beneficial owner requests the intermediary to obtain copies of the materials, the intermediary would be required to request copies from the issuer within two business days of receiving the request from the beneficial owner and would have to forward the materials within two days after receipt from the issuer. The intermediary would be allowed to charge the issuer the cost of forwarding the materials.

Model for Soliciting Persons Other Than the Issuer

The proposed rules also permit non-issuers to use the "notice and access" model. The SEC expects that the alternative model could significantly decrease the cost of a proxy contest.

Mechanics. While, under current rules, an issuer must furnish either a proxy statement or an information statement, soliciting persons other than the issuer are not subject to those requirements. As proposed, a soliciting person other than the issuer may follow the same procedures as the issuer: furnish a Notice and post the proxy statement on a website and either furnish the proxy card with the Notice or post the proxy card with the proxy statement. However, because a non-issuer is not obligated to solicit everyone, it may explain in its Notice that it will not provide copies to requesting shareholders and clearly state that the only shareholders being solicited are those willing to access the proxy materials on the website. A soliciting person other than the issuer also could choose not to furnish a Notice to any shareholder, but rather simply post its proxy materials, including the proxy card, on a publicly accessible website and direct persons to that website through communications under Rule 14a-12. Under this approach, all persons accessing the proxy card also would have accessed the website on which the proxy statement was located.

The SEC has summarized the proposed alternatives for non-issuers as follows:

  • Furnish a proxy statement and proxy card under existing permitted methods;
  • Furnish a Notice and proxy card together, and through the same medium, and post the proxy statement on a website;
  • Furnish a Notice and post the proxy statement and proxy card together on a website; or
  • Do not furnish a Notice and post the proxy statement and proxy card together on a website.
A soliciting person may use any combination of these options and may rely on Rule 14a-12 to issue soliciting materials prior to furnishing a proxy statement under any of these approaches. However, if a soliciting person uses a medium such as a press release under Rule 14a-12, it would incur an obligation to furnish a proxy statement at the time a proxy card is provided. Because a non-issuer is not obligated to solicit all persons receiving that communication, delivery of a Notice would be required only if the soliciting person were to send a proxy card to a shareholder that is not accompanied by a proxy statement. With respect to shareholders not receiving a proxy card from the soliciting person, but who are directed to the website by the Rule 14a-12 communication and choose to execute a proxy in favor of the soliciting person, the proxy statement would have accompanied, or preceded, the proxy card. A person receiving such a request from a shareholder may assume that the shareholder has had access to the proxy statement. (However, if the press release contains information on how to obtain a proxy card by a means other than at the website where the proxy statement will be located along with the proxy card, the soliciting person must ensure that a shareholder is furnished with the proxy statement concurrently, either by furnishing the proxy statement with the proxy card or by posting the proxy statement on a publicly accessible website and furnishing the Notice with the proxy card.) In effect, a non-issuer could effect a widespread solicitation of proxies without delivering any Notices, so long as it does not furnish or provide a means of obtaining a proxy card except on the website where its proxy materials are posted.

Timeframe for sending Notice. Under the proposal, a soliciting person other than the issuer that is following the "notice and access" model, but not conducting an electronic-only solicitation, must send out its Notice prior to the later of

  • 30 days prior to the meeting; or
  • 10 days after the issuer first sends out its proxy solicitation.
Content of Notice. A Notice for a non-issuer could be different from that of the issuer:

  • If the solicitation were an electronic-only solicitation, the Notice would not need to provide instructions on how to obtain a copy and would instead clearly state that the proxy solicitation is contingent on the shareholder's being willing to accept access to the proxy statement electronically.
  • If a solicitation in opposition were launched before the issuer had sent its own proxy statement and the full agenda were not known at the time that the opposing person sent its Notice, the person soliciting in opposition would be required to include the agenda items in the Notice only to the extent known.
  • If the person soliciting in opposition provided a partial proxy card (soliciting proxy authority only for the agenda items in which the soliciting person is interested) the proxy would typically revoke any previous proxy granted, resulting in the loss by the shareholder of his or her ability to vote on matters other than those presented on the soliciting person’s card. In that event, the person soliciting in opposition that sends a partial proxy card would be required to indicate clearly on the card that execution of that card could invalidate the shareholder’s earlier vote on the other matters reflected on the issuer’s proxy card.
Shareholder lists and furnishing of proxy materials by the issuer. Exchange Act Rule 14a-7 provides that the issuer has the option to provide a shareholder list to a requesting shareholder or to send the shareholder’s materials, except when the issuer is soliciting proxies in connection with a going-private transaction or a roll-up transaction (when it is the shareholder's option). As proposed, if the issuer is providing its shareholder list to a soliciting person, the issuer would be required to include any electronic delivery information that it already has obtained from shareholders, including information about shareholders that have affirmatively consented to electronic delivery as well as shareholders that have requested copies of the issuer’s proxy materials if the issuer is relying on the "notice and access" model. If the issuer is sending the soliciting person’s proxy materials, the issuer would be required to share the benefit of any affirmative consent to electronic delivery of proxy statements that it has obtained from shareholders. If the soliciting person requests that the issuer follow the "notice and access" model, the soliciting person would be responsible for providing the issuer with copies of its proxy card and/or Notice, if the soliciting person chooses to deliver the proxy card and/or the Notice in paper. In that case, the issuer would have to send the soliciting person’s proxy card and/or Notice with reasonable promptness after receipt from the soliciting person. An issuer could not decide on its own whether to send a soliciting person’s materials in paper or electronically.

Intermediaries. Intermediaries generally furnish proxy materials to beneficial owners on behalf of soliciting persons other than the issuer under Rules 14b-1 and 14b-2.. The proposed amendments would clarify that intermediaries are obligated to send proxy materials on behalf of soliciting persons other than the issuer.

Business Combinations

As proposed, the "notice and access" model would not be available for proxy materials related to a business combination transaction, including transactions covered by Rule 165 as well as cash transactions requiring disclosure under Item 14 of Schedule 14A. This prohibition would extend to persons who solicit proxies that are not parties to the transaction and any proxy materials in opposition to the transaction.

Conforming Changes

The proposed rules reflect numerous amendments to terms used in the current proxy rules to explicitly accommodate the "notice and access" model and to effect other conforming changes.

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