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SEC Issues Proposed “Notice and Access” Rules Regarding Internet Availability of Proxy Materials
By Jacob A.
Heth and Brian R. Buckham
[January 2006]
On Dec. 8, 2005, the Securities and Exchange Commission (the “Commission”) issued proposed amendments to the proxy rules under the Securities Exchange Act of 1934 (the “Exchange Act”). The amendments propose a “notice and access” model premised on the fact that most shareholders are capable of accessing materials on the Internet. The primary elements of the proposed amendments consist of (i) the ability of issuers1 to furnish proxy materials by posting them on a specified, publicly-accessible Internet website; (ii) requirements for providing shareholders with notice of how to access the proxy materials; and (iii) requirements for the furnishing of proxy materials to shareholders who request them.
Furnishing of Internet Proxy Materials
Under the proposed amendments, issuers would have the option of posting proxy materials on a designated Internet website. The website cannot be the Commission’s EDGAR website, and will typically be a website established and maintained by the issuer. The proxy materials would be required to be posted on or before the Notice of Internet Availability of Proxy Materials (discussed below) is sent to shareholders and remain posted through the date of the shareholder vote, consent, or other related action.
The proxy materials which could be posted on the website include (i) proxy statements on Schedule 14A; (ii) proxy cards; (iii) information statements on Schedule 14C; (iv) annual reports to security holders required by Rules 14a-3 and 14c-3 of the Exchange Act; (v) notices of shareholder meetings; and (vi) additional soliciting materials. Proxy materials for business combinations would still need to be provided under existing rules because the Commission considers these to be fundamental corporate events.
The issuer’s choice to rely on the “notice and access” model would only be effective with respect to the particular meeting (or other action for which shareholder consent is solicited). Accordingly, each time an issuer chooses to rely on the “notice and access” model it would have to comply anew with all applicable requirements, including delivery of the Notice and furnishing proxy materials when requested by shareholders.
Notice of Internet Availability of Proxy Materials
Issuers would be required to provide shareholders with a Notice of Internet Availability of Proxy Materials (“Notice”) at least 30 days prior to the shareholder vote, consent, or other action to which the proxy materials relate. The 30-day time period is designed to give shareholders the option to request the materials and review them before the vote. The Notice would have to contain the following information in clear and understandable terms:
- The date, time, and place of the meeting, or if a corporate action is to be taken by written consent, the earliest date the action may be effected.
- Identification of the matters to be acted upon and the issuer’s recommendations on each of the matters.
- A statement that the Notice only presents an overview of the complete proxy materials and the materials should be reviewed before voting.
- A list of the proxy materials available on the Internet and clear instructions on how to access them.
- The procedures for requesting paper or email copies of the proxy materials if the shareholders want copies, and the fact that the copies will be provided free of charge. This would include a toll-free number and email address to request the materials.
Furnishing of Proxy Materials
Issuers would be required to deliver a copy of the proxy materials to shareholders that request them, either in paper or by email. In order to ensure that the shareholder has sufficient time to review the materials before the vote, the materials must be sent to the shareholder within two business days of the request.
Expected Reduction in Costs
Issuers that rely on the proposed amendments would be able to lower costs of proxy solicitations. The proposed amendments also would apply to shareholders and other persons conducting proxy solicitations, under rules substantially similar to those applying to issuers, which may reduce the costs of engaging in a proxy contest.
Additional Elements of the Proposed Amendments
A soliciting person other than the issuer may choose not to provide a copy of their proxy materials to a requesting shareholder 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.2
Issuers would have to continue to file proxy materials on the Commission’s EDGAR website and furnish annual reports to security holders to the Commission pursuant to Rules 14a-3 and 14c-3. The proposed amendments do not affect any current Commission filing requirement, except that a soliciting person following the proposed model would be required to file the proposed notice as additional soliciting material under Exchange Act Rule 14a-6(b).
Solicitation of Comments
The Commission is accepting comments on the proposed amendments until Feb. 13, 2006 . Comments may be provided by accessing the Commission’s Internet comment form at www.sec.gov/rules/proposed.
FOOTNOTES
1 For ease of reference, we refer to the “issuer” in describing the proposed amendments. However, under the proposed amendments shareholders and others desiring to solicit proxies may do so under requirements substantially similar to the requirements that would apply to issuers.
2 An issuer would be unlikely to conduct such an “electronic only” proxy solicitation, as it would have an obligation to provide shareholders who are not being solicited with an information statement that complies with Regulation 14C. In addition, the rules of some trading markets require issuers to solicit proxies from all of their shareholders.
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This Corporate Finance Law Advisory
is a publication of the Business Transactions/Corporate Finance
Group of Davis Wright Tremaine LLP. Our purpose in publishing
this Advisory is to inform our clients and friends of developments
in business, corporate finance and securities laws. It is not
intended, nor should it be used, as a substitute for specific
legal advice as legal counsel may only be given in response
to inquiries regarding particular situations.
Copyright
© 2006, Davis Wright Tremaine LLP.
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