Internet Delivery of Proxy Materials To Be a Viable Option for Public Companies

As annual shareholder meetings draw near, public companies should consider whether they may avail themselves of the SEC’s new “notice and access” model for delivery of proxy materials.  The notice and access model, which is expected to reduce significantly proxy solicitation costs, will become available for use on or after July 1, 2007, for shareholder meetings held on or after August 10, 2007. 

Companies availing themselves of the new rules are required to send to all shareholders, at least than 40 days before the meeting, a plain English “Notice of Internet Availability of Proxy Materials” containing the following information:

·         A prominent legend in bold-face type advising shareholders (i) to access and review the proxy materials before voting, (ii) of the website address for accessing the proxy materials, and (iii) that they may request to receive the proxy materials in paper copy or by email at no charge;

·         The date, time and place of the meeting, or if action is to be taken by written consent, the earliest date on which such action may be effected;

·         Clear, impartial identification of each separate matter to be acted on and the company’s recommendations, without supporting statements regarding those matters;

·         A list of the proxy materials being made available at the specified website;

·         A toll-free telephone number, e-mail address, and internet website address for a shareholder to request a copy of the proxy materials (no telephone numbers for execution of the proxy may be included in the notice);

·         Control or identification numbers that a shareholder must use to access a proxy card;

·         Instructions on how to access the proxy card; and

·         Information on how a shareholder may obtain directions to the meeting and vote in person.

The notice may not be combined with any other materials (unless otherwise required by applicable state law) or request personal information from the shareholder.

The proxy materials—including notices of shareholder meetings, proxy statements, forms of proxy, and annual reports to security holders—must be posted on a free, publicly accessible internet website by the time the company sends the notice to its shareholders and must remain accessible on that website until the shareholder meeting is concluded. 

The website address must be specific, leading accessing persons directly to the proxy materials.  Posted proxy materials should be in a readily searchable format that can be conveniently viewed and printed online, and that should be substantially similar to the paper format, including graphics, charts, and tables.  Additionally, the website must provide a means by which shareholders can immediately execute their proxy, for example, electronically or by telephone.

It should be noted that, notwithstanding a company’s election, a shareholder may request to receive by regular or electronic mail the proxy statement, any annual report, and a proxy card.  In that event, the company would be required to mail or e-mail the materials within 3 business days after receiving the shareholder’s request, even if the request is made after the date of the shareholder meeting or relevant corporate action. 

The "notice and access" model should decrease, at least after the first year of implementation, the expenses incurred by public companies in complying with the proxy rules by decreasing printing and mailing costs. And, if it proves effective, the SEC has indicated that it is considering making the "notice and access" model mandatory.  It is therefore likely to become commonplace and worthy of consideration sooner rather than later to expedite companies’ recognition of the cost savings.

This legal update is for informational purposes only as a service to clients and other friends, is not a complete summary of the rules relating to the subject matter discussed above, and is neither to be construed as legal advice nor intended as basis for decisions in specific situations. For more information about this subject matter or other recent developments, please contact the attorneys in our Colorado Corporate Law practice group or any other attorney in our firm with whom you normally consult by calling (303) 825-4200.