SECURITIES PRACTICE GROUP UPDATE
FEBRUARY 6, 2007
SEC Adopts Final Voluntary E-Proxy Rules and Proposes Mandatory Use of
New Rules in the Future
The SEC recently adopted final rules relating to the Internet availability of proxy materials. These final
rules permit (but do not require) companies to disseminate proxy materials to shareholders by posting
them on the Internet and providing shareholders with a notice of their availability on the Internet. These
final rules also apply to soliciting persons other than the issuer. These changes are designed to enable
companies and other soliciting persons to take advantage of the Internet to reduce the costs and improve
the efficiencies of proxy solicitations. Companies and other soliciting persons may comply with the new
rules beginning July 1, 2007 for shareholder meetings to be held on and after August 10, 2007.
In a separate release, the SEC proposed additional changes to the proxy rules that would require
companies and soliciting persons to use the “notice and access” model permitted by the final rules. The
SEC proposes to make this requirement effective for large accelerated filers beginning January 1, 2008,
and for all other companies beginning January 1, 2009. Comments on the proposed rules are due by
March 30, 2007.
VOLUNTARY E-PROXY RULES
The “Notice and Access” Model for Furnishing Proxy Materials
The final rules provide an alternative method of furnishing proxy materials to shareholders based on a
“notice and access” model. A company can (but, again, is not required to) satisfy its obligation to furnish
proxy materials to shareholders by posting them on an Internet Web site (other than EDGAR) and
providing shareholders with a notice informing them that the proxy materials are available and explaining
how to access them (the “Notice of Internet Availability of Proxy Materials” or “Notice”). This Notice
must be filed with the SEC no later than the date that it is first sent to shareholders.
Under this “notice and access” model, a company must send the Notice to its shareholders at least 40 days
before the date of the shareholder meeting or, if no meeting is being held, the date corporate action is to
be taken. This is a change from the SEC’s initial proposal which would have required that the Notice be
sent at least 30 days before the date of the shareholder meeting or corporate action.
All proxy materials identified in the Notice must be posted on the Web site by the date the Notice is first
sent to shareholders and must remain accessible on the Web site, free of charge, until the shareholder
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
UPDATE NO. 2007-02
meeting is held or corporate action is taken. Any additional soliciting materials sent to shareholders or
made public after the Notice is sent must be posted on the Web site no later than the day on which they
are first sent to shareholders or made public. Upon request by a shareholder, a company must send copies
of the proxy materials to the shareholder within three business days, and each company must allow
shareholders to elect to receive paper or e-mail copies of all proxy materials that the company will
distribute in the future to such shareholder.
The following proxy materials can be furnished on a Web site under the “notice and access” model:
•
notices of shareholder meetings;
•
proxy statements and consent solicitation statements;
•
proxy cards;
•
information statements;
•
annual reports to shareholders;
•
additional soliciting materials; and
•
amendments to these materials.
Persons soliciting proxies other than an issuer are also able to use the “notice and access” model, with
certain differences in the procedural rules and the information required in the Notice. The final rules do
not permit the “notice and access” model to be used to furnish proxy materials in connection with
business combination transactions.
If a company decides to rely on this voluntary “notice and access” model, brokers, banks and other
intermediaries must prepare and send their own notices to beneficial holders. A beneficial holder desiring
a paper or e-mail copy of the proxy materials, must request it from the broker, bank or intermediary, and
not from the company.
Notice of Internet Availability of Proxy Materials
Unless prohibited by state law, the Notice can be combined with a notice of shareholder meeting. The
Notice cannot be combined with any other documents and must 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 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 in the proxy materials before voting.
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
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UPDATE NO. 2007-02
•
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] 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 upon and the
company's recommendations regarding those matters, but no supporting statements;
•
A list of 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, so long as the instructions do not enable a
shareholder to execute a proxy without having access to the proxy statement and annual report;
and
•
Information on how to obtain directions to be able to attend the meeting and vote in person.
The Notice can include only the above information and, if combined with a state law meeting notice, any
information required by state law. The Notice may also include a statement advising shareholders that
they are not required to provide any personal information, other than an identification or control number,
to execute a proxy. The Notice must be written in plain English and cannot be accompanied by any other
shareholder communications, including a proxy card. Ten or more days after sending the initial Notice, a
company may send a proxy card to its shareholders if the proxy card is either (1) accompanied by another
copy of the Notice or (2) accompanied or preceded by a copy of the proxy statement and annual report to
shareholders furnished through the same medium as the proxy card.
PROPOSED MANDATORY E-PROXY RULES
Concurrently with issuing the final, voluntary e-proxy rules, the SEC also issued proposed rules that
would require companies and other soliciting persons use the “notice and access” model for all proxy
solicitations. The proposed mandatory system would be substantially similar to the voluntary system
described above except that the Notice could be accompanied by a full set of proxy materials, including
the proxy statement, annual report and proxy card. However, under this mandatory e-proxy model,
shareholders would nonetheless retain the ability to request paper copies of proxy materials for a
particular meeting or to make a permanent request for paper copies of proxy materials for all shareholder
meetings.
The SEC is considering making this mandatory system effective for large accelerated filers beginning
January 1, 2008 and for all other companies beginning January 1, 2009.
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
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UPDATE NO. 2007-02
CONCLUSION
The full text of the final rules relating to the voluntary e-proxy model can be found at
http://www.sec.gov/rules/final/2007/34-55146.pdf. The full text of the proposed rules can be found at
http://www.sec.gov/rules/proposed/2007/34-55147.pdf.
Please note that you can find copies of all of our Securities Practice Group Updates, as well as our
Practical Guidebook to the New Executive Compensation Disclosure Rules, on our website at
www.kennedycovington.com/practice-profile-30.html. Please call any of the attorneys in our Securities
Practice Group listed below if you have any questions about compliance with the rules. new rules.
W. Jason Allman
(704) 331-7401
D. Scott Coward
(919) 743-7328
Cory Hohnbaum
(704) 331-7432
A. Zachary Smith, III
(704) 331-7474
F. Daniel Bell, III
(919) 743-7335
Michael J. Denny
(704) 331-7488
Sean M. Jones
(704) 331-7406
Joseph R. Sollee
(919) 743-7325
Mark R. Busch
(704) 331-7440
Grayson S. Hale
(919) 743-7302
David N. Jonson
(919) 743-7308
Clarence W. Walker
(704) 331-7450
George C. Covington
(704) 331-7505
Sally Wyche Higgins
(704) 331-7510
J. Norfleet Pruden, III
(704) 331-7442
James R. Wyche
(704) 331-7558
KENNEDY COVINGTON LOBDELL & HICKMAN, L.L.P.
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UPDATE NO. 2007-02