Share |
Article Categories Advertising, Marketing & Trademark Antitrust and Trade Regulation Bank & Finance China Construction Corporate & Securities Electronic Discovery Resources Employment & Labor Energy Family Law Government Relations Health Law Immigration Intellectual Property Internal Investigations International Internet, Technology &
E–Commerce Life Sciences Litigation Non-Competes & Trade Secrets Real Estate Shareholder Disputes Tax Planning & Business Organization Trusts & Estates White Collar & Regulatory Defense
 
Ryan C. Brauer

Ryan C. Brauer Corporate Securities

rbrauer@fredlaw.com
612.492.7252
Printable Version

E-Proxy Rules Now Effective for All Public Companies

By: RYAN C. BRAUER

April 2009

All public companies must now comply with e-proxy rules regarding shareholders access to proxy materials over the Internet. The Securities and Exchange Commission (SEC) rules became effective for large accelerated filers on January 1, 2008 and for all other public issues on January 1, 2009. The rule provides shareholders the flexibility to access proxy materials either in electronic or paper form, and saves issuers some printing and postage expense. Under the rules, issuers are required to choose between two options for proxy delivery: the “notice only option” or the “full set delivery option.” The options are not exclusive; an issuer is free to utilize the “notice only option” for some shareholders and the “full set delivery option” for others. Under both options, however, issuers must post all relevant proxy materials on a non-EDGAR website. The rule also applies to proxy solicitations by non-issuers; with the goal again to reduce the costs associated with proxy contests, but do not apply to proxy solicitations in connection with business combinations.

Notice Only Option


The “notice only option” requires issuers to mail a Notice of Internet Availability to shareholders stating that proxy materials are available on the Internet instead of mailing the actual materials. Issuers are also required to maintain a non-EDGAR website at company expense containing all relevant proxy materials, including the proxy card, annual report and proxy statement. Issuers must send the notice at least 40 calendar days before the shareholder meeting date. The notice must be filed as additional proxy solicitation material with the SEC no later than the date the notice is first sent to shareholders. Each notice must be written in plain English and must contain the following:

  • the date, time, and location of the meeting;
  • an identification of each matter to be acted on at the meeting (including any company recommendations on each matter but no supporting statements);
  • a list of which materials are available on the website;
  • instructions on how to access the proxy card, provided that execution of the proxy card is not facilitated without access first to the proxy statement;
  • information about attending the meeting and voting in person;
  • any control or identification numbers that the shareholder would need to access a proxy card;
  • a toll-free number, email address, and Internet website address through which the shareholder can request a paper copy of the proxy materials; and
  • A prominent legend in bold stating: Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to be held on _________.
    • 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 materials] are available at [insert website address].
    • If you want to receive a paper or email 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 _________ to facilitate timely delivery.

Issuers must include only this notice in their mailing. No additional materials may accompany the notice, except any state law mandated notice of shareholder meeting, a statement that no personal information other than identification or control numbers will be needed to execute the proxy card and a pre-addressed, postage paid reply card for requesting materials. Issuers choosing to mail a proxy card must wait 10 days from the mailing of the notice and include another copy of the notice. Recipients of the notice are free to request paper or email copies of the proxy materials at no additional cost, and requested materials must be sent within three business days following the request. Shareholders must be allowed to permanently elect to receive paper or email copies of proxy materials for future solicitations (until such election is subsequently revoked by shareholder). Any subsequent additional soliciting materials must also be posted on the website no later than the date on which such materials are first sent to shareholders or made public. Copies of the proxy materials must be maintained in company records for at least one year following the meeting or corporate action to which the materials relate.

Although Internet voting is not mandatory, the issuer must provide shareholders with a method to execute proxies at the time the notice is sent and, because proxy cards cannot be included in the notice, arrangements for either telephone or Internet voting need to be made.

Issuers may require intermediaries, such as brokers and bankers, to utilize the notice only method of delivery of proxy materials. To do so, issuers must provide the necessary information to such intermediaries in sufficient time to allow the intermediaries to prepare and send the notice and post the proxy materials at least 40 calendar days prior to the meeting. The intermediaries’ notice must contain substantially the same information as the issuer’s notice. Similarly, the intermediaries must provide copies of the proxy materials upon request, permit permanent elections by the beneficial owners as to future copies of such materials, and provide a means to access voting instructions no later than the date the notice is first sent to beneficial owners.

Issuers looking to satisfy “green” or sustainability initiatives or cut down on printing and mailing costs associated with proxy delivery may consider using the notice only option, but should be aware of the following potential drawbacks:

  • The issuer will be required to send first-class copies of any requested proxy materials, which is more expensive than bulk mailing rates;
  • The issuer needs to make sure such a delivery method satisfies applicable state laws and governing documents;
  • The issuer could experience declines in shareholder voting due to shareholder unfamiliarity with the notice only option (anecdotal evidence from 2008 large accelerated filers indicated some chilling effect on retail voting);
  • The issuer is likely to experience additional shareholder communication regarding e-proxy procedures; and
  • Best practices have not yet developed for the notice only option, and the option may require coordination with a transfer agent, web provider, and other third parties.

Full Set Delivery Option


Issuers that use the “full set delivery option” continue to mail a full set of proxy materials to shareholders, but must also maintain proxy materials on a non-EDGAR website. The mailed proxy materials must contain a notice regarding Internet availability. The notice can either be incorporated into the proxy materials or included as a separate notice accompanying the materials. Materials must be posted on the Internet no later than the date the notice is mailed to shareholders. The notice, whether incorporated in the proxy materials or not, must contain the same information as appears under the “notice only option” except the statements regarding encouraging Internet access to the materials, requesting copies of the materials and accessing the proxy card. The issuer does not need to send the full set of proxy materials within 40 calendar days of the shareholder meeting, and does not need to make printed proxy materials available upon shareholder request. Issuers that are comfortable with their existing level of proxy expense, or who worry about declines in shareholder voting, should utilize the full set delivery option. However, they should be aware that proxy expenses will rise slightly in the short term, due to the additional expense of website creation with no offsetting savings from fewer proxy mailings.

Website Requirements


Regardless of whether the issuer decides to utilize the notice only option or the full set delivery option, the issuer must post all relevant proxy materials on a non-EDGAR website, free of charge to shareholders. The materials must be available at least until the conclusion of the shareholder meeting. Companies must post materials in easily readable and printable formats; including both an HTML file (for reading and searching) and PDF file (for printing) would likely satisfy this requirement. The site must also give shareholders the ability to execute a proxy card either by Internet, telephone, or by printing and mailing the card. Finally, the issuer must maintain shareholder confidentiality, making sure the site does not infringe on the anonymity of a person accessing the site. Cookies are permissible only if used in a way that does not infringe upon anonymity. The rule does not require the issuer to turn off the site’s connection log, which automatically tracks numerical IP addresses that connect to the site, but issuers may not use these numbers to attempt to find out more information about persons accessing the site, and issuers may not send unsolicited email to shareholders.

What To Do Now


Issuers should begin constructing the website, addressing potential problems relating either to providing proxy materials in HTML and PDF format or making Internet voting available, if desired. Issuers should make sure that the form and substance of the notice information (irrespective of which option is chosen) complies with the final rule. Issuers should also determine whether the notice only or full set delivery option best serves their company and shareholders.

If you have any questions regarding the SEC’s e-proxy rules, please contact Melodie Rose (612-492-7162), Ryan Brauer (612-492-7252) or Liz Dunshee (612-492-7407) at Fredrikson & Byron.