SEC Adopts Rules Relating to Internet Availability of Proxy Materials and Proposes Universal Internet Availability of Proxy Materials

On January 22, the SEC adopted amendments to the proxy rules under the Securities Exchange Act of 1934 that allow, but do not require, issuers to furnish proxy materials to shareholders by posting them on an Internet website and providing shareholders with notice of the availability of the proxy materials. Issuers and other soliciting persons may use the “notice and access” model beginning on July 1, 2007. In a separate release, the SEC proposed additional amendments to the proxy rules, which would require issuers and other soliciting persons to use the notice and access model. If adopted, the proposed amendments would give all shareholders the ability to choose whether to receive proxy materials in paper form, via email, or via the Internet. Comments are due by March 30, 2007.

Final Rules: Internet Availability of Proxy Materials

Under the new rules, an issuer may satisfy its obligation under the proxy rules to furnish proxy materials to shareholders in connection with a proxy solicitation by posting its proxy materials on a publicly accessible Internet website (other than the SEC’s EDGAR website) and sending a Notice of Internet Availability of Proxy Materials (Notice).

Some of the more significant aspects of the notice and access model are as follows:

• A Notice must be sent to shareholders at least 40 calendar days before the date of the shareholder meeting that indicates that the proxy materials are available and explains how to access those materials.
• An issuer may not send a proxy card with the Notice but may send a proxy card to shareholders 10 calendar days or more after sending the Notice.
• The Notice must contain certain information including how a shareholder can request a copy of the proxy materials, which must be sent within three business days of reques
• An issuer may “household” the Notice pursuant to Rule 14a3(e).t.
• An issuer must post the proxy card on the Internet website with the proxy statement and any annual report no later than the time at which the Notice is sent to shareholders. In addition, on the website, the issuer must concurrently provide shareholders with at least one method of executing a proxy vote, such as an electronic voting platform or a telephone number for executing a proxy.
• All proxy materials furnished through the notice and access model, other than additional soliciting materials, must be posted on the Internet website by the time the issuer sends the Notice to shareholders through the conclusion of the shareholder meeting, at no charge to shareholders. Additional soliciting materials also must be posted to the website no later than the day on which the material is first sent to shareholders or made public.
• Shareholders and other persons conducting their own proxy solicitations also may rely on the notice and access model. However, unlike issuers, a soliciting person other than the issuer may selectively choose the shareholders from whom he or she desires to solicit proxies without the need to send an information statement to all other shareholders.

Intermediaries also may use the notice and access method. An intermediary must prepare its own Notice for distribution to beneficial owners and must allow beneficial owners to elect to receive paper or email copies of proxy materials. An intermediary’s Notice sent to a beneficial owner should direct the owner to request paper or email copies from his or her intermediary, rather than from the issuer.

The intermediary may choose whether to direct beneficial owners to the issuer’s website or to its own website to access the proxy materials. If it directs beneficial owners to the issuer’s website, the intermediary must inform beneficial owners that they can submit voting instructions to the intermediary but cannot execute a proxy directly in favor of the issuer unless the intermediary has executed a proxy in favor of the beneficial owner.

Proposed Rules: Universal Internet Availability of Proxy Materials

Under the proposed SEC rules, an issuer would be required to comply with the requirements adopted above. The SEC is considering making the proposed universal Internet availability amendments effective for large accelerated filers, not including registered investment companies, on January 1, 2008, and for all other issuers, including registered investment companies, on January 1, 2009.

View the SEC’s Final Rules Release

View the SEC’s Proposed Rules Release

Investment Management FYI is a service of the Investment Management Practice Group of Morgan Lewis. If you have any questions concerning these important legal developments reflected herein, please contact either of the following Morgan Lewis attorneys:

Monica L. Parry
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Ave, NW
Washington, D.C. 20004
Telephone: 202.739.5692
Fax: 202.739.3001
mparry@morganlewis.com

Trina C. Winkelmann
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Ave, NW
Washington, D.C. 20004
Telephone: 202.739.5254
Fax: 202.739.3001
twinkelmann@morganlewis.com