November 29, 2005
Today, the Securities and Exchange Commission (the "SEC") proposed amendments to its proxy rules that would permit issuers and non-issuers soliciting proxies from shareholders to deliver proxy materials electronically by posting them to a website. If adopted, these amendments would greatly reduce the costs of printing and mailing proxy materials, and streamline the proxy solicitation process. The SEC anticipates that final rules would not be enacted in time for the 2006 proxy season.
A summary of the rule proposal is set forth below. This summary is based on information provided at the SEC’s open meeting, and therefore may not reflect nuances that appear in the SEC’s proposing release, which is expected to be issued shortly.
Proposed "Notice and Access" Model for Delivery of Proxy Materials
The SEC’s proposed amendments would provide an alternative model (the so-called "notice and access" model) by which companies conducting proxy solicitations could satisfy the requirement of Rule 14a-3 under the Securities Exchange Act of 1934 to furnish proxy materials and annual reports by posting these materials on an Internet website and providing shareholders with notice of the Internet availability of the materials. Other soliciting persons also would be permitted to use the proposed "notice and access" model.
An issuer electing to use the proposed "notice and access" model to solicit proxies would post its proxy materials and annual report on a publicly accessible Internet website (other than EDGAR), in a form substantially identical to the paper version of those materials. The issuer would send a "Notice of Electronic Proxy Materials" (the "notice") to shareholders, which could be the size of a postcard, notifying them of the availability of the proxy materials on the Internet. The notice would be required to be sent at least thirty days prior to the shareholder meeting to which the proxy materials relate, and would be able to contain only the following information:
a prominent legend in bold type disclosing:
the time, date and location of the meeting;
the Internet address of the website where the proxy materials are available; and
a toll-free telephone number and e-mail address that may be used by shareholders to request paper copies of the proxy materials at no charge (which request must be responded to by the issuer within two business days);
a clear and impartial description of the matters to be voted on; and
the issuer’s recommendation with respect to each matter to be voted on.
The proposed amendments would allow the proxy card to be accompanied by, and delivered through the same medium (paper or electronic) as, either the notice or the proxy statement. The proposed amendments would provide that the notice cannot be accompanied by any other shareholder communications.
Brokers, banks and other intermediaries holding shares on behalf of "street name" beneficial owners would be required to forward notices on to beneficial owners, as they are today with respect to proxy materials and annual reports. Those beneficial owners could request paper copies of the proxy materials and annual report through either the issuer or the intermediary.
The proposed amendments are not intended to modify any proxy voting mechanics for street name shareholders, including the distinction between non-objecting beneficial owners and objecting beneficial owners (so-called "NOBOs" and "OBOs"). Further, the SEC has indicated that the proposed amendments would have no impact on any state law obligation regarding soliciting proxies or holding annual meetings, and would not apply to business combination transactions.
If approved, this "notice and access" model would also be available to persons other than issuers who are soliciting proxies, with certain distinctions. First, as provided under the current proxy rules, non-issuers would not be required to solicit all shareholders, but could specifically target certain shareholders, such as only those willing to receive proxy materials electronically. Second, a non-issuer would not have to deliver a notice to shareholders unless the soliciting person wanted to deliver the proxy card to shareholders instead of posting it on an Internet website. Such a notice would have to be provided to shareholders by the later of 30 days before the meeting or 10 days after the issuer files its proxy materials.
The SEC’s release will solicit comments on a number of issues surrounding the proposal, and will provide a 60-day comment period. In view of the significant cost savings and other implications of the proposals, interested parties are encouraged to review the proposal carefully and submit comments as appropriate.
Gibson, Dunn & Crutcher lawyers are available to assist clients in addressing questions they may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or John F. Olson (202-955-8522, email@example.com), Ronald Mueller (202-955-8671, firstname.lastname@example.org), Brian Lane (202-955-3646, email@example.com), Amy L. Goodman (202-955-8653, firstname.lastname@example.org) or John Hess (202-887-3700, email@example.com) in the firm’s Washington, D.C. office.
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