Previously, companies were required to mail their proxy materials to stockholders unless stockholders had already given their affirmative consent to receive solicitation materials electronically.

Under the new regulation, companies may satisfy their proxy statement and annual report delivery requirements by posting these materials on a publicly-accessible Web site (other than the SEC’s EDGAR system) and notifying stockholders of the availability of the materials and how to access them. The SEC refers to this method of distributing proxy materials via the Internet as the “Notice and Access” model. Stockholders can opt out of receiving materials via the Internet and the company (or intermediary) is required to send paper copies of the materials to the stockholder.

The new rules do not affect other solicitations that may be exempt from proxy delivery requirements.

2. Is the new regulation regarding the availability of proxy materials on the Internet mandatory?

Not yet. Companies may decide to deliver proxy materials through the “Notice and Access” model or deliver them via mail. Companies also may elect to deliver solicitation materials on the Internet for one proxy season, and send the materials through the mail for the next.

However, the SEC has also adopted a new rule that, when effective, will require companies to make their proxy materials available on the Internet. See Mandatory Availability of Proxy Materials on the Internet.

3. What information can be made available on the Internet?

A company taking advantage of the new regulation must post on the Internet all the proxy materials that it would normally be required to mail to its stockholders. Proxy materials include:

Notices of stockholder meetings;
Proxy statements, information statements, and consent solicitation statements;
Forms of proxy (proxy cards);
Annual reports (except registered investment companies);
Any additional soliciting materials; and
Amendments to any materials that are required to be sent to stockholders.

The proxy materials must be posted on a publicly-accessible Web site other than the SEC’s EDGAR system. The information must remain on the Web site and be accessible to stockholders, without charge, through the conclusion of the stockholder meeting.

4. Are there any technical requirements for making solicitation material available on the Internet?

Under SEC Rule 14a-16(c), the materials must be posted on a Web site in a format that enables stockholders to view and print documents in a convenient manner. As discussed in Section II.A.3 of the adopting release, the materials also must be in a readily searchable format, such as HTML.

Companies must maintain the Web site in a manner that does not infringe on the anonymity of stockholders who access it. In particular:

The Web site may not track the identity of visitors (either through the use of “cookies” or otherwise) accessing it to view the proxy statement.
E-mail addresses obtained from stockholders requesting proxy materials may be used only for the purpose of sending those materials, not for advertising or any other communications.
Companies cannot share stockholder e-mail addresses, except with an agent assisting with the distribution of proxy materials, and may not sell them.

Before implementing the “Notice and Access” model, investor relations staff should consult with information technology specialists to ensure the proxy delivery Web site complies with these technical requirements.

5. Which companies can voluntarily make their proxy materials available on the Internet?

All companies that are required to send stockholder proxy materials via mail under Section 14 of the Securities Exchange Act of 1934 can use the “Notice and Access” model.

6. When can companies start taking advantage of this new regulation?

Companies can primarily begin taking advantage of the “Notice and Access” model for the 2008 proxy season.

7. Can Internet-based distribution of proxy materials be used for all solicitations?

No. Under SEC Rule 14a-16(m), companies cannot distribute proxy materials via the “Notice and Access” model for solicitations regarding business combination transactions.

8. Do companies still need to mail stockholders anything?

Yes. Companies must mail a Notice of Internet Availability of Proxy Materials to stockholders. As stated in note 49 of the adopting release, companies can send this notice electronically if a stockholder has affirmatively consented to such delivery.

9. What are the primary benefits and drawbacks of the “Notice and Access” model?

As discussed in Section VI of the adopting release, the primary benefit of the “Notice and Access” model is that it relieves companies from having to print and mail proxy materials to every stockholder. This could result in substantial cost savings.

However, a company may not realize savings from online distribution of proxy materials immediately. Companies maximize economies of scale through large print runs of proxy materials and bulk mailings to minimize the costs associated with a proxy solicitation. For at least the first use of the “Notice and Access” model, it will be difficult for companies to estimate how many paper copies of proxy materials they should print. It may take companies a while to determine how many paper copies to have ready for stockholders that request them.

The primary drawback of the “Notice and Access” model for companies (or at least the incumbent management) is that it makes mounting a proxy challenge easier; third parties also can take advantage of electronic delivery options. Furthermore, Section II.C.1 of the adopting release notes that, unlike the company itself, third-party solicitors are not required to solicit proxies from all stockholders. These parties may minimize their costs by soliciting proxies only from stockholders that have previously consented to receiving proxy materials electronically.

B. Notice of Internet Availability of Proxy Materials

1. What role does the Notice of Internet Availability of Proxy Materials serve in the “Notice and Access” model?

As discussed in Section II.A.1 of the adopting release, the Notice of Internet Availability of Proxy Materials, or Notice, is meant to alert stockholders to the availability of proxy materials on the Internet. The Notice is mailed (or sent electronically if the stockholder has elected to receive it electronically) in lieu of the actual proxy materials.

2. If a company decides to deliver solicitation materials via the Notice and Access model, when does it need to deliver the Notice of Internet Availability of Proxy Materials?

Under SEC Rule 14a-16(a), the Notice of Internet Availability of Proxy Materials must be sent to stockholders at least 40 days prior to the applicable stockholder meeting. Materials must be sent to intermediaries in enough time for them to prepare and send their own Notice at least 40 days prior to the applicable stockholder meeting.

3. What are the requirements in drafting a Notice of Internet Availability of Proxy Materials?

Under SEC Rule 14a-16, the Notice of Internet Availability of Proxy Materials must be in plain English and must contain only the following information:

A prominent legend in bold-face type stating the purpose of the notice:

Important Notice Regarding the Availability of Proxy Materials for the 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 contained in the proxy materials before voting.
The [proxy statement] [information statement] [annual report to security holders] [is/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.

(Note: The Web site address must be directly to the proxy materials and cannot be to the general Web site of the company.)

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 can be effected;

Information on how to obtain directions to attend the meeting and vote in person;

A clear and impartial statement of each separate matter requiring stockholder action and the company’s recommendation for each matter, but no supporting statements;

List of materials available on the specified Web site;

A toll-free number, an e-mail address, and a Web site address where the stockholder can request a paper copy of the proxy materials for the specified meeting, or for all future stockholder meetings;

Any necessary control or identification number in order for stockholders to access a proxy card; and

Instructions on how to access the proxy card, provided the instructions do not enable the stockholder to execute the proxy without having access to the proxy materials.

The above information is the only information that may be included on or with the Notice. A paper proxy card may not be included with the notice. A company can, however, combine the Notice with a notice of a stockholder meeting required under state corporation law unless state law prohibits the combination.

The Notice must be sent via mail to stockholders unless the company has previously received affirmative consent from a stockholder to send soliciting materials electronically. In this case, the Notice may only be combined with the state law notice if the applicable state law allows electronic delivery of the notice. See “Do companies still need to mail stockholders anything?”

A form of Notice must be filed with the SEC on the first day it is sent to stockholders.

4. Are companies required to maintain electronic Web sites to collect votes?

No. As discussed in Section II.A.2 of the adopting release, the company may elect to provide an electronic voting platform to collect votes or may collect votes by providing a telephone number for executing the proxy. However, simply providing a stockholder the means to acquire a paper proxy card is not sufficient.

5. Can companies still send paper proxy cards if they take advantage of the new regulation?

Yes. Under SEC Rule 14a-16(h), companies may send paper proxy cards to stockholders ten days after the delivery of the Notice, even if a proxy card is available online with the solicitation materials. If the company has not previously sent the proxy statement and annual report to the stockholder, or does not include them with the proxy card, the company must include a copy of the Notice with the proxy card. A telephone number for executing the proxy may also be included on the proxy card.

6. Can stockholders still request printed copies of proxy materials?

Yes. Stockholders are entitled to receive paper copies of the proxy materials free of charge upon request. Upon receiving such a request, a company must send paper copies of the proxy materials to the stockholder within three business days. As described in Section II.A.7 of the adopting release, the company is obligated to make paper copies of the proxy materials available for a year after the conclusion of the meeting.

7. Can stockholders opt-out of receiving documents via Internet?

Yes. As noted in Section I of the adopting release, stockholders may elect to receive paper copies of proxy materials for all future solicitations. In addition, intermediaries are required to accept, and keep a record of, opt-outs from beneficial owners of securities electing to receive paper or e-mail copies of proxy materials for any security held in the beneficial owner’s account.

C. Intermediaries and Beneficial Owners

1. What are “intermediaries” and “beneficial owners?”

Brokers and dealers (“intermediaries”) may be the named owners of stock they are holding for the benefit of an individual (the “beneficial owner”). Although the intermediary is the registered owner of the stock, all dividends and profits from the sale of the stock are passed on to the beneficial owner.

SEC Rule 14b-1 requires intermediaries to pass proxy materials received from the company on to beneficial owners within five business days of receiving such materials from the company. Beneficial owners, however, do not actually execute the proxy. Instead, they provide voting instructions to the intermediary, which then executes the proxy on their behalf.

2. How do the new regulations work for beneficial owners and intermediaries?

As discussed in Section II.B of the adopting release, since beneficial owners are not the “owners of record” for a security, companies are only required to send the Notice of Internet Availability of Proxy Materials to the intermediary listed as the owner. The intermediary is then required to produce its own Notice of Internet Availability of Proxy Materials to be sent to the beneficial owners of the security. That Notice must be sent 40 days prior to the stockholder meeting. Intermediaries may not decide on their own to use the “Notice and Access” model, and must use the “Notice and Access” model if the company requests.

3. What needs to be in the Notice of Internet Availability of Proxy Materials sent by an intermediary?

As discussed in Section II.B of the adopting release, the Notice of Internet Availability of Proxy Materials sent by an intermediary must contain (and can only contain) the following information:

A prominent legend in bold-face type stating the purpose of the notice:

Important Notice Regarding the Availability of Proxy Materials for the 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 contained in the proxy materials before voting.
The [proxy statement] [information statement] [annual report to security holders] [is/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.

(Note: The Web site address can either be of the company’s Web site or a Web site maintained by the intermediary. The Notice sent by the intermediary will direct the beneficial owner to request paper or e-mail copies of the proxy materials from the intermediary rather than the company.)

The date, time, and location of the meeting or the earliest date on which the corporate action can be effected;

Information on how to obtain directions to be able to attend the meeting and vote in person;

Identification of each separate matter that requires stockholder action and the company’s recommendation for each matter, but no supporting statements;

List of materials available on the Web site;

A toll-free number, an e-mail address, and a Web site address of the intermediary or its agent where the stockholder can request a paper or e-mail copy of the proxy materials for the meeting(s) referred to in the notice;

Any control or identification number the stockholder needs in order to access the request for voting instructions;

Instructions on how to access the request for voting instructions, provided those instructions do not enable the stockholder to provide voting instructions without having access to the proxy materials; and

A brief description of the rules that permit the intermediary to vote the securities if the beneficial owner does not provide voting instructions.

The Notice cannot include a means to attain voting instructions (such as a telephone number) without accessing the proxy materials. At the company’s request, the intermediary must send a copy of the request for voting instructions to the beneficial owners, provided ten days have passed since the Notice was sent. A copy of the Notice must accompany the request for voting instructions.

4. Can beneficial owners request paper copies of proxy materials?

Yes. As discussed in Section II.B.3 of the adopting release, beneficial owners can request paper or e-mail copies of proxy materials from the intermediary. The intermediary must then request paper or e-mail copies from the company within three business days of receiving the request from the beneficial owner. The intermediary must forward the copies of the proxy materials to the beneficial owner within three business days of receiving the copies from the company.

Beneficial owners also may indicate to their broker that they wish to receive paper materials with respect to all securities held in their account with that broker.

D. Third party proxy solicitations

1. Can soliciting third parties use the new regulations?

Yes. Under SEC Rule 14a-16(l), third parties, such as dissident stockholders, may also engage in solicitations using the “Notice and Access” model in order to solicit proxies, using generally the same mechanics as for companies. Companies can expect a more hostile proxy season because solicitation costs will be lowered for dissident stockholders. See “What are the primary benefits and drawbacks of the “Notice and Access” model?”

2. Do third parties have to solicit every stockholder?

No. As discussed in Section II.C.1 of the adopting release, third parties are able to solicit stockholders selectively and can decide to send their Notice of Internet Availability of Proxy Materials to only to certain stockholders they decide to solicit. However, third parties are required to send paper copies of proxy materials if requested by stockholders.

3. Do soliciting third parties have to include any additional information on their Notice of Internet Availability of Proxy Materials?

Yes. Third parties may only be soliciting proxies for certain agenda items rather than for all of the items. A partial proxy card would typically revoke any previously executed proxy, and stockholders may inadvertently invalidate their votes on matters included on the company’s proxy card. Under SEC Rule 14a-16(l), third parties must clearly indicate on their Notice whether the execution of the proxy will invalidate the stockholder’s prior vote on other matters included on the company’s proxy card.

4. Are companies required to share stockholder information with soliciting third parties that intend to use the “Notice and Access” model?

Under SEC Rule 14a-7, companies are required to either send proxy materials from third parties along with their own proxy materials, or disclose a list of stockholders so that a third party may mail its own proxy materials. As discussed in Section II.C.4 of the adopting release, if a company chooses to furnish a list of stockholders, the company also must indicate which stockholders have permanently requested to receive paper copies of proxy materials. Instead of providing a list of stockholders, the company may choose to mail the third party’s Notice of Internet Availability of Proxy Materials along with its own notice.

II. Mandatory Availability of Proxy Materials on the Internet.

On July 26, 2007, the SEC adopted rules that will require companies to utilize the Internet in delivering proxy materials. Under this mandatory rule, companies may either elect to mail proxy materials to stockholders and simultaneously post the materials on a Web site, or use the “notice and access” model described above to fulfill proxy delivery requirements.

1. How does the mandatory rule differ from the voluntary rule?

The mandatory rule requires companies to use one of two different models to deliver proxy materials to stockholders. These models are called the “notice only” model and the “full set delivery” model.

The mechanics of the “notice only” model are similar to the mechanics of the voluntary rule described above. Companies using the “notice only” model will be required to post their soliciting materials to a publicly-available Web site (other than the SEC’s EDGAR), and mail a Notice of Internet Availability of Proxy Materials to stockholders at least 40 days prior to the applicable stockholder meeting. A stockholder may request paper copies of the soliciting materials from the company, and the company must mail paper materials to the stockholder within three business days of receiving the request.

Under the “full set delivery” model, a company will mail to stockholders a complete set of proxy materials and simultaneously post the materials on a publicly-available Web site (other than the SEC’s EDGAR). The company must include with the printed proxy materials the information required in the Notice of Internet Availability of Proxy Materials so stockholders can choose to access the proxy materials via the Internet. Companies utilizing the “full set delivery” model will not be required to send the proxy materials 40 days prior to the applicable stockholder meeting because stockholders do not need extra time to request paper or e-mailed copies of the materials. Many companies that post proxy materials on their Web site likely already comply with the “full set delivery” model.

A company does not have to choose one model or the other as the exclusive means for providing proxy materials to stockholders. A company may use the “notice only” option to provide proxy materials to some stockholders, and the “full set delivery” option to provide proxy materials to other stockholders.

2. Which companies will have to make their proxy materials available on the Internet, and when?

Large Accelerated Filers other than investment companies will be required to make proxy materials available on the Internet for solicitations occurring on or after January 1, 2008. All other companies, including registered investment companies, will be required to comply with the mandatory rule for solicitations occurring on or after January 1, 2009.

3. What are the obligations of intermediaries under the mandatory rule?

Intermediaries will be required to follow the model selected by the company. The company must provide each intermediary with the information necessary and in sufficient time for the intermediary to prepare and send its notice to beneficial owners within the time frame required by applicable model.

A company that complies with the “notice only” option must provide the intermediary with the relevant information in sufficient time for the intermediary to prepare and send the Notice and post the proxy materials on the Web site at least 40 calendar days before the stockholder meeting date.

Under “full set” delivery option, as with the traditional method of delivering proxy materials, the intermediary must forward the company’s full set of proxy materials to beneficial owners within five business days of receipt from the company. When the company is delivering full sets of proxy materials to beneficial owners, the intermediary must either prepare a separate notice and forward it with the full set of proxy materials, or incorporate any information required in the notice, but not appearing in the company’s proxy statement, in its request for voting instructions.

4. Are there any technical requirements under the mandatory rule?

Yes. The technical requirements for posting proxy materials on a publicly-available Web site under either model are the same as under the “Notice and Access” model. See Are there any technical requirements for making solicitation material available on the Internet? Companies are well-advised to consult IT specialists to ensure Web sites are compliant with these requirements.

5. Will third parties also be required to make proxy materials available on the Internet?

Yes. Third parties soliciting proxies from stockholders will be required to use either the “notice only” model or the “full set delivery” model, or a combination of the two.