SEC Adopts Mandatory E-Proxy Rules; Phase-In Starts with Large Accelerated Filers

At its open meeting on June 20, the SEC adopted amendments to its proxy rules that make it mandatory for companies subject to those rules to offer Internet delivery of proxy materials to their shareholders. Compliance will be phased in, with initial application to proxy solicitations by large accelerated filers (other than investment companies) commencing on or after January 1, 2008. The rules will apply to proxy solicitations by other issuers and other soliciting parties commencing on or after January 1, 2009.

In January 2007, the SEC published rules adopting a voluntary model of Internet proxy delivery and providing that a soliciting party fulfills its obligation to furnish proxy materials (generally a proxy statement and annual report) if it satisfies certain conditions, including the following:

• It posts those proxy materials on a publicly-available Internet website other than EDGAR;
  
  
• It gives notice at least 40 days before the relevant meeting of certain information about the meeting, specifying the website address where its proxy materials may be accessed and a toll free number and email address that shareholders may use to request paper copies of the materials; and
  
  
• It delivers proxy materials free of charge to any holder who so requests (holders can also request physical delivery on a permanent basis).

Under the voluntary model, a proxy card may not accompany the original notice of Internet delivery, but the proxy card may be delivered 10 days after delivery of the notice if accompanied by a second copy of the notice. Companies can furnish proxy materials as described above, and the notice and paper delivery arrangements will be provided through intermediaries in the case of shareholders holding through those intermediaries.

The voluntary model may be used starting on July 1, 2007. While some Commissioners expressed reservations about imposing a mandatory system before the SEC has permitted the voluntary model to operate and has had the chance to evaluate the costs and consequences of that model, the SEC unanimously adopted the mandatory system with the phase-in described above.

The release and regulations adopted today are not yet available. Based on statements made at the open meeting, it appears that under the mandatory system, companies may proceed under one of two options:

• The “notice only option,” which was described at the meeting as being identical to the voluntary model; and
  
  
• The “full set delivery option,” under which a company must physically deliver all proxy material (presumably including a proxy card) to shareholders, but must also (a) post its proxy material on a publicly-available website other than EDGAR, and (b) provide the same information required in a notice of Internet availability required under the “notice only option,” either in the proxy material or in a separate notice.

Chairman Cox explained at the meeting that under the mandatory system, shareholders – and not companies – would have the choice in each case as to whether to receive proxy materials via the Internet or via traditional physical delivery.

As had been the case with the voluntary system, the mandatory system will not apply to business combination transactions.

The opening statement of the Division of Corporation Finance describing the rules can be found at the following link: http://sec.gov/news/speech/2007/spch062007rab.htm.

If you have any questions, please feel free to contact any of your regular contacts at the firm or any of our partners and counsel listed under Corporate Governance, Capital Markets or Mergers, Acquisitions and Joint Ventures in the “Our Practice” section of this website.

CLEARY GOTTLIEB STEEN & HAMILTON LLP