SEC Rule Change: Internet Availability

Last week, on June 20, 2007, the SEC adopted a new mandatory Internet availability model whereby shareholders are granted the option to choose the means by which to access proxy materials. Under the adopted amendments, issuers will be required to post their proxy materials on an Internet website and provide shareholders with a written notice of the Internet availability of the materials. The issuer may still choose to furnish paper copies of the proxy materials along with the notice of Internet availability. If the issuer chooses not to furnish a paper copy of the proxy materials along with the notice, a shareholder may request delivery of a copy at no charge to the shareholder.

The new rules replace SEC Release 34-55146, published on January 22, 2007, entitled Internet Availability of Proxy Materials, which granted companies the option to adopt a voluntary notice and access model for the furnishing of proxy materials via a company’s website. According to Release 34-55146, as of July 1, 2007, an issuer was allowed, but not required, to furnish proxy materials to its shareholders by posting them on an Internet website and providing shareholders with notice of the availability of the proxy materials on the website, instead of physically distributing the proxy materials via the mail, provided that shareholders still had the option to request hard copies of the proxy materials

The move to Internet availability, as mandated by the new rules, will be phased in over two years, with large accelerated filers being subject to the new Internet availability rules as of January 1, 2008, and remaining issuers being subject to the new rules as of January 1, 2009.

Thus, both the SEC and NYSE have taken positive steps to reduce wasteful, expensive shareholder mailings that are largely ignored. In January 2007 the NYSE published rule amendments that dispensed with the need to mail hard copies of proxy materials and annual reports to shareholders. Now with the new SEC rules, companies may post their proxy materials on their websites and notify shareholders as to their availability.

The NYSE Rule Change

In its 2007 Corporate Governance Letter to Domestic Companies, dated January 7, 2007, the NYSE notified listed companies that on August 21, 2006, the SEC approved an amendment to Section 203.01 of the Listed Company Manual eliminating the previous NYSE requirement that a listed company must physically distribute its annual report to shareholders and instead requiring a company to post its annual report filed with the SEC to its website as follows:

  • Make the Form 10-K available on or by a link through the company’s website when it is filed on EDGAR;
  • Include on the website a prominent undertaking in English to provide all holders the ability, upon request, to receive a hard copy of the complete audited financial statements free of charge;
  • Issue a press release (i) stating that the Form 10-K has been filed with the SEC; (ii) specifying the company s website address where the form 10-K is posted; and (iii) indicating that shareholders have the ability to receive a hard copy of the complete audited financial statements free of charge upon request.

The NYSE noted that the NYSE will deem a domestic company that distributes its audited financial statements to shareholders in compliance with SEC proxy rules to be in compliance with the requirements of Section 203.01.

Bottom-Line Recommendation: For the year ended December 31, 2007, replace physical distribution with posting of proxy materials on an Internet website.


Both the NYSE and the SEC are cognizant of the latest technological developments and the growth of the Internet and electronic communications, and have revised their respective rules and guidelines to enable companies to take advantage of these technological developments, which will both significantly lower the costs incurred by companies as well as reduce unnecessary paperwork and mail.

By Steve Kronengold and David C. Zuckerbrot. © March, 2007. All rights reserved.
This article is provided for educational, informational and non-commercial purposes only. The content of this article is not intended to provide legal advice on any subject matter and should not be relied on as such.

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