Introduction

The U.S. Securities and Exchange Commission has adopted amendments to its proxy rules under the Securities Exchange Act of 1934 that will require issuers and other soliciting persons to post proxy materials on a publicly available Internet website and send shareholders a written notice of the Internet availability of the proxy materials (a “Notice”).  The amendments provide for two alternatives for the delivery of proxy materials:  (1) the "notice only" option, and (2) the "full set delivery" option, which are not mutually exclusive, so an issuer or other soliciting person may elect to use the notice only option for some shareholders and the full set delivery option for others.  The amendments do not apply to the solicitation of proxies in connection with a business combination. When used in this memorandum, the term "proxy materials" includes: (i) notices of shareholder meetings; (ii) proxy statements on Schedule 14A ; (iii) annual reports to security holders required by Rules 14a-3 and 14c-3, (iv) proxy cards; (v) additional soliciting materials; (vi) information statements on Schedule 14C; and (vii) any amendments to such materials.

Compliance Dates

“Large accelerated filers” (generally speaking, issuers having a worldwide public float of $700 million or more), other than registered investment companies, must comply with the amended proxy solicitation rules for proxy solicitations commencing on or after January 1, 2008.  Issuers that are not “large accelerated filers,” registered investment companies and other soliciting persons may voluntarily comply with the amended proxy solicitation rules for proxy solicitations commencing on or after January 1, 2008, and must comply on or after January 1, 2009.

The Notice Only Option

Under the notice only option, issuers and other soliciting persons cease to print and mail a full set of proxy materials to each shareholder.  Issuers must post their proxy materials to an Internet website and send a Notice to shareholders, each at least 40 calendar days in advance of the meeting date.  Other soliciting persons must post their proxy materials and send a Notice before the later of 40 calendar days before the meeting date and 10 calendar days after the date that the issuer first sends its proxy statement or Notice to shareholders.  Issuers and other soliciting persons must make paper or e-mail copies of the proxy materials available at no charge upon shareholder request, and the request must be responded to within three business days of receipt of the request.

The Notice may be sent together with, or combined into a single document with, any notice of meeting required under state corporate law, but may not be combined or sent together with a proxy card, any supporting information or any other document, other than a preaddressed, postage-prepaid reply postcard for requesting a paper or e-mail copy of the proxy materials.  The person delivering proxy materials may not mail a proxy card until ten calendar days or more after the mailing date of an initial Notice (unless the proxy card is accompanied or preceded by a paper or e-mail copy of the proxy materials), and at such time the proxy card must be accompanied by another copy of the Notice.

The Full Set Delivery Option

Under the full set delivery option, persons are permitted to continue delivering proxy materials by sending paper copies of the proxy materials to shareholders.  As is the case under the notice only option, issuers and other soliciting persons will also be required to post proxy materials to an Internet website and send a Notice to shareholders.  However, under the full set delivery option the Notice and proxy materials need not be sent at least 40 calendar days in advance of the meeting date.  In addition, issuers and other soliciting persons utilizing the full set delivery option are not required to provide paper or e-mail copies of proxy materials upon request.

The initial mailing of the Notice may be accompanied by a proxy card or instructions regarding an alternate method for executing a proxy.  The Notice may be combined with a notice required by state law, the proxy statement or the proxy card.  Finally, a soliciting person is not required to offer shareholders another means for executing a proxy other than a physical proxy card.  This is in contrast to the notice only option, which requires that shareholders be provided with an alternative method to execute proxies, such as an electronic voting platform, a toll-free telephone number or a printable or downloadable proxy card from the Internet website.

The Notice

Under the notice only option, the Notice (which must be filed with the SEC on EDGAR as additional soliciting material) must include, among other things:

• A prominent legend in boldface type that encourages shareholders to access and review the proxy materials before voting, provides the Internet website address where the proxy materials may be found and indicates how to obtain a paper or e-mail copy of the proxy materials;

• The date, time and location of the meeting or, if action is to be taken by written consent, the earliest date on which the corporate action may be effected;

• A clear and impartial identification of each separate matter to be voted upon and the soliciting person’s recommendations, if any, regarding those matters, but no supporting statements (as mentioned above);

• A list of the materials being posted on the Internet website;

• A toll-free phone number, e-mail address and Internet website where shareholders may request a paper or e-mail copy of the proxy materials;

• Any control/identification numbers that shareholders need to access their own proxy card;

• Instructions on how to access a proxy card, provided that such instructions do not allow a shareholder to execute a proxy prior to having access to the proxy materials; and

• Information about attending the shareholder meeting and voting in person.

Under the full set delivery option, the prominent legend need not encourage shareholders to access and review the proxy materials available on the Internet website before casting their vote because the shareholders will be receiving a copy of the proxy materials with the Notice.  In addition, the Notice will not have to provide a means by which shareholders can request a paper or e-mail copy of the proxy materials or instructions on how to access their proxy card, again because the shareholders will be simultaneously receiving proxy materials.

The Internet Website

Both the notice only and full set delivery options require that issuers and other soliciting persons post their proxy materials on a publicly accessible Internet website, which website cannot be the EDGAR website.  The proxy materials must be posted to the Internet website by the time the Notice is sent to shareholders.  The Internet website address must be specific enough to take shareholders directly to the proxy materials without having to browse through anything else such as a home page or another section of a website.  In addition, the anonymity of the shareholders accessing the Internet website must be protected.  For example, the identity of the shareholders may not be tracked and the installation of any software or the creation of any “cookies” that collects information about shareholders may not be required.

The proxy materials posted on the Internet website must be substantially identical to the paper versions of the proxy materials.  The proxy materials must be presented in a form convenient for both viewing and printing.  Finally, the proxy materials must be presented in a readily searchable format.

Intermediaries

Intermediaries, such as banks and brokerage houses, are also impacted by the amendments to the proxy rules. Issuers and other soliciting persons must provide intermediaries with the information necessary for them to prepare and send their own Notice at least 40 calendar days in advance of the meeting date, or for solicitations for other persons, the later of 40 calendar days in advance of the meeting date and 10 calendar days after the date that the issuer first sent its proxy statement or Notice to shareholders.  In addition to the information in the issuer’s Notice, the intermediary’s Notice must include certain additional information, such as the telephone number and e-mail address of the intermediary and an Internet website address of either the intermediary or the issuer where the proxy materials are posted, and instructions on how to access a request for voting instructions on the intermediary’s website.

California State Law Consideration

Section 1501 of the California General Corporation Law (the “CGCL”) requires distribution of an annual report to shareholders.  The annual report is comprised of a balance sheet, income statement and statement of cash flows, accompanied by a report of the accountants to the issuer.  Section 1501 of the CGCL purportedly applies not only to California corporations but also to foreign corporations that either have their principal executive offices in California or customarily hold meetings of their boards of directors in California.

The contents of the annual report required by Section 1501 of the CGCL overlap with certain of the proxy materials required by the proxy rules under the Securities Exchange Act of 1934.  Certain securities law practitioners have raised the question as to whether the amendments to the proxy rules under the Securities Exchange Act of 1934 conflict with and/or preempt Section 1501 of the CGCL.  While a 2004 amendment to Section 1501 of the CGCL permits the delivery of the annual report by “electronic transmission,” the requirements for “electronic transmission” under Section 20 of the CGCL are beyond what is specifically required by the amended federal proxy solicitation rules.  Section 20 of the CGCL requires that (1) every recipient of the annual report by “electronic transmission” must have provided an unrevoked consent to use of “electronic transmission,” and (2) the “electronic transmission” complies with certain requirements under the federal E-SIGN Act.  The results of the interplay of Section 1501 of the CGCL and the federal proxy solicitation rules will be further debated as the January 1, 2008, compliance date for “large accelerated filers” rapidly approaches.