On December 13, 2006, the Securities and Exchange Commission (1) amended the proxy rules to allow companies and other persons to furnish proxy materials to shareholders through the Internet (so called e-Proxies), while allowing shareholders who so desire to elect to receive paper copies, and (2) proposed to make the rules mandatory in the future for all solicitations not related to a business combination.

Voluntary e-Proxy Rules

Solicitations by the Company

The new rules take effect on July 1, 2007, and early adoption is not permitted. Under the new rules, a company may elect to furnish proxy materials to shareholders by:

•  posting the materials on a publicly accessible Internet web site (other than the SEC's EDGAR web site); and

•  sending a notice (in paper form) of Internet availability of proxy materials to shareholders at least 40 days before the meeting date (which may be earlier than some companies have traditionally filed their proxy materials).

A company may not send a paper proxy card with the initial notice. Ten or more days after sending the initial notice, however, a company may send a paper proxy card along with another copy of the notice. After ten days, the SEC believes that shareholders will have had sufficient time to access electronic copies of the proxy materials or request paper copies.

The notice must be written in plain English and include:

•  a prominent legend (in boldface type) that advises shareholders of:

•  the date, time, and location of the meeting;

•  the address of the Internet web site where shareholders can access the proxy materials; and

•  a toll-free phone number, e-mail address and a web site that shareholders may use to request copies of the proxy materials at no cost (which must be sent by the company within three business days after receiving a request); and

•  a clear and impartial description of the matters to be considered at the meeting, along with the company's recommendation regarding those matters.

The initial notice may not contain any information beyond what is permitted by the new rules, nor can it be accompanied by other types of shareholder communications (to ensure that the initial notice is given prominence and does not get lost among several other types of communications).

Concurrently with delivery of the notice, the company must provide shareholders with information on voting methods, which may include electronic voting over the Internet and telephone voting, or a combination of various methods of voting.

After receiving the initial paper notice, a shareholder may elect to receive all future proxy materials in paper or by e-mail. This election is permanent until changed by the shareholder.

When a company chooses to rely on the e-Proxy rules, brokers, banks and similar intermediaries must prepare and send their own notices designed for beneficial shareholders. A beneficial shareholder desiring a paper or e-mail copy of the proxy materials must request one from the intermediary. A beneficial owner will be able to request that the intermediary forward paper or e-mail copies of proxy materials for all shareholder meetings for all securities held in accounts with the intermediary.

Solicitations by Others

A person other than the company may distribute proxy materials via the Internet in substantially the same manner as the company, except:

•  its notice must be sent to shareholders by the later of (1) 40 days before the meeting or (2) 10 days after the company files its proxy materials; and

•  it may limit its solicitation to shareholders who have not previously requested paper or e-mail copies of the proxy materials.

If the soliciting person sends a notice to a shareholder, it must send that shareholder a paper or e-mail copy upon request. In the proposing release, the SEC considered allowing persons other than the company to send an initial notice of Internet availability and then post proxy materials solely on an Internet web site ( i.e. , a conditional Internet-only solicitation). That aspect of the proposed rule was not adopted.

Text of Final Rules

The SEC indicated that the text of the final rules will be posted on the SEC's web site in the near future.

Proposed Mandatory e-Proxy Rules

Also at its December 13th meeting, the SEC proposed to make the e-Proxy rules mandatory for all solicitations in the future, other than those related to a business combination. The proposed mandatory rules would operate in substantially the same manner as the voluntary rules. However, in order to provide flexibility to the soliciting person regarding how it conducts its proxy solicitation, the initial notice could be accompanied by a paper or e-mail copy of the proxy materials (including the proxy statement, annual report, and proxy card).

Under the proposed mandatory rules, the company or other soliciting person would still be able to send paper proxy materials to shareholders, but those materials would also have to be available on the Internet and a notice of availability would have to be sent to shareholders. Thus, shareholders would have the choice of having Internet access to the proxy materials, whereas under the new voluntary rules the choice to provide Internet access remains with the company or other soliciting person. The mandatory rules may require the filing of proxy materials at least 40 days before the meeting, which could pose issues for some companies that normally file their proxy materials closer to the meeting date.

The proposed rules will be open for comment for sixty days following publication in the Federal Register and could become effective as early as the 2008 proxy season for certain companies.

This client update is for general information purposes only, does not completely describe the proposed rules or their application in different circumstances and does not constitute legal advice. If you have questions, please call your usual Baker Botts contact for corporate and securities law matters.