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SEC Proposes Internet Delivery Of Proxy Statements

by Glen Shapiro,, New York

01 December 2005

The US Securities and Exchange Commission on Tuesday voted to propose for public comment rules that would allow companies and other persons to use the Internet to satisfy proxy material delivery requirements.

When a person solicits a proxy from the shareholders of a company that is subject to the Commission’s proxy rules, Rule 14a-3 currently requires that a proxy statement, which must include specified disclosure, be delivered with or prior to that solicitation.

Further, when a company solicits proxies, it also must deliver an annual report to shareholders, which must include additional specified disclosure. Under current rules and Commission interpretations, the proxy statement and annual report must be delivered in paper form or, if the shareholder consents, they may be delivered electronically (for example, by e-mail).

The electronic delivery option requires affirmative shareholder consent and currently is used only on a limited basis.

According to the SEC, the proposed rules would have two significant benefits: (1) they could result in a substantial decrease in the expense incurred by issuers to comply with the proxy rules; and (2) they would provide persons other than the company with a more cost-effective means to undertake their own proxy solicitations.

Under the new rules, a company could satisfy its obligation to furnish proxy materials to shareholders through a “notice and access” model. The company would post its proxy materials on an Internet Web site (other than EDGAR) and would send a “Notice of Electronic Proxy Materials” (the Notice) at least 30 days before the date of meeting.

The Notice would have to contain the following information:

- A prominent legend in bold-face type that advises shareholders of: (1) the date, time, and location of the meeting; (2) the electronic availability of the proxy materials at a specified Web site address; and (3) a toll-free phone number and e-mail address that shareholders may use to request copies of the proxy materials; 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 Notice would have to be written in plain English and could not include any additional information.

In terms of procedural requirements, the proxy card would have to be accompanied by, and delivered through the same medium (paper or electronic) as, either the Notice or the proxy statement.

If a shareholder requested a copy of the materials identified in the Notice, the company would be obligated to send the materials within two business days.

Additional soliciting materials that are distributed after the Notice is sent would have to be posted on the Web site specified in the Notice.

For shareholders holding their shares through brokers, banks, or other intermediaries, the Notice and voting instruction form would be delivered through the intermediary. Those shareholders could request copies through either the company or the intermediary.

The proposed rules would have no impact on any state law obligation regarding soliciting proxies or holding annual meetings. Further, the proposed rules would not apply to business combination transactions.

Comments on the proposed rules should be received by the Commission within 60 days of their publication in the Federal Register.

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