The SEC has recently approved (i) the adoption of the "mandatory" or "universal" notice-and-access model of proxy distribution (commonly known as "e-proxy") and (ii) the adoption of amendments to Rule 105 of Regulation M to prohibit abusive short selling in the context of public offerings.

Mandatory E-Proxy Requirements

The SEC has adopted voluntary e-proxy requirements pursuant to which public companies and other soliciting persons could choose to use a "notice-and-access" method of proxy distribution to satisfy the SEC's rules regarding the furnishing of proxy materials (other than in the context of business combinations) by giving shareholders notice of the Internet availability of, and online access to, the materials. This voluntary model became effective on July 1, 2007 (the first date that notices of Internet availability could be sent). The SEC has now adopted the mandatory version of these rules.

Under the new mandatory model, companies and soliciting persons must offer the notice-and-access method of distribution for all proxy solicitations (other than with respect to business combinations). As with the voluntary model, shareholders may opt out by requesting paper or e-mail copies of proxy materials from the company, soliciting person or their intermediary, as appropriate. Similarly, although companies and soliciting persons must offer a notice-and-access process, they could additionally continue to send paper copies of proxy materials, if they so choose, because of state law conflicts or otherwise. The SEC has recently become aware of possible conflicts between these e-proxy rules and state law (in particular, California state law) and is considering this issue. The SEC has indicated that it intends to monitor closely the implementation of the e-proxy model in the coming year to see whether any adjustments are necessary.

The mandatory e-proxy model is effective for large accelerated filers (other than registered investment companies), beginning January 1, 2008, and for all other companies and soliciting persons other than the issuer beginning January 1, 2009.

Rule 105 of Regulation M

Amendments to Rule 105 of Regulation M are being adopted by the SEC to make it unlawful for a person to sell short an equity security during the Rule 105 restricted period and then receive an allocation in the public offering of the same security. These rules will be effective 60 days after their publication in the Federal Register. The final rules are being adopted substantially as proposed in December 2006 with a few significant changes.

Under the final rules, persons who sell short during the restricted period may still participate in the public offering if they make a "bona fide" purchase of the same securities before the offering prices. Whether a purchase is "bona fide" will depend on meeting conditions designed to ensure transparency of the purchase and provide time for the effects of the restricted period short sales to dissipate and for market reaction to the purchase.

The final rules include exceptions to Rule 105 for registered investment companies and other related accounts that make investment and trading decisions separate from those of the short seller and without any coordination between the accounts.

The final rules clarify that Rule 105 applies only to the offering of equity securities and to short sales of securities that are the subject of the distribution.

The foregoing is intended as a summary of the rule changes. Please contact Ted Tashlik or Martin Goldwyn if you have specific questions or would like to discuss in greater detail.