Universal Internet Availability of Proxy Materials, 4176-4188 [E7-1184]
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Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Part 240
[Release Nos. 34–55147; IC–27672; File No.
S7–03–07]
RIN 3235–AJ79
Universal Internet Availability of Proxy
Materials
Securities and Exchange
Commission.
ACTION: Proposed rule.
AGENCY:
SUMMARY: We are proposing
amendments to the proxy rules under
the Securities Exchange Act of 1934 that
would require issuers and other
soliciting persons to furnish proxy
materials to shareholders by posting
them on an Internet Web site and
providing shareholders with notice of
the availability of the proxy materials.
In a separate release, we concurrently
are adopting rules that allow issuers and
other soliciting persons to voluntarily
furnish proxy materials to shareholders
in this manner. The proposed
amendments are intended to provide all
shareholders with the ability to choose
the means by which they receive proxy
materials, to expand use of the Internet
to ultimately lower the costs of proxy
solicitations, and to improve
shareholder communications.
DATES: Comments should be received on
or before March 30, 2007.
ADDRESSES: Comments may be
submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form https://www.sec.gov/
rules/proposed.shtml; or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number S7–03–07 on the subject line;
or
• Use the Federal eRulemaking Portal
https://www.regulations.gov. Follow the
instructions for submitting comments.
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Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number S7–03–07. To help us process
and review your comments more
efficiently, please use only one method.
The Commission will post all comments
on its Internet Web site https://
www.sec.gov/rules/proposed.shtml.
Comments also are available for public
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inspection and copying in the
Commission’s Public Reference Room,
100 F Street, NE., Washington, DC
20549. All comments received will be
posted without change; we do not edit
personal identifying information from
submissions. You should submit only
information that you wish to make
publicly available.
FOR FURTHER INFORMATION CONTACT:
Raymond A. Be, Special Counsel, Office
of Rulemaking, Division of Corporation
Finance, at (202) 551–3430, Securities
and Exchange Commission, 100 F
Street, NE., Washington, DC 20549–
3628.
The
Commission is proposing amendments
to Rules 14a–7,1 14a–16,2 14b–1,3 14b–
2,4 14c–2,5 and 14c–3 6 under the
Securities Exchange Act of 1934.7
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Description of the Proposed Amendments
A. Universal Internet Availability Model
for Issuers
B. Implications of the Universal Internet
Availability Model for Intermediaries
C. Universal Internet Availability Model
for Soliciting Persons Other Than the
Issuer
D. Option To Send Full Set of Proxy
Materials With Notice Under the
Universal Internet Availability Model
III. Compliance Dates
IV. General Request for Comment
V. Paperwork Reduction Act
VI. Cost-Benefit Analysis
A. Background
B. Summary of Proposals
C. Benefits
D. Costs
E. Request for Comments
VII. Consideration of Burden on Competition
and Promotion of Efficiency,
Competition and Capital Formation
VIII. Initial Regulatory Flexibility Analysis
A. Reasons for the Proposed Action
B. Objectives
C. Legal Basis
D. Small Entities Subject to the Proposed
Rules
E. Reporting, Recordkeeping and Other
Compliance Requirements
F. Duplicative, Overlapping or Conflicting
Federal Rules
G. Significant Alternatives
H. Solicitation of Comment
IX. Small Business Regulatory Enforcement
Fairness Act
X. Statutory Basis and Text of Proposed
Amendments
1 17
CFR 240.14a–7.
CFR 240.14a–16.
3 17 CFR 240.14b–1.
4 17 CFR 240.14b–2.
5 17 CFR 240.14c–2.
6 17 CFR 240.14c–3.
7 15 U.S.C. 78a et seq.
2 17
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I. Introduction
Currently, issuers decide whether to
provide shareholders with the choice to
receive proxy materials by electronic
means. We are proposing amendments
to the proxy rules that would require
issuers and other soliciting persons to
furnish proxy materials to shareholders
by posting them on an Internet Web site
and providing shareholders with notice
of the availability of the proxy
materials.8 The proposal, if adopted,
would provide all shareholders with the
ability to choose whether to receive
proxy materials in paper, by e-mail or
via the Internet. We believe that
universal Internet availability of proxy
materials has the potential to enhance
significantly the ability of investors to
make informed voting decisions
regarding the securities that they hold.
In a companion release, we are adopting
an Internet availability model that
issuers and other soliciting persons may
follow on a voluntary basis.9 We are
considering making the universal
Internet availability amendments
effective for large accelerated filers, not
including registered investment
companies, on January 1, 2008,10 and
for all other issuers, including registered
investment companies, on January 1,
2009.
II. Description of Proposed
Amendments
Under the proposal, an issuer that is
required to furnish proxy materials to
shareholders under the Commission’s
proxy rules would have to satisfy this
requirement by posting its proxy
materials on a specified, publiclyaccessible Internet Web site (other than
the Commission’s EDGAR Web site) and
providing record holders with a notice
8 For purposes of this release, the term ‘‘proxy
materials’’includes proxy statements on Schedule
14A [17 CFR 240.14a–101], proxy cards,
information statements on Schedule 14C [17 CFR
240.14c–101], annual reports to security holders
required by Rules 14a–3 [17 CFR 240.14a–3] and
14c–3 [17 CFR 240.14c–3] of the Exchange Act,
notices of shareholder meetings, additional
soliciting materials, and any amendments to such
materials. For purposes of this release, the term
does not include materials filed under Rule 14a–12
[17 CFR 240.14a–12].
9 Release No. 34–55146 (Jan. 22, 2007).
10 A large accelerated filer, as defined in
Exchange Act Rule 12b–2 [17 CFR 240.12b–2], is an
issuer that, as of the end of its fiscal year, has an
aggregate worldwide market value of the voting and
non-voting common equity held by its non-affiliates
of $700 million or more, as measured on the last
business day of the issuer’s most recently
completed second fiscal quarter; has been subject to
the requirements of Section 13(a) or 15(d) of the
Exchange Act for a period of at least twelve
calendar months; has filed at least one annual
report pursuant to Section 13(a) or 15(d) of the
Exchange Act; and is not eligible to use Forms 10–
KSB and 10–QSB for its annual and quarterly
reports.
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informing them that the materials are
available and explaining how to access
those materials. Issuers and
intermediaries also would be required to
follow the universal Internet availability
model 11 to furnish proxy materials to
beneficial owners. Shareholders and
other persons conducting their own
proxy solicitations also would be
required to follow the universal Internet
availability model. Shareholders would
retain the ability to request paper or
e-mail copies for a particular meeting or
to make a permanent request for proxy
materials relating to all shareholder
meetings.12 By requiring universal
Internet availability of proxy materials,
the proposed amendments are designed
to enhance the ability of investors to
make informed voting decisions and to
expand use of the Internet to ultimately
lower the costs of proxy solicitations.
A. Universal Internet Availability Model
for Issuers
Under the proposal, an issuer would
be required to comply with the
following requirements, which are
substantially similar to the requirements
that we are adopting under the
voluntary model.13 First, the issuer
would have to send a Notice of Internet
Availability of Proxy Materials
(‘‘Notice’’) to shareholders at least 40
calendar days before the shareholder
meeting date, or if no meeting is to be
held, at least 40 calendar days before the
date that votes, consents, or
authorizations may be used to effect a
corporate action, indicating that the
issuer’s proxy materials are available on
a specified Internet Web site and
explaining how to access those proxy
materials.
The Notice would have to contain the
same information that is required under
the voluntary model, including the
following: 14
• A prominent legend in bold-face
type that states:
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‘‘Important Notice Regarding the Availability
of Proxy Materials for the Shareholder
Meeting to Be Held on [insert meeting date].
• This communication presents only an
overview of the more complete proxy
11 In this release, we are referring to the proposal
as the ‘‘universal Internet availability’’ model. This
model is substantially similar to the ‘‘notice and
access’’ model for electronically furnishing proxy
materials referred to in Release No. 34–55146 that
issuers and other soliciting persons may follow on
a voluntary basis.
12 A shareholder may revoke a permanent
election to receive paper or e-mail copies at any
time.
13 See 17 CFR 240.14a–16 [17 CFR 240.14a–16].
14 Appropriate changes must be made if the issuer
is providing an information statement pursuant to
Regulation 14C or seeking to effect a corporate
action by written consent.
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materials that are available to you on the
Internet. We encourage you to access and
review all of the important information
contained in the proxy materials before
voting.
• The [proxy statement] [information
statement] [annual report to security holders]
[is/are] available at [Insert Web site address].
• If you want to receive a paper or e-mail
copy of these documents, you must request
one. There is no charge to you for requesting
a copy. Please make your request for a copy
as instructed below on or before [Insert a
date] to facilitate timely delivery.’’
• The date, time, and location of the
meeting or, if corporate 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 intended to be
acted on and the issuer’s
recommendations regarding those
matters, but no supporting statements;
• A list of the materials being made
available at the specified Web site;
• (1) A toll-free telephone number; (2)
an e-mail address; and (3) an Internet
Web site address where the shareholder
can request a copy of the proxy
materials, for all meetings and for the
particular meeting to which the Notice
relates;
• Any control/identification numbers
that the shareholder needs to access his
or her proxy card;
• Instructions on how to access the
proxy card, provided that such
instructions do not enable a shareholder
to execute a proxy without having
access to the proxy statement and
annual report; and
• Information about attending the
shareholder meeting and voting in
person.
The Notice would have to be written
in plain English. The Notice may
contain only the information specified
by the rules and any other information
required by state law, if the issuer
chooses to combine the Notice with any
shareholder meeting notice that State
law may require. However, the Notice
may contain a protective warning to
shareholders, advising them that no
personal information other than the
identification or control number is
necessary to execute a proxy. The issuer
would have to file its Notice with the
Commission pursuant to Rule 14a–
6(b) 15 no later than the date that it first
sends the Notice to shareholders.
An issuer would have to make all
proxy materials identified in the Notice
publicly accessible, free of charge, at the
Web site address specified in the Notice
on or before the date that the Notice is
sent to the shareholder. The specified
15 17
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CFR 240.14a–6(b).
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Web site may not be the Commission’s
EDGAR system. The issuer also would
have to post any subsequent additional
soliciting materials on the Web site no
later than the date on which such
materials are first sent to shareholders
or made public. The materials would
have to be presented on the Web site in
a format, or formats, convenient for both
reading online and printing on paper.16
The proxy materials would have to
remain available on that Web site
through the conclusion of the
shareholder meeting. An issuer also
would have to provide shareholders
with a method to execute proxies as of
the time the Notice is first sent to
shareholders. It may do so through a
variety of methods, including providing
an electronic voting platform or a tollfree telephone number for voting.17
An issuer would be required to
provide copies at no charge to
requesting shareholders. It also would
have to allow shareholders to make a
permanent election to receive paper or
e-mail copies of proxy materials
distributed in connection with future
proxy solicitations of the issuer.
Further, the issuer would have to
provide a toll-free telephone number, email address, and Internet Web site
address as a means by which a
shareholder could request a copy of the
proxy materials for the particular
shareholder meeting referenced in the
Notice or make a permanent election to
receive copies of the proxy materials on
a continuing basis with respect to all
meetings. The issuer also may include a
pre-addressed, postage-paid reply card
with the Notice that shareholders could
use to request a copy of the proxy
materials.
An issuer would not be permitted to
send a proxy card to a shareholder until
10 calendar days or more after the date
it sent the Notice to the shareholder,
unless the proxy card is accompanied or
preceded by a copy of the proxy
statement and any annual report to
security holders sent via the same
medium. Issuers would be able to
household the Notice and other proxy
materials pursuant to Rule 14a–3(e).18
An issuer would have to maintain the
Internet Web site on which it posts its
proxy materials in a manner that does
not infringe on the anonymity of a
person accessing that Web site.19 An
issuer also could not use any
e-mail address provided by a
16 See
Section II.A.3 of Release 34–55146.
noted above, such a telephone number may
appear on the Web site, but not on the Notice.
18 17 CFR 240.14a–3(e).
19 See Section II.A.1.b.iii of Release No. 34–
55146.
17 As
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shareholder solely to request a copy of
proxy materials for any purpose other
than to send a copy of those materials
to that shareholder. The issuer also may
not disclose a shareholder’s e-mail
address to any person other than the
issuer’s employee or agent to the extent
necessary to send a copy of the proxy
materials to a requesting shareholder.
An issuer could not use the universal
Internet availability model in the
context of a business combination
transaction.
Request for Comment
• What advantages would universal
Internet availability of proxy materials
have for investors, issuers and other
soliciting persons? What disadvantages
could the proposal have? How could
any potential disadvantages be
mitigated?
• Should we require issuers to follow
the universal Internet availability model
as proposed? If not, why not? Would
requiring issuers to follow the universal
Internet availability model impose
significant costs on issuers? If so, what
would they be? How could the proposal
be modified to mitigate these costs?
Would requiring issuers to follow the
universal Internet availability model
positively or negatively affect
shareholder voting participation rates?
• Should we exempt certain types of
issuers from the proposed universal
Internet availability model? For
example, should we exempt small
business issuers? Should we require
mutual funds, closed-end funds,
business development companies and
other investment companies to follow
the model? Should the model be equally
applicable to all types of shareholders
and/or all types of solicitations except
those relating to business combination
transactions?
• Under the voluntary model, an
issuer may choose not to rely on the
universal Internet availability model if it
conflicts with state law. We are not
aware of any state law conflicts. Are
there any state laws that would conflict
with the universal Internet availability
model?
• Should we modify any aspects of
the universal Internet availability
model? If so, how should the model be
modified and why? Should there be any
changes to the timeframes for sending
the Notice, the contents of the Notice or
the types of materials that can be sent
with the Notice? Should any revisions
be made to the Web site posting
requirements or the requirements to
send copies upon request?
• Some proxy solicitations are not
subject to the requirements of Section
14(a) of the Exchange Act, such as proxy
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solicitations with respect to foreign
private issuers. However, we
understand that proxy solicitations
relating to foreign private issuers
generally are processed and distributed
in accordance with the same procedures
set forth in our proxy rules because
intermediaries and their agents are not
able to apply cost-effectively different
procedures to exempt proxy
solicitations. Would a universal Internet
availability model create a burden on
those issuers who are not subject to
Section 14(a)? If so, how can those
burdens best be addressed?
B. Implications of the Universal Internet
Availability Model for Intermediaries
With respect to beneficial owners, the
issuer or other soliciting person would
have to provide each intermediary with
the information necessary to prepare the
intermediary’s Notice in sufficient time
for the intermediary to prepare and send
its Notice to beneficial owners at least
40 calendar days before the shareholder
meeting date.20 The intermediary’s
Notice would contain generally the
same types of information as an issuer’s
Notice, but would be tailored
specifically for beneficial owners.21
Intermediaries would be required to
prepare and send this tailored Notice to
beneficial owners. The intermediaries
also would be required to forward paper
or e-mail copies to beneficial owners
upon request. Finally, intermediaries
would have to post their requests for
voting instructions on an Internet Web
site, permit shareholders to make a
permanent election to receive paper or
e-mail copies of the proxy materials,
keep records of those elections, and
deliver copies of the proxy materials
according to those elections.
Request for Comment
• Should we make any modifications
to the universal Internet availability
model as it would apply to
intermediaries if we adopt this
proposal? If so, how should the model
be modified and why? Should there be
any changes to the timeframes for
sending the intermediary’s Notice, the
20 A soliciting person other than the issuer must
provide intermediaries with such information in
sufficient time for the intermediaries to prepare and
send the intermediary’s Notice by the later of: (1)
40 calendar days prior to the security holder
meeting date or, if no meeting is to be held, 40
calendar days prior to the date the votes, consents,
or authorizations may be used to effect the
corporate action; or (2) 10 calendar days after the
date that the registrant first sends its proxy
statement or Notice of Internet Availability of Proxy
Materials to security holders. See Rule 14a–16(l)(2)
[17 CFR 240.14a–16(l)(2)].
21 For a more complete discussion of the content
of the intermediary’s Notice, see Section II.B.2 of
Release No. 34–55146.
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contents of the intermediary’s Notice or
the types of materials that could be sent
with the Notice? Should any revisions
be made to the Web site posting
requirements or the requirements to
send copies upon request?
C. Universal Internet Availability Model
for Soliciting Persons Other Than the
Issuer
A soliciting person other than the
issuer also would be required to follow
the universal Internet availability
model. Consistent with the existing
proxy rules and the voluntary model,
the proposed rules treat such soliciting
persons differently from the issuer in
certain respects.
First, a soliciting person is not
required to solicit every shareholder. It
may select the specific shareholders
from whom it wishes to solicit proxies.
Under the proposed universal Internet
availability model, a soliciting person
other than the issuer would be able to
choose to send Notices only to those
shareholders who have not previously
requested paper copies.22
Second, soliciting persons other than
the issuer would be required to send a
Notice to shareholders by the later of:
• 40 calendar days prior to the
shareholder meeting date or, if no
meeting is to be held, 40 calendar days
prior to the date that votes, consents, or
authorizations may be used to effect the
corporate action; or
• 10 calendar days after the date that
the issuer first sends its proxy materials
to shareholders.
Finally, if at the time the Notice is
sent, a soliciting person other than the
issuer is not aware of all matters on the
shareholder meeting agenda, the Notice
would have to provide a clear and
impartial identification of each separate
matter to be acted upon at the meeting,
to the extent known by the soliciting
person. The soliciting person’s Notice
also would have to include a clear
statement that there may be additional
agenda items that the soliciting person
is unaware of, and that the shareholder
cannot direct a vote for those items on
the soliciting person’s proxy card
provided at that time. If a soliciting
person other than the issuer sends a
proxy card that does not reference all
matters that shareholders will act upon
at the meeting, the Notice would have
22 Under Rule 14a–7 [17 CFR 240.14a–7], an
issuer is required to either mail the Notice on behalf
of the soliciting person, in which case the soliciting
person can request that the issuer send Notices only
to shareholders who have not requested paper
copies, or provide the soliciting person with a
shareholder list, indicating which shareholders
have requested paper copies. For a more complete
discussion of the interaction of the model with Rule
14a–7, see Section II.C.4 of Release No. 34–55146.
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to clearly state whether execution of the
proxy card would invalidate a
shareholder’s prior vote using the
issuer’s card on matters not presented
on the soliciting person’s proxy card.
Request for Comment
• Should we require soliciting
persons other than the issuer to follow
the universal Internet availability
model? If not, why not? Would the
universal Internet availability model
impose significant costs on soliciting
persons other than the issuer? If so,
what would they be and how could they
be mitigated?
• Rule 14a–2(a)(6) 23 permits a
soliciting person to solicit proxies
without otherwise complying with
Rules 14a–3 through 14a–15 24 by
placing a newspaper advertisement
which does no more than inform
shareholders of (1) a source from which
they may obtain copies of a proxy
statement, proxy card and other
soliciting materials, (2) the name of the
issuer, (3) the reason for the
advertisement, and (4) the proposals to
be acted upon by shareholders. Should
the universal Internet availability model
apply to such solicitations? If so, how
should it apply? In light of the
amendments, should we keep such a
model available to soliciting persons?
• Should we make any revisions to
Rule 14a–7 to accommodate the
universal Internet availability model?
• If we adopt the universal Internet
availability model, should we modify
any aspects of the model as it relates to
soliciting persons other than the issuer?
If so, how should the proposed model
be modified and why? Should there be
any changes to the timeframes for
sending the Notice, the contents of the
Notice or the types of materials that can
be sent with it? Should any revisions be
made to the Web site posting
requirements or the requirements to
send copies upon request?
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D. Option To Send Full Set of Proxy
Materials With Notice Under the
Universal Internet Availability Model
Under the voluntary model that we
are adopting, issuers or other soliciting
persons are obligated to provide a paper
or e-mail copy of the proxy materials
upon request to a shareholder to whom
they have provided a Notice. Issuers and
other soliciting persons are not allowed
to send the Notice with any document
other than a notice of shareholder
meeting required under state law and a
pre-printed, postage-paid reply card for
23 17
24 17
CFR 240.14a–2(a)(6).
CFR 240.14a–3 through 240.14a–15.
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a shareholder to request a copy of the
proxy materials.
Under the proposed universal Internet
availability model, a full set of proxy
materials, including a proxy statement,
annual report (if required), and proxy
card or request for voting instructions
could accompany the Notice that is sent
to shareholders and beneficial owners.25
This would allow an issuer or other
soliciting person that wants to furnish
paper copies of the proxy materials to
some or all of its shareholders in the
first instance to do so in one delivery
with the Notice. This is different from
the voluntary notice and access model
because presumably an issuer or
soliciting person would not choose to
rely on the model if it intended to
furnish paper copies of the proxy
materials to all of the shareholders it
was soliciting. As this proposal would
require an issuer to follow the universal
Internet availability model, it is
necessary to expressly provide a means
for issuers that also wish to send paper
copies of the proxy materials along with
the Notice as part of the same delivery
package to shareholders to do so under
the model.
The proposal would not permit an
issuer or other soliciting person to
initially send the Notice with other
proxy materials, unless it is
accompanied by a full set of proxy
materials.26 For example, an issuer or
other soliciting person would not be
permitted to send initially only the
Notice and a proxy card to
shareholders.27 Instead, it would have to
send a full set of proxy materials with
the Notice, or send only the Notice. An
issuer or other soliciting person
choosing to deliver a full set of proxy
materials with the Notice would be
permitted to revise its Notice to delete
any reference to a shareholder’s right to
request copies of the materials because
all required proxy materials already
would have been sent to shareholders.
If an issuer or other soliciting person
sends a full set of the proxy materials
with the Notice, it need not comply
with the deadlines in Rule 14a–16 for
sending the Notice. Thus, if an issuer is
25 The requirement in Exchange Act Rules 14a–
3(b) and 14c–3(a) to furnish annual reports to
security holders does not apply to registered
investment companies [17 CFR 240.14a–3(b) and
240.14c–3(a)]. A soliciting person other than the
issuer also is not subject to this requirement.
26 A ‘‘full set’’ of proxy materials would contain
(1) a proxy statement or information statement, (2)
an annual report if one is required by Rule 14a–3(b)
or Rule 14c–3(a), and (3) a proxy card or, in the case
of a beneficial owner, a request for voting
instructions, if proxies are being solicited.
27 However, it may send the Notice and proxy
card together 10 calendar days or more after it
initially sends the Notice. See Rule 14a–16(h) [17
CFR 240.14a–16(h)].
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unable or unwilling to meet the 40-day
deadline, it still may begin its
solicitation after that deadline provided
that it accompanies its Notice with a full
set of the proxy materials. Similarly, a
soliciting person other than the issuer
that fails to send its Notice by the later
of 40 calendar days before the meeting
date or 10 calendar days after the issuer
first sends it proxy materials could
begin its solicitation after that deadline
if it accompanies its Notice with a full
set of proxy materials.
We also propose to permit a registered
investment company to send its
prospectus and/or report to
shareholders together with the Notice,
with or without the proxy statement and
form of proxy. While the proxy rules do
not require registered investment
companies to furnish annual reports to
security holders with their proxy
materials, under the Investment
Company Act of 1940, registered
investment companies are required to
transmit a report to shareholders at least
semi-annually.28 In addition, many
mutual funds send their prospectuses to
their existing shareholders annually in
order to meet prospectus delivery
obligations with respect to additional
share purchases. Without our proposal
for registered investment companies,
they would be required to deliver both
their prospectuses and shareholder
reports separately from the Notice,
which could result in increased costs to
fund shareholders.
Request for Comment
• Should issuers and other soliciting
persons be allowed to accompany the
Notice with a full set of proxy materials?
• Is there potential for confusion if
issuers and other soliciting persons
choose to deliver to shareholders a full
set of proxy materials in paper, but also
send a Notice to them? If an issuer
chooses to send a full set of the proxy
materials with the Notice to a
shareholder under this option, should
the rules permit the issuer to
incorporate the information required in
the Notice into the proxy statement or
some other document, rather than
prepare a separate Notice?
• Should issuers, soliciting persons
and intermediaries be permitted to
remove the right to request copies if a
full set of the proxy materials is
included with the Notice, as proposed?
• Should registered investment
companies be permitted to accompany
the Notice with a prospectus and/or
report to shareholders? If so, should
they be permitted to do this without
also including a proxy statement and
28 15
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form of proxy? Is there any other
category of issuer for which a similar
accommodation would be appropriate?
• The proposed deadlines for sending
the Notice are intended to provide
shareholders with sufficient time to
request copies. If an issuer or other
soliciting person is unable to meet the
deadlines under the universal Internet
availability model, should either be
permitted to begin its solicitation after
those deadlines have passed if a full set
of proxy materials accompanied the
Notice, as proposed?
• If an issuer or other soliciting
person elected to send a full set of proxy
materials with the Notice, should it be
permitted to include additional
soliciting materials with the Notice as
well?
• Are there any complications that
might arise with respect to
intermediaries by providing issuers and
other soliciting persons the option to
provide a full set of proxy materials? If
so, how could these complications be
addressed?
III. Compliance Dates
Issuers and other soliciting persons
may begin complying with the
voluntary model on July 1, 2007. We are
soliciting comment on compliance dates
for the universal Internet availability
model. If adopted, we are considering
making the universal Internet
availability model effective for large
accelerated filers, not including
registered investment companies, on
January 1, 2008, and for all other
issuers, including registered investment
companies, on January 1, 2009. Such a
tiered compliance regime may lessen
any burden imposed by requiring
smaller companies to follow the model.
In determining an appropriate
compliance date for the universal
Internet availability model, we are
considering the extent to which we will
be able to study the implementation of
the voluntary model before adopting the
universal Internet availability model.
The industry’s experience with these
models will provide information on
whether the rules are achieving their
intended purposes. We welcome
information from issuers and all other
parties involved in the proxy
distribution process. This information
would include:
• The ability of issuers to provide
shareholders with qualitatively better
disclosure using the additional features
available on the Internet, including
XBRL, graphical, comparative and
interactive features;
• The extent to which issuers and
other soliciting persons avail themselves
of opportunities to exploit other linked
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data and resources, and make these
available to shareholders in ways that
are not possible with printed material;
• The impact on shareholder
understanding of complex material;
• The effect of the model on proxy
voting;
• The impact on costs of proxy
solicitation;
• Shareholder voting data before and
after adoption, including data on
shareholder voting participation rates;
• The number of paper copies of
proxy materials requested by
shareholders;
• Any problems encountered with
implementing the program, including
problems encountered by smaller
issuers; and
• Shareholder satisfaction with their
choices of ways to communicate with
the company.
Request for Comment
• What compliance dates would be
appropriate for the universal Internet
availability model? Should we permit at
least one proxy season under the
voluntary model to pass before requiring
use of the universal Internet availability
model? What compliance dates would
give us and the market sufficient time to
examine the performance of the
voluntary model if we decide to convert
to the universal Internet availability
model after January 1, 2008?
• Should we adopt a tiered system of
compliance dates for compliance with
the universal Internet availability
model, as we are considering doing? For
example, should we require that some
class of issuer, such as large accelerated
filers, comply with the universal
Internet availability model initially, and
that other filers comply at a later date?
If so, what should those dates be and
which category of filers should go first?
• If we were to adopt a tiered system
of compliance dates, how many tiers
should there be? What would be the
appropriate classes (e.g., large
accelerated filers, accelerated filers, or
small business issuers) for each tier?
Should we divide issuers differently?
• What compliance dates would be
appropriate for mutual funds, closedend funds, business development
companies, and other investment
companies?
• Should there be a different
compliance date for soliciting persons
other than issuers? If so, why and what
compliance dates would be appropriate?
IV. General Request for Comment
We request and encourage any
interested person to submit comments
regarding:
(1) The proposed changes that are the
subject of this release,
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(2) Additional or different changes, or
(3) Other matters that may have an
effect on the proposals contained in this
release.
With regard to any comments, we note
that such comments are of greatest
assistance to our rulemaking initiative if
accompanied by supporting data and
analysis of the issues addressed in those
comments.
V. Paperwork Reduction Act
Certain provisions of the amendments
contain ‘‘collection of information’’
requirements within the meaning of the
Paperwork Reduction Act of 1995
(‘‘PRA’’), including preparation of
Notices, maintaining Web sites,
maintaining records of shareholder
preferences, and responding to requests
for copies. The titles for the collections
of information are: 29
Regulation 14A (OMB Control No.
3235–0059)
Regulation 14C (OMB Control No.
3235–0057)
We requested public comment on
these collections of information in the
release proposing the notice and access
model as a voluntary model for
disseminating proxy materials,30 and
submitted them to the Office of
Management and Budget (‘‘OMB’’) for
review in accordance with the PRA. We
received approval for the collection of
information. We are submitting a
revised PRA analysis to OMB in
conjunction with the release adopting
the notice and access model as a
voluntary model. In that release, we
assumed conservatively that all issuers
and other persons soliciting proxies
would follow the voluntary model
because the proportion of issuers and
other soliciting persons that would elect
to follow the model was uncertain.
The proposed rules would require all
issuers and other soliciting persons to
follow the model. Therefore, our
preliminary estimate is that the rule
amendments that we are proposing in
this release will not impose any new
recordkeeping or information collection
requirements beyond those described in
29 In connection with the proposing release for
the voluntary model, we described the proposed
Notice of Internet Availability of Proxy Materials as
a new collection of information, rather than a part
of our existing collections of information related to
Regulations 14A and 14C. However, we
subsequently submitted to OMB a PRA analysis
based on revisions to the Regulation 14A and
Regulation 14C collections. Although we did not
revise our burden estimates associated with the
Notice, the collection of information approved by
OMB related to revisions to existing collections of
information (Regulations 14A and 14C) and
therefore we refer to those collections of
information in this PRA discussion.
30 Release No. 34–52926 (Dec. 8, 2005) [70 FR
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the release adopting the voluntary
model, or necessitate revising the
burden estimates for any existing
collections of information requiring
OMB’s approval. Further, our
preliminary estimate is that the one
significant modification to the notice
and access model we are proposing for
the universal Internet availability
model, the option to provide a full set
of proxy materials with the Notice, does
not require us to modify our burden
estimates for the Regulation 14A and
14C collections of information. We
solicit comment on the accuracy of our
estimate that no additional
recordkeeping or information collection
requirements or changes to existing
collection requirements would result
from the proposed amendments.
VI. Cost-Benefit Analysis
A. Background
We are proposing revisions to the
proxy rules under the Exchange Act to
require issuers and other soliciting
persons to follow the universal Internet
availability model for furnishing proxy
materials. The proposed amendments
are intended to provide all shareholders
with the ability to choose the means by
which they receive proxy materials, to
expand use of the Internet to ultimately
lower the costs of proxy solicitations,
and to improve shareholder
communications.
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B. Summary of Proposals
The proposals would provide a
universal Internet availability model
that would require issuers and other
soliciting persons to furnish proxy
materials by posting them on a
specified, publicly-accessible Internet
Web site (other than the Commission’s
EDGAR Web site) and providing
shareholders with a notice informing
them that the materials are available and
explaining how to access them. Under
this model, shareholders may request
copies of the proxy materials from the
issuer. Shareholders receiving a Notice
from a soliciting person other than the
issuer may also request copies from that
person. However, neither an issuer nor
a soliciting person other than the issuer
would have to provide copies on request
if it chooses to send a full set of proxy
materials, including the proxy
statement, annual report (if required)
and proxy card, with the Notice. The
proposals also would require
intermediaries to follow similar
procedures to provide beneficial owners
with access to the proxy materials.
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C. Benefits
Currently, issuers decide whether to
provide shareholders with the choice to
receive proxy materials by electronic
means. The proposed amendments are
intended to provide all shareholders
with the ability to choose the means by
which they receive proxy materials, to
expand use of the Internet to lower the
costs of proxy solicitations, and to
improve shareholder communications.
The proposed amendments, if adopted,
would provide all shareholders with the
ability to choose whether to receive
proxy materials in paper, by e-mail or
via the Internet. As technology
continues to progress, accessing the
proxy materials on the Internet should
increase the utility of our disclosure
requirements to shareholders.
Information in electronic documents is
often more easily searchable than paper
documents. Users are better able to go
directly to any section of the document
that they believe to be the most
important. They also permit users to
more easily manipulate data and enter
data into analytical tools such as
spreadsheet programs. Such tools enable
users to compare relevant data about
several companies more easily.
In addition, encouraging shareholders
to use the Internet in the context of
proxy solicitations may encourage
improved shareholder communications
in other ways. Electronic innovations
such as Internet chat rooms and bulletin
boards may enhance shareholders’
ability to communicate not only with
management, but with each other. Such
direct access may improve shareholder
relations to the extent shareholders feel
that they have enhanced access to
management. Centralizing an issuer’s
disclosure on a Web site may facilitate
shareholder access to other important
information, such as research reports
and news concerning the issuer. We
believe that migrating proxy disclosure
to the Internet and uniform use of the
Internet for that purpose could
ultimately lower the cost of soliciting
proxies for all issuers.
In terms of paper processing alone,
the benefits of the rule amendments are
limited by the volume of paper
processing that would occur otherwise.
As we note in the companion adopting
release, Automatic Data Processing, Inc.
(ADP) handles the vast majority of
proxy mailings to beneficial owners.31
ADP publishes statistics that provide
useful background for evaluating the
likely consequences of the rule
amendments. ADP estimates that,
31 We expect savings per mailing to record
holders to roughly correspond to savings per
mailing to beneficial owners.
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4181
during the 2006 proxy season,32 over
69.7 million proxy material mailings
were eliminated through a variety of
means, including householding and
existing electronic delivery methods.
During that season, ADP mailed 85.3
million paper proxy items to beneficial
owners. ADP estimates that the average
cost of printing and mailing a paper
copy of a set of proxy materials during
the 2006 proxy season was $5.64. We
estimate that issuers and other soliciting
persons spent, in the aggregate, $481.2
million in postage and printing fees
alone to distribute paper proxy
materials to beneficial owners.33
Approximately 50% of all proxy pieces
mailed by ADP in 2005 were mailed
during the proxy season.34 Therefore,
we estimate that issuers and other
persons soliciting proxies from
beneficial owners spent approximately
$962.4 million in 2006 in printing and
mailing costs.35
In the companion adopting release,
we based our estimates on an
assumption that issuers representing
between 10% and 50% of proxy
mailings would follow the notice and
access model. Under our proposed
universal Internet availability model, we
estimate that the paper-related savings
would be similar for firms that choose
to mail full sets of proxy materials only
to those investors who request them.
Issuers that choose to mail full sets of
proxy materials with the Notice would
not realize any paper-related savings.
Based on the assumption that 19% of
shareholders would choose to have
paper copies sent to them when an
issuer relies on the notice and access
model, we estimate that the proposal
could produce annual paper-related
savings ranging from $48.3 million (if
issuers who are responsible for 10% of
all proxy mailings choose to mail proxy
materials only to those who request
them) to $241.4 million (if issuers who
are responsible for 50% of all proxy
mailings choose to mail proxy materials
only to those who request them).36 This
32 According to ADP data, the 2006 proxy season
extended from February 15, 2006 to May 1, 2006.
33 85.3 million mailings × $5.64/mailing = $481.2
million.
34 According to ADP, in 2005, 90,013,175 of
179,833,774, or 50%, of proxy pieces were mailed
during the 2005 proxy season.
35 $481.2 million/50% = $962.4
million.
36 This range of potential cost savings depends on
data on proxy material production, home printing
costs, and first-class postage rates provided by
Lexecon and ADP, and supplemented with modest
2006 USPS postage rate discounts. The fixed costs
of notice and proxy material production are
estimated to be $2.36 per shareholder. The variable
costs of fulfilling a paper requests, including
handling, paper, printing and postage, are estimated
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estimate excludes the effect of the
provision of the amendments that
would allow shareholders to make a
permanent request for paper copies.
That provision would enable issuers
and other soliciting persons to take
advantage of bulk printing and mailing
rates for those requesting shareholders,
and therefore should reduce the ondemand costs reflected in these
calculations.
We estimate that approximately 19%
of shareholders would request paper
copies. Commenters on the initial
Internet availability proposal provided
alternate estimates. For example,
Computershare, a large transfer agent,
estimated that less than 10% of
shareholders would request paper
copies.37 According to a survey
conducted by Forrester Research for
ADP, 12% of shareholders report that
they would always take extra steps to
get their proxy materials, and as many
as 68% of shareholders report that they
would take extra steps to get their proxy
materials in paper at least some of the
time. The same survey also finds that
82% of shareholders report that they
look at their proxy materials at least
some of the time. These survey results
suggest that shareholders may review
proxy materials even if they do not vote.
During the 2005 proxy season, only 44%
of accounts were voted by beneficial
owners. Put differently, 56%, or 84.8
million accounts, did not return
requests for voting instructions. Our
estimate that 19% of shareholders
would request paper copies reflects the
diverse estimates suggested by the
available data.
Although we expect the savings to be
significant, the actual paper-related
benefits would be influenced by several
factors that we estimate would become
less important over time. First, to the
extent that some shareholders request
paper copies of the proxy materials, the
benefits of the amendments in terms of
savings in printing and mailing costs
would be reduced. Issuers are
concerned that the cost per paper copy
would be significantly greater if they
have to mail copies of paper proxy
to be $6.11 per copy requested. Assumptions about
percentages of shareholders requesting paper copies
are derived from Forrester survey data furnished by
ADP and adjusted for the reported likelihood that
an investor will take extra steps to get proxy
materials. Our estimate of the total number of
shareholders is based on data provided by ADP and
SIA. According to SIA’s comment letter, 78.49% of
shareholders held their shares in street name. We
estimate that the total number of proxy pieces
mailed equals the number of pieces mailed to
beneficial shareholders by ADP in 2005 divided by
78.49%, which equals 179,833,774 / 78.49%, or
229,116,797.
37 See letter from Computershare.
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materials to shareholders on an ondemand basis, rather than mailing the
paper copies in bulk. Thus, if a
significant number of shareholders
request paper, the savings would be
substantially reduced. Second, issuers
may face a high degree of uncertainty
about the number of requests that they
may get for paper proxy materials and
may maintain unnecessarily large
inventories of paper copies as a
precaution. As issuers gain experience
with the number of sets of paper
materials that they need to supply to
requesting shareholders, and as
shareholders become more comfortable
with receiving disclosures via the
Internet, the number of paper copies is
likely to decline, as would issuers’
tendency to print many more copies
than ultimately are requested. This
would lead to growth in paper-related
savings from the rule amendments over
time.
Additional benefits would accrue
from reductions in the costs of proxy
solicitations by persons other than the
issuer. Under the proposal, persons
other than the issuer also can rely on the
notice and access model, but would be
able to limit the scope of their proxy
solicitations to shareholders who have
not requested paper copies of the proxy
materials. We expect that the flexibility
afforded to persons other than the issuer
under the proposal ultimately would
reduce the cost of engaging in proxy
contests, thereby increasing the
effectiveness and efficiency of proxy
contests as a source of discipline in the
corporate governance process.
The effect of the amendments of
lessening the costs associated with a
proxy contest would be limited by the
persistence of other costs. One
commenter on the proposed voluntary
model noted that a large percentage of
the costs of effecting a proxy contest go
to legal, document preparation, and
solicitation fees, while a much smaller
percentage of the costs is associated
with printing and distribution of
materials.38 However, other commenters
suggested that the paper-related cost
savings that can be realized from the
rule amendments are substantial enough
to change the way many contests are
conducted.39
Finally, some benefits from the
proposal may arise from a reduction in
what may be regarded as the
environmental costs of the proxy
solicitation process.40 Specifically,
proxy solicitation involves the use of a
38 See
letter from ADP.
letters from CALSTRS, Computershare,
ISS, and Swingvote.
40 See letter from American Forests.
39 See
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significant amount of paper and printing
ink. Paper production and distribution
can adversely affect the environment,
due to the use of trees, fossil fuels,
chemicals such as bleaching agents,
printing ink (which contains toxic
metals), and cleanup washes. To the
extent that paper producers internalize
these costs and the costs are reflected in
the price of paper and other materials
consumed during the proxy solicitation
process, our dollar estimates of the
paper-related benefits reflect the
elimination of these adverse
environmental consequences under the
proposed amendments.
D. Costs
An issuer’s compliance with the
proposed model, if adopted, would
introduce several new costs into the
process of proxy distribution for issuers
that otherwise would choose not to
follow the notice and access model
voluntarily and their shareholders,
including the following: (1) The cost of
posting proxy materials on an Internet
Web site and providing a means to vote
on that Web site; (2) the cost of
preparing, producing, and sending the
Notice to shareholders; (3) the cost of
processing shareholders’ requests for
copies of the proxy materials and
maintaining their permanent election
preferences; and (4) the cost to
shareholders of printing proxy materials
at home that would otherwise be
printed by issuers.
Under the proposed rules, issuers and
other soliciting persons would be
required to post their materials on an
Internet Web site and provide a means
to vote on that Web site. We believe the
cost of obtaining a Web site and posting
materials on it would be minimal to
issuers and other soliciting persons. The
rules do not require elaborate Web site
design. Posting a document on such a
Web site and providing a means to vote,
such as posting a telephone number on
that Web site for voting, is a fairly
simple and inexpensive process. We
believe the costs of these requirements
would be minimal.
A soliciting person, including an
issuer, would be required to provide a
means to vote on the Internet Web site.
Although, as noted above, posting a
telephone number on a Web site would
impose minimal cost, the soliciting
person would have to have a means for
collecting those votes. Thus, at a
minimum, the soliciting person would
have to provide an automated system for
collecting votes, either over the Internet
or by telephone, or have people staffing
telephones to receive the votes. We are
soliciting comment on the cost of
establishing such mechanisms for
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accepting votes. An issuer would also
have to maintain records of
shareholders who have requested paper
or e-mail copies for all future
solicitations. In the companion release
adopting the voluntary notice and
access model, we estimated that this
cost to issuers and intermediaries would
be approximately $9,977,500.41
Under the proposed rules,
intermediaries would be required to
follow similar requirements as would
issuers, including preparing Notices,
providing a means to vote and
maintaining records of shareholders
who have requested paper or e-mail
copies for future solicitations. We are
soliciting comment on those costs as
well.
As we stated in the companion
adopting release, the paper-related
savings to issuers and other soliciting
persons discussed under the benefits
section above are adjusted for the cost
of printing and sending Notices. If
Notices are sent by mail, then the
mailing costs may vary widely among
parties. Postage rates likely would vary
from $0.14 to $0.39 per Notice mailed,
depending on numerous factors. In our
estimates of the paper-related benefits
above, we assume that each Notice costs
a total of $0.13 to print and $0.29 to
mail. Based on data from ADP and SIA,
we estimate that issuers and other
soliciting persons send a total of
229,116,797 accounts processed per
year.42 In the companion release, we
assume that only those firms that choose
to adopt the notice and access model
would incur these printing and mailing
costs. Under the proposed universal
Internet availability model, all issuers
would be required to furnish each of its
shareholders with a copy of the Notice.
Firms that choose to mail full sets of
proxy materials only to those investors
who request them would incur the
printing cost and cost of mailing the
Notice separately from the proxy
materials. Firms that choose to mail full
sets of proxy materials with the Notice
would incur the printing costs, but not
the additional mailing cost. These
printing costs represent the incremental
cost of moving to universal Internet
availability from the model in the
41 In that release, we estimated that issuers and
intermediaries would spend a total of 79,820 hours
of issuer and intermediary personnel time
maintaining these records. We estimated the
average hourly cost of issuer and intermediary
personnel time to be $125, resulting in a total cost
of $9,977,500 for issuer and intermediary personnel
time. See Release No. 34–55146.
42 See www.ics.adp.com/release11/public_site/
about/stats.html stating that ADP handled
179,833,774 in fiscal year 2005 and letter from SIA
stating that beneficial accounts represent 78.49% of
total accounts.
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companion adopting release. If issuers
who are responsible for 10% of all
current proxy mailings choose to mail
full sets of proxy materials only to those
investors who request them, the
remaining 90% of issuers would incur
the total cost of $26.8 million to print
the Notice. If issuers who are
responsible for 50% of all current proxy
mailings choose to mail full sets of
proxy materials only to those investors
who request them, the remaining 50%
of issuers would incur the total cost of
$14.9 million to print the Notice.43
The universal Internet availability
model also requires minimal added
disclosures in the form of a Notice to
shareholders, informing them that the
proxy materials are available at a
specified Internet Web site. In the
companion adopting release, we
assumed, for purposes of the PRA, that
all issuers and other soliciting persons
would elect to follow the procedures,
resulting in a total estimated cost to
prepare the Notice of approximately
$2,020,475.44 Based on the percentage
of issuers that we estimated would
adopt the notice and access model,
these costs could range between
$1,010,238 (if 50% of issuers adopted
the notice and access model) and
$1,818,432 (if 10% of issuers adopted
the notice and access model). The
proposal also would require issuers and
intermediaries to maintain records of
shareholders who have requested paper
and e-mail copies for future proxy
solicitations. We estimate that this total
cost to all issuers and intermediaries
would be approximately $9,977,500,45
with an incremental cost due to the
proposals of $4,988,750 (if 50% of
issuers adopted the notice and access
model voluntarily), and $8,977,500 (if
43 90% × 229,116,797 × $0.13 = $26.8 million;
50% × 229,116,797 × $0.13 = $14.8 million; We
assume that the additional cost of mailing the
Notice together with the full set of proxy materials
is negligible.
44 In the companion adopting release, we
estimated, for PRA purposes, that issuers would
spend a total of $897,975 on outside professionals
to prepare this disclosure. We also estimated that
issuers would spend a total of 8,980 hours of issuer
personnel time preparing this disclosure. We
estimated the average hourly cost of issuer
personnel time to be $125, resulting in a total cost
of $1,122,500 for issuer personnel time. This results
in a total cost of $2,020,475 for all issuers. The costs
for posting the materials on a Web site are included
in this calculation.
45 In the companion adopting release, we
estimated, for PRA purposes, that issuers and
intermediaries would spend a total of 79,820 hours
of issuer and intermediary personnel time
maintaining these records. We estimated the
average hourly cost of issuer and intermediary
personnel time to be $125, resulting in a total cost
of $9,977,500 for issuer and intermediary personnel
time.
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10% of issuers adopted the notice and
access model voluntarily).
Issuers and their intermediaries
would incur additional processing costs
if the proposal is adopted. The proposal
would require an intermediary such as
a bank, broker-dealer, or other
association to follow the proposed
model if an issuer so requests. An
intermediary that follows the proposed
model would be required to prepare its
own Notice to beneficial owners, along
with instructions on when and how to
request paper copies and the website
where the beneficial owner can access
his or her request for voting
instructions. Since issuers reimburse
intermediaries for their reasonable
expenses of forwarding proxy materials
and intermediaries and their agents
already have systems to prepare and
deliver requests for voting instructions,
we do not expect the involvement of
intermediaries in sending their Notices
to significantly affect the costs
associated with the proposal.
Under the proposed model, a
beneficial owner would be required to
request a copy of proxy materials from
its intermediary. The costs of collecting
and processing requests from beneficial
owners may be significant, particularly
if the intermediary receives the requests
of beneficial owners associated with
many different issuers that specify
different methods of furnishing the
proxy. We expect that these processing
costs would be highest in the first year
after adoption but would subsequently
decline as intermediaries develop the
necessary systems and procedures and
as beneficial owners increasingly
become comfortable with accessing
proxy materials online. In addition, the
proposal would permit a beneficial
owner to specify its preference on an
account-wide basis, which should
reduce the cost of processing requests
for copies. These costs are ultimately
paid by the issuer.
Shareholders obtaining proxy
materials online would incur any
necessary costs associated with gaining
access to the Internet. In addition, some
shareholders may choose to print out
the posted materials, which would
entail paper and printing costs. We
estimate that approximately 10% of all
shareholders would print out the posted
materials at home at an estimated cost
of $7.05 per proxy package. Based on
these assumptions, the proposal is
estimated to produce incremental
annual home printing costs ranging
from $16 million (if issuers who are
responsible for 10% of all current proxy
mailings choose to mail full sets of
proxy materials only to those investors
who request them) to $80 million (if
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issuers who are responsible for 50% of
all current proxy mailings choose mail
full sets of proxy materials only to those
investors who request them).46 Investors
would have the option to incur no
additional cost by either accessing the
proxy materials online or requesting
paper copies of the materials from the
issuer.
E. Request for Comments
rwilkins on PROD1PC63 with PROPOSAL
We seek comments and empirical data
on all aspects of this Cost-Benefit
Analysis. Specifically, we ask the
following:
• What savings would issuers and
other soliciting persons realize if they
are required to follow the proposed
model? Of those savings, which would
be one-time savings and which would
be annual savings?
• What added costs would issuers
and other soliciting persons incur if
they are required to follow the proposed
universal Internet availability model? Of
those costs, which would be one-time
costs and which would be annual costs?
• Are there any other one-time or
annual costs or benefits that we should
consider?
• Our estimates of the paper-related
savings associated with universal
internet availability are based on those
in our companion adopting release. Are
our assumptions about the relevant
printing costs and mailing costs,
reasonable? In particular, would smaller
issuers expect to realize similar savings?
• What proportion of shareholders
would be expected to request paper
copies? What proportion of beneficial
owners would likely request paper
copies from intermediaries rather than
from issuers? Are there any issuers for
which a high rate of paper requests
might be anticipated? If so, are there any
means, such as surveying shareholder
interest in paper copies, that may
mitigate such costs?
• Which issuers would choose to mail
full sets of proxy materials? Would
some issuers mail full sets of proxy
materials to some shareholders and
notices to others? If so, what
proportions of shareholders would be
sent each?
46 This range of potential home printing costs
depends on data provided by Lexecon and ADP.
See letter from ADP. The Lexecon data was
included in the ADP comment letter. To calculate
home printing cost, we assume that 50% of annual
report pages are printed in color and 100% of proxy
statement pages are printed in black and white. The
estimated percentage of shareholders printing at
home is derived from Forrester survey data
furnished by ADP and adjusted for the reported
likelihood that an investor will take extra steps to
get proxy materials. Total number of shareholders
estimated as above based on data provided by ADP
and SIA. See letters from ADP and SIA.
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• What is the typical cost for
obtaining an Internet Web site and
posting materials on that Web site?
What is the typical cost for establishing
an automated system for collecting votes
or shareholder voting instructions
through the Internet or by telephone?
What would be the cost of staffing
telephone lines to receive votes or
voting instructions?
• Are there other viable means for
providing a means to vote on an Internet
Web site? If so, what are they, and what
would be the cost of providing such
voting means?
• What would be the cost of
maintaining records of shareholders
who have elected to receive paper or email copies of proxy materials for future
solicitations? Many issuers and
intermediaries, or their agents, already
have systems to maintain records of
shareholders who have affirmatively
consented to electronic delivery, and
many intermediaries, or their agents,
have systems to maintain records of
beneficial owners who have objected to
disclosure of their identity to issuers.
Considering the fact that such entities
already have systems designed to record
shareholder preferences, what would
the added cost be of maintaining records
of shareholders who have elected to
receive paper or e-mail copies of proxy
materials in the future?
• What costs and benefits would
intermediaries incur? Would all of these
costs and benefits be passed on to
issuers? Are there any one-time or
annual costs for intermediaries that we
should consider?
• What other benefits and costs
would be associated with rules
requiring compliance with the universal
Internet availability model?
VII. Consideration of Burden on
Competition and Promotion of
Efficiency, Competition and Capital
Formation
Section 23(a)(2) of the Exchange
Act 47 requires us, when adopting rules
under the Exchange Act, to consider the
impact that any new rule would have on
competition. In addition, Section
23(a)(2) prohibits us from adopting any
rule that would impose a burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act. Section
3(f) of the Exchange Act 48 and Section
2(c) of the Investment Company Act of
1940 49 require us, when engaging in
rulemaking that requires us to consider
or determine whether an action is
47 15
U.S.C. 78w(a)(2).
U.S.C. 78c(f).
49 15 U.S.C. 80a–2(c).
48 15
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necessary or appropriate in the public
interest, to consider, in addition to the
protection of investors, whether the
action will promote efficiency,
competition, and capital formation.
In a companion release, we are
adopting a substantially similar Internet
availability model as a voluntary model.
The proposed amendments would
require all issuers and other soliciting
persons to follow the universal Internet
availability model for all proxy
solicitations, other than those associated
with business combination transactions.
The proposed amendments are intended
to provide all shareholders with the
ability to choose the means by which
they receive proxy materials, to expand
use of the Internet to lower the costs of
proxy solicitations, and to improve
shareholder communications. Currently,
issuers decide whether to provide
shareholders with the choice to receive
proxy materials by electronic means.
The proposal, if adopted, would provide
all shareholders with the ability to
choose whether to receive proxy
materials in paper, by e-mail or via the
Internet. We believe that expanded use
of electronic communications to replace
current modes of disclosures on paper
and physical mailings would increase
the efficiency of the shareholder
communications process. Use of the
Internet permits technology developers
to enhance a shareholder’s experience
with respect to such communications. It
permits interactive communications at
real-time speeds. Improved shareholder
communications may improve
relationships between shareholders and
management. Retail investors may have
easier access to management. In turn,
this may lead to increased confidence
and trust in well-managed, responsive
issuers.
The proposal, if adopted, may have
the effect of initially raising costs on
issuers and other soliciting persons by
requiring persons who otherwise would
not have followed the model to follow
it. The proposal may create other
inefficiencies such as reducing
shareholder voting participation and
increased reliance on broker
discretionary voting. We are considering
these potential effects, but do not
anticipate that they will be significant.
Therefore, we are proposing the
amendments, but also are requesting
comment on these matters. We are also
considering the effect of the proposal on
competition and capital formation,
including the effect that the proposals
may have on industries servicing the
proxy soliciting process. We do not
anticipate any significant effects on
capital formation. We also anticipate
that some companies whose business
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model is based on the dissemination of
paper-based proxy materials may
experience adverse competition effects
from the proposal. The proposal may
also promote competition among
Internet-based information services. We
request comment on those effects.
We request comment regarding the
degree to which our proposed
amendments would have competitively
harmful effects on public companies,
and how we could best minimize those
effects. We also request comment on any
disproportionate cross-sectional
burdens among the firms affected by our
proposals that could have anticompetitive effects. We also request
comment on the effects that the
proposed amendments would have on
efficiency and capital formation.
VIII. Initial Regulatory Flexibility
Analysis
This Initial Regulatory Flexibility
Analysis has been prepared in
accordance with 5 U.S.C. 603. It relates
to proposed revisions to the rules and
forms under the Exchange Act that
would require issuers and other persons
soliciting proxies to follow the universal
Internet availability model for all proxy
solicitations except for those associated
with a business combination
transaction.
rwilkins on PROD1PC63 with PROPOSAL
A. Reasons for the Proposed Action
The proposed amendments are
intended to provide all shareholders
with the ability to choose the means by
which they receive proxy materials, to
expand use of the Internet to ultimately
lower the costs of proxy solicitations,
and to improve shareholder
communications. We are concurrently
issuing an adopting release that creates
a voluntary model. We anticipate that
increased usage of the model will
enhance the ability of investors to make
informed decisions and ultimately to
lower the costs of proxy solicitations.
B. Objectives
Currently, issuers decide whether to
provide shareholders with the choice to
receive proxy materials by electronic
means. The proposal, if adopted, would
provide all shareholders with the ability
to choose whether to receive proxy
materials in paper, by e-mail or via the
Internet. Developing technologies on the
Internet should expand the ways in
which required disclosures can be used
by shareholders. Electronic documents
are more easily searchable than paper
documents. Users are better able to go
directly to any section of the document
that they believe to be the most
important. They also permit users to
more easily manipulate data. It enables
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users to more easily download data into
spreadsheet or other analytical programs
so that they can perform their own
analyses more efficiently. A centralized
Web site containing proxy-related
disclosures may facilitate shareholder
access to other relevant information
such as research reports and news about
the issuer.
In addition, encouraging shareholders
to use the Internet in the context of
proxy solicitations may have the sideeffect of improving shareholder
communications in other ways. Internet
tools, such as chat rooms and bulletin
boards, may enhance shareholders’
ability to communicate not only with
management, but with each other. Such
direct access may improve shareholder
relations to the extent shareholders have
improved access to management.
C. Legal Basis
We are proposing amendments to the
forms and rules under the authority set
forth in Sections 3(b), 10, 13, 14, 15,
23(a), and 36 of the Exchange Act, as
amended, and Sections 20(a), 30, and 38
of the Investment Company Act, as
amended.
D. Small Entities Subject to the
Proposed Rules
The proposals would affect issuers
that are small entities. Exchange Act
Rule 0–10(a) 50 defines an issuer to be a
‘‘small business’’ or ‘‘small
organization’’ for purposes of the
Regulatory Flexibility Act if it had total
assets of $5 million or less on the last
day of its most recent fiscal year. We
estimate that there are approximately
2,500 public companies, other than
investment companies, that may be
considered small entities.
For purposes of the Regulatory
Flexibility Act, an investment company
is a small entity if it, together with other
investment companies in the same
group of related investment companies,
has net assets of $50 million or less as
of the end of its most recent fiscal
year.51 Approximately 157 registered
investment companies meet this
definition. Moreover, approximately 53
business development companies may
be considered small entities.
Paragraph (c)(1) of Rule 0–10 under
the Exchange Act 52 states that the term
‘‘small business’’ or ‘‘small
organization,’’ when referring to a
broker-dealer, means a broker or dealer
that had total capital (net worth plus
subordinated liabilities) of less than
$500,000 on the date in the prior fiscal
50 17
CFR 240.0–10(a).
CFR 270.0–10.
52 17 CFR 240.0–10(c)(1).
51 17
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4185
year as of which its audited financial
statements were prepared pursuant to
§ 240.17a–5(d); and is not affiliated with
any person (other than a natural person)
that is not a small business or small
organization. As of 2005, the
Commission estimates that there were
approximately 910 broker-dealers that
qualified as small entities as defined
above.53 Small Business Administration
regulations define ‘‘small entities’’ to
include banks and savings associations
with total assets of $165 million or
less.54 The Commission estimates that
the rules would apply to approximately
9,475 banks, approximately 5,816 of
which could be considered small banks
with assets of $165 million or less.
We request comment on the number
of small entities that would be impacted
by our proposals, including any
available empirical data.
E. Reporting, Recordkeeping and Other
Compliance Requirements
The proposals would require all
issuers, including small entities, to
follow the universal Internet availability
model. Under the proposed
amendments, all issuer and
intermediaries would be required to
prepare and disseminate a Notice of
Internet Availability of Proxy Materials.
The required disclosure in the Notice is
information that would be readily
available to the issuer. Issuers also
would be required to post the proxy
materials on a publicly accessible Web
site, and issuers and intermediaries
would be required to provide a means
to execute a proxy or provide voting
instructions, as applicable, on an
Internet Web site. Issuers and
intermediaries would be required to
provide copies of the proxy materials to
requesting shareholders. Issuers and
intermediaries also would be required to
maintain records to keep track of those
shareholders who have made a
permanent request for paper or e-mail
copies. Issuers also may have to change
their Web site and e-mail procedures to
comply with the rules designed to
safeguard addressing anonymity of
persons accessing the Web site and
misuse of shareholder e-mail addresses.
F. Duplicative, Overlapping or
Conflicting Federal Rules
We believe that there are no rules that
conflict with or duplicate the proposed
rules.
53 These numbers are based on a review by the
Commission’s Office of Economic Analysis of 2005
FOCUS Report filings reflecting registered brokerdealers. This number does not include brokerdealers that are delinquent on FOCUS Report
filings.
54 13 CFR 121.201.
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G. Significant Alternatives
The Regulatory Flexibility Act directs
us to consider significant alternatives
that would accomplish the stated
objective, while minimizing any
significant adverse impact on small
entities. In connection with the
proposed amendments, we considered
the following alternatives:
• The establishment of differing
compliance or reporting requirements or
timetables that take into account the
resources available to small entities;
• The clarification, consolidation or
simplification of disclosure for small
entities;
• The use of performance standards
rather than design standards; and
• An exemption for small entities
from coverage under the proposals.
The Commission has considered a
variety of reforms to achieve its
regulatory objectives.
The proposed amendments, if
adopted, would require all issuers and
intermediaries, including small entities,
to follow the universal Internet
availability model. We believe that in
the long run, use of the Internet for
shareholder communications not only
may decrease costs for all issuers, but
also may improve the quality of
shareholder communications by
enhancing a shareholder’s ability to
search and manipulate proxy
disclosures. However, in the short term,
we are considering a tiered system of
compliance dates to minimize the
burdens on smaller issuers, including
small entities. If we adopt tiered
compliance dates, we do not anticipate
that issuers other than large accelerated
filers would be required to comply with
the requirements until January 1, 2009.
This would provide smaller issuers
more time to adjust to the amendments
and learn from the experiences of larger
filers.
Intermediaries that are small entities
would also be subject to the
amendments, if they are adopted. We
are considering whether such entities
should be exempt from the
amendments. Such an exemption may
create disparity in the way shareholders
receive proxy materials. Shareholders
owning securities through such
intermediaries would not have the
ability to choose the means by which
they receive proxy disclosures.
We considered the use of performance
standards rather than design standards
in the proposed rules. The proposal
contains both performance standards
and design standards. We are proposing
design standards to the extent that we
believe compliance with particular
requirements are necessary. However, to
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the extent possible, we are proposing
rules that impose performance
standards to provide issuers, other
soliciting persons and intermediaries
with the flexibility to devise the means
through which they can comply with
such standards.
We are requesting comment on
whether separate requirements for small
entities would be appropriate. The
purpose of the amendments is to
provide all shareholders with the ability
to choose the means by which they
receive proxy materials, to expand use
of the Internet to ultimately lower the
costs of proxy solicitations, and to
improve shareholder communications.
Exempting small entities would not be
consistent with this goal. However, as
noted above, we are considering
providing more time for small entities to
comply with the proposed
requirements. The establishment of any
differing compliance or reporting
requirements or timetables or any
exemptions for small business issuers
may not be in keeping with the
objectives of the proposed rules.
We request comment on whether our
proposals would be a ‘‘major rule’’ for
purposes of SBREFA. We solicit
comment and empirical data on:
• The potential effect on the U.S.
economy on an annual basis;
• Any potential increase in costs or
prices for consumers or individual
industries; and
• Any potential effect on competition,
investment or innovation.
H. Solicitation of Comment
We encourage comments with respect
to any aspect of this Initial Regulatory
Flexibility Analysis. In particular, we
request comments regarding:
• The number of small entities that
may be affected by the proposals;
• The existence or nature of the
potential impact of the proposals on
small entities discussed in the analysis;
and
• How to quantify the impact of the
proposed rules.
Commenters are asked to describe the
nature of any impact and provide
empirical data supporting the extent of
the impact. Such comments will be
considered in the preparation of the
Final Regulatory Flexibility Analysis, if
the proposals are adopted, and will be
placed in the same public file as
comments on the proposed amendments
themselves.
PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934
IX. Small Business Regulatory
Enforcement Fairness Act
For purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996,55 a rule is ‘‘major’’ if it has
resulted, or is likely to result in:
• An annual effect on the economy of
$100 million or more;
• A major increase in costs or prices
for consumers or individual industries;
or
• Significant adverse effects on
competition, investment or innovation.
55 Pub. L. No. 104–121, Title II, 110 Stat. 857
(1996).
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X. Statutory Basis and Text of Proposed
Amendments
We are proposing the amendments
pursuant to Sections 3(b), 10, 13, 14, 15,
23(a), and 36 of the Securities Exchange
Act of 1934, as amended, and Sections
20(a), 30, and 38 of the Investment
Company Act of 1940, as amended.
List of Subjects in 17 CFR Part 240
Reporting and recordkeeping
requirements, Securities.
For the reasons set out in the
preamble, Title 17, Chapter II of the
Code of Federal Regulations is proposed
to be amended as follows.
1. The authority citation for part 240
continues to read, in part, as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a–
20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4,
80b–11, and 7201 et seq.; and 18 U.S.C. 1350,
unless otherwise noted.
*
*
*
§ 240.14a–7
*
*
[Amended]
2. Amend § 240.14a–7 by removing
Note 3 to § 240.14a–7.
3. Amend § 240.14a–16 by:
a. Revising paragraphs (a), (e)(2)(i)(B),
(e)(2)(ii), (f)(2)(i), (f)(2)(ii), (h), the
introductory text of paragraph (l) and
paragraph (l)(2);
b. Adding paragraphs (e)(2)(iii),
(f)(2)(iii), (f)(2)(iv), and (j)(5); and
c. Removing paragraph (n).
The revisions and additions to read as
follows:
240.14a–16
materials.
Internet availability of proxy
(a)(1) A registrant shall furnish a
proxy statement pursuant to § 240.14a–
3(a) and an annual report to security
holders if required by § 240.14a–3(b) to
a security holder by sending the security
holder a Notice of Internet Availability
of Proxy Materials, as described in this
section, 40 calendar days or more prior
to the security holder meeting date, or
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if no meeting is to be held, 40 calendar
days or more prior to the date that votes,
consents or authorizations may be used
to effect the corporate action, and
complying with all other requirements
of this section; provided, that if the
registrant concurrently sends the Notice
of Internet Availability of Proxy
Materials with a copy of the proxy
statement, annual report to security
holders, if required pursuant to
§ 240.14a–3(b), and form of proxy
pursuant to paragraph (f)(3) of this
section, the registrant need not comply
with the timing requirements of this
paragraph (a)(1).
(2) If the registrant knows that
securities of any class entitled to vote at
a meeting (or by written consents or
authorizations if no meeting is held)
with respect to which the registrant
intends to solicit proxies, consents or
authorizations are held of record by a
broker, dealer, voting trustee, bank,
association, or other entity that
exercises fiduciary powers in nominee
name or otherwise, the registrant must
provide the record holder or respondent
bank with all information listed in
paragraph (d) of this section in
sufficient time for the record holder or
respondent bank to prepare and send a
Notice to beneficial owners at least 40
calendar days before the meeting date;
provided, that if the registrant provides
the record holder or respondent bank
with copies of the proxy statement and
annual report to security holders, if
required pursuant to § 240.14a–3(b)
pursuant to paragraph (f)(3) of this
section, to be concurrently sent with the
record holder’s or respondent bank’s
Notice of Internet Availability of Proxy
Materials, the registrant need not
comply with the timing requirements of
this paragraph (a)(2).
*
*
*
*
*
(e) * * *
(2) * * *
(i) * * *
(B) The registrant is not soliciting
proxy or consent authority, but is
furnishing an information statement
pursuant to § 240.14c–2;
(ii) The registrant may include a
statement on the Notice to educate
security holders that no personal
information other than the identification
or control number is necessary to
execute a proxy; and
(iii) If the registrant concurrently
sends the Notice of Internet Availability
of Proxy Materials with a copy of the
proxy statement, annual report to
security holders, if required under
§ 240.14a–3(b), and form of proxy
pursuant to paragraph (f)(2)(iii) of this
section, the Notice of Internet
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Availability of Proxy Materials need not
contain:
(A) A legend relating to security
holder requests for copies of the
documents; and
(B) Instructions on how to request a
copy of the documents.
(f) * * *
(2) * * *
(i) A pre-addressed, postage-paid
reply card for requesting a copy of the
proxy materials;
(ii) A copy of any notice of security
holder meeting required under state law
if that notice is not combined with the
Notice of Internet Availability of Proxy
Materials;
(iii) Any other type of security holder
communications provided that such
transmission includes all of the
following documents:
(A) A copy of the proxy statement;
(B) A copy of the annual report to
security holders if required by
§ 240.14a–3(b); and
(C) A form of proxy; and
(iv) In the case of an investment
company registered under the
Investment Company Act of 1940, the
company’s prospectus or a report that is
required to be transmitted to
stockholders by section 30(e) of the
Investment Company Act (15 U.S.C.
80a–29(e)) and the rules thereunder.
*
*
*
*
*
(h) The registrant may send a form of
proxy to security holders 10 calendar
days or more after the date it first sent
the Notice of Internet Availability of
Proxy Materials to security holders if:
(1) The form of proxy is accompanied
or preceded by a copy, via the same
medium, of the proxy statement and any
annual report to security holders that is
required by § 240.14a–3(b) pursuant to
paragraph (f)(2)(iii) of this section, or
(2) The form of proxy is accompanied
by a copy of the Notice of Internet
Availability of Proxy Materials.
*
*
*
*
*
(j) * * *
(5) A registrant need not comply with
paragraphs (j)(1) and (j)(2) of this section
if it sends a copy of the proxy statement,
annual report to security holders if
required by § 240.14a–3(b) and form of
proxy pursuant to paragraph (f)(3)(ii) of
this section.
*
*
*
*
*
(l) A person other than the registrant
soliciting proxies shall follow the
requirements imposed on registrants by
this section, provided that:
*
*
*
*
*
(2) A soliciting person other than the
registrant must send its Notice of
Internet Availability of Proxy Materials
by the later of:
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(i) 40 calendar days prior to the
security holder meeting date or, if no
meeting is to be held, 40 calendar days
prior to the date that votes, consents, or
authorizations may be used to effect the
corporate action; or
(ii) 10 calendar days after the date that
the registrant first sends its proxy
statement or Notice of Internet
Availability of Proxy Materials to
security holders; provided, that if the
soliciting person other than the
registrant concurrently sends the Notice
of Internet Availability of Proxy
Materials with a copy of the proxy
statement and form of proxy pursuant to
paragraph (f)(3) of this section, the
soliciting person other than the
registrant need not comply with the
timing requirements of this paragraph
(l)(2)
*
*
*
*
*
4. Amend § 240.14b–1 by:
a. Revising the introductory text of
paragraph (d); and
b. Adding paragraph (d)(1)(iii).
The revision and addition read as
follows.
§ 240.14b–1 Obligation of registered
brokers and dealers in connection with the
prompt forwarding of certain
communications to beneficial owners.
*
*
*
*
*
(d) Upon receipt from the soliciting
person of all of the information listed in
§ 240.14a–16(d), the broker or dealer
shall:
(1) * * *
(iii) The broker or dealer need not
comply with the deadlines set forth in
paragraphs (d)(1)(i) and (d)(1)(ii) of this
section, if the registrant or other
soliciting person provides the broker or
dealer with copies of the proxy
statement and annual report to security
holders, if required pursuant to
§ 240.14a–3(b), pursuant to § 240.14a–
16(f)(3)(ii), to be concurrently sent with
the broker’s or dealer’s Notice of
Internet Availability of Proxy Materials.
*
*
*
*
*
4. Amend § 240.14b–2 by:
a. Revising the introductory text of
paragraph (d); and
b. Adding paragraph (d)(1)(iii).
The revision and addition read as
follows.
§ 240.14b–2 Obligation of banks,
associations and other entities that
exercise fiduciary powers in connection
with the prompt forwarding of certain
communications to beneficial owners.
*
*
*
*
*
(d) Upon receipt from the soliciting
person of all of the information listed in
§ 240.14a–16(d), the bank shall:
(1) * * *
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(iii) The bank need not comply with
the deadlines set forth in paragraphs
(d)(1)(i) and (d)(1)(ii), if the registrant or
other soliciting person provides the
bank with copies of the proxy statement
and annual report to security holders, if
required pursuant to § 240.14a–3(b),
pursuant to § 240.14a–16(f)(3)(ii), to be
concurrently sent with the bank’s Notice
of Internet Availability of Proxy
Materials.
*
*
*
*
*
6. Amend § 240.14c–2 by revising
paragraph (d) to read as follows:
VerDate Aug<31>2005
16:29 Jan 26, 2007
Jkt 211001
§ 240.14c–2
statement.
Distribution of information
*
*
*
*
*
(d) A registrant may transmit an
information statement to security
holders pursuant to paragraph (a) of this
section by satisfying the requirements
set forth in § 240.14a–16; provided,
however, that the registrant shall revise
the information required in the Notice
of Internet Availability of Proxy
Materials, including changing the title
of that notice, to reflect the fact that the
registrant is not soliciting proxies for the
meeting.
7. Amend § 240.14c–3 by revising
paragraph (d) to read as follows:
PO 00000
Frm 00014
Fmt 4701
Sfmt 4702
§ 240.14c–3 Annual report to be furnished
security holders.
*
*
*
*
*
(d) A registrant may furnish an annual
report to security holders pursuant to
paragraph (a) of this section by
satisfying the requirements set forth in
§ 240.14a–16.
Dated: January 22, 2007.
By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E7–1184 Filed 1–26–07; 8:45 am]
BILLING CODE 8011–01–P
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[Federal Register Volume 72, Number 18 (Monday, January 29, 2007)]
[Proposed Rules]
[Pages 4176-4188]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-1184]
[[Page 4175]]
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Part IV
Securities and Exchange Commission
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17 CFR Part 240
Universal Internet Availability of Proxy Materials; Proposed Rule
Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 /
Proposed Rules
[[Page 4176]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release Nos. 34-55147; IC-27672; File No. S7-03-07]
RIN 3235-AJ79
Universal Internet Availability of Proxy Materials
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: We are proposing amendments to the proxy rules under the
Securities Exchange Act of 1934 that would require issuers and other
soliciting persons to furnish proxy materials to shareholders by
posting them on an Internet Web site and providing shareholders with
notice of the availability of the proxy materials. In a separate
release, we concurrently are adopting rules that allow issuers and
other soliciting persons to voluntarily furnish proxy materials to
shareholders in this manner. The proposed amendments are intended to
provide all shareholders with the ability to choose the means by which
they receive proxy materials, to expand use of the Internet to
ultimately lower the costs of proxy solicitations, and to improve
shareholder communications.
DATES: Comments should be received on or before March 30, 2007.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form https://
www.sec.gov/rules/proposed.shtml; or
Send an e-mail to rule-comments@sec.gov. Please include
File Number S7-03-07 on the subject line; or
Use the Federal eRulemaking Portal https://
www.regulations.gov. Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-03-07. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on its Internet Web site
https://www.sec.gov/rules/proposed.shtml. Comments also are available
for public inspection and copying in the Commission's Public Reference
Room, 100 F Street, NE., Washington, DC 20549. All comments received
will be posted without change; we do not edit personal identifying
information from submissions. You should submit only information that
you wish to make publicly available.
FOR FURTHER INFORMATION CONTACT: Raymond A. Be, Special Counsel, Office
of Rulemaking, Division of Corporation Finance, at (202) 551-3430,
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-3628.
SUPPLEMENTARY INFORMATION: The Commission is proposing amendments to
Rules 14a-7,\1\ 14a-16,\2\ 14b-1,\3\ 14b-2,\4\ 14c-2,\5\ and 14c-3 \6\
under the Securities Exchange Act of 1934.\7\
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\1\ 17 CFR 240.14a-7.
\2\ 17 CFR 240.14a-16.
\3\ 17 CFR 240.14b-1.
\4\ 17 CFR 240.14b-2.
\5\ 17 CFR 240.14c-2.
\6\ 17 CFR 240.14c-3.
\7\ 15 U.S.C. 78a et seq.
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Table of Contents
I. Introduction
II. Description of the Proposed Amendments
A. Universal Internet Availability Model for Issuers
B. Implications of the Universal Internet Availability Model for
Intermediaries
C. Universal Internet Availability Model for Soliciting Persons
Other Than the Issuer
D. Option To Send Full Set of Proxy Materials With Notice Under
the Universal Internet Availability Model
III. Compliance Dates
IV. General Request for Comment
V. Paperwork Reduction Act
VI. Cost-Benefit Analysis
A. Background
B. Summary of Proposals
C. Benefits
D. Costs
E. Request for Comments
VII. Consideration of Burden on Competition and Promotion of
Efficiency, Competition and Capital Formation
VIII. Initial Regulatory Flexibility Analysis
A. Reasons for the Proposed Action
B. Objectives
C. Legal Basis
D. Small Entities Subject to the Proposed Rules
E. Reporting, Recordkeeping and Other Compliance Requirements
F. Duplicative, Overlapping or Conflicting Federal Rules
G. Significant Alternatives
H. Solicitation of Comment
IX. Small Business Regulatory Enforcement Fairness Act
X. Statutory Basis and Text of Proposed Amendments
I. Introduction
Currently, issuers decide whether to provide shareholders with the
choice to receive proxy materials by electronic means. We are proposing
amendments to the proxy rules that would require issuers and other
soliciting persons to furnish proxy materials to shareholders by
posting them on an Internet Web site and providing shareholders with
notice of the availability of the proxy materials.\8\ The proposal, if
adopted, would provide all shareholders with the ability to choose
whether to receive proxy materials in paper, by e-mail or via the
Internet. We believe that universal Internet availability of proxy
materials has the potential to enhance significantly the ability of
investors to make informed voting decisions regarding the securities
that they hold. In a companion release, we are adopting an Internet
availability model that issuers and other soliciting persons may follow
on a voluntary basis.\9\ We are considering making the universal
Internet availability amendments effective for large accelerated
filers, not including registered investment companies, on January 1,
2008,\10\ and for all other issuers, including registered investment
companies, on January 1, 2009.
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\8\ For purposes of this release, the term ``proxy
materials''includes proxy statements on Schedule 14A [17 CFR
240.14a-101], proxy cards, information statements on Schedule 14C
[17 CFR 240.14c-101], annual reports to security holders required by
Rules 14a-3 [17 CFR 240.14a-3] and 14c-3 [17 CFR 240.14c-3] of the
Exchange Act, notices of shareholder meetings, additional soliciting
materials, and any amendments to such materials. For purposes of
this release, the term does not include materials filed under Rule
14a-12 [17 CFR 240.14a-12].
\9\ Release No. 34-55146 (Jan. 22, 2007).
\10\ A large accelerated filer, as defined in Exchange Act Rule
12b-2 [17 CFR 240.12b-2], is an issuer that, as of the end of its
fiscal year, has an aggregate worldwide market value of the voting
and non-voting common equity held by its non-affiliates of $700
million or more, as measured on the last business day of the
issuer's most recently completed second fiscal quarter; has been
subject to the requirements of Section 13(a) or 15(d) of the
Exchange Act for a period of at least twelve calendar months; has
filed at least one annual report pursuant to Section 13(a) or 15(d)
of the Exchange Act; and is not eligible to use Forms 10-KSB and 10-
QSB for its annual and quarterly reports.
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II. Description of Proposed Amendments
Under the proposal, an issuer that is required to furnish proxy
materials to shareholders under the Commission's proxy rules would have
to satisfy this requirement by posting its proxy materials on a
specified, publicly-accessible Internet Web site (other than the
Commission's EDGAR Web site) and providing record holders with a notice
[[Page 4177]]
informing them that the materials are available and explaining how to
access those materials. Issuers and intermediaries also would be
required to follow the universal Internet availability model \11\ to
furnish proxy materials to beneficial owners. Shareholders and other
persons conducting their own proxy solicitations also would be required
to follow the universal Internet availability model. Shareholders would
retain the ability to request paper or e-mail copies for a particular
meeting or to make a permanent request for proxy materials relating to
all shareholder meetings.\12\ By requiring universal Internet
availability of proxy materials, the proposed amendments are designed
to enhance the ability of investors to make informed voting decisions
and to expand use of the Internet to ultimately lower the costs of
proxy solicitations.
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\11\ In this release, we are referring to the proposal as the
``universal Internet availability'' model. This model is
substantially similar to the ``notice and access'' model for
electronically furnishing proxy materials referred to in Release No.
34-55146 that issuers and other soliciting persons may follow on a
voluntary basis.
\12\ A shareholder may revoke a permanent election to receive
paper or e-mail copies at any time.
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A. Universal Internet Availability Model for Issuers
Under the proposal, an issuer would be required to comply with the
following requirements, which are substantially similar to the
requirements that we are adopting under the voluntary model.\13\ First,
the issuer would have to send a Notice of Internet Availability of
Proxy Materials (``Notice'') to shareholders at least 40 calendar days
before the shareholder meeting date, or if no meeting is to be held, at
least 40 calendar days before the date that votes, consents, or
authorizations may be used to effect a corporate action, indicating
that the issuer's proxy materials are available on a specified Internet
Web site and explaining how to access those proxy materials.
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\13\ See 17 CFR 240.14a-16 [17 CFR 240.14a-16].
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The Notice would have to contain the same information that is
required under the voluntary model, including the following: \14\
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\14\ Appropriate changes must be made if the issuer is providing
an information statement pursuant to Regulation 14C or seeking to
effect a corporate action by written consent.
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A prominent legend in bold-face type that states:
``Important Notice Regarding the Availability of Proxy Materials for
the Shareholder Meeting to Be Held on [insert meeting date].
This communication presents only an overview of the
more complete proxy materials that are available to you on the
Internet. We encourage you to access and review all of the important
information contained in the proxy materials before voting.
The [proxy statement] [information statement] [annual
report to security holders] [is/are] available at [Insert Web site
address].
If you want to receive a paper or e-mail copy of these
documents, you must request one. There is no charge to you for
requesting a copy. Please make your request for a copy as instructed
below on or before [Insert a date] to facilitate timely delivery.''
The date, time, and location of the meeting or, if
corporate 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 intended to be acted on and the issuer's recommendations
regarding those matters, but no supporting statements;
A list of the materials being made available at the
specified Web site;
(1) A toll-free telephone number; (2) an e-mail address;
and (3) an Internet Web site address where the shareholder can request
a copy of the proxy materials, for all meetings and for the particular
meeting to which the Notice relates;
Any control/identification numbers that the shareholder
needs to access his or her proxy card;
Instructions on how to access the proxy card, provided
that such instructions do not enable a shareholder to execute a proxy
without having access to the proxy statement and annual report; and
Information about attending the shareholder meeting and
voting in person.
The Notice would have to be written in plain English. The Notice
may contain only the information specified by the rules and any other
information required by state law, if the issuer chooses to combine the
Notice with any shareholder meeting notice that State law may require.
However, the Notice may contain a protective warning to shareholders,
advising them that no personal information other than the
identification or control number is necessary to execute a proxy. The
issuer would have to file its Notice with the Commission pursuant to
Rule 14a-6(b) \15\ no later than the date that it first sends the
Notice to shareholders.
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\15\ 17 CFR 240.14a-6(b).
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An issuer would have to make all proxy materials identified in the
Notice publicly accessible, free of charge, at the Web site address
specified in the Notice on or before the date that the Notice is sent
to the shareholder. The specified Web site may not be the Commission's
EDGAR system. The issuer also would have to post any subsequent
additional soliciting materials on the Web site no later than the date
on which such materials are first sent to shareholders or made public.
The materials would have to be presented on the Web site in a format,
or formats, convenient for both reading online and printing on
paper.\16\
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\16\ See Section II.A.3 of Release 34-55146.
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The proxy materials would have to remain available on that Web site
through the conclusion of the shareholder meeting. An issuer also would
have to provide shareholders with a method to execute proxies as of the
time the Notice is first sent to shareholders. It may do so through a
variety of methods, including providing an electronic voting platform
or a toll-free telephone number for voting.\17\
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\17\ As noted above, such a telephone number may appear on the
Web site, but not on the Notice.
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An issuer would be required to provide copies at no charge to
requesting shareholders. It also would have to allow shareholders to
make a permanent election to receive paper or e-mail copies of proxy
materials distributed in connection with future proxy solicitations of
the issuer. Further, the issuer would have to provide a toll-free
telephone number, e-mail address, and Internet Web site address as a
means by which a shareholder could request a copy of the proxy
materials for the particular shareholder meeting referenced in the
Notice or make a permanent election to receive copies of the proxy
materials on a continuing basis with respect to all meetings. The
issuer also may include a pre-addressed, postage-paid reply card with
the Notice that shareholders could use to request a copy of the proxy
materials.
An issuer would not be permitted to send a proxy card to a
shareholder until 10 calendar days or more after the date it sent the
Notice to the shareholder, unless the proxy card is accompanied or
preceded by a copy of the proxy statement and any annual report to
security holders sent via the same medium. Issuers would be able to
household the Notice and other proxy materials pursuant to Rule 14a-
3(e).\18\ An issuer would have to maintain the Internet Web site on
which it posts its proxy materials in a manner that does not infringe
on the anonymity of a person accessing that Web site.\19\ An issuer
also could not use any e-mail address provided by a
[[Page 4178]]
shareholder solely to request a copy of proxy materials for any purpose
other than to send a copy of those materials to that shareholder. The
issuer also may not disclose a shareholder's e-mail address to any
person other than the issuer's employee or agent to the extent
necessary to send a copy of the proxy materials to a requesting
shareholder. An issuer could not use the universal Internet
availability model in the context of a business combination
transaction.
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\18\ 17 CFR 240.14a-3(e).
\19\ See Section II.A.1.b.iii of Release No. 34-55146.
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Request for Comment
What advantages would universal Internet availability of
proxy materials have for investors, issuers and other soliciting
persons? What disadvantages could the proposal have? How could any
potential disadvantages be mitigated?
Should we require issuers to follow the universal Internet
availability model as proposed? If not, why not? Would requiring
issuers to follow the universal Internet availability model impose
significant costs on issuers? If so, what would they be? How could the
proposal be modified to mitigate these costs? Would requiring issuers
to follow the universal Internet availability model positively or
negatively affect shareholder voting participation rates?
Should we exempt certain types of issuers from the
proposed universal Internet availability model? For example, should we
exempt small business issuers? Should we require mutual funds, closed-
end funds, business development companies and other investment
companies to follow the model? Should the model be equally applicable
to all types of shareholders and/or all types of solicitations except
those relating to business combination transactions?
Under the voluntary model, an issuer may choose not to
rely on the universal Internet availability model if it conflicts with
state law. We are not aware of any state law conflicts. Are there any
state laws that would conflict with the universal Internet availability
model?
Should we modify any aspects of the universal Internet
availability model? If so, how should the model be modified and why?
Should there be any changes to the timeframes for sending the Notice,
the contents of the Notice or the types of materials that can be sent
with the Notice? Should any revisions be made to the Web site posting
requirements or the requirements to send copies upon request?
Some proxy solicitations are not subject to the
requirements of Section 14(a) of the Exchange Act, such as proxy
solicitations with respect to foreign private issuers. However, we
understand that proxy solicitations relating to foreign private issuers
generally are processed and distributed in accordance with the same
procedures set forth in our proxy rules because intermediaries and
their agents are not able to apply cost-effectively different
procedures to exempt proxy solicitations. Would a universal Internet
availability model create a burden on those issuers who are not subject
to Section 14(a)? If so, how can those burdens best be addressed?
B. Implications of the Universal Internet Availability Model for
Intermediaries
With respect to beneficial owners, the issuer or other soliciting
person would have to provide each intermediary with the information
necessary to prepare the intermediary's Notice in sufficient time for
the intermediary to prepare and send its Notice to beneficial owners at
least 40 calendar days before the shareholder meeting date.\20\ The
intermediary's Notice would contain generally the same types of
information as an issuer's Notice, but would be tailored specifically
for beneficial owners.\21\ Intermediaries would be required to prepare
and send this tailored Notice to beneficial owners. The intermediaries
also would be required to forward paper or e-mail copies to beneficial
owners upon request. Finally, intermediaries would have to post their
requests for voting instructions on an Internet Web site, permit
shareholders to make a permanent election to receive paper or e-mail
copies of the proxy materials, keep records of those elections, and
deliver copies of the proxy materials according to those elections.
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\20\ A soliciting person other than the issuer must provide
intermediaries with such information in sufficient time for the
intermediaries to prepare and send the intermediary's Notice by the
later of: (1) 40 calendar days prior to the security holder meeting
date or, if no meeting is to be held, 40 calendar days prior to the
date the votes, consents, or authorizations may be used to effect
the corporate action; or (2) 10 calendar days after the date that
the registrant first sends its proxy statement or Notice of Internet
Availability of Proxy Materials to security holders. See Rule 14a-
16(l)(2) [17 CFR 240.14a-16(l)(2)].
\21\ For a more complete discussion of the content of the
intermediary's Notice, see Section II.B.2 of Release No. 34-55146.
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Request for Comment
Should we make any modifications to the universal Internet
availability model as it would apply to intermediaries if we adopt this
proposal? If so, how should the model be modified and why? Should there
be any changes to the timeframes for sending the intermediary's Notice,
the contents of the intermediary's Notice or the types of materials
that could be sent with the Notice? Should any revisions be made to the
Web site posting requirements or the requirements to send copies upon
request?
C. Universal Internet Availability Model for Soliciting Persons Other
Than the Issuer
A soliciting person other than the issuer also would be required to
follow the universal Internet availability model. Consistent with the
existing proxy rules and the voluntary model, the proposed rules treat
such soliciting persons differently from the issuer in certain
respects.
First, a soliciting person is not required to solicit every
shareholder. It may select the specific shareholders from whom it
wishes to solicit proxies. Under the proposed universal Internet
availability model, a soliciting person other than the issuer would be
able to choose to send Notices only to those shareholders who have not
previously requested paper copies.\22\
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\22\ Under Rule 14a-7 [17 CFR 240.14a-7], an issuer is required
to either mail the Notice on behalf of the soliciting person, in
which case the soliciting person can request that the issuer send
Notices only to shareholders who have not requested paper copies, or
provide the soliciting person with a shareholder list, indicating
which shareholders have requested paper copies. For a more complete
discussion of the interaction of the model with Rule 14a-7, see
Section II.C.4 of Release No. 34-55146.
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Second, soliciting persons other than the issuer would be required
to send a Notice to shareholders by the later of:
40 calendar days prior to the shareholder meeting date or,
if no meeting is to be held, 40 calendar days prior to the date that
votes, consents, or authorizations may be used to effect the corporate
action; or
10 calendar days after the date that the issuer first
sends its proxy materials to shareholders.
Finally, if at the time the Notice is sent, a soliciting person
other than the issuer is not aware of all matters on the shareholder
meeting agenda, the Notice would have to provide a clear and impartial
identification of each separate matter to be acted upon at the meeting,
to the extent known by the soliciting person. The soliciting person's
Notice also would have to include a clear statement that there may be
additional agenda items that the soliciting person is unaware of, and
that the shareholder cannot direct a vote for those items on the
soliciting person's proxy card provided at that time. If a soliciting
person other than the issuer sends a proxy card that does not reference
all matters that shareholders will act upon at the meeting, the Notice
would have
[[Page 4179]]
to clearly state whether execution of the proxy card would invalidate a
shareholder's prior vote using the issuer's card on matters not
presented on the soliciting person's proxy card.
Request for Comment
Should we require soliciting persons other than the issuer
to follow the universal Internet availability model? If not, why not?
Would the universal Internet availability model impose significant
costs on soliciting persons other than the issuer? If so, what would
they be and how could they be mitigated?
Rule 14a-2(a)(6) \23\ permits a soliciting person to
solicit proxies without otherwise complying with Rules 14a-3 through
14a-15 \24\ by placing a newspaper advertisement which does no more
than inform shareholders of (1) a source from which they may obtain
copies of a proxy statement, proxy card and other soliciting materials,
(2) the name of the issuer, (3) the reason for the advertisement, and
(4) the proposals to be acted upon by shareholders. Should the
universal Internet availability model apply to such solicitations? If
so, how should it apply? In light of the amendments, should we keep
such a model available to soliciting persons?
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\23\ 17 CFR 240.14a-2(a)(6).
\24\ 17 CFR 240.14a-3 through 240.14a-15.
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Should we make any revisions to Rule 14a-7 to accommodate
the universal Internet availability model?
If we adopt the universal Internet availability model,
should we modify any aspects of the model as it relates to soliciting
persons other than the issuer? If so, how should the proposed model be
modified and why? Should there be any changes to the timeframes for
sending the Notice, the contents of the Notice or the types of
materials that can be sent with it? Should any revisions be made to the
Web site posting requirements or the requirements to send copies upon
request?
D. Option To Send Full Set of Proxy Materials With Notice Under the
Universal Internet Availability Model
Under the voluntary model that we are adopting, issuers or other
soliciting persons are obligated to provide a paper or e-mail copy of
the proxy materials upon request to a shareholder to whom they have
provided a Notice. Issuers and other soliciting persons are not allowed
to send the Notice with any document other than a notice of shareholder
meeting required under state law and a pre-printed, postage-paid reply
card for a shareholder to request a copy of the proxy materials.
Under the proposed universal Internet availability model, a full
set of proxy materials, including a proxy statement, annual report (if
required), and proxy card or request for voting instructions could
accompany the Notice that is sent to shareholders and beneficial
owners.\25\ This would allow an issuer or other soliciting person that
wants to furnish paper copies of the proxy materials to some or all of
its shareholders in the first instance to do so in one delivery with
the Notice. This is different from the voluntary notice and access
model because presumably an issuer or soliciting person would not
choose to rely on the model if it intended to furnish paper copies of
the proxy materials to all of the shareholders it was soliciting. As
this proposal would require an issuer to follow the universal Internet
availability model, it is necessary to expressly provide a means for
issuers that also wish to send paper copies of the proxy materials
along with the Notice as part of the same delivery package to
shareholders to do so under the model.
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\25\ The requirement in Exchange Act Rules 14a-3(b) and 14c-3(a)
to furnish annual reports to security holders does not apply to
registered investment companies [17 CFR 240.14a-3(b) and 240.14c-
3(a)]. A soliciting person other than the issuer also is not subject
to this requirement.
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The proposal would not permit an issuer or other soliciting person
to initially send the Notice with other proxy materials, unless it is
accompanied by a full set of proxy materials.\26\ For example, an
issuer or other soliciting person would not be permitted to send
initially only the Notice and a proxy card to shareholders.\27\
Instead, it would have to send a full set of proxy materials with the
Notice, or send only the Notice. An issuer or other soliciting person
choosing to deliver a full set of proxy materials with the Notice would
be permitted to revise its Notice to delete any reference to a
shareholder's right to request copies of the materials because all
required proxy materials already would have been sent to shareholders.
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\26\ A ``full set'' of proxy materials would contain (1) a proxy
statement or information statement, (2) an annual report if one is
required by Rule 14a-3(b) or Rule 14c-3(a), and (3) a proxy card or,
in the case of a beneficial owner, a request for voting
instructions, if proxies are being solicited.
\27\ However, it may send the Notice and proxy card together 10
calendar days or more after it initially sends the Notice. See Rule
14a-16(h) [17 CFR 240.14a-16(h)].
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If an issuer or other soliciting person sends a full set of the
proxy materials with the Notice, it need not comply with the deadlines
in Rule 14a-16 for sending the Notice. Thus, if an issuer is unable or
unwilling to meet the 40-day deadline, it still may begin its
solicitation after that deadline provided that it accompanies its
Notice with a full set of the proxy materials. Similarly, a soliciting
person other than the issuer that fails to send its Notice by the later
of 40 calendar days before the meeting date or 10 calendar days after
the issuer first sends it proxy materials could begin its solicitation
after that deadline if it accompanies its Notice with a full set of
proxy materials.
We also propose to permit a registered investment company to send
its prospectus and/or report to shareholders together with the Notice,
with or without the proxy statement and form of proxy. While the proxy
rules do not require registered investment companies to furnish annual
reports to security holders with their proxy materials, under the
Investment Company Act of 1940, registered investment companies are
required to transmit a report to shareholders at least semi-
annually.\28\ In addition, many mutual funds send their prospectuses to
their existing shareholders annually in order to meet prospectus
delivery obligations with respect to additional share purchases.
Without our proposal for registered investment companies, they would be
required to deliver both their prospectuses and shareholder reports
separately from the Notice, which could result in increased costs to
fund shareholders.
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\28\ 15 U.S.C. 80a-29(e).
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Request for Comment
Should issuers and other soliciting persons be allowed to
accompany the Notice with a full set of proxy materials?
Is there potential for confusion if issuers and other
soliciting persons choose to deliver to shareholders a full set of
proxy materials in paper, but also send a Notice to them? If an issuer
chooses to send a full set of the proxy materials with the Notice to a
shareholder under this option, should the rules permit the issuer to
incorporate the information required in the Notice into the proxy
statement or some other document, rather than prepare a separate
Notice?
Should issuers, soliciting persons and intermediaries be
permitted to remove the right to request copies if a full set of the
proxy materials is included with the Notice, as proposed?
Should registered investment companies be permitted to
accompany the Notice with a prospectus and/or report to shareholders?
If so, should they be permitted to do this without also including a
proxy statement and
[[Page 4180]]
form of proxy? Is there any other category of issuer for which a
similar accommodation would be appropriate?
The proposed deadlines for sending the Notice are intended
to provide shareholders with sufficient time to request copies. If an
issuer or other soliciting person is unable to meet the deadlines under
the universal Internet availability model, should either be permitted
to begin its solicitation after those deadlines have passed if a full
set of proxy materials accompanied the Notice, as proposed?
If an issuer or other soliciting person elected to send a
full set of proxy materials with the Notice, should it be permitted to
include additional soliciting materials with the Notice as well?
Are there any complications that might arise with respect
to intermediaries by providing issuers and other soliciting persons the
option to provide a full set of proxy materials? If so, how could these
complications be addressed?
III. Compliance Dates
Issuers and other soliciting persons may begin complying with the
voluntary model on July 1, 2007. We are soliciting comment on
compliance dates for the universal Internet availability model. If
adopted, we are considering making the universal Internet availability
model effective for large accelerated filers, not including registered
investment companies, on January 1, 2008, and for all other issuers,
including registered investment companies, on January 1, 2009. Such a
tiered compliance regime may lessen any burden imposed by requiring
smaller companies to follow the model.
In determining an appropriate compliance date for the universal
Internet availability model, we are considering the extent to which we
will be able to study the implementation of the voluntary model before
adopting the universal Internet availability model. The industry's
experience with these models will provide information on whether the
rules are achieving their intended purposes. We welcome information
from issuers and all other parties involved in the proxy distribution
process. This information would include:
The ability of issuers to provide shareholders with
qualitatively better disclosure using the additional features available
on the Internet, including XBRL, graphical, comparative and interactive
features;
The extent to which issuers and other soliciting persons
avail themselves of opportunities to exploit other linked data and
resources, and make these available to shareholders in ways that are
not possible with printed material;
The impact on shareholder understanding of complex
material;
The effect of the model on proxy voting;
The impact on costs of proxy solicitation;
Shareholder voting data before and after adoption,
including data on shareholder voting participation rates;
The number of paper copies of proxy materials requested by
shareholders;
Any problems encountered with implementing the program,
including problems encountered by smaller issuers; and
Shareholder satisfaction with their choices of ways to
communicate with the company.
Request for Comment
What compliance dates would be appropriate for the
universal Internet availability model? Should we permit at least one
proxy season under the voluntary model to pass before requiring use of
the universal Internet availability model? What compliance dates would
give us and the market sufficient time to examine the performance of
the voluntary model if we decide to convert to the universal Internet
availability model after January 1, 2008?
Should we adopt a tiered system of compliance dates for
compliance with the universal Internet availability model, as we are
considering doing? For example, should we require that some class of
issuer, such as large accelerated filers, comply with the universal
Internet availability model initially, and that other filers comply at
a later date? If so, what should those dates be and which category of
filers should go first?
If we were to adopt a tiered system of compliance dates,
how many tiers should there be? What would be the appropriate classes
(e.g., large accelerated filers, accelerated filers, or small business
issuers) for each tier? Should we divide issuers differently?
What compliance dates would be appropriate for mutual
funds, closed-end funds, business development companies, and other
investment companies?
Should there be a different compliance date for soliciting
persons other than issuers? If so, why and what compliance dates would
be appropriate?
IV. General Request for Comment
We request and encourage any interested person to submit comments
regarding:
(1) The proposed changes that are the subject of this release,
(2) Additional or different changes, or
(3) Other matters that may have an effect on the proposals
contained in this release.
With regard to any comments, we note that such comments are of greatest
assistance to our rulemaking initiative if accompanied by supporting
data and analysis of the issues addressed in those comments.
V. Paperwork Reduction Act
Certain provisions of the amendments contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA''), including preparation of Notices,
maintaining Web sites, maintaining records of shareholder preferences,
and responding to requests for copies. The titles for the collections
of information are: \29\
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\29\ In connection with the proposing release for the voluntary
model, we described the proposed Notice of Internet Availability of
Proxy Materials as a new collection of information, rather than a
part of our existing collections of information related to
Regulations 14A and 14C. However, we subsequently submitted to OMB a
PRA analysis based on revisions to the Regulation 14A and Regulation
14C collections. Although we did not revise our burden estimates
associated with the Notice, the collection of information approved
by OMB related to revisions to existing collections of information
(Regulations 14A and 14C) and therefore we refer to those
collections of information in this PRA discussion.
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Regulation 14A (OMB Control No. 3235-0059)
Regulation 14C (OMB Control No. 3235-0057)
We requested public comment on these collections of information in
the release proposing the notice and access model as a voluntary model
for disseminating proxy materials,\30\ and submitted them to the Office
of Management and Budget (``OMB'') for review in accordance with the
PRA. We received approval for the collection of information. We are
submitting a revised PRA analysis to OMB in conjunction with the
release adopting the notice and access model as a voluntary model. In
that release, we assumed conservatively that all issuers and other
persons soliciting proxies would follow the voluntary model because the
proportion of issuers and other soliciting persons that would elect to
follow the model was uncertain.
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\30\ Release No. 34-52926 (Dec. 8, 2005) [70 FR 74597].
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The proposed rules would require all issuers and other soliciting
persons to follow the model. Therefore, our preliminary estimate is
that the rule amendments that we are proposing in this release will not
impose any new recordkeeping or information collection requirements
beyond those described in
[[Page 4181]]
the release adopting the voluntary model, or necessitate revising the
burden estimates for any existing collections of information requiring
OMB's approval. Further, our preliminary estimate is that the one
significant modification to the notice and access model we are
proposing for the universal Internet availability model, the option to
provide a full set of proxy materials with the Notice, does not require
us to modify our burden estimates for the Regulation 14A and 14C
collections of information. We solicit comment on the accuracy of our
estimate that no additional recordkeeping or information collection
requirements or changes to existing collection requirements would
result from the proposed amendments.
VI. Cost-Benefit Analysis
A. Background
We are proposing revisions to the proxy rules under the Exchange
Act to require issuers and other soliciting persons to follow the
universal Internet availability model for furnishing proxy materials.
The proposed amendments are intended to provide all shareholders with
the ability to choose the means by which they receive proxy materials,
to expand use of the Internet to ultimately lower the costs of proxy
solicitations, and to improve shareholder communications.
B. Summary of Proposals
The proposals would provide a universal Internet availability model
that would require issuers and other soliciting persons to furnish
proxy materials by posting them on a specified, publicly-accessible
Internet Web site (other than the Commission's EDGAR Web site) and
providing shareholders with a notice informing them that the materials
are available and explaining how to access them. Under this model,
shareholders may request copies of the proxy materials from the issuer.
Shareholders receiving a Notice from a soliciting person other than the
issuer may also request copies from that person. However, neither an
issuer nor a soliciting person other than the issuer would have to
provide copies on request if it chooses to send a full set of proxy
materials, including the proxy statement, annual report (if required)
and proxy card, with the Notice. The proposals also would require
intermediaries to follow similar procedures to provide beneficial
owners with access to the proxy materials.
C. Benefits
Currently, issuers decide whether to provide shareholders with the
choice to receive proxy materials by electronic means. The proposed
amendments are intended to provide all shareholders with the ability to
choose the means by which they receive proxy materials, to expand use
of the Internet to lower the costs of proxy solicitations, and to
improve shareholder communications. The proposed amendments, if
adopted, would provide all shareholders with the ability to choose
whether to receive proxy materials in paper, by e-mail or via the
Internet. As technology continues to progress, accessing the proxy
materials on the Internet should increase the utility of our disclosure
requirements to shareholders. Information in electronic documents is
often more easily searchable than paper documents. Users are better
able to go directly to any section of the document that they believe to
be the most important. They also permit users to more easily manipulate
data and enter data into analytical tools such as spreadsheet programs.
Such tools enable users to compare relevant data about several
companies more easily.
In addition, encouraging shareholders to use the Internet in the
context of proxy solicitations may encourage improved shareholder
communications in other ways. Electronic innovations such as Internet
chat rooms and bulletin boards may enhance shareholders' ability to
communicate not only with management, but with each other. Such direct
access may improve shareholder relations to the extent shareholders
feel that they have enhanced access to management. Centralizing an
issuer's disclosure on a Web site may facilitate shareholder access to
other important information, such as research reports and news
concerning the issuer. We believe that migrating proxy disclosure to
the Internet and uniform use of the Internet for that purpose could
ultimately lower the cost of soliciting proxies for all issuers.
In terms of paper processing alone, the benefits of the rule
amendments are limited by the volume of paper processing that would
occur otherwise. As we note in the companion adopting release,
Automatic Data Processing, Inc. (ADP) handles the vast majority of
proxy mailings to beneficial owners.\31\ ADP publishes statistics that
provide useful background for evaluating the likely consequences of the
rule amendments. ADP estimates that, during the 2006 proxy season,\32\
over 69.7 million proxy material mailings were eliminated through a
variety of means, including householding and existing electronic
delivery methods. During that season, ADP mailed 85.3 million paper
proxy items to beneficial owners. ADP estimates that the average cost
of printing and mailing a paper copy of a set of proxy materials during
the 2006 proxy season was $5.64. We estimate that issuers and other
soliciting persons spent, in the aggregate, $481.2 million in postage
and printing fees alone to distribute paper proxy materials to
beneficial owners.\33\ Approximately 50% of all proxy pieces mailed by
ADP in 2005 were mailed during the proxy season.\34\ Therefore, we
estimate that issuers and other persons soliciting proxies from
beneficial owners spent approximately $962.4 million in 2006 in
printing and mailing costs.\35\
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\31\ We expect savings per mailing to record holders to roughly
correspond to savings per mailing to beneficial owners.
\32\ According to ADP data, the 2006 proxy season extended from
February 15, 2006 to May 1, 2006.
\33\ 85.3 million mailings x $5.64/mailing = $481.2 million.
\34\ According to ADP, in 2005, 90,013,175 of 179,833,774, or
50%, of proxy pieces were mailed during the 2005 proxy season.
\35\ $481.2 million/50% = $962.4 million. *COM019*
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In the companion adopting release, we based our estimates on an
assumption that issuers representing between 10% and 50% of proxy
mailings would follow the notice and access model. Under our proposed
universal Internet availability model, we estimate that the paper-
related savings would be similar for firms that choose to mail full
sets of proxy materials only to those investors who request them.
Issuers that choose to mail full sets of proxy materials with the
Notice would not realize any paper-related savings. Based on the
assumption that 19% of shareholders would choose to have paper copies
sent to them when an issuer relies on the notice and access model, we
estimate that the proposal could produce annual paper-related savings
ranging from $48.3 million (if issuers who are responsible for 10% of
all proxy mailings choose to mail proxy materials only to those who
request them) to $241.4 million (if issuers who are responsible for 50%
of all proxy mailings choose to mail proxy materials only to those who
request them).\36\ This
[[Page 4182]]
estimate excludes the effect of the provision of the amendments that
would allow shareholders to make a permanent request for paper copies.
That provision would enable issuers and other soliciting persons to
take advantage of bulk printing and mailing rates for those requesting
shareholders, and therefore should reduce the on-demand costs reflected
in these calculations.
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\36\ This range of potential cost savings depends on data on
proxy material production, home printing costs, and first-class
postage rates provided by Lexecon and ADP, and supplemented with
modest 2006 USPS postage rate discounts. The fixed costs of notice
and proxy material production are estimated to be $2.36 per
shareholder. The variable costs of fulfilling a paper requests,
including handling, paper, printing and postage, are estimated to be
$6.11 per copy requested. Assumptions about percentages of
shareholders requesting paper copies are derived from Forrester
survey data furnished by ADP and adjusted for the reported
likelihood that an investor will take extra steps to get proxy
materials. Our estimate of the total number of shareholders is based
on data provided by ADP and SIA. According to SIA's comment letter,
78.49% of shareholders held their shares in street name. We estimate
that the total number of proxy pieces mailed equals the number of
pieces mailed to beneficial shareholders by ADP in 2005 divided by
78.49%, which equals 179,833,774 / 78.49%, or 229,116,797.
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We estimate that approximately 19% of shareholders would request
paper copies. Commenters on the initial Internet availability proposal
provided alternate estimates. For example, Computershare, a large
transfer agent, estimated that less than 10% of shareholders would
request paper copies.\37\ According to a survey conducted by Forrester
Research for ADP, 12% of shareholders report that they would always
take extra steps to get their proxy materials, and as many as 68% of
shareholders report that they would take extra steps to get their proxy
materials in paper at least some of the time. The same survey also
finds that 82% of shareholders report that they look at their proxy
materials at least some of the time. These survey results suggest that
shareholders may review proxy materials even if they do not vote.
During the 2005 proxy season, only 44% of accounts were voted by
beneficial owners. Put differently, 56%, or 84.8 million accounts, did
not return requests for voting instructions. Our estimate that 19% of
shareholders would request paper copies reflects the diverse estimates
suggested by the available data.
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\37\ See letter from Computershare.
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Although we expect the savings to be significant, the actual paper-
related benefits would be influenced by several factors that we
estimate would become less important over time. First, to the extent
that some shareholders request paper copies of the proxy materials, the
benefits of the amendments in terms of savings in printing and mailing
costs would be reduced. Issuers are concerned that the cost per paper
copy would be significantly greater if they have to mail copies of
paper proxy materials to shareholders on an on-demand basis, rather
than mailing the paper copies in bulk. Thus, if a significant number of
shareholders request paper, the savings would be substantially reduced.
Second, issuers may face a high degree of uncertainty about the number
of requests that they may get for paper proxy materials and may
maintain unnecessarily large inventories of paper copies as a
precaution. As issuers gain experience with the number of sets of paper
materials that they need to supply to requesting shareholders, and as
shareholders become more comfortable with receiving disclosures via the
Internet, the number of paper copies is likely to decline, as would
issuers' tendency to print many more copies than ultimately are
requested. This would lead to growth in paper-related savings from the
rule amendments over time.
Additional benefits would accrue from reductions in the costs of
proxy solicitations by persons other than the issuer. Under the
proposal, persons other than the issuer also can rely on the notice and
access model, but would be able to limit the scope of their proxy
solicitations to shareholders who have not requested paper copies of
the proxy materials. We expect that the flexibility afforded to persons
other than the issuer under the proposal ultimately would reduce the
cost of engaging in proxy contests, thereby increasing the
effectiveness and efficiency of proxy contests as a source of
discipline in the corporate governance process.
The effect of the amendments of lessening the costs associated with
a proxy contest would be limited by the persistence of other costs. One
commenter on the proposed voluntary model noted that a large percentage
of the costs of effecting a proxy contest go to legal, document
preparation, and solicitation fees, while a much smaller percentage of
the costs is associated with printing and distribution of
materials.\38\ However, other commenters suggested that the paper-
related cost savings that can be realized from the rule amendments are
substantial enough to change the way many contests are conducted.\39\
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\38\ See letter from ADP.
\39\ See letters from CALSTRS, Computershare, ISS, and
Swingvote.
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Finally, some benefits from the proposal may arise from a reduction
in what may be regarded as the environmental costs of the proxy
solicitation process.\40\ Specifically, proxy solicitation involves the
use of a significant amount of paper and printing ink. Paper production
and distribution can adversely affect the environment, due to the use
of trees, fossil fuels, chemicals such as bleaching agents, printing
ink (which contains toxic metals), and cleanup washes. To the extent
that paper producers internalize these costs and the costs are
reflected in the price of paper and other materials consumed during the
proxy solicitation process, our dollar estimates of the paper-related
benefits reflect the elimination of these adverse environmental
consequences under the proposed amendments.
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\40\ See letter from American Forests.
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D. Costs
An issuer's compliance with the proposed model, if adopted, would
introduce several new costs into the process of proxy distribution for
issuers that otherwise would choose not to follow the notice and access
model voluntarily and their shareholders, including the following: (1)
The cost of posting proxy materials on an Internet Web site and
providing a means to vote on that Web site; (2) the cost of preparing,
producing, and sending the Notice to shareholders; (3) the cost of
processing shareholders' requests for copies of the proxy materials and
maintaining their permanent election preferences; and (4) the cost to
shareholders of printing proxy materials at home that would otherwise
be printed by issuers.
Under the proposed rules, issuers and other soliciting persons
would be required to post their materials on an Internet Web site and
provide a means to vote on that Web site. We believe the cost of
obtaining a Web site and posting materials on it would be minimal to
issuers and other soliciting persons. The rules do not require
elaborate Web site design. Posting a document on such a Web site and
providing a means to vote, such as posting a telephone number on that
Web site for voting, is a fairly simple and inexpensive process. We
believe the costs of these requirements would be minimal.
A soliciting person, including an issuer, would be required to
provide a means to vote on the Internet Web site. Although, as noted
above, posting a telephone number on a Web site would impose minimal
cost, the soliciting person would have to have a means for collecting
those votes. Thus, at a minimum, the soliciting person would have to
provide an automated system for collecting votes, either over the
Internet or by telephone, or have people staffing telephones to receive
the votes. We are soliciting comment on the cost of establishing such
mechanisms for
[[Page 4183]]
accepting votes. An issuer would also have to maintain records of
shareholders who have requested paper or e-mail copies for all future
solicitations. In the companion release adopting the voluntary notice
and access model, we estimated that this cost to issuers and
intermediaries would be approximately $9,977,500.\41\
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\41\ In that release, we estimated that issuers and
intermediaries would spend a total of 79,820 hours of issuer and
intermediary personnel time maintaining these records. We estimated
the average hourly cost of issuer and intermediary personnel time to
be $125, resulting in a total cost of $9,977,500 for issuer and
intermediary personnel time. See Release No. 34-55146.
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Under the proposed rules, intermediaries would be required to
follow similar requirements as would issuers, including preparing
Notices, providing a means to vote and maintaining records of
shareholders who have requested paper or e-mail copies for future
solicitations. We are soliciting comment on those costs as well.
As we stated in the companion adopting release, the paper-related
savings to issuers and other soliciting persons discussed under the
benefits section above are adjusted for the cost of printing and
sending Notices. If Notices are sent by mail, then the mailing costs
may vary widely among parties. Postage rates likely would vary from
$0.14 to $0.39 per Notice mailed, depending on numerous factors. In our
estimates of the paper-related benefits above, we assume that each
Notice costs a total of $0.13 to print and $0.29 to mail. Based on data
from ADP and SIA, we estimate that issuers and other soliciting persons
send a total of 229,116,797 accounts processed per year.\42\ In the
companion release, we assume that only those firms that choose to adopt
the notice and access model would incur these printing and mailing
costs. Under the proposed universal Internet availability model, all
issuers would be required to furnish each of its shareholders with a
copy of the Notice. Firms that choose to mail full sets of proxy
materials only to those investors who request them would incur the
printing cost and cost of mailing the Notice separately from the proxy
materials. Firms that choose to mail full sets of proxy materials with
the Notice would incur the printing costs, but not the additional
mailing cost. These printing costs represent the incremental cost of
moving to universal Internet availability from the model in the
companion adopting release. If issuers who are responsible for 10% of
all current proxy mailings choose to mail full sets of proxy materials
only to those investors who request them, the remaining 90% of issuers
would incur the total cost of $26.8 million to print the Notice. If
issuers who are responsible for 50% of all current proxy mailings
choose to mail full sets of proxy materials only to those investors who
request them, the remaining 50% of issuers would incur the total cost
of $14.9 million to print the Notice.\43\
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\42\ See www.ics.adp.com/release11/public_site/about/stats.html
stating that ADP handled 179,833,774 in fiscal year 2005 and letter
from SIA stating that beneficial accounts represent 78.49% of total
accounts.
\43\ 90% x 229,116,797 x $0.13 = $26.8 million; 50% x
229,116,797 x $0.13 = $14.8 million; We assume that the additional
cost of mailing the Notice together with the full set of proxy
materials is negligible.
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The universal Internet availability model also requires minimal
added disclosures in the form of a Notice to shareholders, informing
them that the proxy materials are available at a specified Internet Web
site. In the companion adopting release, we assumed, for purposes of
the PRA, that all issuers and other soliciting persons would elect to
follow the procedures, resulting in a total estimated cost to prepare
the Notice of approximately $2,020,475.\44\ Based on the percentage of
issuers that we estimated would adopt the notice and access model,
these costs could range between $1,010,238 (if 50% of issuers adopted
the notice and access model) and $1,818,432 (if 10% of issuers adopted
the notice and access model). The proposal also would require issuers
and intermediaries to maintain records of shareholders who have
requested paper and e-mail copies for future proxy solicitations. We
estimate that this total cost to all issuers and intermediaries would
be approximately $9,977,500,\45\ with an incremental cost due to the
proposals of $4,988,750 (if 50% of issuers adopted the notice and
access model voluntarily), and $8,977,500 (if 10% of issuers adopted
the notice and access model voluntarily).
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\44\ In the companion adopting release, we estimated, for PRA
purposes, that issuers would spend a total of $897,975 on outside
professionals to prepare this disclosure. We also estimated that
issuers would spend a total of 8,980 hours of issuer personnel time
preparing this disclosure. We estimated the average hourly cost of
issuer personnel time to be $125, resulting in a total cost of
$1,122,500 for issuer personnel time. This results in a total cost
of $2,020,475 for all issuers. The costs for posting the materials
on a Web site are included in this calculation.
\45\ In the companion adopting release, we estimated, for PRA
purposes, that issuers and intermediaries would spend a total of
79,820 hours of issuer and intermediary personnel time maintaining
these records. We estimated the average hourly cost of issuer and
intermediary personnel time to be $125, resulting in a total cost of
$9,977,500 for issuer and intermediary personnel time.
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Issuers and their intermediaries would incur additional processing
costs if the proposal is adopted. The proposal would require an
intermediary such as a bank, broker-dealer, or other association to
follow the proposed model if an issuer so requests. An intermediary
that follows the proposed model would be required to prepare its own
Notice to beneficial owners, along with instructions on when and how to
request paper copies and the website where the beneficial owner can
access his or her request for voting instructions. Since issuers
reimburse intermediaries for their reasonable expenses of forwarding
proxy materials and intermediaries and their agents already have
systems to prepare and deliver requests for voting instructions, we do
not expect the involvement of intermediaries in sending their Notices
to significantly affect the costs associated with the proposal.
Under the proposed model, a beneficial owner would be required to
request a copy of proxy materials from its interme
