Universal Internet Availability of Proxy Materials, 4176-4188 [E7-1184]

Download as PDF 4176 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 http://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 http://www.regulations.gov. Follow the instructions for submitting comments. rwilkins on PROD1PC63 with PROPOSAL 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 http:// www.sec.gov/rules/proposed.shtml. Comments also are available for public VerDate Aug<31>2005 16:29 Jan 26, 2007 Jkt 211001 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 PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 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. E:\FR\FM\29JAP2.SGM 29JAP2 Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules 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: rwilkins on PROD1PC63 with PROPOSAL ‘‘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. VerDate Aug<31>2005 16:29 Jan 26, 2007 Jkt 211001 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 PO 00000 CFR 240.14a–6(b). Frm 00003 Fmt 4701 Sfmt 4702 4177 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 E:\FR\FM\29JAP2.SGM 29JAP2 4178 Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules rwilkins on PROD1PC63 with PROPOSAL 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 VerDate Aug<31>2005 16:29 Jan 26, 2007 Jkt 211001 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. PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 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. E:\FR\FM\29JAP2.SGM 29JAP2 Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules 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? rwilkins on PROD1PC63 with PROPOSAL 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. VerDate Aug<31>2005 16:29 Jan 26, 2007 Jkt 211001 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)]. PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 4179 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 E:\FR\FM\29JAP2.SGM U.S.C. 80a–29(e). 29JAP2 4180 Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules rwilkins on PROD1PC63 with PROPOSAL 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 VerDate Aug<31>2005 16:29 Jan 26, 2007 Jkt 211001 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, PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 (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 74597]. E:\FR\FM\29JAP2.SGM 29JAP2 Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules 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. rwilkins on PROD1PC63 with PROPOSAL 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. VerDate Aug<31>2005 16:29 Jan 26, 2007 Jkt 211001 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. PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 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 E:\FR\FM\29JAP2.SGM Continued 29JAP2 4182 Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules rwilkins on PROD1PC63 with PROPOSAL 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. VerDate Aug<31>2005 16:29 Jan 26, 2007 Jkt 211001 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 PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 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 E:\FR\FM\29JAP2.SGM 29JAP2 Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules rwilkins on PROD1PC63 with PROPOSAL 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. VerDate Aug<31>2005 16:29 Jan 26, 2007 Jkt 211001 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. PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 4183 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 E:\FR\FM\29JAP2.SGM 29JAP2 4184 Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules 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. VerDate Aug<31>2005 16:29 Jan 26, 2007 Jkt 211001 • 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 PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 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 E:\FR\FM\29JAP2.SGM 29JAP2 Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules 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 VerDate Aug<31>2005 16:29 Jan 26, 2007 Jkt 211001 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 PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 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. E:\FR\FM\29JAP2.SGM 29JAP2 4186 Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules rwilkins on PROD1PC63 with PROPOSAL 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 VerDate Aug<31>2005 16:29 Jan 26, 2007 Jkt 211001 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). PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 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 E:\FR\FM\29JAP2.SGM 29JAP2 rwilkins on PROD1PC63 with PROPOSAL Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules 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 VerDate Aug<31>2005 16:29 Jan 26, 2007 Jkt 211001 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: PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 4187 (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) * * * E:\FR\FM\29JAP2.SGM 29JAP2 4188 Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Proposed Rules rwilkins on PROD1PC63 with PROPOSAL (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 E:\FR\FM\29JAP2.SGM 29JAP2

Agencies

[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 http://
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 http://
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 
http://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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    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?
---------------------------------------------------------------------------

    \23\ 17 CFR 240.14a-2(a)(6).
    \24\ 17 CFR 240.14a-3 through 240.14a-15.
---------------------------------------------------------------------------

     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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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)].
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 80a-29(e).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \30\ Release No. 34-52926 (Dec. 8, 2005) [70 FR 74597].
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \37\ See letter from Computershare.
---------------------------------------------------------------------------

    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