Document ID: SEC-2007-1035-0001
Agency: sec
Document Type: Rule
Title: Shareholder Choice Regarding Proxy Materials
Posted Date: 2007-08-01T04:00Z

[Federal Register: August 1, 2007 (Volume 72, Number 147)]
[Rules and Regulations]               
[Page 42221-42239]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01au07-21]                         

[[Page 42221]]

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Part II

Securities and Exchange Commission

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17 CFR Part 240

Shareholder Choice Regarding Proxy Materials; Final Rule

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release Nos. 34-56135; IC-27911; File No. S7-03-07]
RIN 3235-AJ79

 
Shareholder Choice Regarding Proxy Materials

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting amendments to the proxy rules under the 
Securities Exchange Act of 1934 to provide shareholders with the 
ability to choose the means by which they access proxy materials. Under 
the amendments, issuers and other soliciting persons will be required 
to post their proxy materials on an Internet Web site and provide 
shareholders with a notice of the Internet availability of the 
materials. The issuer or other soliciting person may choose to furnish 
paper copies of the proxy materials along with the notice. If the 
issuer or other soliciting person chooses not to furnish a paper copy 
of the proxy materials along with the notice, a shareholder may request 
delivery of a copy at no charge to the shareholder.

DATES: Effective Date: January 1, 2008, except Sec.  240.14a-16(d)(3) 
and Sec.  240.14a-16(j)(3) are effective October 1, 2007.
    Compliance Dates: ``Large accelerated filers,'' as that term is 
defined in Rule 12b-2 under the Securities Exchange Act of 1934, not 
including registered investment companies, must comply with the 
amendments regarding proxy solicitations commencing on or after January 
1, 2008. Registered investment companies, persons other than issuers, 
and issuers that are not large accelerated filers conducting proxy 
solicitations (1) may comply with the amendments regarding proxy 
solicitations commencing on or after January 1, 2008 and (2) must 
comply with the amendments regarding proxy solicitations commencing on 
or after January 1, 2009.

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 adopting amendments to 
Rules 14a-3,\1\ 14a-7,\2\ 14a-16,\3\ 14a-101,\4\ 14b-1,\5\ 14b-2,\6\ 
14c-2,\7\ and 14c-3 \8\ under the Securities Exchange Act of 1934.\9\
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    \1\ 17 CFR 240.14a-3.
    \2\ 17 CFR 240.14a-7.
    \3\ 17 CFR 240.14a-16.
    \4\ 17 CFR 240.14a-101.
    \5\ 17 CFR 240.14b-1.
    \6\ 17 CFR 240.14b-2.
    \7\ 17 CFR 240.14c-2.
    \8\ 17 CFR 240.14c-3.
    \9\ 15 U.S.C. 78a et seq.
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Table of Contents

I. Introduction
II. Description of the Amendments
    A. Notice and Access Model for Issuers: Two Options for Making 
Proxy Materials Available to Shareholders
    1. The Notice Only Option: Sending a Notice Without a Full Set 
of Proxy Materials
    a. Contents of the Notice of Internet Availability of Proxy 
Materials
    b. Design of the specified publicly-accessible Web site
    c. Means to vote
    d. Request for paper or e-mail copies
    e. Delivery of a proxy card
    f. Web site confidentiality
    2. The Full Set Delivery Option: Sending a Notice with a Full 
Set of Proxy Materials
    a. Contents of the Notice or incorporation of Notice information
    b. Design of the specified publicly-accessible Web site
    c. Means to vote
    d. Repeat Delivery of a Proxy Card
    e. Web site confidentiality
    3. Differences Between the Full Set Delivery Option and the 
Notice Only Option
    a. Inclusion of a Full Set of Proxy Materials
    b. Request for Copies of the Proxy Materials
    c. 40-Day Deadline
    B. Implications of the Notice and Access Model for 
Intermediaries
    C. Reliance on the Notice and Access Model by Soliciting Persons 
Other Than the Issuer
III. Clarifying Amendments
    A. No Requirement to Provide Recommendations
    B. Deadline for Responding to Requests for Copies After the 
Meeting
    C. Item 4 of Schedule 14A
IV. Compliance Dates
V. Paperwork Reduction Act
VI. Cost-Benefit Analysis
    A. Background
    B. Summary of the Amendments
    C. Benefits
    1. Versatility of the Internet
    2. Reduction in Paper Processing Costs
    3. Reduction in the Cost of Proxy Contests
    4. Environmental Benefits
    D. Costs
    1. Costs Under the Notice Only Option
    2. Costs Under the Full Set Delivery Option
    3. Costs to Intermediaries
    4. Costs to Shareholders
    5. Comments Regarding Unanticipated Costs
    6. Comment on the Complexity of the Notice and Access Model
VII. Consideration of Burden on Competition and Promotion of 
Efficiency, Competition and Capital Formation
VIII. Final Regulatory Flexibility Analysis
    A. Need for the Amendments
    B. Significant Issues Raised by Public Comment
    C. Small Entities Subject to the Amendments
    D. Reporting, Recordkeeping and Other Compliance Requirements
    E. Agency Action To Minimize Effect on Small Entities
IX. Statutory Basis and Text of Amendments

I. Introduction

    On January 22, 2007, we proposed amendments to the proxy rules that 
would require all 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 electronic availability of 
the proxy materials.\10\ Under the proposal, issuers and other 
soliciting persons would be permitted to deliver paper or e-mail copies 
of their proxy materials to shareholders along with the notice. The 
proposal was intended to provide all shareholders with the ability to 
choose the means by which they access proxy materials, including via 
paper, e-mail or the Internet, while still affording issuers and other 
soliciting persons flexibility in determining how to furnish their 
proxy materials to shareholders.\11\ In a companion release issued on 
the same date, we adopted the ``notice and access'' model that issuers 
and other soliciting persons may comply with on a voluntary basis for 
proxy solicitations commencing on or after July 1, 2007.\12\
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    \10\ See Release No. 34-55147 (Jan. 22, 2007) [72 FR 4176].
    \11\ 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].
    \12\ Release No. 34-55146 (Jan. 22, 2007) [72 FR 4148].
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    We received 23 comment letters on the proposal. The vast majority 
of commenters generally supported our goal of increasing reliance on 
technology to improve proxy distribution.\13\ However, many of the

[[Page 42223]]

commenters thought that the Commission's timetable for adopting the 
proposed amendments was too aggressive.\14\ They suggested that we 
postpone adoption of the proposal until we gain experience from 
operation of the voluntary rule.
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    \13\ See letters from AARP, American Business Conference (ABC), 
Automatic Data Processing Brokerage Services Group, now known as 
Broadridge Financial Solutions, Inc. (ADP), Bank of New York (BONY), 
U.S. Chamber of Commerce (Chamber of Commerce), Council of 
Institutional Investors (CII), Commerce Finance Printers Corp. 
(Commerce Finance Printers), Computershare, Dechert LLP (Dechert), 
Kathryn Elmore and Michael Allen (Elmore & Allen), Investment 
Company Institute (ICI), Infosys Technologies Limited (Infosys), 
MailExpress, Reed Smith LLP (Reed Smith), Registrar and Transfer 
Company (Registrar and Transfer), Karl W. Reimers (Reimers), Ayal 
Rosenthal (Rosenthal), Society of Corporate Secretaries and 
Governance Professionals (SCSGP), Securities Industry and Financial 
Markets Association (SIFMA), Mark Snyder (Snyder), Shareholder 
Services Association (SSA), and Securities Transfer Association, 
Inc. (STA).
    \14\ See letters from AARP, ABC, ADP, BONY, Chamber of Commerce, 
CII, Computershare, ICI, Reed Smith, Registrar and Transfer, SCSGP, 
SIFMA, SSA, and STA.
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    Although we acknowledge the timing concerns raised by the 
commenters, we think that it is appropriate to adopt the proposal at 
this time because the model that we are adopting will provide 
shareholders with enhanced choices without changing significantly the 
obligations of an issuer or other soliciting person. The only new 
obligations that the revised notice and access model will impose on 
issuers and other soliciting persons compared to the voluntary rule is 
that an issuer or other person soliciting proxies who wishes to 
initially furnish a full set of proxy materials in paper to 
shareholders will be required to: (1) Post those proxy materials on an 
Internet Web site; and (2) include a Notice of Internet Availability of 
Proxy Materials (Notice) with the full set or incorporate the Notice 
information into its proxy statement and proxy card.\15\
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    \15\ The effective result of the rules is that an intermediary 
must prepare Notices (or incorporate Notice information in its 
request for voting instructions) and create Web sites for all 
issuers for which securities are held by the intermediary's 
customers, rather than only for issuers who elect to follow the 
notice and access model under the voluntary system.
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    Furthermore, under the phase-in schedule that we are establishing 
for expanding the notice and access model to all issuers and other 
soliciting persons, the largest public companies will become subject to 
the model a year before any other companies become subject to the 
model. Most of these companies already appear to post their proxy 
materials and Exchange Act reports on an Internet Web site.\16\ A large 
accelerated filer (not including registered investment companies) will 
have to comply with the notice and access model for solicitations 
beginning on or after January 1, 2008.\17\ All other issuers (including 
registered investment companies) and soliciting persons other than 
issuers will have to comply with the model for solicitations beginning 
on or after January 1, 2009. This tiered system of implementation 
addresses the commenters' timing concerns by providing the Commission 
with a significant test group of large accelerated filers from which to 
obtain operating data and more than a full year to study the effects of 
the notice and access model and make any necessary revisions to the 
rules before they apply to other entities.
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    \16\ Based on a random sampling of 150 large accelerated filers, 
approximately 80% of such filers already post their proxy materials 
on a non-EDGAR Web site, while almost all of the rest provide a link 
on their Web site to the Commission's EDGAR system. Only a small 
handful of such filers do not post their proxy materials on their 
Web site at all. We note, however, that currently there is no 
requirement that such Web sites preserve the anonymity of persons 
accessing the Web site. See Section II.A.1.f of this release for a 
description of this requirement.
    \17\ 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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    In addition, several commenters were concerned that the proposals 
would have required all issuers to establish Internet voting platforms 
\18\ or to prepare their proxy materials at least 40 days prior to the 
shareholder meeting,\19\ and therefore would impose significant costs 
on issuers. As discussed in detail below, the final rules do not 
require, and the proposals would not have required, an issuer or other 
soliciting person to establish an Internet voting platform. Similarly, 
the rules do not require an issuer or other soliciting person that 
sends a full set of proxy materials to shareholders to prepare its 
proxy materials at least 40 days prior to the meeting.
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    \18\ See letters from ABC, BONY, and Registrar and Transfer.
    \19\ See, for example, letters from Chamber of Commerce, CII, 
Commerce Financial Printers, Elmore & Allen, ICI, and STA.
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II. Description of the Amendments

    Under the amendments, an issuer that is required to furnish proxy 
materials to shareholders under the Commission's proxy rules must post 
its proxy materials on a specified, publicly-accessible Internet Web 
site (other than the Commission's EDGAR Web site) and provide record 
holders with a notice informing them that the materials are available 
and explaining how to access those materials.\20\ Intermediaries also 
must follow the notice and access model to furnish an issuer's proxy 
materials to beneficial owners. Persons other than the issuer 
conducting their own proxy solicitations must comply with the notice 
and access model as well. By requiring Internet availability of proxy 
materials, the 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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    \20\ See revised Rule 14a-3(a). The notice and access model does 
not apply to a proxy solicitation related to a business combination 
transaction. See Rule 14a-16(m) [17 CFR 240.14a-16(m)]. Also, as 
with the voluntary model, the notice and access model does not apply 
if the law of the issuer's state of incorporation would prohibit 
them from furnishing proxy materials in that manner. See Rule 14a-
3(a)(3)(ii).
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A. Notice and Access Model for Issuers: Two Options for Making Proxy 
Materials Available to Shareholders

    The notice and access model allows an issuer to select either of 
the following two options to provide proxy materials to shareholders: 
(1) The ``notice only option'' and (2) the ``full set delivery 
option.'' Under the notice only option, an issuer will comply with the 
same requirements that we adopted in connection with the voluntary 
notice and access model. Under these requirements, the issuer must post 
its proxy materials on an Internet Web site and send a Notice to 
shareholders to inform them of the electronic availability of the proxy 
materials at least 40 days before the shareholders meeting. If an 
issuer follows this option, it must respond to shareholder requests for 
copies, including a shareholder's permanent request for paper or e-mail 
copies of proxy materials for all shareholder meetings.
    Under the full set delivery option, an issuer can deliver a full 
set of proxy materials to shareholders, along with the Notice. An 
issuer need not prepare and deliver a separate Notice if it 
incorporates all of the information required to appear in the Notice 
into its proxy statement and proxy card,\21\ and it need not respond to 
requests for copies as required under the notice only option.
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    \21\ If not soliciting proxies, an issuer may incorporate the 
Notice information into its information statement.
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    An issuer does not have to choose one option or the other as the 
exclusive means for providing proxy materials to shareholders. Rather, 
an issuer may use

[[Page 42224]]

the notice only option to provide proxy materials to some shareholders 
and the full set delivery option to provide proxy materials to other 
shareholders. We describe both options in greater detail below.
1. The Notice Only Option: Sending a Notice Without a Full Set of Proxy 
Materials
    We are adopting the notice only option substantially as proposed. 
Under the notice only option, an issuer will follow the same procedures 
that we have established under the existing notice and access model 
that issuers may choose to comply with on a voluntary basis for proxy 
solicitations commencing on or after July 1, 2007.\22\ Under these 
procedures, the issuer must send a 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.\23\ Issuers may household the Notice pursuant to Rule 14a-
3(e).\24\
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    \22\ See Rule 14a-16 [17 CFR 240.14a-16].
    \23\ Rule 14a-16(a)(1) [17 CFR 240.14a-16(a)(1)].
    \24\ 17 CFR 240.14a-3(e).
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a. Contents of the Notice of Internet Availability of Proxy Materials
    The Notice must contain the following information: \25\
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    \25\ Rule 14a-16(d) [17 CFR 240.14a-16(d)]. Appropriate changes 
must be made if the issuer is providing an information statement 
pursuant to Regulation 14C, seeking to effect a corporate action by 
written consent, or is a legal entity other than a corporation.
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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, if 
any, 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
     Information about attending the shareholder meeting and 
voting in person.
    The Notice must be written in plain English.\26\ 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.\27\ 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.\28\ 
In addition, a registered investment company may send its prospectus 
and/or report to shareholders together with the Notice.\29\ The issuer 
must file its Notice with the Commission pursuant to Rule 14a-6(b) \30\ 
no later than the date that it first sends the Notice to 
shareholders.\31\
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    \26\ Rule 14a-16(g) [17 CFR 240.14a-16(g)].
    \27\ Rule 14a-16(e) [17 CFR 240.14a-16(e)].
    \28\ Rule 14a-16(e)(2)(ii) [17 CFR 240.14a-16(e)(2)(ii)].
    \29\ See new Rule 14a-16(f)(2)(iii).
    \30\ 17 CFR 240.14a-6(b).
    \31\ Rule 14a-16(i) [17 CFR 240.14a-16(i)].
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b. Design of the Specified Publicly-Accessible Web Site
    An issuer must 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.\32\ The specified Web site may not be the Commission's 
EDGAR system.\33\ The issuer also must 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.\34\ The 
materials must be presented on the Web site in a format, or formats, 
convenient for both reading online and printing on paper.\35\ The proxy 
materials must remain available on that Web site through the conclusion 
of the shareholder meeting.\36\
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    \32\ Rule 14a-16(b)(1) [17 CFR 240.14a-16(b)(1)].
    \33\ Rule 14a-16(b)(3) [17 CFR 240.14a-16(b)(3)].
    \34\ Rule 14a-16(b)(2) [17 CFR 240.14a-16(b)(2)].
    \35\ Rule 14a-16(c) [17 CFR 240.14a-16(c)]. See Section II.A.3 
of Release 34-55146 (Jan. 22, 2007) [72 FR 4148]. One commenter 
asked the Commission to consider the costs of requiring such 
formats. See letter from ICI. We believe that requiring readable and 
printable formats is important so that shareholders have meaningful 
access to the proxy materials. When determining the readability and 
printability of formats, issuers should consider the size of the 
files because many shareholders do not have broadband connections. 
Although some types of files may be suitable for persons with high-
speed Internet access, the readability and printability of a 
document may be affected significantly by the time that it takes to 
download the document.
    \36\ Rule 14a-16(b)(1) [17 CFR 240.14a-16(b)(1)].
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c. Means To Vote
    An issuer also must provide shareholders with a method to execute 
proxies as of the time the Notice is first sent to shareholders.\37\ 
Several commenters on the proposal questioned whether this provision 
would require all issuers to establish Internet voting platforms.\38\ 
The final rules do not require, and the proposals would not have 
required, an issuer to establish an Internet voting platform. Rather, 
an issuer can satisfy this requirement through a variety of methods, 
including providing an electronic voting platform, a toll-free 
telephone number for voting, or a printable or downloadable proxy card 
on the Web site. As noted above, if a telephone number for executing a 
proxy is provided, such a telephone number may appear on the Web site, 
but not on the Notice because it would enable a shareholder to execute 
a proxy without having access to the proxy statement.
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    \37\ Rule 14a-16(b)(4) [17 CFR 240.14a-16(b)(4)].
    \38\ See letters from ABC, BONY, and Registrar and Transfer.
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d. Request for Paper or E-mail Copies
    An issuer must provide paper or e-mail copies at no charge to 
shareholders requesting such copies.\39\ It also must allow 
shareholders to make a permanent election to receive paper or e-mail 
copies of proxy materials distributed in connection with future proxy 
solicitations, and maintain

[[Page 42225]]

records of those elections.\40\ Further, the issuer must provide a 
toll-free telephone number, e-mail address, and Internet Web site 
address as a means by which a shareholder can 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.\41\ The 
issuer also may include a pre-addressed, postage-paid reply card with 
the Notice that shareholders can use to request a copy of the proxy 
materials.\42\
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    \39\ Rule 14a-16(j) [17 CFR 240.14a-16(j)].
    \40\ See Rule 14a-16(d)(5) and (j)(4) [17 CFR 240.14a-16(d)(5) 
and (j)(4)].
    \41\ Rule 14a-16(d)(5) [17 CFR 240.14a-16(d)(5)].
    \42\ Rule 14a-16(f)(2)(i) [17 CFR 240.14a-16(f)(2)(i)].
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e. Delivery of a Proxy Card
    An issuer may not send a paper or e-mail 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, if 
required, to security holders sent via the same medium.\43\ This 
provision is intended to assist an issuer's efforts to solicit proxies 
if its initial efforts have not produced adequate response. This is 
similar to many issuers' current practice of sending reminder notices 
and duplicate proxy cards to shareholders who have not responded to the 
issuer's original request for proxy voting instructions.
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    \43\ Rule 14a-16(h) [17 CFR 240.14a-16(h)].
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    One commenter remarking on this aspect of the proposals expressed 
concern that shareholders receiving proxy cards separately from the 
proxy statement and annual report may make their voting decisions 
without the benefit of access to those disclosure documents.\44\ We 
appreciate this concern. However, at the point that a shareholder 
receives such a proxy card, the shareholder already would have received 
a Notice that provides information on how the shareholder can access 
the proxy materials and request copies of the materials, if desired. 
Moreover, the shareholder also would receive another copy of the Notice 
with the proxy card. We believe that, at this point, the shareholder 
will have had ample opportunity to either access the proxy materials on 
the Internet Web site or request a copy of those materials.
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    \44\ See letter from CII.
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f. Web Site Confidentiality
    An issuer must 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.\45\ An issuer also may not use any e-
mail address provided by a shareholder solely to request a copy of 
proxy materials for any purpose other than to send a copy of those 
materials to that shareholder.\46\ The issuer also may not disclose a 
shareholder's e-mail address to any person, except to its agent or an 
employee of the issuer. This disclosure may be made only for the 
purpose of facilitating delivery of a copy of the issuer's proxy 
materials by the agent or employee to a shareholder requesting a copy 
of the materials.
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    \45\ Rule 14a-16(k)(1) [17 CFR 240.14a-16(k)(1)]. See Section 
II.A.1.b.iii of Release No. 34-55146 (Jan. 22, 2007) [72 FR 4148].
    \46\ 46 Rule 14a-16(k)(2) [17 CFR 240.14a-16(k)(2)].
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    Three commenters were concerned about the provisions of the model 
that require a company to maintain the designated Web site in a manner 
that does not infringe on the anonymity of persons accessing the Web 
site.\47\ One commenter was concerned that the prohibition on 
``cookies'' will raise the costs of maintaining Internet Web sites.\48\ 
Conversely, one commenter was concerned that there could be potential 
abuses of shareholder privacy through information tracking and 
collection of information on Internet Web sites.\49\ Similar concerns 
regarding potential abuses of shareholder privacy also were raised with 
regard to the adoption of the voluntary notice and access model.
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    \47\ See letters from CII, ICI, and Reed Smith.
    \48\ See letter from ICI.
    \49\ See letter from CII.
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    Although we recognize that the confidentiality requirements may 
increase the cost of maintaining an Internet Web site, we believe that 
the protection of shareholder information is important. A rule that 
permits issuers to discover the identity of a person accessing the Web 
site could effectively negate a beneficial owner's ability under the 
proxy rules to object to an intermediary's disclosure of that 
beneficial owner's identity to the issuer.\50\ In addition, a rule 
without this prohibition on the issuer may make some shareholders 
hesitant to access the proxy disclosures, which would not promote the 
purposes of this rule. Therefore we have retained this provision of the 
rule to help prevent potential abuses of shareholder information.
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    \50\ See Rules 14b-1(b) and 14b-2(b) [17 CFR 240.14b-1(b) and 
240.14b-2(b)].
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    We do not believe that this requirement will impose any undue 
burden on companies. Under the rule, a company must refrain from 
installing cookies and other tracking features on the Web site on which 
the proxy materials are posted. This may require segregating those 
pages from the rest of the company's regular Web site or creating a new 
Web site. However, the rule does not require the company to turn off 
the Web site's connection log, which automatically tracks numerical IP 
addresses that connect to that Web site. Although in most cases, this 
IP address does not provide companies with sufficient information to 
identify the accessing shareholder, companies may not use these numbers 
to attempt to find out more information about persons accessing the Web 
site. In addition, shareholders still concerned about their anonymity 
can request copies from their intermediaries.
2. The Full Set Delivery Option: Sending a Notice With a Full Set of 
Proxy Materials
    Under the ``full set delivery option,'' an issuer will follow 
procedures that are substantially similar to the traditional means of 
providing proxy materials in paper.\51\ Under this option, in addition 
to sending proxy materials to shareholders as under the traditional 
method, an issuer must:
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    \51\ Under the traditional proxy delivery scheme, issuers could 
send proxy materials to shareholders via e-mail provided they 
followed Commission guidance regarding such delivery, which 
typically required obtaining affirmative consent from individual 
shareholders. See Release No. 33-7233 (Oct. 6, 1995) [60 FR 53458]. 
Issuers may continue to rely on such guidance to send materials 
electronically to shareholders. See Section II.A. of this release.
---------------------------------------------------------------------------

     Send a Notice accompanied by a full set of proxy 
materials,\52\ or incorporate all of the information required to appear 
in the Notice into the proxy statement and proxy card; \53\ and
---------------------------------------------------------------------------

    \52\ 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.
    \53\ See new Rule 14a-16(n)(2).
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     Post the proxy materials on a publicly accessible Web site 
no later than the date the Notice was first sent to shareholders.\54\
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    \54\ As discussed below, this date does not have to be at least 
40 days prior to the shareholder meeting date.

Issuers may household the Notice and other proxy materials pursuant to 
Rule 14a-3(e).\55\
---------------------------------------------------------------------------

    \55\ 17 CFR 240.14a-3(e).
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a. Contents of the Notice or Incorporation of Notice Information
    Under the final rules that we are adopting, a separate Notice is 
not required if the issuer presents all of the

[[Page 42226]]

information required in the Notice in its proxy statement and proxy 
card.\56\ In the proposing release, we solicited comment on whether we 
should permit the issuer that is sending a full set to incorporate the 
information required in the Notice into the proxy statement and proxy 
card, rather than require that issuer to prepare a separate Notice. 
Although we did not receive any comment on this issue, we do not see a 
compelling reason to require an issuer to include a separate Notice 
when it already is sending a shareholder a full set of proxy materials. 
We believe that providing the Notice information in the proxy materials 
will provide shareholders with sufficient information to access the 
materials on the Internet, while reducing costs to issuers. However, an 
issuer may prepare a separate Notice if it desires.
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    \56\ Because issuers are obligated to provide proxy materials to 
beneficial owners, we recommend that issuers place only information 
required by the Notice that is relevant to all shareholders (record 
and beneficial owners) in the proxy statement, and present 
information that is relevant only to record holders on the proxy 
card so that beneficial owners are not confused by information in 
the proxy statement that would only be applicable to record holders. 
Required information disclosed on the proxy statement need not be 
repeated on the proxy card.
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    The information required in the Notice, or proxy materials if no 
separate Notice is prepared, includes much, but not all, of the 
information that is required under the notice only option, including 
the following: \57\
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    \57\ See new Rule 14a-16(n)(4). Appropriate changes must be made 
if the issuer is providing an information statement pursuant to 
Regulation 14C, seeking to effect a corporate action by written 
consent, or is a legal entity other than a corporation.
---------------------------------------------------------------------------

     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].
     The [proxy statement] [information statement] 
[annual report to security holders] [is/are] available at [Insert 
Web site address].

     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, if 
any, regarding those matters, but no supporting statements;
     A list of the materials being made available at the 
specified Web site;
     Any control/identification numbers that the shareholder 
needs to access his or her proxy card; and
     Information about attending the shareholder meeting and 
voting in person.
    The issuer is not required to provide paper or e-mail copies upon 
request to shareholders to whom it has furnished proxy materials under 
this option because it would already have provided those shareholders 
with a copy of the proxy materials as part of its initial 
distribution.\58\ Therefore, the issuer need not provide instructions 
in the Notice as to how shareholders can request paper or e-mail copies 
of the proxy materials.\59\
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    \58\ See new Rule 14a-16(n)(3)(ii).
    \59\ See new Rule 14a-16(n)(4)(ii).
---------------------------------------------------------------------------

    If the issuer prepares a separate Notice, it must be written in 
plain English.\60\ 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.\61\ 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.\62\ The issuer must file any such 
separate Notice with the Commission pursuant to Rule 14a-6(b) no later 
than the date that it first sends the Notice to shareholders.\63\
---------------------------------------------------------------------------

    \60\ Rule 14a-16(g) [17 CFR 240.14a-16(g)].
    \61\ Rule 14a-16(e) [17 CFR 240.14a-16(e)].
    \62\ Rule 14a-16(e)(2)(ii) [17 CFR 240.14a-16(e)(2)(ii)].
    \63\ Rule 14a-16(i) [17 CFR 240.14a-16(i)]. If the issuer 
incorporates the contents of the Notice into the proxy materials, a 
separate filing is not required.
---------------------------------------------------------------------------

b. Design of the Specified Publicly-Accessible Web Site
    An issuer must post all proxy materials identified in the Notice, 
or proxy statement and proxy card if no separate Notice is prepared, on 
the publicly accessible Web site address specified in the Notice on or 
before the date that it sends the proxy materials to shareholders.\64\ 
The specified Web site may not be the Commission's EDGAR system.\65\ 
The issuer also must 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.\66\ The 
materials must be presented on the Web site in a format, or formats, 
convenient for both reading online and printing on paper.\67\ The proxy 
materials must remain available on that Web site through the conclusion 
of the shareholder meeting.\68\
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    \64\ Rule 14a-16(b)(1) [17 CFR 240.14a-16(b)(1)].
    \65\ Rule 14a-16(b)(3) [17 CFR 240.14a-16(b)(3)].
    \66\ Rule 14a-16(b)(2) [17 CFR 240.14a-16(b)(2)].
    \67\ Rule 14a-16(c) [17 CFR 240.14a-16(c)]. See Section II.A.3 
of Release 34-55146 (Jan. 22, 2007) [72 FR 4148].
    \68\ Rule 14a-16(b)(1) [17 CFR 240.14a-16(b)(1)].
---------------------------------------------------------------------------

c. Means To Vote
    The notice and access model requires an issuer to provide 
shareholders with a method to execute proxies as of the time the Notice 
is first sent to shareholders.\69\ If an issuer follows the full set 
delivery option, the proxy card or request for voting instructions 
included in the full set of proxy materials satisfies this requirement. 
Therefore, the issuer does not need to provide another means for 
shareholders to execute proxies or submit voting instructions for 
accounts receiving proxy materials through the full set delivery 
option.
---------------------------------------------------------------------------

    \69\ Rule 14a-16(b)(4) [17 CFR 240.14a-16(b)(4)].
---------------------------------------------------------------------------

d. Repeat Delivery of a Proxy Card
    Even though a proxy card already will be included in the full set 
of proxy materials, an issuer relying on the full set delivery option 
subsequently may choose to deliver another copy of the proxy card to 
shareholders who have not returned the card. This is permissible under 
the current rules, and issuers commonly do so as a reminder for 
shareholders to vote. The reminder proxy card does not have to be 
accompanied by the Notice because the reminder card would have been 
preceded by the proxy statement via the same medium and may be sent at 
any time after the full set of proxy materials has been sent.\70\
---------------------------------------------------------------------------

    \70\ See new Rule 14a-16(h)(2).
---------------------------------------------------------------------------

e. Web Site Confidentiality
    As under the notice only option, an issuer must 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.\71\ An issuer also may not use any e-mail address provided by a 
shareholder solely to request a copy of proxy materials for any purpose 
other than to send a copy of those materials to that shareholder.\72\ 
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.
---------------------------------------------------------------------------

    \71\ Rule 14a-16(k)(1) [17 CFR 240.14a-16(k)(1)]. See Section 
II.A.1.b.iii of Release No. 34-55146 (Jan. 22, 2007) [72 FR 4148].
    \72\ Rule 14a-16(k)(2) [17 CFR 240.14a-16(k)(2)].

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[[Page 42227]]

3. Differences Between the Full Set Delivery Option and the Notice Only 
Option
    The full set delivery option varies from the notice only option in 
the following ways:
     An issuer may accompany the Notice with a copy of the 
proxy statement, annual report to security holders, if required by Rule 
14a-3(b),\73\ and a proxy card; \74\
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    \73\ 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. Finally, an issuer is required to provide such 
a report for shareholder meetings at which directors are to be 
elected.
    \74\ See new Rule 14a-16(n)(1).
---------------------------------------------------------------------------

     An issuer need not prepare a separate Notice if the issuer 
incorporates all of the Notice information into the proxy statement and 
proxy card; \75\
---------------------------------------------------------------------------

    \75\ See new Rule 14a-16(n)(2)(ii). See also footnote 58, above.
---------------------------------------------------------------------------

     Because the issuer already has provided shareholders with 
a full set of proxy materials, the issuer need not provide the 
shareholder with copies of the proxy materials upon request; \76\
---------------------------------------------------------------------------

    \76\ See new Rule 14a-16(n)(3)(ii).
---------------------------------------------------------------------------

     Because shareholders will not need extra time to request 
paper or e-mail copies, the issuer need not send the Notice and full 
set of proxy materials at least 40 days before the meeting date; \77\
---------------------------------------------------------------------------

    \77\ See new Rule 14a-16(n)(3)(i).
---------------------------------------------------------------------------

     Because the full set of proxy materials includes a proxy 
card or request for voting instructions, the issuer need not provide 
another means for voting at the time the Notice is provided unless it 
chooses to do so; and
     The issuer need not include the part of the prescribed 
legend relating to security holder requests for copies of the documents 
and instructions on how to request a copy of the proxy materials.\78\
---------------------------------------------------------------------------

    \78\ See new Rule 14a-16(n)(4).
---------------------------------------------------------------------------

a. Inclusion of a Full Set of Proxy Materials
    The notice only option does not permit an issuer to accompany the 
Notice with any other documents.\79\ In contrast, an issuer relying on 
the full set delivery option will deliver a full set of proxy 
materials, including a proxy statement, annual report to shareholders 
if required by Rule 14a-3(b), and a proxy card, along with the Notice. 
Under this option, when the Notice is initially sent, it must be 
accompanied by all of these documents, not just some of them. For 
example, an issuer may not send only the Notice and a proxy card to a 
shareholder as part of its initial distribution of proxy materials.\80\
---------------------------------------------------------------------------

    \79\ Rule 14a-16(f)(1) [17 CFR 240.14a-16(f)(1)]. We note 
however, that under the notice only option, an issuer may send the 
Notice and proxy card together 10 days or more after it initially 
sends the Notice. See new Rule 14a-16(h)(1).
    \80\ However, it may send a reminder proxy card at any time 
after it initially sends the Notice accompanied by the full set of 
proxy materials. See new Rule 14a-16(h)(2).
---------------------------------------------------------------------------

b. Request for Copies of the Proxy Materials
    As noted above, because an issuer relying on the full set delivery 
option will send shareholders copies of all of the proxy materials 
along with the Notice, there is no need for the issuer to provide these 
shareholders with a means to request a copy of the proxy materials. The 
issuer therefore may exclude information from the Notice on how a 
shareholder may request such copies.\81\
---------------------------------------------------------------------------

    \81\ See Rule 14a-16(n)(4).
---------------------------------------------------------------------------

c. 40-Day Deadline
    Under the full set delivery option, if an issuer or other 
soliciting person sends a full set of the proxy materials with the 
Notice, it need not comply with the 40-day deadline 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 complies with the full set delivery option. 
Six commenters on the proposal questioned whether the proposal would 
have required all issuers to prepare their proxy materials at least 40 
days prior to the meeting.\82\ We have clarified that an issuer must 
comply with the 40-day period only if it intends to comply with the 
notice only option.\83\
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    \82\ See, for example, letters from Chamber of Commerce, CII, 
Commerce Financial Printers, Elmore & Allen, ICI, and STA.
    \83\ See Rule 14a-16(n)(3)(i).
---------------------------------------------------------------------------

B. Implications of the Notice and Access Model for Intermediaries

    An issuer or other soliciting person must 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 within the timeframes of the model. An issuer that 
complies with the notice only option must provide the intermediary with 
the relevant information in sufficient time for the intermediary to 
prepare and send the Notice and post the proxy materials on the Web 
site at least 40 calendar days before the shareholder meeting date.\84\
---------------------------------------------------------------------------

    \84\ If a soliciting person other than the issuer elects to 
follow the notice only option, the Notice must be sent to 
shareholders 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)].
---------------------------------------------------------------------------

    An issuer that complies with the full set delivery option need not 
comply with the 40-day deadline. The issuer need only provide the 
Notice information to the intermediary in sufficient time for the 
intermediary to prepare and send the Notice along with the full set of 
materials provided by the issuer. Under this option, as with the 
traditional method of delivering proxy materials, the intermediary must 
forward the issuer's full set of proxy materials to beneficial owners 
within five business days of receipt from the issuer or the issuer's 
agent.\85\
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    \85\ See Rule 14b-1(b)(2) [17 CFR 240.14b-1(b)(2)].
---------------------------------------------------------------------------

    The intermediary's Notice generally must contain the same types of 
information as an issuer's Notice, but must be tailored specifically 
for beneficial owners.\86\ With respect to beneficial owners who 
receive a Notice under the notice only option, the intermediary also 
must forward paper or e-mail copies of the proxy materials upon 
request, permit the beneficial owners to make a permanent election to 
receive paper or e-mail copies of the proxy materials, keep records of 
beneficial owner preferences, provide proxy materials in accordance 
with those preferences, and provide a means to access a request for 
voting instructions for its beneficial owner customers no later than 
the date the Notice is first sent.
---------------------------------------------------------------------------

    \86\ For a more complete discussion of the content of the 
intermediary's Notice, see Section II.B.2 of Release No. 34-55146 
(Jan. 22, 2007) [72 FR 4148].
---------------------------------------------------------------------------

    When the issuer is delivering full sets of proxy materials to 
beneficial owners, the intermediary must either prepare a separate 
Notice and forward it with the full set of proxy materials, or 
incorporate any information required in the Notice, but not appearing 
in the issuer's proxy statement, in its request for voting 
instructions.

C. Reliance on the Notice and Access Model by Soliciting Persons Other 
Than the Issuer

    Under the amendments, a soliciting person other than the issuer 
also must comply with the notice and access model. Such a person may 
solicit proxies pursuant to the notice only option, the full set 
delivery option, or a combination of the two.\87\ Consistent

[[Page 42228]]

with the existing proxy rules and the voluntary model, the amendments 
treat such soliciting persons differently from the issuer in certain 
respects.
---------------------------------------------------------------------------

    \87\ That is, as in the case of an issuer, a soliciting person 
other than the issuer may solicit some shareholders using the notice 
only option, while soliciting other shareholders using the full set 
delivery option.
---------------------------------------------------------------------------

    First, a soliciting person is not required to solicit every 
shareholder or to furnish an information statement to shareholders not 
being solicited. It may select the specific shareholders from whom it 
wishes to solicit proxies. For example, under the notice and access 
model, a soliciting person other than the issuer can choose to send 
Notices only to those shareholders who have not previously requested 
paper copies.\88\
---------------------------------------------------------------------------

    \88\ Under Rule 14a-7(a)(2) [17 CFR 240.14a-7(a)(2)], 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 (Jan. 22, 2007) 
[72 FR 4148].
---------------------------------------------------------------------------

    Second, if a soliciting person other than the issuer elects to 
follow the notice only option, it must 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.\89\

    \89\ Rule 14a-16(l)(2) [17 CFR 240.14a-16(l)(2)].
---------------------------------------------------------------------------

This timing requirement does not apply to a solicitation pursuant to 
the full set delivery model.
    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 must 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.\90\ The soliciting person's Notice also 
must 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.\91\ 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 must 
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.\92\
---------------------------------------------------------------------------

    \90\ Rule 14a-16(l)(3)(i) [17 CFR 240.14a-16(l)(3)(i)].
    \91\ Id.
    \92\ Rule 14a-16(l)(3)(ii) [17 CFR 240.14a-16(l)(3)(ii)].
---------------------------------------------------------------------------

III. Clarifying Amendments

    Since adopting the notice and access model as a voluntary model, we 
have received several questions regarding implementation of that model. 
Some of these questions were received as comments on the proposing 
release to these amendments. To the extent such comments relate to the 
previously adopted voluntary model, the Commission's staff is working 
with those commenters to provide guidance regarding implementation of 
those rules. However, several comments indicated aspects of the adopted 
rules that we believe would benefit from clarification in the 
regulatory text. To help clarify our intent, we are adopting the 
following technical amendments.

A. No Requirement To Provide Recommendations

    Rule 14a-16(d)(3),\93\ as it was initially adopted under the 
voluntary notice and access model, required the Notice to contain ``[a] 
clear and impartial identification of each separate matter intended to 
be acted on and the soliciting person's recommendation regarding those 
matters.'' Our intent with this provision was not to require an issuer 
or other soliciting person to have a recommendation for every matter. 
Therefore, we are revising this provision to clarify that an issuer or 
other a soliciting person must present its recommendation only if it 
chooses to make a recommendation on a particular matter to be acted 
upon by shareholders.
---------------------------------------------------------------------------

    \93\ 17 CFR 240.14a-16(d)(3).
---------------------------------------------------------------------------

B. Deadline for Responding to Requests for Copies After the Meeting

    We are also amending the requirements about the fulfillment of 
requests for paper or e-mail copies received after the conclusion of 
the meeting. The rules that we initially adopted as part of the 
voluntary notice and access model made no distinction in the 
fulfillment requirements based on whether the issuer received a request 
for a paper or e-mail copy before or after the meeting date. We did 
state in the adopting release for the voluntary notice and access model 
that the post-meeting fulfillment provision is intended to require 
issuers to provide a copy of the proxy statement for one year ``[j]ust 
as the proxy rules require issuers to undertake in their proxy 
statements or annual reports to shareholders to provide copies of 
annual reports on Form 10-K for the most recent fiscal year to 
requesting shareholders.'' \94\ The rule relating to providing copies 
of the annual report on Form 10-ndash;K does not require the use of 
First Class mail or that the issuer respond within three business 
days.\95\ After the meeting is concluded, we do not believe there is 
such an urgent need to provide copies of the proxy materials in a 
timely manner to impose such requirements. Therefore, we are revising 
Rule 14a-16(j)(3) \96\ to clarify that, with respect to requests for 
copies received after the conclusion of the meeting, an issuer is not 
required to use First Class mail and is not required to respond within 
three business days.
---------------------------------------------------------------------------

    \94\ See Release No. 33-55146 (Jan. 22, 2007) [72 FR 4148].
    \95\ See Rule 14a-3(b) [17 CFR 240.14a-3(b)].
    \96\ 17 CFR 240.14a-16(j)(3).
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C. Item 4 of Schedule 14A

    Item 4 of Schedule 14A \97\ requires that an issuer or other 
soliciting person describe the methods used for soliciting proxies if 
not using the mails. Because the amendments require issuers and other 
soliciting persons to comply with Rule 14a-16 with respect to all proxy 
solicitations not related to business combination transactions, we are 
revising this item to clarify that issuers and other soliciting persons 
need not describe the notice and access model when they are using it to 
solicit proxies.
---------------------------------------------------------------------------

    \97\ 17 CFR 240.14a-101.
---------------------------------------------------------------------------

IV. Compliance Dates

    Large accelerated filers, not including registered investment 
companies, must comply with the amendments with respect to 
solicitations commencing on or after January 1, 2008. Registered 
investment companies, soliciting persons other than the issuer, and 
issuers that are not large accelerated filers conducting proxy 
solicitations (1) may comply with the amendments for solicitations 
commencing on or after January 1, 2008 and (2) must comply with the 
notice and access model for solicitations commencing on or after 
January 1, 2009. For example, a soliciting person other than the issuer 
that is soliciting proxies with respect to a shareholder meeting of a 
large accelerated filer is not required to follow the notice and access 
model until January 1, 2009, even though the large accelerated filer 
would be required to follow the model. However, such a soliciting 
person may voluntarily follow the model.
    As stated above, the primary concern of most commenters on the 
proposal was the Commission's aggressive

[[Page 42229]]

timetable for adopting the proposed rules. All 14 commenters on this 
topic requested that the Commission delay adoption of the proposed 
rules.\98\ This group of commenters included trade associations 
representing issuers, transfer agents, intermediaries, proxy 
distribution service providers, institutional investors, and other 
shareholders.
---------------------------------------------------------------------------

    \98\ See letters from AARP, ABC, ADP, BONY, Chamber of Commerce, 
CII, Computershare, ICI, Reed Smith, Registrar and Transfer, SCSGP, 
SIFMA, SSA, and STA.
---------------------------------------------------------------------------

    Eight of these commenters were concerned that the short period 
between effectiveness of the voluntary model and adoption of the 
amendments in this release would not permit the Commission and the 
industry to properly evaluate the results of the voluntary model and 
prepare an adequate cost-benefit analysis.\99\ Data that the commenters 
felt would be important to capture regarding the voluntary model 
included: (1) The effect on voter participation; (2) the costs of 
implementing the model; and (3) the extent to which predicted savings 
are actually realized by companies and other soliciting persons. These 
commenters recommended that the Commission not adopt the proposed 
amendments until it has had the opportunity to assess the data received 
regarding companies' experiences with the voluntary model.
---------------------------------------------------------------------------

    \99\ See letters from Chamber of Commerce, BONY, ICI, Reed 
Smith, Registrar and Transfer, SCSGP, SIMFA, and STA.
---------------------------------------------------------------------------

    With respect to costs, three of these commenters were concerned 
regarding the cost of adopting rules that would require issuers to 
develop, or hire outside services to develop, an Internet voting 
platform.\100\ The rules that we are adopting do not require, and the 
proposals would not have required, such an Internet voting platform. 
Similarly, five commenters raised concerns regarding the ability of 
issuers to prepare their proxy materials at least 40 days before the 
date of the shareholder meeting, and costs associated with these 
efforts.\101\ The rules that we are adopting do not require, and the 
proposal would not have required, all issuers to comply with the 40-day 
deadline if they are unable, or choose not, to do so.
---------------------------------------------------------------------------

    \100\ See letters from ABC, BONY and Registrar and Transfer.
    \101\ See letters from Chamber of Commerce, CII, Commerce 
Financial Printers, Elmore & Allen, ICI, and STA.
---------------------------------------------------------------------------

    As we have explained above, an issuer or other soliciting person 
may elect to comply with either: (1) The notice only option which is 
identical to the voluntary notice and access model; or (2) the full set 
delivery option. The latter option is substantially the same as the 
traditional system of providing proxy materials in paper, except that 
an issuer or other soliciting person complying with the full set 
delivery option also will have to:
     Prepare and send a Notice, or incorporate the Notice 
information into its proxy statement and proxy card; and
     Post its proxy materials on a publicly accessible Web 
site.
    As we discuss more fully in our cost-benefit analysis, we believe 
that the cost to issuers and other soliciting persons to comply with 
these two requirements will not be significant, and therefore are 
expanding Internet availability of proxy materials to all shareholders. 
Many of the commenters' concerns regarding costs were based on beliefs 
that the proposal would require an electronic voting platform, 
preparation of proxy materials at least 40 days before the shareholder 
meeting, and anonymity controls on the Web site that exceed what the 
proposal would actually require. As noted above, the proposals would 
not have required, and the final rules do not require, such provisions. 
Rather, an issuer or other soliciting person can substantially continue 
to follow the traditional method of proxy delivery with minimal 
changes. Because the amendments will not have a significant impact on 
the requirements placed on issuers and other soliciting persons, we 
believe it is appropriate to adopt them now.
    We also note that commenters have expressed concern, particularly 
in relation to the voluntary model, that if the model has a negative 
effect on shareholder participation, issuers may use the model to 
disenfranchise certain shareholders. We recognize these concerns and 
intend to monitor shareholder participation and take any steps 
necessary to prevent such abuse.
    Furthermore, the tiered compliance dates address commenters' 
concerns because they will allow the Commission to better analyze the 
impact of the rules on a subset of issuers constituting large 
accelerated filers.\102\ As noted above, a review of existing Web sites 
of such issuers indicated that approximately 80% of them already post 
their filings, including proxy materials, on their Web site. Thus, most 
of the issuers that will be subject to the rules in the first year will 
be large issuers that appear to already post their proxy materials on 
their Web site. Therefore, we believe that this group is in the best 
position with respect to implementation costs in the first year while 
we evaluate the performance of the model. Adopting the amendments 
before the 2008 proxy season effectively creates a test group of 
issuers, enabling the Commission to study the performance of the model 
with a significant number of larger issuers and providing the 
Commission with an opportunity to make any necessary revisions to the 
rules before they apply to all issuers and other soliciting persons.
---------------------------------------------------------------------------

    \102\ One commenter specifically noted that the timeframe would 
not allow the Commission to analyze the effects of one full year of 
compliance for large accelerated filers who chose to accept the 
voluntary model. See letter from the Chamber of Commerce. The tiered 
system will allow the Commission to analyze a full year of 
experience under the notice and access model for all large 
accelerated filers.
---------------------------------------------------------------------------

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:

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,\103\ and submitted them to the 
Office of Management and Budget (``OMB'') for review in accordance with 
the PRA. We received approval for the collections of information. We 
submitted a revised PRA analysis to OMB in conjunction with the release 
adopting the notice and access model as a voluntary model.\104\ In 
those releases, we assumed conservatively that all issuers and other 
persons soliciting proxies would follow the voluntary model because the 
proportion of issuers and other soliciting persons that would elect to 
follow the model was uncertain.
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    \103\ Release No. 34-52926 (Dec. 8, 2005) [70 FR 74597].
    \104\ Release No. 34-55146 (Jan. 22, 2007) [72 FR 4147].
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    The rules that we are adopting require all issuers and other 
soliciting persons to follow the notice and access model, including the 
preparation of the Notice, as we assumed for our prior PRA analysis. 
Therefore, we estimate that the rule amendments will not impose any new 
recordkeeping or information collection requirements beyond those 
described in the release adopting the

[[Page 42230]]

voluntary model, or necessitate revising the burden estimates for any 
existing collections of information requiring OMB's approval.

VI. Cost-Benefit Analysis

A. Background

    We are adopting amendments to the proxy rules under the Exchange 
Act substantially as proposed that require issuers and other soliciting 
persons (jointly referred to as ``soliciting parties'') to follow the 
notice and access model for furnishing proxy materials. The amendments 
are intended to provide all shareholders with the ability to choose the 
means by which they access proxy materials, to expand use of the 
Internet to ultimately lower the costs of proxy solicitations, and to 
improve shareholder communications.

B. Summary of the Amendments

    The notice and access model that we are adopting requires 
soliciting parties 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 the model, soliciting parties may choose between two 
options with respect to how they will provide proxy materials to 
shareholders. Under the first option, the notice only option, a 
soliciting party may follow the procedures in Exchange Act Rule 14a-16 
that we adopted on January 22, 2007 in connection with the voluntary 
model.\105\ Under this option, a soliciting party would send only a 
Notice indicating the Internet availability of the proxy materials to a 
solicited shareholder at least 40 days prior to the shareholders 
meeting and provide that shareholder with a paper or e-mail copy of the 
proxy materials upon request.
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    \105\ Release No. 34-55146 (Jan. 22, 2007) [72 FR 4147].
---------------------------------------------------------------------------

    Under the second option, the full set delivery option, soliciting 
parties may follow procedures substantially similar to the traditional 
method of sending paper copies of the proxy materials to a shareholder 
by accompanying the Notice with a full set of proxy materials. Under 
the full set delivery option, the soliciting party is not required to 
send the Notice and the full set of proxy materials at least 40 days 
prior to the shareholders meeting and need not provide a means for 
shareholders to request another set of the proxy materials. Moreover, a 
soliciting party need not prepare a separate Notice if it includes all 
of the information otherwise required in a Notice in the proxy 
statement or proxy card.
    A soliciting party may use the notice only option to provide proxy 
materials to some shareholders and the full set delivery option to 
provide proxy materials to other shareholders. The amendments also 
require intermediaries to follow similar procedures to provide 
beneficial owners with access to the proxy materials. Soliciting 
parties may not use the model with respect to a business combination 
transaction.

C. Benefits

1. Versatility of the Internet
    Historically, soliciting parties decided whether to provide 
shareholders with the choice to receive proxy materials by electronic 
means. The amendments, which build on and incorporate the voluntary 
model that we adopted in January, are intended to provide all 
shareholders with the ability to choose the means by which they access 
proxy materials, to expand use of the Internet potentially to lower the 
costs of proxy solicitations, and to improve the efficiency of the 
proxy process and shareholder communications. The amendments provide 
all shareholders with the ability to choose whether to access 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 information in paper documents. Shareholders will be 
better able to go directly to any section of the document that they are 
particularly interested in. The amendments also will permit 
shareholders to more easily evaluate data and transfer data using 
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. Current and future Internet 
communications innovations may enhance shareholders' ability to 
interact not only with management, but with each other. Such access may 
improve shareholder relations to the extent that 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 increased reliance on the Internet for making 
proxy materials available to shareholders could ultimately lower the 
cost of soliciting proxies for all soliciting parties.
2. Reduction in Paper Processing Costs
    One of the purposes of the voluntary model was to reduce paper 
processing costs related to proxy solicitations. We previously 
estimated savings assuming that soliciting parties responsible for 10% 
to 50% of all proxy mailings would follow that model. We do not assume 
that the amendments will cause a soliciting party to change its 
decision under the voluntary model whether to send only a Notice or to 
send a full set of proxy materials to shareholders. Therefore, we do 
not assume for this analysis any savings in paper processing costs as a 
result of these particular amendments. However, because the voluntary 
model just recently became effective for proxy solicitations commencing 
on or after July 1, 2007, and therefore has not been used by many 
soliciting parties and because these amendments create a single notice 
and access model that includes aspects of the voluntary model, we are 
presenting a cost-benefit analysis that addresses the notice and access 
model as a whole, including our assessment of the benefits and costs 
created by the amendments.
    As we discussed in the adopting release for the voluntary model, 
the paper-related benefits of the notice and access model are limited 
by the volume of paper processing that would occur otherwise. As we 
noted in that release, Automatic Data Processing, Inc.\106\ (ADP) 
handles the vast majority of proxy mailings to beneficial owners.\107\ 
ADP publishes statistics that provide useful background for evaluating 
the likely consequences of the rule amendments. ADP estimates that, 
during the 2006 proxy season,\108\ 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

[[Page 42231]]

the 2006 proxy season was $5.64. We estimate that soliciting parties 
spent, in the aggregate, $481.2 million in postage and printing fees 
alone to distribute paper proxy materials to beneficial owners during 
the 2006 proxy season.\109\ Approximately 50% of all proxy pieces 
mailed by ADP in 2005 were mailed during the proxy season.\110\ 
Therefore, extrapolating this percentage to 2006, we estimate that 
soliciting parties from beneficial owners spent approximately $962.4 
million in 2006 in printing and mailing costs.\111\
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    \106\ ADP recently spun off its brokerage services group, which 
is now called Broadridge Financial Solutions, Inc. However, because 
its comment letter was submitted when the group was part of ADP and 
carries the ADP letterhead, we continue to refer to the company as 
ADP for purposes of this release.
    \107\ We expect savings per mailing to record holders to roughly 
correspond to savings per mailing to beneficial owners.
    \108\ According to ADP data, the 2006 proxy season extended from 
February 15, 2006 to May 1, 2006.
    \109\ 85.3 million mailings x $5.64/mailing = $481.2 million.
    \110\ According to ADP, in 2005, 90,013,175 proxy pieces out of 
a total 179,833,774 proxy pieces were mailed during the 2005 proxy 
season. Thus, we estimate that 50% of proxy pieces are mailed during 
the proxy season (90,013,175 proxy pieces during the season/
179,833,774 total proxy pieces = 0.5 or 50%).
    \111\ $481.2 million/50% = $962.4 million.
---------------------------------------------------------------------------

    As was the case with the voluntary model, for soliciting parties 
following the notice only option, paper-related savings may be reduced 
by the cost of fulfilling requests for paper copies.\112\ We estimate 
that approximately 19% of shareholders would request paper copies from 
such soliciting parties. Commenters on the voluntary model provided 
alternate estimates. For example, Computershare, a large transfer 
agent, estimated that less than 10% of shareholders would request paper 
copies.\113\ According to a survey conducted by Forrester Research for 
ADP, 12% of shareholders report that they would always take extra steps 
to get their proxy materials, and as many as 68% of shareholders report 
that they would take extra steps to get their proxy materials in paper 
at least some of the time. The same survey also finds that 82% of 
shareholders report that they look at their proxy materials at least 
some of the time. These survey results suggest that shareholders may 
review proxy materials even if they do not vote. During the 2005 proxy 
season, only 44% of accounts were voted by beneficial owners. Put 
differently, 56%, or 84.8 million accounts, did not return requests for 
voting instructions. Our estimate that 19% of shareholders would 
request paper copies reflects the diverse estimates suggested by the 
available data.
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    \112\ Soliciting parties that choose to follow the full set 
delivery option will not incur fulfillment costs. Such soliciting 
parties are not required to provide paper copies to shareholders 
upon request because they would have provided such copies at the 
outset.
    \113\ See letter commenting on Release No. 34-52926 (Dec. 8, 
2005) [70 FR 74598] from Computershare.
---------------------------------------------------------------------------

    Based on the assumption that 19% of shareholders would choose to 
have paper copies sent to them when a soliciting party initially sends 
them only a Notice, we estimated that the voluntary model could produce 
annual paper-related savings ranging from $48.3 million (if soliciting 
parties responsible for 10% of all proxy mailings choose to follow the 
notice only option) to $241.4 million (if soliciting parties 
responsible for 50% of all proxy mailings choose to follow the notice 
only option).\114\ This estimate excludes the effect of the provision 
of the amendments that would allow shareholders to make a permanent 
request for paper copies. That provision enables soliciting parties 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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    \114\ 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, including $0.42 to print and mail the Notice. The 
variable costs of fulfilling a paper request, including handling, 
paper, printing and postage, are estimated to be $6.11 per copy 
requested. Our estimate of the total number of shareholders is based 
on data provided by ADP and SIFMA (at the time it submitted these 
comments, the SIFMA was known as the Securities Industry Association 
or SIA). According to SIFMA's comment letter on Release No. 34-52926 
(Dec. 8, 2005) [70 FR 74598], 78.49% of shareholders held their 
shares in street name. We estimate that the total number of proxy 
pieces mailed to both registered holders and beneficial owners is 
approximately 229,116,797 (179,833,774 proxy pieces to beneficial 
owners/78.49% = 229,116,799 total proxy pieces). To calculate the 
potential cost savings, for the percentage of proxy piece mailings 
replaced by the Notice (10% or 50% times 229,116,799 proxy pieces), 
we estimate the total savings of not printing and sending full sets 
($5.64) and subtract the estimated costs of printing and sending 
Notices and fulfilling paper requests ($2.36 + (19.2% x $6.11)). 10% 
x 229,116,799 proxy pieces x ($5.64-($2.36 + (19.2% x $6.11)) = 
$48.3 million. 50% x 229,116,799 proxy pieces x ($5.64-($2.36 + 
(19.2% x $6.11)) = $241.4 million.
---------------------------------------------------------------------------

    Although we expect the savings to be significant from the notice 
and access model as a whole, the actual paper-related benefits will be 
influenced by several factors that we estimate should become less 
important over time. First, to the extent that shareholders request 
paper copies of the proxy materials, the benefits of the notice and 
access model in terms of savings in printing and mailing costs will be 
reduced. Soliciting parties have expressed concern 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 will be substantially reduced. 
Second, soliciting parties 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 soliciting parties 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 are 
likely to decline, as would soliciting parties' tendency to print many 
more copies than ultimately are requested. This should lead to growth 
in paper-related savings from the notice and access model over time.
3. Reduction in the Cost of Proxy Contests
    Benefits would accrue under the notice and access model from 
additional reductions in the costs of proxy solicitations by persons 
other than the issuer. Soliciting persons other than the issuer also 
must comply with the notice and access model, but can limit the scope 
of their proxy solicitations to shareholders who have not requested 
paper copies of the proxy materials. The flexibility afforded to 
persons other than the issuer under the model ultimately may 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. However, because the 
amendments do not significantly change the options available to such 
soliciting person from the existing rules, we do not anticipate that 
the amendments will change significantly the number of soliciting 
persons other than issuers who select the notice only option as opposed 
to the number who would have chosen to follow the voluntary model.
    The effect of the notice and access model of lessening the costs 
associated with a proxy contest will be limited by the persistence of 
other costs. One commenter on the proposal to create the 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.\115\ However, other commenters suggested 
that the paper-related cost savings that can be realized from the rule 
amendments are

[[Page 42232]]

substantial enough to change the way many contests are conducted.\116\
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    \115\ See letter commenting on Release No. 34-52926 (Dec. 8, 
2005) [70 FR 74598] from ADP.
    \116\ See letters commenting on Release No. 34-52926 (Dec. 8, 
2005) [70 FR 74598] from CALSTRS, Computershare, ISS, and Swingvote.
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4. Environmental Benefits
    Finally, some benefits from the notice and access model, as 
revised, may arise from a reduction in what may be regarded as the 
environmental costs of the proxy solicitation process.\117\ 
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. Although not all of these costs may 
be internalized by paper producers, to the extent that such producers 
do 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 
model.
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    \117\ See letter commenting on Release No. 34-52926 (Dec. 8, 
2005) [70 FR 74598] from American Forests.
---------------------------------------------------------------------------

D. Costs

    The amendments require all soliciting parties, including those who 
follow the full set delivery option, to (1) prepare and print a Notice 
(or incorporate Notice information into its proxy statement and proxy 
card) and (2) post the proxy materials on an Internet Web site. Because 
the notice only option is identical to the voluntary model, soliciting 
parties that choose that option will incur the same costs and savings 
as they would have under the voluntary model.
1. Costs Under the Notice Only Option
    A soliciting party that chooses to follow the notice only option 
would incur the same costs as a soliciting party that chose to follow 
the voluntary model. These costs include the following: (1) The cost of 
preparing, producing, and sending the Notice to shareholders; (2) the 
cost of posting proxy materials on an Internet Web site; (3) providing 
a means to execute a proxy as of the date that the Notice is sent; and 
(4) the cost of processing shareholders' requests for copies of the 
proxy materials and maintaining their permanent election preferences if 
a soliciting party elects to follow the notice only option.
    Under the amendments, soliciting parties must prepare and print the 
Notice to shareholders and post their proxy materials on an Internet 
Web site. As noted above, these costs would apply to soliciting parties 
irrespective of which option they choose. A soliciting party following 
the notice only option also must separately send the Notice to 
shareholders. As we stated in the release adopting the voluntary model, 
the paper-related savings to soliciting parties discussed under the 
benefits section above are adjusted for the cost of preparing, printing 
and sending Notices.
    In the release adopting the voluntary model, we assumed, for 
purposes of the PRA, that all soliciting parties would elect to follow 
the procedures, resulting in a total estimated cost to prepare the 
Notice of approximately $2,020,475.\118\ We are adjusting this amount 
to $2,469,475 to reflect a change in the basis of our cost estimate for 
personnel time.\119\ Based on the percentage range of soliciting 
parties that we estimated would adopt the voluntary model, we estimated 
that these costs for soliciting parties who follow the notice only 
option could range between $246,948 (if soliciting parties responsible 
for 10% of all proxy mailings followed the notice only option) and 
$1,234,736 (if soliciting parties responsible for 50% of all proxy 
mailings followed the notice only option).\120\
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    \118\ In the voluntary model adopting release, we estimated that 
soliciting parties would spend a total of $897,975 on outside 
professionals to prepare this disclosure. We also estimated that 
soliciting parties would spend a total of 8,980 hours of personnel 
time preparing this disclosure. We estimated the average hourly cost 
of personnel time to be $125, resulting in a total cost of 
$1,122,500 for personnel time and a total cost of $2,020,475 
($1,122,500 + $897,975 = $2,020,475).
    \119\ We are adjusting this estimate of personnel time to be 
$175 to be consistent with our other releases. This results in an 
in-house cost of $1,571,500 (8,980 hours x $175/hour = $1,571,500) 
and a total cost of $2,469,475 ($1,571,500 + $897,975 = $2,469,475) 
for soliciting parties following the notice only option. For 
purposes of the PRA analysis, we are not adjusting the hourly burden 
imposed on soliciting parties and, therefore, are not revising our 
PRA submission.
    \120\ $2,469,475 * 10% = $246,948. $2,469,475 * 50% = 
$1,234,736.
---------------------------------------------------------------------------

    If Notices are sent by mail, then the mailing costs may vary widely 
among parties. Postage rates likely would vary from $0.14 to $0.41 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 soliciting parties send a total of 229,116,797 proxy 
pieces per year.\121\ In the release adopting the voluntary model, we 
assumed that only those soliciting parties that choose to follow the 
voluntary model would incur these printing and mailing costs. We 
estimated that the costs to print the Notices would range from $9.6 
million (if soliciting parties responsible for 10% of all current proxy 
mailings choose to follow the notice only option) and $48.1 million (if 
soliciting parties responsible for 50% of current proxy mailings choose 
to follow the notice only option).\122\ These same costs would be 
incurred by soliciting parties following the notice only option under 
the revised model.
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    \121\ See  http://www.ics.adp.com/release11/public_site/about/stats.html
 stating that ADP handled 179,833,774 in fiscal year 2005 

and letter commenting on Release No. 34-52926 (Dec. 8, 2005) [70 FR 
74598] from SIFMA stating that beneficial accounts represent 78.49% 
of total accounts.
    \122\ 10% x 229,116,797 x ($0.13 + $0.29) = $9.6 million. 50% x 
229,116,797 x ($0.13 + $0.29) = $48.1 million. As stated above, 
these costs would be significantly offset by savings as a result of 
not being required to print and mail full sets of proxy materials, 
resulting in a net savings of $48.3 million (if issuers responsible 
for 10% of all proxy mailings choose to follow the notice only 
option) to $241.4 million (if issuers responsible for 50% of all 
proxy mailings choose to follow the notice only option) for issuers 
choosing to follow the notice only option.
---------------------------------------------------------------------------

    Soliciting parties that follow the notice only option must post 
their proxy materials on an Internet Web site. Although costs for 
establishing a Web site and posting materials on it can vary greatly, 
the rules do not require elaborate Web site design. The rules only 
require that a soliciting party obtain a Web site and post several 
documents on that Web site. Several companies currently provide Web 
hosting services for free, including significant memory to post the 
required documents and bandwidth to handle several thousand ``hits'' 
per month.\123\ We also noted that several Web hosting services 
provided Web sites which would handle up to five million hits per month 
are available for approximately $5 to $8 per month, or $60 to $96 per 
year.\124\ Based on a review of several Internet Web page design firms, 
we estimate that the cost of designing a

[[Page 42233]]

Web site that meets the basic requirements of the notice and access 
model would be approximately $300. Thus, we estimate that the 
approximate total cost to establish a new Web site would be 
approximately $360 per year for a soliciting party, or a range of $0.3 
million (if soliciting parties responsible for 10% of all proxy 
mailings would not have followed the voluntary model) to $1.4 million 
(if soliciting parties responsible for 50% of all proxy mailings would 
not have followed the voluntary model).\125\ This estimate assumes that 
the soliciting party obtains a new Web site to post the proxy 
materials. We believe that the cost to soliciting parties that already 
maintain Web sites would be less.
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    \123\ A review found free Web hosting services that permit the 
posting of up to 100M of data, with a bandwidth capacity of 
10,000MB. A document's size can vary dramatically depending on its 
design. Typical proxy statement and annual report sizes vary from 
200KB for documents with few graphics such as an annual report on 
Form 10-K to 5MB for elaborate ``glossy'' annual reports. Based on 
this range of sizes, we estimate that a free Web hosting service 
would enable between 1,000 and 25,000 ``hits'' per month.
    \124\ We found several services which permit the posting of up 
to 300GB of data, with a bandwidth capacity of 3000GB, and include 
Web design programs at prices between $5 and $8 per month.
    \125\ Based on filings in our last fiscal year, we estimate 
7,982 proxy solicitations per year. 10% x 7,982 x $360 = $0.3 
million. 50% x 7,982 x $360 = $1.4 million.
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    The Web site on which the proxy materials are posted must maintain 
the anonymity of shareholders accessing the site. As discussed 
elsewhere in the release, this requirement requires a soliciting party 
to refrain from installing software on the Web site that tracks the 
identity of persons accessing the Web site. Thus, this requirement does 
not impose any added burden on soliciting party establishing new Web 
sites. A soliciting party that already has a Web site must segregate a 
portion of that Web site so that any tracking software on its general 
Web site does not track persons accessing the portion containing the 
proxy materials. Such segregation of the Web site requires minimal 
effort and should not impose a significant burden on such parties.
    The rules also require that the proxy materials be posted in a 
format or formats convenient for printing on paper or viewing online. 
One commenter was concerned that this would impose an unnecessary 
burden on soliciting parties. Currently, Internet Web sites regularly 
present the same document in multiple formats for the convenience of 
readers. In particular, Internet Web sites regularly post large files 
for Internet users with broadband connections and smaller files for 
users who do not have broadband connections. In light of this common 
practice on the Internet, we do not believe that this requirement will 
impose a significant burden on soliciting parties.
    Soliciting parties must provide a means to vote as of the date on 
which the Notice is first sent. Those following the notice only option 
can do so by creating an electronic voting platform, providing a 
telephone number or posting a printable proxy card on the Web site. 
Some commenters questioned whether the model would require the creation 
of an electronic voting platform, which they estimated would cost 
approximately $3,000.\126\ The amendments do not require such a voting 
platform. A soliciting party may simply post a printable proxy card or 
a telephone number for executing a proxy on its Web site, which should 
impose little burden.
---------------------------------------------------------------------------

    \126\ See letters from BONY and Registrar and Transfer.
---------------------------------------------------------------------------

    The cost of processing shareholders' requests for copies of the 
proxy materials if a soliciting party elects to follow the notice only 
option is addressed as an offset to the savings discussed in the 
Benefits section of this analysis.
    The amendments also 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 if all 
issuers followed the notice only option would be approximately 
$13,098,500.\127\ Thus, we estimated the cost due to the voluntary 
model would be approximately $1.3 million (if issuers responsible for 
10% of all proxy mailings followed the notice only option) and $6.5 
million (if issuers responsible for 50% of all proxy mailings followed 
the notice only option).\128\
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    \127\ In the voluntary model 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 estimate the average hourly cost of issuer and 
intermediary personnel time to be $175, resulting in a total cost of 
$13,068,500 for issuer and intermediary personnel time.
    \128\ $13,098,500 x 10% = $1,309,850* $13,098,500 * 50% = 
$6,549,250.
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2. Costs Under the Full Set Delivery Option
    A soliciting party following the full set delivery option must 
either prepare a Notice or incorporate the Notice information into its 
proxy statement or proxy card. We base our estimates on preparing a 
separate Notice because we believe this would involve a greater cost. 
However, we anticipate that a significant number of soliciting parties 
would choose to incorporate the information into their materials. Based 
on the range that we estimated for soliciting parties following the 
notice only option, we estimate that soliciting parties responsible for 
50% to 90% of all proxy mailings would choose to follow the full set 
delivery option. Soliciting parties who follow this option would not 
incur mailing costs in addition to costs incurred under the traditional 
system because the Notice would be included in the much larger package 
of the full set of proxy materials.
    When the Commission adopted the voluntary model, we estimated that 
soliciting parties responsible for 10% to 50% of all proxy mailings 
would rely on the voluntary model. Under the amendments, we assume that 
soliciting parties that we estimated would not have followed the 
voluntary model (i.e., soliciting parties responsible for 50% to 90% of 
all proxy mailings) would incur the cost of preparing and printing a 
Notice (or incorporating Notice information into their proxy materials) 
\129\ and posting the proxy materials on an Internet Web site.
---------------------------------------------------------------------------

    \129\ We do not expect an incremental increase in mailing cost 
for the Notice for soliciting parties that choose the full set 
delivery option because the Notice is substantially smaller than the 
full set of proxy materials currently sent under the traditional 
system and must accompany that full set (or be incorporated into 
those materials).
---------------------------------------------------------------------------

    We estimate that the cost for soliciting parties that would not 
have followed the voluntary model to prepare a Notice will range 
between $1.2 million (if soliciting parties responsible for 50% of all 
proxy mailings would not have followed the voluntary model) and $2.2 
million (if soliciting parties responsible for 90% of all proxy 
mailings would not have followed the voluntary model).\130\
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    \130\ As noted above, we calculated a total cost of $2,469,475 
for preparing the Notice for purposes of the PRA. $2,469,475 * 50% = 
$1,234,736. $2,469,475 * 90% = $2,222,528.
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    Similarly, we estimate that the cost for such parties of printing 
the Notice will range between $14.9 million \131\ (if soliciting 
parties responsible for 50% of all proxy mailings would not have 
followed the voluntary model) and $26.8 million \132\ (if soliciting 
parties responsible for 90% of all proxy mailings would not have 
followed the voluntary model). Soliciting parties can significantly 
reduce this cost to print the Notice by incorporating the Notice 
information into the proxy materials instead of printing a separate 
Notice. Printing costs for the full set of proxy materials would be 
identical to such costs under the traditional method of providing proxy 
materials by mail and therefore do not represent an incremental cost 
increase as a result of these rules.
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    \131\ 50% x 229,116,797 x $0.13 = $14.9 million.
    \132\ 90% x 229,116,797 x $0.13 = $26.8 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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    We do not expect an incremental increase in mailing cost for the 
Notice for soliciting parties that choose the full

[[Page 42234]]

set delivery option because the Notice is substantially smaller than 
the full set of proxy materials currently sent under the traditional 
system and must accompany that full set (or be incorporated into the 
proxy statement and proxy card).
    In addition, under the amendments, soliciting parties that would 
not have followed the voluntary model must post their proxy materials 
on an Internet Web site. As we noted above, although costs for 
establishing a Web site and posting materials on it can vary greatly, 
the rules do not require elaborate Web site design. The rules only 
require that a soliciting party obtain a Web site and post several 
documents on that Web site. As with the notice only option, we estimate 
that the approximate total cost to establish a new Web site would be 
approximately $360 per year for a soliciting party, or a range of $1.4 
million (if soliciting parties responsible for 50% of all proxy 
mailings would not have followed the voluntary model) to $2.6 million 
(if soliciting parties responsible for 90% of all proxy mailings would 
not have followed the voluntary model).\133\
---------------------------------------------------------------------------

    \133\ 50% x 7,982 x $360 = $1.4 million. 90% x 7,982 x $360 = 
$2.6 million.
---------------------------------------------------------------------------

3. Costs to Intermediaries
    Soliciting parties and intermediaries will incur additional 
processing costs under the notice and access model. The amendments 
require an intermediary such as a bank, broker-dealer, or other 
association to follow the notice and access model with respect to all 
issuers. An intermediary must prepare its own Notice to beneficial 
owners, along with instructions on when and how to request paper copies 
and the Web site where the beneficial owner can access his or her 
request for voting instructions. Since soliciting parties 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 rules.
    Under the notice and access model, a beneficial owner desiring a 
copy of the proxy materials from a soliciting party following the 
notice only option must request such a copy 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 soliciting parties 
that specify different methods of furnishing the proxy. We expect that 
these processing costs will be highest in the first year after adoption 
but will 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 
amendments 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 ultimately are paid by the soliciting party.
4. Costs to Shareholders
    Under the amendments, a shareholder can avoid any additional cost 
by accessing the proxy materials on the Internet if they already have 
Internet access or by requesting copies of the proxy materials from the 
soliciting parties if the shareholder is a record holder or the 
intermediary if the shareholder is a beneficial owner. Shareholders who 
do not already have Internet access and wish to access the 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 
receiving a Notice under the notice only option would print out the 
posted materials at home at an estimated cost of $7.05 per proxy 
package. Based on these assumptions, we estimated that the voluntary 
model could produce incremental annual home printing costs ranging from 
$16 million (if soliciting parties responsible for 10% of all current 
proxy mailings follow the notice only option) to $80 million (if 
soliciting parties responsible for 50% of all current proxy mailings 
follow the notice only option).\134\ Shareholders of issuers that 
follow the full set delivery option would not incur such costs.
---------------------------------------------------------------------------

    \134\ 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 SIFMA. See letters commenting on 
Release No. 34-52926 (Dec. 8, 2005) [70 FR 74598] from ADP and 
SIFMA.
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5. Comments Regarding Unanticipated Costs
    Several commenters expressed concern with the adoption of these 
amendments before the Commission has collected operating data from the 
voluntary model. The recommended delaying adoption until the market has 
had more experience with the voluntary model before requiring companies 
to follow the notice and access model. As we note elsewhere in the 
release, the amendments adopted in this release do not require 
soliciting parties to follow procedures substantially different from 
the procedures available under the voluntary model. Soliciting parties 
who wish to furnish their proxy materials via traditional paper 
delivery may continue to do so, with the only added requirements being 
that they must post their proxy materials on an Internet Web site and 
prepare a Notice (or incorporate the Notice information into their 
proxy statement and proxy card).
    In addition, only large accelerated filers that are subject to the 
proxy rules will be subject to the requirements in 2008. All other 
filers need not, but may, follow the notice and access model before 
January 1, 2009. Most large accelerated filers already appear to post 
their proxy materials on the Internet. As noted above, a review of 
existing Web sites of such issuers indicated that approximately 80% of 
them already post their filings, including proxy materials, on their 
Web site. Thus, most of the issuers that will be subject to the rules 
in the first year will be large issuers that already post their proxy 
materials on their Web site. Therefore, we believe that no company will 
incur significant cost as a result of these amendments in the first 
year, while we evaluate the performance of the model. Although they may 
need to implement some procedures to ensure the anonymity of persons 
accessing those materials, we do not believe this requirement will 
impose a significant burden on these companies.
    Furthermore, the tiered compliance dates address commenters' 
concerns because they will allow the Commission to better analyze the 
impact of the rules on a subset of issuers constituting large 
accelerated filers.\135\ Adopting the amendments for large accelerated 
filers before the 2008 proxy season effectively

[[Page 42235]]

creates a test group of issuers, enabling the Commission to study the 
performance of the model with a significant number of larger issuers 
and to make any necessary revisions to the rules before they apply to 
all issuers and other soliciting persons.
---------------------------------------------------------------------------

    \135\ One commenter specifically noted that the timeframe would 
not allow the Commission to analyze the effects of one full year of 
compliance for large accelerated filers who chose to accept the 
voluntary model. See letter from the Chamber of Commerce. The tiered 
system will allow the Commission to analyze a full year of 
experience under the notice and access model for all large 
accelerated filers.
---------------------------------------------------------------------------

6. Comment on the Complexity of the Notice and Access Model
    One commenter expressed concern that the proposed rule would make 
the proxy delivery system too complex for beneficial owners holding in 
street name through their brokers or other intermediaries.\136\ We 
acknowledge that the amendments provide shareholders with more options 
with respect to the manner in which they are able to access their proxy 
materials, and thereby add complexity to the proxy distribution system. 
However, we believe that shareholder choice as to the means by which 
they access proxy materials and the expanded use of the Internet to 
provide such information to shareholders ultimately will provide 
shareholders with better access to information, which we believe can 
make the proxy process more efficient. In adopting the voluntary model, 
we created a provision that allows a shareholder to make a one-time 
election of the means by which they access proxy materials to simplify 
the model for those shareholders. In addition, by choosing to follow 
the full set delivery option, issuers and other soliciting persons 
wishing to do so can continue to furnish their proxy materials through 
procedures substantially similar to traditional methods of furnishing 
proxy materials. These provisions should significantly simplify the 
process for all shareholders.
---------------------------------------------------------------------------

    \136\ See letter from Reed Smith. We received similar comments 
on our proposals to adopt the notice and access model as a voluntary 
means of furnishing proxy materials.
---------------------------------------------------------------------------

VII. Consideration of Burden on Competition and Promotion of 
Efficiency, Competition and Capital Formation

    Section 23(a)(2) of the Exchange Act \137\ 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 \138\ and Section 
2(c) of the Investment Company Act of 1940 \139\ require us, when 
engaging in rulemaking that requires us to consider or determine 
whether an action is 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.
---------------------------------------------------------------------------

    \137\ 15 U.S.C. 78w(a)(2).
    \138\ 15 U.S.C. 78c(f).
    \139 \ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------

    The amendments require all issuers and other soliciting persons to 
follow the notice and access model for all proxy solicitations, other 
than those associated with business combination transactions. The 
amendments are intended to provide all shareholders with the ability to 
choose the means by which they access proxy materials, to expand use of 
the Internet to lower the costs of proxy solicitations, and to improve 
shareholder communications. Historically, issuers decided whether to 
provide shareholders with the choice to receive proxy materials by 
electronic means. The amendments provide all shareholders with the 
ability to choose whether to access 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 will 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 amendment may have the effect of initially raising costs on 
issuers and other soliciting persons by requiring persons who choose to 
follow the full set delivery option to post the proxy materials on a 
Web site and prepare a Notice (or incorporate Notice information into 
their proxy statement and proxy card). Commenters were concerned that 
the amendments may create other inefficiencies such as reducing 
shareholder voting participation and increased reliance on broker 
discretionary voting. The amendments do not significantly differ from 
the voluntary model. Issuers who are concerned about a reduction in 
voting participation still have the option to send a full set of proxy 
materials to all shareholders. Therefore, we do not believe that the 
amendments will have a significant impact compared to the previously-
adopted voluntary model on shareholder voting participation, and hence 
reliance on broker discretionary voting.
    We also considered the effect of the amendments on competition and 
capital formation, including the effect that the amendments 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 model is based on the dissemination of 
paper-based proxy materials may experience some adverse competition 
effects from the amendments. However, the full set delivery option 
permits companies to continue to send paper copies to shareholders. 
Thus, we do not anticipate that the amendments will have an incremental 
impact on this industry different from the voluntary model. The 
amendments may also promote competition among Internet-based 
information services.

VIII. Final Regulatory Flexibility Analysis

    This Final Regulatory Flexibility Analysis has been prepared in 
accordance with 5 U.S.C. 603. It relates to amendments to the rules and 
forms under the Exchange Act that require issuers, other persons 
soliciting proxies, and intermediaries to follow the notice and access 
model for all proxy solicitations except for those associated with a 
business combination transaction. An Initial Regulatory Flexibility 
Analysis (IRFA) was prepared in accordance with the Regulatory 
Flexibility Act in conjunction with the proposing release. The 
proposing release included, and solicited comment on, the IRFA.

A. Need for the Amendments

    On January 22, 2007, we proposed amendments to the rules regarding 
provision of proxy materials to shareholders. We are adopting those 
amendments, substantially as proposed. Specifically, the amendments 
require issuers and other persons soliciting proxies to provide 
shareholders with Internet access to proxy materials. The amendments 
are intended to provide all shareholders with the ability to choose the 
means by which they access proxy materials, to expand use of the 
Internet to ultimately lower the costs of proxy solicitations, and to 
improve shareholder communications. We anticipate that the model will 
enhance the ability of investors to make informed decisions and 
ultimately to lower the costs of proxy solicitations.

[[Page 42236]]

    The amendments also will provide all shareholders with the ability 
to choose whether to access 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 evaluate data. It enables 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 disclosure 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 side-effect of improving 
shareholder communications in other ways. Internet tools 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.

B. Significant Issues Raised by Public Comment

    Five commenters were concerned that smaller firms may not realize 
the savings contemplated by the mandatory model and may even incur 
increased costs.\140\ One commenter suggested that the Commission 
develop ``ways to 'scale' the notice and access model for smaller 
public companies so as to reduce the cost of compliance,'' but did not 
provide any recommendations on how to do so.\141\
---------------------------------------------------------------------------

    \140\ See letters from ABC, BONY, Reed Smith, Registrar and 
Transfer, and STA.
    \141\ See letter from ABC.
---------------------------------------------------------------------------

    Several commenters were concerned about the increased set-up costs 
for issuers, including small entities. One commenter estimated that, 
based on its ``back-of-envelope'' estimate, the cost of outsourcing the 
requirements to a third party provider could cost companies over $5,000 
and may exceed $10,000, including the establishment of an Internet 
voting platform.\142\ Three other commenters estimated that the 
proposal would cost companies approximately $3,000 to establish such an 
Internet voting platform.\143\ However, as noted previously, the 
amendments do not require companies to establish such a platform.\144\ 
One of these commenters noted that although posting the proxy materials 
on the Internet is not necessarily expensive or difficult, outsourcing 
this function to an outside firm could cost hundreds, if not thousands, 
of dollars to do so.\145\
---------------------------------------------------------------------------

    \142\ See letter from ABC.
    \143\ See letters from BONY, Registrar and Transfer, and STA.
    \144\ See letters from BONY and Registrar and Transfer.
    \145\ See letter from Registrar and Transfer.
---------------------------------------------------------------------------

    One commenter was concerned that the prohibition on ``cookies'' 
raises the costs for maintaining the Web sites.\146\ Although this 
prohibition does raise the cost to maintain the Web sites, we believe 
that eliminating this prohibition may have a negative effect on 
shareholders' willingness to access the proxy materials via an Internet 
Web site. We do not believe this requirement will create undue burden 
on companies. Soliciting parties must refrain from installing cookies 
and other tracking features on the Web site or portion of the Web site 
where the proxy materials are posted. This may require segregating 
those pages from the rest of the soliciting party's regular Web site or 
creating a new Web site. However, the rules do not require the company 
to turn off the Web site's connection log, which automatically tracks 
numerical IP addresses that connect to that Web site. Although in most 
cases, this IP address does not provide a soliciting party with 
sufficient information to identify the accessing shareholder, 
soliciting parties may not use these numbers to attempt to find out 
more information about persons accessing the Web site.
---------------------------------------------------------------------------

    \146\ See letter from ICI.
---------------------------------------------------------------------------

C. Small Entities Subject to the Amendments

    The amendments affect issuers that are small entities. Exchange Act 
Rule 0-10(a) \147\ 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 1,100 
public companies, other than investment companies, that may be 
considered small entities.\148\
---------------------------------------------------------------------------

    \147\ 17 CFR 240.0-10(a).
    \148\ The estimated number of reporting small entities is based 
on 2007 data including the Commission's EDGAR database and Thomson 
Financial's Worldscope database. This represents an update from the 
number of reporting small entities estimated in prior rulemakings. 
See, for example, Executive Compensation and Related Disclosure, 
Release No. 33-8732A (Aug. 29, 2006) [71 FR 53158] (in which the 
Commission estimated a total of 2,500 small entities, other than 
investment companies).
---------------------------------------------------------------------------

    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.\149\ Approximately 164 registered investment companies meet this 
definition. Moreover, approximately 51 business development companies 
may be considered small entities.
---------------------------------------------------------------------------

    \149\ 17 CFR 270.0-10.
---------------------------------------------------------------------------

    Paragraph (c)(1) of Rule 0-10 under the Exchange Act \150\ 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 year as of which its audited financial 
statements were prepared pursuant to Sec.  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.\151\ Small Business 
Administration regulations define ``small entities'' to include banks 
and savings associations with total assets of $165 million or 
less.\152\ The Commission estimates that the rules might apply to 
approximately 9,475 banks, approximately 5,816 of which could be 
considered small banks with assets of $165 million or less.
---------------------------------------------------------------------------

    \150\ 17 CFR 240.0-10(c)(1).
    \151 \ These numbers are based on a review by the Commission's 
Office of Economic Analysis of 2005 FOCUS Report filings reflecting 
registered broker-dealers. This number does not include broker-
dealers that are delinquent on FOCUS Report filings.
    \152\ 13 CFR 121.201.
---------------------------------------------------------------------------

D. Reporting, Recordkeeping and Other Compliance Requirements

    The amendments require all issuers, including small entities, to 
follow the notice and access model. This model does not significantly 
change an issuer's obligations under current rules. An issuer choosing 
to follow the notice only option would incur costs identical to costs 
that it would have incurred under the voluntary model. An issuer 
following the full set delivery option would incur two costs in 
addition to the current cost of sending proxy materials under the 
traditional method: (1) The cost of preparing a Notice of Internet 
Availability of Proxy Materials and (2) the cost of posting the proxy 
materials on a Web site with anonymity controls.
    For purposes of the Paperwork Reduction Act, we have estimated that 
the Notice would take approximately

[[Page 42237]]

1.5 hours to prepare because the information is readily available to 
the issuer. We estimated that 75% of that burden would be incurred by 
in-house, while 25% of the burden would reflect costs of outside 
counsel, at a cost of $400 per hour, or approximately $150 per Notice. 
With respect to printing the Notice, for purposes of the Cost-Benefit 
Analysis we estimated a cost of $0.13 per copy to print the Notice. 
However, an issuer may reduce this cost by incorporating the Notice 
information into its proxy materials.
    As we noted in our Cost-Benefit Analysis, we anticipate the cost of 
posting the proxy materials on a publicly accessible Web site to be 
relatively low. Although an issuer may choose to pay more for an 
elaborate Web site, the rules do not require such a Web site. An issuer 
with a small shareholder base may be able to post its materials on a 
free Web hosting service. As we note in more detail in the Cost-Benefit 
Analysis, based on our estimate of the typical size of a proxy 
statement and annual report, we estimate such services provide 
sufficient bandwidth for approximately 1,000 to 25,000 hits per 
month.\153\ We also noted that several Web hosting services provided 
Web sites which would handle up to five million hits per month are 
available for approximately $5 to $8 per month, or $60 to $96 per year. 
Based on a review of several Internet Web page design firms, we 
estimate that the design of a Web site meeting the base requirements of 
the rules would be approximately $300.
---------------------------------------------------------------------------

    \153\ These calculations are based on typical file sizes of 
proxy statements and annual reports. The lower capacity (1,000) 
corresponds to files that are elaborate ``glossy'' annual 
statements. We believe the higher capacity (25,000) is a more 
reasonable estimate for small entities because small entities tend 
to send annual reports on Form 10-K to meet their Rule 14a-3(b) 
requirements rather than spend the significant cost of producing a 
``glossy'' annual report.
---------------------------------------------------------------------------

    Intermediaries must follow substantially similar requirements with 
respect to beneficial owners of the issuer's securities. Issuers, 
including small entities, are required to reimburse intermediaries for 
the cost of complying with these requirements. These costs are 
incorporated in our estimate of costs to issuers.

E. Agency Action To Minimize Effect on Small Entities

    The amendments require all issuers and intermediaries, including 
small entities, to follow the notice and access model. The purpose of 
the amendments is to provide all shareholders with the ability to 
choose the means by which they can access 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 and we do not 
believe that the additional compliance requirements that we are 
imposing are significant.
    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 adopting a tiered 
system of compliance dates to minimize the burdens on smaller issuers, 
including small entities. Under this tiered system, issuers that are 
not large accelerated filers need not 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. Furthermore, adopting the amendments for large accelerated 
filers before the 2008 proxy season effectively creates a test group of 
issuers, enabling the Commission to study the performance of the model 
with a significant number of larger issuers and to make any necessary 
revisions to the rules before they apply to all issuers, including 
small entities.
    Intermediaries that are small entities also are subject to the 
amendments. We understand that the task of forwarding proxy materials 
to over 95% of beneficial ownership accounts currently is handled by a 
single entity. Because a third-party outsourcing alternative is readily 
available and issuers are required to reimburse such costs to the 
intermediary, we believe that imposing the amendments on small entities 
will not create a substantial burden on small entities. Thus, we have 
decided not to exempt intermediaries that are small entities 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 amendments. The amendments contain both performance 
standards and design standards. We are adopting design standards to the 
extent that we believe compliance with particular requirements is 
necessary. For example, we are using a design standard with respect to 
the contents of the Notice so that investors get uniform information 
regarding access to important information. However, to the extent 
possible, we are adopting 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. For example, we are adopting a performance standard for 
providing for anonymity on the Web site so that issuers and other 
soliciting persons can determine for themselves the least costly option 
to meet the requirement.

IX. Statutory Basis and Text of Amendments

    We are adopting 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.

0
For the reasons set out in the preamble, Title 17, Chapter II of the 
Code of Federal Regulations is amended as follows.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
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.
* * * * *

0
2. Amend Sec.  240.14a-3 by revising paragraph (a) to read as follows:

Sec.  240.14a-3  Information to be furnished to security holders.

    (a) No solicitation subject to this regulation shall be made unless 
each person solicited is concurrently furnished or has previously been 
furnished with:
    (1) A publicly-filed preliminary or definitive proxy statement, in 
the form and manner described in Sec.  240.14a-16, containing the 
information specified in Schedule 14A (Sec.  240.14a-101);
    (2) A preliminary or definitive written proxy statement included in 
a registration statement filed under the Securities Act of 1933 on Form 
S-4 or F-4 (Sec.  239.25 or Sec.  239.34 of this chapter) or Form N-14 
(Sec.  239.23 of this chapter) and containing the information specified 
in such Form; or

[[Page 42238]]

    (3) A publicly-filed preliminary or definitive proxy statement, not 
in the form and manner described in Sec.  240.14a-16, containing the 
information specified in Schedule 14A (Sec.  240.14a-101), if:
    (i) The solicitation relates to a business combination transaction 
as that term is defined in Sec.  230.165 of this chapter; or
    (ii) The solicitation may not follow the form and manner described 
in Sec.  240.14a-16 pursuant to the laws of the state of incorporation 
of the registrant;
* * * * *
    3. Amend Sec.  240.14a-7 by removing Note 3 to Sec.  240.14a-7.

Sec.  240.14a-7  [Amended]

0
4. Amend Sec.  240.14a-16 by:
0
a. Revising paragraphs (a), (d)(3), (f)(2)(i), (f)(2)(ii), (h), (j)(3), 
and (n); and
0
b. Adding paragraph (f)(2)(iii).
    The revisions and additions to read as follows:

Sec.  240.14a-16  Internet availability of proxy materials.

    (a)(1) A registrant shall furnish a proxy statement pursuant to 
Sec.  240.14a-3(a), or an annual report to security holders pursuant to 
Sec.  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 if no meeting is to be held, 40 calendar days or more 
prior to the date the votes, consents or authorizations may be used to 
effect the corporate action, and complying with all other requirements 
of this section.
    (2) Unless the registrant chooses to follow the full set delivery 
option set forth in paragraph (n) of this section, it 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, print and send a Notice of Internet 
Availability of Proxy Materials to beneficial owners at least 40 
calendar days before the meeting date.
* * * * *
    (d) * * *
    (3) A clear and impartial identification of each separate matter 
intended to be acted on and the soliciting person's recommendations, if 
any, regarding those matters, but no supporting statements;
* * * * *
    (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; and
    (iii) 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 if:
    (1) At least 10 calendar days or more have passed since the date it 
first sent the Notice of Internet Availability of Proxy Materials to 
security holders and the form of proxy is accompanied by a copy of the 
Notice of Internet Availability of Proxy Materials; or
    (2) 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 Sec.  240.14a-3(b).
* * * * *
    (j) * * *
    (3) The registrant must provide copies of the proxy materials for 
one year after the conclusion of the meeting or corporate action to 
which the proxy materials relate, provided that, if the registrant 
receives the request after the conclusion of the meeting or corporate 
action to which the proxy materials relate, the registrant need not 
send copies via First Class mail and need not respond to such request 
within three business days.
* * * * *
    (n) Full Set Delivery Option.
    (1) For purposes of this paragraph (n), the term full set of proxy 
materials shall include all of the following documents:
    (i) A copy of the proxy statement;
    (ii) A copy of the annual report to security holders if required by 
Sec.  240.14a-3(b); and
    (iii) A form of proxy.
    (2) Notwithstanding paragraphs (e) and (f)(2) of this section, a 
registrant or other soliciting person may:
    (i) Accompany the Notice of Internet Availability of Proxy 
Materials with a full set of proxy materials; or
    (ii) Send a full set of proxy materials without a Notice of 
Internet Availability of Proxy Materials if all of the information 
required in a Notice of Internet Availability of Proxy Materials 
pursuant to paragraphs (d) and (n)(4) of this section is incorporated 
in the proxy statement and the form of proxy.
    (3) A registrant or other soliciting person that sends a full set 
of proxy materials to a security holder pursuant to this paragraph (n) 
need not comply with
    (i) The timing provisions of paragraphs (a) and (l)(2) of this 
section; and
    (ii) The obligation to provide copies pursuant to paragraph (j) of 
this section.
    (4) A registrant or other soliciting person that sends a full set 
of proxy materials to a security holder pursuant to this paragraph (n) 
need not include in its Notice of Internet Availability of Proxy 
Materials, proxy statement, or form of proxy the following disclosures:
    (i) Paragraphs 1 and 3 of the legend required by paragraph (d)(1) 
of this section;
    (ii) Instructions on how to request a copy of the proxy materials; 
and
    (iii) Instructions on how to access the form of proxy pursuant to 
paragraph (d)(7) of this section.

0
5. Amend Sec.  240.14a-101 by revising the first sentence of Item 
4(a)(3) to read as follows:

Sec.  240.14a-101  Schedule 14A. Information required in proxy 
statement.

* * * * *
    Item 4. Persons Making the Solicitation--(a) * * *
    (3) If the solicitation is to be made otherwise than by the use of 
the mails or pursuant to Sec.  240.14a-16, describe the methods to be 
employed. * * *
* * * * *

0
6. Amend Sec.  240.14b-1 by:
0
a. Revising the introductory text of paragraph (d); and
0
b. Adding paragraph (d)(5).
    The revision and addition read as follows.

Sec.  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 Sec.  240.14a-16(d), the broker or dealer shall:
* * * * *
    (5) Notwithstanding any other provisions in this paragraph (d), if 
the broker or dealer receives copies of the proxy statement and annual 
report to security holders (if applicable) from the soliciting person 
with instructions to forward such materials to beneficial owners, the 
broker or dealer:
    (i) Shall either:
    (A) Prepare a Notice of Internet Availability of Proxy Materials 
and forward it with the proxy statement and annual report to security 
holders (if applicable); or
    (B) Incorporate any information required in the Notice of Internet

[[Page 42239]]

Availability of Proxy Materials that does not appear in the proxy 
statement into the broker or dealer's request for voting instructions 
to be sent with the proxy statement and annual report (if applicable);
    (ii) Need not comply with the following provisions:
    (A) The timing provisions of paragraph (d)(1)(ii) of this section; 
and
    (B) Paragraph (d)(4) of this section; and
    (iii) Need not include in its Notice of Internet Availability of 
Proxy Materials or request for voting instructions the following 
disclosures:
    (A) Legends 1 and 2 in Sec.  240.14a-16(d)(1); and
    (B) Instructions on how to request a copy of the proxy materials.
* * * * *

0
7. Amend Sec.  240.14b-2 by:
0
a. Revising the introductory text of paragraph (d); and
0
b. Adding paragraph (d)(5).
    The revision and addition read as follows.

Sec.  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 Sec.  240.14a-16(d), the bank shall:
* * * * *
    (5) Notwithstanding any other provisions in this paragraph (d), if 
the bank receives copies of the proxy statement and annual report to 
security holders (if applicable) from the soliciting person with 
instructions to forward such materials to beneficial owners, the bank:
    (i) Shall either:
    (A) Prepare a Notice of Internet Availability of Proxy Materials 
and forward it with the proxy statement and annual report to security 
holders (if applicable); or
    (B) Incorporate any information required in the Notice of Internet 
Availability of Proxy Materials that does not appear in the proxy 
statement into the bank's request for voting instructions to be sent 
with the proxy statement and annual report (if applicable);
    (ii) Need not comply with the following provisions:
    (A) The timing provisions of paragraph (d)(1)(ii) of this section; 
and
    (B) Paragraph (d)(4) of this section; and
    (iii) Need not include in its Notice of Internet Availability of 
Proxy Materials or request for voting instructions the following 
disclosures:
    (A) Legends 1 and 2 in Sec.  240.14a-16(d)(1); and
    (B) Instructions on how to request a copy of the proxy materials.
* * * * *

0
8. Amend Sec.  240.14c-2 by revising paragraph (d) to read as follows:

Sec.  240.14c-2  Distribution of information statement.

* * * * *
    (d) A registrant shall transmit an information statement to 
security holders pursuant to paragraph (a) of this section by 
satisfying the requirements set forth in Sec.  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.

0
9. Amend Sec.  240.14c-3 by revising paragraph (d) to read as follows:

Sec.  240.14c-3  Annual report to be furnished security holders.

* * * * *
    (d) A registrant shall furnish an annual report to security holders 
pursuant to paragraph (a) of this section by satisfying the 
requirements set forth in Sec.  240.14a-16.

    By the Commission.

    Dated: July 26, 2007.
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-14793 Filed 7-31-07; 8:45 am]

BILLING CODE 8010-01-P