[Federal Register: December 15, 2005 (Volume 70, Number 240)]
[Proposed Rules]
[Page 74597-74622]
[DOCID:fr15de05-31]

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Part V

Securities and Exchange Commission

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17 CFR Parts 240, 249 and 274

Internet Availability of Proxy Materials; Proposed Rule

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240, 249 and 274

[Release Nos. 34-52926; IC-27182; File No. S7-10-05]
RIN 3235-AJ47

Internet Availability of Proxy Materials

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing amendments to the proxy rules under the
Securities Exchange Act of 1934 that would provide an alternative
method for issuers and other persons to furnish proxy materials to
shareholders by posting them on an Internet Web site and providing
shareholders with notice of the availability of the proxy materials.
Copies would be available to shareholders on request, at no cost. The
proposed amendments are intended to put into place processes that would
provide shareholders with notice of, and access to, proxy materials
while taking advantage of technological developments and the growth of
the Internet and electronic communications. Issuers that rely on the
proposed amendments would be able to lower costs of proxy solicitations
that ultimately are borne by shareholders. The proposed amendments also
would apply to a soliciting person other than the issuer, which we
anticipate might reduce the costs of engaging in a proxy contest.
Today's proposals would not apply to business combination transactions.
These proposals also would not affect the availability of any existing
method of furnishing proxy materials.

DATES: Comments must be received on or before February 13, 2006.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.
); or     Send an e-mail to<EMAIL_ADDRESS>Please include

File Number S7-10-05 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov
). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
    All submissions should refer to File Number S7-10-05. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/proposed). Comments also

are available for public inspection and copying in the Commission's
Public Reference Room, 100 F Street, NE., Washington, DC 20549. All
comments received will be posted without change; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Raymond A. Be, Special Counsel, Office
of Rulemaking, Division of Corporation Finance, at<PHONE_NUMBER>,
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-3628.

SUPPLEMENTARY INFORMATION: The Commission today proposes amendments to
Rules 14a-2,\1\ 14a-3,\2\ 14a-4,\3\ 14a-7,\4\ 14a-8,\5\ 14a-12,\6\ 14a-
13,\7\ 14b-1,\8\ 14b-2,\9\ 14c-2,\10\ 14c-3,\11\ 14c-5,\12\ 14c-7,\13\
Schedule 14A,\14\ Schedule 14C,\15\ Form 10-K,\16\ Form 10-KSB,\17\
Form 10-Q,\18\ Form 10-QSB,\19\ and Form N-SAR \20\ under the
Securities Exchange Act of 1934.\21\
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    \1\ 17 CFR 240.14a-2.
    \2\ 17 CFR 240.14a-3.
    \3\ 17 CFR 240.14a-4.
    \4\ 17 CFR 240.14a-7.
    \5\ 17 CFR 240.14a-8.
    \6\ 17 CFR 240.14a-12.
    \7\ 17 CFR 240.14a-13.
    \8\ 17 CFR 240.14b-1.
    \9\ 17 CFR 240.14b-2.
    \10\ 17 CFR 240.14c-2.
    \11\ 17 CFR 240.14c-3.
    \12\ 17 CFR 240.14c-5.
    \13\ 17 CFR 240.14c-7.
    \14\ 17 CFR 240.14a-101.
    \15\ 17 CFR 240.14c-101.
    \16\ 17 CFR 249.310.
    \17\ 17 CFR 249.310a.
    \18\ 17 CFR 249.308a.
    \19\ 17 CFR 249.308b.
    \20\ 17 CFR 274.101.
    \21\ 15 U.S.C. 78a et seq.
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Table of Contents

I. Introduction
II. Background
III. Description of the Proposed Amendments
    A. Proposed ``Notice and Access'' Model for Furnishing of
Internet Proxy Materials by an Issuer
    1. Notice of Internet Availability of Proxy Materials
    2. Mechanics of the Proposed ``Notice and Access'' Model
    i. Proxy Card
    ii. Internet Web Site Posting of Proxy Materials
    iii. Period of Reliance on the Proposed Model
    iv. State Law Notices
    v. Additional Soliciting Materials
    3. Requests for Copies of Proxy Materials
    B. The Role of Intermediaries
    1. Background
    2. Proposed Amendments
    C. Proposed ``Notice and Access'' Model for Furnishing of
Internet Proxy Materials by Soliciting Persons Other Than the Issuer
    1. Mechanics of Proxy Solicitations by Persons Other Than the
Issuer
    2. Timeframe for Sending Notice of Internet Availability of
Proxy Materials
    3. Content of the Notice of Internet Availability of Proxy
Materials of a Soliciting Person Other Than the Issuer
    4. Shareholder Lists and the Furnishing of Proxy Materials by
the Issuer
    5. The Role of Intermediaries
    D. Business Combination Transactions
IV. Conforming and Correcting Revisions to the Proxy Rules
V. Paperwork Reduction Act
VI. Cost-Benefit Analysis
VII. Consideration of Burden on Competition and Promotion of
Efficiency, Competition and Capital Formation
VIII. Initial Regulatory Flexibility Analysis
IX. Small Business Regulatory Enforcement Fairness Act
X. Statutory Basis and Text of Proposed Amendments

I. Introduction

    We are proposing amendments to the proxy rules to update our
regulatory framework to take advantage of communications technology and
provide an alternative proxy model that could reduce the printing and
mailing costs associated with furnishing proxy materials to
shareholders.\22\ The proposed amendments would provide an alternative
method for furnishing proxy materials to shareholders based on a
``notice and access'' model. Under the proposals, an issuer would be
able to satisfy its obligations under the Commission's proxy rules by
posting its proxy materials 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 those materials.\23\ These
proposals are

intended to establish procedures that would promote use of the Internet
as a reliable and cost-efficient means of making proxy materials
available to shareholders. The proposed amendments would provide a new
alternative to existing methods of furnishing proxy materials, which
would not be affected by the proposal.
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    \22\ For purposes of this release, the term ``proxy materials''
includes proxy statements on Schedule 14A, proxy cards, information
statements on Schedule 14C, annual reports to security holders
required by Rules 14a-3 and 14c-3 of the Exchange Act, notices of
shareholder meetings, additional soliciting materials, and any
amendments to such materials.
    \23\ An issuer also would have to continue to file its proxy
materials on the Commission's EDGAR Web site and furnish its annual
report to security holders to the Commission pursuant to Rules 14a-3
and 14c-3. These proposed rules do not affect any current Commission
filing requirement, except that a soliciting person following the
proposed model would be required to file the proposed notice as
additional soliciting material under Exchange Act Rule 14a-6(b) [17
CFR 240.14a-6(b)].
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    Shareholders and other persons conducting their own proxy
solicitations would be able to rely on the proposed amendments under
requirements substantially similar to the requirements that would apply
to issuers. As a result, these proposals also would give these
shareholders and other persons an alternative method to furnish proxy
materials that may have the effect of reducing the cost of engaging in
a proxy contest. Because the proposed amendments provide an alternative
method for furnishing proxy materials, they would not eliminate the
ability of an issuer or other soliciting person to comply with existing
methods of furnishing proxy materials. The proposed alternative would
not be available to issuers or other soliciting persons in the context
of a business combination transaction.
    The proposed amendments would require an issuer that is relying on
the proposed ``notice and access'' model to provide a shareholder with
a copy of the materials upon request (in paper or by e-mail, as
requested). A soliciting person other than the issuer may choose not to
provide a copy of its proxy materials to a requesting shareholder if
the person is conducting a conditional ``electronic only'' proxy
solicitation and soliciting proxy authority only from shareholders
willing to electronically access the soliciting person's proxy
materials.\24\
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    \24\ An issuer would be unlikely to conduct such an ``electronic
only'' proxy solicitation, as it would have an obligation to provide
shareholders who are not being solicited with an information
statement that complies with Regulation 14C [17 CFR 14c-1 through
14c-101]. In addition, the rules of some trading markets require
issuers to solicit proxies from all of their shareholders.
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    Under the proposed ``notice and access'' model, the issuer would be
able to send a notice to shareholders (the ``Notice of Internet
Availability of Proxy Materials'' or ``Notice'') at least 30 days
before the meeting, or if no meeting is to be held, at least 30 days
before the date the votes, consents, or authorizations may be used to
effect a corporate action, indicating that the issuer's proxy materials
are available on a specified Internet Web site and explaining how to
access those proxy materials. The Notice also would explain the
procedure for requesting a copy of the materials, if a shareholder
desires such a copy.
    As proposed, an issuer or other soliciting person need not rely on
the ``notice and access'' model with regard to all proxy-related
materials. The amendments would permit a soliciting person to choose to
rely on the proposed model as a means of furnishing some proxy-related
documents to shareholders and use other means, such as paper documents,
with regard to other proxy-related materials. For example, an issuer
could choose to use the ``notice and access'' model for its proxy
statement and to furnish its annual report to security holders
(commonly referred to as the ``glossy annual report'') in paper through
the U.S. mail. However, the proposed ``notice and access'' model would
require a soliciting person to furnish the proxy card together with,
and using the same medium as, either the Notice of Internet
Availability of Proxy Materials or the proxy statement.\25\
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    \25\ In the proposed regulatory text at the end of this release,
we refer to proxy cards as ``forms of proxy'' for consistency with
existing Commission rules.
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II. Background

    We believe that continuing technological developments and the
expanded use of the Internet now merit consideration of an alternative
method for the dissemination of proxy materials. We also believe that
our proposed alternative model could facilitate effective and cost-
efficient communications between issuers, shareholders, and
intermediaries. We previously published extensive guidance regarding
the electronic delivery of materials under the federal securities
laws.\26\ We believe the proposed alternative model would address the
possibility, as identified by market participants, that a significant
portion of the difficulties that issuers have encountered in
implementing our existing guidance to date has stemmed from
shareholders' inattention to requests for consent to electronic
delivery rather than an unwillingness to receive documents
electronically.\27\
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    \26\ Release No. 33-7233 (Oct. 6, 1995) [60 FR 53458] (the
``1995 Interpretive Release'') provided guidance on electronic
delivery of prospectuses, annual reports to security holders and
proxy solicitation materials under the Securities Act of 1933 [15
U.S.C. 77a et seq.], the Securities Exchange Act of 1934, and the
Investment Company Act of 1940 15 U.S.C. 80a-1 et seq.]. Release No.
33-7288 (May 9, 1996) (the ``1996 Interpretive Release'') provided
guidance on electronic delivery of required information by broker-
dealers and transfer agents under the Securities Act, the Exchange
Act, and the Investment Company Act. Release No. 33-7856 (Apr. 28,
2000) [65 FR 25843] (the ``2000 Interpretive Release'') provided
guidance on the use of electronic media to deliver documents under
the federal securities laws, an issuer's liability for Web site
content, and basic legal principles that issuers and market
intermediaries should consider in conducting online offerings.
    \27\ See, for example, the third Q&A in Section J: Which Issuers
Are Using Electronic Delivery, in FAQ on Electronic Delivery,
available at http://www.realcorporatelawyer.com/faqs/ed.html.

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    In 2000, we discussed an ``access equals delivery'' model and an
implied consent model as possible alternatives to the existing
electronic delivery conditions. In our 2000 Interpretive Release, we
described the ``access equals delivery'' model as one under which
``investors would be assumed to have access to the Internet, thereby
allowing delivery to be accomplished solely by an issuer posting a
document on the issuer's or a third party's Web site.'' \28\ In that
release, we also described the ``implied consent'' model as one that
would allow an issuer to rely on electronic delivery if intended
recipients did not affirmatively object when notified of the issuer's
or intermediary's intention to deliver documents in an electronic
format.
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    \28\ We note that the ``notice and access'' model that we are
proposing in this release would require both notice and posting of
the materials on the Internet. Thus, it would not follow a pure
``access equals delivery'' model, as described in the 2000
Interpretive Release.
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    We did not take action regarding either of those models in 2000.
With the passage of five years and the increased use of the Internet as
a means to quickly, reliably, and inexpensively disseminate
information, we think it is again appropriate to consider the effect
that technological developments have had on making information
available and propose an alternative model for furnishing proxy
materials.
    More than 10.7 million beneficial shareholders already have given
their consent to electronic delivery of proxy materials and
approximately 85% of their shares were voted electronically or
telephonically during the 2005 proxy season.\29\ Moreover, recent data
indicates that up to 75% of Americans have access to the Internet in
their homes, and that this percentage is increasing steadily among all
age groups.\30\
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    \29\ According to data available on the Web site of Automatic
Data Processing, Inc. See http://www.ics.adp.com/release11/public_site/about/stats.html
.

    \30\ See Three Out of Four Americans Have Access to the
Internet, Nielsen//NetRatings, March 18, 2004; Robyn Greenspan,
Senior Surfing Surges, ClickZNetwork, Nov. 20, 2003 (citing
statistics from Neilsen/NetRatings and Jupiter Research). In
addition, there is evidence suggesting that the ``digital divide''
is narrowing. See, for example, Kristen Fountain, Antennas Sprout,
and a Bronx Neighborhood Goes Online, The N.Y. Times, June 10, 2004
at G8; Steve Lohr, Libraries Wired, and Reborn, The N.Y. Times, Apr.
22, 2004 at G1. However, studies have varied. One study concluded
that only 63% of Americans age 18 or older had Internet access in
2004, and that only 25% of persons over the age of 65 had Internet
access in the same year. See Trends 2005 by the Pew Research Center.
Nonetheless, these percentages are significantly higher than the
approximately 15% of Americans estimated to have Internet access in
1995 and the 48% in 2000. Id.

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    In connection with our recent Securities Offering Reform effort, we
adopted new Securities Act Rule 172,\31\ which implements an ``access
equals delivery'' model in the context of final prospectus
delivery.\32\ Under Rule 172, a final prospectus is deemed to precede
or accompany a security for sale for purposes of Securities Act Section
5(b)(2) \33\ so long as the company offering the security files with
the Commission a final prospectus meeting the requirements of
Securities Act Section 10(a) \34\ as part of the registration statement
pursuant to Securities Act Rule 424.\35\ Investors will be able to
access the electronically filed final prospectus on EDGAR, but no
longer will receive a copy unless they request one.\36\ Two commenters
on the Securities Offering Reform proposing release suggested that we
consider proposing similar ``access equals delivery'' amendments in the
context of the proxy rules.\37\
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    \31\ 17 CFR 230.172.
    \32\ See Release No. 33-8591 (July 19, 2005) [70 FR 44721].
    \33\ 15 U.S.C. 77e(b)(2).
    \34\ 15 U.S.C. 77j(a).
    \35\ 17 CFR 230.424.
    \36\ See Securities Act Rule 173(d) [17 CFR 230.173(d)].
    \37\ See comment letters on Release No. 33-8501 (Nov. 3, 2004)
[69 FR 67392] from the Society of Corporate Secretaries and
Governance Professionals and Intel Corporation, available at http://www.sec.gov/rules/proposed/s73804.shtml
.

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Request for Comment

     Has Internet access become sufficiently widespread to make
a ``notice and access'' model for furnishing proxy materials a viable
model?
     Is the means by which most shareholders access the
Internet sufficient to access lengthy documents such as annual reports,
proxy statements, and information statements? Would investors be
excessively burdened by having to download and print these documents?
     As technology has progressed, so has the amount of content
that can be transmitted electronically. Many Internet Web sites
currently use advanced formatting that may not be compatible with, or
may substantially slow, dial-up connections. Do shareholders need
broadband technology to efficiently download lengthy documents such as
annual reports, proxy statements, and information statements? If so, do
shareholders have sufficient access to broadband technology to make the
proposal described in this release feasible?
     As part of the ``notice and access'' model, should we
require issuers and other soliciting persons to make their proxy
materials available in a format that can be readily downloaded by
shareholders over dial-up connections? Should we require issuers and
other soliciting persons to provide, where available, links to third-
party Web sites from which shareholders would be able to download, free
of charge, any software necessary to view the documents?
     Do issuers have sufficient bandwidth on their Internet Web
sites to handle any anticipated increased traffic? What actions would
issuers have to take to ensure that their Internet Web sites have
sufficient capacity to handle the increased traffic?
     Should the proposed model instead be based on obtaining a
shareholder's consent? If so, what type of consent should be required
(e.g., should a shareholder's affirmative consent, implied consent, or
other type of consent be required?) and should any disclosure be
required in connection with the request for consent? If so, what
disclosure should be required?

III. Description of the Proposed Amendments

A. Proposed ``Notice and Access'' Model for Furnishing of Internet
Proxy Materials by an Issuer

    The proposed amendments would permit an alternative means for an
issuer to furnish proxy materials to all of its shareholders. These
proxy materials include:
     Notices of shareholder meetings; \38\
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    \38\ The notice of a shareholder meeting typically is required
under state law. However, issuers traditionally deliver the notice
together with the proxy materials. Because we intend for our
proposed rules to have no impact on state corporation law
obligations, the proposed rules would not permit use of the proposed
alternative model if the law in the state in which an issuer is
incorporated would not permit reliance on the alternative model.
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     Schedule 14A proxy statements and consent solicitation
statements;
     Proxy cards;
     Schedule 14C information statements;
     Annual reports to security holders; \39\
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    \39\ The requirement to furnish annual reports in Rules 14a-3
and 14c-3 under the Exchange Act does not apply to registered
investment companies. See 17 CFR 240.14a-3(b) and 240.14c-3(a). The
proposals in this release do not apply to the requirement for every
registered investment company, at least semi-annually, to transmit
reports to shareholders under Section 30(e) of the Investment
Company Act of 1940 [15 U.S.C. 80a-29(e)] and the rules thereunder.
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     Additional soliciting materials; \40\ and
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    \40\ Our rules permit, but do not require, delivery of
additional soliciting materials. See Rule 14a-6(b).
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     Any amendments to such materials that are required to be
furnished to shareholders.
    With regard to solicitations other than those in connection with
business combination transactions, the proposed amendments would permit
all issuers to use the ``notice and access'' model for all
shareholders. The availability of the ``notice and access'' model would
not be determined by any characteristics of either the issuer or the
shareholder.

Request for Comment

     Should the ``notice and access'' model be available with
respect to all shareholders of all issuers, or should there be
limitations on its use?
     Should the availability of the ``notice and access'' model
depend on the nature of the issuer? For example, should the ``notice
and access'' model be available for all issuers or should its
availability depend on the issuer's Securities Act registration
statement form eligibility (e.g., Form S-3 eligibility) or the issuer's
Exchange Act reporting history (e.g., only those issuers that are
current in their Exchange Act reporting)?
     Should the availability of the ``notice and access'' model
depend on the nature of the issuer's investors? For example, should the
``notice and access'' model be equally available with respect to all
shareholders (e.g., institutional versus individual shareholders, more
financially sophisticated shareholders versus less financially
sophisticated shareholders)?
     Should mutual funds, closed-end funds, business
development companies, and other investment companies be permitted to
use the ``notice and access'' model?
     In addressing each of the questions above, commenters are
asked to address differences in the degree to which different
categories of investors in particular types of issuers have access to,
and are prepared to use, the Internet in receiving communications from
the issuer.

1. Notice of Internet Availability of Proxy Materials
    To notify shareholders of the availability of the proxy materials
on the specified Internet Web site, an issuer relying on the proposed
``notice and access'' model would have to send a Notice of Internet
Availability of Proxy Materials to shareholders 30 days or more in
advance of the shareholder meeting date or, if no meeting is to be
held, 30 days or more in advance of the date that votes, consents, or
authorizations may be used to effect the corporate actions to be voted
on.\41\ The 30-day period is to provide shareholders with sufficient
time to receive the Notice, request copies of the materials, if
desired, and review the proxy materials prior to voting.\42\ We would
view the Notice as additional soliciting material that would have to be
filed with the Commission pursuant to Rule 14a-6(b) no later than the
date it is first sent or given to shareholders.
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    \41\ This Notice could be sent electronically under existing
permitted methods.
    \42\ If these proposals are adopted, the Commission staff
intends to review its Exchange Act Rule 14a-8 [17 CFR 240.14a-8]
shareholder proposal internal processing procedures and timetables,
and revise them if necessary, to ensure that issuers are able to
comply with the proposed 30-day deadline.
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    The proposed Notice of Internet Availability of Proxy Materials and
the notice of a shareholder meeting required under state corporation
law could be combined together into a single document, unless
prohibited by state law. The Notice could not be combined with any
document other than the state law meeting notice. We believe that it is
important for the Notice to be furnished in a way that brings it to
each shareholder's attention. Therefore, whether or not combined with
the state law meeting notice, the Notice of Internet Availability of
Proxy Materials must be sent separately from other types of shareholder
communications and may not accompany any materials other than the proxy
card and return envelope.\43\
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    \43\ As discussed in more detail later in this release, in the
case of an intermediary forwarding proxy materials to beneficial
owners, a request for voting instructions from the intermediary is
the functional equivalent to a proxy card and would be permitted to
accompany the Notice.
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    The Notice of Internet Availability of Proxy Materials would have
to include the following information in clear and understandable terms:
     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].\44\
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    \44\ Appropriate changes may be made if the issuer is providing
an information statement pursuant to Regulation 14C or seeking to
effect a corporate action by written consent.
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     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 shareholders] [proxy card] 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 that is two weeks or more before
the meeting date] to facilitate timely delivery. If you hold your
shares through a broker, bank, or other intermediary, you may
request delivery of a copy of the proxy materials through that
intermediary, but it likely will take longer to receive your
materials through an intermediary than directly from the company.''

     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 upon and the issuer's recommendations
regarding those matters, but no supporting statements;
     A list of the materials being made available at the
specified Web site; and
     (1) A toll-free telephone number, and (2) an e-mail
address where the shareholder can request a copy of the proxy
materials.
    Only the information specified above and, if it is being combined
with the state law meeting notice, any information required by state
law, could be included in the Notice. To ensure that the Notice is
clear and understandable, it would have to meet substantially the same
plain English principles as apply to key sections of Securities Act
prospectuses pursuant to Securities Act Rule 421(d).\45\
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    \45\ 17 CFR 230.421(d).
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    As proposed, an issuer would be permitted to furnish its proxy
materials to shareholders by timely furnishing the Notice of Internet
Availability of Proxy Materials to them and posting its proxy materials
on a publicly accessible Web site. The issuer would have to post its
proxy materials on the Web site on or before the time that shareholders
receive the Notice. The proxy materials would have to remain accessible
on the Web site free of charge through the time of the shareholder
meeting to which the proxy materials relate, as discussed below.\46\ As
noted below, the proposals would impose a separate obligation under the
proxy rules on an issuer using the ``notice and access'' model to
provide a copy of the proxy materials to shareholders upon request.\47\
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    \46\ See proposed Rule 14a-3(g). If revised proxy materials are
required to be furnished to shareholders and the issuer wishes to
rely on the proposed alternative model to furnish those revised
materials, the issuer would have to furnish another Notice to inform
shareholders that those revised proxy materials are available on the
specified Web site.
    \47\ See proposed Rule 14a-3(g)(7).
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    The proposed alternative model would permit an issuer to
``household'' the Notice of Internet Availability of Proxy Materials
pursuant to Rule 14a-3(e),\48\ as we propose to amend it. Accordingly,
an issuer could send a single copy of the Notice of Internet
Availability of Proxy Materials to one or more shareholders residing at
the same address if the issuer satisfies all of the Rule 14a-3(e)
conditions.\49\ The issuer would not have to re-solicit consent from
shareholders that already have consented to householding of proxy
materials to household the Notice of Internet Availability of Proxy
Materials. However, the issuer would have to make available a separate
proxy card to each shareholder at the shared address, as required by
the current householding rule.\50\
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    \48\ 17 CFR 240.14a-3(e).
    \49\ If the Notice is sent via e-mail, the householding rules do
not permit the sending of only one copy. See Rule 14a-
3(e)(1)(ii)(B)(4) [17 CFR 240.14a-3(e)(1)(ii)(B)(4)].
    \50\ Issuers also are required to share a listing of the
shareholders that have consented to householding with soliciting
shareholders, or afford the benefit of such consents to a soliciting
shareholder if the issuer is mailing proxy materials on the
shareholder's behalf. See Rule 14a-7(a)(2) [17 CFR 240.14a-7(a)(2)].
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Request for Comment

     Is it appropriate to provide issuers with the alternative
of using the ``notice and access'' model to furnish annual reports and
proxy statements or information statements, as proposed? Should we
modify the proposed ``notice and access'' model in any way? If so, how?
     The proposed requirement that an issuer choosing to rely
on the ``notice and access'' model would have to send the Notice of
Internet Availability of Proxy Materials to shareholders 30 days or
more in advance of the shareholder meeting date is designed to provide
sufficient time for a shareholder to request a copy of the proxy
materials, if desired, and to review the materials prior to voting.
Would the proposed 30-

day period achieve this objective? Would a shorter or longer period be
more appropriate? If so, please specify the length of the period that
would be more appropriate and explain why.
     Are the proposed means by which a shareholder can request
a copy of the proxy materials appropriate? Should the issuer's
provision of an e-mail address from which shareholders can request
copies be optional? Should the rules expressly reference other
appropriate means by which shareholders can request a copy of the proxy
materials? Should the rules specifically require that the issuer
provide shareholders with a postage-paid, pre-addressed reply card to
request a copy of the materials?
     Should we permit issuers to household the Notice of
Internet Availability of Proxy Materials, as proposed? If not, why not?
     Should we require or permit additional information in the
Notice of Internet Availability of Proxy Materials? For example, if the
issuer is aware that a proxy contest is being effected, should it be
required to indicate in the Notice that such a contest exists? Also, if
the issuer recommends a vote in opposition to a shareholder proposal,
should it be required to state that the proxy statement contains the
shareholder's statement in support of the proposal? Should we permit
the Notice to include a request for the shareholder's affirmative
consent to future electronic delivery of the Notice?
     We have proposed that the Notice contain ``a clear and
impartial identification'' of matters to be acted upon. This language
mirrors language currently found in Rule 14a-4 related to the proxy
card to indicate that such identification should be as brief as it
currently is on proxy cards. We also propose that a soliciting party
may not include a supporting statement. We have included these
proposals because we do not intend the Notice to become a means of
persuading shareholders how to vote. Should the rules be more specific
regarding the brief and factual nature that we intend for the
identification of matters to be acted upon?
     Is the language of the proposed legend appropriate? If
not, what should be changed and why?
     Should we permit materials in addition to the proxy card
and a return envelope to accompany the Notice of Internet Availability
of Proxy Materials? If so, what types of materials should we permit?
For investment companies, should we permit a copy of the company's
current prospectus or profile to accompany the proxy card and Notice?
     Should we require issuers to apply plain English
principles to the Notice of Internet Availability of Proxy Materials,
as proposed? If so, should we apply requirements similar to those in
Rule 421(d) or Rule 421(b) \51\ under the Securities Act? Should we
establish different plain English standards for the Notice? If so,
what? Is it unnecessary to apply plain English principles to the
Notice, given the brevity of the Notice and factual nature of the
information to be included in the Notice?
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    \51\ 17 CFR 230.421(b). Rule 421(b) contains plain English
requirements that are less stringent than those in Rule 421(d).
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     Is it appropriate to impose a separate obligation on the
issuer under Section 14(a) to provide a copy of the proxy materials to
requesting shareholders? If not, are there other options that we should
consider to ensure that copies are available to shareholders that
desire them? Should an issuer or other soliciting person be permitted
to charge a requesting shareholder for a paper copy of the proxy
materials?
     Should the proposed rules instead indicate that an issuer
does not satisfy its requirement to furnish a proxy or information
statement to a shareholder requesting a copy until it provides that
copy to the shareholder?
     Should we require the Notice to be filed with the
Commission under Rule 14a-6(b), as proposed? Should we create a new
EDGAR form type for filing the Notice? Should a special EDGAR form type
be created for a Notice regarding the availability of a Schedule 14C
information statement? Would it cause confusion if such a Notice is
filed under a Regulation 14A rule?
     As noted above, the proposed rules would require a second
Notice if revised proxy materials are required to be furnished to
shareholders and the issuer wishes to rely on the proposed model to do
so. Are there other situations in which an issuer should be required to
furnish a second Notice?
2. Mechanics of the Proposed ``Notice and Access'' Model
i. Proxy Card
    Under the proposed rules, an issuer would be permitted, but not
required, to furnish the proxy card together with the Notice of
Internet Availability of Proxy Materials, by means of the same delivery
medium.\52\ Although the proposed rules would not require the proxy
card and the Notice of Internet Availability of Proxy Materials to be
furnished together through the same medium, the proxy card would have
to either be:
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    \52\ An issuer could use existing permitted methods to furnish
both the Notice and the proxy card to shareholders electronically.
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     Furnished together with, and through the same medium as,
the Notice of Internet Availability of Proxy Materials; or
     Furnished together with, and through the same medium as,
the proxy statement.\53\
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    \53\ The furnishing of the proxy card together with the proxy
statement could be accomplished through posting them both on the
Internet Web site in accordance with the proposed model.
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Request for Comment

     Should the rules, as proposed, permit an issuer to furnish
a proxy card and the Notice of Internet Availability of Proxy Materials
to shareholders separately and through the use of different media,
subject to the proposed limitations? If not, why not?
     Would it be more appropriate to require that the proxy
card always be furnished together with and through the same delivery
means as the Schedule 14A proxy statement and the annual report to
shareholders? For example:

     If the proxy card was furnished electronically, the
proxy statement and annual report to shareholders also would have to
be furnished together with the proxy card electronically, regardless
of the means by which the Notice of Internet Availability of Proxy
Materials was furnished; or
     If the proxy card was furnished in paper, the proxy
statement and annual report to shareholders also would have to be
furnished together with the proxy card in paper, regardless of the
means by which the Notice of Internet Availability of Proxy
Materials was furnished.

    Conversely, should we require that the proxy card always accompany
the Notice, regardless of the manner in which the proxy statement and/
or the annual report to shareholders was furnished? Please provide
support for your position.
     Exchange Act Rule 14a-6 requires the preliminary filing of
the proxy statement and the proxy card.\54\ That rule provides an
exclusion from the preliminary filing requirement for so-called ``plain
vanilla'' proxy materials that relate to a meeting of security holders
at which only a specified list of common matters are to be
considered.\55\

Those proxy materials may be filed in definitive form only. Would it be
more appropriate to require that the proxy card be furnished together
with and by the same means as the proxy statement and the annual report
to shareholders, regardless of the means by which the Notice of
Internet Availability of Proxy Materials is furnished, unless Rule 14a-
6 would permit the proxy materials to be filed in definitive form only,
or unless the meeting addresses only those matters listed in Rule 14a-
6, notwithstanding the exclusion in that rule regarding solicitations
in opposition? In either of those situations, would it be appropriate
to permit or require the Notice of Internet Availability of Proxy
Materials and the proxy card to be furnished together and by the same
means even if the proxy materials and/or the annual report to
shareholders were furnished separately and/or through a different means
(for example, the Notice of Internet Availability of Proxy Materials
and proxy card furnished together in paper and the proxy statement and/
or the annual report to shareholders posted on an Internet Web site)?
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    \54\ 17 CFR 240.14a-6.
    \55\ Exchange Act Rule 14a-6 provides that proxy materials fall
within the exclusion if the only matters to be voted on at the
meeting are: (1) The election of directors; (2) the election,
approval or ratification of accountant(s); (3) a security holder
proposal submitted pursuant to Exchange Act Rule 14a-8; (4) the
approval or ratification of a plan as defined in Item 402(a)(7)(ii)
of Regulation S-K [17 CFR 229.402(a)(7)(ii)]; (5) with respect to an
investment company registered under the Investment Company Act of
1940, or a business development company, a proposal to continue,
without change, any advisory or other contract or agreement that
previously has been the subject of a proxy solicitation for which
proxy material was filed with the Commission; and/or (6) with
respect to an open-end investment company registered under the
Investment Company Act of 1940, a proposal to increase the number of
shares authorized to be issued. This exclusion from the filing
requirement does not apply if the registrant comments upon or refers
to a solicitation in opposition in connection with the meeting in
its proxy material.
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     Would a shareholder be more or less likely to access and
review the proxy statement and annual report before voting if these
documents were posted electronically on the Internet Web site, but the
proxy card was delivered to shareholders in paper with the Notice?
     Would the proposed model increase issuers' dependency on
discretionary broker voting? \56\ Would it increase the amount of
discretionary voting? Are there circumstances in which brokers or other
intermediaries might be uncertain as to their ability to cast
discretionary votes (e.g., if a shareholder requests delivery of the
proxy materials but has not sent voting instructions 10 days prior to
the meeting)? What might be the consequences of such uncertainty?
Should there be increased or more prominent disclosure regarding how
those discretionary broker votes operate? If so, what added disclosure
should be required? Where should such disclosure appear (e.g., on the
Notice)?
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    \56\ See NYSE Rule 452. This rule permits a broker, in specified
circumstances, to vote on behalf of a beneficial owner if it has
furnished proxy soliciting materials to the beneficial owner and has
not received voting instructions.
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     Much shareholder voting currently is tabulated through the
use of machine readers to identify and verify a shareholder's position.
If an issuer posts its proxy card on the Internet Web site along with
other proxy materials and permits shareholders to print out the proxy
card and return it to the tabulator, should we adopt rules that would
require the printout to include bar codes or other identification
conducive to the automated processing of votes? Do we need to provide
for the ability to include such codes on the Notice?
     If an issuer chooses to post its proxy card on an Internet
Web site, what, if any, technological difficulties would this present
for voting the proxies? In this regard, please discuss the technology
that is available, or may be developed, for posting proxy cards and
voting through Internet Web sites. Are additional rule changes
necessary to facilitate the use of this technology?
     If an issuer chooses not to send a proxy card with its
Notice, should an intermediary be allowed to decide whether to send out
a request for voting instructions with the Notice?
     A beneficial owner cannot, in most cases,\57\ execute a
valid proxy because a beneficial owner is not the holder of record
under state law. Instead, a beneficial owner typically submits voting
instructions to its intermediary. If an issuer chose to post its proxy
card on a Web site with other proxy materials, should the rules require
the intermediary to establish its own Internet Web site to post its
request for voting instructions? Should the proxy materials be placed
on that Internet Web site as well? Should the intermediary be required
to create its own Notice, or use some other means, to clarify to
beneficial owners that they cannot execute the proxy available on the
issuer's Web site? Should issuers adopt some means to prevent persons
other than holders of record from being able to print or download the
proxy card from its Web site?
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    \57\ A beneficial owner could execute a proxy directly if the
intermediary (the holder of record) has appointed the beneficial
owner as its proxy with respect to the beneficial owner's shares.
---------------------------------------------------------------------------

     If an intermediary creates its own Notice and directs
beneficial owners to its own Internet Web site to obtain proxy
materials and the request for voting instructions, should the proxy
rules be amended to provide that an issuer would not be required to
send copies of its Notice to the intermediaries pursuant to Rule 14a-
13? When and how should the intermediary notify the issuer that it will
create its own Notice?
ii. Internet Web Site Posting of Proxy Materials
    All proxy materials to be furnished through the ``notice and
access'' model, other than additional soliciting materials, would have
to be posted on a specified Internet Web site by the time the issuer
sends the Notice of Internet Availability of Proxy Materials to
shareholders. These materials would have to remain on that Web site and
be accessible to shareholders through the time of the related
shareholder meeting, at no charge to the shareholder. As discussed
above, the Notice must clearly identify the Internet Web site address
at which the materials are available. The Internet Web site address
must be specific enough to lead shareholders directly to the proxy
materials, rather than to the home page or other section of the Web
Site on which the proxy materials are posted, so that shareholders do
not have to browse the Web site to find the materials. The Internet Web
site that an issuer uses to electronically furnish its proxy materials
to shareholders must be a publicly accessible Internet Web site other
than the Commission's EDGAR Web site.\58\
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    \58\ Issuers still would be required to file their proxy
materials on the Commission's EDGAR system, except that the annual
report to shareholders would continue to be furnished to the
Commission. This filing, and the furnishing of the annual report to
shareholders, would have to be accomplished by the time the issuer
posts the materials on the Web site.
---------------------------------------------------------------------------

    There are two primary reasons why we propose not to allow use of
the EDGAR Web site for this purpose. First, issuers are not required to
furnish their glossy annual reports to the Commission using the EDGAR
system.\59\ Most issuers, therefore, furnish paper copies of these
annual reports to the Commission. Even with respect to the issuers that
choose to furnish the annual report to the Commission via EDGAR, they
generally omit graphics included in the paper version, such as charts
and tables, from their EDGAR submissions.\60\ Second, it is our view
that electronically posted proxy materials should be presented on the
Internet Web site in a format that provides a substantially identical
version of those materials, including all charts, tables, graphics, and
similarly

formatted information, as otherwise furnished to shareholders in a
different medium such as paper. Currently, the EDGAR system accepts
documents only in ASCII \61\ or HTML \62\ format. Further, documents
filed on EDGAR may omit or describe, but generally do not replicate,
some disclosures, including charts and graphs.\63\ As a result, merely
hyperlinking from the specified publicly accessible Internet Web site
to the filing on the Commission's EDGAR system would not satisfy the
requirement.\64\
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    \59\ Our rules permit, but do not require, issuers to submit the
annual report to shareholders electronically on EDGAR. See Rule
101(b)(1) of Regulation S-X [17 CFR 232.101(b)(1)].
    \60\ Item 304 of Regulation S-T [17 CFR 232.304] requires a
registrant that omits graphic material to provide a narrative
description of the omitted material.
    \61\ ASCII stands for ``American Standard Code for Information
Interchange.''
    \62\ HTML stands for ``hypertext markup language.''
    \63\ The EDGAR system accepts only unofficial copies in PDF
format.
    \64\ This requirement is therefore different from the provisions
regarding Web site posting of Form 10-K annual reports and materials
that are incorporated by reference into certain Securities Act
registration statement forms.
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Request for Comment

     Should the issuer be able to make its proxy materials
electronically available only on the EDGAR Web site? If so, how would
it make the glossy annual report electronically available to
shareholders?
     Should we require issuers following the proposed model to
post all of their proxy materials on the Internet Web site so that
those materials would be readily accessible in one place? Should we
require companies to electronically post on the Web site any soliciting
materials that are disseminated prior to furnishing a proxy statement
pursuant to Rule 14a-12? \65\
---------------------------------------------------------------------------

    \65\ 17 CFR 240.14a-12.
---------------------------------------------------------------------------

     Should the rules, as proposed, require proxy materials
posted on an Internet Web site to be presented in a format that is
substantially identical in appearance to the format used in paper
copies of the materials? Are there any advantages to requiring or
permitting the proxy materials to be posted electronically in HTML or
ASCII format (e.g., would this lessen concerns about the ability of
shareholders to easily download the materials or speed the downloading
process)? Should issuers have to post their proxy materials in both PDF
and HTML formats?
     Should there be additional specified requirements
regarding the Internet Web site posting of information? For example,
should the alternative model specifically prohibit or require: Pre-
registration by shareholders at the Web site before they are granted
access to the proxy materials; the issuer's use of third-party Web
sites to host the issuer's proxy materials; or the issuer's use of
disclaimers of liability or responsibility for the information? \66\
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    \66\ See our existing guidance on such matters (e.g., Release
No. 33-8518 (Dec. 22, 2004) [70 FR 1505] and Release No. 33-8128
(Sept. 5, 2002) [67 FR 58480]).
---------------------------------------------------------------------------

     Should we require annual reports to security holders to be
filed, or furnished, on EDGAR?
iii. Period of Reliance on the Proposed Model
    The proposed alternative model for making proxy materials
electronically available to shareholders would be effective only with
respect to a particular meeting. An issuer's choice to rely on the
``notice and access'' model for one meeting therefore would not affect
its determination of whether to rely on the model for subsequent
meetings. Similarly, a shareholder that does not request a copy of the
proxy materials for one meeting would not be bound by that decision
with respect to any other shareholder meeting. Each time that an issuer
chooses to rely on the proposed ``notice and access'' model for a
shareholder meeting, it would have to comply anew with all of the
requirements under that model, including delivery of the Notice and the
30-day notice period.

Request for Comment

     Should a shareholder and/or the issuer be bound by the
shareholder's initial decision as to whether or not to request a copy
of the proxy materials in subsequent proxy seasons? If so, should the
issuer be subject to the 30-day notice period regarding delivery of the
Notice of Internet Availability of Proxy Materials in subsequent proxy
seasons only with respect to shareholders who made an initial decision
to request a copy of the proxy materials (with the result that the
issuer could, for example, deliver the Notice to other shareholders 25
days rather than 30 days before the new meeting date)?
     Should an adjournment of a shareholder meeting require the
issuer to deliver a second Notice of Internet Availability of Proxy
Materials? If so, should the issuer have to deliver that Notice to
shareholders at least 30 days before the adjourned meeting date?
     Should an issuer be required to deliver an additional
Notice of Internet Availability of Proxy Materials to shareholders
whenever state law requires the delivery of a shareholder meeting
notice?
iv. State Law Notices
    State business and corporation laws typically include shareholder
meeting requirements, including meeting notice and voting requirements.
The proposed rules are not intended to affect any applicable state law
requirement concerning the delivery of any document related to an
annual meeting or proxy solicitation. Thus, to the extent that state
law requires a notice of shareholder meeting or proxy materials to be
delivered by a particular means, the proposed rules would not alter
those requirements.\67\ For example, if the state in which an issuer is
incorporated requires notices of shareholder meetings or proxy
materials to be transmitted directly to shareholders in paper, the
proposed rules would not provide an issuer with an option to satisfy
its state law obligations by posting those materials on an Internet Web
site.
---------------------------------------------------------------------------

    \67\ Issuers typically include the meeting notices required by
state law at the beginning of their proxy statements. The proposal
would permit any information necessary to meet such a state law
requirement to be combined with the Notice.
---------------------------------------------------------------------------

Request for Comment

     Would the proposed rules create any problems or conflicts
with state law? If so, how should those problems be resolved?
v. Additional Soliciting Materials
    Rules 14a-3, 14c-2 and 14c-3, as we propose to amend them, would
require an issuer to post any additional soliciting materials on the
same Internet Web site on which the proxy materials are posted no later
than the day on which the additional soliciting materials are first
sent to shareholders or made public.\68\ Beyond the posting of the
additional soliciting materials on the Internet Web site, issuers would
continue to be able to decide which additional means, if any, would be
most effective for disseminating these materials (e.g., direct mailing,
e-mail, newspaper publication, etc.).
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    \68\ Exchange Act Rule 14a-6 currently requires an issuer or
other soliciting person choosing to deliver additional soliciting
materials to file them with the Commission in the same form as the
materials that are sent to shareholders, no later than the date that
they are first sent or given to shareholders.
---------------------------------------------------------------------------

Request for Comment

     Under current rules, issuers are required to file with the
Commission additional soliciting materials used after furnishing the
proxy statement, but issuers are not required to otherwise furnish them
to shareholders. We propose that, under the alternative model, these
additional materials be filed with us and posted on the specified
Internet Web site. Given an issuer's general interest in seeing that
such materials are publicized, would such proposed steps be sufficient,
or would it also be appropriate to require

a public notice of additional soliciting materials, such as a press
release?
3. Requests for Copies of Proxy Materials
    Although an issuer could satisfy its requirement to furnish proxy
materials through the ``notice and access'' model, it would have a
separate requirement under proposed Rule 14a-3(g)(7) to deliver a copy
of the proxy materials to a requesting shareholder.\69\ Upon receipt of
a request from a shareholder for a copy of the proxy materials from the
issuer, the issuer would have to send a copy (in paper or by e-mail, as
requested) of the proxy materials to the shareholder within two
business days after receiving the request, even if the request is made
after the date of the shareholder meeting or corporate action to which
the proxy materials relate. When the issuer provides a paper copy of
the proxy materials in response to a shareholder request, the issuer
would be required to use first class mail or other reasonably prompt
means of delivery.
---------------------------------------------------------------------------

    \69\ See proposed Rule 14a-3(g)(7).
---------------------------------------------------------------------------

    The proposed requirements that an issuer deliver the Notice of
Internet Availability of Proxy Materials at least 30 days before the
annual meeting date and respond to a request for a copy of the proxy
materials within two business days are designed to provide
approximately two weeks for a shareholder to request a copy, receive
it, and still have approximately two weeks to review the proxy
materials and make an informed voting decision. Under the proposals,
however, it is incumbent on the shareholder to request a copy in
sufficient time to receive the copy of the proxy materials, review that
copy, and vote.
    Under the proposals, the shareholder may request its intermediary
to obtain and forward a copy of the proxy materials from the issuer on
the shareholder's behalf. These procedures are discussed more fully in
Section III.B of this release concerning duties of intermediaries.

Request for Comment

     As proposed, it would be the responsibility of a
shareholder desiring a copy of the proxy materials to request one in
sufficient time to receive the materials before the meeting. Is this
appropriate? Should the Notice of Internet Availability of Proxy
Materials state a date by which a shareholder desiring a copy must
request it a specified number of days in advance of the meeting date
(e.g., a shareholder must request a copy no later than 10 or 15 days
before the meeting date)? If so, how far in advance of the meeting date
should the shareholder have to request a copy? Establishing a deadline
by which shareholders must request copies might increase the likelihood
that a shareholder will receive materials before the meeting, but also
would reduce the amount of time that shareholders have to make the
request. Which of these competing interests, if any, is more important?
     Alternatively, should the proposed rules mandate a minimum
period of time after receipt of the Notice of Internet Availability of
Proxy Materials during which a shareholder could request a copy of the
proxy materials? If so, how long should this period be? Should that
period be 15 days, 10 days, or a shorter or longer period?
     Should an issuer have to respond to a request for a copy
of the proxy materials made after the annual meeting date, as proposed?
If not, why not? If so, should there be any limit on the period after
the annual meeting date during which an issuer must respond to a
request for a copy?
     Is the proposed two-business-day requirement an
appropriate period of time for the issuer to respond to a shareholder's
request for a copy of the proxy materials? Should the issuer be
required to do so in one business day? Would the issuer need more time,
such as three or four business days? If a longer period of time is
provided, should the 30-day minimum period between the sending of the
Notice and the meeting also be lengthened? If not, why not?
     Is the proposed requirement that an issuer provide
requested paper copies by first class mail or other reasonably prompt
means appropriate? Should an issuer have to provide the requested paper
copy by more expedited means, such as overnight or two-day delivery?
Should an issuer have more time to respond to requests for copies if it
sends the Notice more than 30 days prior to the meeting?
     Should the proposed rules provide a mechanism for a
shareholder that requests a copy of the proxy materials to indicate
that he or she wants to continue receiving a copy of the issuer's proxy
materials for every subsequent meeting where the issuer relies on the
``notice and access'' model until the shareholder subsequently advises
the issuer otherwise? For example, should the rules require an issuer
and/or intermediary to develop a list of shareholders who always want
their materials in paper? If so, why? If not, why not? How would such a
system work?
     At the time the proxy materials are being prepared and
printed, the issuer is unlikely to have a reliable estimate regarding
the number of shareholders that will request copies of the proxy
materials, particularly in the issuer's first year of reliance on the
``notice and access'' model. The issuer would have to maintain or
prepare a sufficient supply of paper copies to satisfy all shareholder
requests for paper copies. Thus, at least in the first year, when the
issuer does not have previous experience with this model, it may have
to print an excessive number of paper copies. Should we consider any
procedures to mitigate this possibility? If so, what types of
procedures would be appropriate?

B. The Role of Intermediaries

1. Background
    The process of distributing proxy materials to beneficial owners is
considerably more complicated than direct delivery of the materials by
an issuer to its record holders.\70\ The proxy rules contain three
rules, Exchange Act Rule 14a-13, Rule 14b-1 and Rule 14b-2, referred to
collectively as the ``shareholder communications rules,'' that impose
obligations on issuers and intermediaries to ensure that beneficial
owners receive proxy materials and are given the opportunity to vote.
Basically, these rules require issuers to send their proxy materials to
intermediaries for forwarding to the beneficial owners.
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    \70\ The discussion in this section of ``beneficial owners''
refers to beneficial owners whose names and addresses do not appear
directly in issuers' stock registers because they hold their stock
through a broker, bank, trustee, or similar intermediary.
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    Exchange Act Rule 14b-1 sets forth the obligations of registered
brokers and dealers in connection with the prompt forwarding of certain
issuer communications to beneficial owners. Rule 14b-2 sets forth
similar obligations of banks, associations, and other entities that
exercise fiduciary powers. Under these rules, upon request by the
issuer, these intermediaries are required to indicate to the issuer
within seven business days of receiving the request:
     The approximate number of customers of the intermediary
that are beneficial owners of the issuer that are held of record by the
intermediary;
     If the issuer has indicated pursuant to Rule 14a-13(a)
\71\ or 14c-7(a) \72\ that it will distribute the annual report to
security holders to beneficial owners who have not objected to
disclosure to the issuer of their names, addresses, and securities
positions, the number of

beneficial owners who have objected to such disclosure; \73\ and
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    \71\ 17 CFR 240.14a-13(a).
    \72\ 17 CFR 240.14c-7(a).
    \73\ In the case of bank intermediaries, Rule 14b-2 requires a
bank to disclose the number of customers with accounts opened on or
before December 28, 1986, who gave affirmative consent to disclosure
to the issuer and the number of customers with accounts opened after
December 28, 1986, who did not object to such disclosure.
---------------------------------------------------------------------------

     The identity of any agents of the intermediary acting on
the intermediary's behalf to fulfill its obligations under the rule.
    Pursuant to Rules 14b-1 and 14b-2, within five business days of
receiving proxy materials from the issuer, the intermediary must
forward the materials to its beneficial owner customers who will not
receive those materials directly from the issuer pursuant to Rule 14a-
13(c) \74\ or Rule 14c-7(c).\75\ Beneficial owners typically do not
execute proxy cards because, under most state laws, only the record
owner (i.e., the intermediary) has the authority to vote on matters
before the shareholders. As a result, intermediaries forward the proxy
materials along with a request for voting instructions. The request for
voting instructions is similar to the proxy card, but is prepared by
the intermediary instead of the issuer and the beneficial owner returns
his or her voting instructions to the intermediary rather than to the
issuer or independent vote tabulator. The intermediary is required to
vote the beneficial owner's shares in accordance with the owner's
voting instructions when formally executing the proxy card.\76\ The
intermediary then returns the proxy card to the issuer or independent
vote tabulator.
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    \74\ 17 CFR 240.14a-13(c).
    \75\ 17 CFR 240.14c-7(c).
    \76\ See Rule 14b-2(b)(3) [17 CFR 240.14b-2(b)(3)].
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2. Proposed Amendments
    Under the proposed amendments, an intermediary may follow the
``notice and access'' model only if the issuer requests it to do so
and, in such cases, must follow that model. The proposed amendments
would revise Rules 14b-1 and 14b-2 to require brokers, banks, and
similar intermediaries, at the request of an issuer, to furnish proxy
materials, including the Notice of Internet Availability of Proxy
Materials, to beneficial owners of the issuer's securities based on the
``notice and access'' model.\77\
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    \77\ See proposed amendments to Exchange Act Rules 14b-1 and
14b-2. If an issuer does not request intermediaries to follow the
proposed ``notice and access'' model, an intermediary could, on its
own initiative, continue to rely on any existing permitted method of
furnishing proxy materials to its beneficial owner customers.
---------------------------------------------------------------------------

    An issuer or other soliciting person relying on the ``notice and
access'' model would have to deliver a sufficient number of copies of
its Notice of Internet Availability of Proxy Materials to
intermediaries at least five business days prior to the proposed
deadline for furnishing the Notice of Internet Availability of Proxy
Materials.\78\ Thereafter, the process for forwarding the Notice by
intermediaries to their beneficial owner customers would be similar to
the current process by which intermediaries forward proxy materials to
beneficial owners. The intermediary would be required to forward the
Notice to beneficial owners within five business days after receipt of
the Notice from the issuer or other soliciting person.
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    \78\ For issuers, this deadline would be 30 days prior to the
shareholder meeting. For soliciting persons other than the issuer,
this deadline would be the later of 30 days prior to the shareholder
meeting or 10 days after the registrant first sends out its proxy
solicitation.
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    At its option, the intermediary may either include its request for
voting instructions with the Notice of Internet Availability of Proxy
Materials being furnished to the beneficial owners or post that request
on an Internet Web site.\79\ If the intermediary chooses to post the
request for voting instructions on its own Web site, the intermediary
would need to post the issuer's proxy statement, and all other proxy-
related material from the issuer's Web site other than the proxy card,
on its own Web site so that shareholders would have access to those
materials when they access the request for voting instructions. The
intermediary also would need to direct beneficial owners to that Web
site rather than the issuer's Web site. It could do so either by
supplementing the issuer's Notice to inform beneficial owners how to
access the Web site or by replacing the issuer's Notice with its own
Notice. If the intermediary replaces the issuer's Notice, it would have
to make sure that all of the information required to appear in the
Notice is included in its own Notice, with appropriate modifications
(e.g., references to the request for voting instructions rather than
the proxy card). The intermediary would need to make it clear to its
beneficial owner customers in its own Notice or in its supplement to
the issuer's Notice that they should return voting instructions to the
intermediary, rather than execute a proxy card and return it to the
issuer or tabulator.
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    \79\ See proposed amendments to Exchange Act Rules 14b-1 and
14b-2.
---------------------------------------------------------------------------

    Conversely, the same version of the Notice of Internet Availability
of Proxy Materials generally could be delivered to both registered
holders and beneficial owners, if the proxy card is delivered together
with the Notice to registered holders and a request for voting
instructions is delivered together with the Notice to beneficial
owners. This would avoid the need for the intermediary to either
prepare its own tailored Notice for delivery to its beneficial owner
customers, or supplement the issuer's Notice.
    In summary, the proposed amendments would impose the following
responsibilities on intermediaries that are requested to follow the
``notice and access'' model:
     The intermediary would have to forward the issuer's Notice
of Internet Availability of Proxy Materials to beneficial owners,
unless it prepares its own Notice;
     If the issuer posts its proxy card on the Web site, the
intermediary would have to supplement the issuer's Notice of Internet
Availability of Proxy Materials or create and send its own Notice to
clarify how beneficial owners can return their voting instructions;
     If the intermediary chooses to post its request for voting
instructions on an Internet Web site, it would have to maintain an
Internet Web site for posting that request for voting instructions, as
well as the issuer's proxy materials, other than the proxy card;
     If the intermediary chooses not to post its request for
voting instructions on an Internet Web site, it would have to prepare
and send, with the Notice, a copy of the intermediary's request for
voting instructions; and
     The intermediary would have to request and forward a copy
of the proxy materials from the issuer in response to requests from its
beneficial shareholder customers.
    Under the proposed ``notice and access'' model, a beneficial owner
could request delivery of a copy of the proxy materials from either the
company or the intermediary, at the beneficial owner's option. A
concern that may stem from a shareholder requesting the materials
directly from the issuer is that a beneficial owner who has objected
to, or not consented to, disclosure of his or her identity to the
issuer (commonly referred to as an ``objecting beneficial owner'' or
``OBO'') would have to reveal his or her identity to the issuer in
connection with a request for a copy of the proxy materials. Therefore,
under the proposed rules, a beneficial owner could request a copy of
the proxy materials from his or her intermediary, rather than the
issuer. If a beneficial owner requests his or her intermediary to
obtain copies of the materials, the intermediary would be required to
request such copies from the issuer

within two business days of receiving the request from the beneficial
owner. The intermediary also would have to forward the materials to the
beneficial owners within two days after receipt from the issuer. As
proposed, the intermediary would be allowed to charge the issuer the
cost of forwarding such materials.

Request for Comment

     Should the proposed alternative model be limited to the
furnishing of proxy materials by issuers to their record holders? Is it
appropriate to allow the issuer to compel the intermediary to undertake
the obligations that would be required under the proposed model? Are
there practical problems with an issuer's reliance on the proposed
``notice and access'' model in connection with the furnishing of proxy
materials and requests for voting instructions to beneficial owners?
     Should intermediaries or their agents be allowed to use
the ``notice and access'' model regardless of whether the issuer
chooses to furnish documents to its record shareholders in reliance on
the proposed model? If so, should the issuer have to supply copies of
the proxy materials to intermediaries for forwarding to beneficial
owners who request them?
     Should intermediaries be able to use e-mail addresses that
they have obtained from their customers for electronic delivery of the
Notice of Internet Availability of Proxy Materials even if their
customers have not specifically consented to the electronic delivery of
proxy materials?
     Is the proposed requirement that the issuer or soliciting
party deliver a sufficient number of copies of its Notice of Internet
Availability of Proxy Materials to intermediaries at least five
business days prior to the proposed deadline for furnishing the Notice
of Internet Availability of Proxy Materials appropriate? Would this
proposed requirement present special difficulties for a soliciting
person other than the issuer, given the differences in the timing
requirements for delivery of the Notice if the soliciting person is
reacting to the issuer's solicitation?
     Is it appropriate to require the issuer to send copies of
the proxy materials to beneficial owners who request copies directly
from the issuer? Should the intermediary be required to estimate the
number of copies that it is likely to need to satisfy requests from its
beneficial owner customers? If so, would the intermediary have a
reasonable basis to make such an estimate? Would the flow of copies
from issuer to intermediary to beneficial owner be overly time-
consuming? Should intermediaries be allotted less time to forward e-
mail copies of the proxy materials?
     The issuer might be able to trace the identity of anyone
accessing the Web site on which the proxy materials are posted through
the use of ``cookies'' or other technology. Should the rules require
that the proxy materials to be accessed by beneficial owners be posted
on a Web site that protects the confidentiality of an OBO's identity?
If so, should this Web site be separate from the issuer's Web site? Are
there other ways to protect the identities of OBOs without placing an
excessive burden on issuers or intermediaries?
     Should issuers be permitted to request proof of a person's
status as a beneficial owner when they receive requests for copies of
their proxy materials? Should we require issuers to provide copies to
all persons requesting copies? Keeping in mind that only shareholders
would receive the Notice, is there a possibility that the issuer would
be unduly burdened by excessive requests for copies?
     Is there a concern that beneficial owners may erroneously
attempt to execute a proxy card if the issuer posts its proxy card on
the same Internet Web site as the proxy statement? Should the rules
separate the voting mechanisms for registered holders and beneficial
owners to prevent confusion? Should we require intermediaries to
establish their own Web sites to post proxy materials to help prevent
any such confusion? Is it likely that intermediaries or third parties
will develop Web sites to facilitate use of the ``notice and access''
model?
     Is it appropriate to permit intermediaries to charge the
issuer for forwarding copies? If so, what would be an appropriate fee?
Should the beneficial owner desiring to maintain anonymity bear this
cost? Should the beneficial owner's intermediary instead bear this
cost? Is it reasonable for intermediaries (or their agents) to continue
to collect an incentive fee from issuers for each set of proxy
materials that they deliver electronically rather than in paper if the
Commission adopts the proposed ``notice and access model''? \80\ Should
the incentive fee be a one-time charge (assessed only the first time a
paper copy is suppressed) or a recurring fee?
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    \80\ For example, the NYSE and some other self-regulatory
organizations maintain a schedule of fees that issuers must pay for
forwarding of their proxy materials by their member brokers to the
brokers' beneficial owner customers. As an example, the NYSE's
schedule includes an incentive fee that brokers may collect for
eliminating the need to send materials in paper format. For proxy
materials, this fee is $0.25 per account for issuers whose shares
are held in at least 200,000 beneficial owners' accounts and $0.50
per account for issuers whose shares are held in fewer than 200,000
beneficial owners' accounts. See NYSE Rule 451. Other self-
regulatory organizations have adopted similar rules.
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     Should the self-regulatory organizations establish new
fees that an intermediary may charge as reasonable for services
rendered to an issuer when the issuer relies on the proposed ``notice
and access'' model, if adopted? If so, what type of fee schedule would
be appropriate?

C. Proposed ``Notice and Access'' Model for Furnishing of Internet
Proxy Materials by Soliciting Persons Other Than the Issuer

    Under the proposed rules, a person other than the issuer who
undertakes his or her own proxy solicitation also would be able to rely
on the proposed ``notice and access'' model.\81\ This situation
typically would occur in the context of a proxy contest between a
shareholder or other party and management. We anticipate that the
proposed rules, if adopted, could provide an alternative that may
significantly decrease the cost of a proxy solicitation, given the
potential decrease in printing and mailing costs. We also believe that
the same arguments that support modifying the existing framework to
facilitate an alternative dissemination option for issuers apply
equally to soliciting persons other than issuers. There are, however,
several important differences in the way the proposed rules would
affect soliciting persons other than the issuer that are described
below.
---------------------------------------------------------------------------

    \81\ See proposed Rule 14a-3(g)(8).
---------------------------------------------------------------------------

Request for Comment

     Should soliciting persons other than the issuer be able to
take advantage of the ``notice and access'' model? Why or why not?
1. Mechanics of Proxy Solicitations by Persons Other Than the Issuer
    The current proxy rules treat persons other than the issuer
differently from the issuer in a significant respect regarding the
provision of information to shareholders about intended corporate
actions. Specifically, an issuer must furnish either a proxy statement,
if the issuer is soliciting proxies or consents from shareholders, or
an information statement pursuant to Section 14(c) of the Exchange Act
\82\ regarding shareholder meetings where

corporate action is to be taken but no proxy authority or consent is
sought.
---------------------------------------------------------------------------

    \82\ 15 U.S.C. 78n(c).
---------------------------------------------------------------------------

    Soliciting persons other than the issuer are not subject to the
requirements of Section 14(c). Thus, unlike the issuer, they have no
obligation to furnish an information statement to persons from whom no
proxy authority is sought. Soliciting persons may use this mechanism to
limit the cost of a solicitation by soliciting proxies only from a
select group of shareholders with large holdings. These distinctions
from the manner in which issuers must conduct proxy solicitations lead
to a variety of possible ways that a person other than the issuer may
conduct a proxy contest, some of which are not available to an issuer.
    As proposed, a soliciting person other than the issuer may follow
the same procedures as the issuer. In particular, it may furnish a
Notice and post the proxy statement on an Internet Web site. It also
would have the choice of either furnishing the proxy card with the
Notice or posting the proxy card with the proxy statement. However,
because such a person is not obligated to solicit everyone, it may
revise its Notice to clearly explain that it will not provide a copy to
any shareholder that requests a copy. In this case, the Notice must
clearly state that the person is soliciting only shareholders who are
willing to access the proxy materials via the Internet Web site
posting.
    A soliciting person other than the issuer also could choose to not
furnish a Notice to any shareholder. Rather, it may simply post its
proxy materials, including the proxy card, on a publicly accessible
Internet Web site and direct persons to that Web site by means of
communications under Rule 14a-12. Under this scenario, all persons
accessing the proxy card also would have accessed the Internet Web site
on which the proxy statement was located.
    In summary, if we were to adopt the proposed alternative model, a
person other than the issuer could conduct a proxy contest in the
following manners:
     Furnish a proxy statement and proxy card under existing
permitted methods;
     Furnish a Notice and proxy card together, and through the
same medium, and post the proxy statement on a Web site;
     Furnish a Notice and post the proxy statement and proxy
card together on a Web site; or
     Do not furnish a Notice and post the proxy statement and
proxy card together on a Web site.
    A soliciting person may use any combination of these options and
may rely on Rule 14a-12 to issue soliciting materials prior to
furnishing a proxy statement under any of these scenarios. Under the
last three options, a soliciting person other than the issuer may
either undertake to furnish shareholders with copies upon request, or
it may clearly indicate in the Notice, or in the last case, on the
Internet Web site, that it will not provide copies upon request and
that the solicitation is conditioned on a shareholder accepting the
proxy materials via Internet Web site access.
    As noted above, such person may effect a solicitation prior to
furnishing a proxy statement pursuant to Rule 14a-12. However, if a
soliciting person uses a medium such as a press release under Rule 14a-
12, it would incur an obligation to furnish a proxy statement at the
time a proxy card is provided. In view of the fact that such a person
is not obligated to solicit all persons receiving that communication,
delivery of a Notice would be required only if the soliciting person
sends a proxy card to a shareholder that is not accompanied by a proxy
statement. With respect to shareholders not receiving a proxy card from
the soliciting person, but who are directed to the Internet Web site by
the Rule 14a-12 communication and choose to execute a proxy in favor of
the soliciting person, the proxy statement would have accompanied, or
preceded, the proxy card. A person receiving such a request from a
shareholder may assume that the shareholder has had access to the proxy
statement.\83\ Thus, a soliciting person, other than the issuer, could
effect a widespread solicitation of proxies without delivering any
Notices at all, provided that it does not furnish or provide a means of
obtaining a proxy card except on the Web site where its proxy materials
are posted.
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    \83\ However, if the press release contains information on how
to obtain a proxy card by a means other than at the Web site where
the proxy statement will be located along with the proxy card, the
soliciting person must ensure that a shareholder is furnished with
the proxy statement concurrently, either by furnishing the proxy
statement with the proxy card or by posting the proxy statement on a
publicly accessible Web site and furnishing the Notice of Internet
Availability of Proxy Materials with the proxy card.
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Request for Comment

     Should the rules, as proposed, permit a soliciting person
to furnish a proxy card and the Notice of Internet Availability of
Proxy Materials to shareholders separately and through the use of
different media, subject to the proposed limitations? If not, why not?
     Would it be more appropriate to require that the proxy
card always be furnished together with and through the same delivery
means as the Schedule 14A proxy statement? For example:

     If the proxy card was furnished electronically, the
proxy statement also would have to be furnished together with the
proxy card electronically, regardless of the means by which the
Notice of Internet Availability of Proxy Materials was furnished; or
     If the proxy card was furnished in paper, the proxy
statement also would have to be furnished together with the proxy
card in paper, regardless of the means by which the Notice of
Internet Availability of Proxy Materials was furnished.

    Conversely, should we require that the proxy card always accompany
the Notice, regardless of the manner in which the proxy statement was
furnished? Please provide support for your position.
     Would it be more appropriate to require that the proxy
card be furnished together with and by the same means as the proxy
statement, regardless of the means by which the Notice of Internet
Availability of Proxy Materials is furnished, unless Rule 14a-6 would
permit the proxy materials to be filed in definitive form only, or
unless the meeting addresses only those matters listed in Rule 14a-6,
notwithstanding the exclusion in that rule regarding solicitations in
opposition? In either of those situations, would it be appropriate to
permit or require the Notice of Internet Availability of Proxy
Materials and the proxy card to be furnished together and by the same
means even if the proxy materials were furnished separately and/or
through a different means (for example, the Notice of Internet
Availability of Proxy Materials and proxy card furnished together in
paper and the proxy statement posted on an Internet Web site)?
     Under the proposed model, how would a shareholder that is
not solicited directly but goes to the soliciting person's Web site
vote his or her shares? Should the soliciting person be required, upon
request from such shareholder, to provide the shareholder with a means
for voting, for example, by providing the shareholder with a personal
identification number or similar unique identifier and form to submit a
proxy or voting instructions? Should we adopt rules addressing such
voting systems to promote more accurate voting results?
     Under certain exchange rules,\84\ a broker is precluded
from exercising its voting discretion for shares for which no voting
instructions are received (commonly referred to as ``broker non-
votes'') on several types of non-routine

matters listed in the rules. Matters that are the subject of a contest
are considered non-routine. Staff at the exchanges determine whether a
contest exists for purposes of the discretionary broker voting rule
based on exchange rules and interpretations. For example, a NYSE
interpretation suggests that a person other than the issuer must
solicit at least 50% of the issuer's shareholders for a contest to
exist under its discretionary broker voting rule. Should the widespread
accessibility of a soliciting person's proxy statement and card affect
current exchange interpretations?
---------------------------------------------------------------------------

    \84\ See, e.g., NYSE Rule 452.
---------------------------------------------------------------------------

     Should the proposed rules permit, as the current rules do,
a soliciting person other than the issuer to limit its proxy
solicitation to shareholders that are willing to access the proxy
materials electronically, thus eliminating any need for the soliciting
shareholder to send copies? Is this concept of a conditional proxy
solicitation feasible? Should such conditional solicitations be limited
only to instances where the soliciting person posts the proxy card on
an Internet Web site and does not send a copy of the proxy card with
the Notice, to ensure that only shareholders who can access the proxy
materials can vote?
2. Timeframe for Sending Notice of Internet Availability of Proxy
Materials
    Currently, soliciting persons generally have no required timeframe
regarding the furnishing of proxy materials other than the time
necessary to ensure staff review of those materials.\85\ As we stated
earlier, the proposed 30-day timeframe for the Notice is designed to
provide sufficient time for a shareholder to request a copy of the
proxy materials, receive that copy, and review it before voting.
However, because soliciting persons other than the issuer need not
furnish proxy materials to all shareholders, the 30-day timeframe is
unnecessary if that soliciting person is conducting an electronic-only
solicitation. Thus, provided that the soliciting person complies with
all other proxy timing rules, it need not comply with the 30-day
timeframe requirement in order to effect an electronic-only proxy
solicitation.
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    \85\ An exception to this rule applies when a company is
incorporating information by reference from another filing in a
joint proxy statement-prospectus, in which case the prospectus must
be sent to shareholders no later than 20 business days prior to the
meeting. See General Instruction A.2 to Form S-4.
---------------------------------------------------------------------------

    If the soliciting person chooses to undertake to provide copies of
the proxy materials to shareholders upon request, shareholders should
have sufficient time to request, receive, and review those materials
prior to voting. However, a solicitation in opposition to the issuer's
proposals at a shareholder meeting often is initiated in response to
the issuer's proxy statement. As a result, we believe that it may be
unfair to impose the same 30-day timeframe on soliciting persons other
than the issuer. Therefore, we are proposing that a soliciting person
other than the issuer that is following the ``notice and access''
model, but not conducting an electronic-only solicitation, must send
out its Notice prior to the later of (1) 30 days prior to the meeting;
or (2) ten days after the issuer first sends out its proxy
solicitation.

Request for Comment

     A proxy contest often involves a number of communications
from both the issuer and the other soliciting person and time may be at
a premium in such situations. Would the proposed model provide
sufficient time for shareholders who desire copies to obtain materials
from a soliciting person other than the issuer in the context of a
proxy contest? We note that it would take more time for the delivery of
proxy materials to beneficial owners through intermediaries than for
delivery of the materials directly by the soliciting person to record
owners.
     Should a soliciting person other than the issuer
conducting an electronic-only solicitation be required to comply with a
specified timeframe for sending its materials? If so, what should that
timeframe be?
     Should a soliciting person other than the issuer that is
following the ``notice and access'' model, but not conducting an
electronic-only solicitation, be required to provide the materials to
solicited shareholders within the proposed timeframe? Would ten days
after the issuer first sends its solicitation be sufficient time for a
soliciting person other than the issuer to prepare its soliciting
materials? Would a shorter period, such as five days or five business
days, be sufficient?
3. Content of the Notice of Internet Availability of Proxy Materials of
a Soliciting Person Other Than the Issuer
    The content of the Notice of Internet Availability of Proxy
Materials sent by a soliciting person other than the issuer could be
different from that of the issuer. First, if a soliciting person other
than the issuer chooses to conduct an electronic-only solicitation, it
need not provide instructions on how to obtain a copy. In lieu of such
disclosure, the legend on the Notice must clearly state that the proxy
solicitation is contingent on the shareholder being willing to accept
access to the proxy statement electronically.
    Also, a solicitation in opposition may be launched before the
issuer has sent its own proxy statement. Thus, the full agenda may not
be known at the time that the opposing person sends its Notice. In such
a case, the person soliciting in opposition would be required to
include the agenda items in the Notice only to the extent known.
    Finally, there may be circumstances in which the person soliciting
in opposition may provide a partial proxy card, that is, a proxy card
soliciting proxy authority only for the agenda items in which the
soliciting person is interested. Typically, such a proxy would revoke
any previous proxy granted and, as is the case today, the shareholder
may lose his or her ability to vote on matters other than those
presented on the soliciting person's card. To prevent a shareholder
from unknowingly invalidating his or her vote on those other matters, a
person soliciting in opposition that sends such a card would be
required to indicate clearly on its proxy card that execution of that
card may invalidate the shareholder's earlier vote on the other matters
reflected on the issuer's proxy card.

Request for Comment

     Are there other instances when the Notice of a soliciting
person other than the issuer should differ from the issuer's Notice?
     Should the rule require specific language that a
soliciting person other than the issuer must insert in its Notice under
these conditions? If so, what language would be appropriate?
     If the soliciting person is not aware of the full agenda
for the meeting when it sends its Notice, should it be required to
disclose on the Notice that the proxy card and Notice may not contain
all matters to be acted upon? Should we require such a soliciting
person to amend its proxy card to contain all items in the agenda?
     Is there another way to ensure that shareholders learn
that executing a partial proxy card would invalidate their votes on
other matters? If so, what additional requirements would be necessary?
4. Shareholder Lists and the Furnishing of Proxy Materials by the
Issuer
    Exchange Act Rule 14a-7 sets forth the obligation of issuers either
to provide a shareholder list to a requesting shareholder or to send
the shareholder's proxy materials on the shareholder's behalf. That
rule provides

that the issuer has the option to provide the list or send the
shareholder's materials, except when the issuer is soliciting proxies
in connection with a going-private transaction or a roll-up
transaction.\86\ As proposed, if the issuer is providing its
shareholder list to a soliciting person, the issuer would be required
to include any electronic delivery information that it already has
obtained from shareholders, including information about shareholders
that have affirmatively consented to electronic delivery as well as
shareholders that have requested copies of the issuer's proxy materials
if the issuer is relying on the ``notice and access'' model.\87\
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    \86\ See Exchange Act Rule 14a-7(b) [17 CFR 240.14a-7(b)]. If
the issuer is soliciting proxies in connection with a going-private
transaction or a roll-up transaction, the shareholder has the option
to request the shareholder list or have the issuer send its
materials.
    \87\ See proposed Note 3 to Exchange Act Rule 14a-7.
---------------------------------------------------------------------------

    If the issuer is sending the soliciting person's proxy materials,
the proposed amendments would require the issuer to share the benefit
of any affirmative consent to electronic delivery of proxy statements
that it has obtained from shareholders. If the soliciting person
requests that the issuer follow the ``notice and access'' model, the
soliciting person would be responsible for providing the issuer with
copies of its proxy card and/or Notice of Internet Availability of
Proxy Materials, if the soliciting person chooses to deliver the proxy
card and/or the Notice in paper. In that case, the issuer would have to
send the soliciting person's proxy card and/or Notice of Internet
Availability of Proxy Materials with reasonable promptness after
receipt from the soliciting person. An issuer could not decide on its
own whether to send a soliciting person's materials in paper or
electronically.

Request for Comment

     Under the ``notice and access'' model, should the issuer
be required to share affirmative consents to electronic delivery that
the issuer already has obtained from its shareholders with persons
conducting their own proxy solicitations? Under the ``notice and
access'' model, should the issuer be required to share information with
soliciting persons regarding shareholders who have requested copies?
     If the issuer chooses to send proxy materials on behalf of
a soliciting person, should the soliciting person have the right to
direct the issuer to comply with a particular means of doing so, such
as the ``notice and access'' model?
     If the issuer relied on the ``notice and access'' model in
a previous proxy season, should it be required to share information
with a soliciting person about the number of shareholders who requested
copies in a past season?
5. The Role of Intermediaries
    Intermediaries generally furnish proxy materials to beneficial
owners on behalf of soliciting persons other than the issuer under the
conditions set forth in Exchange Act Rules 14b-1 and 14b-2.\88\
Although intermediaries historically have transmitted a soliciting
person's proxy materials in reliance on the procedures set forth in
Rules 14b-1 and 14b-2, these two rules do not explicitly address an
intermediary's obligations with respect to the forwarding of a
soliciting person's proxy materials. The proposed amendments would
clarify that intermediaries are obligated to send proxy materials on
behalf of soliciting persons other than the issuer.
---------------------------------------------------------------------------

    \88\ See Randall S. Thomas & Catherine T. Dixon, Aranow &
Einhorn on Proxy Contests for Corporate Control, at Sec.  8.03(C)
(3d ed. 2001).
---------------------------------------------------------------------------

Request for Comment

     Should we revise Rules 14b-1 and 14b-2 to explicitly
require intermediaries to send proxy or other soliciting materials on
behalf of soliciting persons other than issuers? Are such revisions
necessary or appropriate even if we do not adopt the ``notice and
access'' proposal?

D. Business Combination Transactions

    We are proposing that the ``notice and access'' model not be
available with regard to proxy materials related to a business
combination transaction, which includes transactions covered by Rule
165 under the Securities Act,\89\ as well as transactions for cash
consideration requiring disclosure under Item 14 of Schedule 14A.
Business combination transactions constitute highly extraordinary
events for some companies and frequently involve an offering of
securities that must be registered under the Securities Act and require
delivery of the prospectus.\90\ They also typically involve proxy
statements of considerable length and complexity. Thus, we are
proposing that the rules would not apply in connection with a business
combination transaction.
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    \89\ 17 CFR 230.165. This prohibition would extend to persons
who solicit proxies that are not parties to the transaction and any
proxy materials in opposition to the transaction.
    \90\ Such transactions were excluded from the provisions in our
securities offering reform initiative. See Release No. 33-8591 (July
19, 2006) [70 FR 44271].
---------------------------------------------------------------------------

Request for Comment

     Should the proposed ``notice and access'' model be
available for transactions involving business combination transactions?
Why or why not?
     Business combination transactions sometimes are the object
of a proxy contest. Would this prohibition unnecessarily harm the
ability of persons opposed to the transaction to undertake an efficient
contest?
     Exchange Act Rule 13e-3 \91\ imposes certain requirements
on issuers that are undertaking what are commonly referred to as
``going-private transactions'' or ``Rule 13e-3 transactions.'' Should
the ``notice and access'' model not be available with regard to proxy
materials related to those transactions?
---------------------------------------------------------------------------

    \91\ 17 CFR 240.13e-3.
---------------------------------------------------------------------------

     Should the ``notice and access'' model not be available in
other types of transactions? For example, should it apply to roll-up
transactions, liquidations of assets, or reverse stock splits?
     Are there other matters to which the proposed ``notice and
access'' model should not apply? For registered investment companies,
are there any types of matters (e.g., changes in investment adviser or
management and distribution fee increases) to which the proposed model
should not apply?

IV. Conforming and Correcting Revisions to the Proxy Rules

    The proposed rules reflect numerous amendments to terms used in the
current proxy rules to explicitly accomodate the ``notice and access''
model. The changes are as follows:
     We propose to substitute the term ``send'' and other
tenses of the verb for the term ``mail'' and its other tenses to avoid
any misunderstanding that ``mail'' means only paper delivery through
the U.S. mail system.\92\
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    \92\ Proposed Rules 14a-4(c)(1), 14a-8(e)(2), 14a-8(c)(3), 14a-
8(m)(3), 14a-13(a)(5), 14a-13(c), 14b-1(c)(2)(ii), 14b-2(c)(2)(ii),
14c-5(a) and 14c-7(a)(5). Also Note 2 to proposed Rule 14a-13(a),
Instruction 2 to paragraph (d)(2)(ii)(L) of Item 7 of proposed Rule
14a-101, Note 2 to proposed Rule 14c-7(a) and Instruction 1 to Item
4 of proposed Rule 14c-101.
---------------------------------------------------------------------------

     We propose to clarify that the term ``address'' includes
an electronic mail address.\93\
---------------------------------------------------------------------------

    \93\ Proposed Rules 14a-7(f), 14a-13(e), 14b-1(a)(2) and 14b-
2(a)(4).
---------------------------------------------------------------------------

    Furthermore, we propose to clarify the use of the term ``annual
report(s)'' in the proxy rules by changing all references to either
``annual report(s) to

security holders'' or ``annual report(s) on Form 10-K and/or Form 10-
KSB,'' as appropriate.\94\ Finally, we are proposing to update Rule
14a-2 and Forms 10-Q, 10-QSB, 10-K, 10-KSB, and N-SAR to update
outdated references to Exchange Act Rule 14a-11, which the Commission
rescinded in 1999.\95\
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    \94\ Proposed Rules 14a-3(b)(1), 14a-3(b)(10), 14a-3(b)(13),
14a-3(e)(1)(i), 14a-3(e)(1)(i)(A), 14a-3(e)(1)(i)(B), 14a-
3(e)(1)(i)(C), 14a-3(e)(1)(i)(E), 14a-3(e)(1)(ii)(A), 14a-
3(e)(1)(ii)(B)(2), 14a-3(e)(1)(ii)(B)(2)(ii), 14a-
3(e)(1)(ii)(B)(2)(iii), 14a-3(e)(1)(ii)(B)(3), 14a-3(e)(1)(iii),
14a-3(e)(2), 14a-3(e)(2)(i), 14a-3(e)(2)(ii), 14a-12(c)(1), 14b-
1(b)(2), 14b-1(c)(2)(ii), 14b-1(c)(3), 14b-2(b)(3), 14b-2(c)(2)(ii),
14b-2(c)(4), 14c-2(a)(2), 14c-3(a)(1) and 14c-3(c). Also Note to
paragraph (e)(1)(i)(B) of proposed Rule 14a-3, Note D(3) to proposed
Rule 14a-101, Note G(1) to proposed Rule 14a-101, Instruction 1 to
paragraph (d)(2)(ii)(L) of Item 7 of proposed Rule 14a-101,
paragraph (e)(2) of Item 14 of proposed Rule 14a-101, Item 23 of
proposed Rule 14a-101, paragraph (a), (b), (c) and (d) of Item 23 to
proposed Rule 14a-101, Note 1 to paragraph (b)(2) of proposed Rule
14b-1, Note 1 to paragraph (b)(3) of proposed Rule 14b-2, section
heading to proposed Rule 14c-3, Item 5 of proposed Rule 14c-101 and
paragraph (a), (b), (c) and (d) of Item 5 of proposed Rule 14c-101.
    \95\ See Release No. 33-7760 (Oct. 22, 1999) [64 FR 61408].
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V. Paperwork Reduction Act

A. Background

    The proposed amendments contain ``collection of information''
requirements within the meaning of the Paperwork Reduction Act of
1995.\96\ We are submitting the proposals to the Office of Management
and Budget for review in accordance with the PRA.\97\ The proposals
would not affect existing collections of information. The proposed
Notice of Internet Availability of Proxy Materials, if adopted, would
constitute a new collection of information under the Exchange Act to be
used by issuers and other persons soliciting proxies to provide notice
to shareholders that they are relying on the ``notice and access''
model with regard to the proxy materials referenced in the Notice.
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    \96\ 44 U.S.C. 3501 et seq.
    \97\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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    The rules regarding the Notice would be adopted pursuant to the
Exchange Act. The hours and costs associated with preparing, filing,
and sending the Notice would constitute reporting and cost burdens
imposed by that collection of information. An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid OMB control number.

B. Summary of Proposed Amendments

    The proposed rules would apply only if an issuer or other
soliciting person voluntarily chooses to furnish its proxy materials to
shareholders electronically in reliance on the proposed alternative
model. We do not know the number of issuers and other soliciting
persons that will choose to take advantage of this alternative.
However, in light of the significant cost savings that an issuer or
other soliciting person may realize by furnishing its proxy materials
under the alternative model, we expect that the alternative model would
be used for most proxy solicitations. In addition, because we think
that the proposals may reduce the cost of effecting a proxy contest, we
expect that more persons may conduct proxy contests. We do not know the
extent to which the number of proxy contests may increase if these
amendments are adopted. We request comment and supporting empirical
data, for purposes of the PRA, on the number of issuers and other
persons that would choose to furnish their proxy materials in reliance
on the proposed ``notice and access'' model.
    Compliance with the proposed requirements would be mandatory only
if an issuer chooses to use the proposed ``notice and access'' model to
furnish its proxy materials to shareholders. There would be no
mandatory retention period for the information disclosed, and responses
to the disclosure requirements would not be kept confidential. Also,
under the proposals, a person other than the issuer has the option to
effect a proxy solicitation under the ``notice and access'' model
without preparing a Notice of Internet Availability of Proxy Materials,
so long as the soliciting person does not deliver a proxy card or
request for voting instructions to shareholders. We request comment on
the extent to which soliciting persons other than the issuer would
choose to conduct solicitations in this manner.
    The proposed Notice of Internet Availability of Proxy Materials is
required to include the following prominent legend in bold-face type
and other information described below:

    ``Important Notice Regarding the Availability of Proxy Materials
for the Shareholder Meeting to Be Held on [insert meeting date].\98\
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    \98\ Appropriate changes may be made if the issuer is providing
an information statement pursuant to Regulation 14C or seeking to
effect a corporate action by written consent.
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     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 shareholders] [proxy card] 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 that is two weeks or more before
the meeting date] to facilitate timely delivery. If you hold your
shares through a broker, bank, or other intermediary, you may
request delivery of a copy of the proxy materials through that
intermediary, but it likely will take longer to receive your
materials through an intermediary than directly from the company.''

     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 upon and the issuer's recommendations
regarding those matters, but no supporting statements;
     A list of the materials being made available at the
specified Web site; and
     (1) A toll-free telephone number and (2) an e-mail address
where the shareholder can request a copy of the proxy materials.
    All of this information is information that the issuer or other
soliciting person would have readily available because it determines
matters such as the date of the shareholder meeting and information
that shareholders can use to request copies of the proxy materials. The
Notice may be combined with any notice of shareholder meeting required
by state law. We estimate the annual burdens that would be required to
prepare and transmit a Notice of Internet Availability of Proxy
Materials to be approximately 1.5 reporting hours. We estimate that 75%
of the burden is prepared by the company and that 25% of the burden is
prepared by outside counsel retained by the company at an average cost
of approximately $300 per hour.\99\ We received 7,301 filings on
Schedule 14A and 681 filings on Schedule 14C during our 2005 fiscal
year. These numbers include filings related to annual and special
meetings prepared by issuers and other soliciting persons, but not
those related to business combination transactions because the
proposals exclude those transactions. Assuming that all issuers

and other soliciting persons elected to follow the proposed ``notice
and access'' model, we would expect 7,982 Notices of Internet
Availability of Proxy Materials to be filed annually.\100\ We estimate
that the total annual reporting burden would be approximately 8,979
hours \101\ and that the annual cost would be approximately $897,900
\102\ for the services of outside professionals.
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    \99\ For convenience, the estimated PRA hour burdens have been
rounded to the nearest whole number, and the estimated PRA cost
burdens have been rounded to the nearest $100. In connection with
other recent rulemakings, we have had discussions with several
private law firms to estimate an hourly rate of $300 as the cost of
outside professionals that assist issuers and security holders (or
security holder groups) in preparing these disclosures.
    \100\ 7,301 notices for 14A filers + 681 notices for 14C filers
= 7,982 total notices.
    \101\ 7,982 notices x 1.5 hours per notice x .75 = 8,980 hours.
    \102\ 7,982 notices x $300/hr x 1.5 hr/notice x .25 = $897,975.
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    The above estimates are conservative because there is no reliable
way to predict how many issuers or other soliciting persons will choose
to furnish proxy materials pursuant to the proposed amendments. We
request comment and supporting empirical data on the number of issuers
and other soliciting persons that would choose to furnish proxy
materials using the proposed ``notice and access'' model and the burden
and cost of preparing and sending the Notices necessary to comply with
the proposed model. We also request comment and supporting empirical
data on the current cost of sending copies of proxy materials, the cost
savings expected as a result of furnishing proxy materials under the
proposed alternative model, and the number or percentage of
shareholders who would request copies of these materials. Finally, we
request comment on the expected increase, if any, of the number of
proxy contests that would be conducted by soliciting persons other than
the issuer if the Commission adopts the proposals.

C. Solicitation of Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we solicit comments to: (1)
Evaluate whether the proposed collection of information is necessary
for the proper performance of the functions of the agency, including
whether the information would have practical utility; (2) evaluate the
accuracy of our estimate of the burden of the proposed collection of
information; (3) determine whether there are ways to enhance the
quality, utility and clarity of the information to be collected; and
(4) evaluate whether there are ways to minimize the burden of the
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology.
    Persons submitting comments on the collection of information
requirements should direct the comments to the Office of Management and
Budget, Attention: Desk Officer for the Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Washington,
DC 20503, and should send a copy to Jonathan G. Katz, Secretary,
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-9303, with reference to File No. S7-10-05. Requests for materials
submitted to OMB by the Commission with regard to these collections of
information should be in writing, refer to File No. S7-10-05, and be
submitted to the Securities and Exchange Commission, Records
Management, Office of Filings and Information Services, 100 F Street,
NE., Washington, DC 20549. OMB is required to make a decision
concerning the collection of information between 30 and 60 days after
publication of this release. Consequently, a comment to OMB is best
assured of having its full effect if OMB receives it within 30 days of
publication.

VI. Cost-Benefit Analysis

A. Background

    We are proposing revisions to the proxy rules under the Exchange
Act to enable issuers to take advantage of technological advances in
recent years to more efficiently furnish proxy materials to
shareholders. We expect that these proposals, if adopted, may lead to
significant cost reduction for proxy solicitations. The costs of issuer
solicitations ultimately are borne by shareholders.

B. Summary of Proposals

    The proposals provide an alternative ``notice and access'' model
that would permit an issuer to furnish proxy materials by posting them
on a specified, publicly-accessible Internet Web site (other than the
Commission's EDGAR Web site) and providing shareholders with a notice
informing them that the materials are available and explaining how to
access them. Under this alternative model, shareholders may request
copies of the proxy materials from the issuer.
    Issuers would be able to request intermediaries to follow similar
procedures to forward proxy materials to beneficial owners. In
addition, shareholders and other persons conducting their own proxy
solicitations may follow the alternative model, permitting them to rely
on the amendments under the same general requirements that would apply
to issuers.

C. Benefits

    Possible benefits of the proposed amendments include the following:
(1) More rapid dissemination of proxy information to shareholders over
the Internet; (2) reduced printing and mailing costs for issuers and
their shareholders; and (3) reduced costs for other soliciting parties
engaging in proxy contests. We expect potential cost reductions in
printing and mailing and a possible decrease in the costs associated
with proxy contests to be the most significant economic benefits.
    Automatic Data Processing, Inc. (``ADP'') handles the vast majority
of proxy mailings to beneficial owners.\103\ During the 2005 proxy
season, ADP handled 3,596 distributions of proxy materials to
shareholders, representing a total of approximately 152.3 million items
of proxy material processed. Currently, issuers typically prepare and
print paper copies to accommodate all record and beneficial holders who
do not consent to electronic delivery. For each paper copy, we
understand that average postage is approximately $0.95 and average
printing and paper costs are approximately $5.00.
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    \103\ Because mailings to record holders are handled by a wide
variety of parties including transfer agents and issuers themselves,
we do not have an aggregated estimate of the number of mailings to
record holders during 2005. However, we expect savings per mailing
would roughly correspond to savings with respect to beneficial
owners.
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    ADP estimates that, during the 2005 proxy season,\104\ over 62.3
million proxy material mailings were suppressed through a variety of
means, including householding and existing electronic delivery methods.
During the 2005 proxy season, this resulted in a savings of almost $371
million to issuers. During that season, ADP mailed 90 million paper
proxy items to beneficial owners. Based on this number, we estimate
that issuers and other soliciting persons spent, in the aggregate,
$535.5 million in postage and printing fees alone to distribute paper
proxy materials.\105\ These numbers reflect the cost of approximately
one-third of all mailings conducted by ADP in 2005. The data we have
reflects only 3,596, or 30%, of the total 12,304 proxy mailings
processed by ADP from May 1, 2004 through May 1, 2005. We do not have
data on the size of the mailings performed outside of the 2005 proxy
season.
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    \104\ According to ADP data, the proxy season extends from
February 15 to May 1, during which time nearly one-third of all
proxy solicitations are conducted.
    \105\ 90 million mailings x $5.95/mailing = $535.5 million.

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    Although we expect the savings to be significant, the full
potential for savings would be reduced by several factors. First, some
issuers and other soliciting persons might not elect to follow the
proposed model. Second, to the extent that some shareholders do not
have access to the Internet or receive paper copies of proxy materials
from the company, the savings in printing and mailing costs would be
reduced.
    Third, issuers likely will project the number of paper copies they
need to print before all shareholders must decide whether they want to
receive copies under the proposed rule. The requirement that issuers
supply requesting shareholders with copies within two business days
would limit issuers' ability to reduce printing costs by causing them
to have to maintain inventories of paper copies. We expect that, in the
first year after adoption of the proposed amendments, issuers would
face the highest level of uncertainty about the continued use of paper
proxy materials. We expect that, as issuers gain familiarity with the
continued use of paper materials and as shareholders become more
comfortable with receiving disclosures via the Internet, the number of
paper copies will decline, as will issuers' tendency to print more
copies than ultimately are requested. We do not currently have
estimates for the number of paper copies of the proxy materials that
would have to be furnished to shareholders, but we invite comments that
would be useful in constructing such estimates.
    Issuers may be able to use additional information about shareholder
voting to reduce uncertainty about shareholder demand for paper
materials. During the 2005 proxy season, only 44% of accounts were
voted by beneficial owners. Thus, 56%, or 84.8 million accounts, did
not return requests for voting instructions. However, shareholders not
voting represented a disproportionately low percentage (31.5%) of
shares held beneficially. These accounts represent a cost of
approximately $504.6 million in postage and printing costs. In light of
the fact that these shareholders chose not to vote, we suspect that a
significant number of them would not request copies of the proxy
materials. We further expect that issuers would take such data into
account to increase cost savings beginning in the first year that they
follow the proposed model.
    The proposed amendments may reduce costs of persons other than the
issuer conducting their own proxy solicitations. Under the proposed
amendments, persons other than the issuer also could rely on the
``notice and access'' model but, unlike issuers, may not be required to
deliver a Notice of Internet Availability of Proxy Materials to
shareholders. Furthermore, persons other than the issuer would be able