[Federal Register Volume 72, Number 18 (Monday, January 29, 2007)]
[Rules and Regulations]
[Pages 4148-4173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-327]



[[Page 4147]]

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Part III





Securities and Exchange Commission





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17 CFR Parts 240, 249, and 274



Internet Availability of Proxy Materials; Final Rule

  Federal Register / Vol. 72, No. 18 / Monday, January 29, 2007 / Rules 
and Regulations  

[[Page 4148]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240, 249 and 274

[Release Nos. 34-55146; IC-27671; File No. S7-10-05]
RIN 3235-AJ47


Internet Availability of Proxy Materials

AGENCY: Securities and Exchange Commission.

ACTION: Final rule; request for comment on Paperwork Reduction Act 
burden estimates.

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SUMMARY: We are adopting amendments to the proxy rules under the 
Securities Exchange Act of 1934 that 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. Issuers must make 
copies of the proxy materials available to shareholders on request, at 
no charge to shareholders. The amendments put into place processes that 
will 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 amendments may be able to significantly lower the costs of their 
proxy solicitations that ultimately are borne by shareholders. The 
amendments also might reduce the costs of engaging in a proxy contest 
for soliciting persons other than the issuer. The amendments do not 
apply to business combination transactions. The amendments also do not 
affect the availability of any existing method of furnishing proxy 
materials.

DATES: Effective Date: March 30, 2007.
    Compliance Date: Persons may not send a Notice of Internet 
Availability of Proxy Materials to shareholders prior to July 1, 2007.
    Comment Due Date: Comments on the Paperwork Reduction Act burden 
estimate should be received on or before March 30, 2007.

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/final.shtml); or
     Send an e-mail to [email protected]. 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 Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

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 its Internet Web site 
(http://www.sec.gov/rules/final.shtml). Comments also are available for 
public inspection and copying in the Commission's Public Reference 
Room, 100 F Street, NE., Washington, DC 20549. All comments received 
will be posted without change; we do not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: Raymond A. Be, Special Counsel, Office 
of Rulemaking, Division of Corporation Finance, at (202) 551-3430, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-3628.

SUPPLEMENTARY INFORMATION: We are amending 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\ and Form 10-
QSB,\19\ under the Securities Exchange Act of 1934 \20\ and Form N-SAR 
\21\ under the Exchange Act and the Investment Company Act of 1940.\22\ 
We also are adding new Rule 14a-16 under the Exchange Act.
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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\ 15 U.S.C. 78a et seq.
    \21\ 17 CFR 249.330 and 274.101.
    \22\ 15 U.S.C. 80a-1 et seq.
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Table of Contents

I. Introduction
II. Description of the Amendments
    A. The Notice and Access Model for Issuers
    1. Notice of Internet Availability of Proxy Materials
    a. Householding
    b. Security and Privacy on the Internet
    i. Theft of Identification or Control Numbers
    ii. Phishing
    iii. Misuse of Information by Issuers and Other Soliciting 
Persons
    2. Proxy Card
    3. Internet Web Site Posting of Proxy Materials
    4. Period of Reliance
    5. State Law Notices
    6. Additional Soliciting Materials
    7. Requests for Copies of Proxy Materials
    B. The Role of Intermediaries
    1. Background
    2. Discussion of the Amendments
    3. Request for Copies by Beneficial Owners
    C. 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 With Respect to Solicitations by 
Persons Other Than the Issuer
    D. Business Combination Transactions
    E. Compliance Date and Monitoring
IV. Conforming and Correcting Revisions to the Proxy Rules
V. Paperwork Reduction Act
    A. Background
    B. Summary of Amendments
    C. Comments on PRA Estimates
VI. Cost-Benefit Analysis
    A. Background
    B. Summary of Amendments
    C. Benefits
    D. Costs
VII. Consideration of Burden on Competition and Promotion of 
Efficiency, Competition and Capital Formation
VIII. Final Regulatory Flexibility Analysis
    A. Need for the Amendments
    B. Significant Issues Raised by Public Comment
    C. Small Entities Subject to the Amendments
    D. Reporting, Recordkeeping and Other Compliance Requirements
    E. Agency Action To Minimize Effect on Small Entities
IX. Statutory Basis and Text of Amendments

I. Introduction

    On December 8, 2005, we proposed amendments to update the proxy 
rules to take greater advantage of communications technology by 
supplementing the existing regulatory

[[Page 4149]]

framework with an alternative ``notice and access'' proxy model that 
could reduce significantly the printing and mailing costs associated 
with furnishing proxy materials to shareholders.\23\ Under the notice 
and access model that we proposed, an issuer would be able to satisfy 
its obligations under the Commission's proxy rules by posting its proxy 
materials on a 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. Under the proposal, an issuer relying on the 
model would be required to provide a requesting shareholder with a copy 
of the proxy materials in paper or by e-mail, at no charge to the 
shareholder. We proposed that soliciting persons other than the issuer 
also would be able to rely on the notice and access model.
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    \23\ Release No. 34-52926 (Dec. 8, 2005) [70 FR 74597]. For 
purposes of this release only, 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. For purposes of this release, the term 
does not include materials filed under Rule 14a-12.
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    We received approximately 140 comment letters on the proposed 
notice and access model from a variety of interested parties, including 
issuers and their agents, shareholders, intermediaries and their 
agents, financial printers, manufacturers of mailing products, and 
academics. There was significant disagreement among the commenters 
regarding these key issues raised by the proposed model:
     The sufficiency of current Internet access among the U.S. 
population such that the proposed model would be desirable; \24 \
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    \24\ See, for example, letters suggesting that current rates of 
Internet access are sufficient from American Bar Association (ABA), 
America's Community Bankers (ACB), Association of Ameritech SBC 
Retirees (SBC Retirees), Business Roundtable (BRT), Computershare 
Ltd. (Computershare), Proxinvest, Gary Tannahill, Hermes, Investment 
Company Institute (ICI), Securities Transfer Association (STA), and 
Sullivan & Cromwell. But also see, for example, letters from 
Association of BellTel Retirees (BellTel Retirees), Todd Collier, 
Joel Brown, James Davis, Donna Garal, Clark Green, Heather Harper, 
Frank Inman, William Lafollette, James Phipps, Beth Spletter, Megan 
Stroinski, and the United States Postal Service (USPS) suggesting 
that those rates are not sufficient.
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     The effect that the proposed notice and access model might 
have on levels of proxy voting by shareholders; \25\
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    \25\ Some commenters believed that the proposed model might 
result in a decline in voting by shareholders. See, for example, 
letters from Automatic Data Processing, Inc. (ADP), James Angel, 
Timothy Buchman, State Board of Administration of Florida (Florida 
State Board), Fund of Stockowners Rights (Stockowners Rights), IR 
Web Report, and Securities Industry Association (SIA). However, 
other commenters believed the rules may increase shareholder voting 
by facilitating the voting process. See, for example, letters from 
AFL-CIO, Robert Atkinson, Institutional Shareholder Services (ISS), 
Proxinvest, and Society of Corporate Secretaries and Governance 
Professionals (SCSGP).
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     The level of security and privacy on the Internet; \26\
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    \26\ See, for example, letters from James Angel, Todd Collier, 
James Davis, William LaFollette, Matthew McGuire, and USPS.
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     The extent of potential savings to issuers and those 
conducting proxy contests that choose to rely on the proposed model; 
\27\ and
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    \27\ See, for example, letters from ADP and Computershare.
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     Whether the proposed model may make the proxy delivery 
system, particularly as it relates to beneficial owners holding in 
street name through their brokers or other intermediaries, too 
complex.\28\
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    \28\ See letter from ABA.
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    Several commenters suggested revisions related to the proposed 
notice and access model, including the following:
     The proposed rules should allow a shareholder to make an 
election to receive paper copies of the proxy materials with respect to 
any future solicitations that would remain in place until subsequently 
revoked by the shareholder; \29\
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    \29\ See letters from American Business Council (ABC), AFL-CIO, 
James Angel, CALSTRS, Florida State Board, Ohio Public Employees 
Retirement System (OPERS), San Diego City Employees' Retirement 
System (San Diego Retirement), SIA, William Sjostrom, Stocklein Law 
Group, Swingvote, and Paul Uhlenhop.
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     An issuer should have to make the proxy card available to 
shareholders through the same medium it uses to make the proxy 
statement available to them; \30\
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    \30\ See letters from ACB, AFL-CIO, Amalgamated Bank of LongView 
Funds (Amalgamated Bank), BellTel Retirees, Council of Institutional 
Investors (CII), Florida State Board, Carl Hagberg, International 
Brotherhood of Teamsters (Teamsters), National Retiree Legislative 
Network (NRLN), San Diego Retirement, and Swingvote.
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     The Commission should review and simplify the proxy 
delivery system as a whole rather than addressing the issue of 
electronic delivery of proxy materials in isolation; \31\ and
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    \31\ See, for example, letters from BRT, Committee of Concerned 
Shareholders (Concerned Shareholders), Computershare, Carl Hagberg, 
Mellon, and STA.
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     The New York Stock Exchange (``NYSE'') should review its 
current schedule of maximum fees that its member firms may charge 
issuers to forward issuers' proxy materials to beneficial owners.\32\
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    \32\ See letters from BRT, Computershare, and SCSGP.
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    Although there was a mixed reaction to the proposal,\33\ we believe 
that current levels of access to the Internet merit adoption of the 
notice and access model as an alternative to the existing proxy 
distribution system. In this regard, we note that more than 10.7 
million beneficial shareholders already have given their affirmative 
consent to electronic delivery of proxy materials and approximately 
87.8% of shares voted were voted electronically or telephonically 
during the 2006 proxy season.\34\ Moreover, research submitted to us 
during the comment period indicates that approximately 80% of investors 
in the United States have access to the Internet in their homes, a 
greater percentage than we estimated at the proposing stage.\35\ 
Several commenters expressed the view that the current level of 
Internet usage is sufficiently high to warrant adoption of the proposed 
notice and access model.\36\ Although some commenters did not think 
that Internet access is sufficiently widespread, particularly among 
seniors,\37\ to warrant implementation of the proposed model at this 
time,\38\ the requirement that any shareholder lacking Internet access, 
or preferring delivery of a copy of the proxy materials, can make a 
permanent request to receive a copy of the proxy materials (and all 
future proxy materials) at no charge should substantially mitigate the 
concern about Internet access.
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    \33\ It appeared that many commenters opposing adoption 
mistakenly believed that they would lose the ability to receive 
paper copies. Others objected to having to request paper copies 
under the notice and access model. See, for example, letters from 
Arthur Comings, Dave Few, George Liddell, Robert Link, and Chloris 
Wolski.
    \34\ According to data available on the Web site of ADP. See 
www.ics.adp.com/release11/public_site/about/stats.html.
    \35\ See letter from ADP. At the proposing stage, we estimated 
that 75% of people in the United States had Internet access, but we 
did not have an estimate for the percentage of investors with 
Internet access.
    \36\ See, for example, letters from ABA, ACB, BRT, 
Computershare, Hermes, ICI, Proxinvest, SBC Retirees, STA, Sullivan 
& Cromwell, and Gary Tannahill.
    \37\ See, for example, letters from American Association of 
Retired Persons (AARP), BellTel Retirees, Timothy Buchman, Todd 
Collier, NRLN, Printing Industries of America (PIA), Stockowners 
Rights, and Telephone Pioneers of America.
    \38\ See, for example, letters from BellTel Retirees, Joel 
Brown, Todd Collier, James Davis, Donna Garal, Clark Green, Heather 
Harper, Frank Inman, William Lafollette, James Phipps, Beth 
Spletter, Megan Stroinski, and USPS.
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    Therefore, we are adopting the proposal substantially as proposed. 
The final rules are intended to allow issuers and other soliciting 
persons to establish procedures that will promote use of the Internet 
as a reliable and cost-efficient means of making proxy materials

[[Page 4150]]

available to shareholders. Among those shareholders who access the 
proxy materials electronically, the rules also may increase the use of 
the Internet for voting proxies. An issuer's or other soliciting 
person's election to follow the notice and access model will be 
voluntary.\39\
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    \39\ In a companion release, the Commission is proposing to 
require issuers and other soliciting persons to follow a 
substantially similar model. See Release No. 34-55147.
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    Under the final rules, as discussed in more detail below, an issuer 
may satisfy its obligation under the Commission's proxy rules to 
furnish proxy materials to shareholders in connection with a proxy 
solicitation by posting its proxy materials on a publicly-accessible 
Internet Web site (other than the Commission's EDGAR Web site) and 
sending a Notice of Internet Availability of Proxy Materials 
(``Notice'') to shareholders at least 40 calendar days before the 
shareholder meeting date indicating that the proxy materials are 
available and explaining how to access those materials.\40\ 
Shareholders must have a means to execute a proxy as of the time on 
which the Notice is sent.\41\ The Notice also must explain how a 
shareholder can request a copy of the proxy materials and how a 
shareholder can indicate a preference to receive a paper or e-mail copy 
of any proxy materials distributed under the notice and access model in 
the future. An issuer may not send a proxy card along with the Notice; 
however, 10 calendar days or more after sending the Notice, the issuer 
may send a proxy card to shareholders.\42\ If an issuer chooses to send 
a proxy card without a copy of the proxy statement under this 
provision, a copy of the Notice must accompany the proxy card so that 
recipients will be notified again about the Web site on which the proxy 
statement is accessible. Finally, the notice and access model may not 
be used in conjunction with a proxy solicitation related to a business 
combination transaction.
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    \40\ An issuer or other soliciting person also must continue to 
comply with Exchange Act Rules 14a-6 [17 CFR 240.14a-6] and 14c-5 
[17 CFR 240.14c-5], which require the issuer or other soliciting 
person to file its proxy statement (or information statement) and 
additional soliciting material with the Commission. An issuer also 
must continue to comply with Exchange Act Rules 14a-3(c) [17 CFR 
240.14a-3(c)] and 14c-3(b) [17 CFR 240.14c-3(b)], which require an 
issuer to submit copies of its annual report to security holders to 
the Commission. The rules that we are adopting in this release do 
not affect any current Commission filing requirement, except that an 
issuer or other soliciting person following the notice and access 
model would be required to file the Notice as additional soliciting 
material under Exchange Act Rule 14a-6(b) [17 CFR 240.14a-6(b)].
    \41\ As discussed in more detail in Section II.A.2 of this 
release, an issuer or any other soliciting person must provide a 
means for executing proxies available at the time the Notice is 
sent. It may not wait until it sends a paper or e-mail copy of the 
proxy card 10 calendar days or more after sending the Notice to 
provide shareholders with a means to execute a proxy.
    \42\ An issuer may send a proxy card to shareholders before the 
conclusion of the 10-day period if the proxy card is accompanied or 
preceded by a copy, via the same medium, of the proxy statement and 
annual report to security holders if required by Rule 14a-3(b).
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    Shareholders and other persons conducting their own proxy 
solicitations may rely on the notice and access model under 
requirements substantially similar to the requirements that would apply 
to issuers. As a result, these rules may have the effect of reducing 
the cost of engaging in a proxy contest. However, unlike the 
requirements for an issuer, a soliciting person other than the issuer 
may selectively choose the shareholders from whom it desires to solicit 
proxies without the need to send an information statement to all other 
shareholders.
    The new rules do not affect the availability of other means of 
providing proxy materials to shareholders, such as obtaining 
affirmative consents for electronic delivery pursuant to existing 
Commission guidance.\43\ Thus, an issuer may rely on affirmative 
consents to furnish proxy materials to some shareholders, and rely on 
the notice and access model to furnish the materials to others.
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    \43\ 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. Release No. 33-7288 (May 9, 1996) 
[61 FR 24644] (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.
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    We are making several significant revisions to the proposed notice 
and access model in response to commenters' concerns. First, the final 
rules do not permit a proxy card to accompany the Notice as we 
originally proposed, although the rules do permit an issuer or other 
soliciting person to send a proxy card 10 calendar days or more after 
it sends the Notice, provided that a copy of the Notice accompanies the 
proxy card.\44\ Second, we are adopting a requirement that issuers and 
other soliciting persons send the Notice to shareholders at least 40 
calendar days before the shareholder meeting date, rather than 30 
calendar days before the meeting, as proposed. We are making this 
change so that issuers and other soliciting persons will still have at 
least a 30-day period in which they can send a proxy card to 
shareholders if they choose to do so.
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    \44\ An issuer or other soliciting person may, in the course of 
a solicitation, send several proxy cards to a shareholder. Under the 
notice and access model, the Notice must accompany each proxy card 
sent to a shareholder unless the issuer or other soliciting person 
sends a proxy statement with, or before, the proxy card and by the 
same medium as the proxy card is sent.
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    Third, in addition to the proposed requirement that a shareholder 
be able to request a paper or e-mail copy of the proxy materials for a 
particular meeting, the final rules require an issuer to allow 
shareholders to elect to receive paper or e-mail copies of proxy 
materials that the issuer will distribute in the future in reliance on 
the notice and access model. Similarly, intermediaries must allow 
beneficial owners to elect to receive paper or e-mail copies of any 
proxy materials that will be distributed in the future in reliance on 
the notice and access model with respect to all securities held in the 
beneficial owner's account. Fourth, under the new rules, an 
intermediary must prepare its own Notice for distribution to beneficial 
owners.
    Fifth, the intermediary's Notice sent to a beneficial owner will 
direct the owner to request paper or e-mail copies from his or her 
intermediary, rather than from the issuer. Finally, the final rules do 
not permit soliciting persons other than the issuer to engage in a 
conditional solicitation as proposed and, therefore, the rules require 
such persons to send a copy of the proxy materials upon request from a 
shareholder to whom they have sent a Notice.

II. Description of the Amendments

A. The Notice and Access Model for Issuers

    The notice and access model that we are adopting provides an 
alternative means for an issuer to furnish proxy materials to its 
shareholders. These proxy materials include:
     Notices of shareholder meetings;
     Schedule 14A proxy statements and consent solicitation 
statements;
     Forms of proxy (i.e., proxy cards);
     Schedule 14C information statements;
     Annual reports to security holders; \45\
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    \45\ The requirement in Exchange Act Rules 14a-3(b) and 14c-3(a) 
to furnish annual reports to security holders does not apply to 
registered investment companies [17 CFR 240.14a-3(b) and 240.14c-
3(a)]. The rules that we are adopting do not apply to the 
requirement in Section 30(e) of the Investment Company Act of 1940 
[15 U.S.C. 80a-29(e)] and the rules thereunder that every registered 
investment company transmit reports to shareholders at least semi-
annually.

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[[Page 4151]]

     Additional soliciting materials; \46\ and
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    \46\ 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.
    In the proposing release, we sought comment on whether reliance on 
the notice and access model should be limited to particular types of 
issuers, shareholders, or transactions. The only restriction that we 
proposed was that the rules should not apply to business combination 
transactions. Commenters in favor of the notice and access model 
generally supported broad availability of the notice and access 
model.\47\ Therefore, the new rules permit any issuer to use the notice 
and access model to disseminate its proxy materials to all types of 
shareholders, whether registered or beneficial owners, and with respect 
to any solicitation except those related to business combination 
transactions.
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    \47\ See, for example, letters from ABC, ACB, Association of 
Corporate Counsel (ACC), Proxinvest, SCSGP, STA, and Sullivan & 
Cromwell.
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1. Notice of Internet Availability of Proxy Materials
    To notify shareholders of the availability of the proxy materials 
on an Internet Web site, an issuer relying on the notice and access 
model must send a Notice to shareholders 40 calendar days \48\ or more 
in advance of the shareholder meeting date or, if no meeting is to be 
held, 40 calendar days or more in advance of the date that consents or 
authorizations may be used to effect the corporate actions.\49\ We 
believe that it is important for the Notice to be furnished in a way 
that brings it to each shareholder's attention. Therefore, no other 
materials may accompany the Notice except for the notice of a 
shareholder meeting required under state corporation law.\50\ An issuer 
also may combine the Notice with the state law notice unless state law 
prohibits such combination.
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    \48\ For purposes of determining this 40-day period under the 
new rules, the first day of this period would be the day on which 
the issuer sends the Notice. The 40th day would be the day prior to 
the meeting date or date of the corporate action.
    \49\ The Notice could be sent electronically to shareholders who 
have previously provided affirmative consent, or other evidence to 
show delivery, pursuant to our earlier guidance on electronic 
delivery. See the 1995 Interpretive Release and the 2000 
Interpretive Release.
    \50\ The rules also permit a reply card for requesting a paper 
or e-mail copy of the proxy materials to accompany the Notice.
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    We have extended the proposed 30-day deadline for delivery of the 
Notice to a 40-day deadline to provide issuers with time to encourage 
shareholders who have not executed a proxy to participate in the voting 
process and to provide shareholders with sufficient time to receive the 
Notice, request copies of the materials, if desired, and review the 
proxy materials prior to executing a proxy. Under the new rules, an 
issuer may send a proxy card 10 calendar days or more after sending the 
Notice. If an issuer chooses to send a proxy card under this provision, 
a proxy statement and annual report need not accompany the proxy 
card.\51\ However, if a copy of the proxy statement and annual report 
do not accompany or precede the proxy card, a copy of the Notice must 
accompany the proxy card so that shareholders can access the specified 
Web site without referring to the earlier Notice. This 10-day waiting 
period is designed to provide shareholders with sufficient time to 
access the proxy materials, or request a copy of the proxy materials, 
before the issuer sends a proxy card without an accompanying proxy 
statement and annual report.
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    \51\ Of course, an issuer still would be obligated to send a 
copy of the proxy statement and annual report if a shareholder 
requests a copy. An issuer also may send a proxy card before the end 
of the 10-day period if it is accompanied by the proxy statement and 
annual report.
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    If an issuer chooses to follow the notice and access model, the 
Notice of Internet Availability of Proxy Materials must include the 
following information in clear and understandable terms:\52\
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    \52\ Appropriate changes must be made to the Notice if the 
issuer is providing an information statement pursuant to Regulation 
14C or seeking to effect a corporate action by written consent.
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     A prominent legend in bold-face type that states:

``Important Notice Regarding the Availability of Proxy Materials for 
the Shareholder Meeting To Be Held on [insert meeting date].

     This communication presents only an overview of the 
more complete proxy materials that are available to you on the 
Internet. We encourage you to access and review all of the important 
information contained in the proxy materials before voting.
     The [proxy statement] [information statement] [annual 
report to security holders] [is/are] available at [Insert Web site 
address].
     If you want to receive a paper or e-mail copy of these 
documents, you must request one. There is no charge to you for 
requesting a copy. Please make your request for a copy as instructed 
below on or before [Insert a date] to facilitate timely delivery.''

     The date, time, and location of the meeting or, if 
corporate action is to be taken by written consent, the earliest date 
on which the corporate action may be effected;
     A clear and impartial identification of each separate 
matter intended to be acted on and the issuer's recommendations 
regarding those matters, but no supporting statements;
     A list of the materials being made available at the 
specified Web site;
     (1) A toll-free telephone number; (2) an e-mail address; 
and (3) an Internet Web site address where the shareholder can request 
a copy of the proxy materials, for all meetings and for the particular 
meeting to which the Notice relates;
     Any control/identification numbers that the shareholder 
needs to access his or her proxy card;
     Instructions on how to access the proxy card, provided 
that such instructions do not enable a shareholder to execute a proxy 
without having access to the proxy statement and annual report; and
     Information on how to obtain directions to be able to 
attend the meeting and vote in person.
    In response to commenters, we have added certain items to this list 
of permissible Notice information. First, we are clarifying that the 
Notice must contain instructions on how to access the proxy card. Such 
information should include any control or identification numbers 
necessary for the shareholder to execute a proxy, but may not include a 
means to execute a proxy, such as a telephone number, which would 
enable the shareholder to execute a proxy without having access to the 
proxy statement and annual report.
    A shareholder's execution of a proxy via an Internet voting 
platform indicates that the shareholder has access to the Internet and, 
as such, is able to access the proxy materials electronically under the 
new rules. Similarly, if a shareholder executes a proxy via a telephone 
number placed on the Internet Web site which provides electronic access 
to the proxy materials, that indicates the shareholder has access to 
the Internet. However, if a telephone number for executing a proxy is 
placed on the Notice, there can be no assurance that a shareholder 
executing a proxy by means of that telephone number has access to the 
Internet Web site. Accordingly, placing such a telephone number on the 
Notice is not permitted. A telephone number for executing a proxy may, 
however, be provided on a proxy card sent to shareholders 10 calendar 
days or more after the Notice was sent because, by that time, a 
shareholder is likely to have had

[[Page 4152]]

sufficient time to access the materials on the Internet or request 
copies.
    Also, in response to comments, we have revised the rules to require 
an issuer or other soliciting person to include instructions in the 
Notice about: (1) How a shareholder can request delivery of copies of 
proxy materials in paper or by e-mail in the future; \53\ and (2) how 
to attend the shareholder meeting and vote in person. The new rules 
also require the Notice to include an Internet Web site on which a 
shareholder can request a copy of the proxy materials, in addition to a 
toll-free telephone number and an e-mail address for that purpose.
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    \53\ See letters from ABA, Mellon Investor Services (Mellon), 
and SCSGP.
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    The Notice may include only the information specified above, unless 
it is being combined with the state law meeting notice, in which case 
any information required by state law also may be included in the 
Notice. While not required, to reduce the chance of parties creating 
false Notices to extract confidential information from shareholders, 
the Notice also may contain a statement advising shareholders that they 
are not required to provide any personal information, other than the 
identification or control number provided in the Notice (if such a 
number is used), to execute a proxy.
    To ensure that the Notice is clear and understandable, it must meet 
substantially the same plain English principles as apply to key 
sections of Securities Act prospectuses pursuant to Securities Act Rule 
421(d).\54\ Both commenters remarking on the plain English aspect of 
the proposal supported such a requirement.\55\
---------------------------------------------------------------------------

    \54\ 17 CFR 230.421(d).
    \55\ See letters from Florida State Board and Proxinvest.
---------------------------------------------------------------------------

    Several commenters recommended that issuers should be able to 
include more information in the Notice than we proposed. They suggested 
that the rules should allow the Notice to incorporate information from 
the proxy statement and annual report that those commenters believe is 
the most important information contained in those documents. They 
believed that presenting this information on the Notice would enable 
shareholders to make an informed decision based on the Notice 
alone.\56\ We believe that the proxy statement and annual report to 
security holders represent the information necessary to make an 
informed voting decision. The Notice is intended merely to make 
shareholders aware that these proxy materials are available on an 
Internet Web site; it is not intended to serve as a stand-alone basis 
for making a voting decision. Because the disclosures in the proxy 
statement and annual report represent the information necessary for a 
voting decision, we do not believe it is appropriate to permit issuers 
and other soliciting persons to present only selected information from 
the proxy statement or annual report to security holders in the Notice.
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    \56\ See letters from Carl Hagberg, Hermes, and James Reed. For 
example, one commenter suggested that each proposal be accompanied 
by the ``pros and cons'' associated with that proposal. See letter 
from James Reed. Another commenter recommended that the president's 
letter, Management's Discussion and Analysis and selected financial 
information be included. See letter from Carl Hagberg.
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    The form of the Notice will constitute other soliciting material 
that the issuer or other soliciting person must file with the 
Commission pursuant to Rule 14a-6(b) \57\ no later than the date on 
which it is first sent or given to shareholders.\58\
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    \57\ 17 CFR 240.14a-6(b).
    \58\ See Rule 14a-16(i) [17 CFR 240.14a-16(i)].
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a. Householding
    Consistent with the proposal, the final rules permit an issuer to 
``household'' the Notice pursuant to Rule 14a-3(e).\59\ Accordingly, an 
issuer could send a single copy of the Notice to one or more 
shareholders residing at the same address if the issuer satisfies all 
of the Rule 14a[pi]3(e) conditions.\60\ An issuer is not required to 
re-solicit specific consent regarding the householding of the Notice 
from shareholders if it has obtained their consent to householding of 
proxy materials in the past. However, an issuer following the notice 
and access model must allow each householded account to execute 
separate proxies. Therefore, the issuer must provide separate 
identification or control numbers, if it uses such numbers, to each 
account at the shared address, as required by the current householding 
rule.\61\ Alternately, an issuer also may send separate Notices for 
each householded account in a single envelope. Commenters generally 
supported this aspect of the proposal.\62\
---------------------------------------------------------------------------

    \59\ 17 CFR 240.14a-3(e).
    \60\ If the Notice is sent via e-mail, the householding rules do 
not permit the sending of only one copy of the Notice to all 
shareholders in the household. Instead the Notice must be separately 
e-mailed to each shareholder. See Rule 14a-3(e)(1)(ii)(B)(4) [17 CFR 
240.14a-3(e)(1)(ii)(B)(4)].
    \61\ 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)].
    \62\ See letters from BRT, Computershare, Proxinvest, and SCSGP.
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b. Security and Privacy on the Internet
    Several commenters were concerned about security and 
confidentiality of shareholder information that may be transmitted over 
the Internet.\63\ We believe that the final rules ameliorate many of 
these concerns. We address those concerns below.
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    \63\ See, for example, letters from James Angel, Todd Collier, 
James Davis, William LaFollette, Matthew McGuire, and USPS.
---------------------------------------------------------------------------

i. Theft of Identification or Control Numbers
    Some commenters were concerned that computer hackers may use any 
identifying information sent to shareholders to access their 
accounts.\64\ The Notice may contain identification or control numbers 
for executing proxies or providing voting instructions, if an issuer or 
intermediary uses such numbers. We understand that these numbers, which 
are in common use today, usually provide the user only with access to 
execute proxies or provide voting instructions; they do not enable the 
user to buy or sell securities in a shareholder's account or transfer 
funds from that account. Thus, more sensitive activities, such as 
trading securities or transferring funds, could not be performed by 
someone who has stolen this identifying information. Finally, we note 
that 85% of shares voted already are voted electronically using such 
identification or control numbers.
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    \64\ Record holders could not be subject to such manipulation 
because they do not hold their securities in a trading account with 
the company in the same sense as beneficial owners hold their 
securities in a brokerage account.
---------------------------------------------------------------------------

ii. ``Phishing''
    One commenter expressed concern that, if Notices are sent 
electronically, shareholders may be tricked into disclosing personal 
information to persons fraudulently purporting to be issuers or 
intermediaries by fake ``phishing'' e-mails purporting to be official 
Notices, but designed to extract personal information from a 
shareholder.\65\ We do not believe that the rules would provide 
significant opportunity for abuse through phishing for the following 
reasons.
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    \65\ See letter from William LaFollette.
---------------------------------------------------------------------------

    First, an issuer may send a Notice by e-mail only if the 
shareholder has affirmatively consented to such delivery. Second, the 
Notice is not permitted to request any confidential information from 
the shareholder. Rather, the only confidential information that a 
shareholder must provide to access the proxy card would be a 
confidential identification or

[[Page 4153]]

control number used by many issuers and intermediaries to track votes. 
As noted above, this number does not provide access to a shareholder's 
brokerage or bank account or permit the transfer of funds from a 
shareholder's account. Therefore, the shareholder's account number and 
other personal financial information would not be in jeopardy of being 
stolen. The rules do permit an issuer or other soliciting person to 
include on the Notice a protective warning to shareholders, advising 
them that no personal information other than the identification or 
control number is necessary to execute a proxy.\66\
---------------------------------------------------------------------------

    \66\ See Rule 14a-16(f)(3) [17 CFR 240.14a-16(f)(3)].
---------------------------------------------------------------------------

iii. Misuse of Information by Issuers and Other Soliciting Persons
    Other commenters were concerned that issuers themselves, or other 
soliciting persons, may use shareholder information inappropriately. 
For example, they were concerned that an issuer may use shareholders' 
e-mail addresses for purposes other than proxy communications, such as 
advertising, or sell the e-mail addresses to third parties.\67\ As a 
protective measure, one commenter suggested that the Internet Web site 
on which the proxy statement is posted should not require installation 
of cookies on the shareholder's computer as a prerequisite for access 
to the Web site.\68\
---------------------------------------------------------------------------

    \67\ See letter from Thomas Richardson.
    \68\ See letter from Bowne & Co.
---------------------------------------------------------------------------

    We agree that shareholder information gathered under the amended 
rules should be used only for the purposes of furnishing proxy 
materials to shareholders. Thus, we have revised the final rules to 
clarify that an issuer or its agent must maintain the Internet Web site 
on which the proxy materials are posted in a manner that does not 
infringe on the anonymity of a shareholder accessing that Web site.\69\ 
For example, it may not track the identity of persons accessing that 
Web site to view the proxy statement.\70\ In addition, the Web site 
cannot require the installation of any ``cookies'' or other software 
that might collect information about the accessing person. Further, the 
issuer and its agents may not use any e-mail address obtained from a 
shareholder for the purpose of requesting a copy of proxy materials for 
any purpose other than to send a copy of those materials to that 
shareholder. Finally, an issuer may not transfer a shareholder's e-mail 
address to other persons without the shareholder's express consent, 
except in connection with the distribution of proxy materials, such as 
an agent handling the proxy distribution on the issuer's behalf.\71\
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    \69\ See Rule 14a-16(k)(1) [17 CFR 240.14a-16(k)(1)].
    \70\ Of course, the issuer would be permitted to track the 
identity, by means of the shareholder entering an issuer-provided 
control/identification number, of persons voting on an electronic 
platform in order to validate the election results.
    \71\ See Rule 14a-16(k)(2) [17 CFR 240.14a-16(k)(2)]. Rule 14a-
16(k) is not designed to create new duties in private rights of 
action under the federal securities laws.
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2. Proxy Card
    Under the notice and access model that we are adopting, an issuer 
is not permitted to furnish the proxy card together with the initial 
Notice for a particular solicitation. An issuer following the notice 
and access model must post the proxy card on the Web site with the 
proxy statement and any annual report no later than the time at which 
the Notice is sent to shareholders so that the documents are 
electronically available at the time shareholders receive the 
Notice.\72\ In addition, on that Web site, the issuer must concurrently 
provide shareholders with at least one method of executing a proxy 
vote.\73\ We believe that a shareholder who accesses proxy materials on 
the Internet Web site should be able to execute a proxy as soon as the 
shareholder is able to electronically access the proxy statement. An 
issuer may provide a means to execute a proxy through a variety of 
methods, including by providing an electronic voting platform linked to 
the Web site where the proxy materials are posted or a telephone number 
for executing a proxy. Merely providing a shareholder with a means to 
request a paper proxy card would not be sufficient because a 
shareholder would not be able to execute a proxy at the time it 
accesses the proxy materials.
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    \72\ See Rule 14a-16(b)(1) [17 CFR 240.14a-16(b)(1)].
    \73\ See Rule 14a-16(b)(4) [17 CFR 240.14a-16(b)(4)].
---------------------------------------------------------------------------

    We received a significant number of comments on the aspect of our 
proposal that would have permitted the proxy card to accompany the 
Notice. Numerous commenters were concerned that physically separating 
the card from the proxy statement, as originally proposed, may lead to 
the type of uninformed voting that the proxy rules are intended to 
prevent.\74\ Some commenters were concerned that issuers may attempt to 
structure their solicitations in a manner that discourages access to 
the proxy statement, particularly with respect to shareholder 
proposals.\75\ Others, however, believed that separating the card from 
the proxy statement would not lead to such problems.\76\
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    \74\ See, for example, letters from ACB, AFL-CIO, Amalgamated 
Bank, BellTel Retirees, CII, Florida State Board, Carl Hagberg, 
NRLN, San Diego Retirement, Swingvote, and Teamsters.
    \75\ See, for example, letters from AFL-CIO, Florida State 
Board, and Teamsters.
    \76\ See, for example, letters from ABA, ACC, BRT, 
Computershare, ISS, New York State Bar Association (NY State Bar), 
and Proxinvest.
---------------------------------------------------------------------------

    We note these concerns and have revised the rules to require the 
proxy card to be accessible on the Internet along with the proxy 
statement and any annual report when the Notice is sent. The issuer may 
not send a proxy card with its initial Notice. However, we recognize 
that an issuer may wish to undertake subsequent soliciting activities 
to encourage shareholders who have not executed a proxy to do so. 
Currently, issuers often send replacement proxy cards accompanied by 
additional soliciting materials to shareholders who have not yet voted. 
To facilitate this re-solicitation process, the rules permit an issuer 
that is following the notice and access model to send a proxy card 10 
calendar days or more after sending the Notice. This 10-day waiting 
period still provides a 30 day period during which an issuer can 
encourage shareholders to execute a proxy. Any such subsequent 
solicitation efforts may, but need not, include a copy of the proxy 
statement and any annual report to security holders. However, if the 
subsequent communication includes a proxy card, it also must include 
either a copy of the proxy statement and any annual report or a copy of 
the Notice.\77\
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    \77\ See Rule 14a-16(h) [17 CFR 240.14a-16(h)].
---------------------------------------------------------------------------

3. Internet Web Site Posting of Proxy Materials
    All proxy materials to be furnished through the notice and access 
model, other than additional soliciting materials, must be posted on a 
specified Internet Web site by the time the issuer sends the Notice to 
shareholders.\78\ These materials must remain on that Web site and be 
accessible to shareholders through the conclusion of the related 
shareholder meeting, at no charge to the shareholder. As discussed 
above, the Notice must identify clearly the Internet Web site address 
at which the proxy materials are available. The Internet Web site 
address must be specific enough to lead shareholders directly to the 
proxy materials,\79\ rather

[[Page 4154]]

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.\80\ Commenters agreed that simply 
providing a link to the proxy materials on EDGAR was insufficient.\81\
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    \78\ Additional soliciting materials used after the Notice is 
sent must be posted on the specified Web site no later than the day 
on which those materials are first sent or given to shareholders.
    \79\ This Web site could be a central site with prominent links 
to each of the proxy-related disclosure documents listed in the 
Notice, as well as proxy materials posted on the Web site after the 
Notice is sent.
    \80\ An issuer must continue to comply with Rules 14a-6 and 14c-
5, which require the soliciting person to file its proxy statement 
(or information statement) and additional soliciting material with 
the Commission. An issuer also must continue to comply with Rules 
14a-3(c) and 14c-3(b), which require an issuer to submit copies of 
its annual report to security holders to the Commission. The issuer 
must comply with these requirements by the time it posts the 
materials on the Web site.
    \81\ See letters from James Angel, SCSGP, and Swingvote.
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    Commenters were divided with respect to the type of document format 
that issuers or other soliciting persons should be required to use to 
post proxy materials on the Web site. This disagreement centered on 
whether most shareholders would prefer to be able to print out the 
document and read the hard copy version or read the document online. 
The final rules require the electronically posted proxy materials to be 
presented on the Internet Web site in a format, or formats, convenient 
for both printing and viewing online.\82\ Under technology commonly in 
use today, this may require posting the materials in two different 
formats. First, the materials should be posted in a format that 
provides a version of those materials, including all charts, tables, 
graphics, and similarly formatted information, that is substantially 
identical to the paper version of the materials.
---------------------------------------------------------------------------

    \82\ See Rule 14a-16(c) [17 CFR 240.14a-16(c)].
---------------------------------------------------------------------------

    In addition, to take better advantage of the capabilities of the 
Internet, the materials also must be presented in a readily searchable 
format, such as HTML. This type of format would make the proxy 
materials easier to read on a computer screen. In addition, such a 
version may incorporate additional user-friendly features such as 
hyperlinks from a table of contents to enable shareholders to quickly 
and easily navigate through the document. Many Internet Web sites today 
provide documents in dual formats such as this. We believe this 
requirement will impose minimal burden on issuers. We also believe 
that, as technology progresses, new formats may be developed that will 
improve shareholders' ability to print copies and read copies on their 
screens. Finally, to the extent a shareholder may need additional 
software to view the document, the Web site must contain a link to 
enable the shareholder to obtain the software free of charge.\83\
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    \83\ See the 1995 Interpretive Release No. 33-7233, at n. 24 and 
the accompanying text; Release No. 33-8128 (Sep. 16, 2002) [67 FR 
58480]; Release No. 33-8230 (May 7, 2003) [68 FR 25788]; and Release 
No. 33-8518 (Dec. 22, 2004) [70 FR 1505].
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4. Period of Reliance
    The decision by an issuer or other soliciting person to follow the 
notice and access model is effective only with respect to a particular 
meeting. An issuer's choice to rely on the notice and access model for 
one meeting therefore does not affect its determination of whether to 
rely on the model for subsequent meetings.\84\ Similarly, a shareholder 
that does not request a paper or e-mail copy of the proxy materials for 
one meeting is not bound by that decision with respect to any other 
shareholder meeting. Each time an issuer chooses to rely on the notice 
and access model for a shareholder meeting, it must comply anew with 
all of the requirements under that model, including delivery of the 
Notice and the 40-day notice period.
---------------------------------------------------------------------------

    \84\ To the extent the Commission adopts the universal Internet 
availability model in companion Release 34-55147, this option will 
no longer be available to issuers.
---------------------------------------------------------------------------

    We are adopting one important exception to this general principle. 
Numerous commenters were concerned that a shareholder desiring a paper 
or e-mail copy would have to request such a copy every year from each 
issuer in which he or she owns securities.\85\ We agree with commenters 
that this could be unduly burdensome for a shareholder who owns 
numerous securities. The commenters recommended that a provision be 
made that permits a shareholder to make a single election to receive a 
paper or e-mail copy of the proxy materials on a continuing basis in 
the future. We agree with those commenters and have revised the rules 
to enable shareholders to make a permanent election to receive paper or 
e-mail copies from each issuer.\86\
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    \85\ See, for example, letters from ABC, AFL-CIO, James Angel, 
CALSTRS, Florida State Board, OPERS, San Diego Retirement, SIA, 
William Sjostrom, Stocklein Law Group, Swingvote, and Paul Uhlenhop.
    \86\ A shareholder that elects to receive paper or e-mail copies 
may, in the future, revoke that election. However, an issuer may 
continue to request that shareholder to accept electronic delivery 
or the notice and access model or seek that shareholder's 
affirmative consent to electronic delivery. Nothing in the proxy 
rules prohibits an issuer from structuring incentives to encourage 
shareholders to accept electronic delivery or the notice and access 
model.
---------------------------------------------------------------------------

5. State Law Notices
    State business and corporation laws typically set forth shareholder 
meeting requirements, including meeting notice and voting requirements. 
The new rules are not intended to affect any applicable state law 
requirement concerning the delivery of any document related to a 
shareholder meeting or proxy solicitation. Thus, to the extent that 
state law requires a notice of shareholder meeting and proxy materials 
to be delivered by a particular means, the rules do not alter those 
requirements.\87\ For example, if the state in which an issuer is 
incorporated requires notices of shareholder meetings and proxy 
materials to be transmitted directly to shareholders in paper, the 
notice and access model does not provide an issuer with an option to 
satisfy its state law obligations by posting those materials on an 
Internet Web site.
---------------------------------------------------------------------------

    \87\ See Rule 14a-16(e) [17 CFR 240.14a-16(e)]. Issuers 
typically include the meeting notices required by state law at the 
beginning of their proxy statements. As discussed previously, the 
new rules would permit any information necessary to meet a state law 
requirement to accompany or be combined with the Notice.
---------------------------------------------------------------------------

6. Additional Soliciting Materials
    New Rule 14a-16 and revised Rules 14c-2 and 14c-3 require an issuer 
to post any additional soliciting materials required to be filed under 
Rule 14a-6(b) 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.\88\ 
Beyond the posting of the additional soliciting materials on the 
Internet Web site, issuers may decide which additional means, if any, 
are most effective for disseminating these materials (e.g., direct 
mail, e-mail, newspaper publication, etc.).
---------------------------------------------------------------------------

    \88\ Exchange Act Rule 14a-6(b) requires an issuer or other 
soliciting person choosing to deliver additional soliciting 
materials to file them with the Commission, in the same form that 
they are sent to shareholders, no later than the date that they are 
first sent or given to shareholders.
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7. Requests for Copies of Proxy Materials
    An issuer that satisfies its requirement to furnish proxy materials 
through the notice and access model has a separate requirement under 
Rule 14a-16(j) \89\ to deliver a copy of the proxy statement, annual 
report to security holders (if applicable) and proxy card to a 
requesting shareholder. Upon receipt of a request from a shareholder 
for a copy

[[Page 4155]]

of the proxy statement, annual report, or proxy card, the issuer must 
send a copy (in paper or by e-mail, as requested) of those proxy 
materials to the shareholder within three 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. However, under the final rules, an issuer would be obligated to 
provide copies of the proxy materials only up until one year after the 
conclusion of the meeting or corporate action to which the materials 
relate. When the issuer provides a paper copy of the proxy materials in 
response to a shareholder request, the issuer must use first class mail 
or other reasonably prompt means of delivery.
---------------------------------------------------------------------------

    \89\ 17 CFR 240.14a-16(j).
---------------------------------------------------------------------------

    A few commenters believed that a requirement to send copies of the 
proxy statement after the shareholder meeting has been held would be an 
unnecessary burden.\90\ However, the proxy statement contains a portion 
of the total package of annual disclosure for public companies; in 
fact, many public companies satisfy their obligation to include 
information in Part III of the Form 10-K by including the information 
in their proxy statements and incorporating that information by 
reference into the Form 10-K.\91\ Just as the proxy rules require 
issuers to undertake in their proxy statements or annual reports to 
shareholders to provide copies of annual reports on Form 10-K for the 
most recent fiscal year to requesting shareholders,\92\ we believe it 
is appropriate to require issuers to provide copies of the proxy 
materials to requesting shareholders even after the shareholder meeting 
date. However, because the proxy statement (like the Form 10-K) is 
filed on EDGAR, we believe there should be a limit on the length of the 
period during which a shareholder may request a copy of the proxy 
materials from the issuer. Therefore, the final rules require issuers 
to provide the proxy statement and annual report to security holders 
only for one year after the conclusion of the meeting to which those 
materials relate.\93\
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    \90\ See letters from BRT and SCSGP.
    \91\ See Instruction G(3) to Form 10-K, referenced in 17 CFR 
249.310.
    \92\ See Rule 14a-3(b)(10) [17 CFR 240.14a-3(b)(10)].
    \93\ See Rule 14a-16(j)(3) [17 CFR 240.14a-16(j)(3)].
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    We agree with the views of commenters that the proposed two-
business day timeframe may be too short for issuers to respond 
efficiently to paper requests of the proxy materials.\94\ Further, it 
is likely that a longer response period that enables an issuer to 
better cumulate batches of copies would reduce the cost of complying 
with the rules. However, these concerns must be balanced against our 
view that requests for copies be handled promptly. Thus, we have 
extended the response time to three business days.\95\
    The requirements that an issuer deliver the Notice at least 40 
calendar days before the shareholder meeting date and respond to a 
request for a copy of the proxy materials within three business days 
are designed to provide a shareholder with sufficient time to request a 
copy, receive it, review the proxy materials and make an informed 
voting decision. Several commenters believed that placing a deadline on 
shareholders to request copies would be appropriate.\96\ We do not 
believe such a deadline would be appropriate, particularly because the 
proxy statement is part of the ``package'' of disclosures we have 
deemed important for investors, as discussed above. However, under the 
rules, 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 execute a proxy. The rules require the issuer to insert a 
date in the Notice by which a shareholder should request a copy to 
ensure timely delivery.\97\
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    \94\ See, for example, letters from BRT, Computershare, ICI, NY 
State Bar, SCSGP, SIA, and Sullivan & Cromwell.
    \95\ See letters from Computershare, ICI, and STA.
    \96\ See letters from Computershare, SCSGP, and Sullivan & 
Cromwell.
    \97\ See Rule 14a-16(d)(1) [17 CFR 240.14a-16(d)(1)]. This date 
is intended to be a recommendation to shareholders to facilitate 
timely delivery, but does not restrict a shareholder's ability to 
request copies after that date.
---------------------------------------------------------------------------

    Finally, we recognize that some issuers may be hesitant to adopt 
the notice and access model because of the potential dangers of 
significantly underestimating, or overestimating, the number of paper 
copies of the proxy materials that will be needed. If an issuer 
underestimates that number, the cost of printing additional copies may 
be great. Similarly, overestimating that number would lead to 
unnecessary cost. We note that there is nothing in the rules that would 
prevent an issuer from sending a shareholder a communication well in 
advance of a proxy solicitation to determine the shareholder's interest 
in receiving paper copies.\98\ Indeed, such a communication may be used 
to start creating a list of shareholders that wish to receive paper 
copies in the future. This may help issuers to estimate the number of 
paper copies that it needs to print for the solicitation.
---------------------------------------------------------------------------

    \98\ A communication to shareholders that is limited to 
explaining the notice and access model generally and determining 
whether shareholders wish to receive future proxy materials in paper 
or by e-mail would not be associated with a particular solicitation 
and therefore would not be considered a Notice under the new rules.
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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.\99\ The proxy rules include four 
rules, Exchange Act Rule 14a-13, Rule 14b-1, Rule 14b-2, and Rule 14c-7 
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 participate in the shareholder voting process. Basically, these 
rules require issuers to send their proxy materials to intermediaries 
for forwarding to the beneficial owners.
---------------------------------------------------------------------------

    \99\ 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 
securities 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) 
\100\ or 14c-7(a) \101\ 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; \102\ and
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    \100\ 17 CFR 240.14a-13(a).
    \101\ 17 CFR 240.14c-7(a).
    \102\ 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.
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     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

[[Page 4156]]

proxy materials from the issuer, the intermediary must forward the 
materials to beneficial owners who will not receive those materials 
directly from the issuer pursuant to Rule 14a-13(c) \103\ or Rule 14c-
7(c).\104\ 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 presented to 
shareholders. As a result, intermediaries forward the proxy materials, 
other than the proxy card, 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.\105\ The intermediary then returns the proxy card to 
the issuer or its vote tabulator.
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    \103\ 17 CFR 240.14a-13(c).
    \104\ 17 CFR 240.14c-7(c).
    \105\ See Rule 14b-2(b)(3) [17 CFR 240.14b-2(b)(3)].
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2. Discussion of the Amendments
    Under the 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 amendments 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 a Notice of 
Internet Availability of Proxy Materials, to beneficial owners of the 
issuer's securities based on the notice and access model.\106\ If an 
issuer does not request intermediaries to follow the notice and access 
model, an intermediary could, on its own initiative, continue to rely 
on any other permitted method of furnishing proxy materials to 
beneficial owners, including the electronic delivery of proxy materials 
by affirmative consents, but could not follow the notice and access 
model on its own initiative. Comments varied on whether an intermediary 
should be allowed to follow the notice and access model on its own 
initiative.\107\ We believe that the issuer should be allowed to 
determine the best means for distributing its proxy materials, because 
the issuer ultimately pays the costs of that distribution.
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    \106\ See Rules 14b-1(d) and 14b-2(d) [17 CFR 240.14b-1(d) and 
240.14b-2(d)].
    \107\ See, for example, letters from ABA, ACC, Computershare, 
and SCSGP, supporting issuer control, as opposed to the letters from 
SIA, Swingvote, and University Bancorp, urging more control by 
intermediaries.
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    With respect to beneficial owners, an issuer or other soliciting 
person relying on the notice and access model must provide the 
intermediary with all information necessary for the intermediary to 
prepare its own Notice of Internet Availability of Proxy Materials in 
sufficient time for the intermediary to prepare and send its Notice to 
beneficial owners at least 40 days before the meeting date.\108\ We 
understand that issuers, intermediaries and their agents currently 
coordinate a similar exchange of information to enable intermediaries 
to prepare and print requests for voting instructions ahead of their 
receipt of the proxy statement and annual report to security holders 
for forwarding to beneficial owners.\109\ We expect such coordination 
to continue to facilitate timely preparation of the intermediary's 
Notice. Therefore, we have not included a specific timeframe in the 
rules for delivery of this information.\110\ Upon receipt of that 
information, the intermediary or its agent must prepare its own Notice, 
tailored for the intermediary's beneficial owner customers.\111\ The 
intermediary must send this Notice to beneficial owners at least 40 
calendar days before the date of the shareholder meeting.\112\
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    \108\ See Rule 14a-16(a)(2) [17 CFR 240.14a-16(a)(2)].
    \109\ Our rules set forth a series of timeframes regarding 
distribution of proxy materials to beneficial owners to facilitate 
timely delivery of those materials.
    \110\ Rule 14a-16(a)(2) requires an issuer to provide the 
information to an intermediary ``in sufficient time'' for the 
intermediary to prepare its own Notice. Other soliciting persons 
would be expected to provide their information to intermediaries in 
sufficient time to meet their applicable deadlines.
    \111\ An intermediary's Notice prepared in accordance with this 
rule would be impartial for purposes of Rule 14a-2(a)(1) [17 CFR 
240.14a-2(a)(1)] and need not be filed pursuant to Rule 14a-6(b) [17 
CFR 240.14a-6(b)] unless an intermediary solicits proxies on its own 
behalf.
    \112\ In the case of a Notice of a soliciting person other than 
the issuer, the intermediary must send the Notice to beneficial 
owners by the later of: (1) 40 calendar days prior to the meeting; 
or (2) 10 calendar days after the issuer first sends its proxy 
materials to investors. See Section II.C of this release.
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    The intermediary's Notice will generally contain the same 
information as an issuer's Notice,\113\ with certain revisions to 
reflect the differences between registered holders and beneficial 
owners. Specifically, the intermediary's Notice must contain the 
following information:
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    \113\ See Rule 14a-16(d) [17 CFR 240.14a-16(d)].
---------------------------------------------------------------------------

     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].\114\
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    \114\ Appropriate changes must be made to the Notice if the 
issuer is providing an information statement pursuant to Regulation 
14C or if the issuer or other soliciting person is seeking to effect 
a corporate action by written consent.

     This communication presents only an overview of the 
more complete proxy materials that are available to you on the 
Internet. We encourage you to access and review all of the important 
information contained in the proxy materials before voting.
     The [proxy statement] [information statement] [annual 
report to security holders] [is/are] available at [Insert Web site 
address].
     If you want to receive a paper or e-mail copy of these 
documents, you must request one. There is no charge to you for 
requesting a copy. Please make your request for a copy as instructed 
below on or before [Insert a date] to facilitate timely delivery.''

     The date, time, and location of the meeting or, if 
corporate action is to be taken by written consent, the earliest date 
on which the corporate action may be effected;
     A clear and impartial identification of each separate 
matter intended to be acted on and the issuer's or other soliciting 
person's recommendations regarding those matters, but no supporting 
statements; and
     A list of the materials being made available at the 
specified Web site.
    The intermediary may choose whether to direct beneficial owners to 
the issuer's Web site or to its own Web site to access the proxy 
disclosure materials. If it directs beneficial owners to its own Web 
site, access to that website must be free of charge and may not 
compromise a beneficial owners' anonymity. If it directs beneficial 
owners to the issuer's Web site, the intermediary must inform 
beneficial owners that they can submit voting instructions to the 
intermediary, but cannot execute a proxy directly in favor of the 
issuer unless the intermediary has executed a proxy in favor of the 
beneficial owner. In addition, the intermediary must provide the 
following information in its Notice, which is similar to the 
information in the issuer's Notice, but applicable only to beneficial 
owners:
     (1) A toll-free telephone number of the intermediary or 
its agent, (2) an e-mail address of the intermediary or its agent, and 
(3) an Internet Web site of the intermediary or its agent where the 
shareholder can request a copy of the proxy materials, for all meetings 
and for the particular meeting to which the Notice relates;

[[Page 4157]]

     Any control/identification numbers that the beneficial 
owner needs to access his or her request for voting instructions;
     Instructions on how to access the request for voting 
instructions on the Web site of the intermediary or its agent, provided 
that such instructions do not enable a beneficial owner to provide 
voting instructions without having access to the proxy statement and 
annual report;
     Information on how to obtain directions to be able attend 
the meeting and vote in person; \115\ and
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    \115\ A beneficial owner wishing to attend the meeting and vote 
in person must obtain proxy voting authority from the intermediary 
through which he or she owns the security.
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     A brief description, if applicable, of the rules that 
permit the intermediary to vote the securities if the beneficial owner 
does not return his or her voting instructions.\116\
---------------------------------------------------------------------------

    \116\ See NYSE Rule 452.
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    The intermediary's Notice must contain instructions on how to 
access the request for voting instructions on the Web site of the 
intermediary or its agent. Such information should include any control 
or identification numbers necessary for the beneficial owner to provide 
voting instructions. However, the intermediary's Notice cannot include 
a means, such as a telephone number, which would enable the beneficial 
owner to provide voting instructions without having access to the proxy 
statement and annual report. A telephone number that a beneficial owner 
can use to provide voting instructions may be provided on the Internet 
Web site on which the request for voting instructions is posted (as 
well as on a paper request for voting instructions sent to shareholders 
10 days or more after the intermediary's Notice was sent). Like an 
issuer, the intermediary cannot include a request for voting 
instructions with its Notice. However, at the issuer's request, the 
intermediary will be required to send a copy of the request for voting 
instructions to beneficial owners, provided that 10 days have passed 
since the intermediary's Notice was first sent. A copy of the 
intermediary's Notice, or a copy of the proxy statement, must accompany 
that request for voting instructions.
3. Request for Copies by Beneficial Owners
    The intermediary's Notice must provide instructions on how a 
beneficial owner can request a copy of the proxy materials from the 
intermediary, rather than from the issuer. Under the new rules, a 
beneficial owner may not request a paper or e-mail copy directly from 
the issuer as originally proposed. We are making this revision to the 
proposal for several reasons. First, an issuer has no means to track 
the identity and preferences of beneficial owners for future 
solicitations because these owners are not registered in an issuer's 
records as shareholders of the company. This tracking can be performed 
most efficiently by the intermediary because only it maintains records 
of the beneficial owner's security holdings. Second, the intermediary 
is able to apply a beneficial owner's request for paper or e-mail 
copies across all of a beneficial owner's security holdings on an 
account-wide basis, making it easier for beneficial owners to elect to 
receive such copies with respect to all of the securities held by the 
beneficial owner.
    If a beneficial owner requests a copy of the materials from the 
intermediary, the intermediary must in turn request such a copy from 
the issuer or other soliciting person within three business days of 
receiving the request from the beneficial owner. The intermediary also 
would have to forward the materials to the beneficial owners within 
three business days after receipt from the issuer or other soliciting 
person.\117\ As originally proposed, the intermediary will be allowed 
to charge the issuer or other soliciting person for the cost it incurs 
in forwarding the copy of the proxy materials to the requesting 
beneficial owner.\118\
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    \117\ Thus, the intermediary must request the copy from the 
issuer within three business days of receiving the shareholder's 
request. Then the issuer must send the copy to the intermediary, 
which is a record holder or respondent bank under the final rules, 
within three business days of receiving the intermediary's request. 
Finally, the intermediary is required to forward the copy to the 
requesting shareholder within three business days of receiving the 
copy from the issuer.
    \118\ See NYSE Rule 465. We note that a Proxy Working Group 
established by the NYSE is reviewing the NYSE's current schedule of 
the specific maximum fees that NYSE member firms can charge an 
issuer under our rules requiring issuers to reimburse intermediaries 
for their reasonable direct and indirect expenses for forwarding 
proxy materials. We intend to work closely with the NYSE to evaluate 
the types of revisions that may be appropriate in light of our 
adoption of the notice and access model, including revision of 
existing fees as well as the creation of any new fees that may be 
reasonable under the notice and access model. Although NYSE Rule 465 
applies only to NYSE member firms, other national securities 
exchanges have a similar rule and fee schedule. Non-broker 
intermediaries, such as banks, also rely on the fee schedule as an 
industry standard.
---------------------------------------------------------------------------

    We also note that intermediaries typically keep records of whether 
a beneficial owner has affirmatively consented to electronic delivery 
of proxy materials on an account-wide basis. That is, a beneficial 
owner's election for electronic delivery applies to all securities in 
the beneficial owner's account, rather than to specific issuers. To 
make it clear to beneficial owners electing to receive copies of the 
proxy materials on an ongoing basis, the intermediary's Notice must 
clarify that a permanent election to receive copies of the proxy 
materials in paper or e-mail will apply to all securities in the 
beneficial owner's account.\119\
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    \119\ See Rules 14b-1(d)(4)(iii) and 14b-2(d)(4)(iii) [17 CFR 
240.14b-1(d)(4)(iii) and 240.14b-2(d)(4)(iii)].
---------------------------------------------------------------------------

    One commenter was concerned that the notice and access model only 
complicates an already complicated process for transmitting proxy 
materials to beneficial owners and may confuse shareholders.\120\ Other 
commenters recommended that the Commission review the proxy delivery 
process as a whole, rather than layer this model over the existing 
distribution regime.\121\ Although the Commission is sensitive to these 
concerns, a complete review of the proxy system at this time would only 
delay the potential benefits to issuers and shareholders offered by the 
notice and access model. As we gain additional experience with these 
rules, we will consider whether more extensive revisions to the proxy 
rules are warranted.
    In summary, the amendments would impose the following 
responsibilities on intermediaries that are requested by an issuer to 
follow the notice and access model:
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    \120\ See letter from ABA.
    \121\ See, for example, letters from BRT, Concerned 
Shareholders, Computershare, Carl Hagberg, Mellon, and STA.
---------------------------------------------------------------------------

     The intermediary must prepare its own Notice and deliver 
this Notice to its beneficial owners after receiving the meeting 
information from the issuer or other soliciting person;
     The intermediary must send its Notice to beneficial owners 
at least 40 days prior to the meeting;
     The intermediary must post its request for voting 
instructions on an Internet Web site;
     The intermediary must maintain records of beneficial 
owners who make a permanent election to receive paper or e-mail copies 
of the proxy materials for all securities held in the beneficial 
owner's account; and
     The intermediary must request a copy of the proxy 
materials from the issuer or other soliciting person within three 
business days after receiving a request from its beneficial owner 
customer and must forward that copy to the beneficial owner customer 
within three business days after receiving the

[[Page 4158]]

copy from the issuer or other soliciting person.

C. Soliciting Persons Other Than the Issuer

    Under the amendments, a person other than the issuer who undertakes 
his or her own proxy solicitation also can rely on the notice and 
access model. This situation typically would occur in the context of a 
proxy contest between a shareholder and management. We anticipate that 
the notice and access model will provide an alternative that may 
decrease significantly the printing and mailing costs associated with a 
proxy solicitation. 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.
    Several commenters supported extending the notice and access model 
to such parties.\122\ However, some commenters were concerned about the 
possibility of abuse of the model by shareholders conducting nuisance 
contests.\123\ These commenters recommended that the availability of 
the model be limited for soliciting persons other than the issuer.\124\ 
The proposed limitations included requiring the solicitation of all 
shareholders,\125\ requiring soliciting persons other than the issuer 
to provide copies of their proxy materials upon request,\126\ and 
imposing a minimum shareholding requirement in order for a soliciting 
person to take advantage of the model.\127\ Although the amendments 
would reduce the cost of a proxy contest, they do not eliminate all 
costs, such as costs of preparing the soliciting materials, legal fees, 
proxy solicitor fees, and other significant soliciting expenses. We 
believe these surviving costs should discourage frivolous contests.
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    \122\ See, for example, letters from CALSTRS, Computershare, and 
Swingvote.
    \123\ See, for example, letters from Glen Buchbaum.
    \124\ See, for example, letters from ABA, ACC, BRT, ICI, ISS, 
Sullivan & Cromwell, and Swingvote.
    \125\ See letters from BRT and Swingvote.
    \126\ See letter from ABA.
    \127\ See letters from ABA, ICI and Sullivan & Cromwell.
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    Although the mechanics of a solicitation under the notice and 
access model for a person other than the issuer are similar to those 
incurred by an issuer, we describe below several important differences 
in the way the amendments affect soliciting persons other than the 
issuer.
1. Mechanics of Proxy Solicitations by Persons Other Than the Issuer
    The proxy rules currently treat persons other than the issuer 
differently from the issuer in a significant respect regarding the 
provision of information to shareholders regarding intended corporate 
actions. Specifically, an issuer must furnish to each shareholder 
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 \128\ regarding shareholder meetings 
where corporate action is to be taken but no proxy authority or consent 
is sought.
---------------------------------------------------------------------------

    \128\ 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 shareholders from 
whom no proxy authority is sought. As a result, soliciting persons can 
limit the cost of a solicitation by soliciting proxies only from a 
select group of shareholders, such as those with large holdings, 
without furnishing other shareholders with any information. This 
enables a person other than the issuer to conduct a proxy contest in a 
variety of ways, some of which are not available to an issuer. The 
amendments that we are adopting relate only to the means of furnishing 
information to shareholders, and thus do not affect a soliciting 
person's ability to effect such targeted solicitations.
    Under the new rules, a soliciting person other than the issuer may 
follow the same procedures as the issuer.\129\ In particular, it may 
furnish a Notice and post the proxy statement on an Internet Web site. 
As with an issuer, such a soliciting person may not include a proxy 
card with the Notice. It may, however, send a proxy card to the 
shareholders it is soliciting without a proxy statement 10 calendar 
days or more after initially sending the Notice to them, if the proxy 
card is accompanied either by a copy of the proxy statement or by 
another copy of the Notice.
---------------------------------------------------------------------------

    \129\ As with the case of an issuer, the soliciting person also 
may solicit shareholders concurrently by any other means, for 
example, by sending a proxy statement and proxy card to certain 
shareholders.
---------------------------------------------------------------------------

    A soliciting person other than the issuer may selectively solicit 
shareholders under the notice and access model, just as it could under 
the current proxy rules (e.g., the soliciting person could choose to 
send the Notice only to certain shareholders, such as those owning more 
than a specified number of shares). As we discuss in more detail below, 
we have made revisions to Rule 14a-7 that will enable a soliciting 
person to distinguish between shareholders who have requested paper 
copies of the proxy materials and those who have not.\130\ Under the 
notice and access model, a soliciting person other than the issuer may 
choose to send a Notice only to those shareholders who have not 
requested paper copies of the proxy materials.
---------------------------------------------------------------------------

    \130\ 17 CFR 240.14a-7.
---------------------------------------------------------------------------

    In the proposing release, we proposed a provision that would have 
permitted a soliciting person other than the issuer to send a Notice 
that would condition the solicitation on a shareholder's willingness to 
access the proxy materials on an Internet Web site. One commenter 
suggested that a soliciting person should not be permitted to condition 
its solicitation in this manner and should have to provide a copy of 
its proxy statement to a requesting shareholder.\131\ We are persuaded 
that a shareholder receiving a Notice reasonably may conclude that he 
or she is entitled to receive a copy of the materials. Therefore, the 
final rules require a soliciting person other than an issuer to send a 
paper or e-mail copy of the proxy statement to any requesting 
shareholder to whom it has sent a Notice.\132\
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    \131\ See letter from ABA.
    \132\ The proposing release also discussed the possibility of an 
electronic-only solicitation in which the soliciting person 
publishes a communication pursuant to Rule 14a-12 [17 CFR 240.14a-
12], but does not send any Notices to shareholders. We are not 
adopting the electronic-only option that we discussed in the 
proposing release as part of the notice and access model. However, 
as noted in the final rules, the amendments do not affect the 
availability of any existing means by which an issuer or other 
person may furnish proxy materials under the proxy rules.
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2. Timeframe for Sending Notice of Internet Availability of Proxy 
Materials
    A solicitation in opposition to the issuer's proposals to be voted 
on at a shareholder meeting often is not initiated until after the 
issuer has filed its proxy statement. As we noted in the proposing 
release, we therefore believe that it may be unfair to apply the same 
timeframe for distributing the Notice to soliciting persons as the 
timeframe that applies to issuers. Therefore, the amendments require a 
soliciting person other than the issuer that is following the notice 
and access model to send out its Notice by the later of: (1) 40 
Calendar days prior to the meeting; or (2) 10 calendar days after the 
issuer first sends out its proxy statement or Notice to shareholders. 
This is substantially the

[[Page 4159]]

same requirement we proposed, except that we have changed the proposed 
30-day deadline to 40 days to conform it to our revision of the 
deadline for issuers.
3. Content of the Notice of Internet Availability of Proxy Materials of 
a Soliciting Person Other Than the Issuer
    The content of the Notice sent by a soliciting person other than 
the issuer could be different from the content of the issuer's Notice. 
For example, if a solicitation in opposition is launched before the 
issuer has sent its own proxy statement or Notice, the full shareholder 
meeting agenda may not be known to the soliciting person at the time it 
sends its Notice to shareholders. In such a case, the soliciting person 
must include the agenda items in its Notice only to the extent 
known.\133\
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    \133\ See Rule 14a-16(l)(3)(i) [17 CFR 240.14a-16(l)(3)(i)].
---------------------------------------------------------------------------

    Also, there may be circumstances in which a person soliciting 
proxies in opposition to the issuer 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 rather than for all 
of the items, or presenting only a partial slate of directors. 
Typically, such a proxy would revoke any previously-executed proxy and 
the shareholder may lose his or her ability to vote on matters or 
directors 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 is 
presenting such a card to shareholders must indicate clearly on its 
Notice whether execution of that card will invalidate the shareholder's 
earlier vote on the other matters or directors reflected on the 
issuer's proxy card.
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.\134\ Under the amendments, if the issuer is providing its 
shareholder list to a soliciting person, the issuer would be required 
to indicate which of those shareholders have permanently requested 
paper copies of proxy materials.\135\ The proposed rules would have 
required an issuer to share all information about its shareholders 
regarding electronic delivery. We have decided to limit this 
requirement.
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    \134\ 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.
    \135\ See proposed Note 3 to Exchange Act Rule 14a-7.
---------------------------------------------------------------------------

    One commenter was concerned that a requirement to share information 
on affirmative consents may violate the issuer's privacy policies and 
the terms of the consent agreement between the issuer and 
shareholder.\136\ The commenter also was concerned about divulging 
employees' internal company e-mail addresses. We agree with this 
comment and are not adopting that aspect of the proposal. However, the 
new rules do require an issuer to share information regarding whether a 
shareholder has made a permanent election to receive paper copies of 
the proxy materials. Such disclosure would not necessitate disclosure 
of a shareholder's e-mail address. In addition, a shareholder who has 
made a permanent election to receive paper copies of the issuer's proxy 
materials might reasonably expect to receive paper copies of proxy 
materials from other soliciting persons. Once that shareholder has made 
a permanent election, he or she should not be required to ask again for 
a paper copy of proxy materials.\137\
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    \136\ See letter from SCSGP.
    \137\ As noted above, this election would be effective until a 
shareholder revokes that election.
---------------------------------------------------------------------------

    Similarly, if, under Rule 14a-7, the issuer elects to send the 
soliciting person's proxy materials, the amendments require the issuer 
to refrain from forwarding the other soliciting person's Notice to any 
shareholder who has made a permanent election to receive paper 
copies.\138\ 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 Notice for all shareholders 
to whom it intends to provide a Notice. In that case, the issuer would 
have to send the soliciting person's Notice 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. If the other soliciting person wishes to send a proxy 
card to shareholders 10 or more days after it first sends the Notice, 
the issuer would be required to forward those proxy cards in a similar 
fashion.\139\
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    \138\ The other soliciting person could, of course, provide 
paper copies of the proxy statement and proxy card to the issuer for 
forwarding to those shareholders who have elected to receive paper 
copies.
    \139\ As noted above, the issuer may alternatively provide the 
other soliciting person with a list of shareholders pursuant to Rule 
14a-7.
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5. The Role of Intermediaries With Respect to Solicitations by Persons 
Other Than the Issuer
    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.\140\ 
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. As proposed, the amendments 
clarify that intermediaries are obligated to send proxy materials on 
behalf of soliciting persons other than the issuer.
---------------------------------------------------------------------------

    \140\ See Randall S. Thomas & Catherine T. Dixon, Aranow & 
Einhorn on Proxy Contests for Corporate Control, at Sec.  8.03(C) 
(3d ed. 2001).
---------------------------------------------------------------------------

D. Business Combination Transactions

    As adopted, the notice and access model is not available with 
regard to proxy materials related to a business combination 
transaction, which includes transactions covered by Rule 165 under the 
Securities Act,\141\ as well as transactions for cash consideration 
requiring disclosure under Item 14 of Schedule 14A. Several commenters 
\142\ agreed that business combination transactions constitute highly 
extraordinary events for some issuers and frequently involve an 
offering of securities that must be registered under the Securities Act 
and require delivery of the prospectus.\143\ They also typically 
involve proxy statements of considerable length and complexity. Other 
commenters nonetheless believed that the model should be extended to 
such transactions.\144\ They noted that

[[Page 4160]]

even more savings may be realized by extending the model to such larger 
documents. The Commission desires to gain more experience with the 
notice and access model before extending it to business combination 
transactions. Based on our experience with the model once it is being 
used for more straightforward corporate actions, we will consider at a 
later date whether it is appropriate to extend the model to business 
combination transactions.
---------------------------------------------------------------------------

    \141\ 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.
    \142\ See, for example, letters from ABA, Hermes, and Sullivan & 
Cromwell.
    \143\ The prospectus delivery requirements applicable to 
business combination transactions were not impacted by our 
securities offering reform initiative because such transactions were 
excluded. See Release No. 33-8591 (July 19, 2005) [70 FR 44271].
    \144\ See, for example, letters from BRT, CALSTRS, 
Computershare, ICI, ISS, McData Corp, NY State Bar, Swingvote, 
SCSGP, William Sjostrom, and University Bancorp.
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E. Compliance Date and Monitoring

    No issuer may send a Notice to shareholders before July 1, 2007. 
Issuers and intermediaries typically hire third parties to handle the 
logistics of proxy distribution. These companies will require time to 
adjust their systems to accommodate the notice and access model. 
Therefore, an issuer may not use the new model for meetings before 
August 10, 2007 because of the 40-day deadline. Similarly, if an 
issuer's meeting will be on or after August 10, 2007, it may only send 
the Notice on or after July 1, 2007, even if the issuer wishes to send 
the Notice more than 40 days prior to the meeting date.
    We desire to track the industry's experience with the notice and 
access model to determine whether the rules are achieving their 
intended purposes. However, we do not currently intend to impose a 
requirement for issuers and other parties to provide us with data and 
experiences with the model. We welcome information from issuers and all 
other parties involved in the proxy distribution process about their 
experience with the notice and access model on a voluntary basis. Such 
information would include itemized costs of proxy solicitation before 
and after adoption of the model, shareholder voting data before and 
after adoption, the number of copies requested, and any problems 
encountered with implementing the program. Although such information 
may be aggregated with the data and experiences of others and presented 
to the public, we do not intend to divulge the identity of responding 
parties.

IV. Conforming and Correcting Revisions to the Proxy Rules

    The adopted rules reflect numerous amendments to terms used in the 
current proxy rules to explicitly accommodate the notice and access 
model. The changes are as follows:
     We 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.\145 \
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    \145\ Rules 14a-4(c)(1), 14a-8(e)(2), 14a-8(e)(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 Rule 14a-13(a), Instruction 2 to 
paragraph (d)(2)(ii)(L) of Item 7 of Rule 14a-101, Note 2 to Rule 
14c-7(a) and Instruction 1 to Item 4 of Rule 14c-101.
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     We clarify that the term ``address'' includes an 
electronic mail address.\146\
---------------------------------------------------------------------------

    \146\ Rules 14a-7(f), 14a-13(e), 14b-1(a)(2) and 14b-2(a)(4).
---------------------------------------------------------------------------

    Furthermore, we 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.\147\ Finally, we are updating Rule 14a-2 and 
Forms 10-Q, 10-QSB, 10-K, 10-KSB, and N-SAR to revise outdated 
references to Exchange Act Rule 14a-11, which the Commission rescinded 
in 1999.\148\
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    \147\ 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 
Rule 14a-3, Note D(3) to Rule 14a-101, Note G(1) to Rule 14a-101, 
Instruction 1 to paragraph (d)(2)(ii)(L) of Item 7 of Rule 14a-101, 
paragraph (e)(2) of Item 14 of Rule 14a-101, Item 23 of Rule 14a-
101, paragraph (a), (b), (c) and (d) of Item 23 to Rule 14a-101, 
Note 1 to paragraph (b)(2) of Rule 14b-1, Note 1 to paragraph (b)(3) 
of Rule 14b-2, section heading to Rule 14c-3, Item 5 of Rule 14c-101 
and paragraph (a), (b), (c) and (d) of Item 5 of Rule 14c-101.
    \148\ See Release No. 33-7760 (Oct. 22, 1999) [64 FR 61408].
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V. Paperwork Reduction Act

A. Background

    The amendments contain ``collection of information'' requirements 
within the meaning of the Paperwork Reduction Act of 1995 (PRA).\149\ 
We published a notice requesting comment on the collection of 
information requirements in the proposing release, and submitted 
requests to the Office of Management and Budget for approval in 
accordance with the PRA.\150\ These requests were approved by OMB. Some 
of the revisions that we are making to the original proposal affect 
these collections of information. We will submit requests for approval 
of the revisions to OMB. We are requesting comment in this release with 
respect to these revisions.
---------------------------------------------------------------------------

    \149\ 44 U.S.C. 3501 et seq.
    \150\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    The titles for the collections of information are:\151\

    \151\ In the proposing release, we described the proposed Notice 
of Internet Availability of Proxy Materials as a new collection of 
information, rather than a part of our existing collections of 
information related to Regulations 14A and 14C. However, we 
subsequently submitted to OMB a PRA analysis based on revisions to 
the Regulation 14A and Regulation 14C collections. Based on our 
burden estimates associated with the Notice, the collection of 
information approved by OMB related to revisions to existing 
collections of information (Regulations 14A and 14C) and therefore 
we refer to those collections of information in this PRA discussion.
---------------------------------------------------------------------------

Regulation 14A (OMB Control No. 3235-0059)
Regulation 14C (OMB Control No. 3235-0057)

    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 Amendments

    The amendments will apply to a particular issuer or other 
soliciting person only if the issuer or soliciting person voluntarily 
chooses to rely on the notice and access model. However, if the issuer 
or soliciting person opts to rely on the new alternative model, 
compliance with the components of the model is mandatory. The Notices, 
the proxy materials posted on the Web site, and copies of the proxy 
materials sent in response to shareholder requests will not be kept 
confidential.
    The Notice must 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].\152\

    \152\ Appropriate changes must be made to the Notice 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 security holders] [is/are] available at [Insert Web site 
address].
     If you want to receive a paper or e-mail copy of these 
documents, you must request one. There is no charge to you for 
requesting a copy. Please make your request for a copy as instructed 
below on or before [Insert a date] to facilitate timely delivery.''

     The date, time, and location of the meeting or, if 
corporate action is to be taken by written consent, the earliest date 
on which the corporate action may be effected;
     A clear and impartial identification of each separate 
matter intended to be acted upon and the issuer's or other soliciting 
person's recommendations regarding those matters, but no supporting 
statements;

[[Page 4161]]

     A list of the materials being made available at the 
specified Web site;
     (1) A toll-free telephone number; (2) an e-mail address; 
and (3) an Internet Web site address where the shareholder can request 
a copy of the proxy materials, for all meetings and for the particular 
meeting to which the Notice relates;
     Any control/identification number that the shareholder 
needs to access his or her proxy card;
     Instructions on how to access the proxy card, provided 
that such instructions do not enable a shareholder to execute a proxy 
without having access to the proxy statement and annual report; and
     Information on how to obtain directions to be able to 
attend the meeting and vote in person.
    Intermediaries must provide a similar notice to beneficial owners. 
We expect that all of the factual information required to appear in the 
Notice will become available as part of the ordinary preparations for a 
shareholder meeting.

C. Comments on PRA Estimates

    We requested comment on the PRA analysis contained in the proposing 
release. In the proposing release, we estimated the annual burden for 
an issuer or other soliciting person to prepare a Notice to be 
approximately 1.5 hours. We estimated that 75% of the burden would be 
prepared by the issuer and that 25% of the burden would be prepared by 
outside counsel retained by the issuer at an average cost of 
approximately $300 per hour.\153\ Based on our receipt of 7,301 filings 
on Schedule 14A and 681 filings on Schedule 14C during our 2005 fiscal 
year, we estimated that 7,982 Notices would be filed annually, assuming 
that all issuers and other soliciting persons elected to follow the 
proposed notice and access model.\154\ We further estimated that the 
total annual reporting burden would be approximately 8,980 hours.\155\ 
Using the revised $400 average cost for retaining outside counsel, we 
are adjusting our annual cost estimate to approximately 
$1,197,300,\156\ which reflects the outside counsel cost.
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    \153\ 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. At the proposing 
stage, we used an estimated hourly rate of $300.00 to determine the 
estimated cost to public companies of executive compensation and 
related disclosure prepared or reviewed by outside counsel. We 
recently have increased this hourly rate estimate to $400.00 per 
hour after consulting with several private law firms. The cost 
estimates in this release are based on the $400.00 hourly rate. We 
request comment on this estimated hourly rate.
    \154\ 7,301 notices for 14A filers + 681 notices for 14C filers 
= 7,982 total notices.
    \155\ 7,982 notices x 1.5 hours per notice x .75 = 8,980 hours.
    \156\ 7,982 notices x $400/hour x 1.5 hours/notice x .25 = 
$1,197,300.
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    Although the notice and access model is an alternative to the 
existing model for the distribution of proxy materials to shareholders, 
and reliance upon it will be optional, we based our reporting burden 
and cost estimates on the assumption that all issuers or other 
soliciting persons in fiscal year 2005 would have relied on the notice 
and access model even though we realized that this would result in an 
overestimation of hour and cost burdens. The new alternative is 
voluntary, so the percentage of issuers and soliciting persons that 
will choose to rely on the new model is uncertain.
    In response to commenters' remarks, we revised the proposal to 
require issuers to permit shareholders to make permanent elections to 
receive proxy materials in paper or by e-mail. An issuer must maintain 
records as to which of its shareholders have made such an election. 
Many issuers already maintain similar records to keep track of their 
shareholders who have affirmatively consented to electronic delivery 
consistent with past Commission guidance,\157\ as well as their 
shareholders who have consented to householding of proxy materials 
pursuant to Rule 14a-3(e).\158\ For purposes of the PRA, we estimate 
that a typical issuer will spend an additional five hours per year, or 
a total of 39,910 hours for all issuers subject to the proxy rules, to 
maintain these records.\159\ Because this is an internal recordkeeping 
requirement, we do not expect a cost for hiring outside counsel.
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    \157\ See the 1995 Interpretive Release.
    \158\ 17 CFR 240.14a-3(e).
    \159\ 7,982 filings with an estimated one filing per issuer or 
soliciting person x 5 hours = 39,910 hours.
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    The final rules also require an intermediary to prepare its own 
Notice. This Notice would be substantially the same as an issuer's 
Notice, but will be modified by the intermediaries to provide 
information that is relevant to beneficial owners rather than 
registered holders. According to ADP, it processes more than 95% of 
proxy materials that are sent to beneficial owners on behalf of 
intermediaries, reducing the need to create multiple intermediary 
Notices. In addition, the issuer or other soliciting person will 
provide the majority of information required in the intermediary's 
Notice. Therefore, we estimate that the burden to prepare an 
intermediary's Notice will be approximately one hour, or a total annual 
burden of 7,982 hours for all proxy solicitations.\160\
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    \160\ 7,982 notices x 1 hour per notice = 7,982 hours. We do not 
include a cost to intermediaries for hiring outside counsel because 
we expect that the substantive contents of an intermediary's Notice 
would be provided by the issuer or other soliciting person. The 
estimates assume that ADP will continue to process over 95% of the 
proxy solicitations on behalf of intermediaries, thereby eliminating 
the need for each intermediary to prepare a separate Notice.
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    Intermediaries must also maintain records to keep track of which 
beneficial owners have made a permanent election to receive proxy 
materials in paper or by e-mail. Like issuers, intermediaries already 
maintain records of shareholders' affirmative consents to electronic 
delivery and householding of proxy materials. In addition, 
intermediaries maintain records as to whether their beneficial owner 
customers have objected, or not objected, to disclosure of their 
identities to the issuer. Like issuers, we believe this will result in 
an annual burden of 39,910 hours for intermediaries.
    We did not receive any comments on the percentage of issuers and 
persons likely to rely on the notice and access model, nor did we 
receive any comments on our burden and cost estimates associated with 
preparing the Notice. However, several corporate commenters indicated 
that some issuers might be reluctant to rely on the notice and access 
model due to a concern that the costs of fulfillment of requests for 
paper copies under the model might offset some of the potential savings 
that they could realize from the model. We have revised the proposed 
model to address some of these concerns about fulfillment of requests 
for paper copies, but it is still difficult to predict the number of 
issuers and soliciting persons that will rely on the model. Therefore, 
we are not revising the original estimates that assume that all issuers 
and soliciting persons will rely on the notice and access model. As a 
result, these burden estimates likely are overstated. We will adjust 
them after we have actual experience with the notice and access model. 
We request comment on all of our hourly and cost burden estimates.
    Any member of the public may direct to us any comments concerning 
these burden and cost estimates and any suggestions for reducing the 
burdens and costs. Persons who desire to submit comments on the 
collections of information requirements should direct their comments to 
the OMB, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
DC 20503, and send a copy

[[Page 4162]]

of the comments to Nancy M. Morris, 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 the 
OMB by us 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. Because 
the OMB is required to make a decision concerning the collections of 
information between 30 and 60 days after publication, your comments are 
best assured of having their full effect if the OMB receives them 
within 30 days of publication.

VI. Cost-Benefit Analysis

A. Background

    The amendments to the proxy rules enable issuers to take advantage 
of technological advances that have occurred in recent years to more 
efficiently furnish proxy materials to shareholders. We expect that 
these amendments will lead to significant cost reduction for proxy 
solicitations. The costs of solicitations ultimately are borne by 
shareholders. We are sensitive to the costs and benefits that result 
from our rules. In this section, we examine those costs and benefits.
    Issuers and other persons soliciting proxies must comply with the 
rule amendments only if they elect to furnish proxy materials pursuant 
to the notice and access model. No issuer or person conducting a proxy 
solicitation will be required to follow the notice and access model. We 
expect that an issuer or other soliciting person will follow the model 
only if it believes that it will experience cost savings as a result. 
We expect that having a choice among alternative models for furnishing 
proxy materials will limit the costs of the amendments by enabling 
issuers and other soliciting persons to choose one that is most 
efficient and cost effective under the issuer's or other soliciting 
person's particular circumstances.

B. Summary of Amendments

    The amendments provide an alternative notice and access model that 
permits an issuer to furnish its proxy materials to shareholders by 
posting them on a 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 
paper or e-mail copies of the proxy materials at no charge from the 
issuer.
    Under the amendments, an issuer can require intermediaries to 
follow similar procedures when forwarding the issuer's proxy materials 
to beneficial owners. In addition, shareholders and other persons 
conducting their own proxy solicitations may follow the alternative 
model, under the same general requirements that apply to issuers. 
However, such persons will be able to limit their solicitations to 
shareholders who have not requested paper copies of the proxy materials 
from an issuer in connection with the issuer's solicitation.

C. Benefits

    The benefits to investors of the amendments include the following: 
(1) More rapid dissemination of proxy information to shareholders using 
the Internet; and (2) reduced printing and mailing costs for issuers, 
as well as other soliciting persons engaging in proxy contests. We 
expect that the reductions in printing and mailing costs and the 
potential decrease in the costs of proxy contests to be the most 
significant sources of economic benefit to investors of the amendments.
    In terms of paper processing alone, the benefits of the rule 
amendments are limited by the volume of paper processing that would 
occur otherwise. As we noted in the proposing release, Automatic Data 
Processing, Inc. (ADP) handles the vast majority of proxy mailings to 
beneficial owners.\161\ ADP publishes statistics that provide useful 
background for evaluating the likely consequences of the rule 
amendments. ADP estimates that, during the 2006 proxy season,\162\ over 
69.7 million proxy material mailings were eliminated through a variety 
of means, including householding and existing electronic delivery 
methods. During that season, ADP mailed 85.3 million paper proxy items 
to beneficial owners. ADP estimates that the average cost of printing 
and mailing a paper copy of a set of proxy materials during the 2006 
proxy season was $5.64. We estimate that issuers and other soliciting 
persons spent, in the aggregate, $481.2 million in postage and printing 
fees alone to distribute paper proxy materials to beneficial 
owners.\163\ Approximately 50% of all proxy pieces mailed by ADP in 
2005 were mailed during the proxy season.\164\ Therefore, we estimate 
that issuers and other persons soliciting proxies from beneficial 
owners spent approximately $962.4 million in 2006 in printing and 
mailing costs.\165\
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    \161\ We expect savings per mailing to record holders to roughly 
correspond to savings per mailing to beneficial owners.
    \162\ According to ADP data, the 2006 proxy season extended from 
February 15, 2006 to May 1, 2006.
    \163\ 85.3 million mailings x $5.64/mailing = $481.2 million.
    \164\ According to ADP, in 2005, 90,013,175 of 179,833,774, or 
50%, of proxy pieces were mailed during the 2005 proxy season.
    \165\ $481.2 million / 50% = $962.4 million.
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    Based on the assumption that 19% of shareholders will choose to 
have paper copies sent to them when an issuer relies on the notice and 
access model, we estimate that the amendments could produce annual 
paper-related savings ranging from $48.3 million (if issuers who are 
responsible for 10% of all proxy mailings choose to rely on the notice 
and access model) to $241.4 million (if issuers who are responsible for 
50% of all proxy mailings choose to rely on the notice and access 
model).\166\ This estimate excludes the effect of the provision of the 
amendments that will allow shareholders to make a permanent request for 
paper copies. That provision will enable issuers and other soliciting 
persons to take advantage of bulk printing and mailing rates for those 
requesting shareholders, and therefore should reduce the on-demand 
costs reflected in these calculations.\167\
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    \166\ This range of potential cost savings depends on data on 
proxy material production, home printing costs, and first-class 
postage rates provided by Lexecon and ADP, and supplemented with 
modest 2006 USPS postage rate discounts. The fixed costs of notice 
and proxy material production are estimated to be $2.36 per 
shareholder. The variable costs of fulfilling a paper requests, 
including handling, paper, printing and postage, are estimated to be 
$6.11 per copy requested. Assumptions about percentages of 
shareholders requesting paper copies are derived from Forrester 
survey data furnished by ADP and adjusted for the reported 
likelihood that an investor will take extra steps to get proxy 
materials. Our estimate of the total number of shareholders is based 
on data provided by ADP and SIA. According to SIA's comment letter, 
78.49% of shareholders held their shares in street name. We estimate 
that the total number of proxy pieces mailed equals the number of 
pieces mailed to beneficial shareholders by ADP in 2005 divided by 
78.49%, which equals 179,833,774 / 78.49%, or 229,116,797.
    \167\ ADP commissioned a study by Lexecon to provide estimates 
for the total net cost/savings of the amendments to issuers. 
Lexecon's study relied on 2005 postage rates with no first-class 
mail discounts and a higher share of color printing at home than we 
assume above. It estimated that if all issuers adopt the notice and 
access model, if 9% of shareholders choose to print the materials at 
home, and 19% choose to have paper copies sent to them, then the 
amendments would produce a net savings of $205 million for issuers 
in the aggregate. However, if 20% of shareholders chose to print and 
39% chose to request paper copies, the amendments would produce a 
net cost of $181 million. See Lexecon comment letter for more 
details.
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    We estimate that approximately 19% of shareholders will request 
paper copies. Commenters provided alternate

[[Page 4163]]

estimates. For example, Computershare, a large transfer agent, 
estimated that less than 10% of shareholders would request paper 
copies.\168\ According to a survey conducted by Forrester Research for 
ADP, 12% of shareholders report that they would always take extra steps 
to get their proxy materials, and as many as 68% of shareholders report 
that they would take extra steps to get their proxy materials in paper 
at least some of the time. The same survey also finds that 82% of 
shareholders report that they look at their proxy materials at least 
some of the time. These survey results suggest that shareholders may 
review proxy materials even if they do not vote. During the 2005 proxy 
season, only 44% of accounts were voted by beneficial owners. Put 
differently, 56%, or 84.8 million accounts, did not return requests for 
voting instructions. Our estimate that 19% of shareholders will request 
paper copies reflects the diverse estimates suggested by the available 
data.
---------------------------------------------------------------------------

    \168\ See letter from Computershare.
---------------------------------------------------------------------------

    Although we expect the savings to be significant, the actual paper-
related benefits will be influenced by several factors that we estimate 
will become less important over time. First, some issuers and other 
soliciting persons will likely not elect to follow the alternative 
model. We estimate that issuers who are responsible for between 10% and 
50% of all current proxy mailings will adopt the notice and access 
model during the first year of implementation of the amendments. 
Several commenters noted that some issuers may not be willing to try 
the model the first year, but rather will opt to wait and monitor the 
experience of other issuers that do try the model. Second, to the 
extent that some shareholders request paper copies of the proxy 
materials, the benefits of the amendments in terms of savings in 
printing and mailing costs will be reduced. Issuers are concerned that 
the cost per paper copy would be significantly greater if they have to 
mail copies of paper proxy materials to shareholders on an on-demand 
basis, rather than mailing the paper copies in bulk. Thus, if a 
significant number of shareholders request paper, the savings will be 
substantially reduced. Third, after adopting the notice and access 
model, issuers may face a high degree of uncertainty about the number 
of requests that they may get for paper proxy materials and may 
maintain unnecessarily large inventories of paper copies as a 
precaution. As issuers gain 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 are likely to 
decline, as will issuers' tendency to print many more copies than 
ultimately are requested. This will lead to growth in paper-related 
savings from the rule amendments over time.
    Additional benefits will accrue from reductions in the costs of 
proxy solicitations by persons other than the issuer. Under the 
amendments, persons other than the issuer also can rely on the notice 
and access model, but will be able to limit the scope of their proxy 
solicitations to shareholders who have not requested paper copies of 
the proxy materials. We expect that the flexibility afforded to persons 
other than the issuer under the amendments will reduce the cost of 
engaging in proxy contests, thereby increasing the effectiveness and 
efficiency of proxy contests as a source of discipline in the corporate 
governance process.
    The effect of the amendments of lessening the costs associated with 
a proxy contest will be limited by the persistence of other costs, even 
under the notice and access model. One commenter noted that a large 
percentage of the costs of effecting a proxy contest go to legal, 
document preparation, and solicitation fees, while a much smaller 
percentage of the costs is associated with printing and distribution of 
materials.\169\ However, other commenters suggested that the paper-
related cost savings that can be realized from the rule amendments are 
substantial enough to change the way many contests are conducted.\170 \
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    \169\ See letter from ADP.
    \170\ See letters from CALSTRS, Computershare, ISS, and 
Swingvote.
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    Finally, some benefits from the amendments may arise from a 
reduction in what may be regarded as the environmental costs of the 
proxy solicitation process.\171\ Specifically, proxy solicitation 
involves the use of a significant amount of paper and printing ink. 
Paper production and distribution can adversely affect the environment, 
due to the use of trees, fossil fuels, chemicals such as bleaching 
agents, printing ink (which contains toxic metals), and cleanup washes. 
To the extent that paper producers internalize these costs and the 
costs are reflected in the price of paper and other materials consumed 
during the proxy solicitation process, our dollar estimates of the 
paper-related benefits reflect the elimination of these adverse 
environmental consequences under the amendments.
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    \171\ See letter from American Forests.
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D. Costs

    An issuer's decision to use the notice and access model will 
introduce several new costs into the process of proxy distribution, 
including the following: (1) The cost of preparing, producing, and 
sending the Notice to shareholders; (2) the cost of processing 
shareholders' requests for copies of the proxy materials and 
maintaining their permanent election preferences; and (3) the cost to 
shareholders of printing proxy materials at home that would otherwise 
be printed by issuers.
    The paper-related savings to issuers and other soliciting persons 
discussed under the benefits section above are adjusted for the cost of 
printing and sending Notices. If Notices are sent by mail, then the 
mailing costs may vary widely among parties. Postage rates likely would 
vary from $0.14 to $0.39 per Notice mailed, depending on numerous 
factors. In our estimates of the paper-related benefits above, we 
assume that each Notice costs a total of $0.42 to print and mail. Based 
on data from ADP and SIA, we estimate that issuers and other soliciting 
persons process a total of 229,116,797 accounts per year.\172\ The 
alternative model also requires minimal added disclosures in the form 
of a Notice to shareholders, informing them that the proxy materials 
are available at a specified Internet Web site. For purposes of the 
PRA, we have presented the extremely conservative estimate that the 
preparation and filing costs of the amendments, assuming that all 
issuers and other soliciting persons elect to follow the procedures, 
will be approximately $2,020,475.\173\ Under the alternate scenario 
presented above, these costs could range between $202,048 if 10% of 
issuers adopt the model and $1,010,238 if 50% of issuers adopt. The 
amendments also require issuers and intermediaries to maintain records 
of shareholders who have requested paper and e-mail copies for future 
proxy solicitations. We estimate that this cost to issuers and 
intermediaries will be approximately

[[Page 4164]]

$9,977,500 if all issuers adopt the notice and access model,\174\ 
$997,500 if 10% of issuers adopt the model, and $4,988,750 if 50% of 
issuers adopt the model.
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    \172\ See www.ics.adp.com/release11/public_site/about/stats.html stating that ADP handled 179,833,774 in fiscal year 2005 
and letter from SIA stating that beneficial accounts represent 
78.49% of total accounts.
    \173\ For PRA purposes, we estimate that issuers would spend a 
total of $897,975 on outside professionals to prepare this 
disclosure. We also estimate that issuers would spend a total of 
8,980 hours of issuer personnel time preparing this disclosure. We 
estimate the average hourly cost of issuer personnel time to be 
$125, resulting in a total cost of $1,122,500 for issuer personnel 
time. This results in a total cost of $2,020,475 for all issuers. We 
expect that costs for posting the materials on a Web site will be 
minimal and are included in this calculation.
    \174\ For PRA purposes, we estimate that issuers and 
intermediaries would spend a total of 79,820 hours of issuer and 
intermediary personnel time maintaining these records. We estimate 
the average hourly cost of issuer and intermediary personnel time to 
be $125, resulting in a total cost of $9,977,500 for issuer and 
intermediary personnel time.
---------------------------------------------------------------------------

    Issuers who adopt the notice and access model and their 
intermediaries will incur additional processing costs. The amendments 
will require an intermediary such as a bank, broker-dealer, or other 
association to follow the notice and access model if an issuer so 
requests. An intermediary that follows the notice and access model will 
be required to prepare its own Notice to beneficial owners, along with 
instructions on when and how to request paper copies and the Web site 
where the beneficial owner can access his or her request for voting 
instructions. Since issuers reimburse intermediaries for their 
reasonable expenses of forwarding proxy materials and intermediaries 
and their agents already have systems to prepare and deliver requests 
for voting instructions, we do not expect the intermediaries' role in 
sending their Notices to beneficial owners to significantly affect the 
costs associated with the rule.
    Under the notice and access model, a beneficial owner must request 
a copy of proxy materials from its intermediary rather than from the 
issuer. The costs of collecting and processing requests from beneficial 
owners may be significant, particularly if the intermediary receives 
the requests of beneficial owners associated with many different 
issuers that specify different methods of furnishing the proxy. We 
expect that these processing costs will be highest in the first year 
after adoption but will subsequently decline as intermediaries develop 
the necessary systems and procedures and as beneficial owners 
increasingly become comfortable with accessing proxy materials online. 
In addition, the final rules permit a beneficial owner to specify its 
preference on an account-wide basis, which should reduce the cost of 
processing requests for copies. These costs are ultimately paid by the 
issuer and therefore would be included in an issuer's assessment of 
whether to adopt the alternative model.
    Shareholders obtaining proxy materials online would incur any 
necessary costs associated with gaining access to the Internet. In 
addition, some shareholders may choose to print out the posted 
materials, which will entail paper and printing costs. We estimate that 
approximately 10% of all shareholders will print out the posted 
materials at home at an estimated cost of $7.05 per proxy package. 
Based on these assumptions, the amendments are estimated to produce 
annual home printing costs ranging from $16 million (if issuers who are 
responsible for 10% of all current proxy mailings choose to rely on the 
notice and access model) to $80 million (if issuers who are responsible 
for 50% of all current proxy mailings choose to rely on the notice and 
access model).\175\ Investors have the option to incur no additional 
cost by either accessing the proxy materials online or requesting paper 
copies of the materials from the issuer.
---------------------------------------------------------------------------

    \175\ This range of potential home printing costs depends on 
data provided by Lexecon and ADP. See letter from ADP. The Lexecon 
data was included in the ADP comment letter. To calculate home 
printing cost, we assume that 50% of annual report pages are printed 
in color and 100% of proxy statement pages are printed in black and 
white. The estimated percentage of shareholders printing at home is 
derived from Forrester survey data furnished by ADP and adjusted for 
the reported likelihood that an investor will take extra steps to 
get proxy materials. Total number of shareholders estimated as above 
based on data provided by ADP and SIA. See letters from ADP and SIA.
---------------------------------------------------------------------------

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

    Section 23(a)(2) of the Exchange Act \176\ requires us, when 
adopting rules under the Exchange Act, to consider the impact that any 
new rule would have on competition. In addition, Section 23(a)(2) 
prohibits us from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act. Section 3(f) of the Exchange Act \177\ and Section 
2(c) of the Investment Company Act of 1940 \178\ require us, when 
engaging in rulemaking that requires us to consider or determine 
whether an action is necessary or appropriate in the public interest, 
to consider, in addition to the protection of investors, whether the 
action will promote efficiency, competition, and capital formation. We 
have also discussed other impacts of the amendments in our Cost-
Benefit, Paperwork Reduction Act and Final Regulatory Flexibility Act 
Analyses.
---------------------------------------------------------------------------

    \176\ 15 U.S.C. 78w(a)(2).
    \177\ 15 U.S.C. 78c(f).
    \178\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------

    The amendments to the proxy rules are intended to improve 
efficiency by providing an alternative for issuers and other soliciting 
persons that could reduce the cost of soliciting proxies and sending 
information statements regarding shareholder meetings. Currently, many 
issuers must devote a significant amount of time and resources to proxy 
mailings. Similarly, undertaking a proxy contest is often a very costly 
endeavor. We expect that the amendments will reduce the time and 
resources related to such distributions. These costs include 
reimbursing intermediaries for their part in the process.
    As noted elsewhere in this release, commenters expressed concern 
that the amendments might reduce shareholder participation in the proxy 
voting process, making issuers more dependent on broker discretionary 
voting. Such a result would affect the efficiency of the current proxy 
voting process. We have made revisions to the amendments to minimize 
such effect, by making it easier for shareholders to continue to 
receive paper copies of the proxy materials. Similarly, there was 
concern that the amendments would increase the risk of shareholders 
conducting frivolous proxy contests. We have also revised the final 
rules to minimize this possibility, by eliminating the proposed 
conditional solicitation.\179\
---------------------------------------------------------------------------

    \179\ See Section III.C.1 of Release No. 34-52926 (Dec. 8, 2005) 
[70 FR 74597].
---------------------------------------------------------------------------

    Some commenters were concerned that the added procedures would 
complicate the proxy distribution process, reducing the efficiency of 
the process. The final rules are voluntary. No issuer or other 
soliciting person is required to rely on the notice and access model. 
Those that choose to rely on the model presumably have determined that 
the additional procedures that they must follow would reduce their cost 
of soliciting proxies, thereby increasing the efficiency of the 
process.
    We considered the effects that the amendments would have on capital 
formation. The final rules do not directly affect the ability of 
issuers to raise capital. However, they are intended to reduce the cost 
of soliciting proxies. In addition, they facilitate proxy disclosure 
via the Internet, which may improve the manner in which investors 
receive those disclosures, thereby improving shareholder relations.
    We considered the possible effects of the amendments on 
competition. As noted elsewhere in this release, companies in, and 
related to, the financial printing industry were concerned about the 
negative effects that the rules may have on that industry. Conversely, 
these rules may create alternative industries that promote more user-
friendly, computer-based systems

[[Page 4165]]

for interaction with shareholders, thus creating new jobs and 
industries in this field.

VIII. Final Regulatory Flexibility Analysis

    This Final Regulatory Flexibility Analysis has been prepared in 
accordance with 5 U.S.C. 603. It relates to amendments to the proxy 
rules under the Exchange Act that will provide an alternative model for 
issuers and other persons soliciting proxies to satisfy certain of 
their obligations under the Commission's proxy rules. An Initial 
Regulatory Flexibility Analysis (IRFA) was prepared in accordance with 
the Regulatory Flexibility Act in conjunction with the proposing 
release. The proposing release included, and solicited comment on, the 
IRFA.

A. Need for the Amendments

    On December 8, 2005, we proposed amendments to the rules regarding 
provision of proxy materials to shareholders.\180\ We are adopting 
those amendments, substantially as proposed, but with a few 
modifications in response to public comment. Specifically, the 
amendments create an alternative notice and access model by which 
issuers and other soliciting persons can electronically furnish their 
proxy materials to shareholders. The amendments are intended to put 
into place processes that will 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 amendments may be able to 
significantly lower the costs of their proxy solicitations that 
ultimately are borne by shareholders. The fact that the amendments also 
apply to a soliciting person other than the issuer might help to reduce 
the costs of engaging in a proxy contest.
---------------------------------------------------------------------------

    \180\ Release No. 34-52926 (Dec. 8, 2005) [70 FR 74597].
---------------------------------------------------------------------------

    The amendments also have the potential to improve the ability of 
shareholders to participate meaningfully in the proxy process by 
reducing the cost of undertaking a proxy contest and may increase 
management's accountability and responsiveness to shareholders due to 
heightened concern about the possibility of a proxy contest. This, in 
turn, may enhance the value of shareholders' investments.

B. Significant Issues Raised by Public Comment

    In the proposing release, we requested comment on any aspect of the 
Initial Regulatory Flexibility Act Analysis, including the number of 
small entities that would be affected by the proposals, and both the 
qualitative and quantitative nature of the impact. We did not receive 
comment on the number of small entities that would be affected by the 
proposals. Also, no commenters noted any difference in the potential 
effect of the amendments on small entities as opposed to other 
entities.
    One commenter remarked that smaller companies depend more heavily 
on broker discretionary voting than larger companies in order to meet 
state law quorum requirements.\181\ Although the new rules do not 
affect the NYSE's broker discretionary voting rule, that commenter 
noted that if the final rules reduce shareholder voting, such smaller 
companies would become even more dependent on broker discretionary 
voting. As noted elsewhere in this release, we have made revisions to 
the amendments to minimize such effect, by making it easier for 
shareholders to continue to receive paper copies of the proxy 
materials.
---------------------------------------------------------------------------

    \181\ See letter from ABC.
---------------------------------------------------------------------------

C. Small Entities Subject to the Amendments

    Exchange Act Rule 0-;10(a) \182\ defines an issuer to be a ``small 
business'' or ``small organization'' for purposes of the Regulatory 
Flexibility Act if it had total assets of $5 million or less on the 
last day of its most recent fiscal year. We estimate that there are 
approximately 2,500 public companies, other than investment companies, 
that may be considered small entities.
---------------------------------------------------------------------------

    \182\ 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

    For purposes of the Regulatory Flexibility Act, an investment 
company is a small entity if it, together with other investment 
companies in the same group of related investment companies, has net 
assets of $50 million or less as of the end of its most recent fiscal 
year.\183\ Approximately 157 registered investment companies meet this 
definition. Moreover, approximately 53 business development companies 
may be considered small entities.
---------------------------------------------------------------------------

    \183\ See Rule 0-10 under the Investment Company Act of 1940 [17 
CFR 270.0-10].
---------------------------------------------------------------------------

    Paragraph (c)(1) of Rule 0-10 under the Exchange Act \184\ states 
that the term ``small business'' or ``small organization,'' when 
referring to a broker-dealer, means a broker or dealer that had total 
capital (net worth plus subordinated liabilities) of less than $500,000 
on the date in the prior fiscal year as of which its audited financial 
statements were prepared pursuant to Sec.  240.17a-5(d); and is not 
affiliated with any person (other than a natural person) that is not a 
small business or small organization. As of 2005, the Commission 
estimates that there were approximately 910 broker-dealers that 
qualified as small entities as defined above.\185\ Small Business 
Administration regulations define ``small entities'' to include banks 
and savings associations with total assets of $165 million or 
less.\186\ The Commission estimates that the rules will apply to 
approximately 9,475 banks, approximately 5,816 of which could be 
considered small banks with assets of $165 million or less.
---------------------------------------------------------------------------

    \184\ 17 CFR 240.0-10(c)(1).
    \185\ These numbers are based on a review by the Commission's 
Office of Economic Analysis of 2005 Financial and Operational 
Combined Uniform Single (FOCUS) Report filings reflecting registered 
broker-dealers. This number does not include broker-dealers that are 
delinquent in their FOCUS Report filings.
    \186\ 13 CFR 121.201.
---------------------------------------------------------------------------

    No issuer is required to follow the notice and access model. 
However, we expect that many issuers will choose to follow the 
alternative model because of the substantial cost savings that they may 
realize. These issuers likely will include many small entities. Broker-
dealer and bank intermediaries are required to comply with the notice 
and access model if an issuer or other soliciting person requests such 
intermediaries to follow the alternative model.

D. Reporting, Recordkeeping and Other Compliance Requirements

    If an issuer chooses to follow the model, it will be required to 
prepare, file, and furnish a Notice to shareholders. Similarly, upon 
request from an issuer or other soliciting person, a broker-dealer or 
bank intermediary will be required to prepare and furnish its own 
Notice to beneficial owners. These Notices must include factual 
information that is readily available to the issuer and intermediary. 
An issuer relying on the notice and access model also will be required 
to provide copies of the proxy materials to requesting shareholders and 
to maintain a Web site on which to post the proxy materials. 
Intermediaries will be required to forward copies of the proxy 
materials to requesting beneficial owners and to maintain a Web site on 
which to post its request for voting instructions. Those Web sites must 
be maintained in a manner to ensure that the anonymity of persons 
accessing the Web sites is preserved. Finally, issuers and 
intermediaries must maintain records regarding which shareholders have 
indicated a preference to receive paper

[[Page 4166]]

or e-mail copies of the proxy materials in the future.

E. Agency Action To Minimize Effect on Small Entities

    Compliance with the alternative notice and access model is 
voluntary for issuers. An issuer that is a small entity, like other 
types of entities subject to the proxy rules, need not elect to follow 
the alternative model. This flexibility to comply with traditional 
methods of distributing proxy materials to shareholders or to comply 
with the notice and access model will allow a small entity to choose 
the compliance means that will be most cost effective for its 
particular situation. It is likely that only the issuers that believe 
they will realize cost savings or other benefits as a result of 
following the notice and access model will choose to do so.
    Broker-dealer and bank intermediaries that are small entities must 
comply with the requirements of the voluntary model upon request from 
an issuer or other soliciting person. However, an intermediary is not 
required to forward proxy materials to beneficial owners unless the 
issuer or other soliciting person provides assurance of reimbursement 
of the intermediary's reasonable expenses incurred in connection with 
forwarding those materials. Therefore, any costs imposed on 
intermediaries by the rules will be borne by the issuer or other 
soliciting person, and ultimately shareholders. Exempting broker-
dealers and banks that are small entities would lead to inconsistent 
means by which beneficial owners receive their proxy materials, which 
we believe would not be appropriate.
    We considered alternatives, such as permitting an intermediary to 
merely forward an issuer's Notice rather than preparing its own Notice 
and permitting beneficial owners to request copies directly from the 
issuer. However, we believe that those alternatives create a high 
likelihood of confusion with respect to whether a beneficial owner 
would be entitled to execute a proxy card rather than provide voting 
instructions to his or her intermediary. To prevent such confusion, we 
have decided that such alternatives would not be appropriate.

IX. Statutory Basis and Text of Amendments

    We are adopting the amendments pursuant to Sections 3(b), 10, 13, 
14, 15, 23(a), and 36 of the Securities Exchange Act of 1934, as 
amended, and Sections 20(a), 30, and 38 of the Investment Company Act 
of 1940, as amended.

List of Subjects

17 CFR Parts 240 and 249

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 274

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

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

0
1. The general authority citation for part 240 is revised to read as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 
80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise 
noted.
* * * * *

0
2. Amend Sec.  240.14a-2 by:
0
a. Removing the period and adding a semicolon at the end of paragraph 
(b)(3)(ii); and
0
b. Revising paragraph (b)(3)(iv).
    The revision reads as follows:


Sec.  240.14a-2  Solicitations to which Sec.  240.14a-3 to Sec.  
240.14a-15 apply.

* * * * *
    (b) * * *
    (3) * * *
    (iv) The proxy voting advice is not furnished on behalf of any 
person soliciting proxies or on behalf of a participant in an election 
subject to the provisions of Sec.  240.14a-12(c); and
* * * * *

0
3. Amend Sec.  240.14a-3 by:
0
a. Revising paragraphs (a), (e)(1)(i), the introductory text of 
paragraphs (e)(1)(ii)(A) and (e)(1)(ii)(B)(2), paragraphs 
(e)(1)(ii)(B)(2)(ii), (e)(1)(ii)(B)(2)(iii), (e)(1)(ii)(B)(3), 
(e)(1)(iii), and (e)(2); and
0
b. Revising the term ``annual report'' to read ``annual report to 
security holders'' in paragraph (b)(13).
    The revisions read as follows:


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

    (a) No solicitation subject to this regulation shall be made unless 
each person solicited is concurrently furnished or has previously been 
furnished with:
    (1) A publicly-filed preliminary or definitive written proxy 
statement containing the information specified in Schedule 14A (Sec.  
240.14a-101);
    (2) A publicly-filed preliminary or definitive proxy statement, in 
the form and manner described in Sec.  240.14a-16, containing the 
information specified in Schedule 14A (Sec.  240.14a-101); or
    (3) A preliminary or definitive written proxy statement included in 
a registration statement filed under the Securities Act of 1933 on Form 
S-4 or F-4 (Sec.  239.25 or Sec.  239.34 of this chapter) or Form N-14 
(Sec.  239.23 of this chapter) and containing the information specified 
in such Form.
* * * * *
    (e)(1)(i) A registrant will be considered to have delivered an 
annual report to security holders, proxy statement or Notice of 
Internet Availability of Proxy Materials, as described in Sec.  
240.14a-16, to all security holders of record who share an address if:
    (A) The registrant delivers one annual report to security holders, 
proxy statement or Notice of Internet Availability of Proxy Materials, 
as applicable, to the shared address;
    (B) The registrant addresses the annual report to security holders, 
proxy statement or Notice of Internet Availability of Proxy Materials, 
as applicable, to the security holders as a group (for example, ``ABC 
Fund [or Corporation] Security Holders,'' ``Jane Doe and Household,'' 
``The Smith Family''), to each of the security holders individually 
(for example, ``John Doe and Richard Jones'') or to the security 
holders in a form to which each of the security holders has consented 
in writing;
    Note to paragraph (e)(1)(i)(B): Unless the registrant addresses the 
annual report to security holders, proxy statement or Notice of 
Internet Availability of Proxy Materials to the security holders as a 
group or to each of the security holders individually, it must obtain, 
from each security holder to be included in the household group, a 
separate affirmative written consent to the specific form of address 
the registrant will use.
    (C) The security holders consent, in accordance with paragraph 
(e)(1)(ii) of this section, to delivery of one annual report to 
security holders or proxy statement, as applicable;
    (D) With respect to delivery of the proxy statement or Notice of 
Internet Availability of Proxy Materials, the registrant delivers, 
together with or subsequent to delivery of the proxy statement, a 
separate proxy card for each security holder at the shared address; and
    (E) The registrant includes an undertaking in the proxy statement 
to deliver promptly upon written or oral request a separate copy of the 
annual report to security holders, proxy

[[Page 4167]]

statement or Notice of Internet Availability of Proxy Materials, as 
applicable, to a security holder at a shared address to which a single 
copy of the document was delivered.
    (ii) Consent. (A) Affirmative written consent. Each security holder 
must affirmatively consent, in writing, to delivery of one annual 
report to security holders or proxy statement, as applicable. A 
security holder's affirmative written consent will be considered valid 
only if the security holder has been informed of:
* * * * *
    (B) * * *
    (2) The registrant has sent the security holder a notice at least 
60 days before the registrant begins to rely on this section concerning 
delivery of annual reports to security holders, proxy statements or 
Notices of Internet Availability of Proxy Materials to that security 
holder. The notice must:
* * * * *
    (ii) State that only one annual report to security holders, proxy 
statement or Notice of Internet Availability of Proxy Materials, as 
applicable, will be delivered to the shared address unless the 
registrant receives contrary instructions;
    (iii) Include a toll-free telephone number, or be accompanied by a 
reply form that is pre-addressed with postage provided, that the 
security holder can use to notify the registrant that the security 
holder wishes to receive a separate annual report to security holders, 
proxy statement or Notice of Internet Availability of Proxy Materials;
* * * * *
    (3) The registrant has not received the reply form or other 
notification indicating that the security holder wishes to continue to 
receive an individual copy of the annual report to security holders, 
proxy statement or Notice of Internet Availability of Proxy Materials, 
as applicable, within 60 days after the registrant sent the notice 
required by paragraph (e)(1)(ii)(B)(2) of this section; and
* * * * *
    (iii) Revocation of consent. If a security holder, orally or in 
writing, revokes consent to delivery of one annual report to security 
holders, proxy statement or Notice of Internet Availability of Proxy 
Materials to a shared address, the registrant must begin sending 
individual copies to that security holder within 30 days after the 
registrant receives revocation of the security holder's consent.
* * * * *
    (2) Notwithstanding paragraphs (a) and (b) of this section, unless 
state law requires otherwise, a registrant is not required to send an 
annual report to security holders, proxy statement or Notice of 
Internet Availability of Proxy Materials to a security holder if:
    (i) An annual report to security holders and a proxy statement, or 
a Notice of Internet Availability of Proxy Materials, for two 
consecutive annual meetings; or
    (ii) All, and at least two, payments (if sent by first class mail) 
of dividends or interest on securities, or dividend reinvestment 
confirmations, during a twelve month period, have been mailed to such 
security holder's address and have been returned as undeliverable. If 
any such security holder delivers or causes to be delivered to the 
registrant written notice setting forth his then current address for 
security holder communications purposes, the registrant's obligation to 
deliver an annual report to security holders, a proxy statement or a 
Notice of Internet Availability of Proxy Materials under this section 
is reinstated.
* * * * *


Sec.  240.14a-4  [Amended]

0
4. Amend Sec.  240.14a-4 by:
0
a. Removing the authority citation following the section;
0
b. Revising the word ``mailed'' to read ``sent'' in the first sentence 
of paragraph (c)(1); and
0
c. Revising the word ``mails'' to read ``sends'' in the last sentence 
of paragraph (c)(1).

0
5. Amend Sec.  240.14a-7 by:
0
a. Revising paragraphs (a)(2)(i) and (a)(2)(ii);
0
b. Adding paragraph (a)(2)(iii); and
0
c. In the ``Notes to Sec.  240.14a-7'', revising the numerical 
designation ``1.'' to read ``Note 1 to Sec.  240.14a-7'', revising the 
numerical designation ``2.'' to read ``Note 2 to Sec.  240.14a-7'' and 
adding ``Note 3 to Sec.  240.14a-7''.
    The revisions and additions read as follows:


Sec.  240.14a-7  Obligations of registrants to provide a list of, or 
mail soliciting material to, security holders.

* * * * *
    (a) * * *
    (2) * * *
    (i) Send copies of any proxy statement, form of proxy, or other 
soliciting material, including a Notice of Internet Availability of 
Proxy Materials (as described in Sec.  240.14a-16), furnished by the 
security holder to the record holders, including banks, brokers, and 
similar entities, designated by the security holder. A sufficient 
number of copies must be sent to the banks, brokers, and similar 
entities for distribution to all beneficial owners designated by the 
security holder. The security holder may designate only record holders 
and/or beneficial owners who have not requested paper and/ or e-mail 
copies of the proxy statement. If the registrant has received 
affirmative written or implied consent to deliver a single proxy 
statement to security holders at a shared address in accordance with 
the procedures in Sec.  240.14a-3(e)(1), a single copy of the proxy 
statement or Notice of Internet Availability of Proxy Materials 
furnished by the security holder shall be sent to that address, 
provided that if multiple copies of the Notice of Internet Availability 
of Proxy Materials are furnished by the security holder for that 
address, the registrant shall deliver those copies in a single envelope 
to that address. The registrant shall send the security holder material 
with reasonable promptness after tender of the material to be sent, 
envelopes or other containers therefore, postage or payment for postage 
and other reasonable expenses of effecting such distribution. The 
registrant shall not be responsible for the content of the material; or
    (ii) Deliver the following information to the requesting security 
holder within five business days of receipt of the request:
    (A) A reasonably current list of the names, addresses and security 
positions of the record holders, including banks, brokers and similar 
entities holding securities in the same class or classes as holders 
which have been or are to be solicited on management's behalf, or any 
more limited group of such holders designated by the security holder if 
available or retrievable under the registrant's or its transfer agent's 
security holder data systems;
    (B) The most recent list of names, addresses and security positions 
of beneficial owners as specified in Sec.  240.14a-13(b), in the 
possession, or which subsequently comes into the possession, of the 
registrant;
    (C) The names of security holders at a shared address that have 
consented to delivery of a single copy of proxy materials to a shared 
address, if the registrant has received written or implied consent in 
accordance with Sec.  240.14a-3(e)(1); and
    (D) If the registrant has relied on Sec.  240.14a-16, the names of 
security holders who have requested paper copies of the proxy materials 
for all meetings and the names of security holders who, as of the date 
that the registrant receives the request, have requested paper copies 
of the proxy materials only for the meeting to which the solicitation 
relates.

[[Page 4168]]

    (iii) All security holder list information shall be in the form 
requested by the security holder to the extent that such form is 
available to the registrant without undue burden or expense. The 
registrant shall furnish the security holder with updated record holder 
information on a daily basis or, if not available on a daily basis, at 
the shortest reasonable intervals; provided, however, the registrant 
need not provide beneficial or record holder information more current 
than the record date for the meeting or action.
* * * * *
    Notes to Sec.  240.14a-7.
* * * * *
    Note 3 to Sec.  240.14a-7. If the registrant is sending the 
requesting security holder's materials under Sec.  240.14a-7 and 
receives a request from the security holder to furnish the materials in 
the form and manner described in Sec.  240.14a-16, the registrant must 
accommodate that request.

0
6. Amend Sec.  240.14a-8 by revising the word ``mail'' to read ``send'' 
in the last sentence of paragraph (e)(2) and in paragraph (e)(3) and 
the word ``mails'' to read ``sends'' in the introductory text of 
paragraph (m)(3).

0
7. Amend Sec.  240.14a-12 by revising the term ``annual report'' to 
read ``annual report to security holders'' in the heading of paragraph 
(c)(1) and the first sentence of paragraph (c)(1).

0
8. Amend Sec.  240.14a-13 by revising the word ``mailing'' to read 
``sending'' in paragraph (a)(5) and the word ``mail'' to read ``send'' 
in Note 2 following paragraph (a) and in paragraph (c), each time it 
appears.

0
9. Add Sec.  240.14a-16 to read as follows:


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

    (a)(1) A registrant may furnish a proxy statement pursuant to Sec.  
240.14a-3(a), or an annual report to security holders pursuant to Sec.  
240.14a-3(b), to a security holder by sending the security holder a 
Notice of Internet Availability of Proxy Materials, as described in 
this section, 40 calendar days or more prior to the security holder 
meeting date, or if no meeting is to be held, 40 calendar days or more 
prior to the date the votes, consents or authorizations may be used to 
effect the corporate action, and complying with all other requirements 
of this section.
    (2) If the registrant chooses to provide the proxy statement or 
annual report to security holders to beneficial owners pursuant to this 
section, it must provide the record holder or respondent bank with all 
information listed in paragraph (d) of this section in sufficient time 
for the record holder or respondent bank to prepare, print and send a 
Notice of Internet Availability of Proxy Materials to beneficial owners 
at least 40 calendar days before the meeting date.
    (b)(1) All materials identified in the Notice of Internet 
Availability of Proxy Materials must be publicly accessible, free of 
charge, at the Web site address specified in the notice on or before 
the time that the notice is sent to the security holder and such 
materials must remain available on that Web site through the conclusion 
of the meeting of security holders.
    (2) All additional soliciting materials sent to security holders or 
made public after the Notice of Internet Availability of Proxy 
Materials has been sent must be made publicly accessible at the 
specified Web site address no later than the day on which such 
materials are first sent to security holders or made public.
    (3) The Web site address relied upon for compliance under this 
section may not be the address of the Commission's electronic filing 
system.
    (4) The registrant must provide security holders with a means to 
execute a proxy as of the time the Notice of Internet Availability of 
Proxy Materials is first sent to security holders.
    (c) The materials must be presented on the Web site in a format, or 
formats, convenient for both reading online and printing on paper.
    (d) The Notice of Internet Availability of Proxy Materials must 
contain the following:
    (1) 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].

    1. 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.
    2. The [proxy statement] [information statement] [annual report 
to security holders] [is/are] available at [Insert Web site 
address].
    3. If you want to receive a paper or e-mail copy of these 
documents, you must request one. There is no charge to you for 
requesting a copy. Please make your request for a copy as instructed 
below on or before [Insert a date] to facilitate timely delivery.'';

    (2) 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;
    (3) A clear and impartial identification of each separate matter 
intended to be acted on and the soliciting person's recommendations 
regarding those matters, but no supporting statements;
    (4) A list of the materials being made available at the specified 
Web site;
    (5) A toll-free telephone number, an e-mail address, and an 
Internet Web site where the security holder can request a copy of the 
proxy statement, annual report to security holders, and form of proxy, 
relating to all of the registrant's future security holder meetings and 
for the particular meeting to which the proxy materials being furnished 
relate;
    (6) Any control/identification numbers that the security holder 
needs to access his or her form of proxy;
    (7) Instructions on how to access the form of proxy, provided that 
such instructions do not enable a security holder to execute a proxy 
without having access to the proxy statement and, if required by Sec.  
240.14a-3(b), the annual report to security holders; and
    (8) Information on how to obtain directions to be able to attend 
the meeting and vote in person.
    (e)(1) The Notice of Internet Availability of Proxy Materials may 
not be incorporated into, or combined with, another document, except 
that it may be incorporated into, or combined with, a notice of 
security holder meeting required under state law, unless state law 
prohibits such incorporation or combination.
    (2) The Notice of Internet Availability of Proxy Materials may 
contain only the information required by paragraph (d) of this section 
and any additional information required to be included in a notice of 
security holders meeting under state law; provided that:
    (i) The registrant must revise the information on the Notice of 
Internet Availability of Proxy Materials, including any title to the 
document, to reflect the fact that:
    (A) The registrant is conducting a consent solicitation rather than 
a proxy solicitation; or
    (B) The registrant is not soliciting proxy or consent authority, 
but is furnishing an information statement pursuant to Sec.  240.14c-2; 
and
    (ii) The registrant may include a statement on the Notice to 
educate security holders that no personal information other than the 
identification or control number is necessary to execute a proxy.
    (f)(1) Except as provided in paragraph (h) of this section, the 
Notice of Internet Availability of Proxy Materials must be sent 
separately from other types of security holder communications and may 
not accompany any other

[[Page 4169]]

document or materials, including the form of proxy.
    (2) Notwithstanding paragraph (f)(1) of this section, the 
registrant may accompany the Notice of Internet Availability of Proxy 
Materials with:
    (i) A pre-addressed, postage-paid reply card for requesting a copy 
of the proxy materials; and
    (ii) A copy of any notice of security holder meeting required under 
state law if that notice is not combined with the Notice of Internet 
Availability of Proxy Materials.
    (g) Plain English.
    (1) To enhance the readability of the Notice of Internet 
Availability of Proxy Materials, the registrant must use plain English 
principles in the organization, language, and design of the notice.
    (2) The registrant must draft the language in the Notice of 
Internet Availability of Proxy Materials so that, at a minimum, it 
substantially complies with each of the following plain English writing 
principles:
    (i) Short sentences;
    (ii) Definite, concrete, everyday words;
    (iii) Active voice;
    (iv) Tabular presentation or bullet lists for complex material, 
whenever possible;
    (v) No legal jargon or highly technical business terms; and
    (vi) No multiple negatives.
    (3) In designing the Notice of Internet Availability of Proxy 
Materials, the registrant may include pictures, logos, or similar 
design elements so long as the design is not misleading and the 
required information is clear.
    (h) The registrant may, at its discretion, choose to furnish some 
proxy materials pursuant to Sec.  240.14a-3(a)(1) and other proxy 
materials pursuant to this section, provided that the registrant may 
not send a form of proxy to security holders until 10 calendar days or 
more after the date it sent the Notice of Internet Availability of 
Proxy Materials to security holders, unless the form of proxy is 
accompanied or has been preceded by a copy of the proxy statement and 
any annual report to security holders that is required by Sec.  
240.14a-3(b) through the same delivery medium. If the registrant sends 
a form of proxy after the expiration of such 10-day period and the form 
of proxy is not accompanied or preceded by a copy, via the same medium, 
of the proxy statement and any annual report to security holders that 
is required by Sec.  240.14a-3(b), then the registrant shall accompany 
the form of proxy with a Notice of Internet Availability of Proxy 
Materials.
    (i) The registrant must file a form of the Notice of Internet 
Availability of Proxy Materials with the Commission pursuant to Sec.  
240.14a-6(b) no later than the date that the registrant first sends the 
notice to security holders.
    (j) Obligation to provide copies.
    (1) The registrant must send, at no cost to the record holder or 
respondent bank and by U.S. first class mail or other reasonably prompt 
means, a paper copy of the proxy statement, information statement, 
annual report to security holders, and form of proxy (to the extent 
each of those documents is applicable) to any record holder or 
respondent bank requesting such a copy within three business days after 
receiving a request for a paper copy.
    (2) The registrant must send, at no cost to the record holder or 
respondent bank and via e-mail, an electronic copy of the proxy 
statement, information statement, annual report to security holders, 
and form of proxy (to the extent each of those documents is applicable) 
to any record holder or respondent bank requesting such a copy within 
three business days after receiving a request for an electronic copy 
via e-mail.
    (3) The registrant is required to provide copies of the proxy 
materials pursuant to paragraphs (j)(1) and (j)(2) of this section for 
one year after the conclusion of the meeting or corporate action to 
which the proxy materials relate.
    (4) The registrant must maintain records of security holder 
requests to receive materials in paper or via e-mail for future 
solicitations and must continue to provide copies of the materials to a 
security holder who has made such a request until the security holder 
revokes such request.
    (k) Security holder information.
    (1) A registrant or its agent shall maintain the Internet Web site 
on which it posts its proxy materials in a manner that does not 
infringe on the anonymity of a person accessing such Web site.
    (2) The registrant and its agents shall not use any e-mail address 
obtained from a security holder solely for the purpose of requesting a 
copy of proxy materials pursuant to paragraph (j) of this section for 
any purpose other than to send a copy of those materials to that 
security holder. The registrant shall not disclose such information to 
any person other than an employee or agent to the extent necessary to 
send a copy of the proxy materials pursuant to paragraph (j) of this 
section.
    (l) A person other than the registrant may solicit proxies pursuant 
to the conditions imposed on registrants by this section, provided 
that:
    (1) A soliciting person other than the registrant is required to 
provide copies of its proxy materials only to security holders to whom 
it has sent a Notice of Internet Availability of Proxy Materials; and
    (2) A soliciting person other than the registrant must send its 
Notice of Internet Availability of Proxy Materials by the later of:
    (i) 40 Calendar days prior to the security holder meeting date or, 
if no meeting is to be held, 40 calendar days prior to the date the 
votes, consents, or authorizations may be used to effect the corporate 
action; or
    (ii) 10 calendar days after the date that the registrant first send 
its proxy statement or Notice of Internet Availability of Proxy 
Materials to security holders.
    (3) Content of the soliciting person's Notice of Internet 
Availability of Proxy Materials.
    (i) If, at the time a soliciting person other than the registrant 
sends its Notice of Internet Availability of Proxy Materials, the 
soliciting person is not aware of all matters on the registrant's 
agenda for the meeting of security holders, the soliciting person's 
Notice on Internet Availability of Proxy Materials must provide a clear 
and impartial identification of each separate matter on the agenda to 
the extent known by the soliciting person at that time. The soliciting 
person's notice also must include a clear statement indicating that 
there may be additional agenda items of which the soliciting person is 
not aware and that the security holder cannot direct a vote for those 
items on the soliciting person's proxy card provided at that time.
    (ii) If a soliciting person other than the registrant sends a form 
of proxy not containing all matters intended to be acted upon, the 
Notice of Internet Availability of Proxy Materials must clearly state 
whether execution of the form of proxy will invalidate a security 
holder's prior vote on matters not presented on the form of proxy.
    (m) This section shall not apply to a proxy solicitation in 
connection with a business combination transaction, as defined in Sec.  
230.165 of this chapter.
    (n) This section provides a non-exclusive alternative by which an 
issuer or other person may furnish a proxy statement pursuant to Sec.  
240.14a-3(a) or an annual report to security holders pursuant to Sec.  
240.14a-3(b) to a security holder. This section does not affect the 
availability of any other means by which an issuer or other person may 
furnish a proxy statement pursuant to Sec.  240.14a-3(a), or an annual 
report to

[[Page 4170]]

security holders pursuant to Sec.  240.14a-3(b), to a security holder.

0
10. Amend Sec.  240.14a-101 by:
0
a. Revising the term ``annual report'' to read ``annual report on Form 
10-K or Form 10-KSB'' in Instruction 1 to paragraph (d)(2)(ii)(L) of 
Item 7;
0
b. Revising the word ``mail'' to read ``send'' in Instruction 2 to 
paragraph (d)(2)(ii)(L) of Item 7; and
0
c. Revising Item 23.
    The revision reads as follows.


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

* * * * *
    Item 23. Delivery of documents to security holders sharing an 
address. If one annual report to security holders, proxy statement, or 
Notice of Internet Availability of Proxy Materials is being delivered 
to two or more security holders who share an address in accordance with 
Sec.  240.14a-3(e)(1), furnish the following information:
    (a) State that only one annual report to security holders, proxy 
statement, or Notice of Internet Availability of Proxy Materials, as 
applicable, is being delivered to multiple security holders sharing an 
address unless the registrant has received contrary instructions from 
one or more of the security holders;
    (b) Undertake to deliver promptly upon written or oral request a 
separate copy of the annual report to security holders, proxy 
statement, or Notice of Internet Availability of Proxy Materials, as 
applicable, to a security holder at a shared address to which a single 
copy of the documents was delivered and provide instructions as to how 
a security holder can notify the registrant that the security holder 
wishes to receive a separate copy of an annual report to security 
holders, proxy statement, or Notice of Internet Availability of Proxy 
Materials, as applicable;
    (c) Provide the phone number and mailing address to which a 
security holder can direct a notification to the registrant that the 
security holder wishes to receive a separate annual report to security 
holders, proxy statement, or Notice of Internet Availability of Proxy 
Materials, as applicable, in the future; and
    (d) Provide instructions how security holders sharing an address 
can request delivery of a single copy of annual reports to security 
holders, proxy statements, or Notices of Internet Availability of Proxy 
Materials if they are receiving multiple copies of annual reports to 
security holders, proxy statements, or Notices of Internet Availability 
of Proxy Materials.

0
11. Amend Sec.  240.14b-1 by:
0
a. Revising paragraphs (b)(2) including the Note and (c)(2)(i);
0
b. Revising the term ``annual reports'' to read ``annual reports to 
security holders'' in paragraphs (c)(2)(ii) and (c)(3);
0
c. Revising the term ``annual report'' to read ``annual report to 
security holders'' in paragraph (c)(2)(ii);
0
d. Revising the word ``mail'' to read ``send'' in paragraph (c)(2)(ii); 
and
0
e. Adding paragraphs (d) and (e).
    The revisions and additions read as follows:


Sec.  240.14b-1  Obligation of registered brokers and dealers in 
connection with the prompt forwarding of certain communications to 
beneficial owners.

    (b) * * *
    (2) The broker or dealer shall, upon receipt of the proxy, other 
proxy soliciting material, information statement, and/or annual report 
to security holders from the registrant or other soliciting person, 
forward such materials to its customers who are beneficial owners of 
the registrant's securities no later than five business days after 
receipt of the proxy material, information statement or annual report 
to security holders.
    Note to Paragraph (b)(2): At the request of a registrant, or on its 
own initiative so long as the registrant does not object, a broker or 
dealer may, but is not required to, deliver one annual report to 
security holders, proxy statement, information statement, or Notice of 
Internet Availability of Proxy Materials to more than one beneficial 
owner sharing an address if the requirements set forth in Sec.  
240.14a-3(e)(1) (with respect to annual reports to security holders, 
proxy statements, and Notices of Internet Availability of Proxy 
Materials) and Sec.  240.14c-3(c) (with respect to annual reports to 
security holders, information statements, and Notices of Internet 
Availability of Proxy Materials) applicable to registrants, with the 
exception of Sec.  240.14a-3(e)(1)(i)(E), are satisfied instead by the 
broker or dealer.
    (c) * * *
    (2) * * *
    (i) Its obligations under paragraphs (b)(2), (b)(3) and (d) of this 
section if the registrant or other soliciting person, as applicable, 
does not provide assurance of reimbursement of the broker's or dealer's 
reasonable expenses, both direct and indirect, incurred in connection 
with performing the obligations imposed by paragraphs (b)(2), (b)(3) 
and (d) of this section; or
* * * * *
    (d) Compliance with Sec.  240.14a-16. If a registrant or other 
soliciting person informs the broker or dealer that it intends to rely 
on Sec.  240.14a-16 to furnish proxy materials to beneficial owners and 
provides all of the relevant information listed in Sec.  240.14a-16(d) 
to the broker or dealer, the broker or dealer shall:
    (1) Prepare and send a Notice of Internet Availability of Proxy 
Materials containing the information required in paragraph (e) of this 
section to beneficial owners no later than:
    (i) With respect to a registrant, 40 calendar days prior to the 
security holder meeting date or, if no meeting is to be held, 40 
calendar days prior to the date the votes, consents, or authorizations 
may be used to effect the corporate action; and
    (ii) With respect to a soliciting person other than the registrant, 
the later of:
    (A) 40 calendar days prior to the security holder meeting date or, 
if no meeting is to be held, 40 calendar days prior to the date the 
votes, consents, or authorizations may be used to effect the corporate 
action; or
    (B) 10 calendar days after the date that the registrant first sends 
its proxy statement or Notice of Internet Availability of Proxy 
Materials to security holders.
    (2) Establish a Web site at which beneficial owners are able to 
access the broker or dealer's request for voting instructions and, at 
the broker or dealer's option, establish a Web site at which beneficial 
owners are able to access the proxy statement and other soliciting 
materials, provided that such Web sites are maintained in a manner 
consistent with paragraphs (b), (c), and (k) of Sec.  240.14a-16;
    (3) Upon receipt of a request from the registrant or other 
soliciting person, send to security holders specified by the registrant 
or other soliciting person a copy of the request for voting 
instructions accompanied by a copy of the intermediary's Notice of 
Internet Availability of Proxy Materials 10 calendar days or more after 
the broker or dealer sends its Notice of Internet Availability of Proxy 
Materials pursuant to paragraph (d)(1); and
    (4) Upon receipt of a request for a copy of the materials from a 
beneficial owner:
    (i) Request a copy of the soliciting materials from the registrant 
or other soliciting person, in the form requested by the beneficial 
owner, within three business days after receiving the beneficial 
owner's request;
    (ii) Forward a copy of the soliciting materials to the beneficial 
owner, in the form requested by the beneficial owner, within three 
business days after

[[Page 4171]]

receiving the materials from the registrant or other soliciting person; 
and
    (iii) Maintain records of security holder requests to receive a 
paper or e-mail copy of the proxy materials in connection with future 
proxy solicitations and provide copies of the proxy materials to a 
security holder who has made such a request for all securities held in 
the account of that security holder until the security holder revokes 
such request.
    (e) Content of Notice of Internet Availability of Proxy Materials. 
The broker or dealer's Notice of Internet Availability of Proxy 
Materials shall:
    (1) Include all information, as it relates to beneficial owners, 
required in a registrant's Notice of Internet Availability of Proxy 
Materials under Sec.  240.14a-16(d), provided that the broker or dealer 
shall provide its own, or its agent's, toll-free telephone number, an 
e-mail address, and an Internet Web site to service requests for copies 
from beneficial owners;
    (2) Include a brief description, if applicable, of the rules that 
permit the broker or dealer to vote the securities if the beneficial 
owner does not return his or her voting instructions; and
    (3) Otherwise be prepared and sent in a manner consistent with 
paragraphs (e), (f), and (g) of Sec.  240.14a-16.

0
12. Amend Sec.  240.14b-2 by:
0
a. Revising the introductory text of paragraph (b)(3), the Note to 
paragraph (b)(3), and paragraph (c)(2)(i);
0
b. Revising the term ``annual reports'' to read ``annual reports to 
security holders'' in paragraph (c)(2)(ii) and (c)(4);
0
c. Revising the term ``annual report'' to read ``annual report to 
security holders'' in paragraph (c)(2)(ii);
0
d. Revising the word ``mail'' to read ``send'' in paragraph (c)(2)(ii); 
and
0
e. Adding paragraphs (d) and (e).
    The additions and revisions read as follows:


Sec.  240.14b-2  Obligation of banks, associations and other entities 
that exercise fiduciary powers in connection with the prompt forwarding 
of certain communications to beneficial owners.

* * * * *
    (b) * * *
    (3) Upon receipt of the proxy, other proxy soliciting material, 
information statement, and/or annual report to security holders from 
the registrant or other soliciting person, the bank shall forward such 
materials to each beneficial owner on whose behalf it holds securities, 
no later than five business days after the date it receives such 
material and, where a proxy is solicited, the bank shall forward, with 
the other proxy soliciting material and/or the annual report to 
security holders, either:
* * * * *
    Note to Paragraph (b)(3): At the request of a registrant, or on its 
own initiative so long as the registrant does not object, a bank may, 
but is not required to, deliver one annual report to security holders, 
proxy statement, information statement, or Notice of Internet 
Availability of Proxy Materials to more than one beneficial owner 
sharing an address if the requirements set forth in Sec.  240.14a-
3(e)(1) (with respect to annual reports to security holders, proxy 
statements, and Notices of Internet Availability of Proxy Materials) 
and Sec.  240.14c-3(c) (with respect to annual reports to security 
holders, information statements, and Notices of Internet Availability 
of Proxy Materials) applicable to registrants, with the exception of 
Sec.  240.14a-3(e)(1)(i)(E), are satisfied instead by the bank.
* * * * *
    (c) * * *
    (2) * * *
    (i) Its obligations under paragraphs (b)(2), (b)(3), (b)(4) and (d) 
of this section if the registrant or other soliciting person, as 
applicable, does not provide assurance of reimbursement of its 
reasonable expenses, both direct and indirect, incurred in connection 
with performing the obligations imposed by paragraphs (b)(2), (b)(3), 
(b)(4) and (d) of this section; or
* * * * *
    (d) Compliance with Sec.  240.14a-16. If a registrant or other 
soliciting person informs the bank that it intends to rely on Sec.  
240.14a-16 to furnish proxy materials to beneficial owners and provides 
all of the relevant information listed in Sec.  240.14a-16(d) to the 
bank, the bank shall:
    (1) Prepare and send a Notice of Internet Availability of Proxy 
Materials containing the information required in paragraph (e) of this 
section to beneficial owners no later than:
    (i) With respect to a registrant, 40 calendar days prior to the 
security holder meeting date or, if no meeting is to be held, 40 
calendar days prior to the date the votes, consents, or authorizations 
may be used to effect the corporate action; and
    (ii) With respect to a soliciting person other than the registrant, 
the later of:
    (A) 40 calendar days prior to the security holder meeting date or, 
if no meeting is to be held, 40 calendar days prior to the date the 
votes, consents, or authorizations may be used to effect the corporate 
action; or
    (B) 10 calendar days after the date that the registrant first sends 
its proxy statement or Notice of Internet Availability of Proxy 
Materials to security holders.
    (2) Establish a Web site at which beneficial owners are able to 
access the bank's request for voting instructions and, at the bank's 
option, establish a Web site at which beneficial owners are able to 
access the proxy statement and other soliciting materials, provided 
that such Web sites are maintained in a manner consistent with 
paragraphs (b), (c), and (k) of Sec.  240.14a-16;
    (3) Upon receipt of a request from the registrant or other 
soliciting person, send to security holders specified by the registrant 
or other soliciting person a copy of the request for voting 
instructions accompanied by a copy of the intermediary's Notice of 
Internet Availability of Proxy Materials 10 days or more after the bank 
sends its Notice of Internet Availability of Proxy Materials pursuant 
to paragraph (d)(1); and
    (4) Upon receipt of a request for a copy of the materials from a 
beneficial owner:
    (i) Request a copy of the soliciting materials from the registrant 
or other soliciting person, in the form requested by the beneficial 
owner, within three business days after receiving the beneficial 
owner's request;
    (ii) Forward a copy of the soliciting materials to the beneficial 
owner, in the form requested by the beneficial owner, within three 
business days after receiving the materials from the registrant or 
other soliciting person; and
    (iii) Maintain records of security holder requests to receive a 
paper or e-mail copy of the proxy materials in connection with future 
proxy solicitations and provide copies of the proxy materials to a 
security holder who has made such a request for all securities held in 
the account of that security holder until the security holder revokes 
such request.
    (e) Content of Notice of Internet Availability of Proxy Materials. 
The bank's Notice of Internet Availability of Proxy Materials shall:
    (1) Include all information, as it relates to beneficial owners, 
required in a registrant's Notice of Internet Availability of Proxy 
Materials under Sec.  240.14a-16(d), provided that the bank shall 
provide its own, or its agent's, toll-free telephone number, e-mail 
address, and Internet Web site to service requests for copies from 
beneficial owners; and
    (2) Otherwise be prepared and sent in a manner consistent with 
paragraphs (e), (f), and (g) of Sec.  240.14a-16.

0
13. Amend Sec.  240.14c-2 by:
0
a. Revising paragraph (a); and

[[Page 4172]]

0
b. Adding paragraph (d).
    The revision and addition read as follows:


Sec.  240.14c-2  Distribution of information statement.

    (a)(1) In connection with every annual or other meeting of the 
holders of the class of securities registered pursuant to section 12 of 
the Act or of a class of securities issued by an investment company 
registered under the Investment Company Act of 1940 that has made a 
public offering of securities, including the taking of corporate action 
by the written authorization or consent of security holders, the 
registrant shall transmit to every security holder of the class that is 
entitled to vote or give an authorization or consent in regard to any 
matter to be acted upon and from whom proxy authorization or consent is 
not solicited on behalf of the registrant pursuant to section 14(a) of 
the Act:
    (i) A written information statement containing the information 
specified in Schedule 14C (Sec.  240.14c-101);
    (ii) A publicly-filed information statement, in the form and manner 
described in Sec.  240.14c-3(d), containing the information specified 
in Schedule 14C (Sec.  240.14c-101); or
    (iii) A written information statement included in a registration 
statement filed under the Securities Act of 1933 on Form S-4 or F-4 
(Sec.  239.25 or Sec.  239.34 of this chapter) or Form N-14 (Sec.  
239.23 of this chapter) and containing the information specified in 
such Form.
    (2) Notwithstanding paragraph (a)(1) of this section:
    (i) In the case of a class of securities in unregistered or bearer 
form, such statements need to be transmitted only to those security 
holders whose names are known to the registrant; and
    (ii) No such statements need to be transmitted to a security holder 
if a registrant would be excused from delivery of an annual report to 
security holders or a proxy statement under Sec.  240.14a-3(e)(2) if 
such section were applicable.
* * * * *
    (d) A registrant may transmit an information statement to security 
holders pursuant to paragraph (a) of this section by satisfying the 
requirements set forth in Sec.  240.14a-16; provided, however, that the 
registrant may revise the information required in the Notice of 
Internet Availability of Proxy Materials to reflect the fact that the 
registrant is not soliciting proxies for the meeting. This paragraph 
(d) provides a non-exclusive alternative by which a registrant may 
transmit an information statement pursuant to paragraph (a) of this 
section to a security holder. This paragraph (d) does not affect the 
availability of any other means by which a registrant may transmit an 
information statement pursuant to paragraph (a) of this section to a 
security holder.

0
14. Amend Sec.  240.14c-3 by:
0
a. Removing the authority citation following this section;
0
b. Revising paragraphs (a)(1) and (c); and
0
c. Adding paragraph (d).
    The revisions and addition read as follows:


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

    (a) * * *
    (1) The annual report to security holders shall contain the 
information specified in paragraphs (b)(1) through (b)(11) of Sec.  
240.14a-3.
* * * * *
    (c) A registrant will be considered to have delivered a Notice of 
Internet Availability of Proxy Materials, annual report to security 
holders or information statement to security holders of record who 
share an address if the requirements set forth in Sec.  240.14a-3(e)(1) 
are satisfied with respect to the Notice of Internet Availability of 
Proxy Materials, annual report to security holders or information 
statement, as applicable.
    (d) A registrant may furnish an annual report to security holders 
pursuant to paragraph (a) of this section by satisfying the 
requirements set forth in Sec.  240.14a-16. This paragraph (d) provides 
a non-exclusive alternative by which a registrant may furnish an annual 
report pursuant to paragraph (a) of this section to a security holder. 
This paragraph (d) does not affect the availability of any other means 
by which a registrant may furnish an annual report pursuant to 
paragraph (a) of this section to a security holder.

0
15. Amend Sec.  240.14c-5 by revising the word ``mailed'' to read 
``sent'' in the second sentence of the introductory text of paragraph 
(a).

0
16. Amend Sec.  240.14c-7 by revising paragraph (a)(5) before the Note 
and the word ``mail'' to read ``send'' in Note 2 following paragraph 
(a).
    The revision reads as follows:


Sec.  240.14c-7  Providing copies of material for certain beneficial 
owners.

    (a) * * *
    (5) Upon the request of any record holder or respondent bank that 
is supplied with Notices of Internet Availability of Proxy Materials, 
information statements and/or annual reports to security holders 
pursuant to paragraph (a)(3) of this section, pay its reasonable 
expenses for completing the sending of such material to beneficial 
owners.
* * * * *

0
17. Amend Sec.  240.14c-101 by:
0
a. Revising the word ``mailing'' to read ``sending'' in Item 4, 
Instruction 1; and
0
b. Revising Item 5.
    The revision reads as follows.


Sec.  240.14c-101  Schedule 14C. Information required in information 
statement.

* * * * *
    Item 5. Delivery of documents to security holders sharing an 
address. If one annual report to security holders, information 
statement, or Notice of Internet Availability of Proxy Materials is 
being delivered to two or more security holders who share an address, 
furnish the following information in accordance with Sec.  240.14a-
3(e)(1):
    (a) State that only one annual report to security holders, 
information statement, or Notice of Internet Availability of Proxy 
Materials, as applicable, is being delivered to multiple security 
holders sharing an address unless the registrant has received contrary 
instructions from one or more of the security holders;
    (b) Undertake to deliver promptly upon written or oral request a 
separate copy of the annual report to security holders, information 
statement, or Notice of Internet Availability of Proxy Materials, as 
applicable, to a security holder at a shared address to which a single 
copy of the documents was delivered and provide instructions as to how 
a security holder can notify the registrant that the security holder 
wishes to receive a separate copy of an annual report to security 
holders, information statement, or Notice of Internet Availability of 
Proxy Materials, as applicable;
    (c) Provide the phone number and mailing address to which a 
security holder can direct a notification to the registrant that the 
security holder wishes to receive a separate annual report to security 
holders, information statement, or Notice of Internet Availability of 
Proxy Materials, as applicable, in the future; and
    (d) Provide instructions how security holders sharing an address 
can request delivery of a single copy of annual reports to security 
holders, information statements, or Notices of Internet Availability of 
Proxy Materials if they are receiving multiple copies of annual reports 
to security holders, information statements, or Notices of Internet 
Availability of Proxy Materials.

[[Page 4173]]

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
18. The general authority citation for part 249 is revised to read as 
follows:

    Authority: 15 U.S.C. 78a et seq., 7202, 7233, 7241, 7262, 7264, 
and 7265; and 18 U.S.C. 1350, unless otherwise noted.
* * * * *

0
19. Amend Item 4 to ``Part II--Other Information'' of Form 10-Q 
(referenced in Sec.  249.308a) by revising paragraph (d) to read as 
follows:

    Note: The text of Form 10-Q does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-Q
* * * * *
Part II--Other Information
* * * * *
Item 4. Submission of Matters to a Vote of Security Holders.
* * * * *
    (d) A description of the terms of any settlement between the 
registrant and any other participant (as defined in Instruction 3 to 
Item 4 of Schedule 14A (Sec.  240.14a-101)) terminating any 
solicitation subject to Sec.  240.14a-12(c), including the cost or 
anticipated cost to the registrant.
* * * * *

0
20. Amend Item 4 to ``Part II--Other Information'' of Form 10-QSB 
(referenced in Sec.  249.308b) by revising paragraph (d) to read as 
follows:

    Note: The text of Form 10-QSB does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-QSB
* * * * *
Part II--Other Information
* * * * *
Item 4. Submission of Matters to a Vote of Security Holders.
* * * * *
    (d) A description of the terms of any settlement between the 
registrant and any other participant (as defined in Instruction 3 to 
Item 4 of Schedule 14A (Sec.  240.14a-101)) terminating any 
solicitation subject to Sec.  240.14a-12(c), including the cost or 
anticipated cost to the registrant.
* * * * *

0
21. Amend Item 4 to Part I of Form 10-K (referenced in Sec.  249.310) 
by revising paragraph (d) to read as follows:

    Note: The text of Form 10-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-K
* * * * *
Part I
* * * * *
Item 4. Submission of Matters to a Vote of Security Holders.
* * * * *
    (d) A description of the terms of any settlement between the 
registrant and any other participant (as defined in Instruction 3 to 
Item 4 of Schedule 14A (Sec.  240.14a-101)) terminating any 
solicitation subject to Sec.  240.14a-12(c), including the cost or 
anticipated cost to the registrant.
* * * * *

0
22. Amend Item 4 to Part I of Form 10-KSB (referenced in Sec.  
249.310b) by revising paragraph (d) to read as follows:

    Note: The text of Form 10-KSB does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-KSB
* * * * *
Part I
* * * * *
Item 4. Submission of Matters to a Vote of Security Holders.
* * * * *
    (d) A description of the terms of any settlement between the 
registrant and any other participant (as defined in Instruction 3 to 
Item 4 of Schedule 14A (Sec.  240.14a-101)) terminating any 
solicitation subject to Sec.  240.14a-12(c), including the cost or 
anticipated cost to the registrant.
* * * * *

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

0
23. The authority citation for part 274 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 
78n, 78o(d), 80a-8, 80a-24, 80a-26, and 80a-29, unless otherwise 
noted.
* * * * *

0
24. Amend Sub-Item 77C to ``Instructions to Specific Items'' of Form N-
SAR (referenced in Sec. Sec.  249.330 and 274.101) by revising 
paragraph (d) to read as follows:

    Note: The text of Form N-SAR does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-SAR
* * * * *
Instructions to Specific Items
* * * * *
SUB-ITEM 77C: Submission of matters to a vote of security holders
* * * * *
    (d) Describe the terms of any settlement between the registrant and 
any other participant (as defined in Instruction 3 to Item 4 of 
Schedule 14A (Sec.  240.14a-101)) terminating any solicitation subject 
to Sec.  240.14a-12(c), including the cost or anticipated cost to the 
registrant.
* * * * *

    Dated: January 22, 2007.

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. 07-327 Filed 1-26-07; 8:45 am]
BILLING CODE 8011-01-P