February 6, 2002
VIA ELECTRONIC MAIL
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: File No. SR-NYSE-2001-53
Proposed Amendments to NYSE Rules 451 and 455
Dear Sir or Madam:
Intel Corporation, Agilent Technologies, Inc. and Microsoft Corporation would like to provide the following comments on the proposed rule change described in File No. SR-NYSE-2001-53, published in the Federal Register on January 16, 2002. The proposed rule change would amend New York Stock Exchange guidelines for fees that issuers must pay for distribution of annual stockholder meeting materials to beneficial stockholders (those who hold their shares in "street" name, through a bank or brokerage firm). As we understand the proposed rule change, it would have the following effects: (i) reduce per-account processing fees from $.50 to $.40; (ii) increase the nominees fee from the current $20 per nominee by adding a $.10 per document surcharge for small issuers and a $.05 per document surcharge for large issuers; and (iii) reduce per-account fees from $.50 to $.25 for electronic delivery of annual meeting materials, including householding and email delivery. We support these changes.
We appreciate the willingness of the Commission to review the fees for delivery of annual meeting materials to beneficial stockholders, and we are very pleased to see the proposed fee reduction, considering that these expenses are the single largest component of our annual meeting expenses. For example, in 2001, Intel spent approximately $8.5 million to print and distribute annual meeting materials to its stockholder base of approximately 4.3 million stockholders, of which approximately 4 million were beneficial stockholders. Of this $8.5 million, approximately $4.8 million, or 56%, represented fees and postage paid to service providers for distributing annual meeting materials to beneficial stockholders.
Similarly, in 2001, Microsoft spent approximately $7.9 million to distribute annual meeting materials to its stockholders base of approximately 4.1 million stockholders, of which approximately 4 million were beneficial stockholders. Of this $7.9 million, approximately $4.7 million or 59%, represented fees and postage paid to service providers for distributing annual meeting materials to beneficial stockholders.
On a broader level, we believe that the current distribution system, reflected in Exchange Act rules 14b-1 and 14b-2, maintains an economically inefficient arrangement that has become obsolete over time. We are required to reimburse banks and brokers for mailing annual meeting materials to its beneficial stockholders, but we have little opportunity to select, negotiate with or supervise the distribution service providers who ultimately perform these services. Instead, the banks and brokers execute contracts with service providers, and we receive and pay the invoices for services rendered. The result is that banks and brokers have little incentive to reduce expenses when contracting with service providers because they do not pay for the services. Further, they also have little incentive to provide the supervision that might prevent service problems such as late delivery of annual meeting materials. Moreover, even though these service providers perform the tasks required to distribute the materials to beneficial holders, we understand that the banks and brokers ultimately receive a portion of the fees paid by issuers to the service providers. For example, we understand that some banks and brokers ultimately receive as much as 37% of the current "mail elimination" fees paid by the issuers to the service providers. The proposed fees would reduce the "mail elimination" fees by 20%, and that reduction is less than the amount we understand that certain banks and brokers currently receive. Clearly, there is room for further fee reduction in this area.
We believe that the lack of issuer control over the selection of service providers for distribution of annual meeting materials results in higher costs. In contrast, issuers do have the opportunity to choose and supervise the service providers who distribute annual meeting materials to their registered holders, and the fees reflect this economic efficiency. For example, in 2001, the fees Intel paid for such services were approximately 10% less than the fees paid to the same service provider who mailed annual meeting materials to beneficial holders. This fee disparity occurred despite the fact that registered stockholders are relatively few in number, and economies of scale logically should have been reflected in the fees for our more numerous beneficial stockholders.
We are pleased that "the Exchange intends to...evaluate and tune the Guidelines and to consider possible approaches to broader reform of the proxy distribution system." Because of the considerable annual economic impact of the fee structure upon issuers, we encourage the Commission to support that reform effort through its own initiatives. We encourage consideration of a system that would facilitate disintermediation and allow for more direct negotiation and contracting between the issuers and the service providers. We also encourage further initiatives supporting electronic delivery and electronic voting.
Thank you in advance for your consideration of our comments, and we look forward to working with the Committee on this issue. Please call any of us directly if you would like any further information.
|/s/ Rachel E. Kosmal
Rachel E. Kosmal
| /s/ D. Craig Nordlund
D. Craig Nordlund
| /s/ Keith Dolliver