Real Corporate Lawyer

Source: There are many delivery obligations, including Section 5 of the Securities Act of 1933 and Rule 174, thereunder thereunder for public offerings, and Rule 14a-3 of the Securities Exchange Act of 1934 for proxy solicitations.

2. What is "electronic delivery"?

Electronic delivery is simply using a Web-based, e-mail, or other electronic system to meet a delivery obligation.

3. Can companies electronically deliver proxy materials, annual reports or prospectuses?

Yes - the SEC has issued three releases that provide guidance on how companies can satisfy their delivery obligations electronically.

The three releases each contain useful examples�provided at the end of each release�of how the guidance can be applied.

Source: SEC Interpretive Release No. 33-7233 (October 6, 1995) has 52 examples; SEC Interpretive Release No. 33-7288 (May 9, 1996) has 7 examples; and SEC Interpretive Release No. 33-7856 (May 4, 2000) has 8 examples.

The 1995 release focused on electronic delivery of prospectuses, annual reports to security holders, and proxy solicitation materials. The 1996 release focused on electronic delivery of required information by brokers and transfer agents. The 2000 release provided further guidance on a number of electronic topics, including electronic delivery.

In 2005, the SEC adopted an �access equals delivery� model for delivery of final prospectuses required to be delivered within the 45- or 90- day period after effectiveness of a Securities Act registration statement. These rules supersede some of the guidance in the examples addressing prospectus delivery in the 1995 release. See more at "Access Equals Delivery.�

Source: Rules 172 and 173 of the Securities Act of 1933.

4. Why do companies electronically deliver?

Companies can:

save money on postage and printing,
act more environmentally friendly, and
appear more tech savvy.

In fact, companies that don't offer electronic delivery will soon seem like laggards, particularly to investors who provide global consents but still receive paper copies from companies that don't offer electronic delivery. See more at "Can companies "piggyback" on global consents?�

B. How Can Companies Electronically Deliver

1. What is the SEC's guidance that allows electronic delivery?

Companies must be able to show that they met two principal non-exclusive factors in effecting delivery electronically:

notice, and
access.

Evidence of delivery essentially is a third factor, since companies must be reasonably assured that investors received the electronically delivered document.

Although notice and access are not exclusive factors, the SEC stresses that these factors must be considered to determine whether delivery requirements have been satisfied.

Source: The SEC set forth these factors in Section II.B. of Interpretive Release No. 33-7233 (October 6, 1995).

2. What is the SEC's policy behind its electronic delivery guidance?

The SEC chose factors that establish a broad, flexible framework that is designed to ensure that electronic delivery provides comparable notice and access to paper delivery. Some critics believe the electronic delivery framework includes conditions that are not imposed in the paper delivery framework, such as evidence of actual receipt of a document.

Source: The SEC set forth policy considerations behind its guidance in Section II.A. of Interpretive Release No. 33-7233 (October 6, 1995). The Committee on Federal Regulation of Securities of the Business Law Section of the ABA noted that actual receipt evidence is not required for paper delivery in its August 2, 2000, comment letter on Interpretive Release No. 33-7856 (May 4, 2000).

3. Does a company have to follow one of the SEC's examples to use electronic delivery?

Not necessarily. Of course, if a company follows one of the examples from the SEC's releases, it has reasonable assurance that it met its delivery obligations.

If an example is not followed, the general principles set forth in the SEC's guidance should be followed, primarily by analogy to paper delivery concepts. In addition, it may be prudent to confirm with the Office of Chief Counsel in the SEC's Division of Corporation Finance at (202) 551-3500 that the proposed delivery method fits within the guidance. See more in RealCorporateLawyer's FAQs regarding online public offerings.

Source: In Section II.D. of Interpretive Release No. 33-7233 (October 6, 1995), the SEC noted that the analysis of whether a delivery obligation is met is fact-specific, and facts that differ from its examples may lead to different results.

4. How is "electronic" media defined for purposes of electronic delivery?

Electronic media is defined very broadly. The term includes Web sites, e-mail, audiotapes, videotapes, facsimiles, CD-ROM, message boards, and computer networks.

Source: This definition is in footnote 9 of Interpretive Release No. 33-7233 (October 6, 1995).

5. Can companies electronically delivery PDF documents?

Companies can electronically deliver documents that cannot be accessed without special software, so long as obtaining the software is not so burdensome as to effectively prevent access (and investors consent). Since Adobe System's Acrobat Reader (which opens and reads PDF documents) is freely available, companies should be able to deliver PDF documents so long as they:

inform investors how to download PDF documents at the time they obtain an investor's consent; and
provide investors with free software and technical assistance to access the PDF documents.

These two requirements can be satisfied by providing a link to download a free copy of Adobe Acrobat Reader and listing a toll-free phone number for investors to get assistance.

Some commentators believe that the SEC's guidance regarding PDF documents is a step back from the SEC's original electronic delivery framework since it imposes more stringent procedural requirements than originally provided.

Source: The SEC provided the guidance about how companies can use PDF documents in footnotes 32-34 and the accompanying text of Interpretive Release No. 33-7856 (May 4, 2000), as well as in Example 5 of that release. The "burdensome access" analysis is in footnote 11 of Interpretive Release No. 33-7856, which borrows from footnote 24 and the accompanying text of Interpretive Release No. 33-7233 (October 6, 1995). The Bond Market Association's June 21, 2000, comment letter on Interpretive Release No. 33-7856 (May 4, 2000) opines that the SEC's most recent PDF guidance is more stringent than its prior guidance.

6. Does a company have to prove that an investor read a document?

No; the delivery obligations under the federal securities laws don't require companies to ensure that investors read their disclosure. In fact, companies and their agents are not permitted to require investors to certify that they have read an SEC document. They are, of course, permitted to encourage investors to read SEC-filed documents.

Source: In Section VIII.A.5. of the SEC's Division of Corporation Finance's Current Issues Outline (November 14, 2000), the SEC staff warned about requiring investors to acknowledge they have read a prospectus since this could lead investors to believe that they had waived their rights under the securities laws.

7. When can companies imply consent for employee-stockholders?

Companies cannot imply consent to electronic delivery from shareholders, except in certain cases for employee stockholders. The circumstances in which companies are permitted to imply consent for employee-stockholders include:

Employees use the company's electronic mail in the ordinary course of performing their duties as employees.
Employees ordinarily are expected to log-on routinely receive e-mail.
Employees who do not regularly log-on to receive e-mail have other ways to check e-mail, such as having messages sent to secretaries or co-workers who then deliver them to the employee.
E-mails either include the actual document or announce the availability of the document and provide information as to how to access the document through the local area network.
E-mails prominently state that a paper version of the document is available upon request.

These circumstances are set forth in Example 1 of Interpretive Release No. 33-7288 (May 9, 1996).

The SEC allows implied consent in these circumstances because it believes that the employer is capable of determining whether employees have access and can relatively easily provide notice over its internal network. Although companies may imply consent for employee-stockholders who hold their stock jointly, they may not be able to allow the joint non-employee stockholders to vote through an intranet since those persons do not have access to the employer network. Since most electronic voting is conducted through external Web sites, this issue rarely arises.

Companies that have implied consent for employees include Microsoft, Intel, AT&T and Lucent.

Source: In footnote 106 in Interpretive Release No. 33-7856 (May 4, 2000), the SEC stated implied consent is valid only in the employee-stockholder context. In Release No. 33-7766 (November 4, 1999), the SEC allowed implied consent for "householding" (meaning delivery of a single prospectus or report to two or more investors that are members of the same family and share the same residential address) of prospectuses if adequate advance notice is given to the investors and they do not object. However, householding to a shared electronic address is allowed only if both investors consent in writing. The SEC adopted similar householding rules for delivery of proxy and information statements in Release No. 33-7912 (November 8, 2000).

C. What Constitutes "Notice"

1. What is adequate "notice" for electronic delivery?

Adequate notice ensures that an investor is aware that new information exists. How this is accomplished primarily depends on whether the medium is "passive." See more at "What is "passive" notice?�

Some critics believe that notice should be required only for documents delivered through a Web site. In contrast, they believe that e-mail and CD-ROMs by their nature provide notice of their availability upon delivery, so that notice should be presumed once documents are sent, not upon receipt.

Source: The SEC's notice guidance is in Section II.B of Interpretive Release No. 33-7233 (October 6, 1995). The Committee on Federal Regulation of Securities of the Business Law Section of the ABA argued that notice should not be required for non-Web site delivery methods in its August 2, 2000, comment letter on Release 33-7856 (May 4, 2000).

2. Can companies imply consent?

Only in certain cases for employee-stockholders. See more at "Why can companies imply consent for employee-stockholders?�

A company can obtain evidence of delivery without soliciting informed consents, but only if there is some other indication that the document was in fact received.

The SEC has requested comments about whether there are circumstances under which an implied consent is appropriate�for example, the ability to e-mail a document if an investor previously provided its e-mail address to a company in another context and indicated that e-mail is an acceptable method of communication.

Some commentators have argued that a company should be able to imply consent if it provides notice that it will deliver electronically and an investor does not object to receiving disclosure in the medium specified in the notice.

Source: In footnote 106 in Interpretive Release No. 33-7856 (May 4, 2000), the SEC stated that implied consent is valid only in the employee-stockholder context. Note that in Release No. 33-7766 (November 4, 1999), the SEC allowed implied consent for "householding" (meaning delivery of a single prospectus or report to two or more investors that are members of the same family and share the same residential address) of prospectuses if adequate advance notice is given to the investors and they do not object, but householding to a shared electronic address is allowed only if both investors consent in writing. The SEC has adopted similar householding rules for delivery of proxy and information statements in Release No. 33-7912 (November 8, 2000). The Committee on Federal Regulation of Securities of the Business Law Section of the ABA makes an argument for broader use of implied consent in its August 2, 2000, comment letter on Release 33-7856 (May 4, 2000).

3. Why can companies imply consent for employee-stockholders?

Because the SEC believes that an employer has the ability to determine whether its employees have access, and can provide notice relatively easily over its internal network.

Note that companies can't imply consent for employee-stockholders who hold their stock jointly. They also need to obtain consents from the non-employee joint holders.

Source: In footnote 106 in Interpretive Release No. 33-7856 (May 4, 2000), the SEC stated implied consent is valid only in the employee-stockholder context.

4. What are the arguments for implied consent to be permitted?

It is difficult to obtain consents. Many believe that this isn't due to the unwillingness of investors to accept electronic delivery. Rather, it's due mainly to investors being indifferent when asked for affirmative consent.

One possible solution is to allow companies to use electronic delivery if investors do not affirmatively object when notified that a company or its agent intends to deliver documents electronically. See more at �Access Equals Delivery.�

5. What is "passive" notice?

"Passive" means that an investor is not aware that delivery is being attempted (such as a newspaper ad) unless the company takes more affirmative actions (such as sending an e-mail or a postal note informing an investor that a document is available on a Web site).

Passive notice is not adequate notice unless a company can otherwise show that notice has been effective and delivery has been made (such as evidence that an investor visited a document on the Web site).

Source: Examples 23 and 24 of Interpretive Release No. 33-7233 (October 6, 1995) illustrate how passive notice is not adequate.

6. What is not "passive" notice?

Postal mail delivery of an electronic document, such as a CD-ROM or floppy disk, is not "passive" and constitutes adequate notice. However, an investor must have consented to delivery by that type of electronic medium to meet the �access� factor.

Some commentators have noted that the SEC's latest guidance requires actual receipt of a document to constitute notice; dropping something in the mail is not enough.

Source: Example 30 of Interpretive Release No. 33-7233 (October 6, 1995) illustrates how mailing a "physical" electronic document provides adequate notice.

7. How can a company provide notice when it posts a document to be delivered through a Web site?

By sending an e-mail or postal notice that includes the document's Web site address and the date by which the company plans to post the document.

If an e-mail notice is used, an embedded link to the document alone is adequate notice.

Some commentators believe that the SEC should accept other methods of notice for Web site delivery, such as global notice in a broker's account agreement disclosing the future time and location of disclosure documents to be posted on the Web.

Source: Examples 23 and 24 of Interpretive Release No. 33-7233 (October 6, 1995) illustrate how Web site delivery should and should not be made. In its August 2, 2000, comment letter on Release 33-7856 (May 4, 2000), the Committee on Federal Regulation of Securities of the Business Law Section of the ABA argued that the SEC should adopt a global notice procedure.

8. When is a notice untimely?

Notice is untimely if it's not provided relatively close (but not too close) to the time that a company requests investor action, such as a vote or acceptance of an offer, unless the company has a reasonable expectation that an investor will timely act to access a document on a Web site on its own.

The SEC doesn't provide bright line guidance of what "close proximity" is, but an example indicates that sending notice six weeks before the annual meeting is adequate. Note that this time period roughly corresponds to when most companies mail paper proxy materials before a meeting, so analogies to paper notice time periods likely are acceptable.

A company can have a reasonable expectation that an investor will timely act on its own based on a history of communications with that investor, but there is no SEC guidance about how extensive or specific these communications have to be.

Source: The SEC discusses "close proximity" and "reasonable expectations" in Example 25 of Interpretive Release No. 33-7233 (October 6, 1995).

9. What is not adequate notice?

Notice is not adequate if it isn't timely, or, in many cases, if it's passive.

Posting documents on the Web alone is not adequate notice, even if the posting contains a telephone number that investors can use to request paper documents. It's also not adequate to merely publish a notice in a newspaper.

Source: Example 24 of Interpretive Release No. 33-7233 (October 6, 1995) illustrates that placing an ad in a print periodical is not adequate notice.

10. What should be in a consent?

Generally, a consent should specify:

How the documents will be delivered, either by specifying the exact media that would be used to effect delivery (such as by e-mail or on a Web site) or by a broad statement that delivery could be done by any and all electronic media;
How long the consent is valid, either by specifying a precise period or by stating that there is an unlimited duration;
Which documents will be electronically delivered, either by specifying the specific documents or by including a broad statement to cover all documents required to be delivered under the securities laws;
Any costs that an investor may incur with electronic delivery, such as online access costs; and
That the consent is revocable at any time.

In some cases, an information request that is received electronically from an investor can be presumed to be a consent. Note that global consents require additional disclosures. See more at "What is a "global" consent?�.

In practice, companies do not uniformly follow the SEC's consent guidance since they typically don't address each of these matters, particularly the potential cost to investors.

Source: The requirements of a "consent" are described in footnote 29 to Interpretive Release No. 33-7233 (October 6, 1995).

11. Can third parties obtain consents from investors?

Third parties can obtain consents to satisfy their own delivery obligations, either as an agent on behalf of a company or on behalf of multiple companies. See more at "What is a "global" consent?�

A few third parties have been collecting consents, including ADP-ICS. See more "Who are the electronic delivery service providers?�

Source: The ability of brokers and other third parties to obtain consents is described in Section II.B. and illustrated in Examples 6, 7, and 29 of Interpretive Release No. 33-7233 (October 6, 1995).

12. Can a company rely on a consent obtained from an investor by a third party?

Yes, and vice versa: a third party can rely on consents obtained by a company.

Source: This is illustrated in Example 6 of Interpretive Release No. 33-7233 (October 6, 1995).

13. Can companies obtain telephonic consents from investors?

As with written or electronic consent, telephonic consent must be obtained in a manner that assures its authenticity. Thus, telephonic consent is permissible so long as a record of the consent is retained and the process allows for some method of authentication.

The record of telephonic consent should contain as much detail as any written consent, including whether the consent is global and what electronic media will be used to effect delivery. See more at "What is a "global" consent?�

Source: Telephonic consent is described in the text related to footnotes 21-23 in Interpretive Release No. 33-7856 (May 4, 2000).

14. How can companies obtain telephonic consents from investors?

Interactive voice response (IVR) systems have become common and increasingly sophisticated.

Today, IVR systems are widely used to vote proxies and even transfer assets, where permitted under applicable state law. In addition, many investors often place orders to trade securities using automated telephone systems.

Note that the SEC's two examples relating to telephonic consent still require a writing�either a letter to an investor confirming that a telephonic consent was provided through an IVR system or a memo to the file from a broker who telephonically received a consent from a long-term customer. Both examples lay out how authenticity can be assured (a PIN number and a long-term customer relationship) and what constitutes a record (the writings noted above).

Source: Examples 1 and 2 in Interpretive Release No. 33-7856 (May 4, 2000) address how telephonic consents can be obtained.

15. What is a "global" consent?

Global consent is consent to electronic delivery of documents by some or all of the companies in which an investor owns or may someday own securities (assuming those companies offer electronic delivery, which many don't). See more at 'Which Companies Are Using Electronic Delivery?�

Global consents are valid whether the securities are held in the investor's own name (as record holder) or through a broker or bank (as a beneficial owner).

Source: Global consent is described in Examples 3 and 4, as well as Section II.A.2, of Interpretive Release No. 33-7856 (May 4, 2000). Although somewhat dated by the newer examples noted above, Example 26 in Interpretive Release No. 33-7233 (October 6, 1995) illustrates how investors can consent to electronic delivery of all documents from one company or can consent through a broker.

16. Can a company obtain "global" consents from investors?

Only if the consent is informed. The SEC has provided guidance of what is�and what is not��informed" in the global consent context. See more at �What is an "informed" global consent?�

As a practical matter, companies are not interested in "global" consents; they just care about consents that pertain to their own documents. Typically, only brokers and other third parties collect "global" consents.

Source: The SEC explains how investors must be educated about global consents in Section II.A.2. of Interpretive Release No. 33-7856 (May 4, 2000).

17. What is an "informed" global consent?

The SEC has outlined factors that indicate when a global consent is, and is not, informed. Based on this guidance, a consent is not informed if it is:

in an agreement to receive other services, or
a condition precedent to opening a brokerage account (unless a broker requires accounts to be opened online and all account transactions to be initiated and conducted online). See more at "Why does the SEC allow only online brokers to condition the opening of accounts based on customers providing a global consent?�

A consent likely is informed if it is:

in a separate section of a brokerage account form relating to electronic delivery authorization, or
in an electronic delivery authorization form that is separate from a broker account form.

Source: In Section II.A.2. of Interpretive Release No. 33-7856 (May 4, 2000), the SEC noted that if a consent is not informed, electronic delivery would not be considered effective unless there is other evidence of delivery. In footnote 27 of the same release, the SEC made an exception for online brokers to allow them to condition the opening of an account on a customer providing global consent.

18. Can companies "piggyback" on global consents?

Yes. Companies can use the global consents provided by their stockholders to their brokers and other third-parties (like ADP-ICS) even if they did not obtain the consents themselves.

As more investors provide global consents to third parties, companies find they can electronically deliver to a growing percentage of their stockholder base without incurring the cost or administrative headache of soliciting consents.

19. Why does the SEC allow only online brokers to condition the opening of accounts based on customers providing a global consent?

The SEC's guidance on this point reflects existing market practice, and also recognizes that investors likely have Internet access if they open an account to conduct trades online.

Some commentators have criticized this position as discriminating in favor of e-brokers. Critics say the SEC should not create artificial distinctions between types of brokers. In addition, they note that investors who open online accounts are not necessarily more informed just because they open an online account.

Source: The Bond Market Association's June 21, 2000, comment letter on Interpretive Release No. 33-7856 (May 4, 2000) stated that the SEC's position is discriminatory. This comment is also made in the Committee on Federal Regulation of Securities of the ABA Business Law Section's August 2, 2000, comment letter.

20. Can an investor revoke a global consent?

Yes, at any time. In addition, an investor can always request paper copies even without revoking the consent.

Brokers can require that investors revoke their global consent for all companies rather than just selected ones (i.e., an "all-or-none" basis) so long as the broker's right to require an investor to choose "all or none" is disclosed when the investor provides a consent to the broker.

Brokers probably prefer an "all-or-none" revocation process to help avoid the administrative nightmare of keeping track of the companies for which an investor has provided a consent and those for which the investor wishes to receive paper copies. It's hard enough for brokers just to keep track of which investors have provided consents and which have not. This difficulty is one of the reasons for electronic delivery's relatively moderate growth.

Source: The SEC allowed brokers to condition revocation of global consents on an all-or-none basis in Section II.A.2. of Interpretive Release No. 33-7856 (May 4, 2000). An investor's right to request a paper copy without revoking his or her consent is illustrated in Example 26 of Interpretive Release No. 33-7233 (October 6, 1995).

21. Should an informed global consent specify the type of electronic media to be used?

Yes, but it does not need to specify the medium to be used by any particular company. In other words, a consent can specify a particular medium or media, and so long as the companies in which an investor owns securities use one or more of those specified media, the consent should be valid.

If a broker later wants to add additional media, it must obtain a new consent from investors that identifies the additional media.

Source: The SEC's guidance that the media does not have to be specified for each company is illustrated in Example 3, as well as the text related to footnote 30, in Interpretive Release No. 33-7856 (May 4, 2000).

22. Should an informed global consent specify the companies covered by the consent?

No, but if it does, it also can provide that additional companies can be added without the investor providing further consent.

To avoid having to obtain new consents when an investor buys new securities, brokers should ensure that the consents it receives are broad and have "catch-all" language that encompasses a broad universe of companies.

Source: The SEC's guidance that companies do not have to be specified in a consent is illustrated in Example 4, as well as the text related to footnote 31, in Interpretive Release No. 33-7856 (May 4, 2000).

23. Does a consent to electronic delivery cover prospectus updates or supplements?

No, not unless an investor specified in its consent that it would accept scheduled updates in a specified electronic medium or media. A consent cannot cover unscheduled prospectus updates or supplements.

Note that a company has to deliver a recirculated prospectus only to investors who have indicated that they will buy in an offering.

Source: The SEC's guidance regarding scheduled updates is illustrated in Example 5 in Interpretive Release No. 33-7288 (May 9, 1996). The SEC's guidance regarding recirculation is illustrated in Example 9 in Interpretive Release No. 33-7233 (October 6, 1995).

D. What is "Access"

1. What is adequate "access" for electronic delivery?

For most documents, �access� means that delivery was made in a manner so that an investor can easily obtain and retain the new information. In other words, the delivery uses technology that lets investors access as well as download or print documents easily and quickly.

For delivery using the Web, the SEC notes that navigation should not be too burdensome for investors, which effectively denies access. For example, investors should not have to proceed through a confusing series of changing menus.

Source: The SEC described adequate access in Section II.B. of Interpretive Release No. 33-7233 (October 6, 1995).

For delivery of final prospectuses required within the 45- or 90-day period after effectiveness of a Securities Act registration statement, access means that the final prospectus was filed with the SEC or the issuer will make a good faith and reasonable effort to file it within two business days of pricing.

Source: Rule 174 of the Securities Act of 1933 sets forth the prospectus delivery requirements following effectiveness of a registration statement. Rule 172 of the Securities Act of 1933 was adopted by Release No. 33-8591 (July 19, 2005), Section VI.B.1, and provides an alternative method of compliance with the requirements of Rule 174.

2. How long should investors have the ability to retain or access an electronically delivered document?

As long as the applicable delivery requirements dictate. For example, proxy statements and glossy annual reports posted on the Web should remain posted until the related stockholders' meeting is held, including all adjournments.

Source: The SEC's guidance that electronically delivered documents should be available electronically for an adequate length of time is in footnote 26 of Interpretive Release No. 33-7233 (October 6, 1995).

3. Can a company rely on the "envelope theory" to electronically deliver?

Yes. Under the envelope theory, documents are considered delivered together if they are:

linked to each other, or
in close proximity to each other on the same Web site menu.

Source: Example 16 of Interpretive Release No. 33-7233 (October 6, 1995) illustrates the application of the envelope theory. The SEC confirmed that the "envelope theory" is alive and well in the delivery context in Section II.A.4. of Interpretive Release No. 33-7856 (May 4, 2000).

4. When are links considered in "close proximity on the same Web site menu" for the linked documents to be considered delivered together?

If the links to the documents are proximate to each other on the same Web screen.

It is unclear whether links that are on the same Web page together automatically fall within this definition. Probably not, since the SEC included language about the links being "proximate" to each other. As a result, the links may need to be relatively close to each other on the same Web page to fall within the definition. The most common example informally given by the SEC staff are buttons that are adjacent to each other.

Source: The SEC clarified the meaning of "menu" that it gave in footnote 24 of Interpretive Release No. 33-7233 (October 6, 1995) in footnote 39 of Interpretive Release No. 33-7856 (May 4, 2000).

E. What is Evidence of Delivery

How can a company produce sufficient evidence to show that it has successfully electronically delivered a document?

The SEC lists five nonexclusive types of electronic delivery evidence:

obtaining revocable informed consents, coupled with notice and access assurances;
obtaining e-mail return receipt or record of Web site access;
faxing a document;
obtaining evidence that an investor accessed a document that links to a required document; or
using forms available only by accessing a document.

Source: The SEC described adequate evidence of delivery in Section II.C. of Interpretive Release No. 33-7233 (October 6, 1995).

F. When Paper Copies Must be Made Available

1. Can a company completely forego having to deliver paper documents?

Not for proxy statements and annual reports. For prospectuses, in theory, no, but in practice, yes.

The SEC requires that companies always make paper versions of documents available for investors that revoke their consents, or even for investors who ask for paper copies without revoking their consents.

Investors must provide their requests for a paper copy within a reasonable period of time before they are required to take action (such as voting or buying a security). The SEC has not indicated what is a "reasonable period of time."

As a practical matter, fewer than 1% of investors request a paper copy once they provide a consent.

Note that an offering can be conducted entirely online by only accepting indications of interest from investors who consent to electronic delivery. However, even in these "electronic-only" offerings, an investor can request a paper version of the prospectus after a company accepts an investor's indication of interest�despite the investor's consent to electronic delivery. The SEC recently requested comments whether this position should be changed. See more at "Why does the SEC allow only online brokers to condition the opening of accounts based on customers providing a global consent?�

Source: An investor's right to request a paper copy without revoking his or her consent is illustrated in Example 26 of Interpretive Release No. 33-7233 (October 6, 1995).

This exception for request of a paper copy does not apply to a final prospectus, which need not be delivered at all (electronically or in paper) if it was filed with the SEC or the issuer will make a good faith and reasonable effort to file it within two business days of pricing.

Source: Rule 172 of the Securities Act of 1933, which was adopted by Release No. 33-8591 (July 19, 2005).

2. Why does the SEC require companies to make a paper copy available?

Principally as a policy matter. Investors are accustomed to paper. In addition, an investor may experience a computer malfunction and be unable to access an electronic document. However, the SEC has indicated that it may change this position someday. See more at "Can a company completely forego having to deliver paper documents? �

Source: The SEC noted its policy decision to require companies to make paper copies available at all times in Section II.B. of Interpretive Release No. 33-7233 (October 6, 1995).

G. What Should a Company Consider Before Using Electronic Delivery

1. How does electronic delivery benefit companies?

Companies can reduce printing and mailing costs over time, as well as avoid the administrative headache of handling the "trickle-down" and "trickle up" of delivering SEC documents through intermediaries. See more at "Who are the electronic delivery service providers?�

2. What are the administrative hurdles to establishing an electronic delivery system?

Probably the biggest problems are:

timely posting documents to be delivered;
keeping track of which investors have consented to electronic delivery, and
updating e-mail addresses for consenting investors (for those companies that intend to send notice via e-mail).

Other issues include:

keeping track of investors that have revoked their consent or requested a paper copy;
archiving electronic copies of the documents that have been delivered; and
maintaining a well trained "help" desk.

Source: An excellent description of some of these administrative hurdles in the mutual fund context is in Alexander Gavis and Scott Maylander, "Mutual Funds and Electronic Delivery: Promise versus Reality," wallstreetlawyer.com (Feburary 1999).

3. Do employee-stockholders typically care if a company implies consent and delivers electronically?

The vast majority appreciate cost savings initiatives. A few employees may complain, but they can always request a paper copy (and typically only a handful do).

A company may want to tout the cost savings aspect of electronic delivery when it first presumes consent to facilitate acceptance by employees.

4. What liability does a company have for electronic delivery?

The same as for paper delivery; the securities law liability provisions apply to electronic delivery just as they apply to paper delivery.

The SEC has made it clear that its electronic delivery guidance just interprets the procedural aspects of delivery. It does not alter a company's liability.

Source: The SEC noted that liability is the same for all mediums in footnote 11 of Interpretive Release No. 33-7233 (October 6, 1995).

5. How can a company keep track of the e-mail addresses for its stockholders?

This can be difficult, even for employee stockholders. However, if an e-mail "bounces" (also known as "e-fails"), the company should have a process that enables it to quickly send out a hard copy to the last known postal address for the stockholder.

Fortunately, bounced e-mails are happening less frequently as investors are opening up more "stable" e-mail accounts and some Internet service providers are honoring old e-mail addresses after they buy other ISPs.

Although electronic delivery doesn't have to involve e-mails, a major benefit of e-mail is the ability to remind a stockholder to vote quickly and inexpensively. E-mail reminders have proven to have a much higher response rate than postal reminders.

6. How can companies "test drive" electronic delivery?

By first "piggybacking" on the consents collected by third parties. See more at "Can companies "piggyback" on global consents?� Alternatively, a company can first offer electronic delivery solely to employees. See more at "When can companies imply consent for employee-stockholders?� Then any problems can be resolved in the relatively secure employment environment.

After acquiring some experience to iron out any problems, electronic delivery can be rolled out to all record holders. ADP has already offered electronic delivery to the beneficial owners of each public company (but the company still must take action, such as timely posting its proxy statement and annual report). See more at "Who are the electronic delivery service providers?�

Overall, companies have found that implementing electronic delivery is a gradual process, with better benefits reaped in each succeeding proxy season.

H. Consents to Brokers or Third Parties

1. Can a company or broker rely on a consent obtained by a third-party document delivery service?

Yes, but the entity that hired the third party still is responsible for ensuring that the consent is authentic and that delivery is properly made.

Source: The SEC clarified that this is permissible in footnote 25 of Interpretive Release No. 33-7856 (May 4, 2000) and illustrated this position in Example 6 of that release.

2. Can a broker meet its obligation to deliver confirmations to investors by simply placing a notice on its Web site?

No; a confirmation must be sent directly to its customers. However, this can be done electronically (e.g., by e-mail).

For confirmations and notices of allocation sent after effectiveness of a registration statement, a final prospectus need not be delivered at all (electronically or in paper) if the final prospectus is on file with the SEC.

Source: The SEC first addressed how brokers can electronically meet their Rule 10b-10 confirmation obligations in Section B of Interpretive Release No. 33-7288 (May 9, 1996). The SEC further addressed this obligation in footnote 103 and accompanying text in Interpretive Release No. 33-7856 (May 4, 2000) and asked for comment regarding an access model of delivery in Section D.2. of that release. Rule 172 of the Securities Act of 1933 addresses confirmations sent after effectiveness of a registration statement.

3. Can a broker electronically deliver a document by simply placing a notice on its Web site?

No. A broker must do more than merely post a message on its Web site that electronic SEC documents are available. Mere posting does not satisfy the notice and access factors.

Some commentators believe that messages posted on an investor's online brokerage account should constitute notice because this type of investor has demonstrated a preference for information to be delivered online.

Source: The SEC illustrated how merely placing a document on a Web site does not constitute adequate delivery in Example 26 of Interpretive Release No. 33-7233 (October 6, 1995). The Bond Market Association's June 21, 2000, comment letter on Release 33-7856 (May 4, 2000) states the belief that messages posted in an online brokerage account should be considered adequate notice.

4. Are investors providing consents to broker or third party services?

Yes. Most major brokers have begun soliciting consents online on their Web sites (or have partnered with a third party to provide this service). A few third parties also have "open enrollment" sites.

For example, ADP-ICS has partnered with numerous brokers to solicit global consents on the broker's sites, and has begun sponsoring open enrollment sites for record holders. (The first one was for Proctor & Gamble on its Web site.) See more at "How are companies typically obtaining consents from investors?�

I. Electronic Delivery of Proxy Material and Glossy Annual Reports

1. How is delivery of paper proxy materials typically accomplished?

First, a company or its proxy solicitor contacts record holders (i.e., various banks and brokers) to get estimates of how many of their customers are beneficial owners (or "street name" owners) of the company's stock.

Second, the company sends proxy materials to the banks and brokers via "first class mail or equally prompt means" so that they can forward them to the beneficial owners.

Source: Rule 14a-13 requires that companies meet these obligations for record holders.

2. How is delivery of electronic proxy materials typically accomplished?

For beneficial owners, ADP-ICS has an exclusive means of communication and offers e-delivery to these owners if the company timely posts its proxy materials, either on its Web site or on a Web site provided by ADP. Surprisingly, most companies do not timely post their proxy materials, so that they are not able to effect electronic delivery even if shareholders have provided consents to ADP-ICS or other parties.

For record holders, a company (or its agents, such as its brokers or other third parties like Proxy Services Corp. or ADP-ICS) obtains electronic delivery consents from its stockholders as well as their e-mail addresses. Then, the company (or its agent) sends e-mail notices when its proxy materials have been posted on a Web site.

Source: As illustrated in Example 2 of Interpretive Release No. 33-7233 (October 6, 1995), obtaining an informed consent coupled with assuring appropriate notice and access constitutes evidence of delivery.

3. How can a company ensure that electronically delivered proxy materials are accompanied or preceded by an annual report sent via postal mail?

By mailing the annual reports in a manner that is reasonably guaranteed to reach stockholders before or at the same time as the electronically delivered proxy materials�probably by waiting to post the proxy materials on a Web site until the time that the annual reports are expected to reach stockholders in the mail (at least 2 or 3 days). Since it is risky to wait to post the proxy materials to properly conduct electronic delivery, it is rare for companies to split the method of delivery for two documents.

4. Can a company link from its electronically delivered proxy materials or glossy annual report to its most recent Form 10-K?

Yes, but if a stockholder still makes a written request to receive a paper copy of a Form 10-K without charge, the company must comply with that request.

Note that a company cannot link from one of its SEC documents to another to satisfy its incorporation by reference obligations, but it can provide such links as a courtesy (and EDGAR will accept filings with this type of link in it). See more at "Links to a Company's Own Content or in a Filed SEC document�.

Source: Rule 14a-3(b)(10) requires that companies undertake to provide a Form 10-K for free to beneficial owners upon written request.

5. Can companies electronically deliver notices of stockholders' meetings?

It depends on the law of the state in which the company is incorporated.

Most state laws require companies to send "written" notice of stockholder meetings. Some states have modified their laws to acknowledge that an "electronic" notice is a "written" notice so that electronic delivery of the notice complies with the law.

If it's questionable whether a state law can be interpreted to include electronic notice in the definition of "written" notice, a company can add a provision in its electronic delivery consent to address electronic notice (i.e., have investors waive their right to a "written" notice), but this still may not be enough to satisfy state law.

Of course, a company can always include a paper notice with a proxy card in a postal mailing, but this still results in substantial printing and mailing costs.

Many state laws presume that stockholders received notice if postal mail is used. It is unknown if the same presumption would apply to an electronic notice. If not, a company likely would have to prove that each stockholder received notice of the meeting. To that end, companies may want to add a bylaw designating the time at which an electronic notice is deemed to have been sent and received.

If stockholders don't get proper notice of a stockholder's meeting, they may be able to challenge the actions taken by the company at that meeting.

Note that the E-Sign Act arguably could impact how these state laws are interpreted, or they could be entirely preempted by this federal law.

Source: Under Section 232 of the Delaware General Corporation Law, any notice may be delivered electronically so long as the shareholder consents. To provide some level of protection for shareholders, the law requires that a shareholder's consent is deemed withdrawn if a company is unable to deliver two consecutive electronic notices and such inability becomes known to the company or its agents. The notice for an electronic stockholders' meeting must specify the means of remote communication by which shareholders and proxy holders may be deemed to be present in person and vote at such meeting. Similarly, Section 1.41(b) of the Model Business Corporation Act provides that notice to stockholders of the date, time, and place of annual and special stockholders' meetings "may be communicated in person; by mail or other method of delivery; or by telephone, voice mail or other electronic means."

J. Which Companies Are Using Electronic Delivery

1. Which companies have used electronic delivery?

Among many others, the following companies reportedly have used some type of electronic delivery:

Hewlett-Packard
Intel
First Union
Proctor & Gamble
Mobil
IBM
General Motors
Westvaco
AOL
Cisco Systems
Lockheed Martin

See more at "How many companies use electronic delivery?�.

2. How are companies typically obtaining consents from investors?

Some rely on brokers or third parties to collect the consents for them, and piggyback on any global consents received. Companies that do it themselves include requests for consents with other stockholder communications sent via postal mail, such as the annual mailing of the proxy materials and glossy annual reports or the regular mailing of dividend checks.

These mailings ask stockholders to either:

execute and return a card that contains a consent; and/or
go to a Web site so that stockholders can consent to electronic delivery on a Web-based form.

3. How long does it typically take for a company to obtain consents from investors?

Probably longer than expected. Just as it's difficult to convince investors to return proxy cards, it's difficult to have them return consents.

It also takes time to develop a plan and execute it. Having the company's information technology department willingly participate is critical unless this function is effectively outsourced. Some of this burden often is handled by the company's third party agents, such as banks and brokers, like ADP-ICS, Corporate Document Systems, or Proxy Services Corp.

Source: The ability for underwriters, brokers, or other service providers to obtain consents is discussed in footnote 29 and illustrated in Example 7 of Interpretive Release No. 33-7233 (October 6, 1995).

4. How many companies use electronic delivery?

Electronic delivery is beyond the pioneer stage; as several service providers have emerged to assist companies with electronic delivery. See more at "Who are the electronic delivery service providers?�

That said, the challenges of consent collection have led to only a small percentage of public companies using electronic delivery.

5. What is the most common method that companies use to follow the SEC's electronic delivery guidance?

Obtaining investor consent to electronic delivery, and then sending notice of the document's availability via e-mail or postal mail.

Note that employee-stockholders can be treated differently because consent may be presumed in certain cases. See more at "Why can companies imply consent for employee-stockholders?�

Source: Interpretive Release No. 33-7233 (October 6, 1995) explains that obtaining an informed consent coupled with assuring appropriate notice and access constitutes evidence of delivery.

6. Who are the electronic delivery service providers?

ADP-ICS for beneficial owners, and Proxy Services Corp., ADP, The Informa Alliance, and the major transfer agents for recordholders. Most of these providers also offer electronic voting services. Most transfer agents rely on third parties for the back-end processing of record stockholder electronic voting and electronic delivery.

When registered holders and beneficial owners electronically vote at ADP's www.proxyvote.com , they are asked if they want to consent to electronic delivery of future proxy material and other shareholder communications. Those who consent thereafter access all of their documents at www.investordelivery.com. ADP's database of investors who have consented to electronic delivery has grown to over 7 million.

K. Access Equals Delivery

1. What is the "access equals delivery" model?

Under an �access equals delivery� model, investors are presumed to have Internet access, so delivery can be accomplished solely by posting a document on a Web site or by filing on the SEC's EDGAR system (which is then posted on the SEC's Web site).

Under this model, it is not necessarily the case that all investors are presumed to have Internet access at home or at work. However, it is presumed that investors can somehow get access if they need it (for example, at the local library).

2. Does the SEC use the �access equals delivery� model?

No�except in one respect: final prospectus delivery. Final prospectuses that are required to be delivered within the 45- or 90-day period after effectiveness of a Securities Act registration statement need not be delivered (electronically or in paper) as long as the final prospectus is filed with the SEC or the issuer makes a good faith and reasonable effort to file it with the SEC within two business days of pricing.

In issuer or underwriter transactions in which the final prospectus delivery requirements apply, in lieu of the final prospectus, a broker only needs to deliver a notice that the sale was made pursuant to a registration statement. An investor could request a final prospectus, which could be delivered electronically if the appropriate consent were obtained.

Source: Rules 172 and 173 of the Securities Act of 1933.

3. Will the SEC ever shift from the present delivery model to an "access equals delivery" model for all documents?

Perhaps. The SEC has requested comments regarding what constitutes sufficient Internet penetration in the market to consider a shift.

The SEC also has asked about whether the Internet would be a reasonable way to receive information and how investors would know when a document is posted if an access model was adopted, as well as questions about the "readability" of posted documents, downloading time, and system capacity limitations.

The SEC has received comment letters urging an access equals delivery model for investors who have demonstrated that they have access to electronic media, particularly for institutional investors.

Source: The SEC asked these questions in Section D.1. of Interpretive Release No. 33-7856 (May 4, 2000). The Bond Market Association's June 21, 2000, comment letter, and the Committee on Federal Regulation of Securities of the Business Law Section of the ABA's August 2, 2000, comment letter on Release 33-7856 (May 4, 2000) express a belief that an access equals delivery model is appropriate in certain circumstances, primarily for delivery to institutional investors or among intermediaries. The Securities Industry Association in its August 25, 2000, comment letter expresses a similar view for institutional and online retail investors and states that eventually each investor should be able to choose the delivery model it desires�including the different prices of services depending on the model selected.