The SEC recently adopted new electronic delivery rules for proxy statements, sometimes referred to as the "e-proxy rules." Under the old rules, a company was required to mail paper copies of proxy materials (including a proxy statement, proxy card, and annual report for annual meetings) to all stockholders, except stockholders who had affirmatively consented to receive these materials electronically. Anecdotal evidence suggests that many of these materials are discarded unread. The new rules are intended to improve stockholder access to information and participation in the proxy process by making the materials available in a format that stockholders are more likely to access and read.

The first phase of the new rules, effective July 1, 2007, allows public companies to voluntarily adopt the new "notice and access" model. Although the SEC refers to the new rules as "electronic delivery," at least one mailing is still required. The company must mail all stockholders (other than those who have previously consented to electronic delivery) notice of the Internet availability of the materials, at least 40 days in advance of the annual meeting. To the extent that a company's stock is held in "street name," the company must build in additional time for street name holders to forward their own notice to the beneficial holders.

The notice must include certain specified information, and no other information except as required by state law. The notice also must include an Internet Web site, e-mail address, and a toll-free telephone number by which the stockholder can request paper copies of the proxy materials without charge; companies must respond to such requests within three business days of receipt. The initial notice may not include a proxy card. Companies wishing to implement "notice and access" should refer to Rule 14a-16 of the Securities Act of 1934 (the Exchange Act) and Internet Availability of Proxy Materials, Release No. 34-55146 (January 22, 2007). Parties other than the company, such as shareholders or professional proxy solicitors, also may take advantage of the new rules to deliver proxy materials electronically. The new rules do not apply to proxy statements seeking approval of business combinations.

Although "notice and access" in lieu of paper delivery is voluntary, companies will soon be required, at the very least, to make proxy materials accessible via the Internet as well. On June 20, 2007, the SEC adopted "universal access" amendments to the new rules mandating the posting of proxy materials on the Internet beginning in 2008 for large accelerated filers as defined by Rule 12b-2 of the Exchange Act (i.e., companies with a public equity float of $700 million or more measured at the end of their second quarter). Other filers have until 2009 to comply. Under these amendments, companies can either (1) mail the materials to stockholders (as they currently do) and post these materials on the Internet and provide notice or (2) use the "notice and access" procedure outlined above.

Companies with annual meetings scheduled for the fourth quarter of 2007 may be in a position to take advantage of "notice and access" now. In fact, a few pioneering companies already have begun the "notice and access" process, hoping to send a message to their stockholders that they care about cost reduction, stockholder participation, and even the environment.

"Notice and access" may not be the right fit for every company. On the one hand, if a significant number of stockholders consent to future electronic delivery, the new rules could lead to significant cost savings, particularly after the first year. However, the ability of each company to realize major cost reductions will depend on how many of its investors are amenable to electronic delivery. In addition, the administrative costs of a two-step system may offset some of the anticipated cost reduction benefits. Although electronic delivery will likely become the best practice for all public companies within a few years, some companies may want to wait until they can evaluate the experiences of more pioneering companies before dispensing with paper mailings.