- E-Mail Correspondence May Be Considered Proxy Soliciting Material
- May 7, 2009 | Authors: David K. Robbins; Stephen D. Alexander; Janice A. Liu
- Law Firm: Bingham McCutchen LLP - Los Angeles Office
The SEC Staff has recently taken the position that individualized e-mail correspondence between a proxy proponent and a shareholder may be considered proxy soliciting material that should be filed with the SEC under its proxy rules.
Under the proxy rules, a proponent may not solicit proxies from a shareholder without providing a preliminary or definitive proxy statement prior to or concurrently with the solicitation. Rule 14a-12 is one of the most prevalent exceptions to these rules. Rule 14a-12 provides that solicitations are allowed as long as any written solicitation contains specified information and is filed with the SEC on the first day on which it is used. After a definitive proxy statement is filed, Rule 14a-6 is the corresponding rule that requires written solicitation material to be filed on the same day it is used. In either case, oral solicitations are permitted without any associated filing requirement.
The SEC has a broad view of what constitutes written solicitation material. For example, the SEC has taken the position that websites and scripts that are used for oral solicitations constitute written solicitation material. Accordingly, practitioners out of an abundance of caution have traditionally counseled their clients not to engage in any form of written correspondence unless they are prepared to file the correspondence with the SEC.
E-mail Correspondence as Proxy Soliciting Material
In a recent comment letter regarding a preliminary proxy statement, the SEC continued to advance a broad definition of written solicitation material. In the letter, the SEC Staff took the position that informal e-mail correspondence between a proponent and a single shareholder may be considered written proxy soliciting material that would need to be filed pursuant to Rule 14a-12, absent another exception. In a spectrum of communications from those that obviously would need to be filed (e.g., a shareholder fight letter or talking points memo) to ministerial correspondence that would not need to be filed (e.g., an e-mail scheduling a time for the proponent to discuss his views with a shareholder), the type of e-mail correspondence at issue fell in a grey area. It was a scheduling e-mail that included some background information on the proponent’s position. The SEC appeared to presume that a communication touching on any substance of a proponent’s views constitutes written proxy solicitation material.
Given the informal nature of e-mail correspondence and the increasing substitution of e-mail for telephone communications, this view would materially restrict communications of any substantive nature during the proxy solicitation process. If this type of e-mail correspondence is viewed as written proxy soliciting material, then arguably instant messaging, twittering and other electronic forms of equally informal communication would be viewed similarly and require same day filing.
Moreover, combined with the SEC’s broad interpretation of what constitutes a solicitation, e-mail communications between shareholders regarding their concerns about an issuer may result in a premature start to the proxy solicitation process, which would trigger the application of the proxy rules and endanger the use of other proxy rule exemptions, such as the 10-person solicitation exemption for dissidents under Rule 14a-2(b)(2).
Until the SEC issues formal guidance, proponents considering or engaging in a proxy contest should presume that all e-mail and other electronic correspondence of a substantive nature will be considered written solicitation materials and may be required to be filed with the SEC. Because such correspondence cannot be redacted prior to filing, proponents should recognize any off-color or informal language would become publicly available. Accordingly, proponents should consider limiting their communications to telephone and other oral forms. If proponents decide to engage in e-mail correspondence, they should consider filing talking points or other scripts as written solicitation material and, with the advice of counsel, strictly limit all e-mail correspondence to the language in previously filed materials. Moreover, proponents should remember that their shareholder e-mail correspondence can easily be forwarded to their opponent in a proxy contest. Such correspondence would then provide a fertile ground for “bed-bug letters” to the SEC alleging the proponents’ violation of Rules 14a-12, 14a-6 and other proxy rules.