xavGE

A public company and its shareholders
shares owned by each participant. The
participating brokers and banks also
maintain their own records, as well as keep
the contact information for the beneficial
holders of the shares (clients of the broker
or bank).
Dividends paid by an issuer are
paid by the transfer agent directly to
registered holders. Similarly, one payment
is made to CEDE & Co. (DTC’s nominee);
DTC will then allocate the payment to
each of its participants. The participants
will, in turn, allocate the dividend payment
to the account of the beneficial holder.
When an issuer needs to mail
information to its shareholders, whether
for a shareholder meeting or for some
other reason, the process is generally
done in two parts. The transfer agent,
since it has the identity of all registered
holders, will generally mail the requisite
information to all holders on the registered
list. If the mailing is for a meeting at which
voting will take place, the mailing will
include a form of proxy that the holder can
use to give voting instructions and return
it to the transfer agent for tabulation.
The transfer agent does not have
the identity of the beneficial holders in
street name and cannot mail directly to
those holders. DTC disclaims beneficial
ownership of the shares and will not vote
on behalf of its participants directly.
However, it does provide, as of the
voting record date, an omnibus proxy
and participants’ listing for the security
subject to the meeting. The omnibus
proxy formally assigns the voting rights
for shares held in its name to each of
their participants; the participants’
listing provides the name and number of
shares held by each of the brokers and
banks held in the DTC account. It is up
to each participant to mail material to
their beneficial holders, seeking voting
instructions. They will provide a form of
proxy to their holders, to be returned to
the broker or bank, and the participant
will then execute the vote and return it
to the transfer agent for inclusion in the
tabulation.
In practice, almost all brokers and
banks outsource the mailing of proxy
material to their beneficial owners in the
interests of efficiency and cost savings.
They will use an intermediary who will
mail and tabulate votes on their behalf,
and the intermediary will return the votes
directly to the transfer agent. The most
commonly used intermediary is Broadridge
Financial Solutions. The intermediary will
receive information on each participants’
holders (including name, address and share
amount) and compile that into a master
list to complete the mailing of the issuer’s
material. In addition to meeting materials,
it can also distribute other information
to beneficial holders (such as newsletters)
without a proxy voting form.
(d) Lost shareholders
Since all 50 states and the U.S. territories
require financial institutions, issuers and
their transfer agents to report property
that is unclaimed or abandoned, it is
imperative that complete and accurate
records be kept on all activity in an
account. Property may be considered
unclaimed or abandoned based on
uncashed dividend checks or on a certain
number of pieces of returned mail (a “lost”
shareholder). Inactivity or abandonment
leads to escheatment—the process of
transferring abandoned property to the
state or territory.
In each case, property can be
escheated only after a certain period
of inactivity passes on the account
(referred to as the “dormancy period”).
Each state has its own regulations on
the amount of time that constitutes the
dormancy period, as well as what types
of shareholder action constitutes a valid
action to avoid dormancy. The SEC also
requires a company and its transfer
agent to conduct due diligence, including
mailings and database searches before the
property is escheated (SEC Rule 17ad-
17). After all due diligence is completed,
the company and its transfer agent must
file unclaimed property reports with the
states, and the property is turned over to
the state.
Accurate records must be kept to
make sure that all lost shareholder and
escheatment regulations are adhered to.
This serves to ensure that all required
escheatment of property is completed
on a timely basis, and also that assets
are not escheated improperly. States
may, and often do, perform audits on a
company and its transfer agent to ensure
that the escheatment process is handled
appropriately.
Finally, records must also be
maintained after the property is turned
over to the states, in the event that a
shareholder whose property has been
escheated attempts to retrieve the
property at a later date. The assets can be
reclaimed by the shareholder by directly
contacting the individual state. ●
NYSE IPO Guide
81