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The Staff of the U.S. Securities and Exchange Commission (SEC) announced guidance on March 13 for public companies that have been impacted by the coronavirus disease 2019 (COVID-19) and that wish to modify the date, time or location of their annual or other special shareholder meeting or that wish to change to a virtual and/or hybrid meeting. A virtual shareholder meeting is held via online broadcast, enabling shareholder participation remotely via internet with no physical location, whereas a hybrid shareholder meeting is an in-person meeting that also permits shareholder participation through electronic means. We discussed best practices for virtual shareholder meetings in our March 11 client alert, "Virtual Shareholder Meetings on the Rise Due to Coronavirus (COVID-19)."
Some public companies have already filed their proxy materials for their annual meetings with the SEC and mailed them to shareholders, and, in the coming weeks, many more will do so. Because the impact of COVID-19 is currently unknown, many public companies may file and mail their proxy materials and then subsequently discover a need to change the date, time or location of an upcoming shareholder meeting or a need to switch to a virtual or hybrid meeting. Once a public company mails its proxy materials to shareholders, it becomes expensive, difficult and time-consuming to send a subsequent mailing.
The Staff recognized these difficulties in its guidance and announced that a public company that has already mailed and filed its definitive proxy materials may notify its shareholders of a change in the date, time or location of its annual meeting without mailing its shareholders additional soliciting materials or amending its proxy materials if it:
issues a press release announcing the change
files the announcement as definitive additional soliciting material on EDGAR
takes all reasonable steps necessary to inform other intermediaries in the proxy process (such as a proxy service provider) and other relevant market participants (such as a national securities exchange) of the change.
This Staff also indicated that the same three-step process can be used by a public company to notify shareholders of a change from a previously announced in-person meeting to a virtual or hybrid meeting. In addition, the Staff indicated that a company switching to a virtual or hybrid meeting should notify its shareholders, intermediaries in the proxy process, and other market participants of its plans in a timely manner and disclose clear directions as to the logistical details of the “virtual” or “hybrid” meeting, including how shareholders can remotely access, participate in, and vote at the meeting.
Companies that have not yet prepared their proxy materials may wish to delay scheduling their annual meeting or to utilize a virtual or hybrid meeting. While the SEC previously announced conditional relief available for certain filing deadlines,1 the Staff’s new guidance cautions that:
To the extent that issuers have not yet mailed and filed their definitive proxy materials, they should consider whether to include disclosures regarding the possibility that the date, time, or location of the annual meeting will change due to COVID-19. Such determination should be made based on each issuer’s particular facts and circumstances and the reasonable likelihood of such a change.
The Staff guidance makes clear that any company that has not yet filed and delivered its definitive proxy materials should include the required detailed logistical directions for participation in the virtual or hybrid meeting directly in the company’s proxy materials.
Companies with proxy access bylaws (which require the companies to include shareholder director nominees in the companies’ proxy materials) are reminded of the requirement to file a Current Report on Form 8-K when “the date of this year’s annual meeting has been changed by more than 30 calendar days from the date of the previous year’s meeting.”2
The Staff also recognized in the guidance that the COVID-19 situation may make it difficult for shareholders desiring to present shareholder proposals for a vote at an annual shareholder meeting to comply with Exchange Act Rule 14a-8(h), which requires shareholder proponents or their representatives to appear and present their proposals at the annual meeting. The Staff indicated that, if permitted by applicable state law, companies should consider providing shareholder proponents or their representatives with the ability to present their proposals through alternative means, such as by phone, during this 2020 proxy season.
Under the proxy rules, if a shareholder proponent or representative does not appear at the annual meeting and present the proposal without “good cause,” the company may refuse to include any proposals submitted by that shareholder in the company’s proxy materials for any meetings held in the following two calendar years. The Staff guidance indicated that, to the extent a shareholder proponent or representative is not able to attend the annual meeting and present the proposal due to the inability to travel or other hardships related to COVID-19, the Staff would consider this to be “good cause” under the rule.
When considering changing the date, time or location of their annual or other special shareholder meeting or switching a previously announced annual meeting to a virtual or hybrid meeting, public companies should consider state corporate law and their own charter and bylaws, in addition to the federal securities laws. It is possible that some public companies may not be able to utilize all of the flexibility provided by the Staff’s guidance.
In the guidance, the Staff reminded all parties to shareholder meetings to consider their own specific facts and circumstances in determining the need for any additional measures beyond the those described in the guidance. The Staff strongly encourages all parties and intermediaries involved in the proxy voting process — including broker-dealers, transfer agents and proxy service providers — to be flexible and work collaboratively with one another. They expect all market participants to cooperate with one another to facilitate issuers’ obligations to hold annual meetings and disseminate timely, accurate and clear proxy disclosures under the federal securities laws as well as to allow shareholders to exercise their voting rights under state law.
1 More information is available on the SEC’s March 4, 2020 order in our March 5 client alert, “Coronavirus (COVID-19) Disruptions Prompt Relief From Certain Public Company Reporting Deadlines."
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.