SEC Provides Guidance on Shareholder Meetings for Companies Affected by COVID-19
The Staff of the U.S. Securities and Exchange Commission (SEC) initially 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 special shareholder meeting or that wish to change to a virtual and/or hybrid meeting. On April 7, the SEC revised its guidance on changing the date, time or location of a shareholder meeting and issued new guidance on delays in printing and mailing of full sets of proxy materials. 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).”
Changing a Scheduled Meeting’s Date, Time or Location Without Amending or Mailing
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 shareholder 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.
Switching From an In-Person Meeting to a Virtual or Hybrid Meeting
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.
Many publicly traded companies are incorporated in Delaware. On April 6, the Governor of Delaware modified his previous executive order in order to authorize Delaware-incorporated corporations to convert an in-person meeting to virtual meeting by providing notice to stockholders in accordance with the guidance provided by the SEC. We summarized the Emergency Order’s relief in our April 7 client alert, “ Delaware Relaxes Notice Requirements for Stockholder Meeting Location Changes or Adjournments due to COVID-19.”
Proceeding With a Scheduled Meeting but Facing Delays in Printing and Mailing
Under the proxy rules, a company or other party that is soliciting proxies always has two options for providing proxy materials to its shareholders. The “full set” delivery option utilizes traditional printing and mailing as the default, and the often lengthy package contains (1) a proxy statement or information statement, (2) an annual report where required, and (3) a proxy card or, in the case of a beneficial owner holding in “street name,” a request for voting instructions, if proxies are being solicited. The “notice-only” delivery option offers reduced printing and mailing as it requires, except upon election of the shareholder, physical delivery of only a notice of internet availability of proxy materials 40 calendar days before the shareholder meeting, with internet access to proxy materials and electronic voting as the default.
The Staff recognized that COVID-19 has impacted facilities and staffing of proxy service providers and transfer agents such that a company may wish to proceed with a previously scheduled meeting but may encounter delays in printing and mailing its proxy materials. The Staff noted that it may be appropriate for a company facing these delays to either change the meeting date or announce a change from the “full set” delivery option to the “notice-only” delivery option, in each case by utilizing the three-step process outlined above under “Changing a Scheduled Meeting’s Date, Time or Location Without Amending or Mailing.”
The Staff indicated that, “in circumstances where delays are unavoidable due to COVID-19 related difficulties,” it would not object to a company utilizing the “notice-only” delivery option without complying with all aspects of the notice and timing requirements of Exchange Act Rule 14a-16. Under the proxy rules, a company is required to, among other things, send the notice of the electronic availability of the proxy materials at least 40 calendar days before the meeting and provide intermediaries (such as a broker, dealer or bank) with the information needed so the intermediaries can send the notice to beneficial owners within the 40-calendar-day timeframe required by Exchange Act Rule 14b-1 or 14b-2. Under the Staff’s latest relief, a company may use the “notice-only” delivery option less than 40 days before the meeting. However, the Staff cautioned that companies facing delays and switching to the “notice-only” option should nonetheless provide shareholders with proxy materials sufficiently in advance of the meeting to review these materials and exercise their voting rights under state law in an informed manner. Similarly, while the rules require companies to respond to a shareholder’s request for paper copies of proxy materials within three business days, the guidance indicated that companies and intermediaries may use their best efforts to send paper copies of proxy materials and annual reports to requesting shareholders in a timely manner, even if these deliveries would be delayed beyond three business days.
The guidance notes that “[t]he primary goal of the proxy process is allow shareholders to receive material information about the matters to be presented at a shareholder meeting in a timely manner so they can make informed voting decisions.” Companies and other affected parties are encouraged to contact the Staff to discuss any other concerns resulting from any late filings caused by delays in the printing and mailing of proxy materials.
Delaying the Filing of Proxy Materials
Companies that have not yet prepared their proxy materials may wish to delay scheduling their annual or special meeting or to utilize a virtual or hybrid meeting. While the SEC previously announced conditional relief available for certain filing deadlines, the Staff’s 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 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.”
1
Shareholder Proposal Presentation Accommodations Are Encouraged
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.
Companies Should Be Mindful of State Law, Their Governance Documents, and Individual Facts and Circumstances
When considering changing the date, time or location of their annual or special shareholder meeting or switching a previously announced annual or special 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.
Endnote