SEC and States Provide Relief for Upcoming Proxy Season Due to COVID-19April 22, 2020 – Alerts
As proxy season approaches for a number of public companies, the Securities and Exchange Commission (SEC) and certain state authorities have taken steps to revise their current corporation laws or provide guidance for companies regarding the conduct of annual shareholder meetings in light of the COVID-19 outbreak. The SEC has provided relief for companies seeking to comply with the proxy rules promulgated under the Securities Exchange Act of 1934 (the Exchange Act). Below, we discuss its most recent guidance and explain how companies should assess compliance measures.
Proxy Information as it Relates to Form 10-K Part III Information
The SEC's Division of Corporate Finance issued Compliance and Disclosure Interpretation (C&DI), Exchange Act Forms Question 104.18, on April 6, 2020. This C&DI addresses public companies’ ability to rely on relief provided by a March 25, 2020 SEC order regarding the obligation to provide information required by Part III of Form 10-K within 120 days after the end of the related fiscal year in a definitive proxy or information statement or as an amendment on Form 10-K/A. The C&DI provides that a public company may take advantage of the order’s relief so long as:
- The deadline for filing the Part III information falls before July 1, 2020.
- The company files a Form 8-K or Form 6-K on, or prior to, the date the Part III information is due.
The form must include:
- A brief description of the reasons why it could not file such Part III information on a timely basis;
- The estimated date by which the Part III information is expected to be filed;
- A company-specific risk factor or factors explaining the impact, if material, of COVID-19 on its business;
- If the reason the Part III information cannot be filed timely relates to the inability of any person, other than the company, to furnish an opinion, report, or certification, the Form 8-K or Form 6-K shall have attached as an exhibit a statement signed by such person stating the specific reasons why such person is unable to furnish the required opinion, report or certification on or before the date such report must be filed.
The C&DI applies to the following three scenarios:
- Companies that timely filed a Form 10-K but seek relief in filing the Part III information;
- Companies that have not filed a Form 10-K and seek relief with respect to the filing of both the Form 10-K and the Part III information
- Companies that previously sought relief in filing Form 10-K, but have not yet sought relief in filing the Part III information.
SEC Offers Guidance as to Virtual and Hybrid Meetings
According to the SEC's Staff Guidance for Conducting Shareholder Meetings in Light of COVID-19 Concerns, if a company has already mailed and filed its definitive proxy materials, the company can notify shareholders of a change in the date, time or location of its shareholder meeting without mailing additional soliciting materials or amending its proxy materials if it:
- Issues a press release announcing such 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 any proxy service provider) and other relevant market participants (such as the appropriate national securities exchanges) of such change.
To the extent companies 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.
To the extent a company plans to conduct a “virtual” or “hybrid” meeting, the staff expects the company to notify its shareholders, intermediaries in the proxy process and other market participants of such plans in a timely manner and to provide clear directions on the logistical details of the “virtual” or “hybrid” meeting, including how shareholders can remotely access, participate in and vote. Companies that have not yet filed and delivered their definitive proxy materials, should include such disclosures in the definitive proxy statement and other soliciting materials. Companies that have already filed and mailed their definitive proxy materials do not need to mail additional soliciting materials (including new proxy cards) solely for the purpose of switching to a “virtual” or “hybrid” meeting if they follow the steps described above for announcing a change in the meeting date, time or location.
State Guidance as to Virtual and Hybrid Meetings
When deciding whether to hold a virtual shareholder meeting, companies must also be mindful of applicable state law and provisions of their charter and bylaws. Companies need to consider:
- Whether the company’s state of incorporation provides for virtual shareholder meetings;
- If permitted, what type of notice to shareholders is required.
Many states have responded to the COVID-19 pandemic by providing guidance on, and in some cases short-term relief from, corporation law statutes precluding virtual shareholder meetings. Other states have already clearly allowed virtual stockholder meetings.
Delaware allows companies to hold virtual shareholder meetings. Delaware General Corporation Law Section 211 mandates that if a company holds a virtual-only meeting it must:
- Reasonably verify that each person deemed present and allowed to vote remotely is a stockholder or proxy holder.
- Ensure that shareholders have a reasonable opportunity to participate, including the opportunity to read or hear the proceedings concurrently.
- Keep a record of votes cast by remote communication.
On April 6, 2020, the governor of Delaware issued an executive order providing that a public company “may notify stockholders of the change solely by a document publicly filed by the corporation with the SEC pursuant to Section 13, 14 or 15(d) of the Exchange Act and a press release, which shall be promptly posted on the corporation’s website after release of changing the location of the meeting from a physical location to a virtual location.”
Minnesota allows companies to hold shareholder meetings by means of remote communication (Minn. Stat. Ann. § 302A.436) as long as:
- The corporation implements reasonable measures to verify that each person deemed present and entitled to vote at the meeting by means of remote communication is a shareholder.
- The corporation implements reasonable measures to provide each shareholder participating by means of remote communication with a reasonable opportunity to participate in the meeting, including an opportunity to:
- Read or hear the proceedings of the meeting substantially concurrently with those proceedings;
- If allowed by the procedures governing the meeting, have the shareholder’s remarks heard or read by other participants in the meeting substantially concurrently with the making of those remarks;
- If otherwise entitled, vote on matters submitted to the shareholders.
Nevada allows companies to hold virtual stockholder meetings (NRS 78.320(4) and NRS 78.320(5)) if the following two requirements are satisfied:
- Verifiy the identity of each person participating as a stockholder;
- Provide the stockholders a reasonable opportunity to participate in the meeting and vote on matters submitted to the stockholders, including an opportunity to communicate and to read or hear the proceedings in a substantially concurrent manner with such proceedings.
Section 14A:5-1 of the New Jersey Business Corporation Act was amended to permit shareholder meetings in part or solely by means of remote communication during a state of emergency declared by the governor.
On March 20, 2020, the governor temporarily suspended Section 602(a) and Sections 605(a) and (b) of New York’s Business Corporation Law, “to the extent they require meetings of shareholders to be noticed and held at a physical location.” The suspension was effective immediately and has been continued through May 15, 2020.
Pennsylvania allows companies to hold virtual shareholder meetings (15 Pa. Stat. and Cons. Stat. Ann. § 1704) so long as shareholders the opportunity to:
- Read or hear the proceedings substantially concurrently with their occurrence;
- Vote on matters submitted to the shareholders;
- Pose questions to the directors;
- Make appropriate motions and comment on the business of the meeting.
The attorneys of Fox Rothschild’s Public Companies Practice Group remain ready to assist companies in navigating these issues with the SEC to ensure compliance with federal securities law and avoid regulatory action by the SEC. For questions about this client alert, please contact Vince Vietti at [email protected] or 609-896-4571, or Jesse Fishman at [email protected] or 609-895-6729 or any member of the firm’s national Public Companies Practice Group.