The Securities and Exchange Commission recently issued an order granting certain companies relief from complying with some federal proxy rules for annual meetings in light of health, transportation and other logistical issues raised by the spread of COVID-19.
Under Section 12 of the Exchange Act of 1934, as amended, when issuers solicit proxies from their shareholders, they are required to follow the proxy rules, including delivery of proxy materials (e.g., proxy statements and proxy cards). The SEC’s order allows all issuers to change the date, time and location of their annual meetings without having to strictly comply with applicable delivery requirements.
Michelman & Robinson explains in question and answer form.
Q. Our publicly reporting company is scheduled to hold its annual meeting and we need to change the date, time or location, how do I get the word out to shareholders?
A. Normally, publicly reporting companies would be required to file any changes to their annual meeting schedule with the SEC and adhere to certain mail delivery requirements. Now, however, as a result of the coronavirus outbreak, many companies need to either change the date and time of previously scheduled annual meetings, or change the format from on-site to virtual attendance only. The SEC has responded by setting forth modified guidance on how issuers can amend their proxy materials.
Going forward, an issuer wanting to take advantage of the SEC’s relaxed rules should take the following actions:
- Issue a press release announcing the coronavirus-related change in schedule or meeting logistics
- File the announcement as a definitive additional soliciting material on EDGAR
- Take all reasonable steps necessary to inform other intermediaries and other relevant market participants, including the proxy service provider and the issuer’s national securities exchange, of the announced change
Q. Can all publicly reporting companies take advantage of the SEC’s guidance on virtual meetings?
A. Before utilizing the SEC’s virtual meeting guidance, issuers need to review applicable state law, as well as their bylaws, to make sure that virtual meetings are permissible pursuant to governing rules. For example, virtual meetings are permissible under Delaware, Tennessee and Maryland law; however, Georgia and South Carolina allow for in-person meetings only. Certain states, such as New York and North Carolina, allow for hybrid meetings (where some are present in person and others participate remotely), while California requires prior shareholder consent in order to hold an annual meeting virtually. As such, a careful review of state law is necessary prior to determining whether your company can legally hold a virtual annual meeting, which review should include consideration of any current guidance that might allow leeway for holding virtual meetings in light of the pandemic.
Q. When do I need to take the above action?
A. The short answer is as soon as possible. After a company’s board of directors and management have determined to change the date, time or location of a previously scheduled annual meeting, the company should promptly disclose that information by way of a press release and by filing the definitive additional solicitation material on EDGAR. In the event an issuer has not yet filed a proxy statement with the SEC, it should consider including a disclosure that, in light of the COVID-19 pandemic, the issuer may need to change the date and/or location of its annual meeting and that any such disclosure will be made by issuing a press release and by EDGAR filing only, so that any market participants will be alerted to check for such information. Given the current landscape, it may be advisable to assume that any shareholder meeting scheduled for the near term should be held by virtual means only, unless planned for some months in the future. The SEC has advised that each issuer should individually evaluate its situation and determine its disclosure requirements in light of such circumstances.
Q. My company usually holds its annual meeting telephonically, as well as having management meet in person. What is the difference in having a virtual meeting as opposed to a combined telephonic and in-person meeting?
A. There is no substantial difference, aside from all participants in the meeting participating virtually by using Zoom or similar technology. Most importantly, when deciding to hold a virtual meeting, the issuer must provide the means for all shareholders to participate—including the opportunity for shareholders to ask questions—just as they would be allowed to do in person or during a meeting held telephonically. The takeaway: your company should ensure that it uses technology that will facilitate full shareholder participation.
Q. What companies will most likely be impacted by the SEC’s order?
A. Due to ongoing “shelter-in-place” and “stay-at-home” orders that are in effect for much of the country, the SEC guidance is likely to affect any companies that (1) have already filed their proxy materials with the SEC or (2) plan to hold their annual meetings over the next few months.
As the COVID-19 pandemic evolves over the next few weeks, it is likely that guidance coming from the SEC will as well. The corporate and securities professionals at M&R will continue to monitor the agency and report on any additional orders or extensions of significance.
This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.