The Division of Corporation Finance (Division) of the U.S. Securities and Exchange Commission (SEC) issued guidance applicable to federal proxy rules, last updated on April 7, 2020, for upcoming annual shareholder meetings and special meetings in light of the difficulties and issues raised by the COVID-19 pandemic.
Changing Date, Time or Location
An issuer that has already mailed and filed its definitive proxy materials does not have to mail or amend additional materials in order to change the date, time, or location of a shareholder meeting if it does the following:
- Announces the change through a press release;
- Files the announcement on EDGAR as definitive additional soliciting material; and
- Informs other intermediaries in the proxy process and other relevant market participants of the change through any reasonable step necessary.
This must be done “sufficiently in advance of the meeting so the market is alerted to the change in a timely manner.”
The Division advises any issuer that has not already mailed and filed its definitive proxy materials to consider including disclosures regarding the possibility of a change to the shareholder meeting due to the COVID-19 pandemic.
If an issuer intends to conduct a virtual shareholder meeting to mitigate the risks of an in-person shareholder meeting, the issuer must look to the applicable state law and the issuer’s governing documents in order to determine if it may do so. Any issuer intending to conduct a virtual shareholder meeting must “notify its shareholders, intermediaries in the proxy process, and other market participants of such plans in a timely manner and disclose clear directions as to the logistical details” for the virtual meeting. This disclosure must be in the definitive proxy statement for any issuer that has not yet filed and delivered definitive proxy materials. An issuer that has already filed and delivered its definitive proxy materials must announce the change by following the steps provided for above to change the date, time, or location of a shareholder meeting.
Virtual Meetings under Delaware law
Section 211 of the Delaware General Corporation Law allows a Delaware corporation to hold a stockholder meeting through remote communication pursuant to procedures implemented by the company’s board of directors. The company must implement reasonable measures to verify that every individual deemed present and permitted to vote at the meeting through remote communication is a stockholder or proxyholder. Stockholders and proxyholders must be given a reasonable opportunity to participate and vote concurrently with the proceedings. The company must maintain a record of every vote or action taken by remote communication. If the stockholder meeting is conducted solely by remote communication, a list of each stockholder entitled to vote at the meeting must be electronically accessible during the entire meeting, and information on how to access the stockholders list must be provided in the notice of the meeting.
On April 6, 2020, the Governor of Delaware issued an executive order allowing public companies incorporated in Delaware, that have previously sent out notice of their in-person annual meeting but who wish to change to a virtual annual meeting, to do so by making an appropriate filing with the SEC under the Exchange Act and issuing a press release detailing the change from an in-person meeting to a virtual meeting. This constitutes effective notice under Delaware law as long as the press release is promptly posted on the company’s website after the press release is issued.
Virtual Meetings under Texas law
Section 6.002 of the Texas Business Organizations Code provides that a Texas corporation may hold a shareholder meeting using a conference telephone or other electronic communication system, including videoconferencing and the internet, as long as each person participating in the meeting is able to communicate with every other person participating in the meeting. In order for voting to take place at the virtual meeting, the company must implement reasonable measures to verify that every person voting at the meeting by means of remote communications is sufficiently identified and maintain a record of every vote or action taken.
In addition to the usual notice requirements, notice for a virtual shareholder meeting must include which electronic communication system will be used for the meeting, how to access the communication system, and how to access the list of shareholders permitted to vote at the shareholder meeting. Texas has not released any further guidance on modified notice requirements for virtual annual meetings in light of COVID-19.
Delays in Printing & Mailing Proxy Materials; Reliance on “Notice-Only” Option
Any issuer affected by delays in printing and mailing its full set of proxy materials should take all reasonable and safe efforts to guarantee all shareholders “receive material information about the matters to be presented at a shareholder meeting in a timely manner so they can make informed voting decisions.” This may include changing the date, time, or location of a shareholder meeting by following applicable state law and the steps provided above.
If a delay of the meeting is unavoidable, an issuer may use the “notice-only” delivery method permitted by Exchange Act Rule 14a-16. If a company using the “notice-only” delivery method cannot send notices or provide information to intermediaries at least 40 calendar days prior to the meeting, or send paper copies of proxy materials in a timely manner upon the shareholder’s request as stipulated by Rule 14a-16, then the company may only use the “notice-only” delivery method if it will “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 and so long as the issuer announces the change in the delivery method by following the steps described above for announcing a change in the meeting date, time, or location.” Issuers and intermediaries should use their best efforts to send paper copies of proxy materials and annual reports to requesting shareholders, even if delayed.
Relief for Shareholder Proponents
Considering the difficulties the COVID-19 pandemic may cause for shareholders to comply with Exchange Act Rule 14a-8(h), which requires a shareholder submitting a proposal to attend and present the proposal in person at an annual meeting, the Division advises issuers “to the extent feasible under state law, to provide shareholder proponents or their representatives with the ability to present their proposals through alternative means, such as by phone, during the 2020 proxy season.” Any situation where a shareholder proponent is unable to attend an annual meeting in person to present a proposal due to difficulties caused by the COVID-19 pandemic should be considered “good cause” under Rule 14a-8(h).
For more information on the guidance regarding shareholder meetings issued by the SEC:
On March 26, 2020, Nasdaq issued a memorandum providing, among other things, an exemption for listed companies from the requirement to furnish proxy materials to security holders whose mail delivery service is suspended due to COVID-19. Any company that satisfies the requirements listed in the SEC’s order discussed above will have also satisfied requirements under Nasdaq Rule 5250(d) and 5620(b). Rule 5250(d) requires a company to make its annual, quarterly and interim reports available to shareholders, and Rule 5620(b) requires a company to solicit and provide proxy statements for all shareholder meetings.
For more information about Nasdaq listed companies and the impact of COVID-19:
On April 8, 2020, Institutional Shareholder Services (ISS) issued guidance on the application of its policies related to proxy voting recommendations in light of the Covid-19 pandemic. The guidance covers a number of annual meeting issues, including postponements and virtual-only meetings, as well as ISS’ approach to defensive measures such as the adoption of poison pills, director attendance at annual meetings and option repricings and other compensation issues, among other things. ISS notes that its policies already give its research team broad discretion to develop recommendations in response to specific facts and circumstances, and indicates that it will adjust the application of its policies to take into account the exceptional circumstances created by the pandemic.
ISS’ detailed guidance can be found here: