In response to coronavirus (COVID-19) pandemic, the US Securities and Exchange Commission’s Corporation Finance Division and Investment Management Division have issued guidance to assist companies in making changes to the format of its shareholder meetings, the way in which companies accept shareholder proposals, and the timing of Form 10-K corporate governance and compensation disclosures that are all adaptive to the changing times. Additionally, various states have loosened the restrictions around annual shareholder meetings. This LawFlash gives an overview of this guidance and relief.
On April 7, 2020, the SEC’s divisions of Corporation Finance and Investment Management updated guidance designed to assist companies in complying with federal proxy rules in light of the COVID-19 outbreak. The guidance provides flexibility under the federal proxy rules for companies wishing to effect changes to annual and special meetings, including moving from physical locations to virtual or hybrid meetings. Additionally, a number of jurisdictions have issued orders and directives to allow companies flexibility in responding to the evolving pandemic when it comes to shareholder meeting requirements.
As a number of jurisdictions have “shelter-in-place” orders in effect, companies may be looking to change its scheduled shareholder meetings to a date, time, or location that complies with recommended COVID-19 precautions. As such, the SEC has taken the following positions:
1. For companies that have previously mailed and filed definitive proxy materials:
- Promptly after the company has decided to change the date, time, or location of the meeting, this change may be communicated to its shareholders via the following, in lieu of the need to mail additional soliciting materials or amendments to the proxy materials:
- A press release publicizing the change;
- An announcement as definitive additional soliciting material on EDGAR; and
- Information to other intermediaries in the proxy process and other market participants through all reasonably necessary steps.
2. For companies that have not filed or mailed definitive proxy materials:
- The SEC advises companies to consider including disclosures regarding the possibility that the date, time, or location of the meeting will change due to COVID-19. The SEC believes such determination should be made based on each company’s particular facts and circumstances and the reasonable likelihood of such a change.
- The SEC also has acknowledged that companies may have challenges mailing “full set” materials to shareholders as a result of COVID-19 because of strains on the facilities and staffing of its proxy service providers and transfer agents.
- In light of the current circumstances, the SEC will not object to companies relying on “notice-only” delivery even if all the terms of Exchange Act Rule 14a-16 cannot be met. This includes providing notice of electronic availability more than 40 calendar days before the meeting or responding to shareholder requests for paper copies of proxy materials.
- Companies are expected to use all reasonable efforts but may be mindful of the health and safety of all parties involved when trying to meet the requirements. The SEC does acknowledge that delays could lead to delaying the meeting to comply with state law requirements but many states are providing companies relief as well.
- Maryland. On April 14, 2020, Governor Larry Hogan issued an executive order permitting any publicly traded Maryland company to (1) change any annual or special meeting of its shareholders from a physical location to a meeting conducted solely or in part by remote communication, and/or (2) postpone or adjourn a shareholder meeting scheduled at a physical location to another date or time, whether to be held in person or solely or in part by remote communication, subject to (a) a determination by the board of directors of the company that, as a result of the COVID-19 public health threat, it is reasonable, prudent, and advisable to do so, and (b) notice by the company to its shareholders of the change, postponement, or adjournment by a filing with the SEC and a press release promptly posted on the company’s website.
- Delaware. On April 6, 2020, Governor John Carney issued an emergency order, effective April 7, 2020, “relaxing notice requirements for changes in locations and dates of annual meetings in response to the threat of COVID-19.” More specifically, the order provides that if a company is unable to hold its scheduled in-person meeting, it may reschedule the meeting to a different date and time, “to be held by remote communication, by providing notice of the date and time and the means of remote communication in a document filed with the SEC and a press release, which is required to be promptly posted on the issuer’s website after its release.”
- Iowa. On April 2 2020, Governor Kim Reynolds suspended the requirement to hold in-person shareholder meetings if: (1) the meeting is held by remote communication, and (2) the meeting provides shareholders, policyholders, or members with a reasonable opportunity to participate and vote, including the opportunity to communicate, and to read or hear the proceedings, substantially concurrently with such proceedings.
- North Carolina. On April 1, 2020, Governor Roy Cooper issued an executive order permitting corporations to hold shareholder meetings solely by mean of remote communication, provided (1) shareholders are given the opportunity to participate in, and vote at, such meetings and (2) shareholders have the right to participate in such shareholders’ meeting by means of remote communication. The order does not address any change to North Carolina’s notice requirements.
- California. On March 30, 2020, Governor Gavin Newsom issued an executive order suspending a company’s obligation to obtain the consent of shareholders to hold its shareholder meetings by electronic transmission or by electronic video screen communication for all meetings scheduled to occur before June 30, 2020. The company’s obligation to provide notice of such meeting format is also suspended, provided the company disseminates such notice via a press release, a posting on its website, or any other means that reasonably communicates such change to the shareholders.
- Massachusetts. On March 30, 2020, Governor Charlie Baker issued an executive order suspending the prohibition of shareholder meetings solely by means of remote communication. This prohibition terminates 60 days after the end of the state of emergency. Companies that have issued notice regarding a shareholder meeting may notify its shareholders of the change of location without further written notice, provided the company (1) issues a press release of such change through media that is reasonably expected to reach the shareholders, (2) email notice to all shareholder that have provided the company an email address, and (3) takes all reasonable steps to notify shareholders of the change.
- Louisiana. On March 26, 2020, Governor John Bel Edwards issued a proclamation suspending the requirement to hold shareholder meetings at a physical location for any shareholder meeting that (1) has a record date that falls during the public health emergency declared by Proclamation Number 25 JBE 2020 (or is extended by any subsequent proclamation), (2) requires notice to be provided in connection therewith during such public health emergency, or (3) is scheduled to occur during such public health emergency.
- Connecticut. On March 21, 2020, Governor Ned Lamont issued an executive order allowing corporations to hold shareholder meetings via remote communication. Under the executive order a company must (1) verify that each person participating remotely is a shareholder, (2) provide each shareholder an opportunity to participate and vote on the matters presented to the shareholders, and (3) make a list of shareholders entitled to vote available for inspection starting two days after notice of the meeting is given in lieu of an in-person meeting. The order does not address any change to Connecticut’s notice requirements.
- New York. On March 20, 2020, Governor Andrew Cuomo issued an executive order suspending all legal requirements that shareholder meetings be noticed and held at a physical location. This order is in effect through May 15, 2020.
- New Jersey. On March 20, 2020, 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 Phil Murphy.
- Georgia. On March 20, 2020, Governor Brian Kemp issued an executive order allowing corporations that are required to hold shareholder meetings during the Public Health State of Emergency to conduct its meeting by means of remote communication in lieu of physical, in-person meetings, provided such alternative provides the shareholders and proxyholders an opportunity to be deemed present and vote. Although the requirement to provide its shareholders with the information to access the list of all the shareholders entitled to vote is suspended, companies must still provide such information to all shareholders in advance of the meeting. The order does not address any change to Georgia’s notice requirements.
In light of COVID-19 and in compliance with “shelter-in-place” orders in various jurisdictions, many companies are changing its in-person annual meetings to virtual or hybrid annual meetings. With this change, the SEC issued guidance regarding the ways in which companies should handle shareholder proposals, which normally require shareholders to attend and introduce their proposals at the annual meeting.
In response to the pandemic, the SEC encourages companies to find alternative means that would allow the company’s shareholders to present their proposals remotely (i.e., via phone). Additionally, if a shareholder is unable to attend an in-person meeting due to travel restrictions, the company should consider this as “good cause” and not grounds for exclusion of a subsequent proposal for any meeting held in the following two years.
Part III Information & COVID-19 Implications
A company may omit Part III of the Form 10-K information that discusses management and its compensation if the:
- information omitted from Part III is disclosed in the issuer’s proxy statement; and
- the proxy statement is filed with the SEC no later than 120 days from the end of the fiscal year.
In other words, a company is permitted to incorporate by reference information that will be included in its proxy that is filed after the Form 10-K but filed within 120 days after the end of the fiscal year.
Rule 12b-25 is the customary tool available to a company when it is unable to timely file certain disclosures and to extend the due date for such disclosures. Historically, however, no extension has not be available for Part III when an issuer decides to provide that information at a later date. But in light of COVID-19, some companies may be unable to timely file its Part III information that was incorporated by reference within 120 days of the end of its fiscal year. The COVID-19 Order dated March 25, 2020, provides companies with a 45-day relief period for required filings, provided certain conditions are met.
On April 6, 2020 the SEC issued a Compliance and Disclosure Interpretation (C&DI) that clarified and addressed the extension of regulatory relief for Part III information.
C&DI 104.18 clarifies that a registrant that is unable to file the Part III information of its Form 10-K by the required 120-day deadline may avail itself of the relief provided by the COVID-19 Order as long as the 120-day deadline falls within the relief period specified in, and the registrant meets the conditions of, the COVID-19 Order. The C&DI summarizes the steps to be taken both for (1) a registrant that timely filed its annual report on Form 10-K, but did not rely on the COVID-19 Order and (2) a registrant that properly invoked the COVID-19 Order with respect to its Form 10-K by furnishing a Form 8-K, but was silent on its ability to timely file Part III information.
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If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Timothy J. Corbett
Thomas P. Giblin, Jr.
Howard A. Kenny
Kimberly M. Reisler
Justin W. Chairman
James W. McKenzie
Joanne R. Soslow
David C. Schwartz
Joo Khin Ng
David A. Sirignano