Capital Markets Alert
On March 13, 2020, the staff of the Securities and Exchange Commission issued guidance for conducting annual meetings in light of concerns caused by COVID-19.
The guidance included the staff’s position on: (1) changing the date, time, or location of an annual meeting, (2) conducting a “virtual” or “hybrid” meeting (i.e., an in-person meeting that also permits shareholder participation through electronic means) and (3) presentation of shareholder proposals at annual meetings.
Orrick has prepared the following frequently asked questions to assist companies in applying the staff guidance to their situation:
Frequently Asked Questions Around Virtual Meetings and SEC Staff Guidance
Q1: Can my company hold a virtual or hybrid meeting?
A1: In most cases, the answer is yes. The corporation law of many states, including Delaware, allows companies to hold virtual or hybrid meetings. You should check with your legal counsel to determine if the law of your company’s state of incorporation and your company’s governing documents allow it to hold a virtual or hybrid meeting.
Q2: Does the staff’s guidance affect the obligations of my company under the law of its state of incorporation and its governing documents
A2: No. Your company still must comply with advance notice and other requirements under the law of its state of incorporation and its governing documents.
Q3: What should we do if we have not yet sent out our definitive proxy statement, but we are not ready to commit to a virtual or hybrid meeting?
A3: Your company should consider including disclosures regarding the possibility that the date, time, or location of the annual meeting could change due to COVID-19 in your proxy materials to maintain optionality. Sample language for such disclosures:
“As part of our precautions regarding the COVID-19 outbreak, we are planning for the possibility that the meeting may be held solely by means of remote communications. If we take this step, we will announce the decision to do so in advance, and details on how to participate will be posted on our website and filed with the U.S. Securities and Exchange Commission as additional proxy materials.”
If your company subsequently decides to make such a change, then at least 10 days prior to the date of the annual meeting, it will need to make the announcements and filings described in A5, below.
Q4: What should we do if we have not yet sent out our definitive proxy statement and we are ready to commit to a virtual or hybrid meeting
A4: If your company is prepared to make the change to a virtual or hybrid meeting, your company should add to its definitive proxy statement and other soliciting materials clear directions as to the logistical details of the virtual or hybrid meeting, including how shareholders can remotely access, participate in, and vote at such meeting.
Q5: What should we do if we have sent our definitive proxy statement, and our annual meeting is 10 days or more away?
A5: The staff expects your company to notify its shareholders, intermediaries in the proxy process, and other market participants of plans to hold a virtual or hybrid meeting “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 such meeting in the definitive proxy statement and other soliciting materials.
According to the staff’s guidance, your company can do so without mailing additional soliciting materials or amending its proxy materials by issuing a press release and filing it with the SEC as additional soliciting materials. However, your company will also need to comply with its obligations under the law of the state of its incorporation and governing documents, which may require the mailing a notice to its shareholders (and filing the same with the SEC). You should check with your legal counsel to assess these requirements.
Q6: What should we do if we have sent our definitive proxy statement, and the number of days until our annual meeting will not allow us to provide timely advance notice of a change?
A6: The most administratively convenient alternatives for your company are to either:
1. Subject to any shelter-in-place or other local restrictions, convene the meeting at the originally scheduled time and place, and then immediately adjourn it to a different time, place, and/or format (including to a virtual meeting) and make an immediate public announcement thereof.
2. Make a public announcement that while you intend to convene the meeting at the originally scheduled time and place and, subject to any shelter-in-place or other local restrictions, shareholders may attend the meeting in person, given the COVID-19 pandemic it is strongly recommended that they attend the meeting virtually, and provide the requisite dial-in or webcast information.
Alternatively, if your company would prefer to postpone the annual meeting to a future date or change the meeting to virtual-only format, your company will likely need to mail a new notice to shareholders in addition to making the public announcements contemplated by the staff’s guidance. Postponement could result in logistical and other challenges, including possibly setting a new record date for shareholders eligible to vote at the meeting. You should check with your legal counsel to assess these requirements.
Q7: What should we do if shareholder proponents have difficulty attending the annual meeting in person to present their proposals?
A7: The staff’s guidance also addresses the requirement of Exchange Act Rule 14a-8(h) that shareholder proponents, or their representatives, appear and present their proposals at the annual meeting. To the extent feasible under state law, in light of the possible difficulties for shareholder proponents to attend annual meetings in person to present their proposals because of COVID-19, the staff encourages companies 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.
Q8: If a shareholder proponent or its representative fails to attend the annual meeting due to COVID-19, can companies exclude a proposal from that shareholder proponent in future meetings?
A8: If a shareholder proponent or its 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 Rule 14a-8(h) – this means that companies would not be able to assert a failure to appear as a basis to exclude a proposal submitted by the shareholder proponent for any meetings held in the following two calendar years under Rule 14a-8(h)(3).
Please contact any member of Orrick's Capital Markets Group for further assistance regarding conducting your annual meeting, virtual shareholder meetings or shareholder proposals.
We interpret this to be mean as soon as possible and in no event later than the date required to comply with the minimum advance notice provisions of your company’s bylaws or the law of your company’s state of incorporation.