Considerations for Conducting Annual Meetings in Light of COVID-19 Concerns
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Amid rising public health and safety concerns related to coronavirus disease 2019 (COVID-19), management of public companies may want (or need as a result of restrictions on public gatherings) to reconsider how to conduct upcoming annual shareholder meetings, including a shift from in-person meetings to "virtual" or "hybrid" (in-person meetings that also permit shareholder participation through electronic means) meetings. Companies contemplating such a shift should be aware of the following considerations:
- State law governs the permissibility of virtual annual meetings.
- Delaware law generally allows virtual and hybrid annual meetings, subject to adherence to prescribed statutory standards.
- New York allows a virtual component to annual meetings, subject to adherence to prescribed statutory standards, but still requires an in-person meeting.
- California allows virtual meetings with the prior consent of shareholders (this requirement makes the ability to hold virtual meetings impractical, at least in the near term, if such consent has not previously been granted).
- Companies organized in other states must review applicable state law standards.
- Companies organized in non-US jurisdictions must review applicable corporate and securities law in such jurisdictions.
- If state laws permit virtual meetings, confirm that virtual meetings are not prohibited by the company's bylaws (company boards/management typically have the ability to set the location/format for annual meetings; and in many cases, the board has the authority to amend conflicting bylaw provisions).
- Neither the NYSE nor NASDAQ require specific formats for annual shareholder meetings, however, NASDAQ specifies that such meetings must permit shareholders to address company affairs with management.
- If virtual meetings are permitted by applicable state law and the company's bylaws, shareholders must be properly notified of a change in format (in accordance with state law notice requirements, bylaw requirements, and federal proxy rules).
- On March 13, 2020, the staff of the SEC's Division of Corporation Finance and the Division of Investment Management (Staff) provided the following:
- If definitive proxy materials have already been mailed and filed, issuers may notify shareholders of a change in the date, time, or location of an annual meeting without mailing additional soliciting materials or amending its proxy materials by: (i) issuing a press release announcing such change; (ii) filing the announcement as definitive additional soliciting material on EDGAR; and (iii) taking all reasonable steps necessary to inform other intermediaries in the proxy process (including proxy service providers) and other relevant market participants (including appropriate national securities exchanges) of such change. These actions should be taken promptly after a decision to change the date, time, or location of the meeting has been made, and sufficiently in advance of the meeting to timely alert the market. If definitive proxy materials have not yet been mailed and filed, consider including disclosures regarding the possibility that the date, time, or location of the annual meeting will change due to COVID-19 (based, among other things, on the reasonable likelihood of such a change). Given the uncertainties pertaining to COVID-19, even if management does not currently anticipate the need for a meeting change, it may want to include such disclosure in anticipation of unexpected events.
- Issuers that plan to conduct a virtual or hybrid meeting are expected to notify their shareholders, intermediaries in the proxy process, and other market participants of such plans in a timely manner, and disclose clear logistical details, including how shareholders can remotely access, participate in, and vote at such meeting. If definitive proxy materials have not yet been filed and delivered, such disclosures should be in the definitive proxy statement and other soliciting materials. Issuers that have already filed and mailed their definitive proxy materials would 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.
- Exchange Act Rule 14a-8(h) requires shareholder proponents, or their representatives, to appear and present their proposals at the annual meeting. Issuers are encouraged, to the extent feasible under state law, to allow shareholder proponents or their representatives to present their proposals through alternative means, such as by phone, during the 2020 proxy season. If a shareholder proponent or representative is unable to attend and present the proposal at the annual meeting due to the inability to travel or other hardships related to COVID-19, the Staff will consider this to be "good cause" under Rule 14a-8(h), such that issuers may not use this to assert Rule 14a-8(h)(3) as a basis to exclude a proposal submitted by the shareholder proponent for any meetings held in the following two calendar years.
- The guidance notes that any issuer or other person in need of additional assistance related to deadlines, delivery obligations, or their public filings are directed to contact the Division of Corporation Finance at (202) 551-3500 or here. Investment companies registered under the Investment Company Act of 1940 and business development companies, or their shareholders, in need of additional assistance are directed to contact the staff of the Division of Investment Management at IMOCC@sec.gov, or 202.551.6825.
© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.