Coronavirus (COVID-19): U.S. SEC and States Provide Further Relief for Upcoming Annual Shareholder Meetings

In light of the public health and safety concerns raised by COVID-19, companies have been considering changes to their typical annual shareholder meeting procedures, including changes to the date, time, or location of the meeting, or transitioning to a virtual or hybrid annual meeting format. The U.S. Securities and Exchange Commission (“SEC”) and authorities in various states have sought to provide guidance and, in some cases, relief for companies seeking to comply with the SEC’s proxy rules under the Securities Exchange Act of 1934 (the “Exchange Act”) and applicable state laws. As discussed below, recent guidance from the staff of the SEC (the “Staff”) provides limited relief for companies that shift to furnishing proxy materials via the notice-only method of delivery, and several states have addressed restrictions on the ability of a company to hold a virtual meeting.

SEC Staff Guidance Regarding Notice-Only Delivery of Proxy Materials

On April 7, 2020, the Staff provided updated guidance regarding upcoming annual meetings of shareholders.[1] In the updated guidance, the Staff noted that companies “may be encountering delays in the printing and physical mailing of the ‘full set’ of their proxy materials for their upcoming shareholder meetings due to the impact of COVID-19 on the facilities and staffing of their proxy service providers or transfer agents.”

A company facing these challenges could substantially reduce the volume of proxy materials required to be printed and mailed by utilizing the notice-only delivery option under Rule 14a-16 of the Exchange Act, under which a separate notice is delivered to shareholders indicating that the proxy materials are available on a specified website and explaining how to access those proxy materials. The notice-only delivery method includes certain timing and procedural requirements that a company may be unable to meet because of disruptions arising from the COVID-19 pandemic. Under the notice-only option, companies must send the notice of the electronic availability of the proxy materials at least 40 calendar days before the meeting, providing intermediaries with the information necessary to send the notice to beneficial owners within the 40 calendar days timeframe required by Rule 14b-1 or 14b-2 of the Exchange Act, and send paper copies of proxy materials within three business days after receiving a request.

The Staff asks companies facing these COVID-19 related challenges to use all reasonable efforts to “allow shareholders to receive material information about the matters to be presented at a shareholder meeting in a timely manner so they can make informed voting decisions … without putting the health or safety of anyone involved at risk.” The Staff notes that, in some cases, this may mean delaying a meeting in order to provide materials on a timely basis. If delays are unavoidable due to COVID-19 related difficulties, the Staff states that it would not object to a company using the “notice-only” delivery option in a manner that, while not meeting all aspects of the notice and timing requirements of Rule 14a-16, includes the following elements:

• The company 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;
• The company will announce the change in the delivery method by following the steps described in the Staff’s previously issued guidance for announcing a change in the meeting date, time, or location; and
• Affected companies and intermediaries will also continue to use their best efforts to send paper copies of proxy materials and annual reports to requesting shareholders, even if the deliveries will be delayed.

The Staff also encourages companies and other affected parties to contact its representatives to discuss any other concerns resulting from any late filings caused by delays in the printing and mailing of proxy materials.

State Relief for Virtual Annual Shareholder Meetings

A company considering whether to hold a virtual annual meeting must also meet the requirements of the applicable law of the company’s state of incorporation and the applicable provisions of the company’s charter and bylaws. Companies moving to a virtual meeting format have faced questions regarding (i) whether state law permits virtual shareholder meetings, and (ii) if permitted, what notice provisions are required under state law when a change to an annual meeting is announced.

Generally, state laws vary as to whether virtual shareholder meetings are permitted. Companies have increasingly considered hosting virtual shareholder meetings due to health and safety concerns, as well as due to local or state ordinances restricting public gatherings, travel, and otherwise encouraging social distancing. Several states have responded by providing guidance and, and in some cases, relief for companies incorporated in their jurisdictions.

Some recent actions by the states include:

• California – In a March 2020 executive order,[2] the Governor temporarily suspended, for any shareholder meetings that already have been scheduled or must occur before June 30, 2020: (i) the requirements in Corporations Code Sections 20 and 600 to request and receive the consent of shareholders for meetings of shareholders to be held by electronic transmission or by electronic video screen communication, and (ii) the requirement in Corporations Code Section 601 to provide written notice of such meetings, to the extent that a company has provided notice to its shareholders that a meeting will occur at a physical location and subsequently provides notice by a press release, website posting, and other means reasonably designed to inform shareholders that the meeting will occur by electronic transmission or by electronic video screen communication.
• Connecticut – On March 21, 2020, the Governor issued an executive order[3] suspending, for meetings for the duration of Connecticut’s state of emergency as a result of the COVID-19 pandemic, portions of Section 33-703 of the Connecticut General Statutes to allow any meeting of shareholders to be held solely by remote communication. Companies must implement reasonable measures to verify each person participating remotely is a shareholder and to provide the shareholders with a reasonable opportunity to participate in the meeting and vote on matters submitted to them.
• Delaware – Delaware law generally allows companies to hold virtual shareholder meetings, but companies switching from physical to virtual shareholder meetings have been uncertain about whether merely following the SEC’s guidance on communicating the change would be sufficient to meet the notice requirements under Delaware law, or whether a new mail or email notice was necessary. On April 6, 2020, the Governor issued an executive order[4] providing that compliance by a public company with the SEC’s guidance would be regarded as sufficient notice under Delaware law.
• Georgia – On March 20, 2020, the Governor issued an executive order[5] permitting companies that must hold a meeting of shareholders during the public health state of emergency declared in Georgia to hold such annual meetings by remote communication in lieu of a physical meeting, conditioned upon meeting certain procedural requirements for the meeting.
• Iowa – In an April 2020 executive order,[6] the Governor suspended the requirement to hold in-person shareholder meetings if: (i) the meeting is held by remote communication, and (ii) 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.
• Louisiana – On March 26, 2020, the Governor issued a proclamation[7] suspending the requirement to hold shareholder meetings at a physical location for any shareholder meeting that (i) 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), (ii) requires notice to be provided in connection therewith during such public health emergency, or (iii) is scheduled to occur during such public health emergency.
• Maryland – On April 14, 2020, the Governor issued an executive order[8] permitting any publicly traded Maryland company to (i) 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 (ii) 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. 
• Massachusetts – On March 30, 2020, the Governor issued an executive order[9] suspending, for a period ending 60 days after the end of the state of emergency declared in Massachusetts, the operation of Section 7.08 of the Massachusetts General Laws prohibiting remote-only meetings. A public company that has provided written notice to shareholders of a physical annual or special meeting may notify shareholders of a change to a virtual meeting without mailing a new written notice if it: (i) issues a press release announcing the change, (ii) sends email notice to all shareholders who have provided an email address to the company, and (iii) takes all other reasonable steps to notify shareholders of the change.
• 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.[10]
• New York – In a March 2020 executive order,[11] the Governor temporarily suspended Section 602(a) and Sections 605(a) and (b) of New York’s Business Corporation Law, “to the extent they require meetings of shareholders to be noticed and held at a physical location.” The suspension was effective immediately and will continue through April 19, 2020.
• North Carolina – On April 1, 2020, the Governor issued an executive order[12] providing that, during a state of emergency, the board of directors of a company may, in its sole discretion, determine that all or any part of a shareholder meeting may be held solely by means of remote communication, provided that certain conditions are met, including that all shareholders have the right to participate in the meeting.

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Companies will still need to assure compliance with state law requirements with respect to virtual shareholder meetings. For example, some state laws include requirements that a company must undertake steps to reasonably verify the identity of shareholders and to provide shareholders with an opportunity to participate in the meeting, read or hear the proceedings substantially as they occur, and vote. In addition, companies should also review their particular charter and bylaw provisions to confirm whether any additional steps, such as adopting a bylaw amendment or a board resolution, may be necessary to facilitate a virtual or hybrid annual meeting.

Morrison & Foerster associate Marjorie Roesser contributed to the writing of this alert.

[1] For information regarding the original guidance issued on March 13, 2020, see our client alert, SEC Guidance on Annual Meeting Changes Due to COVID-19, available at https://www.mofo.com/resources/insights/200318-sec-guidance-annual-meeting-changes-covid-19.html. The April 7, 2020 update also included a clarification that the section on changes in date, time, and location of a shareholder meeting, as described in our previous client alert, also applies to special shareholder meetings.

[2] https://www.gov.ca.gov/wp-content/uploads/2020/03/3.30.20-EO-N-40-20-text.pdf.

[3] https://portal.ct.gov/-/media/Office-of-the-Governor/Executive-Orders/Lamont-Executive-Orders/Executive-Order-No-7I.pdf.

[4] https://governor.delaware.gov/health-soe/tenth-state-of-emergency/.

[5] http://custom.statenet.com/public/resources.cgi?id=ID:exec_order:GA202089&cuiq=15fbf60b-5fa4-5635-91ec-d37349f1895a&client_md=f782b16f9ab75eecfb775387c3871095&mode=current_text.

[6] https://governor.iowa.gov/sites/default/files/documents/Public%20Health%20Disaster%20Proclamation%20-%202020.04.02.pdf.

[7] https://gov.louisiana.gov/assets/Proclamations/2020/37-JBE-2020-Provision-for-First-Responder-Rulemaking.pdf.

[8] https://governor.maryland.gov/wp-content/uploads/2020/04/Shareholder-Meetings-4.14.20.pdf.

[9] https://www.mass.gov/doc/virtual-shareholder-meeting-order/download.

[10] https://www.njleg.state.nj.us/2020/Bills/A4000/3861_I1.PDF.

[11] https://www.governor.ny.gov/news/no-2028-continuing-temporary-suspension-and-modification-laws-relating-disaster-emergency.

[12] https://files.nc.gov/governor/documents/files/EO125-Authorizing-Encouraging-Remote-Shareholder-Meetings.pdf.