The staff ("Staff") of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (SEC) has updated its guidance on the conduct of shareholder meetings in light of COVID-19 concerns (March 13, 2020), which was described in Goodwin’s March 13, 2020 client alert. The most significant change is guidance on how companies may deal with delays in printing and mailing paper (“full set”) proxy materials. The guidance indicates that companies may in some cases need to delay a shareholder meeting in order to provide shareholders with the material information necessary to make informed voting decisions on matters to be presented at the shareholder meeting on a timely basis. In other cases, a company may be able to use the “notice and access” model for distribution of its proxy materials, even though the company will not be able to satisfy all of the timing requirements for a notice and access proxy solicitation. The updated guidance also clarifies that the earlier guidance regarding changes to the date, time and location of annual meetings also applies to special meetings.
Guidance on Delays in Printing and Mailing Proxy Materials
The additional guidance comes in response to companies encountering delays in the printing and physical mailing of “full set” paper proxy materials for upcoming shareholder meetings as a result of COVID-19 impacts on staffing and operation of facilities by proxy service providers or transfer agents. This guidance supplements earlier guidance on situations in which a company is unable to deliver paper copies proxy and information statements to certain shareholders because the common carrier has suspended delivery service in that area due to COVID-19 impacts, which was contained in the SEC’s March 25, 2020 order that modified exemptions from the reporting and proxy delivery requirements for companies, also described in a recent Goodwin client alert.
These difficulties have led some companies to consider changing their proxy solicitation from full set delivery to the notice and access model permitted by SEC rules. In some cases, however, the company may not be able to comply with certain requirements of Rule 14a-16 under the Securities Exchange Act of 1934, which applies to both full set and notice and access proxy solicitations. For example, the timing requirements of Rule 14a-16 include (1) sending a notice of electronic availability of proxy materials and annual reports no later than 40 calendar days before the meeting; (2) sending paper copies of proxy materials and annual reports within three business days after receiving a shareholder request; and (3) continuing to send paper copies of proxy materials and annual reports to requesting shareholders until the shareholder revokes the request.
At this point in the proxy season, for example, a company may no longer be able to send the required notice of internet availability of the proxy materials to shareholders 40 calendar days or more before the meeting. Similarly, the company may not be able to comply with the requirement to provide brokers, dealers, banks and other intermediaries with the necessary information necessary to allow intermediaries to send a notice to beneficial owners 40 calendar days or more before the meeting. A company may also be unable to respond to shareholder requests for paper copies of the company’s proxy materials in a timely manner.
The guidance encourages companies affected by printing and mailing delays caused by COVID-19 to use all reasonable efforts to provide shareholders with the material information required by SEC proxy rules about the matters to be presented at the shareholder meeting in a timely manner so they can make informed voting decisions, without putting the health or safety of anyone involved at risk. If a company anticipates that it will have problems in complying with SEC notice and access requirements when a changing from full set delivery to the notice and access model due to printing and mailing delays caused by COVID-19, the company should consider contacting the Staff to discuss the company’s circumstances.
In some cases, the guidance indicates that a company may need to delay its shareholder meeting in order to provide shareholders with the proxy materials on a timely basis. If a company decides to delay the meeting, it should review applicable state law requirements and its organizational documents, as well as SEC proxy rules, in order to satisfy applicable shareholder notice and other requirements related to the meeting.
The guidance also states that where circumstances make delays unavoidable due to COVID-19 related difficulties, the Staff will not object to a company using the notice and access delivery option in a manner that 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, even if the company cannot satisfy all of the notice and timing requirements of Rule 14a-16. In these cases, the guidance indicates that the company should announce the change in the delivery method by following the steps described in the original guidance for announcing a change in the meeting date, time, or location. The company and intermediaries should also use their best efforts to continue to send paper copies of proxy materials to requesting shareholders, even if delivery will be delayed.
Finally, the guidance encourages companies and other affected parties to contact the Staff to discuss any other concerns resulting from any late filings caused by delays in the printing and mailing of proxy materials.
Other Guidance Updates
The guidance updates the prior guidance on changes in date, time, and location of a shareholder meeting to clarify that it applies to special meetings, in addition to annual meetings.
The updated guidance also indicates that the staff of the Division of Investment Management would take a position similar to the earlier guidance for operating companies with respect to changes in the date, time, or location of a shareholder meeting held by an investment company in connection with a business combination or other transaction described in a registration statement on Form N-14, except that in lieu of the announcement of the change being filed as additional definitive soliciting material, the staff would expect the announcement to be filed as a prospectus supplement pursuant to Rule 497 under the Securities Act of 1933.
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John O. NewellCounsel