SEC and Delaware guide on proxies and AGM notices

Apr 16, 2020
David Bell and Soo Hwang explain recent regulatory responses to the pandemic

As part of its response to the Covid-19 pandemic, the SEC has provided guidance on updating the time, date or location of a shareholder meeting and has eliminated the federal securities law requirement that such a change require a full mailing of notice to stockholders.

On April 6, meanwhile, Delaware governor John Carney issued an order clarifying that new mail or email notice would not be necessary. Section 4 of the order states that notice requirements will be satisfied for purposes of Delaware state law if the document noting such change is publicly filed with the SEC and a press release is promptly posted on the company’s website after release.

In addition, the SEC clarified on April 6 that if (i) the 120-day deadline for incorporation by reference of part III information into a company’s annual report on Form 10K falls within the relief period (March 1 to July 1) in the agency’s Covid-19 order extending filing deadlines; and (ii) the other conditions of the order are satisfied - the most important being the reporting company’s inability to timely file due to pandemic-related matters - then the affected company may rely on the order to extend the 120-day deadline by filing a Form 8K with the required information.

Once the Form 8K is filed, the company would then be permitted to provide the part III information within 45 days of the 120-day deadline by including it in an amendment to its annual report on Form 10K/A or definitive proxy statement on Form DEF 14A or information statement.

On April 7, the SEC also updated its staff guidance to address unexpected printing and mailing delays caused by Covid-19 in connection with complying with the ‘notice-only’ delivery option permitted by Securities Exchange Act Rule 14a-16.

In particular, the agency’s staff noted that issuers are concerned about the requirements to send the notice of electronic availability of the proxy materials at least 40 calendar days before the meeting or respond to a shareholder’s request for paper copies of proxy materials in a timely manner. The staff urged companies to use all reasonable efforts to comply with the rules, including possibly delaying a meeting.

However, the staff noted that if printing and mailing delays become unavoidable due to Covid-19, it would not object to a company’s use of the notice-only delivery option in a manner that, while not meeting all aspects of the notice and timing requirements of Rule 14a-16, gives shareholders proxy materials sufficiently in advance of the meeting.

That period must be sufficient for shareholders to review the materials and exercise their voting rights under state law in an informed manner. The issuer must also announce the change in the delivery method by following the steps described above for announcing a change in the meeting date, time or location.

In the guidance, the staff also noted that the same rules would apply to special shareholder meetings as well as AGMs.

David Bell is a partner and Soo Hwang is a senior attorney with Fenwick & West.

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