By: Jasmine Vu
March 23, 2020
The U.S. Securities and Exchange Commission (the “SEC”) is following suit to other agencies and providing regulatory relief for certain publicly traded companies. Below are the SEC’s announcements regarding (1) annual meetings and proxy rules, (2) filing deadlines, and (3) transfer agent relief.
Annual Meetings and Proxy Rules
The SEC released this staff guidance regarding annual meetings and proxy rules.
- Background. Issuers are generally required to hold annual meetings of security holders under state law. Federal proxy rules apply when issuers with securities registered under Exchange Act Section 12 solicit proxy authority from their shareholders in connection with an annual meeting. Federal proxy rules require, among other things, a delivery of proxy materials (e.g., definitive proxy statements and proxy cards).
- Changing an Annual Meeting’s Date, Time or Location. Some issuers may be contemplating changing the date, time or location of their annual meetings due to the difficulties arising from COVID-19, such as the CDC’s recommendation to implement “social distancing.” Indeed, on March 17, the White House advised all Americans to avoid groups of more than 10. In light of such difficulties, SEC staff will take the position that an issuer that has already mailed and filed its definitive proxy materials can notify shareholders of a change in the date, time or location of its annual meeting without mailing additional soliciting materials or amending its proxy materials if it:
- issues a press release announcing such change;
- files the announcement as definitive additional soliciting material on the Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”); and
- takes all reasonable steps necessary to inform other intermediaries in the proxy process (such as any proxy service provider) and other relevant market participants (such as the appropriate national securities exchanges) of such change.
Issuers must take the above actions promptly after making a decision to change the date, time or location of the meeting, and sufficiently in advance of the meeting so the market is alerted to the change in a timely manner. If issuers have not yet mailed and filed their definitive proxy materials, they should consider whether to include disclosures regarding the possibility that the meeting’s date, time or location will change due to difficulties caused by COVID-19. Such determination should be made based on each issuer’s particular facts and circumstances and the reasonable likelihood of such a change.
- “Virtual” Shareholder Meetings. Issuers may be considering conducting a “virtual” shareholder meeting through the internet or other electronic means in lieu of an in-person meeting. State law and the issuer’s governing documents govern the ability to conduct “virtual” meetings, including “hybrid” meetings (i.e., an in-person meeting that also permits shareholder participation through electronic means). Robust disclosures that facilitate informed shareholder voting are just as important for “virtual” or “hybrid” meetings as they are for in-person meetings.
If an issuer plans to conduct a “virtual” or “hybrid” meeting, the issuer must notify its shareholders, intermediaries in the proxy process, and other market participants of such plans in a timely manner and disclose clear directions as to the logistical details of the “virtual” or “hybrid” meeting. For issuers that have not yet filed and delivered their definitive proxy materials, 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.
- Presentation of Shareholder Proposals. Exchange Act Rule 14a-8(h) requires shareholder proponents, or their representatives, to appear and present their proposals at the annual meeting. SEC staff encourages issuers, to the extent feasible under state law, 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.
To the extent a shareholder proponent or 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, SEC staff would consider this to be “good cause” under Rule 14a-8(h) should issuers 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.
Filing Deadlines; Disclosure Considerations
“The health and safety of all participants in our markets is of paramount importance. While timely public filing of Exchange Act reports is a cornerstone of well-functioning markets, we recognize that this situation may prevent certain issuers from compiling these reports within required timeframes.” – Jay Clayton, SEC Chairman
On March 4, 2020, the SEC issued an order that provides publicly traded companies with an additional 45 days to file certain disclosure reports that would otherwise have been due between March 1 and April 30, 2020. Among other conditions, companies must summarize in a report why relief is needed in their particular circumstance. The Commission may extend the time period for the relief with any additional conditions it deems appropriate, or provide additional relief as circumstances warrant. Companies are encouraged to contact SEC staff with questions or matters of particular concern.
In addition, the Division of Investment Management issued a staff statement regarding certain in-board voting requirements under the Investment Company Act of 1940.
The Commission staff will take the following positions with respect to certain obligations under the Securities Act and Exchange Act:
- Form S-3 eligibility (including well-known seasoned issuer status): a company relying on the exemptive order will be considered current and timely in its Exchange Act filing requirements if it was current and timely as of the first day of the relief period and it files any report due during the relief period within 45 days of the filing deadline for the report.
- Form S–8 eligibility and current public information eligibility requirements of Rule 144(c): a company relying on the exemptive order will be considered current in its Exchange Act filing requirements if it was current as of the first day of the relief period and it files any report due during the relief period within 45 days of the filing deadline for the report.
- Companies that receive an extension on filing Exchange Act annual reports or quarterly reports pursuant to the order will be considered to have a due date 45 days after the filing deadline for the report. Those companies will be permitted to rely on Rule 12b-25 if they are unable to file the required reports on or before the extended due date.
The SEC encourages companies to consider their activities in light of their disclosure obligations under the federal securities laws. For example, where a company has become aware of a risk related to COVID-19 that would be material to its investors, it should take steps to prevent directors and officers (and other persons who are aware of these matters) from initiating securities transactions with the public until investors have been adequately informed about the risk.
Companies or other affected persons seeking additional or different assistance in their efforts to comply with the federal securities laws are encouraged to contact SEC staff.
Relief for Registered Transfer Agents
On March 20, 2020, the SEC issued an order that provides registered transfer agents with temporary relief from certain regulatory provisions. The order temporarily exempts:
- Transfer agents from the requirements of Sections 17A and 17(f)(1) of the Exchange Act, as well as Rules 17Ad-1 through17Ad-11, 17Ad-13 through 17Ad-20, and 17f-1 thereunder; and
- Transfer agents and other persons subject to such requirements, from the requirements of Section 17(f)(2) of the Exchange Act and Rule 17f-2 thereunder.
To qualify for these exemptions (the “Exempted Provisions”), a registrant or other person relying on this exemption must provide written notice to the SEC by May 30, 2020 (1) identifying the registrant or person relying on the exemption, (2) describing the specific exempted provisions with which the registrant or other person is unable to comply and a statement of the reasons why, in good faith, compliance is unachievable, and (3) if the transfer agent knows or believes that it has been unable to maintain the books and records it is required to maintain pursuant to Section 17A and the rules thereunder, a complete and accurate description of the type of books and records that were not maintained, the names of the issuers for whom such books and records were not maintained, the extent of the failure to maintain such books and records, and the steps taken to ameliorate any such failure to maintain.
Registrants and other persons unable to comply with any or all of the Exempted Provisions are temporarily exempted for the period from and including March 16, 2020 through May 30, 2020 where the conditions set forth above are satisfied.
Jasmine Vu is a Corporate and Securities attorney with the law firm of Cantey Hanger LLP. She is a graduate of the University of Houston Law Center and the University of Texas at Austin. Ms. Vu focuses her practice on mergers and acquisitions, securities offerings, commercial lending, and other business transactions. For more information call 817-877-2843 or visit www.canteyhanger.com.
This article is for information purposes only and is not intended to be legal advice or substitute for consulting an attorney. We recommend that you discuss your particular situation with your attorney when you need legal advice.