Delaware Governor Issues Emergency Order Regarding Corporate Annual Meetings

I recently discussed on this page how the 2020 corporate annual meeting season was facing its own challenges in the midst of the global pandemic and worldwide orders against the congregation of persons, and discussed the potential use of virtual annual meetings being conducted remotely by electronic communications as a means to overcome such challenges.  On the evening of April 6, 2020, the Governor of the State of Delaware issued his Tenth Modification to the Covid-19 State of Emergency, which contained provisions fostering a Delaware corporation’s ability to react where it had already called and noticed an annual meeting of stockholders to be held in-person.

The Tenth Modification of the Covid-19 State of Emergency permits Delaware corporations subject to the  reporting requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934, and who have already given notice of an in-person annual meeting of stockholders, to either (a) convene the meeting as scheduled but via electronic “virtual” means or (b) adjourn the meeting to another date to be held remotely via electronic means by both (i) making a public filing with the SEC giving notice of such changes to the convening of the meeting, and (ii) publishing the notice on the company’s website.

Annual Meetings–When Your Stockholders Cannot Actually Meet

As I write this post safely ensconced—and properly “socially-distanced”—in my home office, the annual rites of spring march on oblivious to the disruption caused by a global pandemic. The bulbs outside my window are in full-bloom, trees are budding out, and spindly-legged foals gambol about in their paddocks. Corporate annual meetings (another rite of spring), however, are not so immune. Millions of stockholders of Delaware corporations are currently under some form of “stay-at-home” restrictions, and applicable guidelines from health officials limit gatherings to no more than 5-10 people, each of which have to be at least 6 feet away from one another.  These safety protocols, while necessary, make it essentially impossible to convene annual stockholders’ meetings as has been traditional–in person.

In this time of extreme disruption, Delaware corporations may continue to carry on the critical business attended to at the annual meeting of stockholders by taking advantage of the flexibility granted by the Delaware General Corporation Law (“DGCL”) to conduct such annual meetings “virtually” via electronic means. Moreover, as described below, Delaware corporations may also be given the freedom to delay their annual meetings until the biological dangers of in-person meetings have passed.

“Virtual” Annual Meetings

Section 211 of the DGCL was amended at the turn of this century to authorize corporations to hold annual meetings of stockholders “by means of remote communication” so long as it was not prohibited by the corporation’s charter or bylaws and was approved by the board of directors. Section 211 further gives the board sole discretion to adopt guidelines and procedures that would allow stockholders (or proxy-holders) to utilize “means of remote communications” such that they may:

1) participate in the stockholders’ meeting, and;

2) be deemed present in person and vote at a meeting of stockholders, provided that:

(i) the company implements reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder,

(ii) the company implements reasonable measures to provide its stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with the proceedings, and

(iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action will be maintained by the company.

Corporations considering utilizing the freedom offered by Section 211 to conduct their annual meetings virtually should consult their governing documents to determine whether such meetings would be prohibited, and if not prohibited, the board of directors should establish proper procedures to ensure compliance with Section 211. If a virtual meeting is, however prohibited by the governing documents, and that prohibition is contained in the company’s bylaws, then the board of directors may have the power to amend the bylaws to allow annual meetings to be conducted by remote means.

Delayed Annual Meetings

To the extent a Delaware corporation has already given notice of an “in-person” annual meeting, another option may be to delay the convening of such a gathering until it is both safe and permitted by local orders. To the extent a company decides to delay its annual meeting, among the issues that might need to be addressed are: (a) federal securities laws and regulations related to notices and solicitations of proxies (recent SEC guidance on this front is addressed here), and (b) Delaware state-law matters related to the timing of annual meetings. For instance, DGCL Section 211 mandates that a corporation convene an annual meeting no later than 13 months since the last annual meeting or the last time directors were elected by written consent. Thus, a delayed annual meeting could run afoul of this timing constraint.

As of this morning, however, it appears that the Delaware State Bar Association (“DSBA”) is working on emergency proposals for the Governor and the General Assembly that would, if presented and adopted, (a) make clear in DGCL Section 110(a) that a pandemic or epidemic is a type of emergency that could trigger a board’s ability to adopt emergency bylaws, and (b) give the board of directors broad powers regarding the timing of and method of convening an annual meeting of stockholders beyond those discussed above. These proposed measures are currently making their way through the DSBA committee process.

These are rapidly-evolving times, so stay tuned for future developments on this front.

Delaware Governor Closes Nonessential Businesses Until May 15, 2020

On March 22, 2020, Delaware Governor John Carney issued his Fourth and Fifth Modifications of the Declaration of a State of Emergency for the State of Delaware Due to a Public Health Threat, pursuant to which he has ordered the closure of nonessential business and commercial establishments in Delaware (Nonessential Business Closure Order). The order takes effect on Tuesday, March 24, 2020, at 8:00 a.m. and remains in effect “until after May 15, 2020, or the public health threat of COVID-19 has been eliminated… .” Violations of the Nonessential Business Closure Order constitute a criminal offense.

While essential businesses—as defined in the governor’s order and highlighted below—may continue to operate, such businesses must continue to comply with certain health-protecting guidelines and measures promulgated by the Centers for Disease Control and Prevention (CDC) or the Delaware Department of Health and Social Services’ Division of Public Health (DPH). Among the measures essential businesses are required to observe while they remain open for employees and customers are the following: (a) implementing flexible and nonpunitive sick-leave policies; (b) excluding employees who are actively exhibiting signs of illness or have had close contact with persons diagnosed with, or suspected of having COVID-19; and (c) the adoption and encouragement of certain personal hygiene and property sanitizing practices.

The Nonessential Business Closure Order appears to be fairly liberal in adopting Delaware’s definition of what businesses or industries are considered essential businesses. To that end, businesses that employ or utilize workers in the following general areas are considered essential businesses and may remain operational to provide functions critical to the day-to-day needs of Delaware’s citizens:

    • Healthcare/Public Health: Not surprisingly, the list of workers related to the healthcare/public health industry is quite broad and not only includes those persons directly responsible for providing healthcare services, but also workers and businesses that are critical to the support of such healthcare functions.
    • Law Enforcement, Public Safety, First Responders
    • Food and Agriculture: Here, too, the list of essential functions broadly captures a wide swath of the food and agriculture segment to ensure that this critical industry remains functional. Thus, the directive generally declares as essential workers and businesses critical to the production of, distribution of and the sale of food and beverage products not only for human consumption, but also for pets and livestock.
    • Energy: This industrial category is broken down into the following subcategories: (a) electricity industry; (b) petroleum industry (including transport, storage, refining, distribution and sales); and (c) natural gas and propane.
    • Water and Wastewater
    • Transportation and Logistics: This category broadly covers persons and businesses needed to move goods and services, as well as to maintain the assets used in transportation and logistics activities.
    • Public Works
    • Communications and Information Technology
    • Other Community-Based Government Operations and Essential Functions: This category covers workers such as: (a) election personnel; (b) weather forecasters; (c) educators; and (d) hotel workers, among others.
    • Manufacturing: This category broadly encompasses “Workers necessary for the manufacturing of materials, goods, products, or similar distribution.”
    • Hazardous Materials
    • Financial Services and Insurance
    • Chemical
    • Defense Industrial Base
    • Construction: This category includes both the persons engaging in the construction and repair of residential and nonresidential structures and the businesses that supply materials and hardware to those trades.
    • Necessary Products Retailers: This category lists a number of necessary products that include: (a) medical and hygiene supplies; (b) dry goods; (c) agricultural supplies; (d) pet and animal food supplies; (e) hardware; (f) products and equipment needed to work from home; (g) alcohol, beer and wine; and (h) “any other household consumer products or other products necessary to maintain the safety, sanitation, and essential operations of residences.”
    • Necessary Retail and Service Establishments: This category lists 26 types of necessary retail and service establishments that include: (a) businesses that sell to or supply such businesses; (b) plumbers, electricians, exterminators, etc.; (c) lawn and garden retail facilities; (d) marinas; (e) child care facilities; (f) professional services such a legal and accounting; (g) hotels and taxis; and (h) pet sitters.
    •   Open Air Recreation Facilities

 

 

 

 

The Nonessential Business Closure Order also contains a list of types of businesses that are considered nonessential businesses, which includes places such as casinos, racetracks, sporting facilities, theaters and concert halls, among others. This list appears to cover a number of facilities in which large numbers of people might ordinarily gather together.

To determine the specific status of a specific type of business or worker, the state of Delaware has published an industry status list, in which the industries named above are broken down into their four-digit North American Industry Classification System (NAICS) code. The industry classification list states—by code number—which types of businesses may or may not operate (or operate with certain listed restrictions) during the time the order is in force. Moreover, in a set of FAQs published by the state, it is noted that if a business has more than one NAICS code, “[y]ou may follow the instructions for the least restrictive NAICS code your business is classified under.”

Delaware’s Nonessential Business Closure Order appears to broadly define essential businesses in a manner that will allow many aspects of Delaware’s manufacturing, commercial and business landscape to continue to operate, giving Delaware citizens the most normal day-to-day life possible, without unnecessary restrictions, in these challenging circumstances.

About Duane Morris:    If you have questions regarding how the Nonessential Business Closure Order might affect your business, please contact Sharon L. Caffrey, Richard L. Renck, any of the attorneys in our Wilmington office, any member of the COVID-19 Strategy Team or the attorney in the firm with whom you are in regular contact.     

 

Duane Morris has created a COVID-19 Strategy Team to help companies plan, respond to and address this fast-moving situation. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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