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Coronavirus: What Public Companies Should Consider Doing Now

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Public companies are grappling with a myriad of current and potential future issues caused by the COVID-19 pandemic relating to their financial reporting requirements, disclosure obligations and holding their annual meetings of stockholders, among other challenges. In light of these issues, public companies should consider the following:

  • Risk factors in public filings (quarterly and annual reports and registration statements): Companies should consider adding risk factors to their periodic reports and registration statements regarding the effect of COVID-19 on their business.  Companies should consider risks related to operations in areas potentially impacted by the outbreak, the effects of the outbreak on the company's suppliers and customers, and any indirect impacts that the pandemic could have on demand or supply of the company's products or services.
     
  • Disclosure guidance: The SEC has advised public companies to provide investors with disclosure regarding their assessment of material risks to their business and operations resulting from COVID-19 to the fullest extent practicable to keep investors and markets informed of material developments, and their plans for addressing these risks.  The SEC has indicated that how companies plan for and respond to COVID-19 as events develop can be material to an investment decision, and the SEC has urged public companies to work with their audit committees and auditors to ensure that their financial reporting, auditing, and review processes are as robust as practicable in light of the circumstances in meeting the applicable requirements. Companies that provide forward-looking information in their filings about their plans for dealing with the coronavirus, including known trends or uncertainties regarding COVID-19, can avail themselves of the safe harbor for forward-looking statements afforded by the Private Securities Litigation Reform Act of 1995.
     
  • Other Practical Advice:
     
    • When companies determine to disclose material information related to the impacts of COVID-19 on their business, they should be careful to avoid selective disclosures and to disseminate such information broadly to the market to avoid Regulation FD issues.
       
    • Consider whether your officers and directors should be prohibited from trading in the company's securities if the company is aware of material nonpublic information regarding COVID-19's impact on your business.
       
    • The Board has responsibility for the oversight of material risks to the company.  In this regard, it is important for management to keep the Board informed as to various developments related to COVID-19 so the Board can consider and understand the material risks posed by the virus and their potential magnitude to the company, as well as management's plans to address and mitigate those risks.
       
    • Consider holding a virtual shareholder meeting this year. Be sure that state law in the state in which you are incorporated allows for this (Delaware and a majority of states do) and that you comply with requirements of your stock exchange and your company's governance documents. See also "Guidance for Changes Related to the Annual Shareholders' Meeting" below for additional guidance relating to virtual meetings.

Filing Deadline Extensions

On March 4, the SEC issued an order that provides public companies with an additional 45 days to file certain disclosure reports that would otherwise have been due between March 1 and April 30.

  • Among other conditions, in order to rely on the extended filing deadlines, companies must file a Form 8-K that includes a summary of why the relief is needed in their circumstances. This 8-K is due by the later of March 16 or the original reporting deadline for filing the report.
     
    • For purposes of eligibility to use Form S-3 (and for well-known seasoned issuer status, which is based in part on Form S-3 eligibility), 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.
       
    • For purposes of the Form S-8 eligibility requirements and the 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 indicated that it may extend the time period for the filing deadline relief, with any additional conditions it deems appropriate, or provide additional relief as circumstances warrant.
     
  • In addition, the SEC encouraged companies to contact SEC staff with questions or matters of particular concern. 

Guidance for Changes Related to the Annual Shareholders' Meeting

On March 13, the SEC issued guidance for issuers contemplating possible changes in the date, time, or location of their annual meetings due to the challenges arising from COVID-19.  The SEC staff indicated 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 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 that have already filed definitive proxy materials and who wish to switch to a virtual meeting can announce the change in the same manner described above. Note, however, that your proxy service provider may need up to four weeks to accommodate a change to a virtual meeting, so you will want to plan ahead and coordinate accordingly.

Baker Donelson continues to monitor coronavirus developments, and we will provide updates as new information becomes available. If you have any questions regarding this Alert or the impact of the coronavirus (COVID-19) on your organization, please contact Lori Metrock, John Scannapieco, or any member of Baker Donelson's Securities Team. Also, please visit the Coronavirus (COVID-19): What you Need to Know information page on our website.

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