Important Disclosure Considerations for U.S. Public Companies

March 24, 2020

Robert A. Petitt is a partner in the Burns &Levinson’s Corporate Group, where he focuses on securities law, mergers and acquisitions and corporate governance matters for both public and private company clients. Rob advises public companies in connection with capital markets transactions and a variety of securities law matters, and draws on his extensive securities law experience to assist with ongoing SEC reporting obligations. Rob has represented buyers and sellers in a variety of complex M&A transactions, and takes pride in effectively and efficiently representing his clients’ interests. He can be reached at rpetitt@burnslev.com or 617.345.3361.

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The global COVID-19 pandemic presents a host of time-sensitive issues that public companies should consider when drafting and evaluating their SEC disclosure. In a March 4 press release, SEC Chairman Jay Clayton reminded companies “to provide investors with insight regarding their assessment of, and plans for addressing, material risks to their business and operations resulting from the coronavirus to the fullest extent practicable to keep investors and markets informed of material developments.” As the situation is rapidly evolving, public companies should be frequently evaluating whether their existing disclosure needs to be updated to reflect the pandemic’s impact on their business. Some key considerations that management and boards should consider in this new environment include:

• Update Risk Factors. If management has determined that COVID-19 poses any material risks to the company’s business or operations, it should include risk factors with the company’s next quarterly or annual report that describes those risks. As always, risk factors should be tailored to the specific risks that the company faces rather than general risks faced by all companies. For example, the pandemic might affect a company’s supply chain, manufacturing capabilities, IT infrastructure, consumer demand for its products, planned transactions, or even management succession. In the life sciences field, companies should evaluate potential impacts on their pre-clinical studies and planned or ongoing clinical trials.

• Review MD&A for Material Trends.  Management should review whether potential impacts of COVID-19 on the company’s business could cause any material trends to the company’s liquidity, capital resources, or results of operations in the future. These disclosures will likely mirror any relevant risk factors that the company identifies.

• Update Safe Harbor Statements. In its March 4 release, the SEC highlighted that companies may rely on the safe harbor provided by Section 21E of the Exchange Act when they provide forward-looking statements relating to the pandemic. Companies should ensure that to the extent their filings include any statements regarding the potential impact of COVID-19, the forward-looking statement language in those filings references those risks.

• Evaluate Whether to Revise or Withdraw Guidance. To the extent a company has provided earnings guidance for 2020, it should evaluate whether to update or withdraw that guidance as a result of uncertainties relating to the pandemic. Updates to previously-issued guidance should quantify the expected impacts of the pandemic; however, given the rapidly evolving situation and uncertainty as to the duration and magnitude of the pandemic, issuers may opt to withdraw guidance entirely. Moreover, any statements relating to potential pandemic impacts – whether or not they relate to guidance – should be broadly disseminated through press releases and/or SEC filings to avoid selective disclosure issues under Regulation FD.

• Evaluate Whether to Close Trading Window. Many companies’ insider trading policies will open up trading windows shortly after year-end earnings are released. However, management should consider whether the COVID-19 pandemic poses any material risks to the company that have not been publicly disclosed; if it does, companies may wish to terminate open trading windows to avoid potential insider trading issues.

• Conditional Relief for Filing Deadlines. The SEC issued an order on March 25 (which superseded a prior order from March 4) providing conditional relief allowing companies to delay their SEC filings that would have otherwise been due between March 1 and July 1 by up to 45 days under certain circumstances. The delay must result from COVID-19, and companies must furnish a Form 8-K with the SEC by the later of March 16, 2020 or the original filing deadline of the delayed report stating that the company is relying on the SEC order, giving a description of the reasons for the delay, and providing an estimated date for the delayed filing. The Form 8-K must also include, if material, risk factors explaining the impact of COVID-19 on the company’s business. The delayed filing, once made, must include disclosure that the company has relied on the SEC order, and must state the reasons why the company could not meet the original deadline.

• Financial Statement Impacts. SEC Chairman Powell urged 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 applicable requirements.” As part of that review, companies should evaluate whether subsequent event disclosure is warranted as a result of actual or expected impacts. Companies should also review whether the pandemic has any adverse effect on their disclosure controls and procedures that would need to be reported.

• No Mailing Required for Change to Annual Meeting Date, Location, and Form. Many companies may wish to change the date of their annual shareholder meetings as a result of the pandemic or to hold virtual shareholder meetings electronically. Companies that have already mailed proxy statements to shareholders, and that subsequently need to change the date or location of the meeting or switch to a virtual shareholder meeting, may make those changes without needing to mail additional proxy materials to shareholders or amending their proxy materials. In guidance issued on March 13, the SEC explained that companies may make such changes if they issue a press release announcing the changes, file the announcement as definitive additional soliciting materials on EDGAR, and take all reasonable steps necessary to inform intermediaries in the proxy process (e.g., proxy service providers) and market participants (e.g., exchanges) of the change. Companies wishing to hold virtual shareholder meetings should review their charter and bylaws and the laws of their state of incorporation to ensure that such meetings are permitted; for example, Delaware requires a board vote in order to approve virtual shareholder meetings.

Burns & Levinson will continue to monitor the SEC’s response to the COVID-19 pandemic and provide guidance to our clients as the crisis evolves. We remain committed to assisting our clients as they navigate these uncharted waters. If you have questions about pandemic-related disclosure considerations or moving shareholder meetings to be held virtually, please reach out to the Burns & Levinson team.