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More SEC Guidance on COVID-19 Disclosure

Posted by Howard Berkenblit on June 24, 2020 at 10:11 AM

The SEC staff has issued new guidance regarding companies’ disclosure considerations regarding operations, liquidity and capital resources in light of COVID-19. The guidance, which largely reiterates the same themes as the staff’s prior guidance, encourages companies to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 “through the eyes of management” and to proactively revise and update disclosures as facts and circumstances change.

The new guidance focuses on three areas:

  1. Operations, liquidity and capital resources – this part of the guidance focuses on disclosures about the impact of adjustments being made by companies such as teleworking, supply chain and distribution adjustments, suspension of repurchase plans and dividends and changes in response to health and safety guidelines. In particular, the guidance contains a number of “considerations” in the form of questions for companies to consider addressing in their disclosures with respect to financing activities, short- and long-term liquidity risks and alternative funding sources.
  2. Government assistance – CARES Act – this part of the guidance focuses on disclosure considerations about the impact of government assistance to those companies receiving COVID-19-related loans, tax relief or other benefits, including the impact on related critical accounting estimates and assumptions.
  3. Ability to continue as a going concern – this part of the guidance focuses on whether the conditions and events surrounding COVID-19 raise substantial doubt about a company’s ability to meet its obligations.

Companies offering securities or preparing disclosure documents such as upcoming quarterly reports should carefully review and apply the new guidance (it’s quite short and clear!) (and of course continue to apply prior SEC guidance to updated changing circumstances).

Topics: disclosure requirements, SEC Filings, coronavirus, COVID-19

Nasdaq Provides Temporary Relief from Shareholder Approval Rules

Posted by Brandon Friedman on May 6, 2020 at 3:16 PM

By Brandon Friedman and Howard Berkenblit

The Nasdaq Stock Market is temporarily providing an exception from shareholder approval requirements for certain common stock issuances, permitting companies to raise capital quickly to continue running their businesses. The exception is effective immediately and valid for transactions entered into through June 30, 2020 (and completed within 30 days).

The exception applies to shareholder approvals for the issuance of common stock (or securities convertible or exercisable into common stock) in connection with an issuance of 20% or more of pre-transaction shares outstanding at a price less than the minimum price, as defined by Nasdaq rules.

However, reliance on the exception must be publicly announced and the exception is limited to situations where the need for the transaction is due to circumstances related to COVID-19. In addition, the exception only applies to circumstances where the delay in securing shareholder approval would have a material adverse impact on the company’s ability to maintain operations under its pre-COVID-19 business plan, result in workforce reductions, adversely impact the company’s ability to undertake new initiatives in response to COVID-19, or seriously jeopardize the financial viability of the business.

https://www.sec.gov/rules/sro/nasdaq/2020/34-88805.pdf

Topics: NASDAQ, shareholder, coronavirus, COVID-19

Nasdaq Provides COVID-19 Relief for Certain Listed Companies: Listing Bid Price and Market Value

Posted by Amiti Rothstein on April 20, 2020 at 11:41 AM

By Amiti Rothstein and Howard Berkenblit

Effective April 16, 2020, in response to the COVID-19 pandemic, and the resulting related market conditions, Nasdaq is providing temporary relief from the continued listing bid price (i.e., the minimum bid price of a company’s listed stock) and market value of publicly held shares (i.e., stockholders’ equity) listing requirements by tolling compliance through June 30, 2020 (the “Tolling Period”) (see http://img.n.nasdaq.com/Web/GIS/%7B1b62f703-d510-4903-aab1-fd7993d5b2de%7D_SR-NASDAQ-2020-021.pdf).

During the Tolling Period, although Nasdaq won’t be starting the timeline for meeting compliance standards in accordance with its listing rules, Nasdaq will continue to monitor the bid price and market value of publicly held shares requirements and companies would continue to be notified about new instances of noncompliance in accordance with the current rules. The temporary relief provided by the Tolling Period is applicable for any company not currently in compliance with the minimum bid price and/or market value of publicly held shares requirements and not solely for companies who have failed to meet these requirements after the declaration of COVID-19 being a pandemic.

Immediately after the Tolling Period, starting on July 1, 2020, companies will receive the balance of any pending compliance period or hearings panel exception to regain compliance with the applicable requirement. Nasdaq has stated that it will continue to monitor securities to determine if they regain compliance during the relief period.

Topics: NASDAQ, coronavirus, COVID-19

SEC COVID-19 Relief: Forms 144

Posted by Howard Berkenblit on April 13, 2020 at 12:26 PM

The SEC staff is providing temporary relief to those affected by COVID-19 regarding Forms 144 submitted for the period from and including April 10, 2020 to June 30, 2020. The Division of Corporation Finance staff will allow Forms 144 that would otherwise be filed in hard copy (or by EDGAR, which remains an alternative) to be submitted via email in lieu of mailing or delivering the paper form to the SEC if the filer or submitter attaches a complete Form 144 as a PDF attachment to an email sent to PaperForms144@SEC.gov. If the filer or submitter is unable to provide a manual signature on the Form 144 submitted by email, the relief allows the filer or submitter to provide a typed form of signature in lieu of the manual signature, as long as (1) he or she retains a manually signed signature page or other document authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the electronic submission and provides such document, as promptly as practicable, upon request by the SEC staff; (2) such document indicates the date and time when the signature was executed; and (3) the filer or submitter (with the exception of natural persons) establishes and maintains policies and procedures governing this process.

Topics: SEC Filings, coronavirus, COVID-19

SEC Updates to Guidance on Shareholder Meetings and Annual Meetings

Posted by Howard Berkenblit on April 9, 2020 at 5:01 PM

The SEC staff has further updated its relief and guidance for public company shareholder meetings in light of COVID-19 concerns (see: https://www.sec.gov/ocr/staff-guidance-conducting-annual-meetings-light-covid-19-concerns). In March, the SEC had issued guidance and relief from filing conditions for companies thinking of switching to virtual shareholder meetings or delaying their meetings after their initial proxy materials have been sent (see our client advisory at: https://www.sullivanlaw.com/news-SEC-Provides-Conditional-Regulatory-Relief-for-Public-Companies-Impacted-by-Coronavirus.html). In the updated guidance, among other things, the SEC provides further relief from some of the requirements for companies switching from “full set delivery” (i.e., physical mailing of all proxy materials), due to delays in printing and mailing as a result of the impact of COVID-19, to “notice and access” (i.e., physical mailing of only a notice of availability of online proxy materials), including relaxing the normal requirement for the notice of availability of proxy materials to be mailed at least 40 calendar days before the applicable shareholder meeting where unavoidable delays in printing and mailing make that time requirement no feasible. The updates also make clear that the guidance applies to special meetings of shareholders, not just annual meetings.

Topics: SEC Filings, shareholder, coronavirus, COVID-19, virtual shareholder meetings

SEC Statement on COVID-19 Disclosure

Posted by Howard Berkenblit on April 9, 2020 at 9:04 AM

The Chair of the SEC and the Director of the SEC’s Division of Corporation Finance put out an unusual joint statement emphasizing the importance of disclosures about the potential impacts of COVID-19, particularly in light of upcoming earnings releases and analyst and investor calls. They "urge companies to provide as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning." Disclosures should respond to investor interest in: (1) where the company stands today, operationally and financially, (2) how the company’s COVID-19 response, including its efforts to protect the health and well-being of its workforce and its customers, is progressing, and (3) how its operations and financial condition may change as collective efforts to fight COVID-19 progress. Among other things, the statement stresses the need for forward-looking information about the possible consequences to each company (and promises not to second guess companies’ good faith efforts). Notably the statement observes that "Historical information may be relatively less significant." We recommend as each public company considers its upcoming public disclosures to review this statement in detail and try to respond to the expectations and requests that it contains.

Topics: disclosure requirements, SEC Filings, covid

Additional COVID-19 Relief for EDGAR Applicants

Posted by Howard Berkenblit on March 30, 2020 at 10:24 AM

As a follow up to the SEC’s previous acknowledgement of processing challenges due to coronavirus issues in preparing Form IDs to obtain EDGAR codes, the SEC has adopted a temporary final rule that provides relief from the notarization requirement from March 26, 2020 through July 1, 2020, subject to certain conditions. Among those conditions are that the filer indicates on its manually signed Form ID that it could not provide the required notarization due to circumstances relating to COVID-19, and that the filer submits a PDF copy of the notarized manually signed document within 90 days of obtaining an EDGAR account.

Topics: EDGAR, SEC Filings, coronavirus, COVID-19

SEC Disclosure Guidance and Filing Deadline Relief Extension Due to COVID-19

Posted by Howard Berkenblit on March 25, 2020 at 1:11 PM

The SEC’s Division of Corporation Finance has issued updated disclosure guidance (https://www.sec.gov/news/press-release/2020-73) providing the SEC staff’s current views regarding disclosure and other securities law obligations that companies should consider with respect to COVID-19 and related business and market disruptions. The guidance again reminds companies that where a company has become aware of a risk related to the Coronavirus that would be material to its investors, it should refrain from engaging in securities transactions with the public and discourage directors and officers (and other corporate insiders who are aware of these matters) from initiating such transactions until investors have been appropriately informed about the risk. To the extent the company or insiders are engaged in transactions, or circumstances otherwise warrant it, the company should consider what disclosures are required in order to inform the public of its financial condition. When companies do disclose material information related to the impacts of the Coronavirus, they are reminded to take the necessary steps to avoid selective disclosures and to disseminate such information broadly. Depending on a company’s particular circumstances, it should consider whether it may need to revisit, refresh, or update previous disclosure to the extent that the information becomes materially inaccurate. Companies providing forward-looking information in an effort to keep investors informed about material developments, including known trends or uncertainties regarding the Coronavirus, can take steps to avail themselves of the normal safe harbor for this information.

Among the areas the guidance discusses for companies to consider are the impact of Coronavirus on:

  • financial condition and results of operations, plus future operating results and near-and-long-term financial condition;
  • capital and financial resources, including overall liquidity position and outlook (and if a material liquidity deficiency has been identified, what course of action the company has taken or proposes to take to remedy the deficiency);
  • cost of or access to capital and funding sources, such as revolving credit facilities or other sources, and access to cash;
  • material uncertainty about the ongoing ability to meet the covenants of credit agreements;
  • the ability to service debt or other financial obligations, access the debt markets, including commercial paper or other short-term financing arrangements, maturity mismatches between borrowing sources and the assets funded by those sources, changes in terms requested by counterparties, changes in the valuation of collateral, and counterparty or customer risk;
  • expected incurrence of any material COVID-19-related contingencies, impairments, increases in allowances for credit losses, restructuring charges, other expenses, or changes in accounting judgments that have had or are reasonably likely to have a material impact on the company’s financial statements;
  • the ability to maintain operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures, and any changes in controls that occurred during the current period that materially affect or are reasonably likely to materially affect the company’s internal control over financial reporting;
  • implementing business continuity plans or required material expenditures to do so;
  • demand for products or services;
  • supply chain or the methods used to distribute products or services;
  • human capital resources and productivity; and
  • the ability to operate and achieve business goals due to travel restrictions and border closures.

The guidance also reminds companies of their obligations with respect to the presentation of non-GAAP financial measures, noting that to the extent a company presents a non-GAAP financial measure or performance metric to adjust for or explain the impact of COVID-19, it would be appropriate to highlight why management finds the measure or metric useful and how it helps investors assess the impact of COVID-19 on the company’s financial position and results of operations. The guidance acknowledges that there may be instances where a GAAP financial measure is not available at the time of the earnings release because the measure may be impacted by COVID-19-related adjustments that may require additional information and analysis to complete. In these situations, the guidance states that the Division of Corporation Finance would not object to companies reconciling a non-GAAP financial measure to preliminary GAAP results that either include provisional amount(s) based on a reasonable estimate, or a range of reasonably estimable GAAP results. The provisional amount or range should reflect a reasonable estimate of COVID-19 related charges not yet finalized, such as impairment charges. In addition, the guidance states that if a company presents non-GAAP financial measures that are reconciled to provisional amount(s) or an estimated range of GAAP financial measures, it should limit the measures in its presentation to those non-GAAP financial measures it is using to report financial results to the Board of Directors. If a company presents non-GAAP financial measures that are reconciled to provisional amount(s) or an estimated range of GAAP financial measures, it should explain, to the extent practicable, why the line item(s) or accounting is incomplete, and what additional information or analysis may be needed to complete the accounting.

In addition, as further detailed in our client advisory from last week (https://www.sullivanlaw.com/news-SEC-Provides-Conditional-Regulatory-Relief-for-Public-Companies-Impacted-by-Coronavirus.html), the SEC had offered public companies impacted by coronavirus extensions on their periodic report deadlines for reports due between March 1 and April 30, subject to meeting certain conditions (as described in our advisory). Today, the SEC further extended its relief to filings due between March and July 1.

The SEC has also encouraged companies facing other administrative difficulties in the filing process (e.g., inability to obtain a required signature due to an executive officer being located in a quarantined zone) to contact the staff who will help address these issues on a case-by-case basis in light of their fact-specific nature.

https://www.sec.gov/news/press-release/2020-73

Topics: SEC Filings, coronavirus, COVID-19

SEC Addressing Challenges COVID-19 Poses to EDGAR Applicants

Posted by Howard Berkenblit on March 24, 2020 at 11:17 AM

The SEC has acknowledged that the COVID-19 public health crisis is presenting challenges for some entities and individuals applying for EDGAR codes. In particular, they are having difficulty meeting the notary requirement in the Form ID access application process and other EDGAR access processes that require notarization. The SEC has stated that it is “considering options to address this matter”. In the meantime they encourage anyone experiencing difficulties in meeting the notarization requirement in Form ID or related access processes due to the COVID-19 crisis to contact Filer Support at 202-551-8900 option 3.

Topics: EDGAR, SEC Filings, coronavirus, COVID-19

SEC Guidance on Virtual Meetings and Meeting Delays

Posted by Howard Berkenblit on March 16, 2020 at 9:29 AM

In light of coronavirus concerns, the SEC issued some guidance and relief from filing conditions for companies thinking of switching to virtual shareholder meetings or delaying their meetings after their initial proxy materials have been sent, as well as encouraging companies to allow proponents of shareholder proposals to present their proposals remotely rather than in person:

https://www.sec.gov/ocr/staff-guidance-conducting-annual-meetings-light-covid-19-concerns?auHash=zrsDVFen7QmUL6Xou7EIHYov4Y6IfrRTjW3KPSVukQs

Topics: SEC Filings, shareholder, coronavirus, COVID-19, virtual shareholder meetings

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About the Blog


The SEC Pulse provides updates and commentary from our Capital Markets Group on issues affecting publicly traded and privately owned businesses, investment banks and foreign companies who trade or raise capital in the United States, and boards of directors and company officers in securities transactions and corporate governance matters.

The material on this site is for general information only and is not legal advice. No liability is accepted for any loss or damage which may result from reliance on it. Always consult a qualified lawyer about a specific legal problem.

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