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U.S. companies weigh pros and cons of paying quarterly dividends during COVID-19 pandemic

As COVID-19 moves across the U.S. decimating revenue sources, companies in severely impacted industries, including hospitality, retail and travel, among others, rushed to announce that quarterly dividend payments would be deferred, delayed, suspended or revoked, as the case may be.  Many simultaneously announced drawdowns on credit facilities, employee furloughs or layoffs and salary reductions, presumably as justification for the dividend change.

Companies with strong cash reserves, on the other hand, so far generally appear to be moving forward with regular dividend payments.  Their decision to continue to pay dividends as they are able despite the pandemic helps project stability in the U.S. securities markets and arguably strengthens investor relations, especially among retirees who depend on dividend income.

As economic fallout from the pandemic continues and the ripple effect of stay-at-home orders begins to impact nearly all businesses in some manner, companies may want to include disclosure forewarning that the board of directors continually monitors market conditions and will continually evaluate the company’s quarterly cash dividend program, balancing it with the company’s capital and financial strength needs.

In recent ISS Guidance regarding COVID-19 issues, ISS stated that this year it will support broad discretion for boards that change customary dividend practices and consider whether boards disclose plans to use any preserved cash from dividend reductions to support and protect their business and workforce.

Glass Lewis also recently recognized the need for flexibility during the pandemic, noting the reality of

US – COVID-19: Delaware Governor modifies emergency declaration to address virtual meeting matters

The Delaware Governor modified the state’s existing emergency declaration on April 6, 2020 to, among other things, allow stockholder meetings currently noticed for a physical meeting to pivot to virtual meetings to the extent permitted by law during the state of emergency, as well provide a method of adjournment of a meeting noticed for a physical location to a virtual meeting in case of public health threats and restrictions on personal travel.

The  declaration provides that if, because of COVID-19 pandemic public health threats, the board of directors wishes to change from a physical meeting location to a meeting conducted solely by remote communication, it may notify stockholders of the change solely by filing a document with the SEC and issuing a press release, which is then promptly posted on the corporation’s website. This addresses any potential uncertainty under the Delaware statute as to valid means of giving notice to stockholders.

In addition, if it is impracticable to convene a currently noticed stockholder meeting at the physical location because of COVID-19 public health threats, the corporation may adjourn the meeting to another date or time, to be held by remote communication, by providing notice of the date, time and means of remote communication by filing a document with the SEC and issuing a press release, which is then promptly posted on the corporation’s website. This addresses any potential uncertainty under the Delaware statute, which doesn’t address the method of adjournment under these circumstances.

While the guidance above is welcome

U.S. SEC Grants Temporary Relief for Edgar Code Applicants Unable to Obtain Notarization

April 3, 2020

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The SEC recently adopted temporary relief for Edgar filers that face challenges obtaining notarization of signatures on Form ID applications, which are required to obtain Edgar access codes.

Applicants can now upload a signed copy of Form ID without the notarization by including a statement that they were unable to obtain notarization due to difficulties related to COVID-19. Within 90 days after  obtaining access to Edgar, applicants must obtain notarization of the authorized signature on a copy of the completed Form ID and upload it to their Edgar account.  Failure to do so may result in the SEC inactivating their Edgar access codes.

The relief expires after July 1, 2020.

U.S.: SEC Staff Issues COVID-19 Related Guidance

The SEC Staff has provided guidance as to disclosure and other securities law obligations (the Guidance) related to COVID- 19 and related business and market disruptions.

The Guidance provides the SEC Staff’s views on

  • disclosure related to COVID-19
  • material non-public information related to COVID-19 and
  • reporting earnings and financial results during this period, including guidance with respect to non-GAAP measures related to COVID-19.

Assessing and Disclosing the Evolving Impact of COVID-19. The SEC Staff reminds companies that the effects COVID-19 has had on a company, what management expects its future impact will be, how management is responding to evolving events, and how it is planning for COVID-19-related uncertainties can be material to investment and voting decisions.

The Guidance lists a number of detailed questions management should consider relating to, among other things: a company’s financial condition and results of operations; capital and financial resources; valuation of balance sheet assets; possible material impairments; effects on operations resulting from remote work arrangements, including on controls; business continuity plans; customer demand; supply chains; human capital resources and productivity; and the effects of travel and border restrictions.

The Staff encourages companies “to provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management, and that companies proactively revise and update disclosures as facts and circumstances change.”

Material Non-Public Information. The Guidance includes a reminder that if COVID-19 has affected a public company in a material way, or where the company has become aware

U.S. public companies should evaluate their preparedness and triggers to adopt a rights plan

As public companies watch sharp market declines in their stock prices, many are wondering how they should respond.

A number of companies have adopted shelf rights plans that are reviewed by the board of directors on a “clear day” — in the absence of any takeover or activist activity — and at reasonable intervals. The plan would be adopted at a future date if deemed warranted, after consulting with legal and financial advisors.  Shelf plans became popular over the past 15-20 years as institutional investors and proxy advisors expressed strong opposition to rights plans generally, unless short-term in nature and approved or ratified by shareholders.

Typically, a shelf rights plan can be adopted quickly by the board in response to a threat. However, it should be noted that HSR rules only require notification where the acquirer would hold total voting securities in excess of $94 million, which represents almost 20% of a $500 million market cap company.  And a Schedule 13D needs only be filed within 10 days after acquiring beneficial ownership of more than 5%.  Further, state takeover statutes may have thresholds of 15% or 20% beneficial ownership.  As a result, in light of lower stock prices and high trading volumes, a potential acquirer might accumulate a large percentage of a company’s shares before the board becomes aware of that fact and is able to adopt the plan.

Under Delaware law, the adoption of a rights plan in the absence of a takeover threat would likely be subject to

Selected requirements of the Economic Stabilization Provisions of the U.S. CARES Act

As discussed in BCLP’s recent client alert, the CARES Act provides broad relief to a cross section of the country.  Title IV, focused on economic stabilization, has particular relevance to public and other larger companies. We highlight some of the noteworthy requirements below.

Conditions of Loans and Loan Guarantees.  As discussed in our alert, the Treasury Department is authorized to make loans, loan guarantees and other investments in eligible businesses where credit is not otherwise reasonably available, including: air carriers, ticket agents and aircraft services companies; cargo airlines; and “businesses critical to maintaining national security,” .

Federal Reserve Programs.  Additional funds will be available to Treasury to make loans and loan guarantees to, and other investments in, programs or facilities established by the Board of Governors of the Federal Reserve System for the purpose of providing liquidity to the financial system that supports lending to eligible businesses, States or municipalities.  Eligible businesses must be organized and conduct significant operations, and have a majority of their employees, in the U.S. The Act directs Treasury to seek implantation of a program to finance lenders to make direct loans, to the extent practicable, to mid-sized companies (including many nonprofits) with between 500 and 10,000 employees, with interest no higher than 2% per annum and no payment obligation during the initial months.

Selected Conditions.  Under both the Treasury and Federal Reserve programs, until one year after any loan is repaid:

  • No Stock Repurchases. The company (and, under the Treasury program, its

SEC extends reporting relief for U.S. companies affected by COVID-19; Staff issues interpretative guidance

Last week, the SEC announced that it issued an order (the Order) further extending its prior relief for public companies affected by COVID-19, as well as for others required to file reports with respect to such companies.

On March 31, 2020, the SEC Staff published two new interpretations of the Order (New Exchange Act Rule CDIs 135.12 and 135.13), supplementing the relief announced last week and described below.

The relief provides public companies subject to the reporting requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 with a 45-day extension to file certain reports that would have otherwise been due between March 1 and July 1, 2020, thereby superseding and extending the SEC’s prior order of March 4, 2020.

­Covered Filings.  The relief applies to, among others, Form 10-Ks, 10-Qs, 8-Ks, proxy statements on Schedule 14A, information statements filed on Schedule 14C, and Schedule 13Gs – as well as any other filings under Sections 13(a), 13(f), 13(g), 14(a), 14(c), 14(f), 15(d) and Regulations 13A, 13D-G (except for those provisions mandating the filing of Schedule 13D or amendments to Schedule 13D), 14A, 14C and 15D, and Exchange Act Rules 13f-1, and 14f-1.

Conditions.  The extension is available to those companies who are unable to meet a filing deadline because of circumstances related to COVID-19.  To take advantage of the extension, a company must furnish a Form 8-K or Form 6-K (as applicable) by the original filing deadline for each affected filing and disclose (i)

U.S. emerging trends in Form 8-K filings disclosing COVID-19-driven compensation changes

Companies filed a flurry of Form 8-K filings last week announcing voluntary executive officer compensation reductions driven by the COVID-19 pandemic.  While some companies disclosed the compensation changes under Item 7.01 or 8.01 on Form 8-K and others simply issued a press release, we saw an uptick in the number of companies making the disclosure under Item 5.02(e) of Form 8-K, which is triggered when a company enters into, adopts or materially amends a material compensatory plan or arrangement with the principal executive officer, principal financial officer or named executive officer.

Among companies making the disclosure under Item 5.02(e) of Form 8-K (Ford , Nordstrom , Lands’ End and Briggs & Stratton, among others), the executives generally reduced their compensation by at least 20% (and in some cases, 50% or 100%), seemingly taking the position that salary decreases of 20% or more were generally viewed as material amendments to the executives’ compensation arrangement (in parallel to the view that salary increases of 20% or more would generally would be viewed as material), although it is difficult to predict how long the reductions will continue and the true impact on the executives’ overall compensation.

Companies relying on Item 7.01 or 8.01 or a stand-alone press release likely were comfortable that based on their specific facts and circumstances, either that the decrease was not material to the executives’ compensation arrangements or, in the case where employment agreements were in place, perhaps by analogy to SEC CDI 117.13, that

U.S. TriBar Committee opines on validity of electronic signatures in new comment; SEC relief on signatures on filings during COVID-19

TriBar Committee.  Last week the TriBar Opinion Committee issued a new Comment concerning the use of electronic signatures and third-party opinion letters, in response to COVID-19 and its impact on the giving of opinions on the execution of agreements signed electronically.  Although virtual closings have been the norm for some time, the Committee observed that COVID-19 has increased focus on giving opinions on the execution of agreements signed electronically. The Comment explains the legal basis for the conclusion underlying those opinions that the electronic signatures on those agreements have the same legal effect as manual signatures, focusing on the UETA and E-SIGN.

For more information on e-signing, see BCLP’s client alert on Executing U.S. Contracts While Working from Home.

SEC Relief.  On the same day, and in response to COVID -19, the SEC staff issued a statement, that while compliance with Rule 302 of Regulation S-T is still expected, they will not recommend enforcement action if:

  • the signatory 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 filing and provides such document, as promptly as reasonably practicable, to the filer for retention in the ordinary course pursuant to Rule 302(b);
  • such document indicates the date and time when the signature was executed; and
  • the filer establishes and maintains policies and procedures governing this process.

As one example, the statement notes that if a signatory is teleworking,

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