The SBA and Treasury published the much anticipated PPP loan forgiveness application late last Friday evening.  The application itself provides more guidance than contained in the existing FAQs and regulations relating to use of PPP loan proceeds and eligibility for forgiveness and includes new certifications.  Absent from the form is any requirement to address the necessity of the loan or to report revenue levels, profitability or other evidence of the impact of the economic uncertainty brought on by the COVID-19 pandemic.

In its press release announcing release of the form, Treasury and the SBA stated that the form and its instructions reflected measures designed to reduce compliance burdens and simplify the process for borrowers.  Those measures relate primarily to calculation of payroll costs and step-by-step instructions to calculate eligibility for loan forgiveness.  In addition, the form provides that eligible non-payroll costs (so long as not in excess of 25% of the total forgiveness amount) can include payments of interest on any business mortgage obligation (real or personal property) incurred before February 15, 2020; business rent or lease payments on leases in effect prior to February 15, 2020; and covered utility payments so long as for services that began before February 15, 2020.  For a more thorough discussion of the guidance provided by the application form, see our analysis here.

Interestingly, if the borrower and its affiliates received PPP loans in excess of $2 million, the borrower must “check the box”.  We assume this is to flag those

The Securities and Exchange Commission (the “SEC”) recently adopted temporary final rules to Regulation Crowdfunding to address companies’ urgent COVID-19 capital needs.  The temporary rules provide tailored, conditional relief to established smaller companies from certain Regulation Crowdfunding requirements relating to the timing of the offering and the availability of financial statements required to be included in issuers’ offering materials.  For example, the temporary rules provide an exemption from certain financial statement review requirements for issuers offering $250,000 or less in securities in reliance on Regulation Crowdfunding within a 12-month period.

The SEC included the following table summarizing the existing Regulation Crowdfunding and changes resulting from the temporary rules:

  Regulation Crowdfunding Temporary Rule Amendments Eligibility The offering exemption is not available to:

·       Non-U.S. issuers;

·       Issuers that are required to file reports under Section 13(a) or 15(d) of the Securities Exchange Act of 1934;

·       Investment companies;

·       Blank check companies;

·       Issuers that are disqualified under Regulation Crowdfunding’s

disqualification rules;

·       Issuers that have failed to

file the annual reports

required under Regulation Crowdfunding during the

two years immediately

preceding the filing of the offering statement In addition to the existing eligibility criteria, issuers wishing to rely on the temporary rule amendments must also meeting the following criteria:

·       The issuer cannot have been organized and cannot have been operating less than six  months prior to the

commencement of the offering; and

·       An issuer that has sold

securities in a Regulation

Crowdfunding offering in the past,

Because of the rapid shift from in-person to virtual annual meetings mandated by COVID-19 health and safety concerns, many companies held first-time virtual-only meetings, with both management and shareholders exploring the process in real time.  Not surprising, reports of virtual meeting glitches soon began to emerge.

Twenty minutes into the virtual-only annual meeting of Goodyear Tire & Rubber Company, shareholder John Chevedden was presenting his shareholder proposal (to allow shareholders to vote on bylaw and charter amendments) when the microphone cut out.  Chevedden filed a shareholder alert with the SEC requesting that the polls be reopened so Goodyear shareholders can vote based on the full text of his proposal presentation.  So far, no word from Goodyear on Chevedden’s allegation that management cut off the microphone.

Earlier this week, the Council of Institutional Investors (CII) sent to a letter to the SEC Investor Advisory Committee expressing concern about some virtual-only annual meetings early in the 2020 proxy season, citing anecdotal reports of problems including:

• Shareholders struggling to log into meetings, in part due to control number snafus;
• Inability to ask questions in some cases if the shareholder voted in advance by proxy;
• Shareholders unable to ask questions during the meeting;
• Possible cherry-picking of questions asked by shareholders and lack of transparency on questions asked by shareholders; and
• Confusion on channels for shareholder participation, with shareholder proposal proponents required to use a different line than that used for general shareholders.

The CII urged public companies to mitigate the

As states slowly move to reopen their economies, many returning employees will be shocked by the radical changes in their workplaces.  Collaborative spaces, ping pong tables and community break rooms, among other areas, will be transformed or closed for social distancing.  Employers will monitor and collect employee health information as never before.  Some employers already have announced they are exploring contact tracing and testing apps and wearable wristbands to alert employees if they are within six feet of each other or have come into close proximity with someone who has tested positive for COVID-19.

Directors will play a crucial role in overseeing these pandemic-related corporate culture and privacy challenges, far beyond typical oversight of operations and finance.  Directors have duties of care and loyalty to make well-informed decisions and act in the best interest of company stockholders.  To fulfill those duties and protect themselves under the business judgement rule, directors should require management to provide appropriate and timely reports  so they can monitor and consider up-to-date information in order to provide strategic direction and oversight in the rapidly-changing COVID-19 environment.

While there is always tension and management sensitivity about possible board over-reach into day-to-day operations, management and directors may need to work together more closely than in the past so that directors are fully informed in order to monitor management’s real-time decisions to re-open while fulfilling their oversight duties.

Conflicts in workplace protocols are likely, as management and directors grapple to balance risks and uncertainties with employee and customer privacy

As more companies prepare to file Form 10-Qs, they should give special attention to risk factors – particularly to consider whether new risks have emerged or hypothetical ones have become real.  The Form calls for disclosure of any material changes from risk factors included in the last 10-K.  However, the COVID-19 pandemic presents unique challenges to responding to other requirements as well, such as instructions to address “known trends and uncertainties” in MD&A or to provide “such further information . . . as may be necessary to make the required statements, in the light of the circumstances under which they were made not misleading” in Rule 12b-20.  Careful consideration of risk factors can help complete the picture for investors. Although companies need only disclose what is known or reasonably available, it can be challenging to comfortably determine what elements of the current state of affairs will, with hindsight, be viewed as both “known” and material to investors.

In order to prepare their disclosures, companies should

• utilize appropriate disclosure controls and procedures, and seek input from relevant constituencies, including operating units, HR, IT, the law department and finance, to determine the scope and depth of impacts
• if a designated individual or team is addressing the company’s COVID-response, be sure they are included
• review each of the 10-K risk factors to evaluate which ones might need to be updated or supplemented or whether new ones should be added
• confer with IR and senior management to assess the state of existing knowledge
  

— New NYSE Relief Proposal Tracks SEC-Approved Nasdaq Temporary Rule

The SEC approved yet another temporary measure related to the continued listing rules of the New York Stock Exchange on April 21, 2020.  This time, the NYSE sought and received immediate effectiveness of a proposed rule change to assist listed companies who may fall out of compliance with the $50 million market capitalization and $1.00 price continued listing requirements by providing a tolling period through June 30, 2020.  The NYSE originally sought SEC approval to suspend these requirements until June 30, 2020, citing the unprecedented market declines resulting from the ongoing COVID-19 pandemic, but the proposal was rejected.

Companies that fail to maintain either of these NYSE continued listing standards are typically notified by the Exchange of their noncompliance and then must promptly issue a press release and file any required Form 8-K.  Listed companies have up to 18 months to regain compliance with the $50 million market capitalization requirement and up to 6 months to regain compliance with the $1.00 trading price standard under the existing rules.   Under the temporary rule, the Exchange will continue to notify listed companies of any noncompliance, companies will still be required to issue a press release and file the required Form 8-K, but the cure periods will be tolled until June 30, 2020, meaning that the 18-month or 6-month cure period will be calculated as beginning on July 1, 2020.

The Exchange still intends to attach a “.BC” indicator to those noncompliant

Toward the end of the first quarter of 2020, many public companies imposed a blackout period, during which directors and specific employees deemed insiders could not trade the company’s stock. The obvious purpose of these blackout periods is to prevent insiders from trading at a time when they are likely to have material nonpublic information about the soon to be completed quarter.  This year, insiders were also likely to have material nonpublic information about the early impact of the coronavirus on their business, including demand, supply chain, cancelled orders and the costs of complying with stay-at-home orders.  In an earlier alert, we noted that trading while in possession of early visibility into the impact of the coronavirus on the business could be deemed insider trading, and that the SEC expressed concerns about trading under these circumstances.

Typically, public companies plan to open the trading window to permit insiders to trade within a day or two of issuing their earnings release for the quarter.  Even in these uncertain times, many public companies may be able to maintain their normal protocols.  As they consider this issue, public companies should be sure that their earnings release contains sufficient disclosure around the impact of coronavirus on the business and management’s expectations of the impact going forward.  For some companies, waiting until the Form 10-Q is filed to open the window may be advisable.  For others, including an expanded earnings release that provides more fulsome analysis to the market about the coronavirus impact and then setting out

Reportedly more than 100 public companies received more than half a billion dollars of funds available under the SBA’s Paycheck Protection Program.  On April 23, 2020, the U.S. Department of Treasury published new guidance suggesting public company participants who could not demonstrate sufficient need could be subject to scrutiny unless they return the funds by May 7, 2020.

PPP applications require certification that “[c]urrent economic uncertainty makes this loan request necessary to support ongoing operations.”  To the extent that public companies may have had other reliable, accessible sources of capital markets funding, the borrower’s certification of economic need could be called into question.  In light of this new guidance, public companies should analyze the risks associated with participation in the PPP.

April 23, 2020 Treasury Guidance – PPP FAQ Question 31

The Treasury guidance focuses on sources of potential liquidity other than potential participation in the PPP. The U.S. Treasury posits: “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification”.

Treasury provides a safe harbor for applications filed prior to

Despite the challenges of the COVID-19 pandemic, the SEC continues its surge in whistleblower awards, announcing on April 20 a $5 million award to a whistleblower who provided critical evidence of wrongdoing that benefitted the SEC’s investigation, while also suffering unique hardship because of termination soon after raising concerns internally.  A few days earlier, on April 16, the SEC announced its largest award so far in 2020, more than $27 million to a whistleblower who objected to misconduct in an organization, after repeatedly and strenuously raising concerns internally.

Jane Norberg, Chief of the SEC Office of Whistleblower, noted that the April 20 award was the seventh announced by the SEC in the last month.  “These awards demonstrate the valuable contributions whistleblowers make to the protection of markets and investors and we encourage people to come forward with information about possible securities law violations,” Norberg said in the April 20 SEC press release.

The SEC has awarded approximately $430 million to 80 individuals since 2012.  All payments are made from an investor protection fund established by Congress that is funded entirely through monetary fines and penalties paid to the SEC by companies and individuals accused of securities law violations.

This noteworthy increase in awards reminds us that despite the unique communication and remote working challenges of COVID-19, companies must continue to promote access to hotlines or other avenues for employees, and potentially others, to report concerns and must maintain robust internal compliance programs.  Audit Committees and company management,

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