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

Companies face unprecedented challenges as they grapple with earnings releases and analyst and investor calls, all while trying to understand the impact COVID-19 has had on their businesses in less than one month.  While many companies had strong first quarters before the nation’s full-mitigation response to COVID-19, it is likely that many experienced a very different end to the quarter and start of the next.  It is also likely that as a result, some companies will miss previous earnings projections.

The SEC and the exchanges (NYSE and Nasdaq) are clearly making an effort to help companies during this period of uncertainty. SEC Chairman Jay Clayton has been very vocal in encouraging public companies to provide prompt earnings information as well as information about past and future efforts to address the effects of COVID-19, regardless of whether they are in a position to file reports on time.

Most recently, Chairman Clayton was joined by William Hinman, the Director of the Division of Corporation Finance, in a joint statement detailing their observations and requests “[i]n an effort to facilitate robust disclosure and engagement.”  The NYSE then sent emails to its listed companies directing attention to the joint statement.  Here are some key takeaways:

• This quarter, earnings statements and calls will not be routine. SEC staff encourages disclosure to be as timely, accurate and robust as practicable under the circumstances.
• Companies are urged to provide as much information as practicable about their current operating status and future operating
  

Section 2303 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, includes taxpayer-friendly modifications to the restrictions placed on the deductibility of net operating losses (“NOLs”) pursuant to the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”).

One of the most significant changes was to reverse provisions of the 2017 Tax Act to allow taxpayers to carry back NOLs arising in 2018, 2019, and 2020 up to 5 years (including to years when the corporate tax rate was as high as 35% (i.e., prior to 2018)).   For parties that have engaged in M&A transactions during these years, the changes may provide opportunities to realize value from carrying back NOLs from past acquisition targets, depending on factors such as the acquisition agreement terms, the tax position of the target at and prior to the acquisition, and the extent of transaction tax deductions associated with the acquisition.

Here are a few fact patterns that may be applicable depending on the taxpayer’s particular situation and acquisition history:

• With respect to buyers of a corporation in 2018 or later, consideration should be given to carrying back the corporation’s NOLs to obtain a refund of taxes paid, particularly if:
• the corporation was paying federal income taxes in the years preceding the acquisition,
• the corporation incurred significant transaction tax deductions that gave rise to NOLs, and
• the acquisition agreement does not require refunds of taxes attributable to pre-closing periods to be paid over to
  

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

In remarks at a special meeting of the Investor Advisory Committee on April 2, Chairman Jay Clayton encouraged public companies to promptly provide as much information as possible about period-end earnings information, even if filings are delayed due to COVID-19.  He stated that the conditional relief afforded by the 45-day extension and the Staff’s guidance on COVID-19 disclosures should allow issuers to “provide prompt, period-end earnings information, and information regarding their past and expected future efforts to address the effects of COVID-19, regardless of whether they are able to comply with filing deadlines.”

Chairman Clayton stated that investors and markets “thirst for information as a general matter,” and that this is exacerbated in a period of economic uncertainty.  He stated plainly that an inability to file required reports on time due to COVID-19 challenges does not prevent public companies from issuing their earnings releases and filing current reports on Form 8-K.

While many companies typically release earnings and other financial results prior to filing the Form 10-Q or Form 10-K, for those issuers who cannot file timely due to the impacts of COVID-19, it may also not be possible to have sufficient certainty to go out with earnings releases.  It its earlier guidance (CF Disclosure Guidance: Topic No. 9), the staff stated that “timely, robust, and complete information is essential to functioning markets” and encouraged timely reporting if possible.  The staff also, however, acknowledged that the COVID-19 impacts might present “novel or complex accounting issues” and make it

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.

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

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

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
  

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)