Legal Alert: Coronavirus, SEC Reporting and Shareholder Engagement
As the disease known as COVID-19 (the “Coronavirus”) continues to increase its impact on commerce, human health and capital markets, all public companies should assess the impact of the Coronavirus on their SEC filings and shareholder engagement.
On March 4, the SEC advised all public companies to assess what the Coronavirus means for their future operations and financial results and to make appropriate disclosures to their shareholders and other members of the investment community. In addition, the SEC allowed these companies to delay SEC filings if necessary to develop the information required to make accurate and complete disclosures of the impact of the Coronavirus on its operations and financial conditions. Specifically, the SEC issued an order stating that public companies that are unable, because of the Coronavirus, to meet filing deadlines for SEC reports due to be filed March 1 to April 30, 2020, will have 45 additional days to file these reports so long as, among other things, they file reports on Form 8-K describing the reasons why the report may not be filed on a timely basis.
While expectations regarding the severity of the Coronavirus rapidly evolve, public companies should have focus on certain areas:
- Periodic reporting: Reports on Form 10-K and Form 10-Q require compliance with Regulation S-K Rule 303, which requires disclosure in MD&A of “known trends or uncertainties that have had or that the [company] reasonably expects to have a material favorable or unfavorable impact on net sales or revenues.”
Companies should discern these uncertainties and their related response plans with respect to Coronavirus with a view to discussing them in their next periodic report. Companies expecting to be meaningfully impacted by the Coronavirus also must disclose risk factors that address specific facts about the past and future effect of the virus. While some companies have added discussion of Coronavirus as a risk factor to reports on Form 10-K and Form 10-Q, other companies preparing for securities offerings or already engaging in continuous securities offerings or otherwise should consider whether a Form 8-K filing to report Coronavirus as a risk factor is necessary. Additionally, companies should carefully consider safe harbor disclosure in forward looking statements disclaimers and perhaps add Coronavirus as a cautionary factor.
- Earnings guidance: Management should consider whether the recent developments related the Coronavirus require revisiting their guidance as to future financial results. Some management teams may want to discuss the merits and risks of withdrawing (as opposed to merely revising) previous estimates or ranges.
- Board communications: Management teams need to be thinking about what boards should know about the possible effects of Coronavirus on their companies. Boards should be asking management about the possible effects of the Coronavirus on operational issues, including employees, suppliers and customers.
- Shareholder meetings. Companies planning annual meetings of shareholders should be mindful of the opportunity, to the extent permitted by charter documents and state law, to conduct such meetings virtually. Even some companies that have already issued proxy materials may amend their proxy statements to change the meetings to virtual-only meetings.
Please contact the KMK Law team identified here with any questions.
James C. Kennedy
F. Mark Reuter
Allison A. Westfall
Christopher S. Brinkman
Brett S. Niehauser
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