E-Minders May 2020


In This Issue:

E-Minders is our monthly e-mail newsletter containing the latest developments and practical guidance for corporate & securities law practitioners.

We view TheCorporateCounsel.net as the gathering place for the community and encourage those who may not yet be members to take advantage of a "No Risk Trial" to see what you are missing. Here are "12 Good Reasons" to try us now.

You can subscribe below to receive a complimentary E-Minders newsletter - even if you aren't a member TheCorporateCounsel.net. Our hope is that once you get to know us, you will understand the true value of joining our community. Note that members of TheCorporateCounsel.net should sign up below for E-Minders too, as you won't automatically receive it by being a member (since we may not have your email address).

Early Bird: "Proxy Disclosure/Executive Pay Conferences" We're excited to announce that we have posted the registration information for our popular conferences — " Proxy Disclosure Conference" & "17th Annual Executive Compensation Conference" — to be held September 22 — 23 in Washington D.C. and via Live Nationwide Video Webcast. Here are the agendas — 16 panels over two days.

Among the panels are:

  1. The SEC All-Stars: A Frank Pay Disclosure Conversation
  2. The SEC All-Stars: Q&A
  3. Pay-for-Performance: What Matters Now
  4. Directors in the Crosshairs: Pay, Diversity & More
  5. Dave & Marty: True or False?
  6. Pay Ratio: Latest Developments
  7. 162(m): Where Things Stand
  8. Clawbacks: What to Do Now
  9. Dealing with the Complexities of Perks
  10. How to Handle Negative Proxy Advisor Recommendations
  11. Human Capital: The Compensation Committee's Role
  12. The Big Kahuna: Your Burning Questions Answered
  13. The SEC All-Stars: The Bleeding Edge
  14. The Top Compensation Consultants Speak
  15. Navigating ISS & Glass Lewis
  16. Hot Topics: 50 Practical Nuggets in 60 Minutes

Early Bird Rates Extended — Act by June 12th: Proxy disclosures - particularly pay disclosures - continue to draw intense scrutiny from Congress, the SEC Staff, investors, other stakeholders and the media. As a "thank you" to members, we are offering an Early Bird discounted rate if you register by June 12th. Once the discount expires, conference registration will be the full price. Register by June 12th to receive the best price for our 2020 conferences.

It's Here: 2020 Executive Compensation Disclosure Treatise: We wrapped up Lynn, Borges & Romanek's "2020 Executive Compensation Disclosure Treatise." This edition includes a full chapter on the new hedging policy disclosure rules, as well as all the latest insights to help you handle the extra attention that executive & director pay is getting. Here's the "Detailed Table of Contents" listing the topics so you can get a sense of the Treatise's practical nature. Order a hard copy on CompensationStandards.com. All of the chapters have also been posted in our "Treatise Portal" on CompensationStandards.com.

It's Here! 2020 Edition of Romanek & Dunshee's "In-House Essentials Treatise": Broc Romanek & Liz Dunshee wrapped up the 2020 Edition of the definitive guidance on securities law for the in-house lawyer: Romanek & Dunshee's "In-House Essentials Treatise." With over 1900 pages - spanning 21 chapters - you will need this practical guidance for the challenges ahead. Here's the "Detailed Table of Contents" listing the topics so you can get a sense of the Treatise's practical nature. Order on TheCorporateCounsel.net.

Over 300 Checklists: Dunshee & Romanek's "Corporate Governance Treatise": If you're looking for "A to Z" practical guidance, you need Dunshee & Romanek's "Corporate Governance Treatise." The "Detailed Table of Contents" is posted on TheCorporateCounsel.net listing the topics so you can get a sense of the variety of topics covered. With over 1700 pages—including over 300 checklists—this tome is the definition of being practical. You can return it any time within the first year and get a full refund if you don't find it of value. Order on TheCorporateCounsel.net today!

Our Latest Resource: Jenkins' "Practical M&A Treatise": Based on his 30+ years of deal work, John Jenkins has just completed the "Practical M&A Treatise." Spanning 604 pages, John writes in a practical style — using stories & examples to make even the most complex deal stuff easy-to-understand. Here's the "Detailed Table of Contents" listing the topics so that you can see for yourself.

It's now "off the press," so you can order it today. And for your convenience, we're offering it as either a hard-copy print book — or as just an online version. So there are two different ways to order the "Practical M&A Treatise":

  1. Order the hard-copy of the "Practical M&A Treatise"
  2. Order the online version of the "Practical M&A Treatise

"101 Pro Tips — Career Advice for the Ages" Paperback! If you're working with junior associates, get them off on the right foot. Read — or share — career insight from Broc Romanek & John Jenkins by ordering their paperback — "101 Pro Tips — Career Advice for the Ages". Here's the "Table of Contents." It's free for members of TheCorporateCounsel.net (but it does cost $20 in shipping & handling).

This book is designed for fairly young lawyers — both in law firms and in companies. It's written in an "easy to read" style, complete with some stories & anecdotes to make it interesting. This is a unique offering in our field — and we're pretty happy about how it came out. Members can request it now.

Our New "In-House Accelerator": If you're relatively new to being in-house - or you want to gain that perspective - take advantage of our new "In-House Accelerator." This online - and offline - training program is free for members of TheCorporateCounsel.net. In addition to the "In-House Accelerator" paperback (paperback consists of 216 FAQs; here's the "Table of Contents"), there is a series of podcasts & other comprehensive materials covering these four areas:

1. Corporate Governance
2. Proxy Season
3. '34 Act Reporting
4. Other

"Deal Tales" - A Three Volume Set! Education by entertainment! This “Deal Tales” series of three paperback books teaches the kind of things that you won't learn at conferences, nor in treatises or firm memos. Here's the "Table of Contents" for each volume rolled into one. With the set containing over 600 pages, John Jenkins - a 30-year vet of the deal world - brings his humorous M&A stories to bear. Order "Deal Tales" today!

Upcoming Webcasts on TheCorporateCounsel.net: Join us on May 13th for the webcast - "Capital Raising in Turbulent Times" - to hear Manatt, Phelps & Phillips' Katherine Blair, Wilson Sonsini's Richard Blake, Locke Lord's Rob Evans and Jones Day's Mike Solecki discuss the current state of the new issues market for debt and equity and they will explore financing and liability management alternatives.

And join us on May 19th for the webcast - "Political Spending: What Now?" - to hear DF King's Zally Ahmadi, Skadden's Hagen Ganem and Wilmer Hale's Brendan McGuire discuss an overview of the current climate for political spending, corporate governance/board oversight, key considerations for political spending policies, political spending disclosure, shareholder engagement and shareholder proposal trends and voting behavior.

There is no cost for these webcasts if you are a member of TheCorporateCounsel.net. If you are not a member, take advantage of our no-risk trial to access the programs. You can sign up for this no-risk trial online, send us an email at info@ccrcorp.com - or call us at 800.737.1271.

Upcoming Webcast on DealLawyers.com: Join us on May 21st for the webcast - "Middle Market M&A: The Latest Developments" - to hear to hear Citizens M&A Advisory's Charles Aquino, Mintz Levin's Marc Mantell and Duane Morris's Richard Silfen discuss the state of the middle market and issues dealmakers are confronting in 2020 including current market and financing trends, issues in structuring and negotiating middle market deals, dealing with competing shareholder interests and working with middle market boards and controlling shareholders.

No registration is necessary - and there is no cost - for this webcast for DealLawyers.com members. If you are not a member, take advantage of our no-risk trial to access the program. You can sign up online, send us an email at info@ccrcorp.com - or call us at 800.737.1271.

Upcoming Webcast on CompensationStandards.com: Join us on June 24th for the webcast - "Proxy Season Post-Mortem: The Latest Compensation Disclosures" - to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, Dave Lynn of TheCorporateCounsel.net and Morrison & Foerster and Ron Mueller of Gibson Dunn discuss the 2020 proxy season - including the latest SEC positions, examples of what companies did with this year's proxy disclosures and what to disclose now in light of evolving proxy advisor & investor policies.

No registration is necessary - and there is no cost - for this webcast for CompensationStandards.com members. If you are not a member, take advantage of our no-risk trial to access the program. You can sign up online, send us an email at info@ccrcorp.com - or call us at 800.737.1271.


SEC Chair & Corp Fin Director Issue Joint Statement on Covid-19 Disclosure

In early April, SEC Chair Jay Clayton and Corp Fin Director Bill Hinman issued a joint statement urging 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" in light of the impact of the Covid-19 pandemic. The statement covers a lot of ground, but this excerpt is probably the key takeaway for companies preparing for their upcoming Q1 earnings releases & analyst calls:

Speaking for ourselves, and recognizing the challenges inherent in our request, we urge our public companies, in their earnings releases and analyst calls, as well as in subsequent communications to the marketplace, to provide as much information as is practicable regarding their current operating status and their future operating plans under various COVID-19-related mitigation conditions. Detailed discussions of current liquidity positions and expected financial resource needs would be particularly helpful to our investors and markets.

Beyond the income statement and the balance sheet effects, we recognize that COVID-19 may significantly impact operations, including as a result of company efforts to protect worker health and well-being and customer safety. The impact of company actions and policies in this area may be of material interest to investors, and we encourage disclosures that address that interest.

In addition, companies and financial institutions may be receiving financial assistance under the CARES Act or other similar COVID-19 related federal and state programs. Such assistance may take various forms and is intended to mitigate COVID-19 effects for companies and their workers. If these or other types of financial assistance have materially affected, or are reasonably likely to have a material future effect upon, financial condition or results of operations, the affected companies should provide disclosure of the nature, amounts and effects of such assistance.

Throughout the statement, Clayton & Hinman repeatedly encourage companies to make forward-looking statements about a wide variety of topics related to their Covid-19 responses:

This quarter, earnings statements and calls will not be routine. In many cases, historical information may be substantially less relevant. Investors and analysts are thirsting to know where companies stand today and, importantly, how they have adjusted, and expect to adjust in the future, their operational and financial affairs to most effectively work through the COVID-19 health crisis.

For a lot of companies, the call for voluntary forward-looking disclosure about these and other matters is likely to be a big ask - even with assurances that "good faith attempts to provide appropriately framed forward-looking information" won't be second guessed by the SEC. Their businesses have just been hit by the financial equivalent of a nuclear bomb. Our guess is that most of them are going to have a tough enough time just trying to work through the forward-looking "known trends" disclosure they're required to make in MD&A.

We'd all like some clarity about how companies "expect to adjust their operational and financial affairs to most effectively work through the Covid-19 health crisis." In fact, we'd wager that nobody would like to know the answer to that question more than the boards and management teams who are trying to figure it out for their own companies. But, in the short term, we doubt that many companies will be able to provide a lot of meaningful disclosure in this area - and we're not at all sure that it's in their best interests to try.


SEC & PCAOB Officials Issue Joint Statement on "Emerging Market" Risks

In mid-April, SEC Chair Jay Clayton and a group of senior SEC & PCAOB officials issued a joint statement warning about the risks posed by "emerging market" investments. While the statement addresses all emerging markets, it focuses on the 500 lb. gorilla of those markets - China. Here's an excerpt from the introduction:

Over the past several decades, the portfolios of U.S. investors have become increasingly exposed to companies that are based in emerging markets or that otherwise have significant operations in emerging markets. This exposure includes investments in both U.S. issuers and foreign private issuers ("FPIs") that are based in emerging markets or have significant operations in emerging markets. During this time, China has grown to be the largest emerging market economy and the world's second largest economy.

The SEC's mission is threefold: protect our investors, preserve market integrity and facilitate capital formation. Ensuring that investors and other market participants have access to high-quality, reliable disclosure, including financial reporting, is at the core of our efforts to promote each of those objectives. This commitment to high-quality disclosure standards—including meaningful, principled oversight and enforcement—has long been a focus of the SEC and, since its inception, the PCAOB.

Our ability to promote and enforce these standards in emerging markets is limited and is significantly dependent on the actions of local authorities—which, in turn, are constrained by national policy considerations in those countries. As a result, in many emerging markets, including China, there is substantially greater risk that disclosures will be incomplete or misleading and, in the event of investor harm, substantially less access to recourse, in comparison to U.S. domestic companies. This significant asymmetry holds true even though disclosures, price quotes and other investor-oriented information often are presented in substantially the same form as for U.S. domestic companies.

The statement details risks and related considerations specific to "issuers, auditors, index providers & financial professionals." These include concerns about the quality of financial information, the PCAOB's continuing inability to inspect workpapers in China, the limited ability of U.S. authorities to bring enforcement actions in emerging markets, the limited rights & remedies available to shareholders, and the failure of passive investment strategies to account for these risks.

The statement also addresses concerns about disclosure, and emphasizes the importance of robust risk factor disclosure for companies with operations in emerging markets:

In light of both the significance and company-specific nature of the risks discussed in this statement, we expect issuers to present these risks prominently, in plain English and discuss them with specificity. Issuers based in emerging markets should consider providing a U.S. domestic investor-oriented comparative discussion of matters such as (1) how the company has met the applicable financial reporting and disclosure obligations, including those related to DCP and ICFR and (2) regulatory enforcement and investor-oriented remedies, including as a practical matter, in the event of a material disclosure violation or fraud or other financial misconduct more generally.

The statement was issued jointly by Chair Clayton, PCAOB Chair Bill Dunkhe, SEC Chief Accountant Sagar Teotia, and the Directors of Corp Fin & IM. With that kind of firepower mustered behind the statement, we think it's fair to say that they aren't fooling around here. Public companies based in China or with significant operations there should take a hard look at their risk factor disclosures, because it seems likely that they will be scrutinized closely by the Staff the next time their filings are pulled for review.


Corp Fin Updates Annual Meeting Guidance (And John Gets Scooped by Lynn)

John republished something that Lynn blogged in early April over on the "Proxy Season Blog" - here's the backstory to this one. For some reason, the announcement of Corp Fin's tweak to its annual meeting guidance didn't arrive in our inboxes until after John published his blog. Lynn was sharp-eyed enough to catch the story from other sources and break the news in her blog while John was busy eating a pop-tart or something. John says he's sure she'll lord this over him until his dying day, because that's exactly what he'd do to her if the shoe was on the other foot. Anyway, here's what she had to say:

Corp Fin issued an announcement providing updated guidance for conducting shareholder meetings in light of COVID-19 concerns. We bloggedabout Corp Fin's original guidance back when it was issued in mid-March. This most recent announcement addresses delays in printing and mailing of full-set proxy materials - allowing limited relief to companies that shift to furnishing proxy materials via the notice-only method of delivery. Corp Fin's announcement also clarifies that its previous guidance regarding changes to the date, time and location of annual meetings also applies to special meetings.

The announcement says Corp Fin's update about furnishing proxy materials stems from the impact of COVID-19 on some proxy service providers and transfer agents. The Staff understands some companies are concerned about being able to send notice of electronic availability of proxy materials at least 40 calendar days before the meeting so it's allowing flexibility as long as shareholders receive proxy materials sufficiently in advance of the meeting and the company announces the change. Here's an excerpt from the guidance:

The staff encourages issuers affected by printing and mailing delays caused by COVID-19 to use all reasonable efforts to achieve this goal without putting the health or safety of anyone involved at risk. In some cases, this may mean delaying a meeting in accordance with state law requirements and the procedures described above, if necessary, in order to provide materials on a timely basis. In circumstances where delays are unavoidable due to COVID-19 related difficulties, the staff would not object to an issuer using the "notice-only" delivery option in a manner that, while not meeting all aspects of the notice and timing requirements of Rule 14a-16, will nonetheless provide shareholders with proxy materials sufficiently in advance of the meeting to review these materials and exercise their voting rights under state law in an informed manner and so long as the issuer announces the change in the delivery method by following the steps described above for announcing a change in the meeting date, time, or location. Affected issuers and intermediaries also should continue to use their best efforts to send paper copies of proxy materials and annual reports to requesting shareholders, even if such deliveries would be delayed.

Issuers and other affected parties are encouraged to contact the staff to discuss any other concerns resulting from any late filings caused by delays in the printing and mailing of proxy materials.


SEC Chair Encourages Continued Disclosures Amid Pandemic

In early April, SEC Chairman Jay Clayton issued a public statement emphasizing that the SEC is "focused on ensuring that issuers and other registrants continue to provide material information to investors, including information related to the current and expected effects of COVID-19, as promptly as practicable." In another statement before a special meeting of the Investor Advisory Committee the same day, Chairman Clayton again emphasized the need for issuers to provide disclosures about efforts to address the effects of COVID-19. Here's an excerpt:

Our investors and our markets thirst for information as a general matter. This is particularly the case in times of economic shock and uncertainty. Couple this fundamental premise with the reality that for COVID-19-related reasons issuers may not be able to file required quarter-end reports on time, and we have a challenge. Importantly, an inability to file required reports does not prevent issuers from issuing earnings releases and filing current reports on Forms 8-K.

I believe the conditional, tailored relief crafted by the Division of Corporation Finance, coupled with their detailed guidance regarding COVID-19-related disclosure topics will 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. We encourage issuers to provide as much information as is practicable and stand ready to engage with them.

Hat tip to Cooley's Cydney Posner who blogged about Chairman Clayton's statements and included notes from the Investor Advisory Committee meeting.


Financial Reporting: SEC Chief Accountant Addresses Covid-19 Issues

In early April, SEC Chief Accountant Sagar Teotia also issued a statement stressing the importance of high-quality financial reporting during the Covid-19 crisis. Many companies are struggling with the reporting implications of Covid-19, and the statement acknowledges that the current environment requires a number of difficult judgment calls:

We recognize that the accounting and financial reporting implications of COVID-19 may require companies to make significant judgments and estimates. Certain judgments and estimates can be challenging in an environment of uncertainty. As we have stated for a number of years, OCA has consistently not objected to well-reasoned judgments that entities have made, and we will continue to apply this perspective.

Teotia's statement highlights some of the areas that may involve significant judgments and estimates, including fair value and impairments; leases; debt modifications or restructurings; hedging; revenue recognition; income taxes; going concern; subsequent events; and adoption of new accounting standards (e.g., the new credit losses standard). It goes on to emphasize the importance of required disclosures about judgments & estimates involving these and other issues.

The statement also says that financial institutions availing themselves of certain provisions of the CARES Act that allow them to avoid compliance with FASB pronouncements on accounting for credit losses & troubled debt restructurings during the period of the Covid-19 emergency will be regarded by the SEC as being in compliance with GAAP.

Cydney Posner's recent blog about the Chief Accountant's statement has a sidebar pointing out that while the new credit losses standard applies to any business that extends credit to customers, only financial institutions are exempt from compliance under the CARES Act - and those other businesses are going to face some significant compliance challenges during the current crisis.


Corp Fin Issues 2 New Delayed Filing CDIs

As April began, Corp Fin issued 2 new CDIs addressing the interplay of Form 12b-25 and Corp Fin's modified Covid-19 exemptive order that it issued at the end of March providing SEC filing relief for companies affected by the Covid-19 crisis. Here they are:

Question 135.12

Question: A registrant expects that due to COVID-19 it will be unable to file a report of the type covered by Rule 12b-5 on timely basis without incurring an unreasonable effort or expense. It is uncertain as to its ability to file the required report within the applicable 12b-25(b)(2)(ii) period. Should the registrant instead furnish a report on Form 8-K or 6-K, as applicable, relying on the COVID-19 Order (Release No. 34-88465 (March 25, 2020))?

Answer: As a condition to its use, the COVID-19 Order requires, among other things, that the registrant furnish certain specified statements by the later of March 16, 2020 or the original due date of the required report. If the registrant only files a Form 12b-25 by the original due date of the required report, it will have not met the condition of the COVID-19 Order to provide the statements called for by the original filing deadline on a furnished Form 8-K or Form 6-K. Unless this condition is met, the 45 day relief period provided in COVID-19 Order will not be available. Registrants unable to rely on the COVID-19 Order are encouraged to contact the staff to discuss collateral consequences of late filings. [March 31, 2020]

Question 135.13

Question: Can a registrant that filed a Form 12b-25 subsequently rely on the COVID-19 Order (Release No. 34-88465 (March 25, 2020)), to extend the filing deadline for the subject report?

Answer: The COVID-19 Order is conditioned on a registrant having furnished a Form 8-K or Form 6-K by the later of March 16, 2020 or the original due date of the report. A Form 12b-25 filing does not extend the original due date of a report. Therefore, unless a registrant that filed a Form 12b-25 also furnished a Form 8-K or Form 6-K by March 16, 2020 or the original due date of the report, it would not be able to rely on the COVID-19 Order.

On the other hand, a registrant that relies on the COVID Order for a report will be considered to have a due date 45 days after the original filing deadline for the report. As such, the registrant would be permitted to subsequently rely on Rule 12b-25 if it is unable to file the report on or before the extended due date. Registrants unable to rely on the COVID-19 Order are encouraged to contact the staff to discuss collateral consequences of late filings. [March 31, 2020]


Covid-19: New CDI Address Application of Exemptive Order to Part III of 10-K

In April, Corp Fin issued a new CDI addressing the application of the SEC's conditional exemptive order extending by up to 45 days the due date for SEC filings by companies affected by the Covid-19 crisis to Part III of Form 10-K. Companies often incorporate Part III information into Form 10-K by reference to their definitive proxy materials. In order to do that, companies have file those definitive proxy materials within 120 days of their fiscal year end. If they can't make that deadline, they need to amend their Form 10-K to include the Part III information.

How do the rules surrounding the inclusion of Part III information work for companies that want to rely on the SEC's exemptive order? That's the issue that the new Exchange Act Forms CDI #104.18 addresses:

Question: Form 10-K allows Part III information to be incorporated by reference from a registrant's definitive proxy or information statement, or, under certain circumstances, filed as an amendment to the Form 10-K, not later than 120 days after the end of the related fiscal year. May a registrant that is unable to file the Part III information by the 120-day deadline avail itself of the relief provided by the COVID-19 Order (Release No. 34-88465 (March 25, 2020)) for the filing of the Part III information?

Answer: Yes, as long as the 120-day deadline falls within the relief period specified in the Order and the registrant meets the conditions of the Order.

- A registrant that timely filed its annual report on Form 10-K without relying on the COVID-19 Order should furnish a Form 8-K with the disclosures required in the Order by the 120-day deadline. The registrant would then need to provide the Part III information within 45 days of the 120-day deadline by including it in a Form 10-K/A or definitive proxy or information statement.

- A registrant may invoke the COVID-19 Order with respect to both the Form 10-K and the Part III information by furnishing a single Form 8-K by the original deadline for the Form 10-K that provides the disclosures required by the Order, indicates that the registrant will incorporate the Part III information by reference and provides the estimated date by which the Part III information will be filed. The Part III information must then be filed no later than 45 days following the 120-day deadline.

- A registrant that properly invoked the COVID-19 Order with respect to its Form 10-K by furnishing a Form 8-K but was silent on its ability to timely file Part III information may (1) include the Part III information in its Form 10-K filed within 45 days of the original Form 10-K deadline, or (2) furnish a second Form 8-K with the disclosures required in the Order by the original 120-day deadline and then file the Part III information no later than 45 days following the 120-day deadline by including it in a Form 10-K/A or definitive proxy or information statement. [April 6, 2020]

The CDI's bottom line appears to be that, while the hoops that particular companies have to jump through may vary, companies taking advantage of the extension will be able to apply it to the Part III deadline as well.


Mining Company Property Disclosure Rules: Corp Fin Issues 3 New CDIs

Corp Fin issued 3 new CDIs arising out of the new mining company property disclosure rules - Broc blogged about the rules when they were adopted in 2018. The CDIs address when companies need to comply with the new rules and also incorporation of such disclosure by reference to an annual report. Here they are:

Question 155.01

Question: For purposes of filing an Exchange Act annual report, when must a registrant engaged in mining operations comply with the new mining property disclosure rules set forth in Subpart 1300 of Regulation S-K?

Answer: A registrant engaged in mining operations must comply with Subpart 1300's disclosure rules beginning with its Exchange Act annual report for the first fiscal year beginning on or after January 1, 2021. Until then, staff will not object if the company relies on the guidance provided in Guide 7 and by the Division of Corporation Finance staff for the purpose of filing an Exchange Act annual report. [April 29, 2020]

Question 155.02

Question: For purposes of filing a Securities Act registration statement, may the registrant satisfy its obligation to include mining property disclosure pursuant to Subpart 1300 of Regulation S-K by incorporating such disclosure by reference to its Exchange Act annual report for the appropriate period, even if such annual report was not required to comply with the new mining property disclosure rules in Subpart 1300 of Regulation S-K?

Answer: Yes. Until annual financial statements for the first fiscal year beginning on or after January 1, 2021 are required to be included in the registration statement, the staff will not object if a Securities Act registration statement incorporates by reference disclosure prepared in accordance with Guide 7 from an Exchange Act annual report for the appropriate period filed by a registrant engaged in mining operations if otherwise permitted to do so by the Commission's rules on incorporation by reference. See, e.g.,Securities Act Rule 411 (17 CFR 230.411), which provides that information must not be incorporated by reference in any case where such incorporation would render the disclosure incomplete, unclear, or confusing. [April 29, 2020]

Question 155.03

Question: For purposes of filing an Exchange Act or Securities Act registration statement that does not incorporate by reference mining property disclosure from a registrant's Exchange Act annual report, when must a registrant engaged in mining operations comply with the new mining property disclosure rules set forth in Subpart 1300 of Regulation S-K?

Answer: An Exchange Act or Securities Act registration statement that does not incorporate by reference mining property disclosure from an Exchange Act annual report filed by a registrant engaged in mining operations must comply with the new mining property disclosure rules set forth in Subpart 1300 of Regulation S-K on or after the first day of the first fiscal year beginning on or after January 1, 2021. For example, a calendar year-end company would be required to comply with the new mining property disclosure rules when filing an Exchange Act registration statement or a Securities Act registration statement that does not incorporate by reference disclosure from a registrant's Exchange Act annual report on or after January 1, 2021, while a registrant with a June 30th fiscal year-end would be required to comply with the new mining property disclosure rules when filing an Exchange Act registration statement or a Securities Act registration statement that does not incorporate by reference disclosure from a registrant's Exchange Act annual report on or after July 1, 2021. [April 29, 2020]


Listing Standards: NYSE Joins Nasdaq in Providing Relief From Price-Based Standards

In late April, John blogged about Nasdaq's rule change providing extended compliance periods for companies that fail to meet its minimum bid price & global market cap continued listing standards. Later the same week, the NYSE received the SEC's sign-off on a rule change providing similar relief to its listed companies. This excerpt from a recent Locke Lord blog provides the details:

NYSE-listed companies now have additional time to cure a deficiency if their stock has closed under $1.00 for 30 consecutive trading days. Now, days between April 21, 2020 and June 30, 2020 will not be counted toward the normal 6-month compliance period. Compliance periods will recommence on July 1, 2020 from the point at which they were suspended on April 21.

Listed companies will also have additional time if their average global market capitalization has fallen under $50 million for 30 consecutive trading days at a time when their stockholders' equity is also under $50 million. These companies would normally have a maximum 18 months to cure the deficiency. These compliance periods are similarly suspended until July 1, 2020.

The exchanges have cut listed companies a lot of slack during the current market turmoil, but the news for troubled companies isn't all good on the listing front. The blog also notes that Nasdaq adopted rules on the same day that actually shorten compliance periods for particularly distressed companies.


Rulemaking Petition Seeks to Allow Electronic Signatures Under Reg S-T

In what could be a big step forward for the SEC, a rulemaking petition from Wilson Sonsini, Fenwick & West and Cooley asks the SEC to amend rules under Reg S-T that would permit companies to obtain electronic signatures for documents filed with the SEC. The rulemaking petition acknowledges the Staff's recent statement providing flexibility regarding manual signatures during the current crisis and then encourages the SEC to go further.

In this day and age, electronic signatures seem to be more the norm and routing manual signatures to hold in a dusty, over-crowded file cabinet somewhere seems somewhat archaic - this change would be a nice improvement for many. Here's an excerpt from the petition:

We acknowledge the Staff Statement: Regarding Rule 302(b) of Regulation S-T in Light of COVID-19 Concerns (March 24, 2020) (the "Staff Statement") and appreciate the added flexibility it provides regarding manual signatures in the current extraordinary environment. We believe, however, and many of our clients have also informed us, that obtaining and retaining manual signatures in compliance with the Staff Statement remains a significant logistical burden. We and many of our clients believe the Staff Statement could be of greater effectiveness to registrants, with no compromise to the integrity of the document signing process, if registrants were permitted to use existing, proven electronic signature processes with respect to filing documents with the Commission.

Improvements in electronic signature software technology make it possible to confirm (with at least equal confidence to the collection of manual signatures) who has signed a document and when it was signed (and, indeed, far better accuracy as to the timing of execution), and make recordkeeping and storage of such signatures seamless and secure.


Virtual Shareholder Meetings: Survey of Q&A Trends

With so many companies moving to virtual meetings, one of the issues that's become front & center is how shareholder Q&A sessions should be handled. This Bass Berry blog provides some insight into how companies have addressed that issue. The authors surveyed Fortune 100 public companies that filed their proxy statements after March 1, including those that opted for a virtual meeting after filing definitive materials. Of the companies surveyed:

- 6% are permitting stockholders to submit questions only in advance.

- 58% are permitting stockholders to submit questions only at the meeting.

- 32% are permitting stockholders to submit questions both in advance and at the meeting.

- 4% do not clearly address their Q&A in the proxy materials the style of their Q&A sessions couldn't be determined.

The survey found a few outliers. One company chose to limit in-person attendance to a handful of officers and employees who will deliver proxy votes. Shareholders were encouraged to present questions to financial journalists listed in the company's annual report, who will choose questions that they consider the most interesting and important. The survey doesn't identify the company, and we want to respect its privacy as well - so all we can tell you is that its initials are "Berkshire Hathaway."

The survey identified two other companies that are not permitting live Q&A. One required shareholders to submit questions up to three days in advance, while the other is requiring stockholders to submit their questions in advance only through a portal on the company's website.

We haven't seen any survey data on how companies that are holding virtual meetings are dealing with shareholder proposals, but we can tell you that the folks at ValueEdge Advisors are not happy with the way AT&T has chosen to handle them at its virtual meeting.


Public Offerings: Doing a Deal in a Blackout Period

Speaking of public companies with access to the capital markets, stop us if you've heard this, but those markets are kind of turbulent right now. That means its essential for companies that need capital to be able to quickly access the market when a financing window opens. Unfortunately, some companies now find themselves in a "blackout period" pending the release of their first quarter results. This Davis Polk memo says that while that may complicate things, there's no prohibition on a company accessing the capital markets during a blackout period, and it may be possible for a company to complete an offering if:

- Management has enough information about the current (or recently ended) quarter to be able to predict with a fair degree of confidence what the company's reported results are likely to be;

- Management has a good track record of being able to judge its anticipated results at similar points in the information-gathering and reporting cycle;

- Management's expectations for the quarter, and future periods, are either (i) at least in line with "the market's" expectations as well as with management's own previously announced guidance (if any) - or (ii) if management's expectations are not so in line, the company and its underwriters conclude that the deviation is not material or the company is willing to "pre-release" its current expectations prior to the earnings release; and

- Management's analysis of the going-forward impact on the company's business of COVID-19 is sufficiently developed that disclosure can be made at the time of the offering that will be in line with what is disclosed when the 10-K, 20-F, 10-Q, 6-K or other filing is made.

The memo notes that as a result of the Covid-19 crisis, it may be difficult for management to forecast the company's results beyond the current quarter. In situations like this, companies sometimes decide to withdraw previously issued guidance and not issue new guidance. But the memo stresses that withdrawing guidance is not a substitute for disclosure of underlying trends and uncertainties that could affect financial and operational performance.

The memo also walks through an analysis of the various matters that should be considered in addressing each of the factors identified above, as well as other matters such as the need to update disclosures of risk factors & known trends, potential selective disclosure issues, and reputational and legal risks. By the way, if you're representing a client that's considering an offering during a blackout period, we highly recommend that you take a look at the transcript from our 2017 webcast, "Flash Numbers in Offerings."


Covid-19 Crisis: What About ICFR?

The Covid-19 crisis has created a number of challenges for public companies, and one of the potentially most significant is maintaining appropriate internal control over financial reporting. Crisis-related ICFR issues include managing newly remote workforces, the novel and often unfamiliar financial reporting issues created by the crisis, and - for companies receiving government assistance - the need to implement restrictions on executive comp, share repurchases and dividends, among other things.

This Hunton Andrews Kurth memo reviews the legal framework applicable to these issues, and offers insights on how to address them. Here's an excerpt:

We recommend that companies begin to assess their existing disclosure and internal controls by taking stock of what has changed in the current financial reporting environment. Unique or novel accounting issues should be carefully analyzed, and expert advice sought when internal resources are insufficient.

Potential and actual disruptions to a company's supply chain, customer base, operations, processes and workforce should be weighed when evaluating the operating effectiveness of legacy controls. As part of this process, companies should also assess any potential deficiencies in review-type internal controls and the ability of individuals to perform control duties in light of shelter-in-place orders and other company specific remote-work protocols.

Based on this assessment, companies should determine whether existing controls are sufficient to prepare financial statements and disclosure documents at the reasonable assurance level. If a legacy control cannot be performed as previously designed, companies should determine what new controls may be necessary to reduce the risk of errors and fraud. In doing so, they should ensure that any changes in design address both the original risks of material misstatement as well as any new risks. We anticipate regular dialogue with counsel, the auditors and audit committees on these topics.

The memo also says that public companies, particularly those receiving government assistance, should expect heightened scrutiny from the "media, putative whistleblowers, agency inspectors general, consumer watchdog groups, members of Congress and other political figures." In this environment, the best way for companies to protect themselves is by maintaining a robust control environment and responding nimbly to changes in business circumstances that may require adjustments to those controls.


Covid-19 Crisis: Companies Adopt Emergency Bylaws to Ensure Board Operations

With all of the disruptions resulting from the Covid-19 pandemic, many companies are looking at board and management continuity issues, and some companies have opted to adopt an emergency bylaw to help address these issues. This recent Simpson Thacher memo discusses Section 110 of the DGCL, which allows companies to adopt emergency bylaws and sets forth what may be included in them. Among other things, these bylaws may permit companies to expand the class of persons who may call a board or committee meeting, and relax notice and quorum requirements for such a meeting.

Yesterday, Mastercard filed an Item 5.03 8-k announcing that its board had adopted an emergency bylaw, which provides that:

- a Board or committee meeting may be called by any director or officer by any feasible means, and notice of the meeting may be provided only to the directors that can be feasibly reached and by any feasible means; and

- the director(s) in attendance at the meeting shall constitute a quorum and may appoint one or more of the present directors to any standing or temporary committee as they deem necessary and appropriate

Mastercard isn't the only company that has adopted an emergency bylaw in recent weeks. John Bean Technologies also adopted a similar provision, and other companies have long had emergency provisions in their own bylaws (see this Jack In The Box filing from 2005). If your bylaws don't contain an emergency provision, now may be a good time to consider adopting one.


Initial Disclosures About Earnings Guidance Amid Covid-19

Earlier in the month, John blogged about what companies are going to do about guidance when issuing first quarter earnings. As a follow-on to that, Bass Berry & Sims surveyed initial disclosures in earnings releases for off-calendar year-end companies furnished on or after March 16, 2020 to see how companies handled earnings guidance in light of Covid-19. The findings say a majority of companies withdrew or suspended guidance. Here's an excerpt:

67% (22 companies) either withdrew their existing guidance (in full or in part) or suspended their practice of providing quarterly guidance

The companies that provided either updated guidance or new quarterly guidance generally did so with a significantly greater gap between the high and low range of their guidance compared to prior disclosures

The survey highlights what the firm has been hearing from its clients—the unfolding COVID-19 pandemic and the resulting economic turmoil make it difficult to predict what the future will look like. As reflected in the survey results above, there will be many public companies that elect to suspend or withdraw guidance as a result of the tremendous economic uncertainty arising from COVID-19, but approaches will differ, and there will continue to be some public companies (albeit, potentially, a minority) that elect to continue to provide guidance during these uncertain times. Ultimately, the determination of whether to continue to provide guidance will require judgment and be very fact-specific (depending on, among other things, the industry of the public company and how COVID-19 has impacted such industry).

The blog discussing survey findings also includes links to notable disclosures - one being a company that made projections based on three recovery scenarios along with qualitative and quantitative assumptions about what such recoveries would look like for three of the company's four operating segments.


Covid-19 Crisis: Chart of Governmental Actions

Many companies have been dealing with what to do about existing contracts during Covid-19, while many are also continuing to enter into new agreements. A new contract can present an opportunity to mitigate risks from the continued uncertainty everybody faces. A recent Perkins Coie memo outlines tips for negotiating new contracts during Covid-19 relating to provisions typically found in technology agreements. Here's an excerpt:

Addendums: Consider including an addendum that contains terms and conditions that apply during the pandemic with an understanding that the pandemic-specific provisions preempt the terms and conditions in the main body of the agreement during the pandemic - the addendum can specify criteria that must be satisfied before the addendum can expire

Acceptance of Goods, Risk of Loss, Transfer of Title: Travel restrictions and stay-at-home orders may prevent inspection and acceptance of goods per the contract's standard terms, which can then affect risk of loss, transfer of title and payment provisions so parties should consider alternatives such as relying on remote video or data measurements, permitting partial payment upon delivery or through use of buyer-funded escrows that could be released once inspection and acceptance occurs

Service Levels: Service providers may need to negotiate for more flexible service levels to accommodate bandwidth demands to regulate service usage - considerations could include temporary elimination of non-critical service features, throttle bandwidth, limitations on hours of operation, and service credits for service interruption

Other provisions addressed in the memo relate to ADR, limitations of liability, suspension, delivery terms, milestones, change orders, disclaimers, termination, health & safety, transition services, governing law, business continuity, confidentiality & reporting obligations, reps & warranties and insurance.

If you represent a client with operations in multiple states, Faegre Drinker's interactive chart of the various federal, state and local government orders associated with the Covid-19 crisis is a really handy resource. If you click on an individual state, you'll be taken to a page that contains links to that state's legislative and executive orders relating to Covid-19, as well as to orders issued by major municipalities within that state. It appears to be updated on a daily basis, so you'll probably want to bookmark it.


Beyond Force Majeure: Tips for Entering New Tech Agreements During Covid-19

Many companies have been dealing with what to do about existing contracts during Covid-19, while many are also continuing to enter into new agreements. A new contract can present an opportunity to mitigate risks from the continued uncertainty everybody faces. A recent Perkins Coie memo outlines tips for negotiating new contracts during Covid-19 relating to provisions typically found in technology agreements. Here's an excerpt:

Addendums: Consider including an addendum that contains terms and conditions that apply during the pandemic with an understanding that the pandemic-specific provisions preempt the terms and conditions in the main body of the agreement during the pandemic - the addendum can specify criteria that must be satisfied before the addendum can expire

Acceptance of Goods, Risk of Loss, Transfer of Title: Travel restrictions and stay-at-home orders may prevent inspection and acceptance of goods per the contract's standard terms, which can then affect risk of loss, transfer of title and payment provisions so parties should consider alternatives such as relying on remote video or data measurements, permitting partial payment upon delivery or through use of buyer-funded escrows that could be released once inspection and acceptance occurs

Service Levels: Service providers may need to negotiate for more flexible service levels to accommodate bandwidth demands to regulate service usage - considerations could include temporary elimination of non-critical service features, throttle bandwidth, limitations on hours of operation, and service credits for service interruption

Other provisions addressed in the memo relate to ADR, limitations of liability, suspension, delivery terms, milestones, change orders, disclaimers, termination, health & safety, transition services, governing law, business continuity, confidentiality & reporting obligations, reps & warranties and insurance.


March-April Issue of "The Corporate Counsel"

We recently mailed the March - April issue of "The Corporate Counsel" print newsletter (try a no-risk trial). The topics include:

  • A Disclosure Framework for the Coronavirus
    • The SEC Weighs In
  • Coronavirus Disclosure Considerations
  • Executives in Trouble: Is Disclosure of Uncharged Conduct Required?
    • Other Potential Disclosure Considerations
  • "Test the Waters for All" Means WKSIs, Too!
    • What WKSIs Can Do Under Rule 163
    • The "Test the Waters" Rule 163B Alternative
    • Mix & Match? Rule 163B is Non-Exclusive
    • Conclusion: WKSIs Should Keep Rule 163B in Mind

Conference Calendar


What's New on Our Websites

Among other new additions, we have posted:

  • A podcast featuring Dave Lynn and Marty Dunn – "Filing and Disclosure Obligations during the COVID-19 Pandemic" – Dave and Marty discuss discuss when and what to disclose about the impact of COVID-19, Form 8-K disclosure triggers arising from COVID-19, the SEC's COVID-19 exemptive order and the latest Staff interpretations, and importantly, a quarantine movie list.
  • A podcast featuring Dave Lynn and Marty Dunn – "Coronavirus, Rule 144(i) and Which is Better?" – Dave and Marty discuss the latest developments in securities laws, corporate governance and pop culture. Topics include disclosure considerations for public companies arising from the coronavirus, the curious case of Securities Act Rule 144(i) and which is better?
  • Another podcast episode featuring Dave Lynn and Marty Dunn – "Dave & Marty – Back in Black" – they discuss the top 10 expectations for 2019 – 2020 shareholder proposal season and the latest issues with non-GAAP financial measures and key performance indicators.
  • Another podcast episode featuring Dave Lynn and Marty Dunn – " Dave & Marty – Revisiting Risk Factors & LPs" – they discuss recommendations for tuning up your risk factors, early trends in the shareholder proposal season and evolving musical tastes in a world of technological innovation.
  • A podcast series - "Women Governance Gurus " - that Liz has been hosting with Courtney Kamlet of Vontier. So far, these illustrious guests have joined Liz & Courtney to talk about their careers in the corporate governance field - and what they see on the horizon:
  • - Liz Dunshee - Managing Editor, TheCorporateCounsel.net
    - Alane Barnes - SVP & Chief Legal Officer at BioCryst Pharmaceuticals
    - Dannette Smith - Secretary to the Board & Senior Deputy GC at UnitedHealth Group
    - Lisa Beth Lentini Walker - CEO & Founder of Lumen Worldwide Endeavors
    - Stacey Geer - EVP, Chief Governance Officer, Deputy GC and Corporate Secretary at Primerica
    - Kellie Huennekens - Head of Americas, Nasdaq Center for Corporate Governance
    - Anne Chapman - Managing Director, Joele Frank
    - Hope Mehlman - EVP, Chief Governance Officer at Regions Bank

The following memos & insights:

- "Court Declines to Impose Tracing Requirement in Section 11 Direct Listing Case" - Orrick (4/20)
- "Securities, Shareholder and M&A Litigation Outlook" - Hogan Lovells (4/20)
- "Securities Offerings During Closed Windows and Blackout Periods" - Davis Polk (3/20)
- "Guidelines for Payment of Dividends During the COVID-19 Pandemic" - Morris Nichols, Potter Anderson, Richards Layton (3/20)
- Memos: Coronavirus Issues
- "Delaware Supreme Court Validates Federal Forum Provisions" - Richards Layton (3/20)
- "Open Market Debt Repurchases - Key Considerations" - Simpson Thacher (3/20)
- "SV 150 Governance Report" - Wilson Sonsini (3/20)
- "Will Business Interruption Insurance Provide Coverage for Coronavirus Losses?" - Stroock (3/20)
- Memos: Corp Fin's "MD&A" CDIs


People: Who's Doing What & Where

Natasha Guinan Named Chief Counsel, Office of the Chief Accountant: The SEC announced in April that Natasha Guinan was named as Chief Counsel, Office of the Chief Accountant. In the role, Guinan will provide legal guidance to the Chief Accountant and other OCA groups and OCA support of the Division of Enforcement on financial reporting and auditing matters. Guinan first joined the SEC in 2008 in the Division of Enforcement and previously served as Senior Special Counsel for Legal Policy in the Office of General Counsel.

S.P. Kothari to chair Covid-19 Market Monitoring Group: The SEC announced in April that S.P.Kothari will chair a temporary cross-divisional COVID-19 Market Monitoring Group. Kothari will be assisted by Jeffrey Dinwoodie, Chief Counsel and Senior Policy Advisor for Market and Activities-Based Risk in the Office of the Chairman. This temporary, senior-level group will assist the Commission and its various divisions and offices in (1) Commission and staff actions and analysis related to the effects of COVID-19 on markets, issuers, and investors—including our Main Street investors, and (2) responding to requests for information, analysis and assistance from fellow regulators and other public sector partners.

Former Chief Justice Leo Strine joins Wachtell, Lipton, Rosen & Katz: Near the end of April, Wachtell Lipton announced that Former Delaware Chief Justice Leo Strine joined the firm. Wachtell's announcement said that Strine will work with Wachtell Lipton's lawyers and clients in structuring corporate governance solutions, including in the area of efficiently integrating concern for sustainability and social responsibility ("EESG") into corporate practices, structuring complex transactions and shaping transactional and litigation strategy.


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