Building on its recent orders and disclosure guidance for public companies, on May 4, 2020, the Division of Corporation Finance of the Securities and Exchange Commission (“SEC”) issued four FAQs relating to COVID-19, which are available here.
Current Relief for Filing Deadlines
In companion orders issued on March 4 and March 25, 2020 (the “COVID Order”), the SEC exercised its discretionary authority to provide relief to filers impacted by COVID-19 by allowing those filers to delay filing reports due on or before July 1, 2020, for up to 45 days. In providing this relief, the SEC recognized that companies transitioning to alternative working arrangements to address public health concerns may have difficulty meeting the required deadlines. It is not yet clear whether the SEC will extend this relief to filings due after July 1st.
Our team previously reviewed the relief available to companies that had to change their traditional, physical annual meetings to virtual annual meetings or are considering holding a virtual-only annual meeting this year.
The SEC’s May 4th FAQs provide guidance on the Current Report on Form 8-K required to be filed to take advantage of the COVID Order and the impact of doing so on a registrant’s ability to use Form S-3 and conduct offerings of securities.
COVID Order Form 8-K
One of the FAQs describes the requirements of the Form 8-K that companies must file to take advantage of the extended deadline relief. The FAQ specifies that in the Form 8-K, the company must:
- Disclose that it is relying on the COVID Order;
- Describe the reasons it cannot timely file the report;
- If the reason the company cannot timely file the report relates to any person other than the company to furnish any required opinion, report, or certification, that person must attach to the Form 8-K a statement signed indicating why it cannot deliver the material to the company on a timely basis;
- Provide the estimated date when the company will file the report; and
- Include a company-specific risk factor explaining the impact of COVID-19, if material, on the company’s business.
In addition, in the report that is filed during the extended deadline, the company must disclose that it is relying on the COVID Order and again state the reasons that it could not timely file the report.
Impact on S-3 Eligibility and Securities Offerings
The FAQs reinforce the application of well-known securities laws to the impacts of COVID-19 on public companies seeking to raise capital during the pandemic. The FAQs explain that, for a company to keep a Form S-3 effective or for the SEC Staff to declare a new Form S-3 effective, the registration statement must include a prospectus that complies with Section 10(a) of the Securities Act of 1933, as amended (the “Securities Act”). In a practical sense, this means that a company must have its Annual Report on Form 10-K on file, and any other material updates disclosed, if it plans to conduct a shelf takedown off of a Form S-3 or a securities offering pursuant to a new registration statement. While the COVID Order provides companies an extension of the normal deadlines, the Order does not exempt companies from following the requirements of the Securities Act. In the FAQs, the SEC Staff emphasized that companies are responsible for the accuracy and completeness of their disclosure.
For the purposes of reassessing whether a company remains eligible to use Form S-3, the FAQs explain that assessment is made when the company files its Form 10-K that serves as a Section 10(a)(3) update. While this determination is no different than previous guidance, the FAQs clarify that the assessment is extended to when the Form 10-K is actually filed if the company properly relies on the COVID Order. If the company properly relies on the COVID Order, it will be deemed to have timely filed the reports for which it received an extended deadline and therefore will not be disqualified from using the form.
It is currently unclear whether the SEC will continue to extend relief to public companies adapting to the COVID-19 pandemic. Because disclosure guidance relating to the pandemic is a constantly evolving topic, please reach out to a member of HSE’s Securities and Capital Markets team for the latest insights.