The ongoing fallout from the pandemic associated with the novel coronavirus (COVID-19) continues to challenge companies, boards and management teams across all aspects of their business.  In trying times like these, senior management team members are meeting regularly to discuss the impact of the virus on their business operations and formulate contingency plans that must be put into place to manage through this difficult environment.

Sometimes, management teams can be so focused on managing through a crisis that they fail to implement the protocols they are adopting for their broader associate base amongst themselves.  For instance, many companies have recently implemented social distancing protocols among their employees including, remote working arrangements, limiting large meetings or non-essential face-to-face meetings.  Meanwhile, groups of senior managers are meeting in-person in close contact with one another.

Continue Reading Senior Management and Boards in the Time of Social Distancing

The novel coronavirus (COVID-19) has already proven to have profound social, political and economic effects on the world, impacting nearly every continent, community and business sector.  With the growing uncertainty about the extent to which such effects will be felt in the future, many companies have begun to evaluate their pending acquisition agreements and financing arrangements to consider the scope of terms such as “Material Adverse Change” and “Material Adverse Effect” (MAC), and the provisions using such terms, as they relate to COVID-19.

While merger and acquisition (M&A) agreements and debt financing arrangements typically include MAC provisions, these provisions vary widely and should be read carefully.  This article briefly describes some of the things companies should consider in evaluating COVID-19 in the context of MAC provisions in both M&A arrangements and debt financing transactions.

MAC Provisions in M&A Transactions

One area of law where participants may be taking a fresh look at contractual provisions with the effects of COVID-19 in mind is in M&A contracts.  In the vast majority of M&A agreements, whether for public or private targets, the buyer will have a “walk right” between signing and closing if the target business suffers a MAC.  Regardless of the terminology used and the particulars of the contractual definition, the intent of these provisions is generally understood to allow a buyer that has signed an M&A contract not to have to close if some negative event or circumstance has affected the target business and it is so severe that the buyer’s benefit of the bargain is essentially lost, and the buyer, therefore, has the right to terminate the agreement without closing the acquisition.

Continue Reading COVID-19 and Material Adverse Change: M&A and Financing Considerations

In a previous blog post, we discussed the availability of virtual shareholder meetings (i.e., “virtual-only” and “hybrid” meetings) as a potential alternative to the traditional in-person meeting during the 2020 proxy season in light of the emerging public health and safety crisis posed by the coronavirus pandemic (COVID-19). The Staff of the U.S. Securities and Exchange Commission’s Division of Corporation Finance and Division of Investment Management subsequently issued guidance for conducting virtual annual meetings under these unprecedented circumstances.

Post-Proxy Filing

The Staff confirmed that if a company has already mailed and filed its proxy materials, the company can notify shareholders of a change in the date, time or location of the annual meeting without amending its definitive proxy materials or mailing additional soliciting materials if the company issues a press release announcing the change, files the announcement as definitive additional soliciting material on EDGAR, and takes all reasonable steps necessary to inform other interested parties in the proxy solicitation process (e.g., any proxy service providers and applicable national securities exchanges) of the change. These actions should be taken promptly after the decision to hold a virtual meeting is made and, in any case, sufficiently in advance of the annual meeting. Therefore, companies that have already filed and mailed their definitive proxy materials would not need to mail additional soliciting materials (including new proxy cards) solely to switch to a “virtual” or “hybrid” meeting if they follow the steps described above for announcing a change in the meeting date, time, or location.

Continue Reading SEC Staff Provides Guidance for Conducting Virtual Meetings in Light of COVID-19 Pandemic

Across the globe, the coronavirus pandemic (COVID-19) is causing governments, companies, associations and colleges and universities to take unprecedented steps to address the spread and transmission of COVID-19. These steps include imposing restrictions on travel and public life; closing physical offices or campuses; canceling conferences, meetings and other scheduled group activities; restricting the size of gatherings; and encouraging or requiring employees and students to telecommute.

With increasing COVID-19 concerns in the United States and proxy season underway, public companies, including those that have already mailed proxy materials, may need to consider alternatives to conducting in-person shareholder meetings in light of the emerging public health crisis posed by the COVID-19 pandemic. Specifically, companies should assess whether or not a virtual meeting format is a viable alternative to the customary in-person meeting. Virtual meetings are generally divided into the following two categories:

  1. Virtual-only meetings conducted solely using remote communication.
  2. Hybrid meetings conducted in-person with concurrent participation by remote communication.

Continue Reading COVID-19 Pandemic Causes Public Companies to Reevaluate Virtual Meetings

We recently examined key developments at the Securities and Exchange Commission (SEC) during 2019 and consider what to expect in the months ahead for an article in The D&O Diary.

“For public companies and securities practitioners alike, the decade ended with a bang, with changes to certain long-standing practices and several novel,” we explained in the article. We provided an in-depth review and takeaways from seven of the top highlights from the SEC last year, including:

  1. Proxy Advisory Firms Face Proposed Rules.
  2. Lessons Learned from the 2018-2019 Government Shutdown.
  3. Realignment of Division of Corporation Finance.
  4. FAST Act Updates.
  5. Shareholder Proposal Developments.
  6. Scrutiny of Non-GAAP Measures Continues.
  7. Continued Focus on ESG Matters.

The full article, “7 Key SEC Developments in 2019,” was published on February 25 by The D&O Diary and is available online.

Jay Knight (far right) discusses disclosure challenges for public companies at the 2020 Securities Regulation Institute.

The Bass, Berry & Sims Corporate & Securities Practice Group kicked off the new year by participating as a sponsor of the 47th Annual Securities Regulation Institute, which is held annually in San Diego by Northwestern University. Jay Knight, head of the firm’s Capital Market Subgroup, was featured as a speaker in a well-attended panel discussing recurring disclosure challenges faced by public companies and their advisors. Each year, the conference draws SEC staffers and many of the leading practitioners of the public company industry, and the keynote speaker for this year’s conference was SEC Commissioner Jay Clayton.

Our key takeaways from the conference follow: Continue Reading Five Key Takeaways from the 2020 Securities Regulation Institute

One thing I appreciate about the SEC comment letter process is that it gives real life examples to what is often discussed hypothetically.  Take, for example, cybersecurity and steps management should take when a data incident occurs.  How quickly should a public company make its public disclosure of a data incident?  What should it say?  What should the process look like?

In 2018, the SEC issued helpful interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.  This was in addition to the Division of Corporation Finance’s 2011 guidance regarding disclosure obligations relating to cybersecurity risks and incidents.  In addition, our friends at corporatecounsel.net ran a helpful blog post on February 18 related to cyber response plan testing.

It is clear there is no single playbook for a data incident response, and the appropriate response is driven by the facts and circumstances of the situation.  One size does not fit all.  However, it is helpful when preparing a response plan to analyze a real life example.  That is why the SEC comment exchange recently made public between the Staff and Chegg, Inc. last fall is particularly insightful.

Continue Reading SEC Staff Comments on Chegg’s Data Breach Disclosure and Response; A Real Life Example 

With many year-end companies working on initial drafts of their 2020 proxy statements, we thought it might be worth sending a quick reminder of two recent rule changes – briefly summarized below – that will (modestly) impact this year’s proxy statement.

  • Compliance with Section 16(a) of the Exchange Act: Item 405 of Regulation S-K previously required companies to disclose information about late Section 16 filings under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.” As part of the recent FAST Act amendments, the disclosure header is now “Delinquent Section 16(a) Reports” and companies are encouraged to exclude this heading altogether when they have no Section 16(a) delinquencies to report.  Since this is one item that is typically specifically incorporated by reference into Part III of Form 10-K, to the extent the heading is retained, companies should also update the header cross-reference in the Form 10-K.

    Continue Reading Proxy Statement Rule Change Reminders for 2020

In a previous blog post, we discussed the Delaware Chancery Court’s decision in Saba Capital Master Fund, Ltd. v. Blackrock Credit Allocation Income Trust and its relevance to the interpretation of advance notice bylaw provisions. On appeal, the Delaware Supreme Court reversed the decision of the Chancery Court and strictly applied the deadlines set forth in the defendants’ unambiguous advance notice bylaw provisions.

Background of the Chancery Court Decision

In Saba, the defendants were two affiliated closed-end funds who sought to disqualify the director nominees of an activist shareholder because the activist shareholder did not strictly comply with the requirements of the advance notice provisions of the defendants’ bylaws. As allowed pursuant to the bylaws of the funds, the defendants had requested a response to a supplemental information request from the activist shareholder before a five-business day deadline.

Continue Reading Advance Notice Bylaw Provisions Upheld by Delaware Supreme Court

Earlier this month, in a bipartisan vote of 384 to 7, the U.S. House of Representatives passed the 8-K Trading Act of 2019.  A similar bill has been introduced in the Senate and given the bipartisan support in the House, is likely to pass in the Senate when considered.  The proposed law stems from academic research that suggests corporate insiders that trade around the filing of Forms 8-K regularly beat the market in the four days preceding the filing of a Form 8-K.

Basics of the 8-K Trading Act of 2019

The new law, when it becomes effective, requires the SEC to issue rules requiring issuers to establish and maintain policies, controls and procedures that are reasonably designed to prohibit executive officers and directors of issuers from purchasing, selling or otherwise transferring equity securities of the issuer, directly or indirectly, with respect to an event described in Items 1 through 6 of Form 8-K between the occurrence of the event and the filing or furnishing of the related 8-K.

Continue Reading House Passes Bill to Limit Trading by Insiders around Form 8-K Filings