Capital Markets Alert
On May 4, 2020, the staff of the Division of Corporation Finances issued four new COVID-19-related FAQs relating to the SEC’s COVID-19 Order and its interaction with Form S-3 (FAQs were issued and not included in the staff’s Compliance and Disclosure Interpretations because they “relate[d] to unique circumstances arising from COVID-19.”). The SEC previously provided public companies that are unable to timely make a filing due to COVID-19 with conditional 45-day extensions to file or furnish specified SEC reports, schedules and forms that would otherwise have been due between March 1, 2020, and July 1, 2020, if certain requirements were met (the “COVID-19 Order”). See Orrick’s Insight here. The staff’s FAQs address questions relating to reliance on the COVID-19 Order and the implications for use of Form S-3.
In order for a company to rely on the COVID-19 Order, it must file a Form 8-K (or Form 6-K, if applicable), which must disclose: (i) the company is relying on the COVID-19 Order; (ii) a brief description of the reasons why the company could not timely file the subject report, schedule or form; (iii) the estimated date the report, schedule or form is expected to be filed; and (iv) the company-specific risk factor(s) explaining the impact, if material, of COVID-19 on the company’s business.
If the inability to timely file is due to any person, other than the company, being unable to furnish a required opinion, report or certification, the company must provide, as an exhibit to the Form 8-K or Form 6-K, a statement signed by the person indicating the specific reasons why he or she is unable to furnish the required opinion, report or certification on or before the original due date of such report.
In the report, schedule or form that is filed on a delayed basis, the company must disclose reliance on the COVID-19 Order and explain why it could not timely file such report, schedule or form.
Of note, the COVID-19 Order does not specifically apply to registration statements. However, if a company has relied on the COVID-19 Order and delayed the filing of its Form 10-K, it may continue to conduct takedowns under an effective Form S-3 so long as the company determines that the prospectus complies with Section 10(a) of the Securities Act of 1933, as amended (the “Securities Act”). Specifically, Section 10(a)(3) requires that, when a prospectus is used more than nine months after the effective date of the registration statement, the information in the registration statement must be as of a date not more than 16 months prior to that use, so far as the information is known to the company (or other person using the information) or can be furnished by the company without unreasonable effort or expense. In addition, shelf offerings under Rule 415 require an undertaking to reflect in the prospectus any facts or events arising after the effective date of the registration statement which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. The staff cautions companies that they (with input from their counsel) will need to determine when it is appropriate to update the prospectus if the information is older than 16 months (notwithstanding the qualification relating to information that is known or can be furnished without unreasonable effort or expense). As always, companies are responsible for the accuracy and completeness of all disclosures.
Pursuant to Rule 401(b) promulgated under the Securities Act, when a company files an amendment in accordance with Section 10(a)(3), the form and contents must conform to the applicable rules and forms as in effect on the amendment filing date. The filing of Form 10-K functions as a Section 10(a)(3) update to a company’s effective Form S-3, and the company is at that time required to reassess its eligibility to use Form S-3. If a company properly relies on the COVID-19 Order, the due date for the Form 10-K will be extended, and the company must reassess its Form S-3 eligibility when it files the Form 10-K. When the company files the Form 10-K, it must meet all of the requirements of Form S-3, including the requirement that the company has made all filings required under Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for at least 12 calendar months immediately preceding the Section 10(a)(3) update. The Form 10-K will be considered timely if each of the conditions of the COVID-19 Order are met with respect to such filing.
Between the original due date of a required filing and the extended due date under the COVID-19 Order, a company may file a new Form S-3 registration statement even if the registrant has not filed the required periodic report prior to the filing of the registration statement (and, accordingly, the staff will accelerate the effectiveness thereof in accordance with usual procedures). The staff will consider the company to be current and timely for purposes of its reports filed under the Exchange Act if the Form 8-K disclosing reliance on the COVID-19 Order is properly furnished (as described above). In contrast, a company will no longer be considered current and timely, and will lose eligibility to file new registration statements on Form S-3, if it fails to file the required report by the due date as extended by the COVID‑19 Order. Companies with compelling and well-documented facts may contact the staff to discuss specific capital raising needs, but companies relying on the COVID-19 Order should note that the staff will be unlikely to accelerate the effective date of a Form S-3 until such time as any information required to be included in the Form S-3 is filed.
As usual, the staff also states that the FAQs are staff guidance and not legally binding.
Please contact any member of Orrick’s Capital Markets Group for further assistance regarding coronavirus implications for public companies and other legal impacts of the coronavirus on your company.
 It should be noted that the filing of a Form 12b-25 (notification of late filing) does not extend the original due date of a report.