COVID-19 Resources

On December 7, 2020, Cravath prepared for its clients a memo entitled “‘Early Filer' COVID-19, ESG and HCM Disclosure Trends in Proxy Statements and 10-Ks,” which analyzes disclosures made by public companies with non-calendar-year fiscal year-ends (“early filers”). The memo discusses in particular disclosure trends regarding (i) the COVID-19 pandemic, (ii) diversity, inclusion and racial justice, (iii) climate change and (iv) human capital management (HCM), and provides insights into our expectations for the upcoming 2021 proxy season. 

On December 3, 2020, Cravath prepared for its clients a resource entitled “COVID‑19 Update: Impact on MAE Clauses,” which discusses the latest trends in drafting material adverse effect (“MAE”) provisions in the aftermath of COVID‑19.

On November 20, 2020, Cravath published a resource entitled “IRS Issues Favorable Guidance Addressing Certain Risks of Paycheck Protection Program Loans in M&A Transactions,” which summarizes recent informal guidance issued by the Internal Revenue Service (IRS) addressing a potential obstacle to M&A transactions between companies benefitting from different forms of relief under the CARES Act. The resource concludes that, as a result of the new guidance, a buyer will not lose eligibility for the Employee Retention Credit (ERC) as a result of acquiring a target that has received a loan under the Paycheck Protection Program (PPP).  Please click here to read the resource.

On November 4, 2020, Cravath prepared a resource for clients entitled “COVID‑19: Impact on M&A Litigation,” which reviews current litigation challenging pending M&A transactions on grounds related to the COVID‑19 pandemic. The materials include a summary of recent case studies and key considerations around buyers’ ability to claim breaches of contract or MAE.

In the Summer of 2020, Cravath published a resource for clients entitled “COVID‑19: Impact on M&A Agreements,” which summarizes the ways in which M&A agreements have been shaped by the wave of litigation spurred by the pandemic, which has centered around buyers’ attempts to delay or terminate pending M&A deals signed before the crisis. Changes detailed in the resource include a review of carve‑outs in recent material adverse effect definitions, interim operating covenants and access provisions – the terms of acquisition agreements that have been the subject of recent disputes.

On May 29, 2020, Cravath prepared a resource for clients entitled “Paycheck Protection Program Loans May Lead to Unanticipated Costs in Certain M&A Transactions,” which reviews how two mutually exclusive programs under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)—the Paycheck Protection Program and the Employee Retention Credit—may present the risk of lost tax credits to a buyer and its subsidiaries if they are involved in an M&A transaction in which the buyer has received one benefit, and the acquisition target another. The resource encourages companies considering M&A transactions to take into account the interplay between the two programs early during review of a potential deal.

On April 10, 2020, Cravath prepared for its clients a resource entitled “COVID‑19: Protecting NOLS in an Uncertain World,” which examines how a company’s use of Net Operating Losses (“NOLs”) to offset future income and tax liabilities could be affected by COVID‑19’s impact on the market. NOLs are limited if a company undergoes a greater than 50% “ownership change,” and the limitation is calculated based on applicable interest rates and the equity value of the company at the time of the ownership change, which means that a limitation could be severe under current conditions due to low interest rates and steep declines in many companies’ stock prices. The resource discusses two available strategies to preserve company value by avoiding limitations on NOL usage: an “NOL pill,” which deters acquisitions of stock above a specific threshold, and a “charter restriction,” which prevents acquisitions and dispositions of stock that could trigger an ownership change.

On March 31, 2020, Cravath prepared for its clients a resource entitled “COVID‑19: Cybersecurity and Data Privacy Implications,” which provides an overview of increased cybersecurity and data privacy challenges facing organizations due to the pandemic. The resource discusses how federal and state enforcement authorities are targeting emergent COVID‑19‑inspired cybercrimes and approaching enforcement of existing cybersecurity and data privacy regulations, highlighting announcements made to date by the U.S. Department of Justice, U.S. Securities and Exchange Commission, U.S. Department of Health and Human Services, New York State Department of Financial Services and California Attorney General’s Office. The resource also examines some of the key cybersecurity risks organizations are facing, such as ransomware attacks and phishing emails, as well as considerations regarding risk mitigation, disclosure issues and the California Consumer Privacy Act.

On April 1, 2020, Cravath prepared for its clients a resource entitled “COVID‑19: CARES Act: Compensation Limitations for Recipients of Government Loans,” which reviews how the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted by Congress in response to the COVID‑19 pandemic contains limits on compensation for certain individuals at companies that receive government assistance made available through the legislation. The resource provides a summary of relevant CARES Act provisions, including the compensation limitations and certain unresolved issues raised by the legislation.

On March 31, 2020, Cravath prepared a resource for clients entitled “COVID‑19: Certain Financing Provisions of the CARES Act & Federal Reserve Facilities,” which summarizes federal law based on the version of the CARES Act signed by the President on March 27, 2020, and other federal actions taken as of that date. It is subject to change with further developments. The resource provides an overview of the Federal Reserve’s lending program, including restrictions on loan eligibility and its applicability for mid‑size businesses, the Federal Reserve’s credit facilities and the Paycheck Protection Program, including eligibility and loan forgiveness provisions.

On March 31, 2020, Cravath prepared a presentation for clients entitled “COVID‑19: SEC Reporting and Filing Matters,” which examines U.S. Securities and Exchange Commission reporting and filing challenges caused by COVID‑19 disruptions. Noting that the SEC remains fully operational through remote working, the presentation is intended to serve as a resource for companies evaluating their SEC reporting and filing obligations in light of COVID‑19, which it does by analyzing recent SEC orders and guidance, presenting examples of and best practices with respect to COVID‑19‑related risk factors and examining Form 8‑K disclosure requirements relating to events influenced by COVID‑19. In some cases, extensions for filing periodic reports and exemption from certain proxy delivery requirements are applicable for companies affected by COVID‑19. Risk factors that companies have noted in filings include supply chain disruption, reduced workforce availability, facility closures and a reduction in store hours and non‑essential services. Events disclosed in 8‑K filings include amending bylaws to allow for virtual shareholder meetings, suspending dividend payments and changing director and officer compensation.

On March 30, 2020, Cravath prepared for its clients a resource entitled “Debt Buyback Considerations in Light of COVID‑19,” which provides a general overview of debt buybacks and certain considerations that companies should take into account when evaluating opportunities to repurchase outstanding debt that may have a significantly reduced price due to the market effects of the COVID‑19 epidemic. The materials examine potential restrictions on debt buybacks, the different types of loan and bond buybacks and mechanisms for effecting them, as well as tax implications.

On March 25, 2020, Cravath prepared for its clients a presentation entitled “COVID‑19: Initial Insights and Expectations for Government Enforcement,” which discusses the impact the COVID‑19 pandemic is having on policy and activity at the U.S. Securities and Exchange Commission, the U.S. Department of Justice and other federal and state enforcement agencies. The presentation reviews and anticipates activity across enforcement agencies, noting the SEC’s commitment of substantial resources to combatting insider trading market manipulation related to COVID‑19, and the DOJ’s prioritization of the investigation and prosecution of fraud and cybercrime related to COVID‑19 and the enforcement of antitrust laws in connection with the manufacturing, distribution or sale of public health‑related products or services.

On March 26, 2020, Cravath prepared a resource for clients entitled “Stock Repurchase Considerations in Light of COVID‑19,” which provides an overview for issuers contemplating stock repurchase of factors that are of increased importance due to the pandemic. These include potential restrictions on repurchases (i.e., can you repurchase), fiduciary considerations (i.e., should you repurchase) and best practices for repurchase (i.e., how you should repurchase). Other considerations reviewed include disclosure requirements and listing rules. The resource concludes by noting that companies considering stock repurchases must consider the full range of risks and benefits in context of changes wrought by the COVID‑19 outbreak and measures taken in response to it.

On March 27, 2020, Cravath prepared for its clients a resource entitled “COVID‑19: Tax Law Developments,” which provides an overview of certain changes to U.S. tax rules affecting businesses and individuals in response to the COVID‑19 pandemic. The resource includes information about deferred due dates for filing and paying income taxes, modifications to the use of net operating losses, tax credits for wages paid by certain employers that lose business as a result of the pandemic and cash payments from the federal government for eligible individuals.

On March 23, 2020, Cravath prepared a resource for clients entitled “COVID‑19 Antitrust Insights: Merger Review Updates,” which summarizes new review processes that the Federal Trade Commission and U.S. Department of Justice have implemented in response to the COVID‑19 pandemic. The resource notes that the FTC’s and DOJ’s updated Hart‑Scott‑Rodino filing and merger review processes, including changes suspending early termination of the waiting period and new e‑filing and telework procedures, will remain in place until further notice. Cravath’s materials also discuss the difficulty of conducting market tests at this time, and how merger reviews conducted by foreign antitrust regulators are likely to experience delays as a result of updated measures and policy changes implemented in response to COVID‑19.

On March 26, 2020, Cravath released a resource for clients entitled “COVID‑19: Certain Executive Compensation Considerations,” which provides an overview of issues faced by companies in the current environment in maintaining adequate incentive compensation programs to drive business performance and retain key leaders and talent. The resource examines potential equity grant timing issues and issues relating to the adjustment of currently outstanding grants, such as the adjustment of performance goals and stock option repricing. The resource also discusses share pool planning in light of equity market declines, as well as liquidity preservation matters and strategies.

On March 24, 2020, Cravath prepared for its clients a presentation entitled “COVID‑19: Earnings Guidance Implications,” which discusses the legal framework for listed companies that have issued earnings guidance prior to, and without taking into account the impact of, the COVID‑19 pandemic. The presentation examines certain protections around forward‑looking statements, when a duty to update disclosure may apply and which factors to consider in deciding whether to update previously issued guidance. The presentation also discusses potential approaches available to companies that are considering updating or withdrawing previously issued guidance.

On March 23, 2020, Cravath prepared for its clients a resource entitled “COVID‑19: Force Majeure and Other Potential Issues Regarding Contractual Performance.” The materials provide an analysis of legal issues related to contract performance that might arise as a result of the COVID‑19 pandemic and its impact on the global economy. They also explore how courts may assess the applicability of force majeure clauses and how clients can ensure compliance with governing laws and contract‑specific requirements to reserve their rights with respect to any such clauses. The resource then discusses other issues around contractual clauses, including industry standards, restrictions on alternative delivery and termination rights, and potential legal defenses to being unable to perform contractual obligations.

On March 23, 2020, Cravath prepared for its clients a resource entitled “COVID‑19: Antitrust Considerations for Competitor Collaborations,” which examines antitrust concerns that may be considered by the U.S. Department of Justice or U.S. Federal Trade Commission if competitor companies cooperate in endeavors related to the pandemic. Such endeavors may include benchmarking best practices for safe distribution of products, joint production of medical equipment and supplies, and joint research and development initiatives for a vaccine or antivirals. The materials lay out what types of collaborations are considered immune from antitrust scrutiny and which are unlawful, and includes “dos and don’ts” of collaboration along with examples of laws that may form the basis for an antitrust defense.

On March 23, 2020, Cravath prepared a resource for clients entitled “COVID‑19: Certain Financing and Restructuring Considerations,” which examines the decision points an increasing number of companies may face due to business disruption caused by COVID‑19. The materials discuss how near‑term revenue challenges, liquidity constraints and obstacles to debt service make it imperative that companies consider proactive measures to bolster near‑term liquidity, including through the careful preservation of cash and assessment of currently available and potential new financing options. For already and newly distressed companies, particularly in sectors in which COVID‑19 is exerting extreme revenue pressures, it is a critical time to engage with creditors and develop negotiation strategy, as well to consult restructuring advisors. For some companies, chapter 11 preparations may be necessary as a fallback alternative to be considered in parallel with creditor negotiations.

On March 23, 2020, Cravath prepared for its clients a presentation entitled “COVID‑19: Considerations for 2020 Annual Shareholders Meetings,” which discusses factors for U.S. public companies to weigh and alternatives to keep in mind as they consider the growing global concern around the COVID‑19 pandemic and their ability to host annual shareholder meetings. The presentation discusses the various types of shareholder meetings and relevant restrictions imposed by states, as well as other factors including travel restrictions and the risk of potential exposure for attendees that are likely to affect a company’s ability to hold such gatherings. The presentation also explores how these factors interact with legal considerations around shareholder meetings, including those related to securities and Delaware law and stock exchange requirements.

On March 23, 2020, Cravath prepared a resource for clients entitled “COVID‑19: Impact on M&A and Shareholder Activism,” which summarizes the impact of the COVID‑19 pandemic on market trends, including a widespread pause to M&A activity, regulatory delays on pending deals and depressed public equity prices. The materials also discuss COVID‑19’s likely effect on the ways in which individual M&A transactions are structured, which may include drafting of pandemics, epidemics or other similar health emergencies as explicit carve‑outs in material adverse effect definitions and increased due diligence timelines resulting from challenges related to business continuity and remote working. Additionally, the resource identifies current trends in shareholder activism activity that may make companies more vulnerable to activism and hostile attacks in the near future.