On November 17, 2020, the Securities and Exchange Commission (SEC) adopted rules (which are now effective) permitting electronic signatures for SEC filings, provided that certain procedures are followed.   There are potential advantages to the utilization of e-signatures by public companies in SEC filings, including from a facilitation perspective (particularly for filings such as registration statements and 10-Ks which need to be signed by a significant number of individuals) and a record-keeping perspective.

Overview of E-Signature Rules

Before the adoption of the SEC’s e-signature rules which recently became effective, SEC filings needed to be manually signed by the signatories to such filings, and public companies were required to retain such manual signatures for a period of at least five years (and provide such signatures to the SEC upon request).  The amendments to Regulation S-T resulting from these new rules allow for e-signatures instead of manual signatures (manual signatures will continue to be permitted as well) for SEC filings, provided that the following conditions are met:

  • The signatory must present a physical, logical, or digital credential that authenticates the signatory’s identity (this may involve a driver’s license, passcode or a credential chip on a workplace ID).
  • The signature process must provide for non-repudiation, which is defined as “assurance that an individual cannot falsely deny having performing a particular action” (this may involve public-key encryption tools provided by commercially available e-signature platforms).
  • The e-signature must be attached, affixed, or otherwise logically associated with the signature page or document being signed.
  • There must be a timestamp to record the date and time of the signature.


Continue Reading SEC Adopts New E-Signature Rules

You have undoubtedly read about the continuing popularity of special purpose acquisition companies (SPACs).  According to SPACInsider, year-to-date there have been 242 SPAC IPOs, with an average IPO size of $334.9 million. This is remarkable as the next highest year was 2019 when there were 59 SPAC IPOs with an average size of $230.5 million.  See the chart below to show the 2020 spike.

As a refresher, SPACs are public shell companies (i.e., blank check companies) formed to use their IPO proceeds to acquire a private company via merger, share exchange, asset acquisition, reorganization or similar business combination within a specific timeframe, usually 18-24 months.  A SPAC structure essentially creates another mechanism through which a private company can go public, along with a traditional firm commitment underwritten offerings, direct listings (becoming more popular), and others.

SPAC Mergers with Private Companies

The focus of this post is on the back half of the SPAC life: the SPAC merger with the private company.  SPACInsider reports there are approximately 228 SPACs that have completed their IPO and are currently searching for private acquisition targets to take public.  Since most of these SPACs will need to find a target in the next 18-24 months (or less), there will be high demand for private companies that have the maturity, growth prospects, experienced management and operations in place to function as a public company.


Continue Reading Recent SEC Comment Letter Looks Under the Hood at SPAC Merger Diligence

I was recently featured on the Deep Dive with Dave podcast hosted by Dave Lynn from TheCorporateCounsel.net. Dave and I discussed the following questions:

  • Has the SEC staff been commenting on disclosures about COVID-19 in public filings?
  • What areas of comment has the Staff raised regarding COVID-19?
  • What approach has the Staff taken with respect

On November 19, the Securities and Exchange Commission (SEC) continued its brisk pace of end-of-year rulemaking by approving amendments to Items 301, 302 and 303 of Regulation S-K, which collectively govern the disclosures of Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) as well as other selected financial data.  These amendments were initially proposed in January 2020 as part of the SEC’s ongoing effort to improve and modernize the current disclosure regime for both investors and companies.

The amendments will become effective 30 days after they are published in the Federal Register, which means they will probably be effective around the end of January assuming the typical timing for rule publication. At that time voluntary compliance is permitted, so long as registrants provide disclosure responsive to an amended item in its entirety. Compliance is not mandatory until a registrant reports on its first fiscal year ending on or after 210 days following publication, which means that for a calendar year-end filer, the Form 10-K filed in 2022 with respect to the fiscal year ended December 31, 2021.  However, we expect that many companies will welcome the new rules (particularly the elimination of the contractual obligations table and five-year selected financial table, among others) and begin complying sooner.


Continue Reading SEC Adopts Amendments to MD&A and Other Financial Disclosures

In a prelude of things to come for public companies, on December 4 the Securities and Exchange Commission (SEC) sued restaurant operator The Cheesecake Factory Incorporated for making misleading disclosures regarding the impact of the COVID-19 pandemic on its financial conditions and operations. After issuing warnings and guidance to public companies since the early stages of the pandemic, this is the SEC’s first time charging a public company for misleading disclosures relating to the pandemic.

Allegations Against The Cheesecake Factory

The allegations against The Cheesecake Factory are straight forward. Early in the pandemic, The Cheesecake Factory disclosed in SEC filings that its restaurants were “operating sustainably.” The SEC alleged this disclosure contradicted internal company documents, which showed that due to the pandemic the company was losing approximately $6 million in cash per week, was projected to run out of cash in 16 weeks, and had notified its landlords that it would not pay rent in April.

The inadequacy of The Cheesecake Factory’s SEC filings was further confirmed according to the SEC when the company later shared the undisclosed financial information with potential private equity investors and lenders in connection with an effort to seek additional liquidity.


Continue Reading SEC Files First Charges for Inadequate Public Company COVID-19 Disclosures

On November 2, the Securities and Exchange Commission (SEC) approved amendments, originally proposed in the SEC’s June 2019 concept release and March 2020 proposing release, to its “patchwork” exempt offering framework. The amendments represent important changes for private and public companies that rely on private offerings as part of their strategies to raise capital. Largely, these changes reflect the reality of current capital markets as the amount of capital raised in exempt offerings in the United States greatly exceeds the amount raised in registered offerings. In the March 2020 proposing release, the SEC noted that exempt offerings accounted for more than double the new capital raised by registered offerings in 2019, with exempt offerings accounting for $2.7 trillion compared to $1.2 trillion in registered offerings.

Emerging companies increasingly rely on exempt offerings as the most viable source of capital to fund growth in lieu of IPOs, and as a result exempt offerings have become an integral part of capital markets. The adopted amendments attempt to streamline and eliminate complexity within the exempt offering regulatory framework, which has been pieced together over years of tweaks through the adoption of various safeharbors.

Amendment Highlights

Highlights of the amendments include:

  • Establishing a new integration framework that provides a general principle that looks to the particular facts and circumstances of two or more offerings, and focuses the analysis on whether the issuer can establish that each offering either complies with the registration requirements of the Securities Act, or that an exemption from registration is available for the particular offering.
  • Increasing the offering limits for Regulation A (to $75 million), Regulation Crowdfunding (to $5 million), and Rule 504 offerings (to $10 million), and revise certain individual investment limits.
  • Relaxing pre-offering communications by permitting certain “test-the-waters” and “demo day” activities.

Additional analysis of these and other meaningful changes is outlined below.


Continue Reading SEC Raises Threshold for Reg A+ Offerings to $75 Million; Improves “Patchwork” Exempt Offering Framework

On November 17, in response to a formal rulemaking petition that garnered support from nearly 100 public companies, the Securities and Exchange Commission (SEC) issued a final rule amending Regulation S-T and the Electronic Data Gathering, Analysis and Retrieval system (EDGAR) Filer Manual to permit the use of electronic signatures when electronically filing documents with the SEC. The amendments will be effective upon publication in the Federal Register, though the SEC indicated in its November 20 Statement that it will not take enforcement action against issuers who elect to comply with the amendments before their effectiveness so long as signatories comply with the new requirements.

Amended Rule 302(b) and Other Amendments

Rule 302(b) of Regulation S-T, as amended, will permit a signatory to an electronic filing to electronically sign the document, provided that the signatory follows certain procedures and the electronic signature meets certain requirements specified in the EDGAR Filer Manual. Under those requirements, the electronic signing process must, at a minimum do the following:

  • Require the signatory to present a physical, logical, or digital credential that authenticates the signatory’s individual identity.
  • Reasonably provide for non-repudiation of the signature.
  • Provide that the signature be attached, affixed, or otherwise logically associated with the signature page or document being signed.
  • Include a timestamp to record the date and time of the signature.


Continue Reading SEC Adopts Rules Permitting Use of Electronic Signatures and Provides Further COVID-19 Relief

Bass, Berry & Sims invites you to join us for our 2nd Annual Corporate & Securities Counsel Public Company Forum.

Although we are unable to meet in-person due to ongoing concerns resulting from the COVID-19 pandemic, we are excited to host this year’s forum virtually.

This complimentary program will feature timely and practical guidance on the latest developments in corporate and securities matters impacting public company in-house counsel.

Panel and breakout discussion topics will include:

  • Financial reporting and disclosure considerations.
  • Insights from public company general counsel.
  • 2021 proxy season developments.
  • Restaurant & hospitality industry trends.
  • ESG considerations.

We are also pleased to welcome Myron T. Steele, former Chief Justice of the Delaware Supreme Court, as a featured speaker. Bass, Berry & Sims partner Leigh Walton will lead a fireside chat with former Chief Justice Steele about recent areas of focus for the Delaware judiciary, including COVID-19 related emergency orders, directors’ considerations for multiple stakeholder interests when discharging fiduciary duties, and corporate governance around ESG and diversity. Their discussion will also review the impact of federal elections on corporate law.

The program will take place on December 8, 2020, from 1:00-4:00PM CT and is intended for in-house counsel, public company finance and SEC reporting personnel, compliance officers, and other interested professionals.


Continue Reading [REGISTER NOW] Corporate & Securities Counsel Public Company Forum | December 8, 2020

Over the past eight months of this pandemic, we have all seen the rise of e-commerce as a vital necessity for most companies.  For many companies, e-commerce has significantly outperformed their existing sales channels and consumers have now become acclimated to a seamless “omnichannel” shopping experience where they can purchase online and wait for delivery or pick-up curbside or in the store. A recent WSJ article proclaims that the embrace of digital commerce is here to stay even after the pandemic.

In light of the surge in e-commerce activity, it makes sense that many companies are separately calling out their e-commerce sales and growth performance in their quarterly earnings calls, SEC filings and investor presentations.

Disaggregated Revenue Disclosure Requirement

As companies continue to focus on their sales channel disclosures, one potential sleeper issue could be the new revenue recognition standard’s requirement on disclosure of disaggregated revenues.  Under ASC 606-10-50-5, a public company must “disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.”


Continue Reading How a Surge in E-Commerce Sales Could Impact Financial Reporting; A Look at ASC 606 and Disaggregated Revenue

As we have previously discussed, on August 26, the Securities and Exchange Commission (SEC) voted to adopt amendments to modernize the description of business (Item 101), legal proceedings (Item 103), and risk factor (Item 105) disclosures that registrants are required to make according to Regulation S-K. For a summary of the rules and practical takeaways, see our prior blog post here. The new rules will be effective on November 9, 2020. The amendments, particularly the revisions to Item 101 (description of business), reflect the SEC’s continued movement to a principles-based, registrant-specific approach to disclosure.

As stated in the SEC’s economic analysis in its adopting release, prescriptive requirements employ bright-line, quantitative or other thresholds to identify when disclosure is required or require registrants to disclose the same types of information. Principles-based requirements, on the other hand, provide registrants with the flexibility to determine (1) whether certain information is material, and (2) how to disclose such information.

As registrants transition to a more principles-based disclosure regime under new Item 101, it will be interesting to see how disclosures change, if at all. However, a recent SEC comment letter exchange may reveal one example of how companies that were previously required to include sensitive disclosures as a result of the prescriptive requirements (e.g., the names of material customers), might now be able to modify their disclosures in order to remove these sensitive areas, to the extent they deem such information immaterial to investors.


Continue Reading Recent SEC Comment Letter Reveals the Difference Between Prescriptive-Based and Principles-Based Rules