This is Part I of a two-part memorandum series outlining key considerations from White & Case’s Public Company Advisory Group for US public companies during the 2021 annual reporting and proxy season.
Part I of this memo describes our key considerations for Annual Reports on Form 10-Ks in two parts:
(1) Housekeeping Items for Form 10-Ks in 2021; and
(2) Top Nine Disclosure Considerations for the Form 10-K in 2021.
Part II of the series will describe key considerations for Annual Meeting Proxy Statements.
Considerations for Annual Reports on Form 10-K in 2021
Recent SEC rulemaking and other developments in 2020 have resulted in a number of changes to SEC filings, including your upcoming 10-K, as described below.
Housekeeping Items for Form 10-Ks in 2021
As a result of recent SEC rule changes, the following housekeeping items should be addressed for Form 10-Ks:
(1) Update 10-K Cover Page: First, make sure your Form 10-K cover page is updated to reflect the most recent change by adding the below language to the cover page. All US public companies will need to check this new 10-K cover page box—unless they do not provide an attestation report by their independent auditors on internal control over financial reporting because of their status as an emerging growth company or a non-accelerated filer.
"Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
This is the third year in a row in which changes have been made to the Form 10-K cover page. Given all of these changes, it is important to confirm that your Form 10-K cover page reflects all recent updates.
(2) Determine Your Filing Status: Second, confirm your filing status in order to complete your Form 10-K cover page. In particular, the SEC recently changed the definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 under the Exchange Act.
- As a result of this change, an issuer is not an "accelerated filer" if the issuer (i) is eligible to be a smaller reporting company ("SRC") and (ii) had revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available.
- However, an SRC with (i) a public float between $75 million and $250 million, and (ii) $100 million or more in annual revenues would still be an "accelerated filer" as well as an SRC in accordance with the June 2018 amendments to the definition of an SRC.
- The determination of a company’s filing status is crucial for determining the deadline for filing periodic reports for the fiscal year, among other requirements. See the SEC's compliance guide and information on filing deadlines.
(3) Check Exhibit Index: Companies should check their exhibit lists in light of recent changes to exhibit filing requirements in Item 601 of Regulation S-K. In particular, companies should ensure that they have reviewed and updated their exhibits in accordance with the 2019 changes to material exhibits as follows:
- Material Contracts No Longer Required If Fully Performed: For companies that are not "newly reporting registrants," Item 601(b)(10) now requires material contracts to be filed only if they are to be performed in whole or in part at or after the filing of the report. Accordingly, companies should review their exhibit index to check if any material contracts have been fully performed and can therefore be removed from the exhibit index as a result of this rule change.
- Schedules of New Exhibits.
- In General, May Omit Schedules from All Exhibits: Under paragraph (a)(5) of Item 601 of Regulation S-K, companies may now omit schedules and similar attachments to all exhibits, provided that: (i) the schedules/attachments do not contain material information; and (ii) the information in the schedules/attachments is not otherwise disclosed in the exhibit.
- Provide List of Omitted Schedules, If Required: Amended Item 601(a)(5) requires companies that omit schedules to provide a list briefly identifying the contents of all omitted schedules, but this list is not required if the filed exhibit already includes this list or otherwise conveys the subject matter of the omitted schedules.
- Remove Undertaking to Provide Omitted Schedules from Exhibit List. Under the SEC’s prior rule on exhibit schedules, companies were only permitted to omit schedules from plans of acquisitions under Item 601(b)(2) if they filed a list briefly identifying the contents of all omitted schedules together with an agreement to furnish to the SEC a copy of the omitted schedules upon request. However, under the amended rule, this "agreement "is no longer specifically required and therefore disclosure regarding such an agreement (often provided in a footnote to the exhibit list) should be removed. Nevertheless, note that the new rule still states that, "upon request," a company "must provide a copy of any omitted schedule to the Commission or its staff."
- Remove Personally Identifiable Information. In addition, Item 601(a)(6) of Regulation S-K explicitly allows a company to omit personally identifiable information from exhibits, such as bank account numbers, social security numbers, home addresses and similar information. Companies should take care to remove such personally identifiable information from their exhibits prior to their filing.
- Consider Recent Changes for Confidential Treatment Request Orders:
- Consider Confidential Treatment Requests for New Exhibits. As a reminder, pursuant to amendments adopted in 2019, companies are permitted to omit confidential information from material contracts without having to submit a formal confidential treatment request ("CTR"), so long as the redacted information: (i) is not material; and (ii) would likely cause competitive harm to the company if publicly disclosed. Companies should follow the procedures for redactions described in recent Staff guidance, which also notes that the Staff is selectively reviewing filings for compliance. As an alternative, companies can still use the traditional CTR process.
- Check for Expiring Confidential Treatment Request Orders. Prior to filing your 10-K, you should check if your company has any expiring confidential treatment orders on material agreements. Depending on the time period when the order was originally issued, there are different requirements to request a renewal of the order, as explained in SEC guidance issued in September 2020.
- Consider, if Applicable, the New Registered Debt Exhibit. Effective January 4, 2021, companies with registered debt securities that are guaranteed by related entities are required to file an Exhibit 22 under new Regulation S-K Item 601(b)(22) listing (i) each affiliate whose securities are pledged as collateral for the company’s debt securities; and (ii) the securities pledged.
(4) Electronic Signatures
- Consider Using Electronic Signatures. Under prior SEC rules, all individuals were required to manually sign a signature page or other authentication document (the "authentication document") before or at the time of an SEC filing that provided their typed signature. Effective December 4, 2020, amended Rule 302(b) of Regulation S-T gives such individuals the option to sign the authentication document with an electronic signature, instead of with a manual, wet-ink signature. Reporting companies will thus be able to file periodic and current reports and registration statements using authentication documents that have been signed electronically by appropriate parties, CEOs and CFOs will be able to electronically sign the authentication documents for certifications required to be filed with Forms 10-K and 10-Q, and filers of Schedules 13D/G and Section 16 reports (Forms 3, 4 and 5) will be able to do so as well. However, in order to use electronic signatures for authentication documents, companies must abide by the attestation requirement described below.
- If Using an Electronic Signature, Remember the Attestation Requirement. Before a signatory initially uses an electronic signature to sign an authentication document for an SEC filing, the signatory must have manually signed a blanket attestation stating that the use of an electronic signature will, for all future SEC filings, constitute the legal equivalent of the individual’s manual signature for authentication purposes. See Appendix A for a Sample Attestation. An electronic filer must retain this manually signed attestation for as long as the signatory may use an electronic signature to sign an SEC filing (and in any case, at least seven years after the date of the most recent electronically signed SEC filing) and furnish a copy of the manual signature to the SEC upon request.
- If Using Electronic Signatures, Establish Required Signing Process. In addition, companies using electronic signatures must abide by new processes established by the SEC. In particular, the signing process for electronic signatures is now set forth in the EDGAR Filing Manual and requires a number of steps, including that the signatory "present a physical, logical or digital credential that authenticates the signatory’s individual identity" and that the electronic signature "include a timestamp to record the date and time of the signature."