Using Electronic Signatures

Over the last decade, electronic signatures have become ubiquitous.  As a society, we have become accustomed to the ease and convenience of clicking the “I Accept” button when a cell phone company updates its terms and conditions, typing our name into the signature block of an insurance contract or using a software program like DocuSign or Adobe Sign (formerly EchoSign) to sign an apartment lease. The proliferation of electronic signature practices has also impacted corporate law, and many companies now use software programs to execute corporate documents.  Every once in a while, the question is posed as to whether an electronic signature affects the enforceability of a document.  This article helps answer that question and offers issues for parties to consider before using electronic signatures. What is an Electronic Signature? The terms “digital signature” and “electronic signature” are often used interchangeably. Although a digital signature contains an electronic signature, they are not the same thing. An electronic signature can be accomplished with a click of the mouse or using a finger to trace a handwritten signature onto a document. A digital signature, on the other hand, contains encryption/decryption technology that contains a secure code linking the document with the identity of the signatory and helps to verify the authenticity of the signed record. The link is then permanently embedded into the document, allowing the user to see if someone has attempted to tamper with the signature. Electronic signatures, which do not have this secure coding, are essentially an image placed on a document of a signature. Therefore, it is important to clarify the type of security (or lack thereof)...

Regulation S-K Overhaul Moves One Step Closer

As mandated by the JOBS Act, the SEC has been reassessing its disclosure rules in an attempt to modernize and overhaul Regulation S-K.   In April, the SEC took the major step of publishing a concept release seeking the public’s view on potential changes it is considering. The concept release focuses on areas that are generally consistent with the SEC’s prior comments and reports (see this Doug’s Note), and validates that this initiative remains underway. Ultimately, the SEC aims to eliminate or amend any Reg. S-K disclosure requirements that are duplicative, overlapping, outdated or superseded. The concept release seeks comments from both investors and companies on: how certain disclosures are used in making investment and voting decisions and whether more, less or different information is needed; how it could revise its current requirements to enhance the information provided to investors; whether its current requirements appropriately balance costs and benefits of disclosure; how it could facilitate investors’ access to disclosure through the modernization of presentation, aggregation and dissemination methods; and the challenges of current SEC disclosure requirements and potential challenges that may result from possible changes to Reg. S-K requirements. The breadth of this undertaking is reminiscent of the SEC’s famous Aircraft Carrier Release from 1998, so named due to its massive size (nearly 600 pages) and the sweeping nature of its proposed amendments to Securities Act and Exchange Act rules and regulations. While that effort was substantially different from this current effort due to its focus on modernizing and clarifying an antiquated regulatory structure while improving investor protection, it is worth remembering that it ultimately collapsed under its own weight....

Is that Letter of Intent Binding?

Letters of intent, or term sheets (“LOIs”), are commonly used in M&A and other corporate transactions. However, when discussions between parties breakdown the question often arises, are any of the terms in the LOI enforceable?  A recent Delaware case, SIGA Technologies v. PharmAthene, which has twice been appealed to the Delaware Supreme Court, serves as an important reminder for parties to be intentional when they “agree to agree.” What is an LOI? An LOI typically summarizes the principal deal terms and oftentimes creates the framework from which parties work to reach a definitive agreement.  Parties may decide to execute an LOI for several reasons, including: an LOI may help each party better understand the other’s position on deal terms and structure, in some cases, an LOI may be submitted to regulatory agencies to initiate the approval process, and an LOI simply may be customary in the industry or the type of transaction. LOIs may include provisions regarding the structure of the transaction, the purchase price (including any earn-out component), a timeline for the transaction, key closing conditions, due diligence and access provisions, exclusivity, allocation of transaction expenses and confidentiality, among others. One of the key considerations in drafting and negotiating an LOI is to clearly identify which provisions are binding and which are non-binding.  Oftentimes, an LOI will include express provisions that identify the binding and non-binding provisions as such.  Other times, the binding nature of the terms of an LOI may be less clear. SIGA Technologies v. PharmAthene In SIGA Technologies, two biotech companies negotiated the terms of a license agreement term sheet (the “LATS”).  After negotiating the...

Sealing the Deal with Rep & Warranty Insurance

More and more parties to M&A transactions are utilizing representation and warranty insurance (“R&W insurance”) as a tool to reach agreement.  While R&W insurance has been around for many years, its popularity has soared recently, especially in middle market transactions valued between $20 million and $1 billion.  R&W insurance provides coverage for a breach of a representation or warranty that results in losses or an indemnification claim.  While it is available to both buyers and sellers, it is more often used by buyers. The increasing popularity is due to a number of factors, including the growth of the insurance market, which has developed better pricing for policies, expanded policy terms and features to better mirror traditional indemnification packages and established trust in the market regarding the insurers ability and willingness to administer and pay claims. Structure of R&W Insurance Policies Due to the nature of an R&W insurance policy and the developing insurance market, the terms of each R&W insurance policy are negotiated to suit the insured’s needs.  All policies are “claims-based”, meaning that the breach must occur, and the claim must be filed, during the term of the policy in order to be valid. Scope of a Policy As its name suggests, R&W insurance will only cover breaches of representations and warranties in the transaction agreement.  Generally, it does not provide coverage for breaches under the purchase price adjustment provisions, covenants or any provisions other than the representations and warranties.  A policy will typically cover all “operating” representations and warranties,¹ but the insured can also opt to insure only certain reps and warranties.  Most, if not all, policies...

Conflict Minerals Filings—Round Two

It’s that time of year again.  Form SD filings are due June 1st (May 31st falls on a Sunday).  For those who have been diligently working on your company’s annual report and proxy statement, it is time to turn your attention to conflict minerals and Form SD. A Review of Last Year’s Form SD Filings As everyone knows, last year was the first year that Form SDs were required to be filed by reporting companies that manufacture or contract to manufacture products if conflict minerals are necessary to those products’ functionality or production (see the most recent Doug’s Notes on this topic here, here and here). Though the 1,300 Form SDs filed last year were far fewer than the estimated 6,000, they nevertheless provide useful precedential guidance for this year. Now is a good time to review the Form SD filings of your peers. If you filed a Form SD, this allows you to compare your conclusions and disclosures with companies in your industry. Even if you didn’t file a Form SD last year, it is a good exercise to review what your peers had to say about the products they manufacture and their assessment of their supply chain. The SEC and other stakeholders do not expect perfection in the first couple of years, and they understand that disclosure will evolve and compliance processes will improve over time.  However, they do expect companies to communicate a plan for improvement and implement that plan over time. Stakeholders will want to see improvement in this year’s filing, which may require more effort than dusting off last year’s Form SD and changing...