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SEC Official Addresses Questions About New 8-K Disclosure Items

Paula Dubberly, an associate director in the SEC's Division of Corporation Finance, reported at the Practising Law Institute's conference on securities regulation that the staff will soon issue an interpretive letter that addresses some of the questions that have arisen with respect to the amendments to Form 8-K that went into effect on August 23. The staff also plans to publish additional guidance in the form of responses to frequently asked questions to provide answers to questions about the new items that must be disclosed.

Dubberly reported that the most frequently filed of the new 8-K item numbers is Item 1.01 relating to material definitive agreements. The least frequently filed item number is 5.04 relating to suspensions of trading. In response to a series of questions posed by panelist John Bostelman, a partner in the New York office of Sullivan & Cromwell LLP, Dubberly advised that the 8-K filing requirements would include an event that occurs in a subsidiary but is material to the registrant. If a reportable event occurs within four days of the filing of Form 10-Q, the company could report the information in its 10-Q. The exceptions are Items 4.01 or 4.02, involving changes in the registrant's certifying accountant or the nonreliance on the previously issued financial reports, both of which must be reported on Form 8-K.

Dubberly noted that most of the questions the staff has received are compensation-related matters to be reported on Item 1.01. If an equity compensation plan covers a named executive and constitutes a material contract, it must be disclosed once the plan is approved. If shareholder approval is required, the 8-K must be filed within four days of the approval of the plan. An 8-K would be required to report an amendment to a contract with a named executive officer, or to report a new agreement with a newly hired CEO.

Any approved plan, if material, must be reported on Item 1.01, Dubberly advised. A plan that includes everyone would not be deemed a material contract. The approval of bonus targets for executives would have to be approved, although the target amounts may remain confidential if they would pose a competitive concern. If the targets are not met but the board decides to award a bonus anyway, that would have to be disclosed.

In connection with the resignation of an officer, once a definitive plan for the officer's departure is set, the information must be disclosed. Dubberly said that an officer's plan to depart is a triggering event whether it is conveyed formally or informally, and whether the departure is imminent or later. If a principal operating officer who is deemed a covered person is relieved of his or her duties and "farmed out" to another position, Dubberly said that would constitute a termination and would require a filing.

If an agreement is not considered material at the time it is signed, but it subsequently becomes extremely important, the agreement would have to be filed with the company's periodic report. If the agreement is amended, it would have to be reported on Form 8-K. An agreement that automatically expires after one year, but automatically renews on a year-to-year basis unless it is terminated, would not trigger an 8-K filing upon the automatic renewal. If a final termination date is set, it must be disclosed.

A registrant must file under Item 2.03 upon the signing of a credit agreement, not upon the first draw-down from the facility. Dubberly said the company would then look at whether the borrowings are significant before filing an 8-K, but should keep in mind that the borrowings may be cumulatively material, which would require a filing.

Dubberly said that a company would not have to report an exit activity under Item 2.05 which would result in the termination of employees, until after the employees are notified.

Additional coverage of the conference will appear in upcoming issues of SEC Today.