NOVEMBER 2, 2006



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The SEC’s Compensation Disclosure Reforms: 8-K Disclosure Requirements

On July 26, 2006, in response to calls for extensive reform of the disclosure rules governing compensation of executive officers of public companies, the Securities and Exchange Commission (SEC) voted to adopt comprehensive changes to the rules requiring disclosure in proxy statements and registration statements of executive and director compensation and other corporate governance matters.1 In this release, the SEC also modified the requirements for disclosing executive and director compensation arrangements in Current Reports on Form 8-K. Companies must comply with the revised disclosure requirements in their Forms 8-K for triggering events that occur on or after November 7, 2006.

This Client Advisory provides a brief summary of the amendments to Form 8-K and practical guidance for complying with the new disclosure requirements.


The last major set of amendments to the Form 8-K, adopted in 2004, require disclosure under Item 1.01 regarding a company’s entry into a material definitive agreement outside of the ordinary course of the company’s business, as well as any material amendment to such an agreement. In order to help companies determine in real-time what agreements and amendments are required to be reported under Item 1.01 within the four business day deadline for filing the Form 8-K, the SEC incorporated into Item 1.01, as a bright line test for materiality, the standards that are set forth in Item 601(b)(10) of Regulation S-K, which is the provision governing the filing of material agreements as exhibits to registration statements, Form 10-Ks and Form 10-Qs. Item 601(b)(10)(iii) requires disclosure of any compensatory arrangement with a named executive officer or director, as well as disclosure of compensatory arrangements with other executive officers unless the arrangement is “immaterial in amount or significance.” As you are probably aware, these 2004 amendments have resulted in a significant increase in Form 8-K filings under Item 1.01 regarding executive and director compensation, making it difficult for investors to focus on the truly material events that need to be disclosed in real time.

In an effort to restore a more balanced approach, which is designed to elicit on a real-time basis only that information regarding compensation which is unquestionably and presumptively material, and which seeks to limit the number of executive and director compensation disclosures that companies have been filing under Item 1.01 of Form 8-K, the SEC adopted the new disclosure requirements described in this Client Advisory, effective November 7, 2006.

The New Requirements

Items 1.01 and 1.02

Item 1.01 and Item 1.02 of Form 8-K will no longer apply to compensation arrangements, and the Form 8-K will no longer reference Item 601(b)(10)(iii) of Regulation S-K in connection with the determination of the filing requirements for executive and director compensation arrangements on Form 8-K. Such arrangements will now be reported under Item 5.02 of Form 8-K, as amended. However, no change is being made to Item 601(b)(10)(iii) of Regulation S-K, which will still govern exhibit filings for registration statements, Forms 10-K and Forms 10-Q.

Item 5.02

Item 5.02 of Form 8-K, which currently requires disclosure of departures, elections and appointments of directors and certain officers, will be expanded as follows:

  • Item 5.02(b). This item, requiring disclosure of the retirement, resignation or termination of employment of certain officers, is being expanded to include additional individuals as to which such disclosure will need to be provided. In addition to the officers currently enumerated in this Item, this Item will also apply to all named executive officers as set forth in a company’s most recent filing disclosing the summary compensation table.
  • Item 5.02(c)(3) and (d)(5). Disclosure in connection with the appointment of an officer enumerated in Item 5.02(c) or appointment or election of a director (unless by vote of the stockholders at a meeting convened for that purpose) will be expanded to require a brief description of (i) any material plan, contract or arrangement (whether or not written), involving such person; (ii) any material amendment of a material plan, contract or arrangement with such person; and (iii) any grant or award to such person, or modification thereto, under any such plan, contract or arrangement. Plans, contracts or arrangements (but not material amendments or grants or awards or modifications thereto) may be identified by reference to the description in the company’s most recent Annual Report on Form 10-K or proxy statement.
  • Item 5.02(e). This new subpart of Item 5.02 requires a brief description of (i) any material new compensatory plan, contract or arrangement, (ii) any material grant or award thereunder (whether or not written), and (iii) any material amendment to any compensatory plan, contract or arrangement, or any material modification to a grant or award thereunder, involving the company’s principal executive officer, principal financial officer or other named executive officers. The amounts payable to these officers are also required to be disclosed. Pursuant to Instruction 2 of Item 5.02(e), grants, awards and modifications, whether in cash or equity, need not be disclosed if they are consistent with the terms of previously disclosed plans or arrangements and the grants, awards or modifications are disclosed when required under Item 402 of Regulation S-K. This disclosure would most likely be made in a company’s next proxy statement.
  • Item 5.02(f). This new subpart of Item 5.02 requires disclosure of information as to the payment or determination of salaries or bonuses to named executive officers that was not available, but would have been required to be disclosed, when compensation disclosures under Item 402 of Regulation S-K were last required to be filed by the company, such as in the company’s latest proxy statement. When providing such disclosure, companies must also include a recalculated “total compensation” column to reflect the new salary and/or bonus information.

For each of these disclosure items under amended Item 5.02, the SEC emphasized that companies need only provide a brief description of the event triggering the Form 8-K filing, not the full information necessary to comply with Item 402 of Regulation S-K. In addition, disclosure need not be provided about plans, contracts, or arrangements which are not discriminatory in scope, terms or operation in favor of executive officers or directors and that are available generally to all salaried employees.

Extension of Limited Safe Harbor under Section 10(b),
Rule 10b-5, and Form S-3 to Disclosures Required
under Item 5.02(e) of Form 8-K

In adopting the amendments to Form 8-K in 2004, the SEC provided a limited safe harbor from general antifraud liability under Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder for a company’s failure to timely file reports required by Form 8-K Items 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a) and 6.03. The safe harbor applies until the filing date of the company’s quarterly or annual report for the period in question. The SEC has now amended Exchange Act Rules 13a-11(c) and 15d-11(c) to extend this safe harbor to a company’s failure to make timely disclosure required under Item 5.02(e) of material new compensatory plans, awards or amendments. In addition, the extension of this safe harbor continues the current protection against loss of Form S-3 eligibility for companies whose untimely filings fall within the safe harbor.

Ability to Omit Item 1.01 Caption—General Instruction D
to Form 8-K

In order to avoid potential non-compliance due to the inadvertent exclusion of an Item 1.01 caption, the SEC has amended General Instruction D to Form 8-K to permit companies to omit the Item 1.01 heading in a Form 8-K that also discloses any other item, so long as all of the substantive disclosure required by Item 1.01 is included in the Form 8-K and the number and caption of the other applicable items are provided. This does not permit companies to omit other Form 8-K captions if the Item 1.01 caption is included.

Foreign Private Issuers

The SEC has amended the exhibit instructions to Form 20-F to provide that foreign private issuers will be required to file employment agreements or compensatory plans with management or directors only if the foreign private issuer is required to file the plan publicly in its home country or has otherwise publicly disclosed the plan.

Practical Guidance

In connection with the revisions to the Form 8-K rules, companies should take note of the following:

  • Disclosure controls and procedures should be revised to address the amended Form 8-K rules, including making sure that the appropriate persons are aware of the expanded group of individuals for whom a Form 8-K filing will be required upon their resignation or termination from the company. Failure to file timely a required Form 8-K regarding a resignation or termination will cause a company to lose its S-3 eligibility for twelve months.
  • In connection with disclosing the appointment of an officer or director under Item 5.02(c) and (d), all grants and awards will also need to be disclosed without regard to their materiality. However, grants or awards under Item 5.02(e) will only be required to be disclosed if they are material and have not been granted pursuant to plans and forms of agreements previously disclosed by a company.
  • Companies will now need to determine, on a case-by-case basis, whether salary increases and bonus payments to the principal executive officer, principal financial officer and named executive officers are material agreements requiring disclosure under Item 5.02(e).
  • Payments to the principal executive officer, principal financial officer and named executive officers that are consistent with the terms of cash and equity plans that have been previously disclosed will not require disclosure under Item 5.02(e).
  • Form 8-K disclosure of director compensation will now only be required in connection with a director’s termination or retirement or a director’s appointment or election other than at a scheduled stockholder meeting.


1 The text of the new rules is available here.

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Please contact the Mintz Levin attorney who handles your corporate and securities law matters if you have any questions
or comments on this information.