What is the status of the SEC's June 17, 2002 8-K proposals? Have they been withdrawn? Overturned by the Sarbanes-Oxley Act of 2002?

This Update answers those questions and summarizes Perkins Coie's comment letter to the Securities and Exchange Commission (SEC).

The SEC proposed a series of changes to Form 8-K, which we discuss in detail in our July 1, 2002 Update. These changes, if adopted, will require reporting companies to disclose a number of additional events on Form 8-K, and will accelerate the filing deadline for Form 8-K.

After the SEC issued its proposed rules regarding Form 8-K, Congress passed the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley). Sarbanes-Oxley included in Section 409 a legislative mandate for "rapid and current" company disclosures. Section 409 requires reporting companies to publicly disclose, on a "rapid and current basis," material changes to financial condition or operations, as the SEC may require by rule.

The SEC has not yet approved final 8-K rules. But it seems unlikely that the SEC will narrow the scope of the 8-K proposal, in part because Sarbanes-Oxley Section 409 constitutes a Congressional endorsement of the intent of the 8-K proposals.

Despite Section 409's mandate, we have suggested to the SEC in a comment letter dated August 26^ththat the 8-K proposals go too far. We presented the following concerns to the SEC in that letter.

The Commission's proposed definition of a material "agreement" that would require prompt disclosure on Form 8-K is so broad that it encompasses documents (e.g., letters of intent) that by their terms are not intended to be binding. We proposed that disclosure of such "agreements" may result in premature disclosure of sensitive events and negotiations. This, in turn, would chill future negotiations, jeopardize underlying definitive agreements and lead to highly speculative and unwarranted price movements in the affected companies' securities;

The Commission's proposed definition of an event that triggers a financial obligation and would require prompt disclosure on Form 8-K is too broad and would capture even immaterial breaches that are not likely (because of intervening negotiations) ultimately to give rise to the creation or acceleration of a financial obligation. We proposed that the definition also lacks an objective standard (such as a creditor's delivery of notice) for determining when a "triggering event" has occurred. If promulgated as drafted, this definition would result in the premature disclosure of events, and potentially cause unnecessary and adverse effects on disclosing companies; and

An accelerated, two business-day filing deadline would reduce the quality and accuracy of disclosure, with the ultimate effect of misleading investors.

In our comment letter, we encouraged the Commission to:

Clarify that the proposed rule stops short of creating a duty to disclose contingent material agreements (or negotiations regarding material agreements) if the reporting company believes that disclosure would jeopardize completion of the underlying material transaction;

Revise the definition of "triggering event" that triggers a financial obligation so as to (i) eliminate the requirement to disclose events that are immaterial and therefore not reasonably likely to result in the creation or acceleration of a financial obligation and (ii) create an objective standard for determining when a triggering event has occurred; and

Extend the filing deadline for Form 8-K to five business days and bifurcate the filing deadline such that reporting companies are allowed to file exhibits and confidential treatment requests after the original Form 8-K filing deadline.

See Perkins Coie's comment letter, the 8-K proposals at www.sec.gov/rules/proposed/33-8106.htm, and the ABA's Committee on Federal Regulation of Securities and other comment letters at www.sec.gov/rules/proposed/s72202.shtml.

In light of Section 409 of Sarbanes-Oxley, many companies are considering the topics that the SEC addressed in the 8-K proposals to be at the least a good checklist deserving of special attention for use in considering disclosure. In some cases, it may make sense to make public disclosure of those topics by press release or on Form 8-K under heading Item 9 (Regulation FD Disclosure) or Item 5 (Other Events).