SEC Proposes New Rules

4.15.2002

On April 12, 2002, the SEC proposed new rules for:

• accelerated filing of Exchange Act quarterly and annual reports; and
• disclosure of certain management transactions.

Accelerated filings
The proposed rules would require that most companies file their quarterly financial reports on Form 10-Q with the SEC within 30 days of the end of the quarter and file their annual reports on Form 10-K within 60 days of the company's fiscal year end. Currently, quarterly reports and annual reports must be filed within 45 days from the end of the quarter and 90 days from the end of the fiscal year, respectively.

The shorter filing periods would only apply to companies with a public float of at least $75-million, that have been subject to the Exchange Act reporting requirements for at least 12 calendar months and that have filed at least one annual report.

The proposed rules would also require companies to disclose in their annual reports whether they provide access to their annual, quarterly and current reports on their websites. If a company does not provide website access to its reports, it would have to state the reasons why it does not provide such access. Company websites would have to allow access free of charge to the filings and the filings must be available on the same day as they are filed with the SEC.

Disclosure of Certain Management Transactions
The SEC is also proposing amendments to Form 8-K. Form 8-K is used by registrants to make current reports. The proposed amendments would add to the items required to be disclosed currently on Form 8-K. The proposed new disclosures would require companies to disclose:

• each director's and executive officer's transactions in company equity securities, including the acquisition and disposition of derivative securities, and the exercise, termination or settlement of derivative securities;
• each director's and executive officer's adoption, modification or termination of a contract, instruction or written plan for the purchase and sale of company equity securities intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1; and
• each loan of money to a director or executive officer made or guaranteed by the company or an affiliate of the company.

The proposed rules supplement but do not change the obligations of the directors and executives to file Forms 4 and 5; they do add an additional—and more current—reporting requirement for covered reporting companies. Under the proposed rules, filings related to transactions by officers or directors would be due within two business days if the amount involved is $100,000 or more. Reports on smaller transactions would be due on the second business day of the next week. But if transactions involve less than $10,000, reporting may be delayed until the director's or officer's total transactions exceed that amount.

The proposed amendments to Form 8-K are not as far reaching as those that the SEC described in a February press release. In that release, the SEC said that it was considering whether to require the disclosure of additional events on Form 8-K. The proposed additions included disclosure of: changes in rating agency decisions, waivers of corporate ethics and conduct rules, departures of executives, loss or gain of material customers, material changes in accounting policies and notice of the beginning and end of lock-out periods relating to employee stock-ownership plans. It remains to be seen whether or not the SEC will propose additional current disclosures on Form 8-K relating to any of these items.

You can find a copy of the proposed rules relating to:

• accelerated filings at http://www.sec.gov/rules/proposed/33-8089.htm
• Form 8-K disclosures at http://www.sec.gov/rules/proposed/33-8090.htm

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Our corporate securities practitioners are well-versed in these topics and would be glad to consult with you about the proposed rules or about any other disclosure issues. In addition, for over 25 years, our securities litigators have represented companies, Big Five accounting firms, and other defendants in some of the largest and most highly publicized accounting-related cases and SEC proceedings ever filed. As a result of this experience and our close relationship with the Big Five firms, we bring insight into best practices being employed by both issuers and accountants.

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