Securities Law Alert - Form 8-K Developments − Does an Increase

February 2005
Form 8-K Developments − Does an Increase
in Director Fees Trigger a Filing?
In November 2004 the staff of the Division of Corporation Finance at the Securities and Exchange Commission
(“SEC”) issued answers to some Frequently Asked Questions (“FAQs”) about the new Form 8-K requirements. The SEC
staff’s answers in the FAQs have resulted in some surprising developments.
Under Item 1.01 of the new 8-K rules that took effect in August 2004, a company must file a Form 8-K within four
business days of entering into a material definitive agreement not in the ordinary course of business, or a material
amendment to such an agreement. Under long-standing SEC regulations, the following are deemed to be material
contracts unless they apply generally and on a similar basis to all employees: (1) compensatory plans and contracts
covering directors and those executive officers whose compensation information must be disclosed in the proxy statement
tables (“Named Executive Officers”), (2) plans and contracts covering other executive officers (unless immaterial in amount
or significance), and (3) equity plans, contracts and arrangements covering any employee that have not been approved by
shareholders (unless immaterial in amount or significance).
Based on the FAQs and subsequent discussions, the staff is taking the following positions:
 Director Compensation
 Entering into any arrangements, whether in writing or oral, to pay directors annual retainer
fees and meeting fees triggers the filing of an 8-K under Item 1.01 and also requires that a
copy of a term sheet or other document evidencing the arrangement, or a description of the
arrangement if it is oral, be filed as an exhibit to the company’s next 10-Q or 10-K.
 If there is a material increase or change in the compensation to be paid to directors, the
increase or change will need to be reported in an 8-K and a copy or description of the change
or increase also will need to be filed as an exhibit to the next 10-Q or 10-K.
 Executive Compensation
 If a material change is made to the salary, bonus or entitlement to perquisites of a Named
Executive Officer or other executive officers whose existing contracts or arrangements were
required to be reported on a Form 10-Q or 10-K, the change will trigger an 8-K filing and the
filing of an exhibit with the next 10-Q or 10-K. Note: this applies even if the company only has
an oral, and not a written, agreement with the officer.
 With respect to the materiality of changes in executive compensation, the SEC has indicated
that the test should be whether a reasonable investor would consider the change to be
material, not whether the additional compensation is material in relation to an executive’s total
compensation package.
 Cash Bonuses
 If a company pays out bonuses and the bonus plan has not been filed previously or
information on the bonus criteria, if any, has not been reported previously, the payout of the
bonus triggers the filing of an 8-K and the actual payout amount will need to be disclosed. If
the bonus plan and criteria have been filed previously as an exhibit to a 10-K or 10-Q, the
payment of bonuses consistent with those plans and criteria will not need to be reported on an
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 Option Grants
 Grants of options or other awards do not trigger an 8-K filing if the company previously has
filed the plan and the form of option or award agreement for each form of award agreement
used under the plan, and no material modifications to the form of option or award agreement
are made in connection with the grants or awards.
Our recommendations:
 File written documents evidencing bonus plans (or if they are oral, descriptions) with your next 10-K or 10-Q,
including any criteria used to determine such bonuses, so that you will not have to file an 8-K when those
bonuses (assuming they are made in accordance with the specified criteria) are paid out. If a company
prefers not to describe the bonus plan criteria, an 8-K will need to be filed whenever material bonuses are
paid to executive officers.
 Make sure you have filed all option and other stock incentive plans and the forms of grant agreements for
such plans so that you will not need to file an 8-K when options, restricted stock, or other awards are made
under those plans that are consistent with the previously filed agreements.
 File an 8-K when you make annual increases in executive officer and director compensation, unless the
increases are clearly immaterial.
 File an 8-K whenever you enter into new employment agreements with your executive officers.
 File an 8-K when you make material amendments to bonus plans, option and other incentive plans and
employment agreements.
This Barnes & Thornburg LLP publication should not be construed as legal advice or legal opinion on any specific facts or
circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer
concerning your situation and any specific legal questions you may have or address any questions concerning the foregoing to:
Catherine L. Bridge
Stephen J. Dutton
Curt W. Hidde
Richard M. Leagre
Thomas M. Maxwell
David B. Millard
South Bend
Alan B. Feldbaum
Brian J. Lake
Brian A. Casey
John C. Smarrella
Fort Wayne
Daniel B. Starr
Washington, D.C.
Randolph J. Stayin
Eric R. Moy
Jan Neuenschwander
Julie A. Russell
Claudia V. Swhier
Steven W. Thornton
Andrea D. Unzicker
Larry D. Blust
David Edwards
J. Scott Troeger
Rand W. Nilsson
Grand Rapids
R. Paul Guerre
Kimberly L. Thomas
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