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Like journalists chasing a hot story, in-house securities lawyers are learning how to spot important events affecting their companies and report them fast. That’s because the Securities and Exchange Commission (SEC) has just changed its Form 8-K financial reporting rule. Not only does the new regulation double the list of key events that must be disclosed, companies must now submit their reports in just four days. Previously, they had up to 15 days to file. Under the previous 8-K rule, 10 events can trigger a filing, including a change in control of the company or a significant change in a business’s assets. The new regulation, which went into effect late last month, lists 10 additional events that merit an 8-K report. For example, a company must tell the SEC about “material definitive agreements” that are made or terminated outside of the ordinary course of business, such as a major contract. A corporation must also file a report when it enters into “a direct financial obligation that is material to the company.” The changes were made to increase investor confidence and thwart misuse of insider information, the SEC said in comments made when it released the final 8-K rule. Worries over deadline The quicker deadline is what most worries in-house attorneys like Cary Klafter, vice president of legal and government affairs at Intel Corp. Klafter said that the semiconductor maker has revamped its internal reporting processes to “catch significant events in a timely manner.” He explained that Intel did “a sort of risk assessment” to pinpoint where events that trigger reporting might be most likely to occur. Based on that, Intel is doing extra training in its legal and finance departments on how to screen for material events. “It is better to catch too much in a screen than miss something,” Klafter said. Using a major contract as an example, he said, “We want to hear about it while it is still being negotiated,” in order to determine whether it is a material event. Though the SEC is requiring companies to disclose events faster than before, it could have been worse. The agency originally proposed that businesses file 8-K reports just two days after an event happened, but backed down in the face of considerable criticism. The SEC also dropped a proposal that companies disclose nonbinding agreements and letters of intent. In public comments filed with the agency, Intel and other companies argued that this would cause them competitive harm. “I think the commission did eliminate some of the more troublesome items,” said Stanley Keller, a partner at Palmer & Dodge in Boston. Keller headed an American Bar Association panel that responded to the 8-K revisions. Several businesses complained that the SEC’s initial 8-K proposals would have significantly increased the cost of filing. Michael Harring, associate general counsel at Deere & Co. in Moline, Ill., wrote in his comment letter that “a large number of individuals and groups (often including our external auditors and/or legal counsel) must review, comment on and approve the disclosure.” SEC: No undue burden But the SEC maintains that its changes, as finally approved, won’t create an undue burden. In releasing its final regulations, the agency said it had calculated that each public company filing an 8-K “will be subject to an added annual reporting burden of approximately 18.75 hours and an estimated annual average cost of $1,875 for disclosure assistance from outside counsel.” According to Keller, “People haven’t faced up to it yet-to this really entirely new disclosure system.” He said that the new reporting requirements will “affect how companies behave, how they make decisions and what processes they put in place to deal with information.” Keller recommends that in-house lawyers take two steps to adjust to the new 8-K requirements. First, he said, company executives should be led through dry runs on various disclosure events. Second, disclosure and internal control procedures should be revisited to make sure a process is in place to permit timely decisions. “Part of [adapting to the new requirements] is getting information filtering up from the field,” Keller said, “and part is having processes in place for making prompt judgments, including materiality judgments on what must be disclosed.”

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