Disclosure Considerations for Entering Into a Material Agreement

When a company enters into a significant new contract or amends or terminates an existing contract, disclosure considerations may arise under both SEC (U.S. Securities and Exchange Commission) Form 8-K and Regulation S-K. In particular, Item 1.01 of Form 8-K and Item 601(b)(10) of Regulation S-K require companies to evaluate whether an agreement constitutes a material definitive agreement that must be disclosed or filed. These provisions generally apply to material definitive agreements that are not entered into in the ordinary course of business, as well as material amendments to those agreements.

The analysis is highly fact-specific and often depends on both quantitative and qualitative considerations, including the importance of the agreement to the company’s business, operations, strategy, or financial condition. Companies should also consider whether portions of the agreement may qualify for redaction or confidential treatment.

What Is a Material Definitive Agreement That Must Be Filed?

Item 601(b)(10) of Regulation S-K generally requires companies to file material contracts that are not made in the ordinary course of business. Item 601(b)(10)(ii) also identifies certain categories of agreements that are deemed to be outside the ordinary course of business and should generally be filed unless they are immaterial in amount or significance, including:

• Contracts with directors, officers, promoters, voting trustees, security holders named in the registration statement or report, or underwriters, other than contracts involving only the purchase or sale of current assets having a determinable market price, at such market price.
• Contracts upon which the company's business is substantially dependent, such as continuing contracts to sell the major part of its products or services or to purchase the major part of its requirements.
• Contracts calling for the acquisition or sale of property, plant, or equipment for consideration exceeding 15% of the company's consolidated fixed assets.
• Material leases under which a part of the property described in the registration statement or report is held by the company.

The Item 1.01 Form 8-K framework generally tracks these principles when evaluating whether an agreement constitutes a material definitive agreement requiring disclosure. However, compensatory plans, contracts, and arrangements involving directors and executive officers, as well as equity compensation plans and arrangements, are generally analyzed under Item 5.02 Form 8-K disclosure requirements.

For other contracts, such as sales contracts, acquisition agreements, joint venture, or partnership agreements, materiality determinations are highly fact-specific and depend on the surrounding facts and circumstances. Companies typically evaluate whether a reasonable investor would consider the agreement important when making an investment or a voting decision.

When Must the Disclosure Occur?

An Item 1.01 Form 8-K must be filed within four business days after entry into the material definitive agreement or material amendment.

Tencourages companies to file the exhibit with the Form 8-K when feasible, particularly when no confidential treatment is requested. However, the SEC did not make the exhibit filing a requirement. If not filed with the Form 8-K, the material definitive agreement should be filed with the periodic report that covers the period in which the agreement was executed or becomes effective.

What Must Be Disclosed?

Companies are required to disclose

• the date the agreement was entered into or amended;
• the identity of the parties to the agreement or amendment;
• a brief description of any material relationship between the company or its affiliates and any of the parties; and
• a summary of the material terms and conditions of the agreement or amendment.

Even if the company files the agreement as an exhibit, it must still summarize its material terms in the body of the Form 8-K.

The Form 8-K also must include all other material information necessary to make the required disclosure — in light of the circumstances under which it is made — not misleading.

Practical Checklist

Companies evaluating the disclosure obligations associated with the entry into a material definitive agreement should consider the following questions:

• Is the agreement outside the ordinary course of business under Item 601(b)(10) of Regulation S-K?
• Could the agreement reasonably be viewed as material to investors?
• Does the agreement involve a significant customer, supplier, strategic partner, or financing source?
• Could the agreement materially affect the company’s operations, liquidity, strategy, or future results?
• Does the agreement include exclusivity provisions that could impact the company moving forward?
• Does the agreement relate to a significant acquisition, disposition, or shift in the company’s business?
• Does the agreement contain personal information that should be omitted from public filings?
• Does the agreement contain competitively sensitive information or confidential information that may be eligible for redaction?
• Is the counterparty aware of the need to disclose and file a copy of the agreement?
• Do the terms of the agreement restrict public disclosure?
• Could disclosure of the agreement trigger additional disclosure obligations under other Form 8-K items?