As we discussed in this post, the SEC has amended Regulation S-T to allow electronic signatures in many filings.  In this post, we highlighted that this rule is effective as of December 4, 2020.

To use electronic signatures, companies must take some fairly straightforward steps.  First, the rule requires an initial “authentication document” to be signed the “traditional” way (i.e., with an original signature) and retained by the company.

Thanks to SEC Institute workshop leader Gary Brown and Charles Vaughn, Partners at Nelson Mullins Riley & Scarborough, you can find an example of an initial “authentication document” at the end of this post.  They also suggest the following guidance for the second step:

The platform used for electronic signatures must:

• require the signatory to present a physical, logical, or digital credential that authenticates the signatory’s individual identity;
• reasonably provide for non-repudiation of the signature;
• provide that the signature be attached, affixed, or otherwise logically associated with the signature page or document being signed; and
• includes a timestamp to record the date and time of the signature.

DocuSign is an example of a platform that meets these requirements.

Thanks again to Gary and Charles, and your thoughts and comments are welcome. 

[NAME OF COMPANY] 

Initial Electronic Signature Authentication Document

for Documents Filed with

the United States Securities and Exchange Commission

The undersigned is either (a) a member of the board of directors of [NAME OF COMPANY], a [State] corporation (the “Company”), or (b) an officer of the Company, or both, who will or may be called upon to sign, either on behalf of the Company or individually, documents that will be filed with the United States Securities and Exchange Commission (the “SEC”).  The undersigned is signing this Initial Electronic Signature Authentication (this “Authentication”) pursuant to rules adopted by the SEC to permit documents filed with the SEC to be signed via DocuSign or another similar electronic platform.

Background

Rule 302(b)(2) of SEC Regulation S-T requires that before an officer or director (a “signatory”) initially uses an electronic signature to sign a signature page or other document to be filed with the SEC, the signatory must manually sign a document (an “authentication document”) attesting that the signatory agrees that the use of an electronic signature in any authentication document constitutes the legal equivalent of such individual’s manual signature for purposes of authenticating the signature to any filing for which it is provided.  An electronic filer like the Company must (a) retain this manually signed document for as long as the signatory may use an electronic signature to sign an authentication document and for a minimum period of seven years after the date of the most recent electronically signed authentication document; and (b) furnish a copy of it upon request to the SEC or its staff.

Attestation and Agreement

In light of the foregoing, I hereby attest, acknowledge and agree that the use of my electronic signature in any authentication document constitutes the legal equivalent of my manual signature for purposes of authenticating the signature to any SEC filing for which it is provided.  I acknowledge that the Company will (a) retain this Authentication for as long as I may use an electronic signature to sign an authentication document and for a minimum period of seven years after the date of the most recent electronically signed authentication document; and (b) furnish a copy of this Authentication upon request to the SEC or its staff.

* * * * * * *

As we discussed in this post, the SEC adopted a Final Rule on November 17, 2020, providing a process to use electronic signatures in many filings.  That Final Rule was published in the Federal Register on December 4, 2020, and is effective as of that date.

As always, your thoughts and comments are welcome.

One of the more complex issues companies deal with when performing goodwill impairment tests is what to do when a company’s market capitalization is less than its book value.  Does this mean an impairment automatically exists?  Is it an indicator of impairment?  How should this be dealt with in the impairment analysis?

Here is an SEC comment that raised this question for ArcelorMittal, a steel company:

We note the company’s net book value significantly exceeds its market capitalization. We also note this trend has persisted for a considerable period of time and the degree to which net book value exceeds market capitalization has substantially increased. Given that declines in market capitalization may indicate potential asset impairments, please explain if and how this factor has impacted your asset impairment assessments. Please more fully explain and address the following:

Explain how you determine your cash generating units for impairment testing of property, plant and equipment;

Explain how you determine and assess the reasonableness of the useful lives of property, plant and equipment;

Explain how you determine your groups of cash generating units for impairment testing of goodwill;

Since recoverable amounts appear to exceed market capitalization, explain how you determine the material assumptions underlying your impairment analyses and how you determine each material assumption is reasonable and supportable; and

Explain how you assess the reasonableness of your fair value estimates, including if and how you reconcile your fair value estimates to your market capitalization.

ArcelorMittal is a foreign private issuer and prepares its financial statements in accordance with IFRS as adopted by the IASB.  While the goodwill impairment test in IFRS is a bit different from the test under US GAAP, the company’s response is an interesting and thorough analysis of this issue.

The company’s response is too lengthy to include in this post so here is a link to the response.

Not to provide spoilers, but the next letter in the process is the SEC’s closing letter.

Thanks to Alyson Clabaugh of Intelligize for spotting this example, and as always, your thoughts and comments are welcome!

As we discussed in this post, on November 17, 2020, the SEC adopted a Final Rule — ­­­­­­­ “Electronic Signatures in Regulation S-T Rule 302.”

The Final Rule will not be effective until it is published in the Federal Register.  However, on November 20, 2020, CorpFin announced, “the staff will not recommend the Commission take enforcement action with respect to the requirements of Rule 302(b) in advance of such time provided that a signatory complies with all of the requirements of amended Rule 302(b).”

As always, your thoughts and comments are welcome!

On November 18, 2020, CorpFin updated several areas in the FRM for recent changes made by the SEC, FASB and PCAOB.  There are some areas where updates are still in process.

The current update addresses:

• New Smaller Reporting Company definition
• Accelerated and Large Accelerated Filer definitions
• Audit requirements for SPACs
• Various SEC disclosure simplification and modernization rules
• Various updates and changes related to FASB and PCAOB standards

Areas for future updates, including links to the related final rules, are:

Amendments to Financial Disclosures about Acquired and Disposed Businesses

Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities

Qualifications of Accountants (Auditor Independence Requirements)

These new rules contain early transition provisions.  If you have questions when dealing with one of them, CorpFin recommends contacting the staff identified in each Final Rule.

As always, your thoughts and comments are welcome!

In response to a reader comment about our recent posts delving into the SEC’s August 2020 modernization of business, risk factor and legal proceedings disclosures, this post explores the implications of these changes for smaller reporting companies or SRCs.

A review of the SRC definition and a list of SRC disclosure accommodations is included at the end of this post.  SRCs can use this system in an “à la carte” fashion, picking and choosing which disclosure accommodations they will use.

The impact of the SEC’s August 2020 Final Rule on SRCs is essentially the same as non-SRCs, with the differences described below.

Description of  Business

Consistent with the changes for non-SRCs, the requirements for how many periods to present and hyperlinking were updated for SRCs.  Notably, the prescriptive and detailed business description requirements for SRCs in S-K Item 101(h) were not changed.  They are included at the end of this post.

Number of Periods to Present

The old version of S-K Item 101(h) contained this language:

A smaller reporting company, as defined by §229.10(f)(1), may satisfy its obligations under this Item by describing the development of its business during the last three years.

This is replaced by a more principles-based requirement:

In describing developments under paragraphs (h)(1) through (3), information should be provided for the period of time that is material to an understanding of the general development of the business.

One note in this regard – remember the instructions to Form 10-K Item 1 limit this requirement to the period from the beginning of the year of the report:

Item 1. Business. 

Furnish the information required by Item 101 of Regulation S-K (§ 229.101 of this chapter) except that the discussion of the development of the registrant’s business need only include developments since the beginning of the fiscal year for which this report is filed.

Hyperlinking

The new S-K Item 101(h) also has this language about hyperlinking, which is consistent with the changes made for non-SRCs:

Notwithstanding the provisions of § 230.411(b) or § 240.12b-23(a) of this chapter as applicable, a smaller reporting company may only forgo providing a full discussion of the general development of its business for a filing other than an initial registration statement if it provides an update to the general development of its business disclosing all of the material developments that have occurred since the most recent registration statement or report that includes a full discussion of the general development of its business. In addition, the smaller reporting company must incorporate by reference, and include one active hyperlink to one registration statement or report that includes, the full discussion of the general development of the registrant’s business

Risk Factors

The August 2020 changes to risk factor disclosure did not include any special provisions for SRCs.  As a result, SRCs are subject to the new requirement to provide a risk factor summary if their risk factor disclosures are over 15 pages long.  This requirement is now in S-K Item 105(b):

(b) Concisely explain how each risk affects the registrant or the securities being offered. If the discussion is longer than 15 pages, include in the forepart of the prospectus or annual report, as applicable, a series of concise, bulleted or numbered statements that is no more than two pages summarizing the principal factors that make an investment in the registrant or offering speculative or risky.

SRC’s do have a disclosure accommodation for risk factors that was not changed by the August 2020 Final Rule.  The Instructions to Form 10-K Item 1A provide that SRCs do not have to disclose risk factors:

Item 1A. Risk Factors.

Set forth, under the caption “Risk Factors,” where appropriate, the risk factors described in Item 105 of Regulation S-K (§ 229.105 of this chapter) applicable to the registrant. Provide any discussion of risk factors in plain English in accordance with Rule 421(d) of the Securities Act of 1933 (§230.421(d) of this chapter). Smaller reporting companies are not required to provide the information required by this item.

Legal Proceedings

There are no SRC legal proceedings disclosure accommodations.  All the disclosure changes described in this post apply to both SRCs and non-SRCs.

As always, your thoughts and comments are welcome!

Here, for ease of reference are:

• Definition of an SRC
• SRC disclosure accommodations
• S-K Item 101(h) description of business

Definition of an SRC

As a brief reminder, the definition of a small reporting company is in Regulation S-K Item 10(f):

(1) Definition of smaller reporting company. As used in this part, the term smaller reporting company means an issuer that is not an investment company, an asset-backed issuer (as defined in §229.1101), or a majority-owned subsidiary of a parent that is not a smaller reporting company and that:

(i) Had a public float of less than $250 million; or

(ii) Had annual revenues of less than $100 million and either:

(A) No public float; or

(B) A public float of less than $700 million.

This definition was adopted in this June 2018 Final Rule which increased the public float level from $75 million to $250 million and also added the provision that companies with less than $100 million in revenue and public float less than $700 million could use the SRC system.  This allowed tech and biotech companies that are in a “pre-revenue” stage to use the SRC reduced disclosure regimen.  In the final rule the SEC estimated that approximately 966 additional registrants would meet the new SRC definition.

SRC Disclosure Accommodations

You can find a list of the Regulation S-K disclosure accommodations for SRCs in S-K Item 10(f) and the financial statement requirements for SRCs in S-X Article 8.  SRC financial statements need only comply with US GAAP.  The additional requirements in Regulation S-X, with the exception of the auditor requirements in Article 2, do not apply to SRCs.

SRC Description of Business

The detailed requirements in S-K Item 101(h) for an SRC to address in the description of its business were not changed by the August 2020 Final Rule.  They include:

(1) Form and year of organization;

(2) Any bankruptcy, receivership or similar proceeding; and

(3) Any material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business.

(4) Business of the smaller reporting company. Briefly describe the business and include, to the extent material to an understanding of the smaller reporting company:

(i) Principal products or services and their markets;

(ii) Distribution methods of the products or services;

(iii) Status of any publicly announced new product or service;

(iv) Competitive business conditions and the smaller reporting company’s competitive position in the industry and methods of competition;

(v) Sources and availability of raw materials and the names of principal suppliers;

(vi) Dependence on one or a few major customers;

(vii) Patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts, including duration;

(viii) Need for any government approval of principal products or services. If government approval is necessary and the smaller reporting company has not yet received that approval, discuss the status of the approval within the government approval process;

(ix) Effect of existing or probable governmental regulations on the business;

(x) [Reserved]

(xi) Costs and effects of compliance with environmental laws (federal, state and local); and

(xii) Number of total employees and number of full-time employees.

On November 17, 2020, the SEC adopted a Final Rule  –  “Electronic Signatures in Regulation S-T Rule 302.”  As you can read in the accompanying Press Release, the SEC is modernizing its signature requirements to accept electronic signatures for many filings.

This change was, at least partially, in response to this rulemaking petition by a group of law firms representing hundreds of public companies.  The amendments “recognize the widespread use of electronic signatures and technological developments in the authentication and security of electronic signatures, as well as the continuing need to support remote workforces.”

The Final Rule makes changes to Regulation S-T and various forms for the Securities Act, Exchange Act and Investment Company Act.  Under the new rules, a signatory to an electronic filing who follows certain procedures will be able to use an electronic signature to sign a signature page or other “authentication document.”  The related procedures must meet specific requirements being added to the EDGAR Filer Manual.

The Final Rule will be effective when published in the Federal Register.

In a related change, the SEC is also amending its Rules of Practice to allow for filing and serving documents electronically.

As always, your thoughts and comments are welcome!

Financial accounting and SEC reporting involve more judgments, estimates and uncertainties every quarter and year-end.  Challenges such as making the principles-based judgments for disclosing disaggregated revenues under ASC 606, estimating the appropriate discount rates to use for lease accounting in ASC 842, and determining the necessity of an MD&A know-trend disclosure about an uncertainty, are inescapable.

One of the scariest “oh my” moments we have as SEC reporting professionals is when actual results differ materially from our estimates and judgments.

Unfortunately, in the realm of SEC reporting we are sometimes – perhaps all the time – aware that when we deal with these challenges we are subject to SEC scrutiny.  The SEC Enforcement Division’s leadership has emphasized that they are “incredibly focused” on company disclosures.  Sometimes we are concerned that we are “darned if we do and darned if we don’t” when making challenging decisions about judgments, estimates and uncertainties.

At an October 2020 securities enforcement conference, Enforcement Division Associate Director Melissa Hodgman discussed how the Division approaches situations where companies miss an estimate or judgment.  In her remarks, Associate Director Hodgman told the audience that the Division will not assume wrongdoing if a company misses an estimate or judgment in an uncertain situation.  She stated that the staff will “trust good faith estimates” and does not view this as a “gotcha” game when a company misses an estimate or judgment.  Instead, the Division will focus on process and documentation.  They will try to ascertain that we have made reasoned and good faith judgments using a consistently applied process.  The staff has also repeatedly emphasized the importance of robust and clear documentation about why we did what we did.

NOTE:  You may find of interest, PLI’s Insecurities Podcast episode 23, “A GAAP in Your Financial Reporting,” where hosts Chris Ekimoff and Kurt Wolfe further summarize and discuss her remarks.

These remarks are consistent with those of Chief Accountant Sagar Teotia who has said on a number of occasions that well-thought-out applications of principles will not be second guessed.  This is an excerpt from a speech by Mr. Teotia on June 23, 2020:

Significant Estimates and Judgments; Reasonable Judgments

 As we noted in our April 2020 statement, in connection with their financial reporting responsibilities, many companies have been required to make significant judgments and estimates to address a variety of accounting and financial reporting matters.  As those who engage with us well know, OCA has consistently not objected to well-reasoned judgments that entities have made, and we will continue to apply this perspective.   Companies should ensure that significant judgments and estimates are disclosed in a manner that is understandable and useful to investors, and that the resulting financial reporting reflects and is consistent with the company’s specific facts and circumstances.

What both the Enforcement Division and the Chief Accountant are telling us is that when we miss on a challenging estimate or judgment we may be questioned by the staff.  To put ourselves in the best position possible to answer the staff’s questions we must be able to show that we consistently followed a well-thought-out process with complete and robust documentation.

As always, your thoughts and comments are welcome.

This is the fourth in a series of blog posts delving into the practical aspects of implementing the Regulation S-K changes in the SEC’s August 26, 2020 Final Rule that modernizes and updates three disclosure areas in Regulation S-K:

Item 101 – Description of business

Item 103 – Legal proceedings

Item 105 – Risk factors

The Final Rule was published in the Federal Register on October 8, 2020 and is effective for filings made on or after November 9, 2020, regardless of the accounting period-end of the financial statements included in a filing.

This post focuses on the risk factor disclosures required by S-K Item 105.  You can read discussions of the description of business and legal proceedings disclosure changes in the first, second and third posts in this series.  The changes discussed in this post for risk factor disclosures are effective for 10-Q’s and 10-K’s filed on or after November 9, 2020.

The overall theme of all these changes is to make disclosure requirements less prescriptive and more principles based with a focus on information that is material.  It has been over 30 years since there were any significant changes in these disclosure requirements, and it would be fair to say that the world and businesses have changed a lot over these 30 years.  It makes sense that these disclosures could stand some “modernization.

The Final Rule makes a number of changes in risk factor disclosures:

1. In the first sentence of S-K Item 105 the word significant is changed to material.

Old version

Where appropriate, provide under the caption “Risk Factors” a discussion of the most significant factors that make an investment in the registrant or offering speculative or risky.

New version

Where appropriate, provide under the caption “Risk Factors” a discussion of the material factors that make an investment in the registrant or offering speculative or risky.

This change is consistent with the overall goal of disclosure modernization to make requirements more principles based and to focus on material information.

2. The disclosure reorganizes and slightly changes the details about presentation of risk factors.

Old version

This discussion must be concise and organized logically. ….. Explain how the risk affects the registrant or the securities being offered. Set forth each risk factor under a subcaption that adequately describes the risk.

New version

This discussion must be organized logically with relevant headings and each risk factor should be set forth under a subcaption that adequately describes the risk. …… Concisely explain how each risk affects the registrant or the securities being offered

3. The new disclosure requirements acknowledge that companies frequently present “generic” risk factors, and requires that they be disclosed at the end of the risk factor section and include a specific heading.

Old version

Do not present risks that could apply generically to any registrant or any offering.

New version

The presentation of risks that could apply generically to any registrant or any offering is discouraged, but to the extent generic risk factors are presented, disclose them at the end of the risk factor section under the caption “General Risk Factors.”

4. The new rule includes provisions for a “summary” if your risk factors are over 15 pages.

(b) Concisely explain how each risk affects the registrant or the securities being offered. If the discussion is longer than 15 pages, include in the forepart of the prospectus or annual report, as applicable, a series of concise, bulleted or numbered statements that is no more than two pages summarizing the principal factors that make an investment in the registrant or offering speculative or risky.

Here is an example of a risk factor summary from a KLA Corporation’s Form 10-Q for the quarter ended September 30, 2020:

ITEM 1A.    RISK FACTORS

A description of factors that could materially affect our business, financial condition or operating results is provided below.

Risk Factor Summary

The following summarizes the most material risks that make an investment in our securities risky or speculative. If any of the following risks occur or persist, our business, financial condition and results of operations could be materially harmed and the price of our common stock could significantly decline.

COVID-19 Pandemic Risks

• our supply chain may be disrupted, customer demand for our products may decline or customer purchases may be pushed out if the COVID-19 pandemic persists;
• we may not be able to meet customer demand and keep our workforce healthy if an outbreak should occur at one of our facilities and we are unable to contain it;
• we may be unable to provide service to our customers in a timely manner or at all if travel restrictions persist, common carrier routes are canceled or quarantines are imposed; and
• our facilities could be shut down for an extended period of time if an outbreak occurs in any of the jurisdictions where we manufacture our products.

General Commercial, Financial and Regulatory Risks

• laws, regulations or other orders may limit our ability to sell our products to certain customers or to provide service on products previously sold to those customers;
• we may be exposed to tariffs or similar trade impairments;
• international sales may expose us to longer payment cycles or collection difficulties;
• intellectual property disputes can be expensive and could result in an inability to sell our products in certain jurisdictions;
• we may be unable to attract or retain key personnel;
• reliance on third party service providers could result in disruptions if such third parties cannot perform services for us in a timely manner;
• cybersecurity incidents could result in the loss of valuable information or assets or subject us to costly litigation;
• we may face disruptions if we cannot access critical information in a timely manner due to system failures;
• we may fail to successfully integrate our acquisitions;
• natural disasters, acts of war or other catastrophic events could significantly disrupt our operations for lengthy periods of time;
• we may fail to successfully hedge our exposure to currency and interest rate fluctuations;
• we are subject to exposure from tax and regulatory compliance audits;
• economic, political or other conditions in the jurisdictions where we earn profits can impact the tax laws and taxes we pay in those jurisdictions, subsequently impacting our effective tax rate, cash flows and results of operations; and
• changes in accounting pronouncements and laws could have unforeseen effects.

Industry Risks

• we may not be able to keep pace with technological changes in the industries in which we operate;
• we have a highly concentrated customer base; and
• prevailing local and global economic conditions may negatively affect the purchasing decisions of our customers.

Business Model and Capital Structure

• we may not be able to maintain our technology advantage or protect our proprietary rights;
• we may not be able to compete with new products introduced by our competitors;
• we may not receive components necessary to build our products in a timely manner;
• we may fail to operate our business in a manner consistent with our business plan;
• we may not have sufficient financial resources to repay our indebtedness when it becomes due;
• we may fail to comply with the covenants in our revolving credit facility, which could impair our ability to borrow needed funds under the facility, or require us to repay it sooner than we planned;
• if our products fail to operate properly or contain defects or our customers are sued by third parties due to our products, we may be liable under indemnification provisions with our customers; and
• we may incur significant restructuring charges or other asset impairment charges or inventory write-offs.

For a more complete discussion of the material risks facing our business, see below.

As always, your thoughts and comments are welcome!

For your reference, here is the new language of S-K Item 105 risk factors with the changes bolded:

(a) Where appropriate, provide under the caption “Risk Factors” a discussion of the material factors that make an investment in the registrant or offering speculative or risky. This discussion must be organized logically with relevant headings and each risk factor should be set forth under a subcaption that adequately describes the risk. The presentation of risks that could apply generically to any registrant or any offering is discouraged, but to the extent generic risk factors are presented, disclose them at the end of the risk factor section under the caption “General Risk Factors.”

(b) Concisely explain how each risk affects the registrant or the securities being offered. If the discussion is longer than 15 pages, include in the forepart of the prospectus or annual report, as applicable, a series of concise, bulleted or numbered statements that is no more than two pages summarizing the principal factors that make an investment in the registrant or offering speculative or risky. If the risk factor discussion is included in a registration statement, it must immediately follow the summary section required by § 229.503 (Item 503 of Regulation S-K). If you do not include a summary section, the risk factor section must immediately follow the cover page of the prospectus or the pricing information section that immediately follows the cover page. Pricing information means price and price-related information that you may omit from the prospectus in an effective registration statement based on Rule 430A (§ 230.430A of this chapter). The registrant must furnish this information in plain English. See § 230.421(d) of Regulation C of this chapter.

This is the third in a series of blog posts delving into the practical aspects of implementing the Regulation S-K changes in the SEC’s August 26, 2020 Final Rule that modernizes and updates three disclosure areas in Regulation S-K:

Item 101 – Description of business

Item 103 – Legal proceedings

Item 105 – Risk factors

The Final Rule was published in the Federal Register on October 8, 2020 and is effective for filings made on or after November 9, 2020, regardless of the accounting period-end of the financial statements included in a filing.

This post focuses on the legal proceedings disclosures required by S-K Item 103.  You can review the firstand second posts in this series for information about the new disclosures for description of the business changes.  The changes discussed in this post are effective for 10-Q’s and 10-K’s filed on or after November 9, 2020.

The overall theme of all these changes is to modernize disclosure requirements and make them less prescriptive and more principles based with a focus on information that is material.  It has been over 30 years since there were any significant changes in these disclosure requirements, and it would be fair to say that the world and businesses have changed a lot over these 30 years.  It makes sense that these disclosures could stand some “modernization.”

The final rule made three relatively straightforward changes in legal proceedings disclosures:

First, the following language was added to the overall requirement to provide that information may be in other parts of a filing and hyperlinked or cross-referenced to the legal proceedings disclosure:

Information may be provided by hyperlink or cross-reference to legal proceedings disclosure elsewhere in the document, such as in Management’s Discussion & Analysis (MD&A), Risk Factors and notes to the financial statements.

Second, requirements that were formerly in the Instructions have been moved into the body of Item 103.  See bolded paragraphs (b) and (c) below.  Some wording was adjusted to fit this reorganization.

Third, in paragraph (c)(3) below, the threshold for disclosure of monetary sanctions where a governmental authority is a party to an environmental proceeding has been increased from $100,000 to $300,000.

Included below are the new text and old text of S-K Item 103 if you would like to review the details of these changes.  The changes described above are bolded in the new version.

As always, your thoughts and comments are welcome.

New Text of S-K Item 103

(Item 103) Legal proceedings.

(a) Describe briefly any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the registrant or any of its subsidiaries is a party or of which any of their property is the subject. Include the name of the court or agency in which the proceedings are pending, the date instituted, the principal parties thereto, a description of the factual basis alleged to underlie the proceedings and the relief sought. Include similar information as to any such proceedings known to be contemplated by governmental authorities.

Information may be provided by hyperlink or cross-reference to legal proceedings disclosure elsewhere in the document, such as in Management’s Discussion & Analysis (MD&A), Risk Factors and notes to the financial statements.

(b) No information need be given under this section for proceedings:

(1) That involve negligence or other claims or actions if the business ordinarily results in such claims or actions, unless the claim or action departs from the normal kind of such claims or actions; or

(2) That involve primarily a claim for damages if the amount involved, exclusive of interest and costs, does not exceed 10 percent of the current assets of the registrant and its subsidiaries on a consolidated basis. However, if any proceeding presents in large degree the same legal or factual issues as other proceedings pending or known to be contemplated, the amount involved in such other proceedings shall be included in computing such percentage.

(c) Notwithstanding paragraph (b) of this section, disclosure under this section shall include, but shall not be limited to:

(1) Any material bankruptcy, receivership, or similar proceeding with respect to the registrant or any of its significant subsidiaries;

(2) Any material proceedings to which any director, officer or affiliate of the registrant, any owner of record or beneficially of more than five percent of any class of voting securities of the registrant, or any associate of any such director, officer, affiliate of the registrant, or security holder is a party adverse to the registrant or any of its subsidiaries or has a material interest adverse to the registrant or any of its subsidiaries;

(3) Administrative or judicial proceedings (including proceedings which present in large degree the same issues) arising under any Federal, State, or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment. Such proceedings shall not be deemed “ordinary routine litigation incidental to the business” and shall be described if:

(i) Such proceeding is material to the business or financial condition of the registrant;

(ii) Such proceeding involves primarily a claim for damages, or involves potential monetary sanctions, capital expenditures, deferred charges or charges to income and the amount involved, exclusive of interest and costs, exceeds 10 percent of the current assets of the registrant and its subsidiaries on a consolidated basis; or

(iii) A governmental authority is a party to such proceeding and such proceeding involves potential monetary sanctions, unless the registrant reasonably believes that such proceeding will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less than $300,000 or, at the election of the registrant, such other threshold that (A) the registrant determines is reasonably designed to result in disclosure of any such proceeding that is material to the business or financial condition is disclosed, (B) the registrant discloses (including any change thereto) in each annual and quarterly report, and (C) does not exceed the lesser of $1 million or one percent of the current assets of the registrant and its subsidiaries on a consolidated basis; provided, however, that such proceedings that are similar in nature may be grouped and described generically.

Old Text of S-K Item 103

Describe briefly any material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the registrant or any of its subsidiaries is a party or of which any of their property is the subject. Include the name of the court or agency in which the proceedings are pending, the date instituted, the principal parties thereto, a description of the factual basis alleged to underlie the proceeding and the relief sought. Include similar information as to any such proceedings known to be contemplated by governmental authorities.

Instructions to Item 103: 1. If the business ordinarily results in actions for negligence or other claims, no such action or claim need be described unless it departs from the normal kind of such actions.

2. No information need be given with respect to any proceeding that involves primarily a claim for damages if the amount involved, exclusive of interest and costs, does not exceed 10 percent of the current assets of the registrant and its subsidiaries on a consolidated basis. However, if any proceeding presents in large degree the same legal and factual issues as other proceedings pending or known to be contemplated, the amount involved in such other proceedings shall be included in computing such percentage.
3. Notwithstanding Instructions 1 and 2, any material bankruptcy, receivership, or similar proceeding with respect to the registrant or any of its significant subsidiaries shall be described.
4. Any material proceedings to which any director, officer or affiliate of the registrant, any owner of record or beneficially of more than five percent of any class of voting securities of the registrant, or any associate of any such director, officer, affiliate of the registrant, or security holder is a party adverse to the registrant or any of its subsidiaries or has a material interest adverse to the registrant or any of its subsidiaries also shall be described.
5. Notwithstanding the foregoing, an administrative or judicial proceeding (including, for purposes of A and B of this Instruction, proceedings which present in large degree the same issues) arising under any Federal, State or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primary for the purpose of protecting the environment shall not be deemed “ordinary routine litigation incidental to the business” and shall be described if:
   1. Such proceeding is material to the business or financial condition of the registrant;
   2. Such proceeding involves primarily a claim for damages, or involves potential monetary sanctions, capital expenditures, deferred charges or charges to income and the amount involved, exclusive of interest and costs, exceeds 10 percent of the current assets of the registrant and its subsidiaries on a consolidated basis; or
   3. A governmental authority is a party to such proceeding and such proceeding involves potential monetary sanctions, unless the registrant reasonably believes that such proceeding will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less than $100,000; provided, however, that such proceedings which are similar in nature may be grouped and described generically.