March 19, 2004
On March 16, 2004, in response to what it said was the mandate of Section 409 of the Sarbanes-Oxley Act that registrants provide real-time disclosure of important corporate events, the Securities and Exchange Commission (SEC) released newly adopted amendments to Form 8-K. 1 The amendments increase the number of events that trigger the requirement to file a current report on Form 8-K by adding eight new items and transferring, in part, two items from the disclosures now required on Form 10-Q and Form 10-K. The amendments also expand disclosure requirements with respect to two existing Form 8-K items and reorganize all of the Form 8-K items into topical categories. Additionally, the amendments shorten the Form 8-K filing deadline, with respect to most items, to four business days. 2
New Disclosure Items
The eight new items are as follows:
1. Entry into a material definitive agreement not made in the ordinary course of business.A material definitive agreement "provides for obligations that are material to and enforceable against the registrant, or rights that are material to the registrant and enforceable by the registrant against one or more other parties to the agreement, in each case whether or not subject to conditions." A material amendment of an existing material definitive agreement, or an amendment that makes an existing non-reportable agreement a material definitive agreement, must also be reported. While the current requirement that such agreements must be filed with the registrant's next periodic report remains unchanged, the SEC encourages registrants to file them with the related Form 8-K when feasible and, in particular, when confidential treatment is not requested.
2. Termination of a material definitive agreement not made in the ordinary course of business.Only such terminations that are material to the registrant and that do not result from expiration of the agreement according to its terms or the completion by the parties of their obligations under the agreement are reportable. Disclosure is not required if the registrant believes in good faith that such a termination has not occurred, unless the registrant has received a termination notice pursuant to the terms of the agreement.
3. Creation of a material direct financial obligation or a material obligation under an off-balance sheet arrangement. This reporting requirement is triggered when the registrant enters into an agreement enforceable against it under which the obligation will arise. In the absence of such an agreement, the reporting obligation is triggered upon the closing of the transaction under which the obligation arises.
4. Triggering events that accelerate or increase a direct financial obligation or an obligation under an off-balance sheet arrangement. The event is reportable if its consequences are material to the registrant.
5. Material costs associated with exit or disposal activities. An action of the registrant's board, board committee or authorized officer or officers (if board action is not required) committing the registrant to (i) an exit or disposal plan; (ii) a disposition of a long-lived asset; or (iii) a related plan of employee termination is reportable if as a consequence the registrant will incur material charges under applicable generally accepted accounting principles.
6. Material impairments. Disclosure on Form 8-K is required when the registrant's board, board committee or authorized officer or officers (if board action is not required) determines that a material charge for impairment of one or more of its assets, including an impairment of securities or goodwill, is required under generally accepted accounting principles. Such disclosure is not required, however, if the conclusion is made in connection with the preparation of quarterly or year-end financial statements and the plan is disclosed in the registrant's periodic report for the applicable period.
7. Notice of delisting or failure to satisfy a continued listing rule or standard; transfer of listing. Generally, disclosure is required if the registrant (i) receives a notice from the national securities exchange or association on which any class of its common equity is listed with respect to a failure to meet applicable listing standards or the delisting of such securities; (ii) notifies the listing exchange or association that the registrant is aware of material noncompliance with applicable listing standards; (iii) is issued a public reprimand letter by the listing exchange or association with respect to listing standard violations; (iv) takes action to withdraw the listing of such securities; or (v) transfers the listing.
8. Non-reliance on previously issued financial statements or a related audit report or completed interim review (restatements). The registrant must report (i) a determination by its board, board committee or authorized officer or officers (if board action is not required) that any of its previously issued financial statements covering one or more years or interim periods should no longer be relied upon because of an error; or (ii) its receipt of notice from its independent accountant that disclosure should be made or action should be taken to prevent future reliance on a previously issued audit report or completed interim review related to previously issued financial statements.
Disclosure Items Transferred from Periodic Reports
Two added items are, in part, items of disclosure now required in periodic reports on Forms 10-Q and 10-K:
1. Unregistered sales of equity securities. This disclosure requirement is triggered when the company enters into an agreement enforceable against it for such a sale. In the absence of such an agreement, the requirement is triggered by the closing or settlement of the sale of the securities.
2. Material modifications to rights of security holders. Required disclosure includes working capital restrictions and other limitations on the payment of dividends.
Expanded Existing Disclosure Items
Two items reflect expanded Form 8-K reporting requirements:
1. Departure of directors or principal officer; election of directors; appointment of principal officers.Added reporting requirements include disclosure of (i) a director's resignation or refusal to stand for re-election because of a disagreement with the registrant that is known to an executive officer with respect to any matter relating to the registrant's operations, policies or practices 3 ; (ii) the removal for cause of a director; (iii) any written correspondence from the director concerning the circumstances surrounding the director's departure reportable under (i) and (ii) above, regardless of whether the director requests disclosure (such correspondence to be filed as an exhibit to Form 8-K); (iv) the retirement, resignation or termination of the registrant's principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer or any person performing similar functions; (v) the departure of a director other than in connection with a disagreement; (vi) the appointment of any of the officers listed in (iv) above; and (vii) the election of a director, other than at an annual meeting or special meeting called for that purpose.
2. Amendments to articles of incorporation or bylaws and change in fiscal year. A registrant with a class of equity securities registered under Section 12 of the Exchange Act must report any amendment to its articles of incorporation or bylaws that the registrant did not propose in a previously filed proxy statement or information statement. The registrant may elect to file only the text of the amendment as an exhibit to the Form 8-K, in which case the complete restated articles or bylaws must be filed as an exhibit to its next periodic report.
Accelerated Filing Deadline
Under the accelerated filing deadline, registrants must file Form 8-K with respect to most items within four business days of a triggering event. Exceptions include Regulation FD disclosures furnished or filed at the registrant's election on Form 8-K solely to meet Regulation FD requirements (the Regulation FD filing deadline applies). Additionally, the amendments prescribe alternative or optional filing deadlines for certain triggering events and exhibits.
Changes Related to Form 8-K Amendments
In connection with the adoption of the amendments to Form 8-K, the SEC provided certain limited protections from the effects of failure to make timely filings of Form 8-K reports. First, the SEC created a limited safe harbor under Exchange Act Section 10(b) and Rule 10b-5 for failure to make timely Form 8-K filings with respect to seven of the eight new items discussed above (excluded is the item dealing with delisting, failure to meet listing standards and transfer of listing). This safe harbor will not affect any of the registrant's other disclosure obligations and extends only until the due date of the company's periodic report for the relevant period. Additionally, the SEC revised the instructions to Form S-2 and Form S-3 to provide that failure to make timely Form 8-K filings with respect to the same seven items to which the limited safe harbor is applicable does not result in the loss of the registrant's eligibility to use these registration statements. Finally, the SEC amended Securities Act Rule 144 - relied upon by security holders for the resales of securities - to clarify that a registrant need not have filed all required Form 8-K reports during the 12-month period prior to a sale of securities pursuant to Rule 144 in order to meet the rule's "current public information" condition.
Effective Date
The effective date of the new Form 8-K amendments and related changes is August 23, 2004.
© 2004 By Thelen LLP. This article is published as an information service to clients and friends. Please recognize that the information is general in nature and must not be relied upon as legal advice.
The members of our Corporate Governance Group are following recent events carefully and have extensive experience in advising companies and their officers and directors as to how best to comply with the changing regulatory environment. We look forward to continue working with you and to assisting you in your efforts to comply with these new laws and regulations. Should you have any questions, please contact your Thelen partner or any member of our Corporate Governance Group.
We welcome your comments and suggestions.
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