The SEC has adopted amendments to Form 8-K in response to the "real time issuer disclosure" mandate in Section 409 of the Sarbanes-Oxley Act of 2002. Amended Form 8-K is intended to provide investors with more and faster disclosure of important corporate events. The amendments
significantly increase the number of events reportable on Form 8-K;
- reorganize Form 8-K into topical categories;
- shorten the time for filing most items to four business days; and
- introduce a limited safe harbor from liability for failure to file for some required reports.
As adopted, amended Form 8-K reflects a number of changes from the SEC's June 2002 proposals in response to comments received.
This Update summarizes the key elements of the amendments to Form 8-K and offers some practical guidance.
New Form 8-K becomes effective on August 23, 2004.
Form 8-K Filing Deadline Now Four Business Days
Required current reports on Form 8-K must be filed within four business days of a triggering event. Regulation FD disclosures (under new Item 7.01), voluntary disclosures (under new Item 8.01) and certain exhibit filings are not subject to this deadline.
Form 8-K Items Reorganized and Expanded
The SEC reorganized Form 8-K's required reportable items into eight topical categories, added eight new items, partially transferred two items from Forms 10-Q and 10-K and expanded two pre-existing Form 8-K items.
- Section 1. Registrant's Business and Operations: Items 1.01-1.03
New Item 1.01-Entry Into a Material Definitive Agreement and New Item 1.02-Termination of a Material Definitive Agreement
Must Report Entry Into or Termination of Material Agreements. New Items 1.01 and 1.02 require companies to report entry into, or material amendment or early termination of, any "material" definitive agreement entered into other than in the ordinary course of business. The report filed when a company enters into a material agreement must describe the relevant date, the parties (and any other material relationship between the parties), and include a brief description of the material terms. The filing is required even though there may be conditions to enforceability, such as closing conditions. The report filed when a material agreement is terminated other than by expiration or performance must include similar information regarding the agreement, the material circumstances surrounding the termination and any material termination penalties incurred by the company. Disclosure may be required even if the material agreement was not previously disclosed (for example, if the material agreement was entered into prior to the effective date of amended Form 8-K).
Agreements Not Required as Exhibits to Form 8-K. Companies are encouraged, but not required, to file with the Form 8-K copies of material definitive agreements disclosed under Item 1.01. If not filed with the Form 8-K, the agreements must be filed as exhibits to the company's next periodic report or registration statement.
Integrated Compliance for Disclosure of Business Combinations. The filing of the Form 8-K may trigger a filing obligation under Securities Act Rule 165 (relating to business combinations) and Exchange Act Rule 14d-2(b) or Rule 14a-12 (relating to tender offers) by constituting the first "public announcement" of a transaction for purposes of those rules. To avoid duplicative filings, amended Form 8-K allows a company to check one or more boxes on the cover page to indicate that it is simultaneously satisfying its filing obligations under Rule 165, Rule 14d-2(b) and/or Rule 14a-12, provided that the Form 8-K contains all the information required by those rules.
Trap for the Unwary
No Material Misstatement or Omission. While the SEC withdrew its proposal that the effect of entering into, modifying or terminating a material agreement be described, any disclosure in a Form 8-K report must include all material information necessary to make the information required to be disclosed, in light of the circumstances under which it is made, not misleading.
Item 1.03-Bankruptcy or Receivership (Former Item 3)
Item 1.03 retains the substantive requirements of former Item 3 of Form 8-K regarding a bankruptcy or receivership of a company or its parent.
- Section 2. Financial Information: Items 2.01-2.06
Item 2.01-Completion of Acquisition or Disposition of Assets (Former Item 2)
Item 2.01 retains the substantive requirements of former Item 2 of Form 8-K regarding disclosure of an acquisition or disposition of a significant amount of assets, other than in the ordinary course of business.
Asset Purchase or Sale May Require Two Filings. An acquisition or disposition of assets disclosed under Item 2.01 would likely also require disclosure as a material agreement under Item 1.01. A company would report entry into a material agreement to acquire or dispose of assets under Item 1.01, and then later, if required, disclose the closing of the transaction under Item 2.01.
Item 2.02-Results of Operations and Financial Condition (Former Item 12)
Item 2.02 is substantively identical to former Item 12 of Form 8-K regarding public announcements or releases of material nonpublic information regarding a company's results of operations or financial condition for a completed period.
New Item 2.03-Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant and New Item 2.04-Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement
These two new items require disclosure concerning the incurrence of a direct financial obligation or an off-balance sheet obligation for which a company becomes directly or contingently liable and any acceleration of or increase in the obligation.
Direct Financial Obligations. If a company becomes obligated under a direct financial obligation (other than a security registered under the Securities Act of 1933) that is material, it must describe the material terms of the transaction or agreement creating the obligation, including the date it became obligated, the amount and payment terms of the obligation, any acceleration provisions and, if applicable, any provisions that would enable the company to recover from third parties.
Off-Balance Sheet Obligations. If a company becomes directly or contingently liable for an obligation that is material to it arising out of an off-balance sheet arrangement (as defined in Item 303(a)(4)(ii) of Regulation S-K), it must disclose similar information to that required for a direct financial obligation and, in addition, must disclose how the obligation could become a direct obligation, be accelerated or increased, and the maximum potential amount of future payments (undiscounted) that the company may be required to make, if different from the payment terms disclosed. In the event of an increase or acceleration, the report must include any material cross default implications.
Definition of Direct Financial Obligation. A "direct financial obligation" is a long-term debt obligation, a capital lease obligation, an operating lease obligation (all as defined in Item 303(a)(5)(ii) of Regulation S-K), or a short-term debt obligation that arises other than in the ordinary course of business.
Must Disclose Obligations From Multiple Transactions at Initiation and as Obligations Arise. If a company enters into an arrangement that creates or may give rise to direct financial obligations in connection with multiple transactions, the company must disclose the entering into of the arrangement, and disclose its material obligations as they arise or are created (including when a series of previously undisclosed individually immaterial obligations become material in the aggregate).
New Item 2.05-Costs Associated with Exit or Disposal Activities
Must Disclose Decision to Initiate Exit Activities. If a company commits to an exit or disposal plan, or otherwise disposes of a long-lived asset or terminates employees under a plan that will result in material charges under GAAP, the company must file a report to describe the course of action, and the facts leading to it, and identify the date the company committed to the course of action and the expected completion date. In addition, the company must provide estimates for the major costs, individually and in the aggregate, as well as future cash expenditures. If the company cannot estimate these amounts when the Form 8-K is filed, the company must amend the report as soon as estimates are available.
New Item 2.06-Material Impairments
Must Disclose Decision to Recognize Material Impairment. If a company concludes that a material charge for impairment to one or more of its assets (including an impairment of securities or goodwill) is required under GAAP, the company must disclose the date of the conclusion, a description of the impaired asset, and the facts and circumstances leading to the conclusion that the charge for impairment is required. The company must also provide estimates of the amount or range of amounts of the impairment charge and future cash expenditures. If the company cannot estimate these amounts when the Form 8-K is filed, the company must amend the report as soon as estimates are available.
Form 8-K Not Required if Decision Is Made in Connection With Audit or Preparation of Financial Statements. No Form 8-K filing is required if the conclusion regarding the material charge is made in connection with the preparation, review or audit of financial statements at the end of a fiscal quarter or year and the conclusion is disclosed in the company's next periodic report.
- Section 3. Securities and Trading Markets: Items 3.01-3.03
New Item 3.01-Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing
Must Disclose Notice of Delisting, Failure to Meet Listing Standards and Transfer of Listing. A company must disclose receipt of any notice, public reprimand or similar communication from NYSE, Amex or Nasdaq (or any other exchange or national securities association) that the company or a class of its securities does not satisfy a rule or standard for continued listing on the exchange or the exchange has taken the necessary steps to delist the class of securities. A company must also disclose if the company has notified an exchange that the company does not satisfy a rule or standard for continued listing on the exchange. The Form 8-K must disclose the rule or standard at issue and what response the company has determined to take. In addition, a company must disclose any action by the company to delist or transfer the listing of its securities.
Exceptions to Disclosure Requirement. A company need not make this disclosure if the delisting results from payment or redemption (or call for redemption) of the class or conversion of the class into the right to receive cash, or if all rights pertaining to the class of securities have been extinguished.
New Item 3.02-Unregistered Sales of Equity Securities
Must Report Unregistered Sales of Equity Securities on Form 8-K. Item 3.02 requires disclosure regarding a company's sale of equity securities (previously required in quarterly and annual reports) if the sales are not registered under the Securities Act and the aggregate unreported sales constitute 1% or more (or in the case of a small business company, 5% or more) of the company's outstanding securities of that class.
Item 3.03-Material Modifications to Rights of Security Holders (Former Item 2 of Form 10-Q)
Must Report Material Modification to Rights of Shareholders. Item 3.03 requires a company to disclose material modifications to instruments defining the rights of the holders of any class of the company's registered securities, or a material adverse impact on these rights caused by the issuance or modification of any other class of securities, and to briefly describe the effect of the modifications.
- Section 4. Matters Related to Accountants and Financial Statements: Items 4.01-4.02
Item 4.01-Changes in Registrant's Certifying Accountant (Former Item 4)
Item 4.01 is substantively the same as former Item 4 of Form 8-K and requires disclosure concerning the resignation, dismissal or engagement of the company's independent accountant.
New Item 4.02-Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review
Must Report Non-Reliance on Financial Statements. If a company concludes that any of its previously issued financial statements no longer should be relied upon because of an error in the financial statements, the company must identify the financial statements and years or periods covered that should no longer be relied upon, disclose the date of the conclusion and describe the facts underlying the conclusion to the extent known to the company at the time of filing.
Must Also Disclose Non-Reliance on Audit Report or Interim Review. If a company's independent accountant advises 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, the company must identify the financial statements and years or periods covered that should no longer be relied upon and disclose when it was so advised or notified and describe the information provided by the accountant. The company must supply its disclosure to its accountant, request that the accountant furnish a letter addressed to the SEC stating whether it agrees with the disclosures and file the letter with the SEC no later than two business days after receipt.
Must Disclose Whether Disclosure Discussed With Independent Accountant. In either case, the company must also disclose whether the audit committee, the board of directors, or authorized officer or officers discussed with the independent accountant the matter disclosed in the report.
- Section 5. Corporate Governance and Management: Items 5.01-5.05
Item 5.01-Changes in Control of Registrant (Former Item 1)
Item 5.01 retains the substance of former Item 1 of Form 8-K, which requires a company to disclose a change in control of the company.
New Item 5.02-Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers (Former Item 6)
Item 5.02 significantly broadens the scope of former Item 6 of Form 8-K.
Must Disclose Any Resignation, Refusal to Stand for Reelection or Removal of a Director. If a director has resigned from, refuses to stand for reelection to or has been removed from a company's board of directors, the company must disclose the event and the date of the action. In addition, if the director's resignation or refusal is due to a disagreement with the company known to an executive officer, or the director has been removed for cause, the company must also disclose any committees on which the director served as of that date and a brief description of the circumstances representing the disagreement that management believes caused, in whole or in part, the director's resignation, refusal to stand for reelection or removal.
Must File Correspondence With Director. If the director furnishes the company with any written correspondence concerning the circumstances surrounding the resignation, refusal or removal arising out of a disagreement, the company must file the correspondence as an exhibit to the Form 8-K, and also
provide the director with a copy of the disclosures it is making no later than the day that the company files the disclosures with the SEC;
- provide the director with the opportunity to furnish a letter addressed to the company as promptly as possible stating whether the director agrees with the company's disclosures and, if not, stating in what respect the director does not agree; and
- file any letter it receives from the director with the SEC as an exhibit by amendment to the previously filed Form 8-K within two business days after receipt by the company.
Retirement, Resignation or Termination of Certain Officers. A company must disclose the retirement, resignation or termination of the company's principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer, or any person performing similar functions.
Appointment of an Executive Officer or Election of a New Director. If a company appoints a new executive officer to one of the positions for which termination must be disclosed, or elects a new director other than by a vote of shareholders at a meeting, the company must file a Form 8-K to disclose the person's name, position and the date of the appointment or election and information regarding certain related transactions between the person and the company. In addition, for an officer the company must include information regarding the officer's background and a brief description of the material terms of any employment agreement between the company and the officer. For a new director, the company must provide a brief description of any arrangement or understanding pursuant to which the new director was selected as a director and any committees to which the new director has been, or at the time of the disclosure is expected to be, named.
Some Information Not Known When Form 8-K Is Filed May Be Added Later. If the terms of an officer's employment agreement or information regarding board committees and related party transaction disclosure for a director is not known on the date the Form 8-K is filed, the company must file an amendment to disclose that information as soon as it is known.
Item 5.03-Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year (Former Item 8)
Must Report Amendment to Articles or Bylaws. A company must report any amendment to its articles of incorporation or bylaws not adopted by a shareholder vote pursuant to a previously filed proxy statement, state the effective date and describe, if applicable, the provision being amended.
Must Report Change in Fiscal Year. The requirements regarding disclosure of a change in fiscal year are substantively the same as those under former Item 8 of Form 8-K.
Item 5.04-Temporary Suspension of Trading Under Registrant's Employee Benefit Plans (Former Item 11)
Item 5.04 retains the substance of former Item 11 of Form 8-K, under which a company must report a pension fund blackout period.
Item 5.05-Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics
Item 5.05 requires disclosure of any substantive amendment to a company's Code of Ethics adopted to satisfy Item 406 of Regulation S-K and any waiver of the provisions of the Code of Ethics granted to the company's principal executive, financial or accounting officer or controller, or any person performing a similar function.
Limited Safe Harbor From Exchange Act Section 10(b) and Rule 10b-5 Liability
Safe Harbor for Seven Items of Form 8-K. Because several of the new Form 8-K disclosure items require management to quickly assess the materiality of an event or to determine whether a disclosure obligation has been triggered, the SEC adopted a new limited safe harbor from public and private claims under Exchange Act Section 10(b) and Rule 10b-5 for a failure to timely file a Form 8-K regarding the following seven items:
Item 1.01 Entry into a Material Definitive Agreement Item 1.02 Termination of a Material Definitive Agreement Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant Item 2.04 Triggering Events that Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement Item 2.05 Costs Associated with Exit or Disposal Activities Item 2.06 Material Impairments Item 4.02(a) Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review (in the case where a company makes the determination and does not receive notice from its accountant)
Some Other Items Not Subject to Section 10(b) and Rule 10b-5; Safe Harbor Will Not Affect Other Liability. The safe harbor does not cover Item 7.01 because that item is already covered by a safe harbor pursuant to Regulation FD and Item 8.01 because that item is designated for voluntary filings and does not, by itself, impose a duty to disclose for purposes of Section 10(b) and Rule 10b-5. Nor does it apply to material misstatements or omissions in a Form 8-K that is filed or affect the SEC's ability to enforce any of the Form 8-K filing requirements under Exchange Act Section 13(a) or 15(d).
Safe Harbor Ends on Due Date of Next Periodic Report. The new safe harbor extends only until the due date of the next periodic report for the relevant period in which the Form 8-K was not timely filed. Failure to disclose information required by the items of Form 8-K covered by the limited safe harbor in the next periodic report will subject the company to potential liability under Section 10(b) and Rule 10b-5.
Eligibility to Use Form S-3 and Rely on Rule 144
Failure to Timely File Items Subject to Safe Harbor Will Not Affect Form S-3 Eligibility. Companies that fail to file timely reports on Form 8-K required solely by the items for which the new limited safe harbor applies will not lose their eligibility to use Form S-3 (or Form S-2) registration statements as a result of those failures to file timely. However, a company must be current in its Form 8-K reports, and have filed the disclosure required by any of these Form 8-K items, on or before the date on which it files a Form S-3 (or Form S-2).
Failure to Timely File Items Not Subject to Safe Harbor Will Still Result in Loss of Form S-3 Eligibility for 12 Months. If a company fails to timely file a Form 8-K to disclose information required by any Form 8-K items not covered by the limited safe harbor, the company will not be eligible to use Form S-3 (or Form S-2) for the 12 months following the due date for that Form 8-K.
Rule 144 Remains Available Even If Company Fails to Timely File Form 8-K. A security holder can generally rely on Securities Act Rule 144 to resell a company's securities only if, among other things, current public information about the company is available. Shareholders may rely on Rule 144 to resell securities without regard to a failure by the company to timely file Form 8-K.
Integrate New Form 8-K Requirements With Existing Corporate Governance and Disclosure Control Mechanisms. To reduce the likelihood of late Form 8-K filings, evaluate disclosure controls and procedures to ensure that appropriate officers and/or managers are educated on the new disclosure requirements and that mechanisms are in place for such officers and/or managers to inform the appropriate individual (perhaps the company's general counsel) of the occurrence of a potentially reportable event.
General Clarifications and Conforming Amendments
The SEC's release adopting the final rules amending Form 8-K offered some helpful clarifications:
New Form 8-K Also Applies to Amendments Filed After August 23, 2004. A company amending a Form 8-K that it filed before August 23, 2004 must use the Form 8-K's new numbering system.
- Section 906 Certification of CEO and CFO Not Required for Form 8-K. The Department of Justice and the SEC have jointly concluded that Section 906 of the Sarbanes-Oxley Act, which requires certifications by each company's chief executive officer and chief financial officer in any report that contains financial statements, does not apply to Form 8-K.
- If Information Is "Furnished" on Form 8-K, Exhibits Related to That Information Are Also Deemed "Furnished." The SEC reaffirmed its existing position that if a report on Form 8-K contains disclosures under Item 2.02, Results of Operations and Financial Condition, or Item 7.01, Regulation FD Disclosure, whether or not the report contains disclosures regarding other items, all exhibits to a report on Form 8-K that relate to Item 2.02 or 7.01 will be deemed furnished, and not filed, unless the company specifies that the exhibits, or portions of exhibits, are intended to be deemed filed rather than furnished.
Trap for the Unwary
Board, Committee or Officer Decisions Can Trigger Filing Requirement Under Amended Form 8-K. Amended Form 8-K requires disclosure regarding matters such as exit activities, delisting of securities, recognizing a material impairment or change in opinion regarding reliance on previously issued financial statements that are triggered when the board, a committee or an officer makes a decision regarding these matters. Companies should educate Board members and officers about the new Form 8-K disclosure requirements that could be triggered by their decisions.
This Update is only intended to be a summary of the key provisions of the SEC final rules amending Form 8-K. You can find the full text of the SEC final rules amending Form 8-K at http://www.sec.gov/rules/final/33-8400.htm. You can find additional information regarding recent developments and recent laws, regulations and rule proposals of interest to public companies on our website.