SEC Accelerates and Expands Reporting of Significant Events on Form 8-K
On August 23, 2004, the new and expanded Form 8-K reporting adopted by the SEC in March 2004 became effective. The new Form 8-K requirements were enacted in response to the mandate in the Sarbanes-Oxley Act of 2002 for a "real time" disclosure system. The new requirements are a significant step in that direction.
Under the revised and expanded Form 8-K requirements, there are 18 mandatory disclosure items and two optional disclosure items. The new Form 8-K requirements also effect the following changes:
- all mandatory Form 8-K filings must be filed within four business days after the date of the event without the ability to extend the filing deadline pursuant to Rule 12b-25 under the Securities Exchange Act of 1934 (the "Exchange Act");
- the new form reconfigures the reporting items into a logical framework and includes a number of additional reporting events and expands disclosure required by certain pre-existing disclosure items; and
- creation of a safe harbor from Section 10(b) and Rule 10b-5 fraud liability and from the loss of eligibility to use short-form registration statements for the late filing of a Form 8 K for most of the new Form 8-K items (the exception being the new Form 8-K item relating to changes in exchange or SRO listings).
If an event is required to be disclosed under more than one item, multiple Form 8-K filings are not required, nor do different items in Form 8-K need to be duplicated; instead, one Form 8-K may reference all the relevant item numbers. The new Form 8-K requirements do not affect the disclosure provided by foreign private issuers on Form 6-K.
New Form 8-K Disclosure Events
Revised Form 8-K contains the following eight new disclosure items:
1. entry into (or amendment of) a material definitive agreement not made in the ordinary course of business (Item 1.01);
2. termination of a material definitive agreement not made in the ordinary course of business (Item 1.02);
3. creation of a material direct financial obligation or a material financial obligation under an off-balance sheet arrangement (Item 2.03);
4. triggering events that accelerate or increase a material direct financial obligation or a material obligation under an off-balance sheet arrangement (Item 2.04);
5. material costs associated with exit or disposal activities, including material write-offs or restructuring charges (Item 2.05);
6. any material impairment to a company's assets, including an impairment of securities (e.g. equity investments in troubled companies) or goodwill (Item 2.06);
7. (a) action taken by a company or a national securities exchange or inter-dealer quotation system (collectively "SROs"), to delist the company's securities; (b) the company's notification to the SRO or receipt of an SRO notice that the company is not in compliance with the SRO's listing standards; or (c) receipt of a public reprimand letter from an SRO respecting the company's failure to comply with the SRO's listing requirements (Item 3.01); and
8. (a) conclusion reached by management that the company's previously issued financial statements should not be relied upon due to an error in such financial statements, or (b) the company's receipt of a notice from its independent accountant that the independent accountant is withdrawing a previously issued audit report or informing the company that it may not rely on a previously issued audit report (Item 4.02).
Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers. In addition, Item 5.02 of revised Form 8-K expands the current Form 8-K disclosures relating to resignations of directors to include the following additional events:
- the election or appointment of new directors (other than at an annual meeting or special meeting of shareholders);
- the departure of any director for any reason;
- the resignation or termination of a company's principal executive officer, president, principal financial or accounting officer, principal operating officer or person performing a similar function to any such officers ("Senior Executive Officers"); and
- the appointment of any Senior Executive Officer.
Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. Item 5.03 of revised Form 8-K expands the current Form 8-K disclosure item regarding a change in a company's fiscal year to include any amendment to a company's articles of incorporation or bylaws that was not disclosed in a proxy or information statement filed by the company. The requirement to disclose amendments to articles of incorporation and bylaws only applies to companies with securities registered under Section 12 of the Exchange Act.
Items Accelerated from Quarterly and Annual Reports
Revised Form 8-K requires current disclosure of the following matters previously disclosed in annual or quarterly reports:
- Unregistered sales of certain equity securities. No Form 8-K filing will be required where unregistered sales since the most recent Form 8-K or quarterly report amount to less than 1% (5% for small business issuers) of the company's outstanding securities on a fully diluted basis. Transactions below the threshold will continue to be reportable in periodic reports (Item 3.02).
- Material modifications to rights of security holders. Requires disclosures formerly required in quarterly reports, including working capital and dividend restrictions and the general effect of such modifications. (Item 3.03).
Uniform Filing Deadline for Most Mandatory Items under New Form 8-K
Except for the optional matters currently disclosed under Item 5 of Form 8-K (events that a public company may voluntarily disclose), and Item 9 (Regulation FD disclosures), revised Form 8-K requires the filing of a Form 8-K within four business days of the date of the event prompting disclosure. For example, if a new CEO is appointed on a Tuesday, an Item 5.02(c) Form 8-K must be electronically filed with the SEC by 5:30 p.m. EST on the following Monday. The SEC did not amend Rule 12b-25 to provide for an extension of Form 8-K filing deadlines.
Effect of Untimely Form 8-K Filings on Short-Form Registration Statement Eligibility
In a significant change from the proposing release, the failure to timely file a Form 8-K under several of the new Form 8-K items will not result in a loss of short-form registration statement eligibility. The only exception to this relief is the new Form 8-K item relating to SRO listing requirements (Item 3.01 of Form 8-K). Failure to file timely a Form 8-K under the pre-existing mandatory items or under new item 3.01 will continue to result in the loss of short-form registration statement eligibility for up to 12 months.
Creation of a Form 8-K Safe Harbor from Liability for Late Filing
The new Form 8-K requirements create a safe harbor from liability under Section 10(b) and Rule 10b-5 of the Exchange Act for a company's failure to file under seven of the eight new Form 8-K disclosure items. These seven items are the same disclosure items that do not affect a company's short-form registration statement eligibility. The new safe harbor will not affect the SEC's ability to pursue enforcement actions under §13(a) or §15(d) of the Exchange Act.
Failure to File Form 8-Ks No Longer Affects Rule 144 Eligibility
The adopting release amends Rule 144's current public information requirements to permit holder of restricted or control securities to rely on Rule 144 to sell their securities even if the company has not yet filed a required Form 8 K.
The adopting release confirmed a previously announced position that Section 906 Certifications are not applicable to Form 8-K.
In the proposing release, the SEC staff characterized the additional disclosure items as "unquestionably significant events in the life of a public company." While most public companies already disclose these types of events, many have not disclosed these events on a current basis, instead waiting to provide disclosure in their next quarterly or annual reports. Many of the new Form 8-K items will require significant financial analyses and sensitive drafting decisions in a very a compressed period of time. Management, with the assistance of employees, outside auditors and legal counsel, will have to analyze the materiality of events on a more "real time" basis. Consequently, companies should review their disclosure controls and procedures and implement changes to ensure that the required information is disclosed in a timely and efficient manner.
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This article is for general information only and does not constitute legal advice. Please contact one of the attorneys named below if you have any questions regarding revised Form 8-K.
D. Scott Freed (410-347-8763); firstname.lastname@example.org
Frank S. Jones, Jr. (410-347-8707); email@example.com
Sonia Galindo (410-347-9416); firstname.lastname@example.org