Reminder: New Form 8-K Requirements with Accelerated Filing Deadline Effective August 23, 2004
This alert highlights the changes which will require reporting companies to implement procedures that will enable them to comply with the new Items and the four-business-day filing deadline for all required disclosure Items.
On March 16, 2004, the SEC released final rules adopting several revisions to the Form 8-K under the Securities Exchange Act of 1934, as amended (the Exchange Act). These rules are scheduled to become effective on August 23, 2004.
The Form 8-K amendments, adopted by the SEC in response to the mandate set forth in Section 409 of the Sarbanes-Oxley Act of 2002, require “rapid and current” disclosure by public companies of material information pertaining to certain changes in a company’s financial condition or operations. The required Form 8-K disclosures must be made within four business days of the occurrence of a reportable event. No extensions of time are available.
The Form 8-K amendments add eight new disclosure Items to Form 8-K; transfer two disclosure Items to Form 8-K from Forms 10-Q and 10-K; expand the disclosures required under two current Form 8-K disclosure Items; modify a disclosure Item; and reorganize the sequence of Items on the Form itself. Where an event requires disclosure under more than one Form 8-K Item, neither multiple Form 8-K filings, or duplication of Form 8-K Items, is necessary. In such a case, a single Form 8-K, identifying all pertinent Item numbers, should be filed.
The content of these Form 8-K disclosures is presented in this chart:
Eight New Form 8-K Disclosures Items
- Item 1.01: Entry into a material non-ordinary course of business agreement or amendment
- Item 1.02: Termination of a material non-ordinary course of business agreement
- Item 2.03: Creation of a material direct financial obligation or a material obligation under an off-balance sheet arrangement
- Item 2.04: Occurrence of any event that accelerates or increases a material direct financial obligation or a material obligation under an off-balance sheet arrangement
- Item 2.05: Material costs associated with the adoption of an exit or disposal plan, disposal of long-lived assets or termination of employees under certain plans pursuant to which the company will incur material charges under GAAP
- Item 2.06: Material charge for impairment to a company’s assets, including impairment of securities or goodwill
- Item 3.01: Action taken by a company or a self-regulatory organization (SRO) to delist the company’s securities or failure to satisfy a continued listing rule or standard; notice by the company to the SRO of material noncompliance with a rule or continued listing standard; issuance of a public reprimand from the SRO disclosing the company’s violation of a rule or continued listing standard; or action by the company to withdraw, terminate or transfer the company’s listing
- Item 4.02: Determination by the company that its previously issued financial statements should no longer be relied upon because of errors in such statements, or receipt of notice or advice from the company’s independent public accountants that such accountants are withdrawing a previously issued audit report or notifying the company that such report may not be relied upon
Two Disclosure Items Transferred to Form 8-K from Forms 10-K and 10-Q
- Item 3.02: Unregistered sales of equity securities of the company
- Item 3.03: Material modifications to rights of holders of securities of the company
Expanded and Modified Form 8-K Disclosure Items
- Item 2.01: Completion of Acquisition or Disposition of Assets – Disclosure is no longer required regarding the nature of business in which acquired assets were used and whether the company acquiring assets intends to continue such use.
- Item 5.02(a): Departure of directors due to disagreement with company or for “cause” –The action necessary to trigger disclosure no longer is limited to the resignation of, or refusal to stand for re-election by, a director. If the triggering event occurs, the company must provide the required disclosure whether or not the director has requested public disclosure of the matter.
- Item 5.02(b): Departure of directors or principal officers of a company other than as a result of a disagreement or for “cause” – Item 5.02(b) contains language that expands the scope of persons as to which disclosure must be made (officers), but only if the departure is for a reason other than as a result of a disagreement with the company or for “cause.”
- Item 5.02(c): Appointment of certain new officers – This Item requires the same disclosures as required under Items 401(b), 401(d), 401(e) and 404(a) of Regulation S-K or, in the case of small business issuers, Items 401(a)(4), 401(a)(5), 401(c) and 404(a) of Regulation S-B.
- Item 5.02(d): Election of new director – This Item requires disclosure of the same information as required by Item 404(a) of Regulation S-K.
- Item 5.03: Amendment to the company’s Articles of Incorporation or By-Laws or a change in the fiscal year of the company – This Item has been limited to companies with a class of equity securities registered under Section 12 of the Exchange Act. The Form 8-K amendments added an instruction to this Item and Item 601 of Regulations S-K and S-B clarifying that if an amendment to the company’s Articles of Incorporation or By-Laws is reported on Form 8-K, the company need only file the text of the amendment as an exhibit. The amended Articles of Incorporation or By-Laws must be filed in the next periodic report.
Majority of Mandatory Disclosures Under New Form 8-K Must Meet New Accelerated Filing Deadline
Under the Form 8-K amendments, a Form 8-K must be filed within four business days of the date of the occurrence of an event prompting disclosure. This accelerated deadline applies to all Form 8-K disclosures, except for the optional disclosures under Item 7.01 covering Regulation FD disclosures and Item 8.01 “Other Events.” Former Rule 12b-25 was not amended to provide for an extension of Form 8-K filing deadlines.
Untimely Filing of Form 8-K Has Limited Effect on Short-Form Registration Statement Eligibility
Under Form 8-K, failure to timely file reports required under Items 1.01, 1.02, 2.03, 2.04, 2.05, 2.06 and 4.02(a) will not result in the loss of short-form registration statement eligibility. The timely Form 8-K filing must, however, be made before a company is permitted to file a Form S-2, S-3, or S-8 registration statement. Failure to timely file with respect to the other Items will result in a loss of Forms S-2 or S-3 eligibility for the 12 months following the Form 8-K due date.
Safe Harbor From Section 10(b) and Rule 10b-5 Liability for Late Filing
A limited safe harbor from public and private claims under Exchange Act Section 10(b) and Rule 10b-5 was adopted for a failure to file a Form 8-K report regarding any of the following Items:
- 1.01, Entry into a Material Definitive Agreement
- 1.02, Termination of a Material Definitive Agreement
- 2.03, Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
- 2.04, Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement
- 2.05, Costs Associated with Exit or Disposal Activities
- 2.06, Material Impairments
- 4.02(a), Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review
These are the same Items that do not affect Forms S-2 and S-3 eligibility. This safe harbor continues only until the company’s next quarterly or annual report. If an event occurs that requires the filing of a Form 8-K during one quarter, and the company fails to make the required timely disclosure on Form 8-K, the company must provide the prescribed 8-K disclosure in its Form 10-Q or 10-QSB filed for the quarter during which the event occurred. Failure to make disclosure in the periodic report subjects the company to potential Section 10(b) and Rule 10b-5 liability under section 13(a) or 15 (d). The safe harbor does not affect the SEC’s ability to enforce any Form 8-K filing requirements. Section 10(b) and Rule 10b-5 liability will still apply to material misstatements or omissions.
With the exception of Item 2.02 (Results of Operations and Financial Condition) and Item 7.01 (Regulation FD Disclosure), reports provided to the SEC under all other items shall be deemed “filed” under Exchange Act Section 18. Reports provided to the SEC under Items 2.02 and 7.01 can be deemed filed if the company specifically states the information should be considered filed or incorporates it by reference into a filing under the Securities Act of 1933, as amended, or the Exchange Act. Exhibits relating to Item 2.02 or 7.01 will also be deemed merely “furnished,” and not filed, unless the company specifies in Item 9.01 (Financial Statements and Exhibits) which exhibits are intended to be deemed filed.
Rule 144 Eligibility No Longer Affected by Failure to File Form 8-K
Under the new Form 8-K, a company’s failure to timely file a Form 8-K report will not affect a security holder’s ability to rely on Rule 144 under the Securities Act. Presently, when a company fails to file the requisite reports under the Exchange Act, including Form 8-K, Rule 144 resales by affiliates and non-affiliates would be prohibited. The rule was amended to provide that all Form 8-K reports do not have to be filed to satisfy the “current public information” condition of the rule, enabling these individuals, in reliance upon Rule 144, to sell their securities even if the company has not yet filed an otherwise required Form 8-K.
Form 8-K Disclosure Controls and Procedures “Best Practices”
In light of the constrictive reporting deadlines and the unavailability of filing extensions, public companies must increase their awareness of, and responsiveness to, triggering disclosure events. Disclosures made in compliance with the new Form 8-K will require near-reflexive financial analysis, as well as concise and careful draftsmanship. To meet these challenges, management will need to implement a cooperative disclosure framework, wherein its financial, accounting, business and legal advisors collect, analyze and disclose information as appropriate. With an effective date of August 23, 2004, timely compliance with the new Form 8-K requires that public companies assess their disclosure controls and procedures immediately. The new rules will also affect M&A transactions before, during and after the transactions.
This Public Companies Alert is a summary for general information and discussion only. It is not a complete analysis of the matters presented and may not be relied upon as legal advice which may often turn on specific facts. Readers should seek legal advice before acting with regard to the matters mentioned herein.
This chart is a summary for general information and discussion only. It is not a full analysis of the matters presented and may not be relied upon as legal advice which may often turn on specific facts. Readers should seek legal advice before acting with regard to the matters mentioned herein.