By: Cydney Posner
The SEC has just posted its 133-page release regarding the final amendments to Form 8-K. The changes were originally proposed in June 2002, but are now characterized as adopted in response to SOX 409, which requires "real-time" disclosure. The amendments expand the number of events that are reportable on Form 8-K, adding eight new items, transferring two items from the periodic reports and expanding disclosures under two existing Form 8-K items. The form has also been reorganized into topical categories. The SEC has also shortened the Form 8-K filing deadline for most items to four business days after the occurrence of a triggering event. Finally, the rules include a limited safe harbor from liability for failure to file certain of the required Form 8-K reports. The new rules become effective on August 23, 2004.
The release also expressly confirms that SOX 906 certifications are not required for Forms 8-K (or for Forms 6-K or 11-K).
The new rules address concerns raised during the comment period regarding potential premature disclosure, the brevity of the Form 8-K filing period (originally proposed as two business days) and the significant amount of analysis required by the proposal (although the SEC cautions that its general prohibition against material misleading omissions continues to apply). The SEC has also addressed liability concerns by replacing the proposed safe harbor that would have afforded protection from potential Section 13(a) or 15(d) liability stemming from a failure to file a required Form 8-K to instead afford protection from potential liability for failure to file arising under Rule 10b-5 (although materially misleading Forms 8-K will still be subject to 10b-5 liability).
Form 8-K Deadline
Originally, the SEC had proposed a two-business day deadline for most items with a possible extension under Rule 12b-25. Instead, to address timing and complexity concerns expressed by commenters, the new rules impose a four-business day deadline, with no provision for extension under Rule 12b-25. These amendments do not affect the filing deadline for disclosures under Reg FD (new Item 7.01), voluntary disclosures (new Item 8.01) and certain exhibits.
Reorganization of Items
The revised Form 8-K has been reorganized into topical categories with a new numbering system. The topics include business and operations, financial information, securities and trading markets, matters related to accountants and financial statements, corporate governance and management, Reg FD, other events and financial statements and exhibits. A company may file a single Form 8-K to satisfy one or more disclosure items, provided that the company identifies by item number and caption all applicable items being satisfied and provides all of the substantive disclosure required by each of the items. After the effective date, amendments to reports filed before August 23 must use the new numbering system.
Expansion of Form 8-K Items
Section 1 Business and Operations
Item 1.01 Entry into a material definitive agreement. New Item 1.01 requires the company to disclose entry into, or material amendment of, material definitive agreements not made in the ordinary course of business. The item parallels Items 601(b)(10) of Reg S-K with regard to the types of agreements that are material to a company, a standard with which we are already familiar (but still have a lot of angst). Although the new amendments are prospective only, a material amendment to a material agreement would trigger a filing requirement even though the initial entry into the agreement preceded the effective date and was not reported on Form 8-K. Similarly, an amendment could cause a previously unfiled immaterial agreement to become a material agreement.
The Form 8-K disclosure must include:
- the date on which the agreement was entered into or amended;
- the identity of the parties to the agreement;
- a brief description of any material relationship between the company or its affiliates and any of the parties, other than in respect of the material definitive agreement or amendment; and
- a brief description of the terms and conditions that are material to the company.
The SEC has eliminated the specific requirements to disclose each party’s rights and obligations under the material definitive agreement and the duration and termination provisions of the agreement, relying instead on the general materiality requirement.
Note that the rules apply to "definitive" agreements; the proposed requirement to file non-binding letters of intent (which generated a number of negative comments) has been dropped from the final rules. The SEC has clarified that only agreements that provide for obligations that are material to and enforceable against a company, or rights that are material to the company and enforceable by the company against one or more other parties to the agreement, are required to be disclosed pursuant to Item 1.01, regardless of whether the material definitive agreement is enforceable subject to stated conditions. Thus, for example, a material definitive agreement which is subject to customary closing conditions, such as opinions or regulatory approval, must be disclosed when the agreement is enforceable against or by the company even though the conditions have not yet been satisfied. However, if a company enters into a non-binding letter of intent or memorandum of understanding that also contains some binding, but non-material elements, such as a confidentiality agreement or a no-shop agreement, the letter or memorandum does not need to be filed because, according to the SEC, the binding provisions are not material.
In response to concerns that, among other things, companies would not be able to timely file CTRs, the SEC has also eliminated the requirement to file the material agreement as an exhibit to the Form 8-K. Companies are nonetheless encouraged to file the agreement with the 8-K and required to file it with their next periodic report.
With respect to business combination agreements, because the filing of the Form 8-K may constitute the first "public announcement" for purposes of Rule 165 and Rule 14d-2(b) or Rule 14a-12, thereby triggering a filing obligation under those rules, the Form 8-K will enable a company to check one or more boxes on the cover page to indicate that it is simultaneously satisfying its filing obligations under those rules, provided that the Form 8-K contains all of the information required by those rules, including legends. (This change will have the effect of reversing question No. I.B.13 in the SEC Interp Manual.)
Item 1.02 Termination of a material definitive agreement. If a material definitive agreement not made in the ordinary course of business is terminated, other than by expiration of the agreement on a stated termination date or as a result of all parties' completing their obligations under the agreement, and the termination of the agreement is material to the company, the company will be required to file a Form 8-K under Item 1.02. Once again, disclosure may be required of a termination even if the original agreement predated the effective date of the new rules.
No disclosure is required under this Item:
- during negotiations or discussions regarding termination unless and until the agreement has been terminated or
- if the company believes, in good faith, that the agreement has not been terminated, unless the company has received a notice of termination pursuant to the terms of the agreement.
If a company believes in good faith that an agreement has not been terminated, but determines nevertheless to make disclosure under Item 1.02, the company could provide a statement of its good faith belief as to any relevant matter, including, for example, that not all conditions to termination have been satisfied or that a termination has otherwise not occurred. However, if the company's conclusion changes, it would need to file an amendment within four business days after the change.
The company will be required to disclose:
- the date of the termination;
- the identity of the parties to the agreement;
- a brief description of any material relationship between the company or its affiliates and any of the parties, other than in respect of the material definitive agreement;
- a brief description of the terms and conditions of the agreement that are material to the company;
- a brief description of the material circumstances surrounding the termination; and
- any material early termination penalties incurred by the company.
Note that the proposed requirement to analyze the impact of the termination has been eliminated (although general materiality obligations will still apply and may require some additional information).
Item 1.03 Bankruptcy or receivership. As adopted, this item includes only a few stylistic changes from the original and retains the basic substantive requirements formerly included in Item 3 of Form 8-K.
Section 2 Financial Information
Item 2.01 Completion of acquisition or disposition of assets. This item is substantively the same as former Item 2 of Form 8-K, requiring disclosure if a company, or any of its majority-owned subsidiaries, acquired or disposed of a significant amount of assets, otherwise than in the ordinary course of business. The SEC has, however, limited the disclosure in some respects. In particular, disclosure regarding the source of funding and the principle followed in determining the amount of consideration is limited to instances where a material relationship exists between the company and the source of the funding. In addition, disclosure is no longer required regarding the nature of the business in which the acquired assets were used and whether the company acquiring the assets intends to continue that use. Note that there may be some overlap in reporting of transaction under this Item and Item 1.01, although this item has bright-line thresholds (meeting the significant asset test) and, therefore, may apply to a different group of agreements.
Item 2.02 Results of operations and financial condition. New Item 2.02 contains all of the substantive requirements of former Item 12 of Form 8-K regarding public announcements or releases of material non-public information regarding a company’s results of operations or financial condition.
Item 2.03 Creation of a direct financial obligation or an obligation under an off-balance sheet arrangement. Under new Item 2.03, a Form 8-K must be filed if the company becomes subject to a direct financial obligation that is material to the company or to an obligation under an off balance-sheet arrangement. The company need not file a report under Item 2.03 until it enters into an agreement enforceable against it, whether or not subject to conditions, under which the direct financial obligation will arise or be created or issued. If there is no agreement, the company must provide the disclosure within four business days after the occurrence of the closing or settlement of the transaction or arrangement under which the direct financial obligation arises or is created.
A "direct financial obligation" is defined as any of the following:
- a long-term debt obligation, as defined in Reg S-K Item 303(a)(5)(ii)(A) (the rules applicable to MD&A);
- a capital lease obligation, as defined in Reg S-K Item 303(a)(5)(ii)(B);
- an operating lease obligation, as defined in Reg S-K Item 303(a)(5)(ii)(C); or
- a short-term debt obligation that arises other than in the ordinary course of business.
An "off-balance sheet arrangement" is also defined by reference to definitions used in MD&A, Reg S-K Item 303(a)(4)(ii). "Short-term debt obligation" is defined as a payment obligation under a borrowing arrangement that is scheduled to mature within one year or, for those companies that use the operating cycle concept of working capital, within a company’s operating cycle that is longer than one year.
If the company incurs a direct financial obligation, it must disclose:
- the date on which the company becomes obligated on the direct financial obligation;
- a brief description of the transaction or agreement creating the obligation;
- the amount of the obligation;
- the terms of its payment;
- if applicable, a brief description of the material terms under which it may be accelerated or increased;
- the nature of any recourse provisions that would enable the company to recover from third parties; and
- a brief description of the other terms and conditions of the transaction or agreement that are material to the company.
If the company enters into an arrangement that may give rise to direct financial obligations in connection with multiple transactions, the company must disclose its entry into the arrangement and its material obligations as they arise or are created under the arrangement (including when a series of previously undisclosed individually immaterial obligations become material in the aggregate).
If the company becomes directly or contingently liable for an obligation that is material to the company arising out of an off-balance sheet arrangement, it must disclose:
- the date on which the company becomes directly or contingently liable on the obligation;
- a brief description of the transaction or agreement creating the arrangement and obligation;
- a brief description of the nature and amount of the obligation of the company under the arrangement;
- the material terms under which the contingent obligation may become a direct obligation, if applicable, or may be accelerated or increased;
- the nature of any recourse provisions that would enable the company to recover from third parties;
- the maximum potential amount of future payments (undiscounted) that the company may be required to make, if different (which may not be reduced by the effect of any amounts that may possibly be recovered by the company under recourse or collateralization provisions in any guarantee agreement, transaction or arrangement); and
- a brief description of the other terms and conditions of the obligation or arrangement that are material to the company.
The disclosure required regarding off-balance sheet arrangements must be provided whether or not the company is a party to the transaction or agreement creating the contingent obligation. The SEC provides the following illustration:
For example, assume Company A enters into an agreement with Bank B pursuant to which Company A agrees with Bank B that Company C, an unconsolidated subsidiary of Company A, will maintain equity of at least $1. Six months later, Company C borrows $100 million from Bank B. Three months later, Company C defaults on its debt obligation to Bank B. In this fact pattern, upon entering into the initial agreement with Bank B, Company A would generally have no disclosure requirement under Item 2.03 on Form 8-K. However, when Company C borrows $100 million from Bank B, Company A will be required to file a Form 8-K under Item 2.03 as Company A has become contingently liable for an obligation arising out of an off-balance sheet arrangement, assuming such contingent obligation is material to Company A. Upon Company C’s default on its debt obligation to Bank B, a further Form 8-K filing obligation will be required under Item 2.04, as discussed below, as a contingent obligation of Company A has become a direct financial obligation, assuming such direct financial obligation is material to Company A.
If neither the company nor any affiliate of the company is a party, the four-business day period for reporting would begin on the earlier of
- the fourth business day after the contingent obligation is created or arises, and
- the day on which an executive officer (as defined in Rule 3b-7) becomes aware of the contingent obligation.
If the obligation is a security, or a term of a security, that has been or will be registered for sale, the company is not required to file a Form 8-K, provided that the prospectus relating to the sale contains the information required by this item and is filed within the required time period under Rule 424.
Item 2.04 Triggering events that accelerate or increase a direct financial obligation or an obligation under an off-balance sheet arrangement. New Item 2.04 requires a company to file a Form 8-K:
if a triggering event occurs that:
causes the increase or acceleration of a direct financial obligation of the company;
causes a company’s obligation under an off-balance sheet arrangement to increase or accelerate; or
causes a company’s contingent obligation under an off-balance sheet arrangement to become a direct financial obligation of the company; and
in each case above, the consequences of the event are material to the company.
The term "direct financial obligation" has the same definition as under Item 2.03, except that the term as used here also includes an obligation arising out of an off-balance sheet arrangement that is accrued under the SFAS No. 5, Accounting for Contingencies, as a probable loss contingency. "Off-balance sheet arrangement" has the same definition as under Item 2.03. A "triggering event" is defined as an event, including an event of default, event of acceleration or similar event, which results in the increase, acceleration or other defined consequence. As with Item 2.03, the filing would be required whether or not the company is a party to the transaction or agreement under which the triggering event occurs. However, no disclosure is required unless and until a triggering event has occurred in accordance with the terms of the relevant agreement, transaction or arrangement, including, if required, the sending to the company of notice of occurrence of a triggering event and the satisfaction of all conditions to the occurrence, except the passage of time.
Similar to new Item 1.02, no disclosure is required if the company believes, in good faith, that no triggering event has occurred, unless the company has received a notice as described above. The company may, however, state its good faith belief as to any relevant matter including, for example, that not all conditions to occurrence of a triggering event have been satisfied or that a triggering event otherwise has not occurred. As with Item 1.02, an amendment may be required if the company’s conclusion changes due to a loss of, or change in, its good faith belief.
If a company is subject to an off-balance sheet obligation, whether or not disclosed pursuant to Item 2.03, if a triggering event occurs as a result of which, under that obligation, an accrual for a probable loss is required under SFAS No. 5, the obligation becomes a direct financial obligation for purposes of Item 2.04. In this situation, if the consequences are material to the company, disclosure is required.
If a triggering event relates to the increase or acceleration of a direct financial obligation, the company must disclose:
the date of the triggering event:
a brief description of the agreement or transaction under which the obligation was created and has been increased or accelerated;
a brief description of the triggering event;
the amount of the direct financial obligation, as increased if applicable;
the terms of payment or acceleration that apply; and
any other material obligations of the company that may arise, increase, be accelerated or become direct financial obligations as a result of the triggering event or the increase or acceleration of the obligation.
If the triggering event relates to the a company’s obligation under an off-balance sheet arrangement, the company must disclose:
the date of the triggering event;
a brief description of the off-balance sheet arrangement;
a brief description of the triggering event;
the nature and amount of the obligation, as increased if applicable;
the terms of payment or acceleration that apply; and
any other material obligations of the company that may arise, increase, be accelerated or become direct financial obligations as a result of the triggering event or the increase or acceleration of the obligation or its becoming a direct financial obligation of the company.
Although the SEC has again eliminated any requirement to do a "mini-MD&A" as to the effect of the triggering event, the SEC again reminds us that misleading material omissions are not permitted.
Item 2.05 Costs associated with exit or disposal activities. Item 2.05 requires disclosure when the board of directors, a committee of the board or an authorized officer, if board action is not required, commits the company to an exit or disposal plan, otherwise disposes of a long-lived asset or terminates employees under a plan of termination described in paragraph 8 of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, under which material charges will be incurred under GAAP.
The company must disclose:
the date of the commitment to the course of action;
a description of the course of action, including the facts and circumstances leading to the expected action;
the expected completion date;
for each major type of cost associated with the course of action (for example, one-time termination benefits, contract termination costs and other associated costs), an estimate of the total amount or range of amounts expected to be incurred in connection with the action;
an estimate of the total amount or range of amounts expected to be incurred in connection with the action; and
the company’s estimate of the amount or range of amounts of the charge that will result in future cash expenditures, unless the company is unable to make a good faith estimate, in which case, it need not disclose an estimate at the time of filing of the Form 8-K (reflecting an accommodation to comments); however, within four business days after the company formulates an estimate, the company must amend its earlier Form 8-K filing to include the estimate.
These revised disclosure requirements are designed to more closely track the disclosures required in the footnotes to the financial statements required by SFAS No.146. Again, the requirement for a "mini-MD&A" has been eliminated, but the same caution regarding material omissions is expressed by the SEC.
Item 2.06 Material Impairments. New item 2.06 requires disclosure when a company’s board of directors, a committee of the board or an authorized officer of the company, if board action is not required, concludes that a material charge is required under GAAP for impairment to one or more of its assets, including an impairment of securities or goodwill.
Specifically, the company must disclose:
the date of the conclusion that a material charge is required;
a description of the impaired asset or assets;
the facts and circumstances leading to the conclusion that the charge for impairment is required;
the company’s estimate of the amount or range of amounts of the impairment charge; and
the company’s estimate of the amount or range of amounts of the impairment charge that will result in future cash expenditures.
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 plan is disclosed in the company’s Exchange Act report for that period.
Section 3 Securities and Trading Market
Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing. New Item 3.01(a) requires a company to report its receipt of a notice from the national securities exchange or national securities association (or facility of the association) that maintains the principal listing for any class of the company’s common equity indicating that:
the company or the class of its securities does not satisfy a rule or standard for continued listing on the exchange or association;
the exchange has submitted an application to the SEC under Rule 12d2-2 to delist the class of the company’s securities; or
the association has taken all necessary steps under its rules to delist the security from its automated inter-dealer quotation system.
A company that receives this type of a notice must disclose:
the date that it received the notice;
the rule or standard for continued listing that the company fails to satisfy; and
any action or response that, at the time of filing (purported to be an accommodation to comments that the company may not yet have formulated all of its plans), the company has determined to take in response to the notice.
No filing is required under Item 301(a) where, generally, the delisting is a result of one of the following:
the entire class of the security has been called for redemption, maturity or retirement and, if required by the terms of the securities, funds sufficient for the payment of all these securities have been deposited with an agency authorized to make the payments and the funds have been made available to security holders;
the entire class of the security has been redeemed or paid at maturity or retirement;
the instruments representing the entire class of securities have come to evidence, by operation of law or otherwise, other securities in substitution and represent no other right, except, if true, the right to receive an immediate cash payment; or
all rights pertaining to the entire class of the security have been extinguished.
Item 3.01(b) requires a Form 8-K filing if the company has notified the exchange or association that the company is aware of any material noncompliance with a rule or standard for continued listing. In that event, the company must disclose:
the date that the company provided the notice to the exchange or association;
the rule or standard for continued listing that the company fails to satisfy; and
any action or response that, at the time of filing, the company has determined to take regarding its noncompliance.
The company must provide the required disclosure regarding any failure to satisfy a rule or standard even if the company has the benefit of a grace period or similar extension period during which it may cure the deficiency that triggers the disclosure requirement. However, an early warning notice that merely informs the company that it is in danger of falling out of compliance with a rule or standard for continued listing on the exchange or association is not a notice that the company no longer satisfies that rule or standard and will not trigger a disclosure obligation under the item. However, if the warning notice informs the company that it is out of compliance with a rule or standard for continued listing, but provides a cure period prior to delisting, that notice will trigger a Form 8-K filing requirement.
Thus, there will usually be two filings in the typical involuntary delisting process:
An initial filing will be made when the company receives the first notice that it does not comply with a rule or standard for continued listing or when it notifies the exchange or association that it no longer complies with a rule or standard for continued listing on the exchange or association.
A second Form 8-K filing will be required under Item 3.01(a) upon the company’s receipt of a notice regarding the actual delisting of a class of the company’s securities.
Subsequent notices or communications that continue to indicate that the company does not comply with the same rule or standard that was the subject of the initial notice are not required to be filed, but may be filed voluntarily.
Item 3.01(c) requires that, if the exchange or association, in lieu of suspending trading or delisting, issues a public reprimand letter or similar communication indicating that the company has violated a rule or standard of the exchange or association, the company must file a Form 8-K stating the date and summarizing the contents of the letter or communication.
Item 3.01(d) requires that, if the company’s board, a committee of the board or the officer authorized to take action if board action is not required, has taken definitive action, including adoption of a relevant resolution, to withdraw or terminate the listing, the company must describe the action taken and state the date of the action. This requirement includes disclosure of action taken by a company to transfer a listing or quotation of its securities to another exchange or quotation system.
Item 3.02 Unregistered sales of equity securities. This new item moves disclosure from Form 10-K or 10-Q to Form 8-K and requires a company to disclose the information specified in paragraphs (a) and (c) through (e) of Item 701 of Reg S-K regarding the company’s sale of unregistered equity securities. Issuances of unreported equity securities through conversion and similar transactions are included.
No Form 8-K is required if the equity securities sold in the aggregate since the company’s last report filed under this item or last periodic report, whichever is more recent, constitute less than 1% of the number of shares outstanding. The "number of shares outstanding" refers to the actual number of shares of equity securities of the class outstanding, not including outstanding securities convertible into or exchangeable for equity securities. For small business issuers, the threshold is 5% of the issuer’s outstanding securities of that class. Issuances not reported on Form 8-K, however, will continue to be required to be reported in periodic reports.
The obligation to file does not arise until the company enters into an agreement enforceable against it, whether or not subject to conditions, under which the equity securities are to be sold. If there is no agreement, the company must provide the disclosure within four business days after the occurrence of the closing or settlement of the transaction or arrangement under which the equity securities are sold.
Item 3.03 Material Modifications to Rights of Security Holders. As with Item 3.02, this new item moves disclosure from Form 10-Q to Form 8-K and requires the company to disclose material modifications to the rights of the holders of any class of the company’s registered securities. The substance of the disclosure is the same as that currently mandated under those Forms, requiring a brief description of the general effect of the modifications on shareholders' rights. Working capital restrictions and other limitations upon the payment of dividends must be reported under this Item. Disclosure is required even if the substance of the modification has previously been described in a proxy proposal; however, once a company has reported a material modification on Form 8-K, the company need not make any duplicative disclosure about the modification in any of its subsequently filed periodic reports.
Section 4 Matters Related to Accountants and Financial Statements
Item 4.01 Changes in Registrant’s Certifying Accountant. This item is substantively the same as former Item 4 of Form 8-K, requiring disclosure of the resignation, dismissal or engagement of an independent accountant.
Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. This new item requires a company to file a Form 8-K if its board of directors, a committee of the board or an authorized officer, if board action is not required, concludes that any of the company’s previously issued financial statements covering one or more years or interim periods no longer should be relied upon because of an error in the financial statements (added to clarify that restatements that may not always reflect a problem with the financial statements) as addressed in APB Opinion No. 20.
This item requires disclosure of:
the date of the conclusion regarding non-reliance;
an identification of the financial statements and years or periods covered that should no longer be relied upon;
a brief description of the facts underlying the conclusion, to the extent known to the company at the time of filing (although the company may voluntarily file an amendment later to reflect any changes to the facts underlying the conclusion); and
a statement of whether the audit committee, or the board in the absence of an audit committee, or authorized officers discussed with the company’s independent accountant the subject matter giving rise to the conclusion.
Under Item 4.02(b), if the company is advised by, or receives 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, it must disclose the following information:
the date on which the company was so advised or notified;
identification of the financial statements that should no longer be relied upon;
a brief description of the information provided by the accountant; and
a statement of whether the audit committee, or the board in the absence of an audit committee, or authorized officers discussed with the independent accountant the subject matter giving rise to the notice.
If the company receives advice or a notice from its accountant, the company must provide the accountant with a copy of the disclosures it is making under Item 4.02(b) no later than the same day it files these disclosures with the SEC. The company also must request the accountant to furnish to the company as promptly as possible a letter addressed to the SEC stating whether the accountant agrees with the statements made by the company and, if not, stating the respects in which it does not agree. The company must then amend its previously filed Form 8-K by filing the independent accountant’s letter as an exhibit within two business days of the company’s receipt of the letter. The SEC has eliminated the proposed requirement to disclose the company's plans to address the issue.
Section 5 Corporate Governance and Management
Item 5.01 Changes in Control of Registrant. The Item continues substantially unchanged with only stylistic modifications.
Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers. This Item expands former Item 6 of Form 8-K.
Paragraph (a) requires the filing of a Form 8-K if a director has resigned or refuses to stand for reelection to the board since the date of the last annual meeting because of a disagreement with the company, known to an executive officer of the company, on any matter relating to the company’s operations, policies or practices, or if a director has been removed for cause. Receipt of a letter from the director is no longer required to trigger the filing.
Under this paragraph, the company must disclose:
the date of the director’s resignation, refusal to stand for re-election or removal;
any positions then held by the director on any committee of the board; 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 re-election or removal.
In addition, if the director furnishes the company with any written correspondence concerning the circumstances surrounding his or her resignation, refusal or removal, the company must file a copy of the correspondence as an exhibit to the Form 8-K regardless of whether the director requests that the company do so. The company must provide the director with a copy of the Form 8-K disclosures no later than the day that the company files the Form 8-K. The company must also provide the director with the opportunity to furnish a letter addressed to the company, as promptly as possible, stating whether he or she agrees with the company’s disclosures and, if not, the respects in which he or she does not agree. Finally, the company must file any letter it receives from the director as an exhibit by amendment within two business days after receipt.
Paragraph (b) requires that a Form 8-K be filed when the company’s principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer or any person performing similar functions retires, resigns or is terminated from that position. The item also requires disclosure when a director retires, resigns, is removed or declines to stand for re-election for any reason other than as a result of a disagreement or cause. The proposed requirement to state the reasons for the departure has been eliminated.
Paragraph (c) requires disclosure if the company appoints a new principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer or person performing similar functions. The company must disclose:
the officer’s name,
the date of the appointment,
information regarding the background of the officer and certain transactions (Reg S-K Items 401(b), 401(d), 401(e) and 404(a)), and
a brief description of the material terms of any employment agreement between the company and the officer.
The company may delay disclosure until the day that the company first makes public announcement of the appointment if the company intends to make a public announcement of the appointment other than by means of a Form 8-K
Paragraph (d) applies if a new director is elected to the board, except by a vote of security holders at an annual meeting or a special meeting convened for such purpose. The company must disclose:
the new director’s name,
the election date,
a brief description of any arrangement or understanding pursuant to which the new director was selected,
any committees to which the new director has been or, at the time of the disclosure is expected to be, named, and
information regarding certain related-party transactions (Reg S-K Item 404(a).
If information regarding an employment contract of an officer or board committees or related-party transactions for a director is not determined or is unavailable at the time of filing, a company must include a statement to that effect in the filing and file an amendment containing the information within four business days after the information is determined or becomes available. A wholly owned subsidiary of a reporting company is excluded from the reporting requirements of Item 5.02.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. This item requires a company with a class of equity securities registered under Section 12 to disclose any amendment to its articles of incorporation or bylaws if the company did not propose the amendment in a previously filed proxy or information statement. The company must disclose:
the effective date of the amendment,
a description of the provision adopted or changed by amendment and,
if applicable, the previous provision.
If the company determines to change its fiscal year from that used in its most recent SEC filing, other than by shareholder vote or by an amendment to its articles of incorporation or bylaws, the company must disclose:
the date of that determination,
the date of the new fiscal year end, and
the form on which the report covering the transition period will be filed.
The company need only file the text of the amendment as an exhibit to the filing, but must then file the restated articles of incorporation or bylaws as an exhibit to its next periodic report.
Other Form 8-K Items. The new Form 8-K also requires disclosure of the following pre-existing items:
Item 5.04 Temporary suspension of trading under the company's employee benefit plans (which includes a clarification that the report must be filed no later than the fourth business day after the company receives the ERISA notice or, if not received, after the company transmits the ERISA notice to an officer or director within the Reg BTR time period and which also provides for updated notices);
Item 5.05 Amendments to or waivers of the company's code of ethics;
Item 7.01 Regulation FD;
Item 8.01 Other events; and
Item 9.01 Financial statements and exhibits.
Proposed Items Not Adopted
The SEC did not adopt proposed amendments that would have added items requiring disclosure for receipt of ratings from rating agencies or, thankfully, for termination or reduction of a business relationship with a customer, a highly controversial aspect of the original proposal.
The new amendments provide a new limited safe harbor from public and private claims under Rule 10b-5 for a failure to timely file a Form 8-K regarding the following 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 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 a notice described in Item 4.02(b) from its accountant)
However, the SEC has eliminated the proposed safe harbor from liability under Section 13(a) or 15(d).
The safe harbor applies only to a failure to file a Form 8-K. Thus, material misstatements or omissions in a Form 8-K will continue be subject to Rule 10b-5 liability. If the company has a duty to disclose information for any reason apart from the Form 8-K requirement, the safe harbor will not provide protection for failure to satisfy the separate obligation (such as the sale of shares while in possession of material non-public information). The safe harbor will extend only until the due date of the company's next periodic report.
Eligibility for Form S-3 and Rule 144
In response to comments, the SEC has revised the Form S-2 and S-3 eligibility requirements to provide that companies that fail to file timely reports required by Items 1.01, 1.02, 2.03, 2.04, 2.05, 2.06 and 4.02(a) will not lose their eligibility to use Form S-2 and S-3 registration statements. These are the same items that are covered by the new limited safe harbor. However, a company must be current in its Form 8-K filings with respect to the items listed above at the actual time of filing a Form S-2 or S-3.. With respect to the other Form 8-K items not listed above, a company’s failure to timely file a Form 8-K will result in a loss of Form S-2 or S-3 eligibility for the 12 months following the Form 8-K due date. Many of these items are currently required Form 8-K disclosure items.
The SEC has also amended Rule 144 to clarify that a company need not have filed all required Form 8-K reports during the 12 months preceding a sale of securities pursuant to Rule 144 to satisfy the rule’s "current public information" condition. As required by Rule 144(h), however, a security holder will continue to be required to represent that he or she does not have inside information.
There are a number of conforming amendments noted in the release. However the most significant amendment is to Reg S-K Item 601 to clarify 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 that report relating to Items 2.02 or 7.01 will be deemed furnished, and not filed, unless the company specifies exhibits, or portions of exhibits, that are intended to be deemed filed rather than furnished.