Significant Amendments to Form 8-K
By: RHONA E. SHWAID & ADAM THIMMESCH, Summer Associate
September 2004
Earlier this year, the U.S. Securities and Exchange Commission (SEC) voted to adopt significant amendments to Form 8-K, which is used by public companies to disclose important corporate events on a current basis. These amendments became effective as of August 23, 2004.
The changes provide for eight new disclosure items, two transfers from periodic reports, and two expanded disclosure requirements, as summarized below. In addition, there is a new accelerated filing deadline.
Summary of the New Disclosure Items in Form 8-K
Entry into a Material Definitive Agreement. A company must report all material agreements, or material amendments to such agreements, entered into outside of the ordinary course of business.
Termination of a Material Definitive Agreement. Material agreements not made in the ordinary course of business that are terminated other than by expiration of the agreement must now be reported. A brief description of the material circumstances surrounding the termination, as well as any material penalties incurred, must be disclosed.
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement. If a company becomes obligated under a direct, material financial obligation, it must disclose details about the agreement that created the obligation and the amount of the obligation, including terms of payment. If the company becomes liable for a material obligation arising out of an off-balance sheet arrangement, it must disclose similar details.
Triggering Events that Accelerate or Increase an Obligation. If a triggering event accelerates or increases a direct financial obligation or an obligation under an off-balance sheet arrangement, the company must disclose the date of the triggering event, a description of it, the amount of the financial obligation, and any other material obligations that may arise as a result.
Costs Associated with Exit or Disposal Activities. Disclosure is required when a board of directors, a committee of the board, or an authorized officer commits the company to an exit or disposal plan, to otherwise disposing of a long-lived asset, or to terminating employees under a plan of termination, under which material charges will be incurred under generally accepted accounting principles.
Material Impairments. Disclosure is required when a company's board, a committee of the board, or an authorized officer concludes that a material charge for impairment to one or more of its assets is required under generally accepted accounting principles.
Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard. A company must report receipt of notice from a national securities exchange or association indicating that a class of the company's securities no longer satisfies a standard for continued listing, the SEC has submitted a Rule 12d-2d application to the Commission to delist a class of the company's securities, or the association has taken steps to delist the company's securities.
Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. Disclosure is required when a board, a committee of the board, or an authorized officer concludes that any of the company's previously issued financial statements should no longer be relied upon.. The company must disclose whether the audit committee discussed the error with the company's independent accountant.
Summary of the Disclosure Items Transferred from Forms 10-Q/10-K
Unregistered Sales of Equity Securities. A company must disclose information regarding a sale of equity securities in a transaction that is not registered under the Securities Act. This item was previously required by Item 2(c) of Forms 10-Q and 10-QSB and Item 5(a) of Forms 10-K and 10-KSB.
Material Modifications to the Rights of Security Holders. A company must disclose material modifications to the rights of holders of any class of its registered securities and briefly describe the general effect of the modification on Form 8-K, rather than in Items 2(a) and (b) of Forms 10-Q and 10-QSB.
Brief Summary of the Expanded Disclosure Items
Departure of Directors or Principal Officers, Election of Directors or Appointment of Principal Officers. If a director resigns or refuses to stand for re-election since the date of the last annual shareholder meeting because of a disagreement with the company, or if a director has been removed for cause from the board, the company must disclose the circumstances. The company must also disclose the date of the resignation or refusal to stand for re-election, as well as any position held by that director on any committee of the board.
Any correspondence from the director to the company regarding the director's departure must be filed as an exhibit. In addition, the company must provide the director with a copy of the disclosures and an opportunity to respond. Any such response must be filed with the Commission as an exhibit by amendment within two days of its receipt by the company.
If a director leaves the company for any other reason, that fact and the date of departure must be disclosed. If the CEO, President, CFO, CAO, COO or any person performing similar functions, retires, resigns or is terminated, this must be disclosed as well.
If the company elects a new director, the company must disclose his or her name, the election date, any arrangement or understanding pursuant to election, current or anticipated committee involvement, and information regarding certain related transactions.
If the company appoints a new CEO, President, CFO, CAO, COO or any person performing similar functions, disclosed details must include information about his or her background, any related transactions with the company, and the material terms of any employment agreement.