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Aug 2004
01
August 01, 2004

Securities Law Alert-Major Changes to Form 8-K to Take Effect Soon

The Securities and Exchange Commission (the "SEC") has approved substantial changes to Form 8-K. Effective August 23, 2004, these changes include:

  • Adding eight new Form 8-K disclosure items;

  • Moving two items previously reportable on a periodic basis to Form 8-K;

  • Expanding disclosure requirements for two existing Form 8-K items; and

  • Shortening the filing deadline for most Form 8-K items to four business days.

Adopted in connection with Section 409 of the Sarbanes-Oxley Act of 2002, which mandates that public companies report presumptively material information "on a rapid and current basis," these changes – designed to provide investors with better and faster disclosure of significant corporate events – impose much added disclosure burdens on public companies. Following is a summary of the most significant changes, along with a table showing the form’s reorganization.

Eight New Form 8-K Disclosure Items

In addition to those events already required to be disclosed on Form 8-K:

  • Changes in control of the registrant;
  • Completion of acquisition or disposition of assets;
  • Bankruptcy or receivership;
  • Changes in accountants;
  • Optional "other event" filings;
  • Regulation FD disclosure;
  • Amendments to codes of ethics;
  • Suspension of trading under benefit plans; and
  • Earnings release and similar "results of operations" filings;

the SEC has added eight new disclosure items:

  • Item 1.01 – Entry into, or material amendment of, a material definitive agreement not made in the ordinary course of business. This requirement applies only to definitive agreements and not to non-binding agreements (e.g., non-binding letters of intent). A copy of the agreement or amendment is not required with the Form 8-K, although the SEC encourages including one, particularly if no confidential treatment is requested.

  • Item 1.02 – Termination of a material definitive agreement not made in the ordinary course of business. This requirement does not apply:

    • Where an agreement terminates by expiration on its terms or upon all parties completing their obligations under the agreement;

    • Where the company believes in good faith that the agreement has not been terminated, unless the company has received a notice of termination pursuant to terms of the agreement; or

    • During negotiation or discussions regarding a termination, unless and until the agreement is actually terminated.

  • Item 2.03 – Creation of a material direct financial obligation, or creation of a direct or contingent obligation under an off-balance sheet arrangement. Disclosure is not required unless and until an enforceable agreement is actually executed or upon the actual closing or settlement of the transaction or arrangement. Disclosure related to off-balance sheet arrangements is required regardless of whether the company itself is a party to the transaction or agreement creating a contingent obligation (e.g., a guarantee).

  • Item 2.04 – Triggering events that accelerate or increase a direct financial obligation, or triggering events that accelerate or increase a direct or contingent obligation under an off-balance sheet arrangement. Disclosure is not required where the company believes in good faith that no triggering event has occurred (unless the company has received a notice of termination pursuant to terms of the agreement), nor is disclosure required unless and until the triggering event actually occurs. Disclosure related to off-balance sheet arrangements is required regardless of whether the company itself is a party to the transaction or agreement under which the triggering event occurs. Additionally, where the company is subject to an obligation arising out of an off-balance sheet arrangement, if a triggering event occurs resulting in an accrual for a probable loss under SFAS No. 5, the obligation arising out of the off-balance sheet arrangement becomes a direct financial obligation (and therefore triggers a disclosure obligation).

  • Item 2.05 – Material costs associated with exit or disposal activities. Disclosure is required if the board of directors (or officers where board approval is not required) definitively commits the company to an exit or disposal plan or otherwise disposes of long-lived assets or terminates employees under a termination plan under which material charges will be incurred under GAAP. If the company determines at the time of filing that it is unable in good faith to make the cost estimates required to be disclosed in its Form 8-K, the company need not disclose them at that time, but must nevertheless file the Form 8-K describing its commitment to the course of action. The company then has until four business days after the cost estimates are determined to amend its earlier Form 8-K filing to include the estimates.

  • Item 2.06 – Material impairment of assets. Disclosure is required if the board of directors (or officers where board approval is not required) concludes that the company is required to record a material impairment charge under GAAP. No separate filing is required, however, if the conclusion is made in connection with the preparation, review or audit of financial statements at the end of a fiscal quarter or year and the impairment is disclosed in the company’s Exchange Act report for that period. If the company determines at the time of filing that it is unable in good faith to make the cost estimates required to be disclosed in its Form 8-K, the company need not disclose them at that time, but must nevertheless file the Form 8-K describing its commitment to the course of action. The company then has until four business days after the cost estimates are determined to amend its earlier Form 8-K filing to include the estimates.

  • Item 3.01 – Transfer of the listing of a company’s securities from one securities exchange to another, the delisting of the company’s securities, or notice that the company does not comply with a listing standard. Disclosure is required if:

    • The company receives a notice from the exchange or association that maintains the principal listing for any class of its common stock, indicating that:

      • The company or listed stock does not satisfy a rule or standard for continued listing (even if a grace period is afforded);

      • The exchange has submitted an SEC application to delist the stock; or

      • The association has taken all necessary steps to delist the stock;

    • The company has notified the exchange or association that maintains the principal listing for any class of the company’s common stock that the company is aware of any material noncompliance with a rule or standard for continued listing (even if a grace period is afforded);

    • The exchange or association that maintains the principal listing for any class of the company’s common stock issues a public reprimand letter or similar communication indicating that the company has violated a rule or standard for continued listing; or

    • The board of directors (or officers where board approval is not required) has taken definitive action to cause the listing of a class of the company’s common stock to be withdrawn from the exchange or association.

No disclosure is required if the expected delisting is a result of the redemption, retirement or conversion in full of the listed stock.

  • Item 4.02(a) – Non-reliance of previously issued financial statements or related audit report or completed interim review. Disclosure is required if:

    • The company's board of directors (or officers where board approval is not required) conclude that any previously issued financial statements should no longer be relied upon because of an error; or

    • A 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 a completed interim review related to previously issued financial statements.

Two New Form 8-K Disclosure Items Transferred from Periodic Reports

In addition to creating eight new disclosure items, the new Form 8-K creates a current reporting obligation in two areas that previously had been covered by periodic reports on Form 10-Q or Form 10-K.

  • Item 3.02 – Unregistered sales of equity securities. Disclosure is required for any sales of equity securities not registered under the Securities Act of 1933. This information was previously required to be filed in Item 2(c) of Forms 10-Q and 10-QSB and Item 5(a) of Forms 10-K and 10-KSB.

    No Form 8-K disclosure is required, however, if the equity securities sold in the aggregate since the company’s last report under this item or last periodic report (whichever is most recent) constitute less than 1% (or 5% for small business issuers) of the outstanding securities of the issued class. Disclosure will still be required, however, in the next periodic report.

  • Item 3.03 – Material modification to rights of security holders. Disclosure is required in connection with any material modifications to the rights of the holders of any class of the company’s registered securities. This information was previously required to be filed under Items 2(a) and (b) of Forms 10-Q and 10-QSB.

Expansion of Disclosure Requirements for Two Existing Form 8-K Items

The new Form 8-K also significantly expands the scope of disclosure required under two existing items.

  • Item 5.02 – Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers. Previously, where a director departed the company because of a disagreement, a Form 8-K disclosure was required only if he or she provided a letter to the company describing the disagreement and then requested that the company disclose the matter. Now, the requirement for disclosure is automatically triggered if:

    • A director resigns or refuses to stand for reelection to the board because of a disagreement (known to an executive officer of the company) related to operations, policies or practices of the company, or a director is removed for cause from the board. The company is required to provide the director with a copy of the Form 8-K no later than the date of its filing and provide the director with an opportunity to furnish the company with a letter stating whether he or she agrees with the statements made in the Form 8-K and, if not, stating any disagreements. Any such letter must be filed in an amendment to the Form 8-K within two business days of receipt;

    • A 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, or if a director retires, resigns, is removed or refuses to stand for re-election;

    • The company appoints a new principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer or person performing similar functions. However, if the company intends to make a public announcement of the new officer hire other than by a Form 8-K filing, the company may delay its Form 8-K filing until the day on which the public announcement is made. Also, if the terms of the employment agreement required to be disclosed in the Form 8-K are not known at the time of filing, they may be omitted but an amendment is required within four business days of when that information becomes available; or

    • The company elects a new director to the board other than by a vote of security holders at an annual or special meeting convened for such purposes. If information regarding board committees the new director has belonged to, or transactions between the new director and the company (both of which are required for disclosure in the Form 8-K under this item), is not known at the time of filing, the company may omit such information but an amendment is required within four business days of when that information becomes available.

These 5.02 reporting requirements do not apply to wholly-owned subsidiaries of a reporting company.

  • Item 5.03 – Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. A Form 8-K disclosure is and has been required if a company changes its fiscal year. Now, disclosure is also required if the company makes any changes to its articles of incorporation or bylaws that were not proposed in a previously filed proxy or information statement.

Four Business Day Filing Requirement

All Form 8-K disclosure items must now be filed within four business days after the occurrence of the event triggering the filing requirement, except for:

  • Regulation FD filings (which remain subject to the Rule 100(a) filing requirements of Regulation FD) (Item 7.01)

  • Voluntary disclosures (Item 8.01)

  • Financial statements and pro forma financial information required in connection with a business acquisition (which may be filed as amendments at any time up to 71 calendar days after the deadline for filing the Form 8-K reporting the transaction) (Item 9.01)

Limited Safe Harbor

In response to concerns that the substantial increase in the number of reportable events and the shortened filing deadlines might create situations where issuers acting in good faith nonetheless make a filing late and incur liability or lose the ability to use short form registration statements, the SEC has adopted a limited safe harbor for the late reporting of each of the changes above (except for delisting).

This safe harbor provides that failure to file a Form 8-K report with regard to:

  • 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); and
  • Item 4.02(a) (Non Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review);

will not be deemed a violation of Section 10(b) and Rule 10b-5 under the Exchange Act, as long as that information is disclosed in the next Form 10-Q or Form 10-K. However, material misstatements or omissions in a Form 8-K are not covered by this safe harbor and will continue to be subject to SEC action under Sections 13(a) and 15(d), and Section 10(b) and Rule 10b-5, of the Exchange Act.

In addition, a late Form 8-K filing with regard to the above items will not give rise to ineligibility to use short form registration statements (Form S-2 and S-3), as long as the company is current in its Form 8-K filings at the time of filing the registration statement. Nor will a company need to have filed all required Form 8-K reports in order to rely on Rule 144 for any resale of securities.

New Form 8-K Format

The SEC has reorganized the numbering of items in Form 8-K. Following is table that identifies which items are new and, for those that are not new, their former designation number.

 New Form 8-K Item No.

Former Item No. 

 Section 1 - Registrant's Business and Operations

    Item 1.01 - Entry Into a Material Definitive Agreement

New Item

    Item 1.02 - Termination of a Material Definitive Agreement

New Item

    Item 1.03 - Bankruptcy or Receivership

New Item

Section 2 - Financial Information

    Item 2.01 - Completion of Acquisition or Disposition of Assets

Item 2

    Item 2.02 - Results of Operations and Financial Condition

Item 12

    Item 2.03 - Creation of a Direct Financial Obligation or an 
    Obligation under an Off-Balance Sheet Arrangement of a 
    Registrant

New Item

    Item 2.04 - Triggering Events That Accelerate or Increase a 
    Direct inancial Obligation or an Obligation under a Off-Balance 
    Sheet Arrangement

New Item

    Item 2.05 - Costs Associated with Exit or Disposal Activities

New Item

    Item 2.06 - Material Impairments

New Item

Section 3 - Securities and Trading Markets

    Item 3.01 - Notice of Delisting or Failure to Satisfy a Continued
    Listing Rule or Standard; Transfer of Listing

New Item

    Item 3.02 - Unregistered Sales of Equity Securities

Moved from Periodic Reports

    Item 3.03 - Material Modifications to Rights of Security Holders

Moved from Periodic Reports

Section 4 - Matters Related to Accountants and Financial Statements

    Item 4.01 - Changes in Registrant's Certifying Accountant

Item 4

    Item 4.02 - Non-Reliance on Previously Issued Financial 
    Statements or a Related Audit Report or Completed 
    Interim Review

New Item

Section 5 - Corporate Governance and Management

    Item 5.01 - Changes in Control of Registrant

Item 1

    Item 5.02 - Departure of Directors or Principal Officers; Election
    of Directors; Appointment of Principal Officers

Item 6 (expanded)

    Item 5.03 - Amendments of Articles of Incorporation or 
    Bylaws; Change in Fiscal Year

Item 8 (expanded)

    Item 5.04 - Temporary Suspension of Trading Under 
    Registrant's Employee Benefit Plans

Item 11

    Item 5.05 - Amendments to the Registrant's Code of Ethics, or 
    Waiver of a Provision of the Code of Ethics

Item 10

Section 6 - (Reversed)

Section 7 - Regulation FD

    Item 7.01 - Regulation FD Disclosure

Item 9

Section 8 - Other Events

    Item 8.01 - Other Events

Item 5

Section 9 - Financial Statements and Exhibits

    Item 9.01 - Financial Statements and Exhibits

Item 7



Warner Norcross & Judd LLP

For additional information regarding the topic of this Alert, please contact Jeff Ott at 616.752.2170 or jott@wnj.com or Gordon Lewis at 616.752.2752 or glewis@wnj.com, or any member of the firm's Business Practice Group.


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