United States: SEC Adopts New Rules Requiring Public Companies To Report Additional Matters on Form 8-K Commencing August 23, 2004; Filing Deadline Accelerated to Four Business Days In Most Cases

Last Updated: June 2 2004
Article by Arlie R. Nogay

The Securities and Exchange Commission recently adopted final rules expanding the number and type of events that must be reported by public companies on Form 8-K, and shortening the deadline for filing a Form 8-K for most items to four business days. See "Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date," SEC Release Nos. 33-8400, 34-49424, available at www.sec.gov/rules/final/33-8400.htm ("Final 8-K Release"). The new requirements were adopted in response to Section 409 of the Sarbanes-Oxley Act of 2002, which requires public companies to disclose "on a rapid and current basis" material information regarding changes in the company’s financial condition or operations. Public companies must comply with these new requirements beginning August 23, 2004.

Summary of Final 8-K Release

The SEC’s Final 8-K Release substantially revises Form 8-K and clarifies a number of related matters. In summary, the Final 8-K Release:

  • Adds eight new disclosure items to Form 8-K
  • Transfers two existing disclosure items from periodic reports (e.g., Forms 10-K and 10-Q) to Form 8-K
  • Expands the required disclosures under two items already covered by Form 8-K
  • Reorganizes all the items disclosable on Form 8-K into "topical" categories, identified as follows: business and operations; financial information; securities and trading markets; matters related to accountants and financial statements; corporate governance and management; Regulation FD; other events; and financial statements and exhibits
  • Shortens the filing deadline for all items (other than Regulation FD disclosures, voluntary disclosure of non-required items and the filing of certain exhibits in connection with business combinations) to four business days after occurrence of the event triggering disclosure
  • Provides a new limited safe harbor from liability under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 for failure to file a Form 8-K for some of the required items
  • Provides limited relief from loss of eligibility to use Forms S-2 and S-3 and ability to rely on Rule 144 as a result of failure to timely file a Form 8-K
  • Confirms that the SEC and Department of Justice have jointly concluded that CEO and CFO certifications under Section 906 of the Sarbanes-Oxley Act do not apply to Form 8-K 

Summary of New and Expanded Form 8-K Disclosure Items

The new disclosure items added to Form 8-K are as follows:

  • Material Definitive Agreements—Entering into, amending or terminating (other than termination in accordance with its terms) a material definitive agreement outside the ordinary course of business
  • Material Financial Obligations or Off-Balance Sheet Arrangements—Creating, accelerating or increasing a material direct financial obligation or off-balance sheet arrangement
  • Exit or Disposal Plans—Approval or authorization of an exit or disposal plan which will result in a material charge under GAAP Material Charge for Impairment—Determination that a material charge for impairment to one or more of the company’s assets is required under GAAP
  • Delisting or Failure to Comply with Listing Standards—Notice from a national securities exchange or NASDAQ that the company is being delisted or failed to satisfy listing standards
  • Non-Reliance on Financial Statements—Determination that previously issued financial statements, audit reports or interim financial-statement reviews should not be relied on 

The disclosure items transferred from periodic reports are:

  • Unregistered Sales of Securities—Sales by the company of its equity securities in a transaction that is not registered under the Securities Act of 1933
  • Modification of Rights of Security Holders—Material modifications to rights of security holders and the general effect of the modification

The expanded disclosure items are:

  • Departure and Election of Directors and Principal Officers—Departure of directors and principal officers (regardless of circumstances) and election or appointment of new directors or principal officers
  • Amendment to Articles or Bylaws or Change of Fiscal Year—Amendments to articles or bylaws (if not disclosed in previously filed proxy statement) and changes to the company’s fiscal year

Four Business Day Filing Deadline

In the Final 8-K Release, the SEC amended Form 8-K to provide that, except for the items described below, all reports on Form 8-K must be filed with the SEC within four business days of the event triggering the filing. This new deadline replaces the existing deadlines of five business days or 15 calendar days, depending on the event.

The four business day filing deadline does not apply to reports made on Form 8-K for purposes of Regulation FD, voluntary disclosures of information that the company deems to be of importance to security holders, or the filing as exhibits of financial statements and pro forma information relating to certain business combinations. Foreign private issuers who file annual reports on Forms 20-F or 40-F are also not subject to the new deadline requirements (because they are not subject to Form 8-K obligations in general).

New Limited Safe Harbor from Liability under Exchange Act

The SEC recognized that several of the new Form 8-K disclosure items may require management to quickly assess the materiality of an event or whether a disclosure obligation has been triggered. In light of these concerns, the SEC created a new limited safe harbor from public and private claims under Section 10(b) and Rule 10b-5 of the Exchange Act for failure to timely file a Form 8-K for the following items (the "Safe Harbor Items"):

  • Entry into a material definitive agreement (Item 1.01)
  • Termination of a material definitive agreement (Item 1.02)
  • Creation of a direct financial obligation or an obligation under an off-balance sheet arrangement (Item 2.03)
  • Triggering events that accelerate or increase a direct financial obligation under an off-balance sheet arrangement (Item 2.04)
  • Costs associated with exit or disposal activities (Item 2.05)
  • Material impairments (Item 2.06)
  • Non-reliance on previously issued financial statements or a related audit report or completed interim review (but only in the case where a company makes the determination and does not receive a notice described in Item 4.02(b) of Form 8-K from its accountant) (Item 4.02(a))

This new safe harbor only applies to the failure to file a report on Form 8-K. Accordingly, it does not protect against liability for material misstatements or omissions in a Form 8-K filing, which are and will continue to be subject to liability under Section 10(b) and Rule 10b-5. Moreover, the safe harbor does not provide protection from liability for failure to meet other disclosure obligations (e.g., disclosure obligations while the company is selling or repurchasing its own securities), and it only extends until the due date of the next applicable periodic report (such that liability will attach for failure to include the relevant disclosure in the next applicable periodic report).

Eligibility to Use Forms S-2 and S-3

Under current SEC rules, in order to be eligible to use Form S-2 and S-3 "short form" registration statements, a company must have timely filed all reports required under Sections 13(a) or 15(d) of the Exchange Act during the prior 12-month period. In response to the same concerns that gave rise to the safe harbor from liability under Section 10(b) and Rule 10b-5 and the potential significant burden that could arise from loss of the ability to use Forms S-2 and S-3, the SEC clarified the rules applicable to use of Forms S-2 and S-3 to provide that failure to timely file a Form 8-K for any of the Safe Harbor Items listed above will not result in loss of eligibility to use Forms S-2 and S-3 for the 12-month period following the due date.

This exception is limited, however. First, failure to timely file a Form 8-K for any of the items covered by Form 8-K other than the Safe Harbor Items will result in loss of eligibility to use Forms S-2 and S-3 for 12 months following the due date. Second, the company must be current with its 8-K filings at the time it files a Form S-2 or S-3. Accordingly, the company must have made the required disclosures in its periodic report for the period during which the required 8-K was not timely filed or amended the periodic report to include this disclosure if it was not contained in the original filed version of the applicable periodic report.

Reliance on Rule 144

Another area of significant concern arising from the failure to timely file a Form 8-K is the inability of insiders and other security holders to utilize Rule 144 to resell securities. One of the requirements of Rule 144 is the availability of current public information about the company, which generally means that the company is current with all of its required reports for the prior 12-month period. Because of the significant burden that would be placed on security holders if eligibility to rely on Rule 144 were conditioned on satisfaction of the new Form 8-K requirements, the SEC amended Rule 144 to provide that a company need not have filed all required Form 8-Ks during the 12 months preceding the sale to satisfy the current information requirement. This exception applies to all Form 8-K requirements (not just the Safe Harbor Items).

Section 906 CEO/CFO Certification Not Required for Form 8-K

In the Final 8-K Release, the SEC put to rest its own question as to whether the CEO and CFO certifications required by Section 906 of the Sarbanes-Oxley Act apply to Form 8-K by indicating that the SEC and the Department of Justice have jointly concluded that Section 906 does not apply to Form 8-K. This finding was based in part on concerns that extending Section 906 certifications, which give rise to criminal liability, to Form 8-K filings could potentially have a chilling effect on disclosures by public companies.

Practical Implications of Compliance with New Form 8-K Requirements

Public companies should begin taking steps to ensure that they will be in a position to comply with the new Form 8-K requirements beginning on August 23, 2004. Some practical considerations are as follows:

Disclosure Controls and Procedures—As part of the new rules put in place under the Sarbanes-Oxley Act, the SEC added Rule 13a-15(d) to the Exchange Act in 2003. Rule 13a-15(d) defines "disclosure controls and procedures" as controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the required timeframes.

The new Form 8-K requirements will require public companies to assess their disclosure controls and procedures, to ensure that they have in place controls and procedures that cover all the new and expanded Form 8-K disclosure items. All persons involved in this process must also be made aware of the new four business day filing deadline, to ensure timely filing of required reports.

Expanding Form 8-K Compliance Team—The new Form 8-K requirements will require a much broader approach to Form 8-K compliance, as illustrated by the following examples:

  • Accounting/Finance Department. Determinations with respect to certain financial matters, including approval or authorization of a material charge for impairment and creation, acceleration or increase of a material direct financial obligation or off-balance sheet arrangement, must be reported on Form 8-K within four business days. Accordingly, persons in the finance or accounting department who are responsible for these determinations must be included in the company’s Form 8-K compliance team, to ensure that these events are reported on a timely basis. If determinations with respect to these matters are made by the board of directors or a committee of the board, prompt notice of the board or committee action must be given to the persons responsible for timely filing of a Form 8-K. Similar concerns exist with respect to approval or authorization of an exit or disposal plan which will result in a material charge under GAAP and determinations with respect to non-reliance on financial statements.
  • HR Department. Required disclosures with respect to changes in the company’s principal officers suggests that personnel from the human resources or similar departments responsible for employee matters should participate in Form 8-K compliance. Moreover, as noted below, the definition of material definitive agreements covers any compensatory plan, contract or agreement with the company’s CEO or its other executive officers. Accordingly, under new Form 8-K, any amendment to an agreement with any of these persons outside the ordinary course of business will trigger a filing obligation within four business days, and the persons responsible for these agreements will have to notify the Form 8-K team.

Material Definitive Agreements—Under revised Form 8-K, a public company will be required to file a Form 8-K any time it enters into, amends or terminates (other than termination in accordance with its terms) any material definitive agreement. In order to be in a position to comply with this obligation, public companies will have to ensure that they have procedures in place to identify material definitive agreements and make any required filings in a timely manner. In this regard, the following factors should be considered:

  • Required Disclosure. A company must disclose the following information upon entry into, or material amendment of, a material definitive agreement:
  • The date on which the agreement was entered into or amended, the identity of the parties to the agreement, and 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 of the agreement or amendment that are material to the company.
  • Filing of Agreement Not Required with Form 8-K. The SEC eliminated the proposed requirement to file a copy of the material agreement as a Form 8-K exhibit. Pursuant to amended Item 601 of Regulation S-K, a company will have to file the agreement as an exhibit to the company’s next periodic report or registration statement. However, the SEC encourages companies to file the agreement with the Form 8-K when feasible, particularly when no confidential treatment is requested.
  • Definition of "Material Definitive Agreement." "Material definitive agreement" is not expressly defined. However, Item 1.01 of new Form 8-K item states that the following agreements are deemed to be not made in the ordinary course of business even if they are the type that ordinarily accompanies the company’s business, relying on the description of "material contracts" under Item 601 of Regulation S-K:
  • Any contract to which a director or officer is a party;
  • Any contract upon which the company’s business is substantially dependent (e.g., continuing contracts to sell the major part of the company’s products or service or to purchase the major part of its requirements for goods, services or raw materials; licenses of intellectual property rights, such as a patent or formula, on which the company’s business is materially dependent);
  • Any contract for the acquisition or sale of plant, property or equipment where the consideration exceeds 15 percent of the company’s consolidated fixed assets;
  • Any material lease; and
  • Any management contract or compensatory plan, contract or arrangement (including options, pension, retirement or deferred compensation, bonus, incentive or profit sharing plans, contracts, or arrangements) in which any director or executive officer named in the compensation table in the company’s proxy statement or other executive officer participates (except, in the case of executive officers not named in the proxy statement, those immaterial in amount or significance), subject to certain exceptions for plans, contracts or arrangements generally available to employees, officers or directors, and which provide for the same method of allocation between management and non-management employees.
  • Amendments. Disclosure of a material amendment to a material definitive agreement may be required under Item 1.01 even if the underlying agreement previously has not been disclosed by the company. This could occur if, for example, the agreement was entered into prior to the effective date of the new Form 8-K requirements, or the amendment results in the agreement becoming a material definitive agreement.
  • Letters of Intent and Other Non-Binding Agreements Not Covered. The SEC eliminated the proposed requirement that companies disclose their entry into non-binding agreements. The SEC also replaced the proposed definition of "agreement" with "material definitive agreement" and clarified that only agreements which 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 by the company, are required to be disclosed, regardless of whether the material definitive agreement is subject to stated conditions.
  • Thus, for example, a material definitive agreement which is subject to customary closing conditions, such as the delivery of legal opinions or comfort letters, completion of due diligence or regulatory approval, must be disclosed when the agreement is enforceable against or by the company despite the fact that 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 or no-shop provision, the letter or memorandum does not trigger a disclosure obligation assuming that the binding provisions are not material.
  • First "Public Announcement" Filing. The filing of the Form 8-K may constitute the first "public announcement" for purposes of Rule 165 under the Securities Act and Rule 14d-2(b) or Rule 14a-12 under the Exchange Act and thereby triggers a filing obligation under those rules. To avoid duplicative filings, the SEC amended Form 8-K to enable a company to check one or more boxes on the cover page to indicate that it is simultaneously satisfying its filing obligations under these rules, provided that the Form 8-K contains all of the information required by those rules.
  • Termination of Agreement. With respect to termination of a material definitive agreement (other than by expiration or completion of performance by all parties), the company must disclose:
  • The date of the termination of the material definitive agreement, the identity of the parties to the agreement and 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.
  • No disclosure is required during negotiations or discussions regarding termination unless and until the agreement has been terminated.
  • No disclosure is required 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 a material definitive agreement has not been terminated, but determines nevertheless to make disclosure under Form 8-K, the company could disclose 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. In such event, an amendment may be required to the Form 8-K if the company’s conclusion as to termination changes because of a loss of, or change in, its good-faith belief. 

This article is presented for informational purposes only and is not intended to constitute legal advice.

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