Beginning August 23, 2004, public companies must report additional events on a reconfigured Form 8-K. In addition, Form 8-K filing deadlines generally will be shortened to four business days. These changes are the result of the Securities and Exchange Commission's (the "SEC") Form 8-K amendments adopted on March 11, 2004 ("Form 8-K Amendments") (see SEC Release 33-8400). Although the SEC's original Form 8-K proposal pre-dated the Sarbanes-Oxley Act of 2002 (the "Act"), final adoption of the amendments is responsive to the Act's explicit mandate for public companies to report presumptively material information "on a rapid and current basis." The Form 8-K Amendments also signal the possible beginning of the transition from a "periodic" to a "continuous" public company reporting system.
Executive Summary
Currently, there are 12 events whose disclosure is covered by Form 8-K. Ten of these events require the filing of a Form 8-K, while two of these events may be disclosed on a Form 8-K at the option of a company.
The Form 8-K Amendments expand the current Form 8-K disclosure relating to resignations of directors to include the following four additional events:
- the election or appointment of new directors (other than at an annual meeting or special meeting of shareholders);
- the departure of any director for any reason;
- the resignation or termination of a company's principal executive officer, president, principal financial or accounting officer, principal operating officer or person performing a similar function to any such officers ("Senior Executive Officers"); and
- the appointment of any Senior Executive Officer.
The Form 8-K Amendments expand the current Form 8-K disclosure item regarding a change in a company's fiscal year to include any material amendment to a company's charter documents, which include its articles, charter, by-laws or partnership agreement.
The Form 8-K Amendments also add the following eight new disclosure items:
- entry into (or amendment of) a material definitive agreement not made in the ordinary course of business;
- termination of a material definitive agreement not made in the ordinary course of business;
- creation of a material direct financial obligation or a material financial obligation under an off-balance sheet arrangement;
- triggering events that accelerate or increase a material direct financial obligation or a material obligation under an off-balance sheet arrangement;
- material costs associated with exit or disposal activities, including material write-offs or restructuring charges;
- any material impairment to a company's assets, including an impairment of securities (e.g. equity investments in troubled companies) or goodwill;
- action taken by a company or a national securities exchange or inter-dealer quotation system (collectively "SROs"), to delist the company's securities; the company's notification to the SRO or receipt of an SRO notice that the company is not in compliance with the SRO's listing standards; or receipt of a public reprimand letter from an SRO respecting the company's failure to comply with the SRO's listing requirements; and
- conclusion reached by management that the company's previously issued financial statements should not be relied upon, or the company's receipt of a notice from its independent accountant that the independent accountant is withdrawing a previously issued audit report or informing the company that it may not rely on a previously issued audit report.
The Form 8-K Amendments move some disclosure from a company's annual or quarterly reports to Form 8-K. These items are:
- unregistered sales of equity securities by a company; and
- material modifications to rights of holders of the company's securities.
As a result of the Form 8-K Amendments, there will be 18 mandatory disclosure items and two optional disclosure items that will be disclosable on Form 8-K. The Form 8-K Amendments also effect the following changes:
- all mandatory Form 8-K filings must be filed within four business days after the date of the event without the ability to extend the filing deadline pursuant to Rule 12b-25 under the Securities Exchange Act of 1934 (the "Exchange Act");
- several existing Form 8-K disclosure items are amended and conforming changes are made to other SEC provisions;
- Form 8-K disclosure items are renumbered and reorganized into logical categories; and
- a limited safe harbor is created from Section 10(b) and Rule 10b-5 fraud liability and from the loss of eligibility to use short-form registration statements for the late filing of a Form 8-K for seven of the new Form 8-K items (excluding new Form 8-K item relating to changes in SRO listing).
New Form 8-K Disclosure Requirements
As noted above, the Form 8-K Amendments add eight items to Form 8-K, require that some of the disclosure that is currently required to be disclosed in a company's annual or quarterly report be disclosed on a Form 8-K, and substantially expand two existing Form 8-K disclosure items. Several existing Form 8-K disclosures are revised and reorganized. If an event is required to be disclosed under more than one item, multiple Form 8-K filings are not required nor do different items in Form 8-K need to be duplicated; instead, one Form 8-K referencing all the relevant item numbers should be filed. Appendix A to this memorandum outlines the disclosure requirements of Form 8-K, including the Form 8-K Amendments.
The Form 8-K Amendments do not affect the disclosure provided by foreign private issuers on Form 6-K.
Uniform Filing Deadline for Most Mandatory Items under New Form 8-K
Except for the optional matters currently disclosed under Item 5 of Form 8-K (events that a public company may voluntarily disclose), and Item 9 of Form 8-K (Regulation FD disclosures), the Form 8-K Amendments require the filing of a Form 8-K within four business days of the date of the event prompting disclosure. For example, if a new CEO is appointed on a Tuesday, an Item 5.02(c) Form 8-K must be electronically filed with the SEC by 5:30 p.m. EST on the following Monday. The SEC did not amend Rule 12b-25 to provide for an extension of Form 8-K filing deadlines.
Limited Effect of Untimely Form 8-K Filings on Short Form Registration Statement Eligibility
In a significant change from the proposing release, the Form 8-K Amendments generally do not increase the potential for loss of short-form registration statement eligibility for delinquent Form 8-K filings. Prior to the Form 8-K Amendments, a company that failed to file a mandatory Form 8-K in a timely manner lost, for a period of up to 12 months, the ability to use short-form registration statements, such as Forms S-2 and S-3, to register public offerings by the company or by selling security holders.
Only the new Form 8-K item relating to SRO listing requirements (Item 3.01 of Form 8-K) and other pre-existing mandatory Form 8-K disclosures (Items 1.03, 2.01, 3.02, 3.03, 4.01, 5.01, 5.02, 5.03, 5.04 and 5.05) will continue to result in the loss of short-form registration statement eligibility for up to 12 months. An untimely Form 8-K filing under the other seven new disclosure items, which differ from the rest because they presumptively require greater analysis by a company before disclosure can be made, will not affect short-form registration statement eligibility; however, a company is not permitted to file a Form S-2, S-3 or S-8 registration statement until the delinquent Form 8-K filing is made.
Failure to File Form 8-Ks No Longer Affects Rule 144 Eligibility
The Form 8-K Amendments also amend Rule 144's current public information requirements. Currently, the failure of a company to have filed all required Exchange Act reports, including required Form 8-Ks would prohibit the Rule 144 resales of persons who have held restricted securities for less than two years and affiliates who have held restricted securities for more than one year. However, the Form 8-K Amendments permit these persons to rely upon Rule 144 to sell their securities even if the company has not yet filed any required Form 8-K.
Creation of a Form 8-K Safe Harbor from Liability for Late Filing
All information disclosed on Form 8-Ks, except for Regulation FD information and earnings releases "furnished" to the SEC pursuant to the requirements of Form 8-K will continue to be considered "filed" under Section 18 of the Exchange Act. As a result, a company's disclosure in Form 8-K "filings" will continue to be subject to SEC enforcement actions and private rights of action under Sections 13(a) and 15(d) of the Exchange Act and Sections 11, 12, 13(a), 15(d) and 17 of the Securities Act of 1933. The Form 8-K Amendments create a safe harbor (importantly different from the safe harbor under the Private Securities Litigation Reform Act of 1995 ("1995 Reform Act")) only from liability under Section 10(b) and Rule 10b-5 of the Exchange Act as the result of a company's failure to file seven of the eight new Form 8-K disclosure items.
These seven items are the same disclosure items that do not affect the company's short form registration statement eligibility (i.e., Items 1.03, 2.01, 3.02, 3.01, 4.01 and 5.01-5.05). The Form 8-K safe harbor only shields a company from Section 10(b) and Rule 10b-5 liability due to the company's failure to file. The Form 8-K safe harbor protections continue until the company's next quarterly or annual report. Failure to make the required disclosure in the next periodic report will subject the company to potential liability under Section 10(b) and Rule 10b-5, in addition to potential liability under Section 13(a) or 15(d). In addition, the Form 8-K safe harbor does not protect a company from liability for the content of any Form 8-K. Therefore, material misstatements or omissions in a Form 8-K will continue to be subject to Section 10(b) and Rule 10b-5 liability. Companies can still protect themselves for mistaken or misstated forward-looking statements with a properly crafted 1995 Reform Act safe harbor cautionary statement.
Conclusion
When the SEC originally proposed amending Form 8-K, the SEC staff characterized the added new disclosures as "unquestionably significant events in the life of a public company." While most public companies already disclose these types of events, many have not disclosed these events on a current basis, instead waiting to provide disclosure in their next quarterly or annual reports. Many of the new Form 8-K items will require significant financial analyses and sensitive drafting decisions in a very a compressed period of time. As a result of the Form 8-K Amendments, management, with the assistance of their employees, outside auditors and legal counsel will have to analyze the materiality of events on a more "real time" basis. Prior to the August 23, 2004 effective date of the SEC Amendments, companies must review their disclosure controls and procedures and implement changes to ensure that the expanded information will be disclosed in a timely and efficient manner.