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Securities: Changes to SEC Form 8-K
Kenneth B. Abel
410-347-7394
kbabel@ober.com
The New Form 8-K, Generally
Section 409 of the Sarbanes-Oxley Act included a mandate that important business events be reported to
investors in "real-time." The SEC, in order to encourage such real time disclosure, has adopted new rules
regarding Form 8-K disclosures. These rules become effective August 23, 2004. The new rules:
- Reorganize the form into the nine sections listed in this memo;
- Change the time allowed for filings from five business days to four, with safe harbor provisions that limit
some 10(b) and 10b-5 liability for late filing;
- Add eight new disclosure events;
- Transfer two items from annual and quarterly forms to the Form 8-K; and
- Substantially expand two existing Form 8-K disclosure events.
The new Form 8-K and its requirements are explained in greater detail below, but if you have more detailed
questions regarding the new regulations, please call Ken Abel at 410-347-7394 (kbabel@ober.com).
The New Form 8-K, Section by Section
The new Form 8-K organizes company data into nine sections. Each section reflects a different
aspect of the company's business, and eight of the sections contain disclosure items. This memo will briefly
explain the requirements under each section.1
Section 1 – Business and Operations
1.01 - Entry Into a Material Definitive Agreement
A company must file an 8-K after entering into or amending a "Material Definitive Agreement." A "Material
Definitive Agreement" is an agreement that obligates the company, or obligates someone to the company, and
is important enough that a rational investor would find it relevant to their investment decision. The 8-K must
disclose:
- The date of the agreement,
- The names of the parties to the agreement,
- Any material relationships between the company and the other parties, and
- A description of the agreement, including all terms that are material to the company.
Companies are not required to attach the agreement itself as an exhibit. Companies are urged to do so,
but only are required to include the agreement with their next periodic report.
1.02 - Termination of a Material Definitive Agreement.
A company must file an 8-K if one of their "Material Definitive Agreements" terminates early, unless
the termination is the result of the parties completing their obligations or a termination date specified in the
agreement. An 8-K detailing the end of an agreement must include all of the information required for item 1.01
above, as well as a brief description of the material circumstances surrounding the termination and any
penalties the company must pay because of the termination.
1.03 - Bankruptcy or Receivership
This disclosure item has remained substantively unchanged in the new 8-K. Where an authority, pursuant to
any law, has assumed jurisdiction over a company's assets and either appointed a fiscal agent or subjected
the company to outside financial supervision, that company must disclose the name of the proceeding, the
identity of the authority, the date jurisdiction was assumed, and the name of the agent and the date he or
she was appointed.
If an order confirming a plan of reorganization or liquidation has been entered by an authority as
described above, a company subject to that order must disclose the identity of the authority, the date of the
order, a summary of the plan, a copy of the plan, information regarding outstanding securities, and information
regarding the financial condition of the company on the date of the order. This information may be presented
in the same form in which it was presented to the court or authority overseeing the plan.
Section 2 – Financial Information
2.01 - Completion of Acquisition or Disposition of Assets
This disclosure item has remained substantively unchanged in the new 8-K. A company who has
recently bought or sold a significant portion of its assets, other than in the ordinary course of business, must
disclose:
- The date the transaction was completed,
- A brief description of the assets involved,
- The identity of the person(s) from whom the assets were acquired or to whom they were sold and the
nature of any material relationship, other than in respect of the transaction, between such person(s) and the
company or any of its affiliates, or any director or officer of the company, or any associate of any such
director or officer,
- The nature and amount of consideration given or received for the assets and, if any material relationship is
disclosed pursuant to the prior paragraph, the formula or principle followed in determining the amount of such
consideration, and
- If the transaction being reported is an acquisition and if any material relationship is disclosed, the
source(s) of the funds used (subject to certain exceptions).
2.02 - Results of Operations and Financial Condition
This disclosure item has remained substantively unchanged in the new 8-K. If a company, or any
person acting on its behalf, makes a public announcement or release (including an update of an earlier
announcement or release) disclosing material non-public information regarding the company's results of
operations or financial condition for a completed fiscal period, the company must file an 8-K identifying the
release and the date it occurred, and attaching the text of the release as an exhibit.
The company does not need to file an 8-K if:
- The information is provided during a presentation that is complementary to and occurs within 48 hours of a
written announcement that has been disclosed on Form 8-K,
- The information is widely accessible to the public (including over the internet),
- The financial and statistical information is provided on the company's website together with any
information required with respect to non-GAAP financial measures, and
- The presentation was announced by a widely disseminated press release that gave instructions on how to
access the information and the presentation.
2.03 - Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet
Arrangement
A direct financial obligation is a long-term debt, a capital lease, or an operating lease as those terms are
defined in Regulation S-K, or any short term debt (generally, less than one year) arising outside the ordinary
course of business. If a company becomes obligated on such an agreement, it must file an 8-K disclosing:
- The date it becomes obligated,
- A brief description of the transaction or agreement creating the obligation,
- The amount of the obligation, including its payment terms and, if applicable, a brief description of the
circumstances under which it may be increased or accelerated, or the provisions that would allow recovery
from third parties, and
- A brief description of any other material terms.
If the company becomes directly or contingently liable for an obligation that is material to it and arises out
of an off-balance sheet arrangement, the company must disclose all of the items above, as well as the
maximum potential amount of (undiscounted) future payments the company may be required to make.
If the company becomes contingently obligated under an off-balance sheet transaction that neither the
company nor any of its affiliates is a party to, the four days to file an 8-K does not begin until the day one of
the company's executive officers becomes aware of the obligation, or the fourth day after the obligation is
created or arises, whichever comes first.
2.04 - Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation
under an Off-Balance Sheet Arrangement
A company must file an 8-K when an event triggers an acceleration or increase of a direct financial
obligation under an off-balance sheet arrangement that, taking into account its effect on other agreements
and obligations, is material to the company. That 8-K must disclose:
- The date of the triggering event,
- A description of the underlying transaction or agreement,
- A description of the triggering event,
- The nature of the obligation,
- The amount of the obligation,
- The terms of payment or acceleration on the obligation, and
- Any other material obligations that may arise, increase, or accelerate as a result of the triggering
event.
No disclosure is required under this item until a triggering event has occurred in accordance with
the terms of the relevant agreement. Therefore, if the agreement requires that the company be notified
before acceleration, no 8-K disclosure is required until such notification is made.
2.05 - Costs Associated with Exit or Disposal Activities
Whenever a company commits to dispose of long lived assets or termination of employees according
to certain termination plans, and, as a result of that commitment, incurs material charges, that company must
disclose:
- The date it was committed to that plan,
- A general description of the plan, including the circumstances surrounding the company's commitment and
its expected completion date, and
- Estimates of the total amount or range of amounts the plan is expected to cost.
If the company cannot in good faith estimate its projected costs it need not include them,
however, it must file an amended 8-K including those amounts within four days of when it does make such
estimates.
2.06 - Material Impairments
When a company concludes that it must, under generally accepted accounting principles, record a
material charge or impairment to one or more of its assets, including securities and goodwill, it must file an
8-K. The 8-K must disclose:
- The date such a conclusion was reached,
- A description of the assets subject to the charge,
- The estimated amount of the charge or impairment, and
- The circumstances leading to the conclusion that a charge must be recorded.
A company need not include an estimate of the amount of the charge if it is unable to make a
good faith estimate of the amount of that charge, but must file an amended 8-K within four days of making
such an estimate. Similarly, if the company only comes to the conclusion that it must record such a charge
during preparation of its next periodic financial statement the company need not file an 8-K as long as the
conclusion is sufficiently disclosed in the timely periodic statement.
Section 3 – Securities and Trading Market
3.01 - Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of
Listing
If a company receives notice from the principle trading market for its equity securities that the
company or its securities no longer satisfies all of the rules for continued listing, or are otherwise subject to
delisting, it must file an 8-K disclosing:
- The date it received the notice,
- The requirement it failed to fulfill,
- The reason for the delisting, and
- The company's planned response.
If a company has notified its principle trading market that it is aware of any material noncompliance with a
rule or standard for continued listing the company must file an 8-K. That 8-K must include the date the
company provided the notice, the rule or standard the company failed to meet, and any action the company
intends to take.
If the organization that maintains the principle listing for any class of a company's common
equity issues a public reprimand letter or similar communication noting that the company has failed to meet a
rule or standard for continued listing, that company must file an 8-K disclosing a summary of the contents of
the letter and the date it was received.
If a company takes definitive action to cause a listing of a class of its common equity to be
withdrawn from a national securities exchange or any other entity primarily responsible for its trading, the
company must file an 8-K disclosing a description of the action and the date it was taken.
3.02 - Unregistered Sales of Equity Securities
This is one of the two disclosure items that have been transferred to Form 8-K from quarterly and annual
reports. The information disclosed remains the same; if a company sells securities without registering the
transaction under the Securities Act of 133, it must disclose:
- The date of the sale,
- The title and amount of securities sold,
- The consideration paid,
- The exemptions from registration claimed, and
- The terms of conversion or exercise of the securities, if there are any.
This item only applies when the amount of equity sold since a company's last periodic statement (or 8-K
where disclosures under this section are made) is more than 5%2 of the
number of shares outstanding.
3.03 - Material Modifications to Rights of Security Holders
This is the second disclosure item shifted to Form 8-K from the periodic reports. Where a company
has materially modified the instruments defining the rights of the holders of the company's registered
securities, the company must file an 8-K. That 8-K must include the class of securities involved, a brief
description of the general effects of such modifications on the holders' rights, and the date of the change.
If the rights of any class of securities have been materially limited or qualified by the issuance or
modification of any other class of the company's stock, the company must file an 8-K. That 8-K must include
a description of the general effect of such issuance or modification on the rights of other securities holders
and the date it occurred.
Section 4 – Matters Related to Accountants and Financial Reporting
4.01 - Changes in Registrant's Certifying Accountant
This disclosure item has remained substantively unchanged in the new 8-K. If an independent accountant who
was previously engaged as the principal accountant to audit the company's financial statements, or an
independent accountant upon whom the principal accountant expressed reliance in its report, resigns, declines
to stand for reappointment, or is dismissed, the company must disclose certain facts as detailed in Regulations
S-B or S-K. Similar disclosures must be made if a new independent accountant has been engaged as either
the principal accountant to audit the company's financial statements or an independent accountant on whom
the principal accountant is expected to express reliance.
4.02 - Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or
Completed Interim Review
If a company concludes that its previously issued financial statements contain an error and should
not be relied upon, it must file an 8-K disclosing:
- The date such a conclusion was reached,
- The financial statements that should no longer be relied upon,
- A description of the facts underlying that conclusion, and
- Whether the relevant matters were discussed with the company's independent accountant.
If an independent accountant advises or otherwise notifies a company that it should make
disclosures or take other action to prevent future reliance on its previously issued financial statements, that
company must file an 8-K disclosing:
- The date it was notified,
- The financial statements that should no longer be relied upon,
- A description of the information provided by the accountant, and
- Whether the relevant matters were discussed with the company's independent accountant.
Additionally, the company must provide the accountant with the disclosure required under this
rule no later than the day it files its obligatory 8-K. The accountant then must issue a letter to the company
indicating whether it agrees with the disclosures. That letter must be filed as an exhibit to an amended 8-K
within two business days of its receipt.
Section 5 – Corporate Governance and Management
5.01 – Changes in Control of Registrant
This disclosure item has remained substantively unchanged in the new 8-K. If a change in the
control of the company has occurred, the company must file an 8-K disclosing:
- The identity of the person(s) who acquired control,
- The date of the transaction that resulted in the change in control,
- A description of that transaction,
- The basis of the control, including the percentage of voting securities now owned by the acquirer,
- The amount of consideration used by the acquirer,
- The source of funds, unless all or any part of the funds are a loan made in the ordinary course of business
by a bank, the person who has acquired control has made a request for confidentiality, and states that they
have made such a request and filed the identity of the bank separately,
- The identity of the persons from whom control was assumed,
- Any understandings between the new and old control groups, and
- The information required under Regulation S-K and S-B where applicable.
5.02 - Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal
Officers
This item significantly expands the comparable disclosure items from the old Form 8-K. If an executive officer
knows that a director has resigned or has refused to stand for re-election as a result of a dispute over
company policy, or if a director has been removed for cause, then even where the director does not
request it, the company must file an 8-K disclosing:
- The date of the event,
- The circumstances surrounding the event,
- The position held by the director on any committee of the board, and
- A description of the circumstance management believes caused the event.
If the director sends the company any documents concerning the event, those documents must be
summarized within the 8-K and copies must be filed as exhibits. The director must be given a copy of these
disclosures no later than the day they are filed so that he or she may promptly provide a letter confirming
whether the director agrees with the disclosure.
If a director resigns, declines to stand for re-election, or has been removed for any reason other than as
described above, or if any principal executive officer, president, principal financial officer, principal accounting
officer, principal operating officer or any person performing similar functions resigns or is terminated, then the
company must file an 8-K disclosing the date that occurred.
If a new principal executive officer, president, principal financial officer, principal accounting
officer, principal operating officer or any person performing similar functions is appointed, the company must
file an 8-K disclosing:
- The new officer's name, age, position, and date of appointment, and term of office,
- A description of any arrangement between the new officer and any other persons pursuant to which the
officer was selected, including names and the material provisions of any employment contract,
- The new officers business experience, if any,
- Any family relationships with board members or executives, and
- Any significant transactions between the company and its new officers.
If the company elects a new director by some means other than a vote of securities holders at a
proper meeting, the company must file an 8-K disclosing:
- The name of the new director,
- The date of his or her election,
- A brief description of any arrangement between the new director and any other person pursuant to which
the director was selected,
- The committees the new director is expected to serve, and
- Any significant transactions between the new director and the company.
For both the appointment of a new executive officer and the election of a new director,
extensions to the four-day deadline are available. If the company is planning on announcing the personnel
change through some means other than an 8-K (for instance, in a press release), then the 8-K need not be
filed until the day of such announcement. Similarly, if, at the time of filing, the company cannot determine
what committees the new director will serve, or whether there have been significant transactions between the
company and the new director, it need not include those items in its original 8-K. However, when those facts
are known, or are available, the company must file an amended 8-K disclosing them.
5.03 - Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year
If a company with a class of equity securities registered under Section 12 of the Exchange Act amends its
articles of incorporations or bylaws and the company did not propose the amendment in a filed proxy or
information statement, it must file an 8-K disclosing a description of the amendment and its effective date.
The amendment itself must be filed as an exhibit to the 8-K, and the full text of the revised articles or bylaws
must be filed as an exhibit to the company's next periodic financial report.
If a company with a class of equity securities registered under the 1934 act changes its fiscal
year through some means other than a vote of its securities holders or an amendment to its articles or bylaws,
it must file an 8-K disclosing the date of the new year end, the form on which the transition period will be
disclosed, and the date this decision was made.
5.04- Temporary Suspension of Trading Under Registrant's Employee Benefit Plans
This disclosure item has remained substantively unchanged in the new 8-K. Certain events require
the filing of an 8-K disclosing facts listed in Regulation BTR.
5.05- Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of
Ethics
This disclosure item has remained substantively unchanged in the new 8-K. Where an amendment to
a company's code of ethics, applicable to certain executive officers, has been made, an 8-K must be filed
disclosing the nature and date of the amendment.
Where a waiver of the code of ethics has been granted to certain specified executive officers,
the company must file an 8-K disclosing the nature of the waiver, its beneficiary, and the date it was granted.
A company need not make disclosures on Form 8-K for the events in section 5.05 if it noted in its
most recent annual report that it intends to disclose all such information through its website and has in fact
disclosed the required information on its website.
Section 6 – Reserved
Section 7 – Regulation FD
7.01- Regulation FD Disclosure
This disclosure item has remained substantively unchanged in the new 8-K. Only those items that a company,
pursuant to Regulation FD, chooses to disclose through Form 8-K need be disclosed in Section 7. For more
information, please see Ober Kaler's previous memorandum addressing Regulation FD.
Section 8 – Other Events
8.01- Other Events
This disclosure item has remained substantively unchanged in the new 8-K. A company may, if it desires,
disclose any information not otherwise required by Form 8-K that it deems material to securities holders. This
section may also be used to make the disclosures required under Regulation FD.
Section 9 – Financial Statements and Exhibits
9.01- Financial Statements and Exhibits
Several disclosure events require that certain exhibits be filed along with the 8-K. Section 9 provides a place
to list all of the exhibits attached to the 8-K. It also provides for the filing of an acquired business' financial
statements, and those statements required under Article 11 of Regulation S-X.
The New Filing Deadline and Safe Harbor Provisions
The new four day filing time shortens the time in which companies may investigate and digest information
before disclosure.3 While there are exceptions, notably that some
disclosure items allow certain facts to be reported after the four day deadline in an amended Form 8-K, this
accelerated timeline caused some concern that decisions of materiality made in haste would lead to liability
under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.
The SEC responded to these concerns by creating a safe harbor for items 1.01, 1.02, 2.03, 2.04,
2.05, 2.06, and 4.02(a) of the Form 8-K. For these items, failure to timely file a Form 8-K will not create
liability under 10(b) or 10b-5. This safe harbor only extends to the date of the company's next periodic
report; the information must be disclosed before or in that report. If a company fails to disclose the relevant
information in both its Form 8-K and its next periodic report, it may face liability under Section 10(b) and
10b-5 in addition to other sections of the Exchange Act regarding the company's periodic reporting obligations.
Similarly, the safe harbor provision only applies to information that must be disclosed pursuant to the Form 8-K
requirements. If the obligation to disclose arises from another source, for instance the issuance of securities,
then the safe harbor provisions do not apply.
The safe harbor provisions also protect a company's eligibility to use registration Forms S-2 and
S-3. The company must become current in all of their Form 8-K obligations before filing either Form S-2 or
S-3, but as long as they do so, they are free to use the forms.
Conclusion
The new Form 8-K imposes significant additional obligations on companies, and requires them to comply with
their obligations in a limited period of time. Proper planning is necessary in order to anticipate events that may
require the filing of an 8-K. If you have any questions regarding the new regulations, please call Ken Abel at
410-347-7394 (kbabel@ober.com).
1Section 6 is reserved and does not contain any disclosure items.
25% is the small business threshold, otherwise obligations are triggered
at 1%.
3It does not shorten the Regulation FD deadlines; under Regulation FD,
a Form 8-K must be filed simultaneously with an intentional disclosure of non-public information and within 24
hours of a senior official's learning of an unintentional disclosure of non-public information. For more
information, please see Ober Kaler's previous memorandum addressing Regulation FD.
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