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Form 8-K Amendments Expand Disclosure Requirements
and Accelerate Filing Deadline

By Sandra Gallagher-Alford
[April 2004]

The Securities and Exchange Commission (SEC) has overhauled Form 8-K to expand the number of reportable events and reduce the filing deadline to four business days for most reports. The new rules become effective on Aug. 23, 2004.

The SEC adopted these changes 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 a company’s financial condition or operations as determined by the SEC. As noted in the June 2002 proposing release, the SEC is concerned that companies are not currently required to report many corporate events on Form 8-K, and companies may delay reporting even significant matters until the next periodic report. The newly adopted amendments are designed to provide investors with better and faster disclosure of significant corporate events. In addition to the required disclosures described below, any disclosure made on Form 8-K must include all other material information necessary to make the required disclosure, in light of the circumstances under which it is made, not misleading.

The June 2002 proposing release had solicited comments on a two-business-day filing requirement, which could be extended by up to an additional two business days under Rule 12b-25. The final rules have adopted a four business day filing deadline, but that deadline cannot be extended by filing a Form 12b-25.

The following discussion briefly summarizes each of the items that will be reportable on Form 8-K for events occurring on and after Aug. 23, 2004. A table of these items appears at the end of the discussion.

Section 1 - Registrant's Business and Operations

Item 1.01 Entry into a material definitive agreement

Companies must report entering into or amending any material definitive agreement which was not entered into in the ordinary course of business. A material definitive agreement is defined as one which provides for obligations that are material to and enforceable against the company, or enforceable by the company against another party to the agreement. Disclosure of a material amendment may be required even if the material agreement was not previously disclosed if the original agreement predated the Form 8-K amendments, or if the amendment results in the agreement becoming material to the company.

For purposes of Item 1.01, companies should disclose (a) the date of the agreement or amendment, the parties to the agreement and any material relationship between the parties outside of the agreement, and (b) a brief description of the terms and conditions.

Notably, the new rules require a report only for a “binding material agreement,” unlike the initial June 2002 proposal, which would have required disclosure of non-binding agreements such as a letter of intent or memorandum of understanding.

Companies may elect to file a copy of the agreement as an exhibit to the Form 8-K, but if not so filed, it must be filed with the next periodic report or registration statement.

Because the filing of a Form 8-K under this item may constitute the first “public announcement” of a business combination for purposes of Securities Act Rule 165 and Exchange Act Rule 14d-2(b) or Rule 14a-12, it may trigger a filing obligation under those rules. As a result, the SEC amended Form 8-K so that companies may check boxes on the cover page to indicate that they are satisfying their obligations under these other rules, so long as the Form 8-K contains all of the information required by those rules.

Item 1.02 Termination of a material definitive agreement

Companies must report termination of any material definitive agreement other than by expiration or performance by all parties of their obligations.

For purposes of Item 1.02, a company should disclose (a) the date of termination, the parties to the agreement and any material relationship between the parties other than the agreement, (b) a brief description of the terms and conditions of the agreement, (c) the material circumstances surrounding the termination, and (d) any material early penalties incurred by the company.

While not required by the new rules, companies also may choose to avail themselves of the safe harbor for forward-looking statements under Sections 21D and 21E of the Exchange Act to announce or describe management’s expectations about the effects of the termination on future revenues, expenses or operations.

Item 1.03 Bankruptcy or Receivership

This item retains the basic requirements formerly included in Item 3 regarding the bankruptcy or receivership of a company or its parent.

Section 2 - Financial Information

Item 2.01 Completion of Acquisition or Disposition of Assets

This item retains the basic requirements of former Item 2. In transactions that have a delayed closing, a company ordinarily will report its entry into a material definitive agreement to acquire or dispose of assets under Item 1.01, and then later disclose the closing of the acquisition or disposition transaction under Item 2.01. However, while the Item 1.01 reporting threshold turns on “materiality,” Item 2.01 has specific disclosure triggers arising upon an acquisition or disposition where the net book value of the assets or the amount paid or received for the assets exceeds 10 percent of the total assets of the company and its consolidated subsidiaries, or where the transaction involved a business that is significant under Regulation S-X. For transactions reportable under Item 2.01, Item 9.01 requires companies to furnish as exhibits to Form 8-K certain financial statements and information with respect to businesses acquired, and copies of the plan of acquisition or disposition.

Item 2.02 Results of Operations and Financial Condition

This item is substantially the same as former Item 12 regarding public announcements or releases of material non-public information about a company's results of operations or financial condition for purposes of compliance with Regulation FD. Specifically, Regulation FD requires public disclosure of such information simultaneously or promptly following the disclosure of such information to a broker, dealer, investment adviser, investment company or, under certain circumstances, a security holder.

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

This new item requires a report if the company becomes obligated under a material direct financial obligation (defined as a long-term debt obligation, a capital lease obligation, an operating lease obligation, or a short-term debt obligation that arises outside the ordinary course of business). In reporting under this item, the company should disclose (a) the date of the obligation and a brief description of the transaction or agreement creating the obligation, (b) the amount of the obligation, including payment terms and, if applicable, a brief description of the material terms under which it may be accelerated or increased, and (c) a brief description of other material terms and conditions.

In addition to the foregoing information, if the material obligation arises out of an off-balance sheet arrangement, the company should also provide a brief description of the nature and amount of the obligation under the arrangement.

In addition, the company must file a report if the company becomes directly or contingently liable for a material obligation arising out of an off-balance sheet arrangement.

Item 2.04 Triggering Events that Accelerate or Increase a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement

This new item requires a company to file a Form 8-K report if a triggering event causes a direct financial obligation to increase or accelerate, or if the company becomes directly or contingently liable for an off-balance sheet obligation. The disclosure must describe the arrangement (including the amount of the obligation), provide a brief description of the triggering event, and report any existing or expected cross-defaults or other material obligations that arise as a result.

If the terms of the arrangement require notice of a triggering event from another party, such as a default that arises only upon the delivery of notice, then no disclosure is required until notice is received. Similarly, no disclosure is required under this item if the company believes, in good faith, that no triggering event has occurred, unless the company has received a notice from the counterparty. In that instance, the company must report that it has received a notice of default, and may state its conclusion that a triggering event has not occurred, but if the company’s conclusion changes it must amend the previous report within four business days thereafter.

The company also must file a report under this item if a triggering event causes a company's obligation under an off-balance sheet arrangement to increase or be accelerated, or causes a company's contingent obligation under an off-balance sheet arrangement to become a direct financial obligation of the company.

Item 2.05 Costs Associated with Exit or Disposal Activities

This new item requires disclosure when the company commits to an exit or disposal plan or otherwise disposes of a long-lived asset, or terminates employees under a plan which will result in material charges under generally accepted accounting principles. The company must report an estimate of the total costs, as well as estimated future cash expenditures.

If at the time of filing the company is unable to make a good faith estimate of the amount of the charges, it must amend the Form 8-K within four business days after formulating an estimate.

Item 2.06 Material Impairments

This new item requires disclosure when a company concludes that a material charge for impairment to one or more of its assets, including an impairment of securities or goodwill, is required under generally accepted accounting principles. However, there is no need to file a Form 8-K if the conclusion is made at the end of a fiscal quarter or year in connection with the preparation, audit or review of financial statements so long as the relevant disclosure is included in the next quarterly or annual report.

Section 3 - Securities and Trading Market

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

This new item requires a listed company to report its receipt of a notice from the national securities exchange or association that the company or a class of its securities does not satisfy a continued listing criterion, or that the exchange or association has submitted an application or taken all necessary steps under the applicable rules to delist the security. The company must disclose the date of the notice, the rule or standard that it has failed to satisfy, and any responsive action that the company plans to take.

The company also must report if it has notified the national securities exchange or association that it is aware of any material noncompliance with a rule or standard for continued listing.

In addition, a company must report any action which it has taken to delist its securities or transfer its listing to another securities exchange or quotation system.

Item 3.02 Unregistered Sales of Equity Securities

This new item requires a company to disclose information regarding the sale of securities in a transaction that is not registered under the Securities Act if the aggregate sales constitute 1 percent or more of the outstanding securities in a particular class (or 5 percent in the case of a small business issuer). The filing is required within four business days after (a) the company enters into an enforceable agreement to sell the securities, or (b) the closing of a transaction in which the securities are sold. This report supplants a previous reporting requirement that had been included in quarterly and annual reports.

Item 3.03 Material Modifications to Rights of Security Holders

This new item requires a company to disclose material modifications to the rights of the holders of any class of the company's registered securities along with the general effect of such modifications, including any working capital restrictions and other limitations upon the payment of dividends. Reports under this item generally will include, for example, debt arrangements that have dividend payment restrictions, as well as the designation of a series of preferred stock from a class of “blank check” preferred.

Section 4 - Matters Related to Accountants and Financial Statements

Item 4.01 Changes in Registrant's Certifying Accountant

This item is substantively the same as former Item 4, requiring disclosure of the resignation, dismissal or engagement of an independent accountant, including the disclosures previously required under Item 304 of Regulation S-K.

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

This new item requires a company to file a Form 8-K if the company concludes that any of the company's previously issued financial statements should no longer be relied upon because of an error in such financial statements.

Similarly, if the company’s independent accountant advises that disclosure should be made or action should be taken to prevent future reliance on a previously issued audit report or completed interim review related to previously issued financial statements, the company must identify the financial statements, the timing of the notice, and describe the information provided by the accountant. In this case, the company must provide the independent accountant with a copy of the disclosures no later than the same day it files these disclosures with the SEC. The company also must request that the independent accountant furnish a letter addressed to the SEC stating whether the accountant agrees with the statements made by the company and if not, the respects in which he or she does not agree. The company must then file an amendment to the previous Form 8-K which includes the independent accountant's letter as an exhibit within two business days of the company's receipt of the letter.

Section 5 - Corporate Governance and Management

Item 5.01 Changes in Control of Registrant

This item is substantially the same as former Item 1, requiring the name of the person(s) who acquired control, the amount and source of the consideration, the basis of the control, the date and a description of the transaction, the percentage of the voting securities owned by the person(s) who acquired control, and the identify of the former control person(s).

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

This item expands former Item 6 as follows:

Item 5.02(a) requires disclosure if a director has resigned or refuses to stand for re-election to the board of directors because of a disagreement with the company on any matter relating to the company's operations, policies or practices, or if a director has been removed for cause from the board of directors. The disclosure must include the date of the event, any positions held by the director on any board committee at the time of the event, and a brief description of the attendant circumstances.

If the director furnished the company with any written correspondence concerning the circumstances surrounding his or her resignation, refusal or removal, the company must file a copy of the correspondence as an exhibit to the report on Form 8-K whether or not the director requested such filing. The company must provide the director with a copy of the disclosures it is making in response to this item no later than the day the company files the disclosures with the SEC. The company also must provide the director with the opportunity to furnish a letter addressed to the company stating whether he or she agrees with the company's disclosures in response to this item and, if not, the respects in which he or she does not agree. Finally, the company must file an amendment to the previous Form 8-K which includes any such letter it receives from the director as an exhibit within two business days after the company receives the letter.

Item 5.02(b) requires disclosure upon the retirement, resignation or termination of the company's principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer or any person performing similar functions. The item also requires disclosure when a director retires, resigns, is removed or declines to stand for re-election for reasons other than those described under Item 5.02(a).

Item 5.02(c) requires disclosure upon the appointment of a new principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer or person performing similar functions. A company must disclose the officer’s name, position, date of appointment, background, transactions with the company, and a brief description of the material terms of any employment agreement.

Item 5.02(d) requires disclosure upon the election of a new director without a vote of security holders at an annual meeting or a special meeting. A company must disclose the new director’s name, date of election, any arrangement or understanding surrounding the new director’s selection, any committees to which the director has been, or is expected to be, named, and certain related transactions between the new director and the company.

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

This item requires disclosure of any amendment to a company’s articles of incorporation or bylaws which was not adopted by the shareholders pursuant to a previously filed proxy statement or information statement. The company only needs to file the text of the amendment as an exhibit to Form 8-K as long as it files the restated articles or bylaws as an exhibit to its next periodic report.

Disclosure regarding a change in a company’s fiscal year was previously required under former Item 8, including the date of determination, the date of the new fiscal year, and the form on which the report covering the transition period will be filed.

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

This item is substantially the same as former Item 11, including disclosure of the date the company received the notice required by the Employment Retirement Income Security Act of 1974.

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

This item is substantially the same as former Item 10. The report should include a brief description of any amendment to or waiver from a company’s Code of Ethics.

Section 7 - Regulation FD

Item 7.01 Regulation FD Disclosure

This item is the same as former Item 9. Companies should use this item to report information pursuant to Regulation FD not otherwise disclosed under Item 5.

Section 8 - Other Events

Item 8.01 Other Events

This item is the same as former Item 5, under which a company may report any events not otherwise required by Form 8-K.

Section 9 - Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits

This item amends former Item 7 to ensure that financial statements required to be filed in connection with an acquisition reported under Item 2.01 are due 71 days after the date the initial report on Form 8-K was required to be filed.

Safe Harbor

Because of the shortened filing deadlines for reporting events on Form 8-K, and the short time for management to assess the materiality of certain events, the SEC has adopted a new limited safe harbor from public and private claims under Exchange Act Section 10(b) and Rule 10b-5 for a failure to timely file a Form 8-K with respect to the following items:

The safe harbor does not affect the SEC’s ability to enforce any of the Form 8-K filing requirements under the foregoing sections. Furthermore, the safe harbor only applies to a failure to file a report on Form 8-K, and does not cover material misstatements or omissions in a Form 8-K, nor does it excuse a company from Section 10(b) and Rule 10b-5 liability for disclosure obligations during an offering or when the company has a separate affirmative disclosure obligation.

It should be noted that the safe harbor extends only until the due date of the periodic report for the relevant period in which the Form 8-K was not timely filed; the disclosure must be provided in the periodic report.

Eligibility to Use Forms S-2 and S-3 and Rule 144

Companies that fail to file timely reports required by the items to which the safe harbor is applicable will not lose their eligibility to use Form S-2 and S-3 registration statements as a consequence. However, companies must have disclosed these items before they file a Form S-2 or S-3.

The SEC also amended Rule 144 to provide that even if a company does not file all required reports on Form 8-K, its shareholders can still use Rule 144 for resales of securities; however, selling shareholders will continue to be required to represent that they have no material nonpublic information at the time of sale.

The following table summarizes the new list of reportable events, including items previously reportable on Form 8-K:

This bulletin is only a summary of the new rules, which are available in full on the SEC’s website at http://www.sec.gov/rules/final/33-8400.htm.

FOR FURTHER INFORMATION, PLEASE CONTACT:

Sandra Gallagher-Alford Seattle, Washington (206) 628-7620 sgallagher-alford@dwt.com

This Corporate Finance Advisory is a publication of the Business Transactions/Corporate Finance Group of Davis Wright Tremaine LLP. Our purpose in publishing this Advisory is to inform our clients and friends of developments in business, corporate finance and securities laws. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

Copyright © 2004, Davis Wright Tremaine LLP

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