SEC Approves Significant New Form 8-K Disclosure Events and Filing Deadlines

By Robert J. Pile, Geoffrey W. Edwards, Cynthia M. Krus and Geoffrey W. Edwards

On March 11, 2004, the Securities and Exchange Commission (the "SEC") approved rule changes that will dramatically change the content and timing of current disclosures required by publicly traded companies. These changes add ten disclosure items to Form 8-K, the form used by public companies to disclose important corporate events on a current basis. The changes approved by the SEC also accelerate the time in which a Form 8-K must be filed, from the current five business and 15 calendar day deadlines to a uniform four business day deadline. These new rules impose significant new burdens on public companies in terms of the volume and speed of disclosure required of them. Compliance with these new rules will be required as of August 23, 2004.

The amendments to Form 8-K approved by the SEC are summarized in the SEC’s press release announcing these amendments. Final rules have not yet been released by the SEC, and thus the specific terms of the amendments are not yet known.

The amendments to Form 8-K are responsive to the current disclosure goals of Section 409 of the Sarbanes-Oxley Act of 2002 by requiring public companies to disclose, on a "rapid and current basis," material information regarding changes in a company’s financial condition or operations. The latest amendments to Form 8-K bring the present regime of securities filings closer to the SEC’s ultimate goal of "real time disclosure."

Significantly, unlike the originally proposed Form 8-K changes, the SEC did not adopt a portion of the proposed rule that would have required public companies to disclose non-binding letters of intent related to material events such as proposed mergers and acquisitions. This proposal drew a great deal of criticism in the comment process related to the burdens imposed by requiring premature disclosure of pending transactions that are subject to significant contingencies.

The amendments to Form 8-K add eight new disclosure items, which are:

• entry into a material non-ordinary course agreement;

• termination of a material non-ordinary course agreement;

• creation of a material direct financial obligation or a material 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;

• material impairments;

• notice of delisting, failure to satisfy a continued listing rule or standard, or transfer of listing; and

• non-reliance on previously issued financial statements or a related audit report or completed interim review (i.e., financial restatements).

The amendments to Form 8-K also add two disclosure items previously included in periodic reports, such as Forms 10-K and 10-Q, which are:

• unregistered sales of equity securities; and

• material modifications to the rights of security holders.

Finally, the amendments to Form 8-K expand two current Form 8-K items to add additional disclosure:

• departure of directors or principal officers, election of directors, or appointment of principal officers (previously required disclosure only of director departures in connection with disagreements with management or removal for cause); and

• change in fiscal year and amendments to articles of incorporation or bylaws (previously only change in fiscal year required a Form 8-K filing).

The amendments will create a limited safe harbor under Securities Exchange Act of 1934, as amended. The safe harbor will preclude "antifraud" liability under Exchange Act Section 10(b) and Rule 10b-5 for failure to file timely certain of the new items on Form 8-K. The SEC has indicated that the safe harbor will not apply to, or impact, any other duty to disclose a company may have and extends only until the due date of the company’s periodic report for the relevant period. A company will not lose its eligibility to use "short form" registration statements such as Form S-3 if it files a Form 8-K late in reliance on the safe harbor.

The SEC’s amendments to Form 8-K implement the bulk of changes proposed nearly two years ago, in a release dated June 12, 2002. The intervention of the Sarbanes-Oxley Act and the rule changes that it mandated had delayed action by the SEC on these proposed rule changes. Comments on these proposed changes were numerous, and the SEC’s final amendments to Form 8-K were responsive to many of the comments. Nonetheless, the new Form 8-K requirements will undoubtedly impose new burdens on public companies and increase the already substantial efforts associated with Sarbanes-Oxley Act compliance.