SEC Expands and Accelerates Form 8-K Reporting

The Securities and Exchange Commission has amended Form 8-K to expand the number of items reportable and shorten the deadline for filing. These amendments, although originally proposed prior to adoption of the Sarbanes-Oxley Act of 2002, are responsive to its mandate for “real time” disclosure by public companies under Section 409. (See SEC Release No. 33-8400, available at http://www.sec.gov/rules/final/33-8400.htm.) The amendments become effective August 23, 2004.

The amendments stem from the SEC’s concern that current Form 8-K requires public companies to report very few significant corporate events, allowing delays in reporting most ongoing material developments until the next periodic report on Form 10-Q or 10-K. The amendments make Form 8-K the new vehicle for “rapid and current” disclosure of a broad array of material developments. Eight new trigger items have been added, two items transferred from periodic reports, two items expanded, and all items reorganized and renumbered into topical categories. A limited safe harbor has also been created to prevent antifraud liability and other adverse consequences solely due to failure to file a Form 8-K for certain events.

The new Form 8-K reporting items and deadline will pose a significant new test of the effectiveness of any public company’s disclosure controls and procedures. All public companies should begin focusing immediately on the adequacy of controls and procedures to meet this new challenge.

New Filing Deadlines

Currently, a Form 8-K is due, depending on the context, either within five business days or fifteen calendar days of the triggering event. The amendments originally proposed by the SEC in June 2002 contemplated a two-business-day filing deadline, with an automatic two-day extension upon filing of Form 12b-25. In response to numerous comments regarding the short filing deadline and complexity of the 12b-25 extension procedure, the SEC adopted a four-business-day deadline for most items in the amended Form 8-K, with no extension available under Form 12b-25.

New and Expanded Reporting

While the new Form 8-K significantly expands the amount and type of information to be disclosed, the SEC did not adopt proposed rules requiring a “mini-MD&A” regarding the impact of certain types of reportable events on the company. Many commenters noted, and the SEC agreed, that such analysis may be difficult and result in premature disclosure given the short filing deadlines.

Given the large number of items to be reported, amended Form 8-K reorganizes and renumbers current, expanded and new trigger items into topical categories. A complete outline of the topical categories and related trigger items (indicating which are current, transferred from a periodic report, expanded or new) is contained in the appendix to this Corporate Update. Under the new numbering system, new and expanded items include:

Item 1.01 Entry into a Material Definitive Agreement. Entry into any material contract not made in the ordinary course of business must be reported, as well as any material amendment to a material contract. The term “material contract” is identical to the definition used by companies to determine which contracts to file as exhibits to their periodic reports. Companies need not file the contract or amendment as an exhibit to Form 8-K, but must instead file it with their next periodic report. This item only applies to definitive contracts, not to non-binding agreements, such as letters of intent.

Item 1.02 Termination of a Material Definitive Agreement. Termination of any material contract not made in the ordinary course of business must be reported, unless (1) the termination is not material to the company, (2) the contract expired on a stated contract termination date or (3) termination occurred as a result of all parties having completed their obligations under the contract. No disclosure is required during negotiations or discussions regarding termination of a material contract or if the company believes in good faith that the contract has not been terminated.

Item 2.03 Creation of Direct Financial Obligation or Obligation under an Off-Balance Sheet Arrangement. A company must report when it becomes a party to a material, direct financial obligation enforceable against it. Reporting is also required upon creation of a direct or contingent obligation arising out of an off-balance sheet arrangement, even if the company is not a party to the arrangement. If neither the company nor any affiliate of the company is a party to the arrangement creating the contingent obligation, the filing deadline is the earlier of (1) the eighth business day after the contingent obligation is created or (2) the fourth business day after an executive officer of the company becomes aware of the contingent obligation. A direct financial obligation includes a long-term debt obligation, a capital lease obligation, an operating lease obligation or a short-term debt obligation other than in the ordinary course of business.

Item 2.04 Triggering Events that Accelerate or Increase Obligations. A company must disclose a triggering event resulting in the increase or acceleration of a direct financial obligation if the consequences are material to the company. Likewise, a triggering event causing a company’s obligation under an off-balance sheet arrangement to increase or be accelerated, or causing a company’s contingent obligation under an off-balance sheet arrangement to become a direct financial obligation of the company, must be reported if the consequences are material to the company.

Item 2.05 Costs Associated with Exit or Disposal Activities. Commitment to an exit or disposal plan, disposal of long-lived assets or termination of employees under a plan of termination triggers disclosure under this item. If the company can make a good faith estimate of the amount of the charges, the estimate must be included in the disclosure. If no good faith estimate is available at the time of the filing, the company must file the estimate within four business days after the estimate has been formulated.

Item 2.06 Material Impairments. Upon concluding that a material charge for impairment to one or more of its assets, including securities or goodwill, is required under GAAP, the company must describe the assets impaired and the company’s estimate of the charge. If no good faith estimate is available at the time of the filing, the company must file the estimate within four business days after the estimate has been formulated. If the conclusion regarding a material charge is made in connection with the preparation, review or audit of the financial statements, reporting on Form 8-K will not be required as long as the information is included in the periodic report covering that period.

Item 3.01 Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing. Companies will be required to report several types of communications with the national securities exchange or national securities association that maintains the principal trading market for their common equity. Any public reprimand letter from the NYSE, any notice indicating that the company is not in compliance with listing standards or that the company’s securities are being delisted must be reported. Further, the NYSE, AMEX and Nasdaq now require listed companies to notify the exchange or market when the company becomes aware of material, noncompliance with listing standards. This notification must also be disclosed.

Item 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 should no longer be relied upon due to an error in the financial statements, it must disclose the period in question, the facts underlying this conclusion and whether the company has discussed the issue with its accountants. Similar disclosure is required if the company’s accountants advise the company to take action to prevent continued reliance on previously issued financial statements. No analysis of the impact of the error is required. Disclosure is only required under this item due to an error with the financial statements, not as a result of every restatement.

Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers. This disclosure item significantly expands the current Form 8-K requirement which relates solely to departure of a director due to disagreement. Currently, even if a director departs due to disagreement, disclosure is only required when the director provides a letter to the company describing the disagreement and requests that the letter be made public. Under the new item, all appointments of and departures by directors and certain senior officers of the company must be reported. If a director resigns or refuses to stand for reelection due to a disagreement or is removed for cause, the company must disclose the circumstances around the disagreement and file a copy of any correspondence from the director regarding the circumstances of his or her departure, even if public disclosure has not been requested by the director. If a departure is not due to a disagreement or for cause, no disclosure is required regarding the reasons for an individual’s departure.

Safe Harbor for Failure to File

Because of the difficulty inherent in quick judgments regarding materiality and need to file under some of the new Form 8-K items, the SEC has adopted a limited safe harbor that will protect the company from (1) antifraud liability under Exchange Act Section 10(b) and Rule 10b-5 or (2) loss of eligibility to use abbreviated registration statement forms (i.e., Forms S-2 and S-3) under the Securities Act of 1933, solely as a result of failure to make a timely filing on Form 8-K. The failure-to-file safe harbor relates only to Items 1.01, 1.02, 2.03, 2.04, 2.05, 2.06 and 4.02(a) of amended Form 8-K, each of which requires management to make assessments regarding materiality or a determination regarding the occurrence of a triggering event.

The antifraud liability safe harbor relates only to the failure to file and not to misstatements or omissions that are made in Form 8-K disclosure. The liability safe harbor extends only until the due date of the company’s next periodic report (in which the required disclosures must be made).

Conclusion

The new Form 8-K reporting requirements will require companies to assess and respond to ongoing developments more quickly than ever before. Given the significantly expanded triggers and contracted reporting deadlines, public companies should begin immediately to review their disclosure controls and procedures and to ensure that all relevant officers and employees are aware of the rigors required in “real time” reporting.

Section 1 - Registrant’s Business and Operations

• Item 1.0 - Entry into a Material Definitive Agreement (New Item)
• Item 1.02 - Termination of a Material Definitive Agreement (New Item)
• Item 1.03 - Bankruptcy or Receivership (Current Item 3)

Section 2 - Financial Information

• Item 2.01 - Completion of Acquisition or Disposition of Assets (Current Item 2)
• Item 2.02 - Results of Operations and Financial Condition (Current Item 12)
• Item 2.03 - Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant (New Item)
• Item 2.04 - Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement (New Item)
• Item 2.05 - Costs Associated with Exit or Disposal Activities (New Item)
• Item 2.06 - Material Impairments (New Item)

Section 3 - Securities and Trading Markets

• Item 3.01 - Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing (New Item)
• Item 3.02 - Unregistered Sales of Equity Securities (Transferred from Periodic Reports)
• Item 3.03 - Material Modifications to Rights of Security Holders (Transferred from Periodic Reports)

Section 4 - Matters Related to Accountants and Financial Statements

• Item 4.01 - Changes in Registrant’s Certifying Accountant (Current Item 4)
• Item 4.02 - Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review (New Item)

Section 5 - Corporate Governance and Management

• Item 5.01 - Changes in Control of Registrant (Current Item 1)
• Item 5.02 - Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers (Expanded Item)
• Item 5.03 - Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year (Expanded Item)
• Item 5.04 - Temporary Suspension of Trading Under Registrant’s Employee Benefit Plans (Current Item 11)
• Item 5.05 - Amendments to the Registrant’s Code of Ethics, or Waiver of a Provision of the Code of Ethics (Current Item 10)

Section 6 - [Reserved]

Section 7 - Regulation FD

• Item 7.01 - Regulation FD Disclosure (Current Item 9)

Section 8 - Other Events

• Item 8.01 - Other Events (Current Item 5)

Section 9 - Financial Statements and Exhibits

• Item 9.01 - Financial Statements and Exhibits (Current Item 7)