SEC Update A P R I L 2 0 0 4 Part I SEC Adopts Additional Form 8-K Disclosure Requirements On March 16, 2004, the Securities and Exchange Commission (SEC) adopted additional Form 8-K disclosure requirements expanding the number of events that must be reported on Form 8-K (SEC Release No. 33-8400; 34-49424). The new disclosure requirements further the “real time” disclosure directives in Section 409 of the Sarbanes-Oxley Act of 2002, and are effective as of August 23, 2004. Pursuant to the Release, issuers who are subject to the reporting requirements of Sections 13(a) and 15(d) of the Exchange Act of 1934, as amended, other than foreign private issuers, are required to file current reports on Form 8-K within four business days of a triggering event. The amendments do not affect the filing deadline for Regulation FD disclosures, voluntary disclosures and certain exhibits. The Form 8-K items have been reorganized under section headings using a new numbering system. Eight new items have been added to the list of events that require disclosure on Form 8-K, two items were transferred from the periodic reporting requirements and two existing items will require expanded disclosure under the new rules. In addition, a limited safe harbor from liability under Exchange Act of 1934 (“Exchange Act”) Section 10(b) and Rule 10b-5 promulgated thereunder was adopted for failure to file certain of the required Form 8-K reports. Significant changes to Form 8-K are discussed below. Material Definitive Agreements Item 1.01 requires disclosure of material definitive agreements entered into outside of the ordinary course of business, as well as any material amendments to material definitive agreements. Item 1.01 does not require the material definitive agreement be filed as an exhibit to the Form 8-K; rather, as in the past, the agreement must be filed with the issuer’s next periodic report. If the agreement relates to a business combination or other extraordinary corporate transaction and the Form 8-K disclosure is the first public announcement of the transaction, the issuer may trigger additional filing obligations under Rule 165, Rule 14d-2(b) and/or 14a-12. If the disclosure of the material definitive agreement on Form 8-K satisfies the issuer’s filing obligations under those Rules, the issuer can note this by checking the appropriate box that has been added to the cover page of the Form 8-K. Item 1.02 requires disclosure of the termination of a material definitive agreement if such termination (a) is not the result of expiration of the term or completion of the obligations under the agreement and (b) is material to the company. Completion of Acquisition or Disposition of Assets Item 2.01 requires disclosure if a company, or any of its majority-owned subsidiaries, has acquired or disposed of a significant amount of assets, other than in the ordinary course of business. This Item requires basically the same disclosure as previously required by Item 2 of Form 8-K, with a few exceptions. The Release clarifies that typically a company will be required to report entry into a material definitive agreement to acquire or dispose of assets using Item 1.01 and, later, to disclose the closing of the applicable transaction under Item V A L U E A D D E D , V A L U E S D R I V E N. SM
S E C U P D A T E A P R I L 2 0 0 4 2 2.01. However, in some cases, acquisition or disposition agreements disclosed under Item 1.01 may not require later disclosure under Item 2.01 because Item 2.01 includes a bright-line reporting threshold. Direct Financial Obligation or Obligation under an Off-Balance Sheet Arrangements Item 2.03 requires disclosure of information with respect to direct financial obligations that are material to the company. Further, companies must disclose information about direct or contingent liabilities for material obligations arising out of an off-balance sheet arrangement. Direct financial obligations include certain long-term debt obligations, capital lease obligations, operating lease obligations and short-term debt obligations that arise other than in the ordinary course of business. Disclosure is required within four business days after the company enters into an enforceable agreement, or after the occurrence of the closing or settlement of the transaction or arrangement, under which the direct financial obligation arises or is created. However, a company must provide disclosure regarding off-balance sheet arrangements, whether or not a party to the transaction or agreement, within four business days of the earlier of (a) the fourth business day after the contingent obligation is created or (b) the day on which an executive officer becomes aware of the contingent obligation. If the company enters into a facility, program or similar arrangement that gives rise to direct financial obligations in connection with multiple transactions, the company must disclose such arrangement and its material obligations as they arise. Finally, if the obligation to be disclosed is a security, or a term of a security, that has been or will be sold pursuant to an effective registration statement of the company, a Form 8-K is not required if the prospectus contains the information required by Item 2.03 and is filed within the required time period under Securities Act Rule 424. Item 2.04 requires disclosure on Form 8-K if a triggering event occurs causing the increase or acceleration of a direct financial obligation of the company and the consequences of the event are material to the company. Further, Item 2.04 requires disclosure if a triggering event occurs 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, and the consequences of any such event are material to the company. Similar to the requirements of Item 2.03, disclosure is required if a triggering event occurs in respect of an obligation described above, whether or not the company is a party to the transaction or agreement. However, no disclosure is required unless and until a triggering event has occurred in accordance with the terms of the relevant agreement, transaction or arrangement and all conditions to such occurrence have been satisfied, except the passage of time. It should be noted that, for purposes of Item 2.04, the term “direct financial obligation” differs slightly from that found in Item 2.03 in that it includes certain obligations that arise out of off-balance sheet arrangements. Costs in Connection with Termination of Employees or Disposition of Assets Item 2.05 requires the issuer to provide disclosure regarding the company’s commitment to enter into an exit or disposal plan or to dispose of a long-lived asset or terminate employees pursuant to a plan of termination described in paragraph 8 of FASB Statement of Financial Accounting Standards (SFAS) No. 146, in each case under which material charges will be incurred under generally accepted accounting principles (GAAP) applicable to the company. If at the time of the commitment and filing of the related Form 8-K the company is unable to make a good faith estimate of the charges, then it must file an amendment to its Item 2.05 Form 8-K within four business days after it is able to come up with such an estimate of the charges. Material Impairments Item 2.06 requires disclosure if a company concludes that a material charge for impairment to one or more of the company’s assets, including, without limitation, an impairment of securities or goodwill, is required under GAAP applicable to the company. As is the case under Item 2.05, if at the time of filing of the Form 8-K the company is unable to make a good faith estimate of the charges, then it must file an amendment to its Item 2.05 Form 8-K within four business days after it is able to come up with such an estimate of the charges. Despite the foregoing disclosure requirement, instructions to Form 8-K provide that no disclosure is required on Form 8-K if the conclusion regarding the material V A L U E A D D E D , V A L U E S D R I V E N. SM
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