G Corporate Finance Alert March 2004 SEC Adds Eight New Disclosure Items to Form 8-K, Expands Existing Disclosure Items and Shortens the Form 8-K Filing Deadline to Four Business Days By Peter H. Ehrenberg, Esq., Steven M. Skolnick, Esq. and Douglas N. Bernstein, Esq. T he United States Securities and Exchange deadline for most items was five business days or 15 Commission (the “SEC”) has approved the calendar days, depending on the nature of the event. adoption of final rules that: The new four business day rule does not apply to · voluntary 8-K disclosures, disclosures made pursuant create eight new disclosure items to Form 8-K; · to Regulation FD and certain 8-K exhibits. expand two existing Form 8-K disclosure Eight New Form 8-K Disclosure Items items; · transfer two disclosure items that previously New Item 1.01 – Entry into a Material Definitive were required to be included in annual and Agreement quarterly reports; and New Item 1.01 requires the disclosure of material · definitive agreements 1 that are not entered into in shorten the Form 8-K filing deadline to four the ordinary course of business. Under Item 1.01, (4) business days. an issuer must also disclose any material As a result of the addition of new disclosure items amendment to a material definitive agreement to Form 8-K, the SEC has reorganized the reportable (including material amendments after August 23, items into eight topical categories (one of which is 2004 to material agreements entered into before reserved for later use). As a result, companies will August 23, 2004). Companies must understand need to review the new categories to ensure that they that if they enter into a material amendment to a are complying with the new numbering. material agreement not previously disclosed, they will need to disclose the amendment. Effective Date An issuer must disclose the following The new requirements will become effective on information upon entry into, or a material August 23, 2004. The new requirements are applicable amendment of, a material definitive agreement: to all domestic issuers, including small business issuers and issuers that are not accelerated filers. 1 Companies should review Item 601(b)(10) of Regulation S-K when Accelerated Filing Deadline determining whether or not an agreement is material. The new rules The new rules require companies to file required do not require disclosure of letters of intent or other non-binding current reports on Form 8-K within four business days agreements, except in the unusual circumstances where a binding provision in such a document is, in itself, material. of a reportable event. Under previous rules, the filing This document is published by Lowenstein Sandler PC to keep clients and friends informed about current issues. It is intended to provide general information only. L Roseland, New Jersey Telephone 973.597.2500 65 Livingston Avenue www.lowenstein.com 07068-1791 Fax 973.597.2400
G · · a brief description of any material relationship the date on which the agreement was entered between the issuer and/or its affiliates and any into or amended (as applicable); · of the parties to the agreement; the identity of the parties to the agreement; · · a brief description of the terms of the a brief description of any material relationship agreement that are material to the issuer; between the issuer and/or its affiliates and any · a brief description of the material other parties to the agreement; and · circumstances surrounding the termination; a brief description of the terms of the and agreement or amendment that are material to · any material early termination penalties the issuer. incurred by the issuer. Although the SEC encourages companies to file the agreement as an exhibit with the Form 8-K New Item 2.03 – Creation of a Direct when feasible, the new rules do not require Financial Obligation or an Obligation under companies to file such exhibits until the filing of an Off-Balance Sheet Arrangement their next Annual Report on Form 10-K or New Item 2.03 requires the disclosure of the Quarterly Report on Form 10-Q. Notably, the SEC following information if the issuer becomes has maintained a separate category for obligated under a direct financial obligation 2 that is consummation of acquisitions or dispositions of material to the issuer: assets (formerly Item 2 and now Item 2.01 of Form · the date on which the issuer becomes 8-K). Many companies will use Item 1.01 when obligated on the direct financial obligation; entering into an agreement to acquire or dispose of · assets and then disclose the closing of the a brief description of the transaction or transaction under Item 2.01 if such transaction agreement creating the obligation; · meets the Item 2.01 thresholds. a brief description of other terms or conditions that are material to the issuer; and · New Item 1.02 – Termination of a Material a brief description of the nature and amount Definitive Agreement of the obligation, including the material terms New Item 1.02 requires disclosure if a material 2 This Item defines a “direct financial obligation” as any of the definitive agreement not made in the ordinary course following: · of business is terminated other than by expiration or a long-term direct obligation, as defined in Item completion if such termination is material to the 303(a)(5)(ii)(A) of Regulation S-K; · issuer. In such instances, the issuer must disclose: · a capital lease obligation, as defined in Item 303(a)(5)(ii)(B) the date on which the agreement was of Regulation S-K; · terminated; an operating lease obligation, as defined in Item · 303(a)(5)(ii)(C) of Regulation S-K; or · the identity of the parties to the agreement; a short-term (generally less than one year) debt obligation that arises other than in the ordinary course of business.
G New Item 2.04 – Triggering Events that under which it may become a direct Accelerate or Increase a Direct Financial obligation (if applicable) or may be accelerated or increased and the nature of Obligation or an Obligation under an Off- any recourse provisions that would enable the Balance Sheet Arrangement issuer to recover from third parties. New Item 2.04 requires an issuer to file a Form 8-K if a triggering event causing the increase or In addition, if the issuer becomes directly or acceleration of a direct financial obligation 3 of the contingently liable for an obligation that is issuer occurs and the consequences of the event material to the issuer arising from an off-balance are material to the issuer. In such instances, the sheet arrangement, it must provide the following issuer must disclose: additional information: · · the date of the event; the date on which the issuer becomes · directly or contingently liable on the a brief description of the transaction or obligation; agreement under which the direct financial · obligation was created and is increased or a brief description of the transaction or accelerated; agreement creating the obligation; · · a brief description of the triggering event; a brief description of the nature and amount · of the obligation, including the material the amount of the direct financial obligation, terms under which it may become a direct as increased if applicable, and the terms of obligation (if applicable) or may be payment or acceleration that apply; and · accelerated or increased and the nature of any other material obligations of the issuer any recourse provisions that would enable that may arise, increase, be accelerated or the issuer to recover from third parties; become direct financial obligations as a result · the maximum potential amount of future of the triggering event or the increase or payments (undiscounted) that the issuer acceleration of the direct financial obligation. may be required to make (if different); and In addition, if a triggering event occurs causing · a brief description of other terms or the issuer’s obligation under an off-balance sheet conditions that are material to the issuer. arrangement to increase or be accelerated, or causing an issuer’s contingent obligation under an Issuers must understand the interplay between Item 2.03 and Item 2.04. Issuers will be required off-balance sheet arrangement to become a direct to file an 8-K under Item 2.03 at the time they become contingently liable for an obligation arising out of an off-balance sheet arrangement if 3 New Item 2.04 defines “direct financial obligation” by reference to the liability is material to the issuer, and would be the definition in Item 2.03 (see footnote 2) but adds that for the purposes of Item 2.04 such term includes an obligation arising out of required to file a Form 8-K under Item 2.04 if an off-balance sheet arrangement that is accrued under FASB such contingent liability becomes a direct Statement of Financial Accounting Standards No. 5, Accounting for financial obligation of the issuer. Contingencies , as a probable loss contingency.
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