Real Corporate Lawyer

The SEC Release adopting the new Form 8-K is available here. A technical amendment was also adopted. On November 23, 2004, the SEC issued Frequently Asked Questions regarding Current Report on Form 8-K .

In this outline, all references to Regulation S-K include the comparable provisions of Regulation S-B.

1. What are the new events that will trigger a Form 8-K?

Eight new items will now trigger a Form 8-K:

Entry into a material definitive agreement (Item 1.01).
Termination of a material definitive agreement (Item 1.02).
Creation of a material direct financial obligation or material obligation under an off-balance sheet arrangement (Item 2.03).
Triggering events that accelerate or increase a material direct financial obligation or material obligation under an off-balance sheet arrangement (Item 2.04).
Costs associated with exit or disposal activities that will result in a material charge (Item 2.05).
Material impairments (Item 2.06).
Notice of delisting or failure to satisfy a continued listing rule or standard, or a transfer of listing (Item 3.01).
Determinations that previously issued financial statements or a related audit report or completed interim review should no longer be relied upon (Item 4.02).

In addition, the Form 8-K significantly expands when current reporting is required for the departure or election and appointment of directors and principal officers. The requirement to report unregistered sales of equity securities and material modifications to rights of security holders was transferred from the periodic reports to the Form 8-K current report.

Other disclosure items from the previous Form 8-K remain, but they have been renumbered and reorganized.

Companies need to maintain careful disclosure controls and procedures regarding these items because often it may be difficult to recognize that a particular corporate event will trigger disclosure under the new rules. Further, some events (like appointment of principal officers, compensatory awards, M&A transactions, and financing activities) may trigger disclosure under multiple items and require multiple 8-K filings. Moreover, companies need to have the prompt disclosure requirements in mind in managing their affairs in order to avoid premature disclosure.

2. What are the new filing deadlines?

A Form 8-K generally must be filed within four business days of a reportable event. When counting, the date of occurrence is not included and the date of filing is included.

There are a few exceptions to the four business day deadline, such as a supplemental Form 8-K filed to disclose a letter from a director who has resigned because of a disagreement with the company. A company also may defer reporting the appointment of a new principal officer until it is otherwise publicly announced.

A Form 8-K filed for purposes of Regulation FD will need to comply with the timing requirements of that regulation.

3. Can a company satisfy a Form 8-K reporting requirement in Form 10-Q or Form 10-K ?

If a Form 10-Q or Form 10-K is filed before the required Form 8-K filing, the disclosure can be included under Item 5 of the Form 10-Q or Item 9B of the Form 10-K in lieu of a Form 8-K filing, except in the case of filings under Item 4.01 [Changes in Registrant's Certifying Accountants] or Item 4.02 [Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review]. See Question #1 in the SEC FAQs.

4. Do triggering events apply to subsidiaries even if the item does not refer to them?

Triggering events that are not specific to the company (such as changes in directors and principal officers) apply to both the company and its subsidiaries if the matters are material to the company. This is so whether or not the item refers to subsidiaries. See Question #2 in the SEC FAQs.

5. What material agreements must be disclosed on Form 8-K?

Item 1.01 requires that companies disclose entry into any �material definitive agreement� that is not made in the �ordinary course of business,� and any material amendment of such an agreement.

A �material definitive agreement� is defined as an agreement that provides for obligations that are material to and enforceable against the company, or rights that are material to the company and enforceable by the company (in each case whether or not subject to conditions). The SEC has not provided any definition of �material� for this purpose; companies must assess materiality on their own based on quantitative and qualitative factors under prevailing legal principles.

If an amendment causes a previously-existing agreement to become a material definitive agreement, a Form 8-K must be filed even if the company never previously disclosed the underlying agreement. However, an agreement that was not material when entered into that subsequently becomes material need not be reported on Form 8-K unless it is amended when it is material (though it will be subject to the exhibit filing requirements of Item 601 of Regulation S-K applicable to periodic reports). See Question #3 in the SEC FAQs.

Item 1.01 incorporates the exhibit filing requirements of Item 601(b)(10) of Regulation S-K into its definition of triggering events. For Item 601 (b)(10)(ii) purposes, certain contracts are considered not in the ordinary course, even if such contracts are of a type that ordinarily accompanies the kind of business engaged in by the company (i.e., a contract upon which the company's business is �substantially dependent� is not in the ordinary course).

As a general rule, any agreement that would need to be filed as an Exhibit 10 to a periodic report now must be described in a Form 8-K within four business days of signing. Correspondingly, the interpretations of what is a material agreement for purposes of Form 8-K�particularly compensatory arrangements�affect the determination of what needs to be filed as an Exhibit 10.

A copy of the agreement or amendment is not required to be filed as an exhibit to the Form 8-K, but must be filed as an exhibit to the Form 10-K or Form 10-Q covering the period in which the agreement was executed or became effective. Companies may wish to file a copy of the agreement with the Form 8-K that describes it to reduce the risk that the description might be considered inadequate. Even if a company needs time to prepare a confidential treatment request (and therefore cannot file an agreement voluntarily with the Form 8-K), the company should consider the terms for which it will seek confidential treatment in order to avoid describing those terms in the Form 8-K. Also, the company may want to reach agreement with the other side of a transaction during negotiations on what terms they will seek to treat as confidential to avoid trying to re-engage each other when the next Form 10-K or Form 10-Q is due.

The filing of the agreement as an exhibit does not obviate the need to briefly describe the agreement in Item 1.01, depending on the length and complexity of the agreement. For example, a brief summary of director compensation arrangements included as an exhibit need not be summarized again in the item. Also, a descriptive reference to specific complex agreement provisions, such as financial covenants, may be sufficient.

6. Are compensatory plans required to be disclosed as material agreements?

Although it may seem that compensatory arrangements should not be covered by Item 1.01 because they are ordinary course, such arrangements often will be covered because of the exhibit filing requirements of Item 601(b)(10)(iii). Item 601(b)(10)(iii) provides that any compensatory plan, contract, or arrangement in which a director or any named executive officer, as defined in Item 402 (a)(3) of Regulation S-K, participates must be filed as an exhibit, and that any compensatory plan, contract, or arrangement in which any other executive officer participates also must be filed, unless immaterial in amount or significance. See Questions #6 and 7 in the SEC FAQs. Materiality is to be considered from the perspective of a reasonable investor and applying established standards of materiality. The plan need not be a written agreement but can be set forth in a summary sheet or board resolution or may even be an oral agreement or arrangement. See Question #5 in the SEC FAQs. Individual awards and agreements also are covered.

Based on an assessment of Item 601 (b)(10)(iii) , a Form 8-K should be filed under Item 1.01 whenever a company adopts a new compensatory plan (equity or cash) in which directors or named executive officers may participate, regardless of whether any individual awards or grants are made at the time of adoption. See Question #8 in the SEC FAQs.

One exception to this filing requirement is when the new plan would not need to be filed as an exhibit under Item 601(b) (10)(iii)(C) of Regulation S-K, including, for example, where the plan by its terms is available to employees, officers, or directors generally, and the plan, in operation, provides for the same method of allocation of benefits between management and non-management participants (e.g., employee stock purchase plans and 401(k) plans). Another exception is when a new plan is adopted subject to stockholder approval, in which case the Form 8-K requirement would be triggered when stockholder approval is obtained. See Question #8 in the SEC FAQs.

The SEC views the setting of salaries, granting of raises, and awarding of bonuses and other perquisites as compensatory arrangements or amendments of such arrangements that can trigger a Form 8-K filing requirement if the materiality criteria of Item 601 (b) (10) are met. See Question #5 in the SEC FAQs. Amendments that are immaterial do not trigger a Form 8-K filing, although an exhibit filing to the applicable periodic report may be required. Under this view, changing the salary of an executive officer employed at will as permitted by the terms of her employment agreement would trigger a Form 8-K filing unless the change was not material. (An exhibit filing in the applicable periodic report would be required for named executive officers even if the change was immaterial.) Discretionary bonuses and bonus awards under plans where the criteria have not been described with sufficient specificity or that vary from the described criteria are viewed similarly, as noted in Question 8. This area is evolving, so disclosure practices may change.

7. Do we have to file a Form 8-K every time we grant options or make an award under our equity incentive plan to an executive officer?

Whether a Form 8-K must be filed when a company grants an option or other equity award to a director or a named executive officer (and to any other executive officer, unless the �immaterial� exception applies) depends on what information the company has previously filed. Instruction 1 to Item 601 (b)(10) states that with respect to compensatory plans, it is not necessary to file each individual agreement �unless there are particular provisions in such personal agreement whose disclosure�is necessary to an investor's understanding of that individual's compensation under the plan.� Therefore, if a company has previously filed the underlying plan and the form of option (or other award) agreement, then the company does not need to file a Form 8-K under this Item for the grant so long as the grant is consistent with the form of agreement that has been filed. See Question #9 in the SEC FAQs. If the company has not previously filed the form of option (or other award) agreement, or if the award varies materially from the form that has been filed, then a Form 8-K under this Item would be required. See Question #10 in the SEC FAQs.

An adequate description of the option (or other award) agreement should be sufficient to avoid having to file actual awards before the agreement is filed as an exhibit. See Question #11 in the SEC FAQs. In many cases, the option or award agreement will be filed with the Form 8-K describing the adoption of the plan, so this will not be an issue.

In the case of an executive officer that is not a named executive officer, the same principles apply, except that the grant would not need to be reported if it is immaterial in amount or significance.

Also, with respect to the appointment of a new principal executive officer, president, principal financial officer or any person performing similar functions, Item 5.02(c) requires disclosure of material compensation terms, and would therefore require a description of equity awards granted in connection with the appointment.

8. How are bonus plans disclosed under Item 1.01?

Many companies adopt bonus plans that provide executives the opportunity to earn a bonus based on the achievement of pre-established performance goals. Typically, the bonus plan describes the class of employees eligible for awards, the general business criteria on which performance goals may be based, and the method for determining the amount of bonus (e.g., bonuses often are expressed as a percentage of base salary). In the beginning of each year, the compensation committee typically sets specific performance goals and notifies individual participants of their goals, often in the form of an individual award agreement.

A company should be able to treat a bonus plan�both the adoption of the plan and the setting of specific bonus opportunities�the same as it would treat the adoption of an equity incentive plan and the granting of options or awards under it. The adoption of a bonus plan (even before any specific performance goals have been communicated to participants) should be disclosed under Item 1.01, including a description of the general business criteria upon which awards may be based. See Question #12 in the SEC FAQs.

The setting of specific bonus opportunities and/or performance goals should not be reportable under Item 1.01 if the bonus plan (and any forms of individual award agreements) has already been filed (or adequately described as discussed in the answer to Question 7) and the goals are consistent with those described with sufficient specificity in the plan or a previously filed description of the specific performance goals. Again, the touchstone for making this determination is whether the disclosure of the specific terms is �necessary to an investor's understanding of [the] individual's compensation . . .� or, put another way, do investors have a general idea what the bonuses will be so they will not be surprised when they see them in the proxy statement.

Because the terms of a bonus award often are more varied and individually tailored than a traditional option grant, it may be more difficult to avoid a filing obligation upon the establishment of a bonus opportunity than it would be with respect to the grant of an option, at least when the option does not have performance criteria. The SEC has confirmed that, like Instruction 2 to Item 402(k) of Regulation S-K (compensation committee reports), target levels for performance-related factors and other confidential business information need not be disclosed. See Question #13 in the SEC FAQs. In many cases, companies nevertheless may want to consider seeking confidential treatment for portions of such descriptions.

The pay-out of a bonus in accordance with the terms of the plan and specifically described goals that have previously been disclosed would not trigger a Form 8-K filing. See Question #14 in the SEC FAQs.

If the bonus plan is subject to shareholder approval, a company can defer filing a Form 8-K to describe the plan until shareholder approval is obtained. See Question #12 in the SEC FAQs.

As noted in Question 6, the SEC views discretionary cash bonus awards and awards that are not consistent with previously described criteria to be compensatory arrangements that can trigger a Form 8-K filing if material. See Question #14 in the SEC FAQs. Since this is an evolving area, disclosure practices may change.

9. Will we have to file a Form 8-K for every M&A transaction?

For most companies, an M&A transaction will not be considered �in the ordinary course.� Therefore, whether an M&A transaction will trigger an Item 1.01 filing obligation will be determined based on whether the transaction is �material.� Some M&A transactions may trigger multiple filing requirements at various stages.

Before the adoption of Item 1.01, the only specific line item requirement to file a Form 8-K in connection with an M&A transaction was upon closing a �significant� transaction under old Item 2. (However, many companies voluntarily disclosed entering into significant transactions for Regulation FD and other reasons). Under the new rules, Item 2.01 preserves this filing requirement upon the completion of an acquisition or disposition of a �significant� amount of assets; Item 1.01 adds a disclosure obligation upon entering into a �material� definitive agreement .

The new cover page of Form 8-K has various boxes relating to Regulation M-A, which, if checked, obviate the need to file separately the contents of the Form 8-K under Rule 425 of the Securities Act or Rules 14a - 12, 14d - 2(b) and 13 e-4(c) of the Exchange Act.

While the term �significant� is clearly defined in Item 2.01 for transactions involving assets and in Rules 11-01(b) and 1-02(w) of Regulation S-X for transactions involving a business, the SEC provides no definition or guidance on what are �material� agreements. If a transaction is both �material� and �significant,� a Form 8-K will need to be filed both at the time the agreement is executed (under Item 1.01) and at the time the transaction is completed (under Item 2.01). However, not all material agreements will relate to significant acquisitions.

Non-binding agreements, such as letters of intent, generally will not trigger a disclosure obligation under Item 1.01, unless they contain binding provisions that are material. The SEC has stated that standard confidentiality provisions and exclusivity provisions in an otherwise non-binding letter of intent should not be viewed as material. See Note 39 of the Adopting Release. However, non-standard terms, such as an exceptionally long exclusivity provision or a material termination fee, might be material and trigger disclosure.

Several other new items may be triggered by an M&A transaction. For example, if an acquirer privately issues shares or convertible securities as merger consideration, that may trigger a filing requirement under Item 3.02 [Unregistered Sales of Equity Securities]. If, upon closing, the acquirer incurs indebtedness to finance the transaction, that may trigger a filing obligation under Item 2.03 [Creation of Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant]. If there are changes in management upon completion of the transaction, a filing under Item 5.02 might be triggered. For the target, the M&A transaction may trigger the acceleration of a direct financial obligation under Item 2.04 and may cause the target to delist its common stock, which would trigger disclosure under Item 3.01. Also, the termination of a material M&A agreement could trigger a Form 8-K filing under Item 1.02 [Termination of a Material Definitive Agreement].

The fact that the acquirer has inherited the target's material agreements or material direct or indirect obligations as part of its consolidated group ordinarily should not trigger a filing under Item 1.01 or 2.03, unless the acquirer expressly assumes or guarantees the obligation. However, an agreement of the target that is material to the acquirer would have to be filed as an exhibit to the applicable periodic report. In addition, agreements and obligations of the target that are particularly material might be disclosed as part of the description of the M&A agreement and the transaction under Item 1.01 or 2.01.

10. When will the termination of an agreement trigger a Form 8-K?

Item 1.02 requires disclosure upon termination of a material definitive agreement not made in the ordinary course of business if such termination is material to the company. For example, if an employment agreement with an executive officer is terminated upon his departure, although a filing under Item 5.02 may be required to disclose the departure, no filing under Item 1.02 would be required unless termination of the agreement brought material consequences, such as a right to significant severance.

A Form 8-K is not required where the termination is due to expiration of the agreement on the stated termination date or as a result of all parties completing their contractual obligations.

No disclosure is required during negotiations or discussions regarding termination of an agreement unless and until the agreement has been terminated or notice of termination pursuant to the terms of the agreement is received. Also, no Form 8-K is required if a company believes in good faith that an agreement has not been terminated, unless it has received notice of termination pursuant to the terms of the agreement. See Question #15 in the SEC FAQs. If a company believes a notice of termination is invalid, it may want to file a Form 8-K explaining why it believes the notice is incorrect.

Automatic renewal of the term of an agreement in accordance with its terms does not trigger a Form 8-K filing but notice of non-renewal does trigger a filing under Item 1.02. On the other hand, if the agreement provides for renewal upon notice of either party, a Form 8-K filing under Item 1.01 would be triggered by the renewal notice unless the other party could reject the notice. If a no renewal notice is sent or if the other party rejects the notice so that the agreement terminates, no filing is triggered. If the notice is sent and not rejected, the expiration of the rejection period triggers the filing. See Questions #16 and 17 in the SEC FAQs.

Because of the difference in treatment, careful consideration should be given to the drafting of these contract provisions with awareness of the Form 8-K filing requirements. If agreements are expected to continue in effect, automatic renewal provisions may be preferable.

11. What is a direct financial obligation or off-balance sheet arrangement and when will they trigger a Form 8-K?

Item 2.03(a) requires disclosure if a company becomes obligated under a direct financial obligation that is material to the company. A �direct financial obligation� is defined as any of the following:

a long-term debt obligation;
a capital lease obligation;
an operating lease obligation; or
a short-term debt obligation that arises other than in the ordinary course of business.

Item 2.03(b) imposes a similar disclosure requirement if a company becomes directly or contingently liable for an obligation that is material to the company arising out of an off-balance sheet arrangement. �Off-balance sheet arrangement� is defined as it is for purposes of MD&A disclosure under Item 303 of Regulation S-K. Examples include a guaranty, a keep-well commitment, and a repurchase obligation. If the company is not a party to the transaction creating the off-balance sheet contingent obligation, it may have up to four additional business days to become aware of the existence of the obligation before a filing is due, but companies must have adequate controls and procedures in place to ensure that they become timely aware of the obligation. See Question #18 in the SEC FAQs.

The SEC does not define �material� for this purpose but leaves it to general concepts of materiality as developed by the courts. The SEC has indicated that a refinancing on similar terms might not be material depending on the circumstances. See Question #19 in the SEC FAQs.

The need to report material direct financial obligations creates special difficulties because previously companies just booked an obligation for inclusion on their quarterly financial statements without having to differentiate based on materiality. In addition, operating leases, which are not balance sheet items under GAAP, are included as direct financial obligations.

A company will want to consider in advance appropriate criteria for assessing materiality, recognizing that quantitative standards, while they can be helpful, do not stand alone and must be considered along with qualitative standards. Other sources of guidance, although not determinative, might be looked to by analogy. For example, under Item 103 of Regulation S-K, damage claims are not reportable if they do not exceed 10% of current assets, and under Item 601(4) of Regulation S-K there is a limited exception to exhibit filing for long-term debt instruments if the debt does not exceed 10% of total assets. The definition of �significant subsidiary� under Regulation S-X also might provide some assistance.

12. Do we have to file a Form 8-K upon entering into a new credit facility?

The filing obligation under Item 2.03 will be triggered both at the time of entering into a material credit facility (even before any money is borrowed) and at the time of any material drawdowns. Since disclosure of the execution of a material credit agreement (or material amendment thereto) would be required under Item 1.01 of Form 8-K as a material agreement, the company should cross-reference Item 2.03 in that filing and be certain that the requirements of both items are met in the disclosure. Also, it is possible that any material drawdowns will be caused by events that may trigger other Form 8-K filings obligations (e.g., the closing of a significant acquisition).

A credit facility for a specific purpose that has not yet occurred, such as a potential acquisition, should not be viewed as material, unlike a general liquidity facility, and therefore a Form 8-K filing should not be required. On the other hand, a general acquisition credit facility for a company that has grown through acquisitions might be material.

Short-term debt arising in the ordinary course need not be reported. The SEC does not define �ordinary course.� If a company regularly uses a short-term commercial paper program or a routine working capital line, continuing the practice on a basis consistent with the past would appear to be in the ordinary course. However, until there is further guidance, commencing such an arrangement or making significant changes in the nature or amount of the arrangement or its usage should be considered other than ordinary course and therefore reportable.

13. Do we have to file a Form 8-K every time we do a debt offering?

Both public and private debt offerings, such as a Rule 144A offering, can trigger disclosure under Item 2.03. Entering into the underwriting or initial purchaser agreement for these offerings does not trigger a filing under Item 2.03 because these agreements, as contrasted with the indenture or note, do not create the obligation. The SEC has instead referred to the need to file these agreements under Item 1.01 if they are material. See Question #4 in the SEC FAQs.

Ordinarily, when there is a normal settlement period, it should be possible to conclude that the underwriting or initial purchaser agreement is not material. On the other hand, if there is to be an extended period before settlement, there might be need for a filing. The treatment of straight debt is to be distinguished from equity securities, for which Form 8-K disclosure under Item 3.02 is triggered upon entering into the underwriting or purchase agreement, as described in Question 18.

The identity of the underwriter may be omitted to comply with the safe harbor from general solicitation under Rule 135c of the Securities Act. See Question #4 in the SEC FAQs. For public debt offerings, such as shelf take-downs, a company can satisfy its Item 2.03 disclosure obligation if it timely files a final prospectus with the SEC.

Other Form 8-K filing requirements may be triggered by a debt offering. As noted above, private convertible debt offerings can trigger Form 8-K disclosure under Item 3.02 [Unregistered Sales of Equity Securities] at the time the purchase agreement is signed. Also, in order to comply with Regulation FD and, in the case of private offerings, Rule 135c of the Securities Act, many companies file a Form 8-K under either Item 8.01 [Other Events] or Item 7.01 [Regulation FD Disclosure] at the time of commencing the offering and/or at the time of pricing.

14. Do we have to file a Form 8-K if a direct financial obligation or an obligation under an off-balance sheet arrangement is accelerated or increased?

Item 2.04 requires that a Form 8-K must be filed if an event, such as an event of default, accelerates or increases a direct financial obligation if the consequences of the event are material to a company. Once filing is triggered, it must be made even if the matter has been cured before the filing is due.

Required disclosures include:

the date of the triggering event;
a brief description of the underlying obligation or arrangement;
a brief description of the triggering event
the amount of the direct financial obligation;
the terms of payment or acceleration that apply; and
any other material obligation of the company that may arise, increase, be accelerated or become direct financial obligations as a result of the triggering event or acceleration of the direct financial obligation.

Similar disclosures also must be provided if a triggering event causes a company's obligations 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, and the consequences of such event are material to the company. For example, a guaranteed obligation may become payable.

No disclosure is required unless and until a triggering event has occurred in accordance with the terms of the relevant agreement, transaction or arrangement, including, if required, a declaration of default and the sending of notice, but not the passage of time. Once such a notice has been sent, the company no longer can claim to have a good faith belief that a triggering event has not occurred. If the triggering event does not require a declaration or notice, just its occurrence requires disclosure. See Question #20 in the SEC FAQs. Therefore, these provisions should be drafted with the Form 8-K reporting requirements in mind.

15. When will exit or disposal activities trigger a Form 8-K?

Item 2.05 requires disclosure when a company's board of directors, a board committee, or an authorized officer commits the company to an exit or disposal plan or otherwise disposes of a long-lived asset or terminates employees under a plan of termination, if material charges will be incurred under GAAP. Those charges are not limited to the costs addressed by SFAS 146 [Accounting for Costs Associated with Exit or Disposal Activities] but pick up other costs (such as those addressed by SFAS 87, 88, 106 and 112). See Question #21 in the SEC FAQs.

Required disclosure includes:

the date of the commitment to the course of action;
a description of the course of action, including the facts and circumstances leading to the expected action and the expected completion date;
an estimate of the total amount or range of amounts expected to be incurred in connection with the action, both in the aggregate and for each major type of cost; and
an estimate of the amount or range of amounts of the charge that will result in 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, the company does not need to disclose an estimate at that time, but must nevertheless file a Form 8-K report describing its commitment to a course of action under which it will incur a material charge. Within four business days after the company makes a determination of such estimate, it must amend its earlier Form 8-K filing to include the estimate. If the company's initial Form 8-K includes an estimate of the amount of the charge, but that amount later changes, the company should consider updating the original filing (although not required by Form 8-K) to reflect the revised estimate.

If the company is terminating employees in connection with the exit plan, it can defer reporting the exit plan, consistent with SFAS 146, until it informs the affected employees. See Question #22 in the SEC FAQs.

When the company has a choice on the timing of its determination to exit an activity or dispose of an operation, it will want to take into account the disclosure requirement in deciding when to make the determination in order to avoid premature disclosure. A company also will want to consider how the determination can be made (for example, limiting the authority to the board or a board committee).

16. What new disclosure is required regarding material impairments?

Item 2.06 requires disclosure when a company's board of directors, a board committee, or an authorized officer concludes that a material charge for impairment to one or more of the company's assets, including an impairment of securities or goodwill, is required under GAAP.

Required disclosure includes:

the date the company concluded that a material charge is required;
a description of the impaired assets;
the facts and circumstances leading to the conclusion that the charge for impairment is required;
an estimate of the amount or range of amounts of the impairment charge; and
an estimate of the amount or range of amounts of the impairment charge that will result in future cash expenditures.

If at the time of filing, the company is unable to make a good faith estimate of the amount of the impairment charge, the company need not disclose an estimate at that time, but must nevertheless file a Form 8-K report describing its commitment to a course of action under which it will incur a material charge. Within four business days after the company makes a determination of such estimate, the company must amend its earlier Form 8-K filing to include the estimate.

No disclosure is required if the conclusion regarding the material charge is made in connection with the preparation, review or audit of a company's financial statements to be included in the company's next periodic report and such report is timely filed and the determination is disclosed therein. Accordingly, a company will want to have the disclosure requirement in mind when it has discretion over the timing of a material impairment determination.

17. When will a notice of delisting, or failure to satisfy listing standards, or the transfer of listing, trigger a Form 8-K?

Item 3.01 requires a Form 8-K upon the occurrence of various events that affect a company's stock listing. Most significantly, if a company receives notice from a national securities exchange (such as the NYSE) or national securities association (such as NASDAQ) that maintains the company's principal listing for common equity that the company or its common stock no longer satisfies the listing requirements, a report under Item 3.01 is required. This report can be triggered well before any actual delisting proceeding and even if the company is disputing the notice.

Although Item 3.01 does not require that the company file the actual notice of noncompliance as an exhibit to the Form 8-K, it will make these matters significantly more visible to the public. For example, although NASDAQ does not require a listed company to issue a press release upon receipt of such a deficiency notice, but only upon the receipt of a determination letter, Form 8-K will trigger disclosure of the deficiency notice.

A company also must disclose any responsive action it has determined to take. If a company comes back into compliance after filing a Form 8-K under Item 3.01, it is not required to, but likely will desire to, amend its Form 8-K accordingly.

18. What Form 8-K disclosure is required regarding unregistered sales of equity securities?

The disclosure of unregistered sales of equity securities, including debt instruments that are convertible into common stock and common stock options, has been moved from Form 10-Q and Form 10-K to Item 3.02 of the new Form 8-K if securities sold in the aggregate since a company's last report constitute at least 1% of its outstanding securities (not calculated on a fully diluted basis). Unregistered sales of equity securities not reaching that threshold will still be reported in Form 10-Q and Form 10-K .

Such issuances commonly arise in connection with private placements, including the issuance of convertible debt under Rule 144A , in PIPE transactions , and in M&A transactions. Also the conversion of convertible debt into equity and exchanges of debt for equity under Section 3 (a)(9) of the Securities Act may trigger this disclosure.

Item 3.02 makes it clear that the filing obligation is triggered when the company enters into a binding agreement to sell the equity securities even if the agreement contains conditions. In the absence of a binding agreement, the filing is triggered by the closing.

19. What disclosures will be required if financial statements are determined to be unreliable?

Item 4.02(a) requires disclosure on Form 8-K if a company's board of directors, a board committee, or an authorized officer concludes that previously issued financial statements covering one or more years or interim periods should no longer be relied upon because of an error as addressed in Accounting Principles Board Opinion No. 20.

Required disclosure includes:

the date of such conclusion;
the financial statements and year(s) covered that should no longer be relied upon;
a brief description of the facts underlying the conclusion to the extent known to the company at the time of filing; and
a statement as to whether the subject matter giving rise to such conclusion has been discussed with the company's independent accountant.

Item 4.02(b) requires similar disclosure if an independent accountant notifies a company that it should take action to prevent future reliance on an audit report or review related to previously issued financial statements. In such case, the company must provide the independent accountant with the Form 8-K disclosure no later than the same day it is filed with the SEC and request that the accountant furnish a letter addressed to the SEC as soon as possible stating whether the accountant agrees with the company's disclosure and, if not, the respects in which it does not agree. The company must file that letter by amendment to the Form 8-K within two business days of receiving it.

Ideally, a company should provide its disclosure to the independent accountant before the initial filing, and reflect the accountant's input and include the accountant's letter in the initial Form 8-K filing. If a filing has already been made under Item 4.02(a), a second filing is not required under Item 4.02(b) when the accountant advises the company for the same reason that it concurs in the decision or that its report can no longer be used. See Question #23 in the SEC FAQs.

Ordinarily, a determination to restate past financial statements because of an error will trigger a filing under Item 4.02. There may be circumstances, however, in which such a restatement will not require an Item 4.02 filing.

20. What must be disclosed if a director departs due to a disagreement or is removed?

Item 5.02(a) expands the prior required disclosure by providing that if a director departs due to a disagreement known to any executive officer or is removed for cause, the company must disclose the following:

the date of the director's resignation, refusal to stand for re-election, or removal;
the position held by the director on any board committee at the time of resignation, refusal to stand for re-election, or removal; and
a brief description of the circumstances representing the disagreement that the company believes, in whole or in part, caused the director's resignation, refusal to stand for re-election, or removal.

The company must file any written correspondence provided by the director about the circumstances surrounding his or her departure that relate to the disagreement. In addition, the company must (1) provide the director with a copy of the disclosures under this Item no later than the day it files the Form 8-K with the SEC, and (2) inform the director that he or she may furnish the company with a letter as promptly as possible stating whether the director agrees with the company's disclosure and, if not, the respects in which he or she does not agree. The company must file any such letter by amendment to the Form 8-K within two business days after receipt.

21. What must be disclosed for a departing principal officer or a director who departs other than as a result of a disagreement or removal?

Item 5.02(b) requires disclosure when the principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer, or any person performing similar functions resigns, is terminated, or is reassigned.

It may not always be clear when disclosure is required�for example, if a CEO advises the board a year in advance of her intention to step down. No disclosure is triggered by just discussions or consideration of departure; it is a facts and circumstances determination whether the communications represent just discussion or consideration or are notice of a decision. Companies and their directors and officers need to be sensitive to this distinction and companies should have controls and procedures in place to determine when a filing is triggered. See Question #24 in the SEC FAQs.

Although disclosure of the appointment of a new officer can be delayed under certain circumstances, there is no such relief for the departure of an officer. Disclosure is required even though a person retains the officer title if his duties have been reassigned so he no longer functions as an officer. See Question #29 in the SEC FAQs. The reasons for an officer's departure do not have to be disclosed; this applies as well to disclosure under Item 1.02 regarding termination of his employment agreement. Thus, it is sufficient to say that the agreement was terminated in connection with the officer's departure. See Question #27 in the SEC FAQs.

Item 5.02(b) also requires disclosure when a director departs for any reason other than as a result of a disagreement or removal for cause addressed by Item 5.02(a). See Question 20. A decision not to renominate a director does not trigger disclosure unless the director leaves early. However, if a director tells the company that she is not standing for re-election, whether or not in response to an offer to be renominated, a filing under Item 5.02 is triggered. Whether a communication is a notice or just discussion or consideration is a facts and circumstances determination as it is with the departure of an officer. See Question #25 in the SEC FAQs.

22. What must be disclosed upon the appointment of a new principal officer or a new director?

Item 5.02(c) requires disclosure of the appointment of a new principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer, or any person performing similar functions, including the material terms of compensation and any related party disclosure under Item 404 of Regulation S-K. The disclosure is required even if the person is not an �executive officer� for purposes of Items 401 or 404 of Regulation S-K. See Question #28 in the SEC FAQs. If an employment agreement is entered into or materially amended, Item 1.01 also will likely be triggered.

Item 5.02(d) requires disclosure if a new director is elected to a company's board of directors other than at an annual stockholders meeting, including any related party disclosure under Item 404 of Regulation S-K.

The disclosure under Item 5.02(c) of the appointment of a listed officer can be delayed until a public announcement is made. Disclosure of entering into an employment agreement with the new officer under Item 1.01 and her appointment as a director under Item 5.02(d) can similarly be delayed. See Question #26 in the SEC FAQs. This ability to delay disclosure does not apply, however, to election of a new director.

23. What must be disclosed for amendments to the charter or bylaws?

Item 5.03(a) requires companies that have a class of equity securities registered under Section 12 of the Exchange Act to disclose any amendment made to the company's bylaws or charter that was not proposed in a previously filed proxy statement or information statement. If an amendment is reported on Form 8-K, only the text of the amendment need be filed as an exhibit, but the company's restated charter or bylaws must be filed as an exhibit in its next periodic report. If the charter is restated without any substantive amendment, no Form 8-K filing is required. However, the SEC recommends that the up-to-date charter be filed with the next periodic report. See Question #30 in the SEC FAQs.

24. What safe harbors or relief are available under the new Form 8-K rules?

Limited relief from the new Form 8-K rules has been provided with respect to (1) antifraud liability under Section 10(b) and Rule 10b-5, (2) eligibility to use registration statements on Forms S-2 and S-3, and (3) Rule 144.

Filings required by the following seven Form 8-K Items are subject to a limited safe harbor from public and private claims under Section 10(b) and Rule 10b-5 for the failure to file a Form 8-K in a timely manner:

Items 1.01 and 1.02 (entry into, or termination of, a material definitive agreement).
Items 2.03 and 2.04 (creation of, or triggering events that accelerate or decelerate, a direct financial obligation or an obligation under an off-balance sheet arrangement).
Item 2.05 (costs associated with exit or disposal activities).
Item 2.06 (material impairments).
Item 4.02(a) (non-reliance on previously issued financial statements or related audit report or completed interim review, when determination is made by company rather than the independent auditor).

However, the anti-fraud safe harbor described above only extends until the due date for the Form 10-K or Form 10-Q for the applicable period in which the Form 8-K was not filed.

Notably, the safe harbor only applies to the failure to file on time, not material misstatements or omissions. Accordingly, although the SEC did not mandate �mini MD&A� disclosure, it may be necessary to provide explanation and analysis to prevent the reported information from being misleading.

The safe harbor will not protect the company or insiders from liability for insider trading while aware of material non-public information.

The SEC still may bring a non-fraud action for a late or omitted Form 8-K filing, even for the above items, for violation of the reporting requirement under Section 13(a) or 15 (d) of the Exchange Act. Also, the SEC could bring an enforcement action when the failure to file a Form 8-K results from the absence of adequate disclosure controls and procedures. See , e.g. , SEC v. Siebel Systems, Inc.

A failure to file under these same seven Items (1.01, 1.02, 2.03, 2.04, 2.05, 2.06, and 4.02(a)) will not cause a company to lose its eligibility to use Form S-2 or S-3. However, the company must become current by the time it files a registration statement using one of those forms.

A company's failure to file a Form 8-K on time (or at all) does not violate the �current public information� requirement of Rule 144(c). Accordingly, a shareholder of a company may rely on Rule 144 even if the company has failed to file required Form 8-Ks in the 12 months preceding the applicable sale of securities. This relief applies to all Form 8-K filings, not just those required by the seven items described above.

25. What general procedures should companies consider to prepare to make timely filings on Form 8-K?

Companies should take steps to strengthen disclosure controls and procedures and internal reporting controls to ensure that those responsible for filing Form 8-Ks receive information necessary to determine if a filing is required in time to meet the new deadlines. Companies should not simply wait for reportable events to occur. These procedures should be customized to each company's culture, organization, and operations.

Companies should consider:

Distributing a list of the new Form 8-K triggering events broadly to company personnel.
Identifying the persons most likely to be involved in material agreements and other events that may trigger Form 8-K disclosure and providing those persons with additional training about the new requirements. They likely will include certain finance, human resources, business development, and legal personnel.
Re-evaluating the membership of the disclosure committee and confirming that the appropriate lines of communication exist between the committee and the persons who are likely to encounter Form 8-K triggering events.
Confirming the company's list of material agreements and the procedures under which authorized persons may enter into new agreements or amendments to existing agreements. Also, the procedures under which developments affecting such agreements (e.g., disputes or receipt of notice of breach) are communicated internally should be reviewed.
Maintaining a current list of all cross-default, cross-termination, acceleration, or penalty provisions.
Establishing guidelines for assessing materiality.
Formalizing a policy regarding impairments and restructurings that makes it clear when the company has committed to a material charge or determined that a material impairment is required.
Changing standard contractual provisions in future contracts to facilitate Form 8-K compliance and avoid unnecessary triggering of filings. For example, termination provisions could be drafted to provide for a notice of breach, which, if not cured, would entitle the party to deliver a notice of termination after the cure period.
Developing procedures to be followed at quarter-end and whenever preparing to file a short-form registration statement to confirm that all required Form 8-K filings have been made.
Putting in place a tracking system for all unregistered sales of securities so the company will know when such sales, in the aggregate, have triggered a Form 8-K filing under Item 3.02.