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Division of Corporation Finance Issues FAQ on Form 8-K

The SEC's Division of Corporation Finance has issued responses to frequently asked questions about the Form 8-K disclosure requirements, most of which were previewed by Associate Director Paula Dubberly at the Practising Law Institute's recent securities conference (See SEC Today, Vol. 2004-219, November 15, 2004). In the FAQ, the staff reminds registrants and their counsel that one of the principal purposes of the revisions to Form 8-K is to increase the number of "unquestionably or presumptively material events" that must be disclosed within the four business-day window. The staff advises that registrants should have in place appropriate disclosure controls and procedures to ensure that management is informed in a timely manner of the information that is required to be disclosed on Form 8-K.

In response to whether a placement agency or underwriting agreement is a material agreement for purposes of Item 1.01, the FAQ notes that a registrant must determine whether specific agreements are material by using the established standards of materiality and by referring to Instruction 1 to Item 1.01. If the registrant determines that the agreement must be filed under Item 1.01, it may omit the identity of the underwriters to remain within the safe harbor of 1933 Act rule 135c.

If a "summary sheet" is given to directors, which includes meeting fees and basic compensation information, it would be subject to filing under Regulation S-K Item 601 and on Form 8-K if it includes terms of the agreement between the registrant and the director related to compensation. The Form 8-K describing the agreement must be filed within four business days after the agreement is entered into, not within four days of providing the summary sheet to the director.

The staff noted that Item 1.01 applies to both written and unwritten material definitive agreements and referred to its Telephone Interpretation Manual at I.85 in the July 1997 version. That provision states that an oral contract that would be required to be filed as an exhibit if it were written, would require that a written description of the contract be provided as an exhibit. The staff added that under Regulation S-K Item 601, any contract or compensatory plan with a director is material and must be filed. If the plan or contract is not part of a formal document, the registrant must file a written description.

In connection with obligations under an off-balance sheet arrangement, the staff advised that a registrant's disclosure and internal controls and procedures must ensure that information that is required to be disclosed in its 1934 Act reports, including Form 8-K, is recorded, processed, summarized and reported within the required time frames. Given the nature of the requirement, Item 2.03 provides for an additional four business day grace period.

Whether a financial obligation is material relates not only to the amount, but also to the facts and circumstances. One fact to be considered is whether a financial obligation is a refinancing on similar terms. The staff advised, with respect to a private placement that is coming due, that a registrant which replaces or refunds a long-term debt issuance with another issuance of the same amount and with similar terms, may be able to conclude that the financial obligation is not material and that it would not require a filing on Form 8-K Item 2.03.

If events trigger an acceleration or an increase in a direct financial obligation, but the counterparty has not declared or provided a notice of a default, the determination of whether an Item 2.04 Form 8-K is required depends on how the agreement is written, according to the staff. If a declaration or notice is needed prior to the increase or the acceleration of the agreement, Item 2.04 would not be triggered. If no declaration or notice is necessary and the increase or acceleration is automatically triggered upon the occurrence of an event, disclosure would be required.

The costs associated with an exit activity are not limited to those addressed in FASB Statement of Financial Accounting Standards No. 146. Other costs may need to be disclosed on Item 2.05 of Form 8-K under FASB FAS Nos. 87, 88, 106 and 112, according to the staff.

While a registrant does not have to disclose the reasons for an officer's departure, it has to disclose the termination of the officer's employment contract, including any material circumstances such as terminations, severance or other payments or consequences.

A registrant does not have to report under Form 8-K Item 5.03 the restatement of its articles of incorporation as long as there are no substantive amendments. However, the staff recommends that registrants refile their restated articles in the next periodic report for the benefit of investors.