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New SEC Regulations to become effective August 23, 2004 create new categories of Form 8-K reporting for many new transaction
and event types.
These new items are responsive to the "real time" issuer disclosure mandate of Sarbanes Oxley and become effective
August 23, 2004 .
Summary
Some of the additions include:
1. Requirements that definitive material contracts be disclosed that are not made in the ordinary course of business,
including the first disclosure of business combination agreements and other agreements that relate to extraordinary corporate
transactions
2. The requirement that material direct financial obligations or obligations under off balance sheet arrangements of a
registrant be disclosed
3. The requirement of a disclosure of the occurrence of a triggering event that causes an acceleration or an increase
under a direct financial obligation or off balance sheet arrangement
4. Disclosure when a company commits to an exit or a disposal plan of a long lived asset or terminates employees under
certain conditions
5. Disclosure when material impairments to its assets, including its securities and goodwill is required by GAAP.
Discussion:
The new Regulations are an attempt by the SEC to be responsive to the requirements of Section 409 of the Sarbanes Oxley
Act of 2003 that requires real issuer disclosure of material events that occur to a private company. These rules become effective
August 23, 2004. The changes create new and significant reporting requirements for companies and generally, reporting must
be done within four days of a triggering event.
Generally, a Form 8-K must be filed under the following circumstances:
. If the registrant has entered into a definitive material agreement or has modified or amended a material agreement
that is not made in the ordinary course of the registrant's business. If a material definitive agreement not in the ordinary
course of a registrant's business is terminated other than by its ordinary terms, then it too must be disclosed through the
Form 8-K process.
. Bankrucptcy or receivership is an event that is a reporting triggering event, as is the confirmation of a plan or
a reorganization by a court or other similar legal authority.
. The acquisition by the registrant or any of its majority owned subsidiaries of a significant amount of assets other
than in the ordinary course of its business triggers reporting requirements under Item 2 of the new regulations.
. The release of material non-public financial information regarding the results of operations must be reported through
a Form 8-K. While there are certain exceptions that lengthen the time for filing, one muse be careful especially when making
a webcast, for example, to discuss the operations of the company.
. The creation of a material off-balance sheet arrangement or a direct obligation must be disclosed through a current
Form 8-K. A direct obligation can include a capital lease, a long term debt obligation or a short term debt obligation that
does not arise in the ordinary course of one's business.
. Costs associated with the sale of an exiting business or the disposal of a long term asset might need to be disclosed
under certain circumstances.
. If there is a determination that there is a material impairment to one or more material assets of the registrant,
including good will, the company must report on Form 8-K.
. Notification by a major exchange that a registrant may no longer qualify for listing its equity or debt securities
is a triggering event under the new regulations.
. The unregistered sale of equity securities of the company under certain circumstances requires public reporting.
. A change in the public accountant of the registrant requires a timely filing of Form 8-K as does any finding that
the public cannot rely on any previous financial statements, audit reports or interim reports that the registrant has been
required to make
. Change in control of the registrant requires the immediate filing of a Form 8-K pursuant to Item 5, as does the
departure of a principal officer, the election of a director or the appointment of a principal officer
Amendments to the articles of incorporation and bylaws of the company now trigger reporting requirements under the new
regulations promulgated by the SEC.
. Changes in the registrant's code of ethics, waivers under the code of ethics, as well the suspension of trading
of shares of the registrant's shares by the company's pension plan also are events that require immediate reporting.
. Company's that acquire other entities should know that under the new rules, they are required to file financial
statements for the companies that they acquire.
As one can easily see, the changes are monumental and will require vigilance by corporate counsel and executives to comply
with the requirements mandated therein. If you would like to discuss the details of the changes or have any questions, please
contact us.
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