Investors depend upon the information they receive from public companies. That is why the federal securities laws require those public companies to file periodic reports on their activities. This includes routine reports, like quarterly financial statements (Form 10-Q) and annual reports (Form 10-K). It also includes Form 8-K, which is filed to disclose certain significant events – such as mergers, acquisitions, or the sale of assets.
When must companies file a Form 8-K, and what must it disclose? Here are some essential guidelines.
A Matter of Form
Q. When must a Form 8-K be filed?
A. Companies that file reports with the Securities and Exchange Commission are required to file a Form 8-K when:
1. The Company enters into a material definitive agreement that is not in the ordinary course of business.
2. A material definitive agreement is terminated (other than by its own terms), and the termination is material.
3. The Company is in bankruptcy or receivership, or has filed a plan for reorganization under the bankruptcy laws.
4. The Company (or one of its subsidiaries) has acquired or disposed of a significant amount of assets (other than in the ordinary course of business).
5. The Company has entered into certain off-balance sheet financial arrangements.
6. A material charge for impairment of assets is required on the part of the Company.
7. A national securities exchange or association has taken steps to delist the Company's securities.
8. The Company has entered into an enforceable agreement to sell unregistered securities (with some exceptions based upon the percentage of shares sold).
9. The Company has changed its certifying accountant.
10. There is a change in control of the Company.
11. An officer or director resigns or is terminated.
12. The Company elects to change its fiscal year.
13. There have been amendments to the Company's Certificate of Incorporation, By-Laws, or Code of Ethics.
14. The status of a shell company changes by virtue of an acquisition, merger or other business combination.
15. The Company elects to disclose information pursuant to the SEC rules on Fair Disclosure (Rule FD).
Q. May a Company file a Form 8-K to disclose other information?
A. A Company may file a Form 8-K to disclose any information that it believes is important to shareholders.
Q. How soon must a Form 8-K be filed?
A. Generally, the report must be filed within four business days of the event reported.
Q. What information must be included in the report when there is a change in control at the Company?
A. The Company is required to state (i) the name of the person gaining control; (ii) the amount and form of the consideration used to gain control; (iii) the basis of the control; (iv) the date of the transaction that resulted in the change of control; (v) the percentage of securities owned by the new controlling person; and (vi) the person from whom control was assumed.
Q. What information must be disclosed when a public "shell" company completes an acquisition?
A. When a public shell company completes an acquisition it must file a form containing all of the information that ordinarily must be included in a full registration statement.
Q. What details must be disclosed when there is an acquisition or disposition?
A. The Company must provide (i) the date and manner of the acquisition or disposition; (ii) a brief description of the assets involved; (iii) the identity of the person from whom the assets were acquired or to whom they were sold; (iv) the nature of any material relationship between such person and the Company or any director or officer of the Company; (v) the nature and amount of consideration given or received; (vi) if a material relationship exists between the seller and the Company, the formula used for determining consideration; and (vii) the source of funds for any transaction acquisition involving the Company and any individual who enjoys a material relationship with the Company.
Q. What constitutes an acquisition or disposition?
A. The term "acquisition" includes every purchase, acquisition by lease, exchange, merger, consolidation, succession or other acquisition, except certain construction or development of property. The term "disposition" includes every sale, disposition by lease, exchange, merger, consolidation, mortgage, assignment, or hypothecation of assets.
Q. When is an acquisition or disposition considered significant?
A. An acquisition or disposition is considered "significant" if (i) the Company's equity in the net book value of the assets acquires or disposes of exceeds 10 percent of the Company's total assets; or (ii) it involves a business which is significant. In general, a business is considered significant if it accounts for 10 percent or more of the Company.
Q. What must be disclosed about the person from whom assets are acquired or to whom they are disposed?
A. The identity of the person from who assets were acquired or to whom they were sold, and any material relationship between that individual and the Company.
Q. What financial reports must be filed in the event of an acquisition?
A. The 8-K report must include (i) audited financial information for the business being acquired; and (ii) pro forma financial information showing the effects of the transaction.
Q. Must the audited financial statements be filed with the initial Form 8-K?
A. No. The financial statements generally can be filed within 71 days after the filing of the initial Form 8-K report – except for financial statements reflecting acquisitions by most shell companies, which must be filed with the initial report.
Q. What information must be included in the pro forma financial statement?
A. The pro forma financial statement is designed to provide investors with information about the continuing impact of the transaction by showing how it might have affected historical financial statements if it had been consummated at an earlier time.
In general, pro forma financial information consists of a pro forma condensed balance sheet; pro forma condensed statements of income, and accompanying explanatory notes. When only a limited number of pro forma adjustments are required, and those adjustments are easily understood, the Company may instead provide a narrative description of the pro forma effects of the transaction.
The Bottom Line
Investors need to pay attention. If a reporting company announces a major acquisition or merger, look for the Form 8-K. If it hasn't been filed in a timely manner, or it doesn't include required information such as audited financial statements, check with the company, or its attorneys, and find out why. And don't hesitate to contact your local state securities regulator or the SEC. Remember, before you invest, investigate.
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