Rule: Securities, Etc: Executive and Director Compensation, Etc. Disclosure Requirements

Friday,
September 8, 2006
Part II
Securities and
Exchange
Commission
17 CFR Parts 228, 229 et al.
Executive Compensation and Related
Person Disclosure; Final Rule and
Proposed Rule
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53158 Federal Register / Vol. 71, No. 174 / Friday, September 8, 2006 / Rules and Regulations
SECURITIES AND EXCHANGE November 7, 2006 and in Forms 10–K FOR FURTHER INFORMATION CONTACT:
COMMISSION and 10–KSB for fiscal years ending on Anne Krauskopf, Carolyn Sherman, or
or after December 15, 2006. Companies Daniel Greenspan, at (202) 551–3500, in
17 CFR Parts 228, 229, 232, 239, 240, other than registered investment the Division of Corporation Finance,
245, 249 and 274 companies must comply with these U.S. Securities and Exchange
[Release Nos. 33–8732A; 34–54302A; IC– disclosure requirements in Securities Commission, 100 F Street, NE.,
27444A; File No. S7–03–06] Act registration statements and Washington, DC 20549–3010 or, with
Exchange Act registration statements respect to questions regarding
RIN 3235–AI80 (including pre-effective and post- investment companies, Kieran Brown in
effective amendments), and in any the Division of Investment Management,
Executive Compensation and Related
proxy or information statements filed on at (202) 551–6784.
Person Disclosure
or after December 15, 2006 that are
AGENCY: Securities and Exchange required to include Item 402 and 404 SUPPLEMENTARY INFORMATION: We are
Commission. disclosure for fiscal years ending on or amending: Items 201,1 306,2 401,3 402,4
ACTION: Final rule. after December 15, 2006. Registered 403 5 and 404 6 of Regulations S–K 7 and
investment companies must comply S–B,8 Item 601 9 of Regulation S–K, Item
SUMMARY: The Securities and Exchange with these disclosure requirements in 1107 10 of Regulation AB,11 Item 304 12
Commission is adopting amendments to initial registration statements and post- of Regulation S–T,13 and Rule 100 14 of
the disclosure requirements for effective amendments that are annual Regulation BTR.15 We are also adding
executive and director compensation, updates to effective registration new Item 407 to Regulations S–K and S–
related person transactions, director statements on Forms N–1A, N–2 (except B. In addition, we are amending Rules
independence and other corporate those filed by business development 13a–11,16 14a–3,17 14a–6,18 14c–5,19
governance matters and security companies) and N–3, and in any new 15d–11 20 and 16b–3 21 under the
ownership of officers and directors. proxy or information statements, filed Securities Exchange Act of 1934.22 We
These amendments apply to disclosure with the Commission on or after are adding Rules 13a–20 and 15d–20
in proxy and information statements, December 15, 2006.
periodic reports, current reports and under the Exchange Act. We are further
ADDRESSES: Comments may be amending Schedule 14A 23 under the
other filings under the Securities
submitted by any of the following Exchange Act, as well as Exchange Act
Exchange Act of 1934 and to registration
methods: Forms 8–K,24 10,25 10SB,26 10–Q,27 10–
statements under the Exchange Act and
the Securities Act of 1933. We are also Electronic Comments QSB,28 10–K,29 10–KSB 30 and 20–F.31
adopting a requirement that disclosure Finally, we are amending Forms SB–2,32
under the amended items generally be • Use the Commission’s Internet S–1,33 S–3,34 S–4 35 and S–11 36 under
provided in plain English. The comment form (http://www.sec.gov/ the Securities Act of 1933,37 Forms N–
amendments are intended to make rules/final.shtml): or
proxy and information statements, • Send an e-mail to rule- 1 17 CFR 229.201 and 17 CFR 228.201.
reports and registration statements comments@sec.gov. Please include File 2 17 CFR 229.306 and 17 CFR 228.306.
easier to understand. They are also Number S7–03–06 on the subject line; 3 17 CFR 229.401 and 17 CFR 228.401.
intended to provide investors with a or 4 17 CFR 229.402 and 17 CFR 228.402.

5 17 CFR 229.403 and 17 CFR 228.403.
clearer and more complete picture of the • Use the Federal Rulemaking Portal 6 17 CFR 229.404 and 17 CFR 228.404.
compensation earned by a company’s (http://www.regulations.gov). Follow the 7 17 CFR 229.10 et seq.
principal executive officer, principal instructions for submitting comments. 8 17 CFR 228.10 et seq.
financial officer and highest paid Paper Comments

9 17 CFR 229.601.
executive officers and members of its 10 17 CFR 229.1107.
board of directors. In addition, they are • Send paper comments in triplicate 11 17 CFR 229.1100 et seq.
intended to provide better information to Nancy M. Morris, Secretary, 12 17 CFR 232.304.

13 17 CFR 232.10 et seq.
about key financial relationships among Securities and Exchange Commission,
14 17 CFR 245.100.
companies and their executive officers, 100 F Street, NE., Washington DC 15 17 CFR 245.100 et seq.
directors, significant shareholders and 20549–1090. 16 17 CFR 240.13a–11.
their respective immediate family All submissions should refer to File 17 17 CFR 240.14a–3.
members. In Release No. 33–8735, Number S7–03–06. This file number 18 17 CFR 240.14a–6.
published elsewhere in the proposed should be included on the subject line 19 17 CFR 240.14c–5.
rules section of this issue of the Federal if e-mail is used. To help us process and
20 17 CFR 240.15d–11.
Register, we also request additional review your comments more efficiently,

21 17 CFR 240.16b–3.
22 15 U.S.C. 78a et seq.
comments regarding the proposal to please use only one method. The 23 17 CFR 240.14a–101.
require compensation disclosure for Commission will post all comments on 24 17 CFR 249.308.
three additional highly compensated the Commission’s Internet Web site 25 17 CFR 249.210.
employees. (http://www.sec.gov/rules/final/shtml). 26 17 CFR 249.210b.
DATES: Effective Date: November 7, Comments are also available for public 27 17 CFR 249.308a.
2006. inspection and copying in the 28 17 CFR 249.308b.

29 17 CFR 249.310.
Comment Date: Comments regarding Commission’s Public Reference Room,
30 17 CFR 249.310b.
the request for comment in Section 100 F Street, NE., Washington, DC, 31 17 CFR 249.220f.
II.C.3.b. of this document should be 20549. All comments received will be 32 17 CFR 239.10.
received on or before October 23, 2006. posted without change; we do not edit 33 17 CFR 239.11.
Compliance Dates: Companies must personal identifying information from 34 17 CFR 239.13.
comply with these disclosure submissions. You should submit only 35 17 CFR 239.25.
requirements in Forms 8–K for information that you wish to make 36 17 CFR 239.18.
triggering events that occur on or after publicly available. 37 15 U.S.C. 77a et seq.
Federal Register / Vol. 71, No. 174 / Friday, September 8, 2006 / Rules and Regulations 53159
1A,38 N–2,39 and N–3 40 under the c. Other Potential Post-Employment XI. Final Regulatory Flexibility Act Analysis
Securities Act and the Investment Payments A. Need for the Rules and Amendments
Company Act of 1940,41 and Form N– 6. Officers Covered B. Significant Issues Raised by Public
a. Named Executive Officers Comment
CSR 42 under the Investment Company
b. Identification of Most Highly C. Small Entities Subject to the Rules and
Act and the Exchange Act. Compensated Executive Officers; Dollar Amendments
Table of Contents Threshold for Disclosure D. Reporting, Recordkeeping and Other
7. Interplay of Items 402 and 404 Compliance Requirements
I. Background and Overview
8. Other Changes E. Agency Action to Minimize Effect on
II. Executive and Director Compensation
9. Compensation of Directors Small Entities
Disclosure D. Treatment of Specific Types of Issuers XII. Statutory Authority and Text of the
A. Options Disclosure 1. Small Business Issuers
1. Background Amendments
2. Foreign Private Issuers
2. Required Option Disclosures 3. Business Development Companies I. Background and Overview
a. Tabular Disclosures E. Conforming Amendments
b. Compensation Discussion and Analysis On January 27, 2006, we proposed
III. Revisions to Form 8–K and the Periodic
i. Timing of Option Grants revisions to our rules governing
Report Exhibit Requirements
ii. Determination of Exercise Price A. Items 1.01 and 5.02 of Form 8–K disclosure of executive compensation,
B. Compensation Discussion and Analysis 1. Item 1.01—Entry into a Material director compensation, related party
1. Intent and Operation of the Definitive Agreement transactions, director independence and
Compensation Discussion and Analysis 2. Item 5.02—Departure of Directors or other corporate governance matters,
2. Instructions to Compensation Discussion Certain Officers; Election of Directors; current reporting regarding
and Analysis Appointment of Certain Officers;
3. ‘‘Filed’’ Status of Compensation
compensation arrangements and
Compensatory Arrangements of Certain beneficial ownership.43 We received
Discussion and Analysis and the Officers
‘‘Furnished’’ Compensation Committee over 20,000 comment letters in response
B. Extension of Limited Safe Harbor under
Report Section 10(b) and Rule 10b–5 to Item
to our proposals. In general,
4. Retention of the Performance Graph 5.02(e) of Form 8–K and Exclusion of commenters supported the proposals
C. Compensation Tables Item 5.02(e) from Form S–3 Eligibility and their objectives. We are adopting
1. Compensation to Named Executive Requirements the rules and amendments substantially
Officers in the Last Three Completed C. General Instruction D to Form 8-K as proposed, with certain modifications
Fiscal Years—The Summary D. Foreign Private Issuers to address a number of points that
Compensation Table and Related IV. Beneficial Ownership Disclosure
Disclosure
commenters raised.
V. Certain Relationships and Related The amendments to the compensation
a. Total Compensation Column Transactions Disclosure
b. Salary and Bonus Columns disclosure rules are intended to provide
A. Transactions with Related Persons
c. Plan-Based Awards investors with a clearer and more
1. Broad Principle for Disclosure
i. Stock Awards and Option Awards a. Indebtedness complete picture of compensation to
Columns b. Definitions principal executive officers, principal
ii. Non-Equity Incentive Plan 2. Disclosure Requirements financial officers, the other highest paid
Compensation Column 3. Exceptions executive officers and directors. Closely
d. Change in Pension Value and B. Procedures for Approval of Related related to executive officer and director
Nonqualified Deferred Compensation Person Transactions compensation is the participation by
Earnings Column C. Promoters and Control Persons
i. Earnings on Deferred Compensation executive officers, directors, significant
D. Corporate Governance Disclosure shareholders and other related persons
ii. Increase in Pension Value E. Treatment of Specific Types of Issuers
e. All Other Compensation Column in financial transactions and
1. Small Business Issuers
i. Perquisites and Other Personal Benefits 2. Foreign Private Issuers relationships with the company. We are
ii. Additional All Other Compensation 3. Registered Investment Companies also adopting revisions to our disclosure
Column Items F. Conforming Amendments rules regarding related party
f. Captions and Table Layout 1. Regulation Blackout Trading Restriction transactions and director independence
2. Supplemental Grants of Plan-Based 2. Rule 16b–3 Non-Employee Director and board committee functions.
Awards Table Definition Finally, some compensation
3. Narrative Disclosure to Summary 3. Other Conforming Amendments
Compensation Table and Grants of Plan- arrangements must be disclosed under
VI. Plain English Disclosure our rules relating to current reports on
Based Awards Table VII. Transition
a. Narrative Description of Additional Form 8–K. Accordingly, we are
VIII. Paperwork Reduction Act
Material Factors A. Background reorganizing and more appropriately
b. Request for Additional Comment on B. Summary of Information Collections focusing our requirements on the type of
Compensation Disclosure for up to Three C. Summary of Comment Letters and compensation information that should
Additional Employees Revisions to Proposals be disclosed on a real-time basis.
4. Exercises and Holdings of Previously D. Revisions to Paperwork Reduction Act Since the enactment of the Securities
Awarded Equity Burden Estimates Act and the Exchange Act,44 the
a. Outstanding Equity Awards at Fiscal 1. Securities Act Registration Statements,
Year-End Table Exchange Act Registration Statements, 43 Executive Compensation and Related Party
b. Option Exercises and Stock Vested Table Exchange Act Annual Reports, Proxy Disclosure, Release No. 33–8655 (Jan. 27, 2006) [71
5. Post-Employment Compensation Statements and Information Statements FR 6542] (the ‘‘Proposing Release’’).
a. Pension Benefits Table 2. Exchange Act Current Reports 44 Initially, disclosure requirements regarding
b. Nonqualified Deferred Compensation IX. Cost-Benefit Analysis executive and director compensation were set forth
Table A. Background in Schedule A to the Securities Act and Section
B. Summary of Amendments 12(b) of the Exchange Act, which list the type of
information to be included in Securities Act and

38 17 CFR 239.15A and 274.11A. C. Benefits Exchange Act registration statements. Item 14 of
39 17 CFR 239.14 and 274.11a–1. D. Costs Schedule A called for disclosure of the
40 17 CFR 239.17a and 274.11b. X. Consideration of Burden on Competition ‘‘remuneration, paid or estimated to be paid, by the
41 15 U.S.C. 80a–1 et seq. and Promotion of Efficiency, issuer or its predecessor, directly or indirectly,
42 17 CFR 249.331 and 274.128. Competition and Capital Formation Continued
Commission has on a number of We are thus today adopting an Following the Compensation
occasions explored the best methods for approach that builds on the strengths of Discussion and Analysis, we have
communicating clear, concise and the requirements adopted in 1992 rather organized detailed disclosure of
meaningful information about executive than discarding them. However, today’s executive compensation into three
and director compensation and amendments do represent a thorough broad categories:
relationships with the company.45 The rethinking of the rules in place prior to • Compensation with respect to the
Commission also has had to reconsider these amendments, combining a last fiscal year (and the two preceding
executive and director compensation broader-based tabular presentation with fiscal years), as reflected in an amended
disclosure requirements in light of improved narrative disclosure Summary Compensation Table that
changing trends in executive supplementing the tables. This presents compensation paid currently or
compensation. Most recently, in 1992, approach will promote clarity and deferred (including options, restricted
the Commission adopted amendments completeness of numerical information stock and similar grants) and
to the disclosure rules that eschewed a through an improved tabular compensation consisting of current
mostly narrative disclosure approach presentation, continue to provide the earnings or awards that are part of a
adopted in 1983 in favor of formatted ability to make comparisons using plan, and as supplemented by a table
tables that captured all compensation, tables, and call for material qualitative providing back-up information for
while categorizing the various elements information regarding the manner and certain data in the Summary
of compensation and promoting context in which compensation is Compensation Table;
comparability from year to year and awarded and earned. • Holdings of equity-related interests
from company to company.46 The amendments that we publish that relate to compensation or are
We believe this tabular approach today require that all elements of potential sources of future gains, with a
remains a sound basis for disclosure. compensation must be disclosed. We focus on compensation-related equity
However, especially in light of the also have sought to structure the revised interests that were awarded in prior
complexity of and variations in requirements sufficiently broadly so that years and are ‘‘at risk,’’ whether or not
compensation programs, the very they will continue to operate effectively these interests are in-the-money, as well
formatted nature of those rules has as new forms of compensation are as recent realization on these interests,
resulted in too many cases in disclosure developed in the future. such as through vesting of restricted
that does not inform investors Under the amendments, stock or the exercise of options and
adequately as to all elements of compensation disclosure will now begin similar instruments; and
compensation. In those cases investors with a narrative providing a general • Retirement and other post-
may lack material information that we overview. Much like the overview that employment compensation, including
believe they should receive. we have encouraged companies to retirement and deferred compensation
provide with their Management’s plans, other retirement benefits and
during the past year and ensuing year to (a) the Discussion and Analysis of Financial other post-employment benefits, such as
directors or persons performing similar functions, Condition and Results of Operations those payable in the event of a change
and (b) its officers and other persons, naming them in control.
wherever such remuneration exceeded $25,000 (MD&A),47 the new Compensation
during any such year.’’ Section 12(b) of the Discussion and Analysis calls for a We are requiring improved tabular
Exchange Act as enacted required disclosure of ‘‘(D) discussion and analysis of the material disclosure for each of the above three
the directors, officers, and underwriters, and each factors underlying compensation categories and appropriate narrative
security holder of record holding more than 10 per
policies and decisions reflected in the disclosure that provides material
centum of any class of any equity security of the information necessary to an
issuer (other than an exempted security), their data presented in the tables. This
remuneration and their interests in the securities of, overview addresses in one place these understanding of the information
and their material contracts with, the issuer and any factors with respect to both the separate presented in the individual tables.50 We
person directly or indirectly controlling or
elements of executive compensation and have made some modifications from the
controlled by, or under direct or indirect common proposal in response to comments.
control with, the issuer;’’ and ‘‘(E) remuneration to executive compensation as a whole. We
In Release No. 33–8735, published
others than directors and officers exceeding $20,000 are adopting the overview substantially
per annum.’’ elsewhere in the proposed rules section
as proposed, but, in response to
45 In 1938, the Commission promulgated its first of this issue of the Federal Register and
comments, we are requiring a separate
executive and director compensation disclosure for which comments are due on or
rules for proxy statements. Release No. 34–1823 report of the compensation committee
before October 23, 2006, we also solicit
(Aug. 11, 1938) [3 FR 1991]. At different times similar to the report required of the
thereafter, the Commission has adopted rules additional comments regarding the
audit committee,48 which will be
mandating narrative, tabular, or combinations of proposed disclosure requirement of the
narrative and tabular disclosure as the best method
considered furnished and not filed.49 total compensation and job description
for presenting compensation disclosure in a manner of up to an additional three most highly
47 Item 303 of Regulation S–K [17 CFR 229.303].
that is clear and useful to investors. See, e.g.,
Release No. 34–3347 (Dec. 18, 1942) [7 FR 10653] See also Commission Guidance Regarding compensated employees who are not
(introducing first tabular disclosure); Release No. Management’s Discussion and Analysis of Financial
34–4775 (Dec. 11, 1952) [17 FR 11431] (introducing Condition and Results of Operations, Release No. treated as filed or as soliciting material or
separate table for pensions and deferred 33–8350 (Dec. 19, 2003) [68 FR 75055], at Section specifically incorporates it by reference into a filing
remuneration); Uniform and Integrated Reporting III.A. under the Securities Act or the Exchange Act, other
Requirements: Management Remuneration, Release 48 The Audit Committee Report, required by Item than by incorporating by reference the report from
No. 33–6003 (Dec. 4, 1978) [43 FR 58151] (the 306 of Regulations S–B [17 CFR 228.306] and S–K a proxy or information statement into the Form 10–
‘‘1978 Release’’) (expanding tabular disclosure to [17 CFR 229.306] prior to these amendments, will K. Instructions 1 and 2 to Item 407(e)(5).
cover all forms of compensation); and Disclosure of now be required by Item 407(d) of Regulations S– 50 This narrative disclosure, together with the
Executive Compensation, Release No. 33–6486 B and S–K. Compensation Discussion and Analysis noted
(Sept. 23, 1983) [48 FR 44467] (the ‘‘1983 Release’’) 49 The Compensation Committee Report that we above, will replace the narrative discussion that
(limiting tabular disclosure to cash remuneration). adopt today is not deemed to be ‘‘soliciting was required in the Board Compensation Report on
46 Executive Compensation Disclosure, Release material’’ or to be ‘‘filed’’ with the Commission or Executive Compensation prior to these
No. 33–6962 (Oct. 16, 1992) [57 FR 48126] (the subject to Regulation 14A or 14C [17 CFR 240.14a– amendments. The narrative disclosure, along with
‘‘1992 Release’’); See also Executive Compensation 1 et seq. or 240.14c–1 et seq.], other than as the rest of the amended executive officer and
Disclosure; Securityholder Lists and Mailing specified, or to the liabilities of Section 18 of the director compensation disclosure, other than the
Requests, Release No. 33–7032 (Nov. 22, 1993) [58 Exchange Act [15 U.S.C. 78r], except to the extent new Compensation Committee Report, will be
FR 63010] (the ‘‘1993 Release’’), at Section II. a company specifically requests that the report be company disclosure filed with the Commission.
executive officers or directors but who related to named executive officers, this and other corporate governance
earn more than the named executive have been required to be disclosed on disclosure requirements regarding
officers. In particular, we have specific Form 8–K within four business days of director independence and board
requests for comment as to whether the the applicable triggering event. committees, including new disclosure
proposal should be modified to apply Consistent with our intent that Form 8– requirements about the compensation
only to large accelerated filers who K capture only events that are committee, into a single expanded
would disclose the total compensation unquestionably or presumptively disclosure item.55
for the most recent fiscal year and a material to investors, we are today In order to ensure that these amended
description of the job position for each amending the Form 8–K requirements requirements result in disclosure that is
of their three most highly compensated substantially as proposed. clear, concise and understandable for
employees whose total compensation is We believe that executive and director investors, we are adding Rules 13a–20
greater than any of the named executive compensation is closely related to and 15d–20 under the Exchange Act to
officers, whether or not such persons are financial transactions and relationships require that most of the disclosure
executive officers. Under this approach, involving companies and their directors, provided in response to the amended
employees who have no responsibility executive officers and significant items be presented in plain English.
for significant policy decisions within shareholders and respective immediate This extends the plain English
either the company, a significant family members. Disclosure requirements currently applicable to
subsidiary or a principal business unit, requirements regarding these matters portions of registration statements under
division, or function, would be historically have been interconnected, the Securities Act to the disclosure
excluded from the determination of the given that relationships among these required under the items that we have
three most highly compensated parties and the company can include amended, which impose requirements
employees and no disclosure regarding transactions that involve compensation for Exchange Act reports and proxy or
them would be required. or analogous features. Such disclosure information statements incorporated by
Finally, we are adopting a director also represents material information in reference into those reports.
compensation table that is similar to the evaluating the overall relationship with Finally, we are amending our
amended Summary Compensation a company’s executive officers and beneficial ownership disclosure
Table.51 directors. Further, this disclosure requirements as proposed to require
We also highlight in the release that provides material information regarding disclosure of shares pledged by named
the principles-based disclosure rules we the independence of directors. The executive officers, directors and director
are adopting today, including but not related party transaction disclosure nominees, as well as directors’
limited to the Compensation Discussion requirements were adopted piecemeal qualifying shares.56
and Analysis section, may require over the years and were combined into II. Executive and Director
disclosure of various aspects of a one disclosure requirement beginning in Compensation Disclosure
company’s use of options in 1982.52 In light of many developments
compensating its executives and since then, including the increasing Executive and director compensation
directors, including any programs, plans focus on corporate governance and disclosure has been required since 1933,
or practices a company may have with director independence, we believe it is and the Commission has had disclosure
regard to the timing or dating of option necessary to revise our requirements. rules in this area applicable to proxy
grants. Today’s amendments update, clarify statements since 1938. In 1992, the
We are also modifying, as proposed, and somewhat expand the related party Commission proposed and adopted
some of the Form 8–K requirements transaction disclosure requirements. substantially revised rules that embody
regarding compensation. Form 8–K The amendments fold into the our current requirements.57 In doing so,
requires disclosure within four business disclosure requirements for related the Commission moved away from
days of the entry into, amendment of, party transactions what had been a narrative disclosure and back to using
and termination of, material definitive separate disclosure requirement tables that permit comparability from
agreements that are entered into outside year to year and from company to
regarding indebtedness of management
of the ordinary course of business. company. As we noted in the Proposing
and directors.53 Further, we are
Under our definition of material Release, although the reasoning behind
adopting a requirement that calls for a
contracts in Item 601 of Regulation S– this approach remains fundamentally
narrative explanation of the
K for the purposes of determining what sound, significant changes are
independence status of directors under
exhibits are required to be filed, many appropriate. Much of the concern with
a company’s director independence
agreements regarding executive the tables adopted in 1992 had also been
policies. We intend this requirement to
compensation are deemed to be material their strength: they were highly
be consistent with recent significant
agreements entered into outside the formatted and rigid.58 Thus, information
changes to the listing standards of the
ordinary course. When, in 2004, for not specifically called for in the tables
nation’s principal securities trading had sometimes not been provided. For
purposes of consistency, we looked to markets.54 We also are consolidating
this definition for use in the Form 8–K example, the highly formatted and
requirements, we incorporated all of 52 Disclosure of Certain Relationships and
specific approach had led some to
these executive compensation Transactions Involving Management, Release No.
agreements into the Form 8–K 33–6441 (Dec. 2, 1982) [47 FR 55661] (the ‘‘1982 about director relationships that could affect
Release’’). independence specified in Item 404(b) of
disclosure requirements. Therefore, Regulation S–K prior to these amendments.
53 Prior to these amendments, related party
many agreements regarding executive transactions were disclosed under Item 404(a) of 55 New Item 407 of Regulations S–K and S–B.
compensation, including some not Regulations S–K and S–B, while indebtedness was 56 Item 403(b) of Regulations S–K and S–B.
separately required to be disclosed under Item 57 1992 Release.

51 We had proposed similar amendments, which 404(c) of Regulation S–K. 58 See, e.g., Council of Institutional Investors’
we did not act on, regarding director compensation 54 See, e.g., NASD and NYSE Rulemaking: Discussion Paper on Executive Pay Disclosure,
in 1995. Streamlining and Consolidation of Relating to Corporate Governance, Release No. 34– Executive Compensation Disclosure: How it Works
Executive and Director Compensation Disclosure, 48745 (Nov. 4, 2003) [68 FR 64154] (the ‘‘NASD and Now, How It Can Be Improved, at 11 (available at
Release No. 33–7184 (Aug. 6, 1995) [60 FR 35633] NYSE Listing Standards Release’’). This new www.cii.org/site_files/pdfs/
(the ‘‘1995 Release’’), at Section I.B. requirement will replace the disclosure requirement CII%20pay%20primer%20edited.pdf).
suggest that items that did not fit increments over a set time period. For poor employee morale and resultant
squarely within a ‘‘box’’ specified by the example, if the grant vests at a rate of turnover, especially at companies where
rules need not have been disclosed.59 As 20% per year for five years, the option option compensation is an important
another example, because the tables did for the last 20% is earned by the component of total compensation. In
not call for a single figure for total employee’s provision of five years of addition, options with shorter vesting
compensation, that information had services. Most options become periods or longer term options
generally not been provided prior to exercisable upon vesting and remain approaching their vesting dates may
today’s amendments, although there had exercisable until their stated expiration. provide incentives to employees to
been considerable commentary Generally, upon termination of the focus on increasing the company’s stock
indicating that a single total figure is employment relationship, however, an price in the short term rather than
high on the list of information that some employee loses unvested options, and working toward achieving longer term
investors wish to have. To preserve the has a limited term (e.g., 90 days) to business goals and objectives that would
strengths of the former approach and exercise vested options.61 enable the company to achieve and
build on them, we are taking several Options have most often been issued sustain future success.
steps in adopting amendments to Item ‘‘at-the-money’’—i.e., with an exercise The Commission does not seek to
402,60 substantially as we proposed: price equal to the market price of the encourage or discourage the use of stock
• First, we are retaining the tabular underlying stock at the date of grant— options or any other particular form of
approach to provide clarity and but may also be issued either ‘‘in-the- executive compensation. The federal
comparability while improving the money’’—i.e., with an exercise price securities laws, however, do require full
tabular disclosure requirements; below the market price of the and fair disclosure of compensation
• Second, we are confirming that all underlying stock at the date of grant— information to the extent material or
elements of compensation must be or ‘‘out-of-the-money’’—i.e., with an required by Commission rule.
included in the tables; exercise price above the market price of 2. Required Option Disclosures
• Third, we are providing a format for the underlying stock at the date of grant.
the amended Summary Compensation An option holder benefits only when The Commission acknowledged the
Table that requires disclosure of a single the company’s stock price is above the importance to investors of proper
figure for total compensation; and exercise price when the employee disclosure of executives’ option
• Finally, we are requiring narrative exercises the option. Hence, setting a compensation throughout the Proposing
disclosure comprising both a general lower exercise price increases the value Release. The existing body of rules
discussion and analysis of of the option. regarding disclosure of executive stock
compensation and specific material As some commentators have option grants, however, has not
information regarding tabular items observed, using options for previously contained a line-item
where necessary to an understanding of compensation purposes may have requirement with respect to information
the tabular disclosure. advantages. These commentators point regarding programs, plans or practices
out that, unlike salary and bonus concerning the selection of stock option
A. Options Disclosure grant dates or exercise prices.62 The
compensation, stock option
1. Background compensation does not require the disclosure we proposed in January,
Many companies use stock options to payment of cash by the company, and along with related disclosure we also
compensate their employees, including therefore can be particularly attractive adopt today, should provide investors
executives. In a simple stock option, a to companies for which cash is a scarce with more information about option
company may grant an employee the resource. Stock option compensation compensation.63 We have summarized
right to purchase a specified number of may also provide an incentive for 62 Our existing rules for companies’ disclosure do
shares of the company’s stock at a employees to work to increase the prohibit material misrepresentations of option grant
specific price, called the exercise price company’s stock price. Additionally, dates, as well as any resulting material
and usually set as the market price of some companies may be able to use misstatements of affected financial statements.
the company’s stock on the grant date. stock option compensation to help Companies are also required under our existing
rules to disclose any material information that may
While some options require no future retain employees, because an employee be necessary to make their other disclosures, in the
service from the employee, most include with unvested in-the-money options light of the circumstances under which they are
vesting provisions, such that the forfeits their potential value if he leaves made, not misleading. See, e.g., Rule 12b–20 under
employee does not earn the option the company’s employ. the Exchange Act [17 CFR 240.12b–20].
63 We note that Exchange Act Rule 16a–3 [17 CFR
unless he remains employed by the At the same time, other commentators
240.16a–3] setsforth the general reporting
company for a specified period of stress that option compensation is not requirements under Exchange Act Section 16(a).
service. Often a company will grant a without costs and disadvantages. Prior to August 2002, a number of transactions
specific number of options that will Options granted to employees, if between an issuer and its officers or directors—such
ultimately exercised with the resulting as the granting of options—were required to be
then vest proportionately in staggered disclosed following the end of the fiscal year in
issuance of the underlying stock, give which the transaction took place although
59 For examples, see, e.g., The Corporate Counsel rise to a dilution of the interests in the individuals could disclose those transactions earlier
(Sept.–Oct. 2005) at 6–7; The Corporate Counsel company held by existing stockholders. if they chose to. In implementing Section 403(a) of
(Sept.–Oct. 2004) at 7; but see Alan L. Beller, the Sarbanes-Oxley Act of 2002, in August 2002, the
Director, Division of Corporation Finance, U.S.
Options that are not in-the-money may
Commission required immediate disclosure of these
Securities and Exchange Commission, Remarks not provide a retention benefit, and transactions for the first time. As a result, since
Before Conference of the NASPP, The Corporate some managers believe that options that August 2002, grants, awards and other acquisitions
Counsel and the Corporate Executive (Oct. 20, fall out-of-the-money (or are of equity-based securities from the issuer, including
2004), available at www.sec.gov/news/speech/ those pursuant to employee benefit plans (which
spch102004alb.htm.
‘‘underwater’’) not only fail to motivate
were previously reportable on an annual basis on
employees but, in fact, can result in
60 The discussion that follows focuses on Form 5) have been required to be reported by
amendments to Item 402 of Regulation S–K, with officers and directors on Form 4 within two
Section II.D.1. explaining the different amendments 61 More complex stock options can include business days. Ownership Reports and Trading by
to Item 402 of Regulation S–B. References provisions that alter the terms of the instrument Officers, Directors and Principal Security Holders,
throughout the following discussion are to Items of based on whether performance or other targets are Release No. 34–46421 (Aug. 27, 2002) [56 FR 56461]
Regulation S–K, unless otherwise indicated. met. at Section II.B.
below the various provisions of the b. Compensation Discussion and Although the facts would be slightly
rules that we adopt today that relate to Analysis different, a company also may
options disclosure.64 coordinate its grant of stock options
Companies will also be required to with the release of negative material
a. Tabular Disclosures address matters relating to executives’ non-public information. Again, such
The following disclosures are option compensation in the new timing could occur in at least two ways:
Compensation Discussion and Analysis
required in the tables we adopt today. • The company delays granting
These provisions are discussed in more section, particularly as they relate to the
options until after the release of material
detail later in the section relating to timing and pricing of stock option
non-public information that is likely to
each particular table. grants. Without being an exhaustive list,
result in a decrease in its stock price; or
several of the examples provided in
• As proposed and adopted, grants of • The company chooses to release
Item 402(b)(2) illustrate how these types
stock options will be disclosed in the material non-public information that is
of issues and questions might be
Summary Compensation Table at their likely to result in a decrease in its stock
covered in a company’s disclosure. For
fair value on the date of grant, as price prior to an upcoming stock option
example, Item 402(b)(2)(iv) shows that
determined under FAS 123R. By basing grant.
how the determination is made as to
the executive compensation disclosure The Commission does not express a
when awards are granted could be
on the full grant date fair value view as to whether or not a company
required disclosure. This example was
computed in accordance with FAS may or may not have valid and
included in part to note that material
123R, companies will give shareholders sufficient reasons for such timing of
information to be disclosed under
an accurate picture of the value of option grants, consistent with a
options at the time they are actually company’s own business purposes.
may include the reasons a company
granted to the highest-paid executive Some commentators have expressed the
selects particular grant dates for awards,
officers.65 view that following these practices may
such as for stock options. Similarly,
• A separate table including other examples we provide in Item enable a company to receive more
disclosure of equity awards, the Grants 402(b)(2) illustrate how the material benefit from the incentive or retention
of Plan-Based Awards Table, requires information to be disclosed under effect of options because recipients may
disclosure of the grant date as Compensation Discussion and Analysis value options granted in this manner
determined pursuant to FAS 123R.66 might need to include the methods a more highly or because doing so
The grant date is generally considered company uses to select the terms of provides an immediate incentive for
the day the decision is made to award awards, such as the exercise prices of employee retention because an
the option as long as recipients of the stock options. employee who leaves the company
award are notified promptly. Even if the forfeits the potential value of unvested,
option’s exercise price is set based on i. Timing of Option Grants in-the-money options. Other
trading prices as of an earlier date or commentators believe that timing option
We understand that some companies
dates, the grant date does not change. grants in connection with the release of
grant options in coordination with the
• If the exercise price is less than the release of material non-public material non-public information may
closing market price of the underlying information. If the company had since unfairly benefit executives and
security on the date of the grant, a the beginning of the last fiscal year, or employees.
separate, adjoining column would have intends to have during the current fiscal Regardless of the reasons a company
to be added to this table showing that year, a program, plan or practice to or its board may have, the Commission
market price on the date of the grant.67 select option grant dates for executive believes that in many circumstances the
• If the grant date is different from the officers in coordination with the release existence of a program, plan or practice
date the compensation committee or full of material non-public information, the to time the grant of stock options to
board of directors takes action or is company should disclose that in the executives in coordination with material
deemed to take action to grant an Compensation Discussion and Analysis non-public information would be
option, a separate, adjoining column section. For example, a company may material to investors and thus should be
would have to be added to this table grant awards of stock options while it fully disclosed in keeping with the rules
showing the date the compensation knows of material non-public we adopt today. Consistent with
committee or full board of directors took information that is likely to result in an principles-based disclosure, companies
action or was deemed to take action to increase in its stock price, such as should consider their own facts and
grant the option.68 immediately prior to a significant circumstances and include all relevant
Further, if the exercise or base price positive earnings or product material information in their
of an option grant is not the closing development announcement. Such corresponding disclosures.70 If the
market price per share on the grant date, timing could occur in at least two ways: company has such a program, plan or
we require a description of the • The company grants options just practice, the company should disclose
methodology for determining the prior to the release of material non- that the board of directors or
exercise or base price.69 public information that is likely to compensation committee may grant
result in an increase in its stock price options at times when the board or
64 We also note that under our rules regarding
(whether the date of that release of committee is in possession of material
disclosure of director compensation, the concerns non-public information. Companies
and considerations for disclosure of option timing material non-public information is a
or dating practices in the executive compensation regular date or otherwise pre- might also need to consider disclosure
realm would also apply when the recipients of the announced, or not); or about how the board or compensation
stock option grants are directors of the company. committee takes such information into
• The company chooses to delay the
65 Item 402(c)(2)(vi).
66 Item 402(d)(2)(ii) and Item 402(a)(6)(iv). release of material non-public 70 Relevant material information might include
67 Item 402(d)(2)(vii). information that is likely to result in an disclosure in response to the examples in Item
68 Item 402(d)(2)(ii). increase in its stock price until after a 402(b)(2) in the Compensation Discussion and
69 Instruction 3 to Item 402(d). stock option grant date. Analysis section, discussed below.
account when determining whether and relevant material information in their explain material elements of the
in what amount to make those grants. corresponding disclosures. particular company’s compensation for
Although it is not an exhaustive list, Similar to such a practice of setting named executive officers by answering
there are some elements and questions the exercise price based on a date other the following questions:
about option timing to which we believe than the actual grant date, some • What are the objectives of the
a company should pay particular companies have provisions in their company’s compensation programs?
attention when drafting the appropriate option plans or have followed practices • What is the compensation program
corresponding disclosure. for determining the exercise price by designed to reward?
• Does a company have any program, using formulas based on average prices • What is each element of
plan or practice to time option grants to (or lowest prices) of the company’s compensation?
its executives in coordination with the stock in a period preceding, • Why does the company choose to
release of material non-public surrounding or following the grant date. pay each element?
information? In some cases these provisions may • How does the company determine
• How does any program, plan or increase the likelihood that recipients the amount (and, where applicable, the
practice to time option grants to will be granted in-the-money options. formula) for each element?
executives fit in the context of the As these provisions or practices relate to • How do each element and the
company’s program, plan or practice, if a material term of a stock option grant, company’s decisions regarding that
any, with regard to option grants to they should be discussed in the element fit into the company’s overall
employees more generally? Compensation Discussion and Analysis compensation objectives and affect
• What was the role of the section. decisions regarding other elements?
compensation committee in approving B. Compensation Discussion and As proposed, the second question also
and administering such a program, plan Analysis asked what the compensation program
or practice? How did the board or is designed not to reward. Commenters
We are adopting a new Compensation stated that compensation committees
compensation committee take such
Discussion and Analysis section.71 As often may not consider this objective in
information into account when
determining whether and in what we proposed, this section will be an developing compensation programs,
amount to make those grants? Did the overview providing narrative disclosure expressing concern that the question
compensation committee delegate any that puts into context the compensation could generate potentially limitless
aspect of the actual administration of a disclosure provided elsewhere.72 disclosure that would not add meaning
program, plan or practice to any other Commenters generally supported the to disclosure of what the compensation
persons? new Compensation Discussion and program is designed to award.74 In
Analysis section.73 This overview will
• What was the role of executive response to this concern, we have not
officers in the company’s program, plan 71 Item 402(b). In addition to the narrative
included this question in the rule as
or practice of option timing? Compensation Discussion and Analysis, we are
adopted.
• Does the company set the grant date amending the rules so that, to the extent material, 1. Intent and Operation of the
of its stock option grants to new additional narrative disclosure will be provided
following certain tables to supplement the Compensation Discussion and Analysis
executives in coordination with the disclosure in the table. See, e.g., Section II.C.3.a.,
release of material non-public The purpose of the Compensation
discussing the narrative disclosure to the Summary
information? Compensation Table and the Grants of Plan-Based Discussion and Analysis disclosure is to
• Does a company plan to time, or has Awards Table. We are also requiring disclosure of provide material information about the
it timed, its release of material non- compensation committee procedures and processes compensation objectives and policies
as well as information regarding compensation for named executive officers without
public information for the purpose of committee interlocks and insider participation in
affecting the value of executive compensation decisions as part of new Item 407 of resorting to boilerplate disclosure. The
compensation? Regulation S–K. See Section V.D., below. Compensation Discussion and Analysis
Disclosure would also be required
72 See Jeffrey N. Gordon, Executive is intended to put into perspective for
Compensation: What’s the Problem, What’s the investors the numbers and narrative that
where a company has not previously Remedy? The Case for Compensation Discussion
disclosed a program, plan or practice of and Analysis, 30 J. Corp. L. 695 (2005) (arguing that
follow it.
timing option grants, but has adopted the Commission should require proxy disclosure
that includes a ‘‘Compensation Discussion and Investment Company Institute (‘‘ICI’’); Institutional
such a program, plan or practice or has Analysis’’ section that collects and summarizes all Shareholder Services (‘‘ISS’’); jointly, California
made one or more decisions since the the compensation elements for senior executives, Public Employees’ Retirement System, California
beginning of the past fiscal year to time providing a ‘‘bottom line assessment’’ of the State Teachers’ Retirement System, Co-operative
option grants. different compensation elements and an Insurance Society—UK, F&C Asset Management—
explanation as to why the board thinks such UK, Illinois State Board of Investment, London
ii. Determination of Exercise Price compensation is warranted). Pensions Fund Authority—UK, New York State
73 See, e.g., letters from British Columbia Common Retirement Fund, New York City Pension
Separate from these timing issues, Investment Management Corporation (‘‘BCIMC’’); Funds, Ontario Teachers’ Pension Plan, PGGM
some companies may have a program, Leo J. Burns (‘‘L. Burns’’); CFA Centre for Financial Investments—Netherlands, Public Sector and
plan or practice of awarding options and Market Integrity, dated April 13, 2006 (‘‘CFA Centre Commonwealth Super (PSS/CSS)—Australia,
1’’); Chamber of Commerce of the United States of RAILPEN Investments—UK, State Board of
setting the exercise price based on the America (‘‘Chamber of Commerce’’); Board of Fire Administration (SBA) of Florida, Stichting
stock’s price on a date other than the and Police Pension Commissioners of the City of Pensioenfonds ABP—Netherlands, UniSuper
actual grant date. Such a program, plan Los Angeles (‘‘F&P Pension Board’’); F&C Asset Limited—Australia, and Universities
or practice would also require Management; Foley & Lardner LLP (‘‘Foley’’); Superannuation Scheme—UK (‘‘Institutional
Hermes Investment Management Limited; Investors Group’’); The Pension Boards—United
disclosure, including, as appropriate, in Governance for Owners USA, Inc. (‘‘Governance for Church of Christ (‘‘PB–UCC’’); State of Wisconsin
the tables described in II.A.2.a above Owners’’); International Association of Machinists Investment Board; and T. Rowe Price Associates,
and in the Compensation Discussion and Aerospace Workers (‘‘IAM’’); Board of Trustees Inc.
and Analysis section. Again, as with the of the International Brotherhood of Electrical 74 See, e.g., letters from American Bar
Workers Pension Benefit Fund (‘‘IBEW PBF’’); Association, Committee on Federal Regulation of
timing matters discussed above, International Brotherhood of Teamsters Securities (‘‘ABA’’); Committee on Securities
companies should consider their own (‘‘Teamsters’’); Remuneration Committee of the Regulation of the New York City Bar (‘‘NYCBA’’);
facts and circumstances and include all International Corporate Governance Network; and WorldatWork (‘‘WorldatWork’’).
As described in the Proposing Release • Policies for allocating between long- reduce or increase the size of any award
and as adopted, the Compensation term and currently paid out or payout), as proposed, but also
Discussion and Analysis requirement is compensation; whether such discretion has been
principles-based, in that it identifies the • Policies for allocating between cash exercised. By doing this, we move to the
disclosure concept and provides several and non-cash compensation, and among Compensation Discussion and Analysis
illustrative examples. Some commenters different forms of non-cash overview an example of a material factor
suggested that a principles-based compensation; that had been proposed for the narrative
approach would be better served • For long-term compensation, the disclosure that follows the Summary
without examples, on the theory that basis for allocating compensation to Compensation Table,79 and expand its
‘‘laundry lists’’ would lead to each different form of award; scope so that it is no longer limited to
boilerplate.75 Other commenters • How the determination is made as non-equity incentive plans. Because of
expressed the opposite view—that more to when awards are granted, including the policy significance of decisions to
specific description of required awards of equity-based compensation waive or modify performance goals, we
disclosure topics would more effectively such as options; believe that they are more appropriately
elicit meaningful disclosure.76 • What specific items of corporate discussed in the Compensation
performance are taken into account in Discussion and Analysis.
As we explained in the Proposing As discussed in Section II.A. above, a
setting compensation policies and
Release, overall we designed the company’s policies, programs and
making compensation decisions;
proposals to state the requirements
• How specific elements of practices regarding the award of stock
sufficiently broadly to continue options and other equity-based
compensation are structured and
operating effectively as future forms of instruments to compensate executives
implemented to reflect these items of
compensation develop, without may require disclosure and discussion
the company’s performance and the
suggesting that items that do not fit in the Compensation Discussion and
executive’s individual performance;
squarely within a ‘‘box’’ specified by the
• The factors considered in decisions Analysis. As with all disclosure in the
rules need not be disclosed. We believe Compensation Discussion and Analysis,
to increase or decrease compensation
that the adopted principles-based materially; a company must evaluate the specific
Compensation Discussion and Analysis, • How compensation or amounts facts and circumstances of its grants of
utilizing a disclosure concept along realizable from prior compensation are options and equity-based instruments
with illustrative examples, strikes an considered in setting other elements of and provide such disclosure if it
appropriate balance that will effectively compensation (e.g., how gains from supplies material information about the
elicit meaningful disclosure, even as prior option or stock awards are company’s compensation objectives and
new compensation vehicles develop considered in setting retirement policies for named executive officers.
over time. benefits); Further in response to comment,80 we
We wish to emphasize, however, that • The impact of accounting and tax have revised the example addressing
the application of a particular example treatments of a particular form of how the determination is made as to
must be tailored to the company and compensation; when awards are granted so that it is not
that the examples are non-exclusive. We • The company’s equity or other limited to equity-based compensation,
believe using illustrative examples security ownership requirements or as was proposed, but we clarify in the
helps to identify the types of disclosure guidelines and any company policies rule as adopted that it would include
that may be applicable. A company regarding hedging the economic risk of equity-based compensation, such as
must assess the materiality to investors such ownership; stock options.81 Regarding the example
of the information that is identified by • Whether the company engaged in noting the impact of accounting and tax
the example in light of the particular any benchmarking of total treatments of a particular form of
situation of the company. We also note compensation or any material element compensation, some commenters urged
that in some cases an example may not of compensation, identifying the that companies be required to continue
be material to a particular company, and benchmark and, if applicable, its to disclose their Internal Revenue Code
therefore no disclosure would be components (including component Section 162(m) policy.82 The adoption
required. Because the scope of the companies); and of this example should not be construed
Compensation Discussion and Analysis • The role of executive officers in the to eliminate this discussion. Rather, this
is intended to be comprehensive, a compensation process. example indicates more broadly that
company must address the At the suggestion of a commenter,77 any tax or accounting treatment,
compensation policies that it applies, we have expanded the example including but not limited to Section
even if not included among the addressing how specific forms of 162(m), that is material to the
examples. The Compensation compensation are structured to reflect company’s compensation policy or
Discussion and Analysis should reflect company performance to also address decisions with respect to a named
the individual circumstances of a implementation. We have made a
79 This example had been proposed as Item
company and should avoid boilerplate similar change with regard to the
402(f)(1)(iv).
disclosure. example regarding the executive’s 80 See letter from ABA.
We have adopted, substantially as individual performance.78 As adopted, 81 This example is discussed in more detail above
proposed, the following examples of the this example includes not only whether in Section II.A., the discussion of stock option
issues that would potentially be discretion can be exercised (either to disclosure.
82 See, e.g., letters from Buck Consultants;
appropriate for the company to address award compensation absent attainment
Frederic W. Cook & Co., Inc., dated March 9, 2006
in given cases in the Compensation of the relevant performance goal(s) or to (‘‘Frederic W. Cook & Co.’’); Thomas Rogers; and
Discussion and Analysis: WorldatWork. The Commission has construed the

77 See letter from ABA. Board Compensation Committee Report on
78 We have also reordered this example, so it is Executive Compensation (which had been required
75 See,e.g., letter from Curt Kollar (‘‘C. Kollar’’). clearer that the items of company performance to be furnished by Item 402(k) prior to these
76 See,e.g., letters from CFA Centre 1 and Hewitt referenced are the ones noted in the immediately amendments) to require discussion of this policy.
Associates LLC (‘‘Hewitt’’). preceding example. 1993 Release at Section III.
executive officer is covered by Analysis should also cover actions not prohibit or discourage discussion of
Compensation Discussion and Analysis. regarding executive compensation that that specific information.
Tax consequences to the named were taken after the last fiscal year’s We are adopting an instruction to
executive officers, as well as tax end. Actions that should be addressed make clear that, as was the case with the
consequences to the company, may fall might include, as examples only, the Board Compensation Committee Report
within this example. adoption or implementation of new or on Executive Compensation required
In addition, we have followed modified programs and policies or prior to the adoption of these
commenters’ recommendations to add specific decisions that were made or amendments, companies are not
the following specific examples steps that were taken that could affect required to disclose target levels with
addressing additional factors: a fair understanding of the named respect to specific quantitative or
• Company policies and decisions executive officer’s compensation for the qualitative performance-related factors
regarding the adjustment or recovery of last fiscal year. Moreover, in some considered by the compensation
awards or payments if the relevant situations it may be necessary to discuss committee or the board of directors, or
company performance measures upon prior years in order to give context to any other factors or criteria involving
which they are based are restated or the disclosure provided. confidential trade secrets or confidential
otherwise adjusted in a manner that The Compensation Discussion and commercial or financial information, the
would reduce the size of an award or Analysis should be sufficiently precise disclosure of which would result in
payment; 83 and to identify material differences in competitive harm to the company.89
• The basis for selecting particular compensation policies and decisions for Some commenters objected that this
events as triggering payment with individual named executive officers instruction would impair the quality of
respect to post-termination agreements where appropriate. Where policies or information disclosed by making it
(e.g., the rationale for providing a single decisions are materially similar, officers difficult to assess the link between pay
trigger for payment in the event of a can be grouped together. Where, and company performance, and
change-in-control).84 however, the policy or decisions for a suggested that competitive harm would
named executive officer are materially be mitigated if disclosure were required
Commenters also requested
different, for example in the case of a on an after-the-fact basis, after the
clarification as to whether
principal executive officer, his or her performance related to the award is
compensation should be discussed measured.90 Different commenters
is limited to compensation for the last
separately. stated that performance targets often are
fiscal year, like the former Board based on confidential, competitively
Compensation Committee Report on 2. Instructions to Compensation sensitive business plans, and that
Executive Compensation that was Discussion and Analysis requiring disclosure could encourage
required prior to these amendments.85 We are adopting instructions to make the use of more generic targets that
While the Compensation Discussion and clear that the Compensation Discussion could hinder a company’s goal of pay-
Analysis must cover this subject, the and Analysis should focus on the for-performance.91 Other commenters
Compensation Discussion and Analysis material principles underlying the observed that companies rarely use a
may also require discussion of post- company’s executive compensation performance metric for a single year or
termination compensation policies and decisions, and the most plan cycle, but select measures because
arrangements, on-going compensation important factors relevant to analysis of of their relevance to the company’s
arrangements, and policies that the those policies and decisions, without business strategy over several years, so
company will apply on a going-forward using boilerplate language or repeating that even disclosure on an after-the-fact
basis.86 Compensation Discussion and the more detailed information set forth basis could reveal proprietary business
83 See, e.g., letters from Amalgamated Bank Long-
in the tables and related narrative information that would be useful to
View Funds (‘‘Amalgamated’’); CFA Centre 1; and disclosures that follow. The instructions competitors.92 Having considered these
Council of Institutional Investors, dated March 29, also provide that the Compensation comments, we remain persuaded that
2006 (‘‘CII’’). Section 304 of the Sarbanes-Oxley Act Discussion and Analysis should concern this disclosure, even on an after-the-fact
of 2002 [codified at 15 U.S.C. 7243] provides that basis could pose significant risk of
if a company is required to prepare an accounting
the information contained in the tables
restatement due to the material noncompliance of and otherwise disclosed.87 Because this competitive harm and we are therefore
the issuer, as a result of misconduct, with any section is intended to provide not requiring it in those cases in which
financial reporting requirement under the securities meaningful analysis, it may specifically the factors or criteria considered involve
laws, the principal executive officer and principal
refer to the tabular or other disclosures confidential trade secrets or confidential
financial officer of the company shall reimburse the commercial or financial information, the
company for any bonus or other incentive-based or where helpful to make the discussion
equity-based compensation received by that person more robust. A commenter raised a disclosure of which would result in
from the company during the 12-month period concern that the instruction not to competitive harm to the company.
following the first public issuance or filing with the
repeat information set forth in the other As noted in the Proposing Release, in
Commission (whichever first occurs) of the applying this instruction, we intend the
financial document embodying such financial disclosures might somehow limit the
reporting requirement, and any profits realized from disclosure made in Compensation standard for companies to use in making
the sale of securities of the company during that 12- Discussion and Analysis.88 We have a determination that this information
month period. This example would not necessarily
be limited to policies covering only situations
revisited this instruction, which is 89 Instruction 4 to Item 402(b). Prior to these
contemplated by Section 304. intended to encourage analysis and to amendments, Instruction 2 to Item 402(k) had
84 See letter from Anonymous, dated April 10, forestall mere repetition of the provided a similar exclusion for this type of
2006. information in the tables, to provide that information.
85 See, e.g., letters from Buck Consultants; 90 See, e.g., letters from American Federation of
repetition and boilerplate language
Frederic W. Cook & Co.; and Mercer Human Labor and Congress of Industrial Organizations,
should be avoided. The instruction does
Resource Consulting, Inc., dated April 10, 2006 dated April 5, 2006 (‘‘AFL-CIO’’); CII; Governance
(‘‘Mercer’’). for Owners; IAM; and The Honorable Barney Frank,
86 Forward looking information in the [15 U.S.C. 77z–2] and Exchange Act Section 21E [15 United States Representative (MA).
Compensation Discussion and Analysis will fall U.S.C. 78u–5]. 91 See, e.g., letter from Sullivan & Cromwell LLP
87 Instruction 2 to Item 402(b). (‘‘Sullivan’’).
within the safe harbors for disclosure of such
information. See, e.g., Securities Act Section 27A 88 See letter from ABA. 92 See, e.g., letter from Mercer.
does not have to be disclosed to be the particular factors or criteria involve of 2002.99 Likewise, a company’s
same one that would apply when confidential trade secrets or confidential disclosure controls and procedures 100
companies request confidential commercial or financial information and apply to the preparation of the
treatment of confidential trade secrets or why disclosure would result in company’s proxy statement and Form
confidential commercial or financial competitive harm. If the Commission or 10–K, including the Compensation
information that otherwise is required to its staff ultimately determines that a Discussion and Analysis.
be disclosed in registration statements, company has not met these standards, We noted in the Proposing Release
periodic reports and other documents then the company will be required to that in adopting the rules that have
filed with us.93 Under this approach, to disclose publicly the factors or criteria applied since 1992, the Commission
the extent a performance target has used. In response to a commenter’s took into account comments that the
otherwise been disclosed publicly, non- concern,95 we have also added an Board Compensation Committee Report
disclosure pursuant to this instruction instruction to clarify that disclosure of on Executive Compensation should be
would not be permitted. To make these a target level that applies a non-GAAP furnished rather than filed to allow for
standards clearer and respond to financial measure will not be subject to more open and robust discussion in the
commenters’ concerns that companies the general rules regarding disclosure of reports.101 The Board Compensation
may exploit the instruction to exclude non-GAAP financial measures but the Committee Reports on Executive
information in inappropriate company must disclose how the number Compensation that were provided prior
circumstances, we are revising this is calculated from the audited financial to today’s amendments in general did
instruction as adopted to clearly apply statements.96 not suggest that this treatment resulted
the same standard as for confidential One commenter stated that the in such discussion, nor the more
treatment requests. Companies will not Compensation Discussion and Analysis transparent disclosure that the
be required, however, to submit of a new public company should be comments suggested would result.102
confidential treatment requests in order permitted to be a prospective-only Further, we noted that we believe that
to rely on the instruction.94 To mitigate discussion.97 While we agree the most it is appropriate for companies to take
commenters’ concerns that omission of responsibility for disclosure involving
significant disclosure in that situation
specific performance targets would board matters as with other disclosure.
may be future plans, we do not believe
impair the quality of disclosure, the Some commenters supported the
a prospective-only discussion is proposal to have the Compensation
instruction requires additional appropriate. Instead, companies may
disclosure regarding the significance of Discussion and Analysis filed, noting
emphasize the new plans or policies. among other things that filing should
the undisclosed target. Specifically, if
the company uses target levels for 3. ‘‘Filed’’ Status of Compensation lead to increased accuracy and better
specific quantitative or qualitative Discussion and Analysis and the disclosure.103 Other commenters
performance-related factors, or other ‘‘Furnished’’ Compensation Committee objected to this treatment, claiming that
factors or criteria that it does not Report certification by principal executive
disclose in reliance on the instruction, officers and principal financial officers
We proposed that the Compensation with regard to the disclosure included
the company must discuss how difficult Discussion and Analysis would be
it will be for the executive or how likely in the annual report on Form 10–K,
considered a part of the proxy statement including particularly the
it will be for the company to achieve the and any other filing in which it was
undisclosed target levels or other Compensation Discussion and Analysis,
included. Unlike the Board would inappropriately insert these
factors. In addition, as discussed below, Compensation Committee Report on
the Compensation Discussion and officers into the compensation
Executive Compensation that was
Analysis will be considered soliciting required prior to these amendments, we 99 Exchange Act Rules 13a–14 [17 CFR 240.13a–
material and will be filed with the proposed that the Compensation 14] and 15d–14 [17 CFR 240.15d–14]. See also
Commission. This disclosure will be Discussion and Analysis would be Certification of Disclosure in Companies’ Quarterly
subject to review by the Commission soliciting material and would be filed and Annual Reports, Release No. 34–46427 (Aug.
and its staff. Therefore, if a company 29, 2002) [67 FR 57275], at n. 35 (the ‘‘Certification
with the Commission. Therefore, it Release’’) (stating that ‘‘the certification in the
uses target levels that otherwise would would be subject to Regulation 14A or annual report on Form 10–K or 10–KSB would be
need to be disclosed but does not 14C and to the liabilities of Section 18 considered to cover the Part III information in a
disclose them in reliance on the of the Exchange Act.98 In addition, to
registrant’s proxy or information statement as and
instruction, the company may be when filed’’).
the extent that the Compensation 100 Exchange Act Rules 13a–15 [17 CFR 240.13a–
required to demonstrate to the
Discussion and Analysis and any of the 15] and 15d–15 [17 CFR 240.15d–15].
Commission or its staff that the
other disclosure regarding executive 101 1992 Release, at Section II.H.
102 See also Martin D. Mobley, Compensation
93 See Securities Act Rule 406 [17 CFR 230.406],
officer and director compensation or
Committee Reports Post-Sarbanes-Oxley:
Exchange Act Rule 24b–2 [17 CFR 240.24b–2], other matters are included or Unimproved Disclosure for Executive
Exemption 4 of the Freedom of Information Act [5 incorporated by reference into a Compensation Policies and Practices, 2005 Colum.
U.S.C. 552(b)(4)], and Rule 80(b)(4) promulgated periodic report, the disclosure would be Bus. L. Rev. 111 (2005).
under the Freedom of Information Act [17 CFR covered by the certifications that 103 See, e.g., letters from AFL–CIO; American
200.80(b)(4)]. Federation of State, County and Municipal
94 While the instruction adopted today, like the principal executive officers and Employees; California Public Employees’
instruction that it replaces, does not require a principal financial officers are required Retirement System (‘‘CalPERS’’); Paul Hodgson,
company to seek confidential treatment under the to make under the Sarbanes-Oxley Act Senior Research Associate, Executive and Board
procedures in Securities Act Rule 406 and Compensation, the Corporate Library (‘‘Corporate
Exchange Act Rule 24b–2 with regard to the 95 See
Library’’); Connecticut Retirement Plans and Trust
exclusion of the information from the disclosure letter from ABA. Funds, dated April 10, 2006 (‘‘CRPTF’’);
96 Instruction 5 to Item 402(b). The non-GAAP
provided in response to this item, the standards Southwestern Pennsylvania and Western Maryland
specified in Securities Act Rule 406, Exchange Act financial measure provisions are specified in Area Teamsters and Employers Pension Fund
Rule 24b–2, Exemption 4 of the Freedom of Regulation G [17 CFR 244.100–102], Item 10(e) of (‘‘Teamsters PA/MD’’); Teamsters Local 671 Health
Information Act and Rule 80(b)(4) promulgated Regulation S–K [17 CFR 229.10] and Item 10(h) of Services and Insurance Plan (‘‘Teamsters Local
under the Freedom of Information Act still apply Regulation S–B [17 CFR 228.10]. 671’’); Walden Asset Management (‘‘Walden’’); and
97 See letter from ABA.
and are subject to review and comment by the staff Western PA Teamsters & Employers Welfare Fund
of the Commission. 98 15 U.S.C. 78r. (‘‘Western PA Teamsters Fund’’).
committee’s deliberative process, will be required to be included or Discussion and Analysis and the new
potentially calling into question the incorporated by reference into the Compensation Committee Report, as
committee’s independence.104 Further, company’s annual report on Form 10–K, described immediately above.113
many commenters expressed the view so that it is presented along with the Given the widespread availability of
that the Compensation Discussion and Compensation Discussion and Analysis stock performance information about
Analysis should, in effect, be the report when that disclosure is provided in the companies, industries and indexes
of the compensation committee, Form 10–K or incorporated by reference through business-related Web sites or
submitted under the names of its from a proxy or information similar sources, we proposed to
members, for which they should be statement.108 Like the Audit Committee eliminate the requirement for the
accountable.105 Report, the Compensation Committee Performance Graph in the belief that it
Some of these objections may reflect Report will only be required one time was outdated, particularly since the
a misconception of the purpose of the during any fiscal year.109 The name of disclosure in the Compensation
Compensation Discussion and Analysis. each member of the company’s Discussion and Analysis regarding the
Although the Compensation Discussion compensation committee (or, in the elements of corporate performance that
and Analysis discusses company absence of a compensation committee, a given company’s policies might reach
compensation policies and decisions, the persons performing equivalent is intended to allow broader discussion
the Compensation Discussion and functions or the entire board of than just that of the relationship of
Analysis does not address the directors) must appear below the compensation to the performance of the
deliberations of the compensation disclosure.110 This report will be company as reflected by stock price.
committee, and is not a report of that ‘‘furnished’’ rather than ‘‘filed.’’ The Many commenters objected to
committee. Consequently, in certifying principal executive officer and principal eliminating the Performance Graph,
the Compensation Discussion and financial officer will be able to look to however, stating that it provides an
Analysis, principal executive officers the Compensation Committee Report in easily accessible visual comparison of a
and principal financial officers will not providing their certifications required company’s performance relative to its
need to certify as to the compensation under Exchange Act Rules 13a–14 and peers and the market, and provides a
committee deliberations. 15d–14.111 standardized source for this type of
However, in response to concerns of information.114 In light of the
4. Retention of the Performance Graph significance of this disclosure to a broad
commenters that compensation
committees should continue to be In light of the Compensation spectrum of commenters, we have
focused on the executive compensation Discussion and Analysis requirement, decided to retain the Performance Graph
disclosure process, we are adopting a we proposed to eliminate both the in the amendments we adopt today.
Compensation Committee Report Board Compensation Committee Report However, we remain of the view that
similar to the Audit Committee on Executive Compensation and the the Performance Graph should not be
Report.106 Drawing on commenters’ Performance Graph.112 The report and presented as part of executive
suggestions for a new Compensation the graph were intended to be related compensation disclosure. In particular,
Committee Report,107 the rules we adopt and to show the relationship, if any, as noted above, the disclosure in the
today require the compensation between compensation and corporate Compensation Discussion and Analysis
committee to state whether: performance, as reflected by stock price. regarding the elements of corporate
• The compensation committee has The rules we adopt today eliminate the performance that a given company’s
reviewed and discussed the Board Compensation Committee Report policies consider is intended to
Compensation Discussion and Analysis on Executive Compensation, as we encourage broader discussion than just
with management; and proposed, in favor of the more that of the relationship of executive
• Based on the review and comprehensive Compensation compensation to the performance of the
discussions, the compensation company as reflected by stock price.
committee recommended to the board of 108 The audit committee report is only required in Presenting the Performance Graph as
directors that the Compensation a company proxy or information statement relating compensation disclosure may weaken
to an annual meeting of security holders at which this objective. Accordingly, we have
Discussion and Analysis be included in directors are to be elected (or special meeting or
the company’s annual report on Form written consents in lieu of such meeting). See decided to retain the requirements for
10–K and, as applicable, the company’s Instruction 3 to Item 407(d). the Performance Graph, but have moved
proxy or information statement. 109 Instruction 3 to Item 407(e)(5). The audit them to the disclosure item entitled
Unlike the Audit Committee Report, committee instruction is specified in Instruction 2 ‘‘Market Price of and Dividends on the
to Item 407(d).
the Compensation Committee Report 110 Item 407(e)(5)(ii).
Registrant’s Common Equity and
111 We note that one commenter suggested that Related Stockholder Matters.’’ 115 As
104 See, e.g., letters from The Corporate &
the Compensation Discussion and Analysis should
Securities Law Committee and the Employment & not be required of companies that have only 113 Section II.B.3.
Labor Law Committee of the Association of registered the offer and sale of debt securities. See 114 See, e.g., letters from CalSTRS; CFA Centre 1;
Corporate Counsel (‘‘ACC’’); Compass Bancshares, letter from Financial Security Assurance Holdings CII; IUE–CWA Pension Fund and 401(k) Plan
Inc. (‘‘Compass Bancshares’’); National Association Ltd. The Compensation Discussion and Analysis is (‘‘IUE–CWA’’); John W. Hamm; NYCBA; Standard
of Manufacturers (‘‘NAM’’); Peabody Energy intended to put into perspective for investors the Life Investments Limited (‘‘Standard Life’’); and
Corporation (‘‘Peabody Energy’’); and WorldatWork. numbers and narrative that follow it. This section Vivient Consulting LLC.
105 See, e.g., letters from Jesse Brill, Chair of
will provide a broader discussion than just that of 115 New Item 201(e) of Regulation S–K [17 CFR
CompensationStandards.com and Chair of the the relationship of compensation to the 229.201(e)] will require the Performance Graph.
National Association of Stock Plan Professionals, performance of the company as reflected by stock Consistent with our belief that the Performance
dated March 1, 2006 (‘‘J. Brill 1’’); CFA Centre 1; price. Therefore, we believe it is appropriate for all Graph should not be linked to the compensation
CRPTF; Frederic W. Cook & Co.; and Hewitt. companies that are not small business issuers or disclosure, we have not retained the portion of the
106 We are moving the audit committee report foreign private issuers filing on forms specified for language that was included in Instruction 4 to Item
previously required by Item 306 of Regulations S– their use to include the information. 402(l) prior to these amendments, which
K and S–B to Item 407(d) under the amendments 112 Prior to these amendments, the Board conditioned that other performance measures in
adopted today. See Section V.D., below. Compensation Committee Report on Executive addition to total return may be included in the
107 See, e.g., letters from J. Brill 1; California State Compensation had been required by Item 402(k) graph only so long as the compensation committee
Teachers’ Retirement System (‘‘CalSTRS’’); CFA and the Performance Graph had been required by (or persons performing equivalent functions or the
Centre 1; and Professor William J. Heisler. Item 402(l). entire board if there is no such committee) provided
retained, the Performance Graph will interests that were awarded in prior Discussion and Analysis) to explain
continue to be ‘‘furnished’’ rather than years 119 and are ‘‘at risk,’’ as well as how disclosures relate to each other in
‘‘filed.’’ The Performance Graph will be recent realization on these interests, their particular circumstances.
required only in the company’s annual such as through vesting of restricted Commenters stated their general
report to security holders that stock or the exercise of options and support for the format and presentation
accompanies or precedes a proxy or similar instruments; 120 and of the proposed tables.122 We are
information statement relating to an 3. Retirement and other post- adopting the tables substantially as
annual meeting of security holders at employment compensation, including proposed with some revisions, as noted
which directors are to be elected (or retirement and deferred compensation below, in response to comments.
special meeting or written consents in plans, other retirement benefits and
lieu of such meeting), and will not be 1. Compensation to Named Executive
other post-employment benefits, such as
deemed to be soliciting material under Officers in the Last Three Completed
those payable in the event of a change
the proxy rules or incorporated by Fiscal Years—The Summary
in control.121
reference into any filing except to the Compensation Table and Related
Reorganizing the tables along these Disclosure
extent that the company specifically themes should help investors
incorporates it.116 understand how compensation Under today’s amendments, the
C. Compensation Tables components relate to each other. At the Summary Compensation Table
same time, we are retaining the ability continues to serve as the principal
To enhance the benefits of the tabular
for investors to use the tables to disclosure vehicle regarding executive
approach to eliciting compensation
compare compensation from year to compensation. This table, as amended,
disclosure,117 we proposed to reorganize
year and from company to company. shows the named executive officers’
and streamline the tables to provide a
As we noted in the Proposing Release, compensation for each of the last three
clearer and more logical picture of total
by more clearly organizing the years, whether or not actually paid out.
compensation and its elements for
compensation tables to explain how the Consistent with the requirements prior
named executive officers. We are
adopting reorganized compensation elements relate to each other, we may in to today’s amendments, the amended
tables and related narrative disclosure some situations be requiring disclosure Summary Compensation Table
that cover three broad categories: of both amounts earned (or potentially continues to require disclosure of
1. Compensation with respect to the earned) and amounts subsequently paid compensation for each of the company’s
last fiscal year (and the two preceding out. This approach raises the possible last three completed fiscal years.123
fiscal years), as reflected in a revised perception of ‘‘double counting’’ some As we proposed, the amendments add
Summary Compensation Table that elements of compensation in multiple disclosure of a figure representing total
presents compensation paid currently or tables. However, a particular item of compensation, as reflected in other
deferred (including options, restricted compensation only appears once in the columns of the Summary Compensation
stock and similar grants) and Summary Compensation Table. In order Table, and simplify the presentation
compensation consisting of current to explain the item of compensation, it from that of the table prior to these
earnings or awards that are part of a may also appear in one or more of the amendments. As described in greater
plan, and as supplemented by one table other tables. We believe the possible detail below, the amendments also
providing back-up information for perception of double disclosure is provide for a supplemental table
certain data in the Summary outweighed by the clearer and more disclosing additional information about
Compensation Table; 118 complete picture the disclosure in the grants of plan-based awards. Narrative
2. Holdings of equity-based interests additional tables will provide to disclosure will follow the two tables,
that relate to compensation or are investors. We strongly encourage providing disclosure of material
potential sources of future companies to use the narrative information necessary to an
compensation, focusing on following the tables (and where understanding of the information
compensation-related equity-based appropriate the Compensation disclosed in the tables.
a description of the link between the measure and 117 The tabular disclosure and related narrative in the Option Exercises and Stock Vested Table
the level of compensation in the Board disclosure under amended Item 402 applies, as it discussed below in Section II.C.4.b.
Compensation Committee Report on Executive did prior to today’s amendments, to named 121 Disclosure regarding retirement and post-
Compensation. As a result, companies may include executive officers, with amended Item 402(k) employment compensation is required in the
other performance measures, such as return on applying to directors, as described in Section II.C.9. Pension Benefits Table, discussed below in Section
average common shareholders’ equity, so long as below. As discussed below in Section II.C.6.a., we II.C.5.a., the Nonqualified Deferred Compensation
the meaning of any such measures is clear from the are adopting certain changes to the definition of Table, discussed below in Section II.C.5.b., and the
Performance Graph and any related legend or other named executive officer. narrative disclosure requirement for other potential
118 The table supplementing the Summary post-employment payments discussed below in
disclosure.
116 Instructions 7 and 8 to Item 201(e). A ‘‘small Compensation Table is the Grants of Plan-Based Section II.C.5.c.
Awards Table, discussed below in Section II.C.2., 122 See, e.g., letters from CFA Centre 1; jointly,
business issuer’’ as defined in Regulation S–B, is
which combines into a single table the disclosure Jennifer Clowes, Lindsey Erskine, Kendra Freeck
not required to provide the Performance Graph. of the proposed Grants of Performance-Based and Kapri Malesich; F&P Pension Board; IAM;
Instruction 6 to Item 201(e). Because Nasdaq has Awards Table and the proposed Grants of All Other IBEW PBF; Plumbers & Pipefitters National Pension
registered as a national securities exchange under Equity Awards Table. The accompanying narrative Fund; and Standard Life.
Section 6 of the Exchange Act [15 U.S.C. 78f], the disclosure requirement is discussed below in 123 Prior to today’s amendments, an instruction to
former separate reference to ‘‘Nasdaq market’’ is not Section II.C.3.a. Item 402(b) permitted the exclusion of information
retained. See Release No. 34–53128 (Jan. 13, 2006) 119 Under the disclosure rules as adopted, these
for fiscal years prior to the last completed fiscal
ordering that the application of The NASDAQ Stock interests will be disclosed as current compensation year if the company was not a reporting company
Market LLC for registration as a national securities for those prior years. pursuant to Exchange Act Section 13(a) or 15(d) at
exchange be granted. We also adopt a conforming 120 Information regarding holdings of such equity- any time during that year, unless the company
revision to Rules 304(d) and (e) of Regulation S–T based interests that relate to compensation will be previously was required to provide information for
[17 CFR 232.304(d) and (e)], and we make technical disclosed in the Outstanding Equity Awards at any such year in response to a Commission filing
revisions to those rules to correctly reference Item Fiscal Year-End Table, discussed below in Section requirement. This instruction has been retained and
22(b)(7)(ii) of Form N–1A and to eliminate the II.C.4.a. Information regarding realization on redesignated as Instruction 1 to Item 402(c) in the
references to ‘‘prospectuses.’’ holdings of equity-based interests will be required amended rule.
SUMMARY COMPENSATION TABLE

Change
in pen-
Non-eq- sion value
uity in- and non- All other
Stock Option
Salary Bonus centive qualified com- Total
Name and principal position Year awards awards
($) ($) plan com- deferred pensation ($)
($) ($) pensation com- ($)
($) pensation
earnings
($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
PEO 124
PFO 125
a. Total Compensation Column expressed their support for the proposal As we noted in the Proposing Release,
to include a Total column.127 the Summary Compensation Table is
We are modifying the Summary Other commenters expressed designed to disclose all compensation.
Compensation Table to provide a clearer concerns that, as proposed, the total Each element of compensation is only
picture of total compensation. As we number was an amalgam of dissimilar disclosed once in the Summary
proposed, we are requiring that all types of compensation.128 These Compensation Table, although it may
compensation be disclosed in dollars concerns centered on the mix of also be disclosed in some of the other
and that a total of all compensation be compensation elements reported in the tables. We realize that the timing of
provided.126 The new ‘‘Total’’ column Summary Compensation Table being when particular items of compensation
aggregates the total dollar value of each measured at different times and having are disclosed in the Summary
form of compensation quantified in the different valuation methods, so that a Compensation Table varies depending
other columns (revised columns (c) Total column in effect would combine on the form of the compensation.132
through (i)). This column responds to ‘‘apples’’ with ‘‘oranges.’’ 129 To address Given the various forms and
concerns that investors, analysts and this issue, some commenters suggested complexities of compensation and the
other users of Item 402 disclosure have dividing the Total column into two different periods they may be designed
not been able to compute aggregate separate columns reporting Total Earned to relate to,133 it is unavoidable that the
amounts of compensation using the Compensation and Total Contingent timing of disclosure may vary from
Compensation.130 Others recommended element to element in this table.134
disclosure in the table as specified prior
to these amendments in a manner that two separate Summary Compensation
Tables—one for compensation that had Secretaries & Governance Professionals (‘‘SCSGP’’);
was accurate or comparable across years Towers Perrin, dated April 10, 2006 (‘‘Towers
been earned or realized and another for
or companies. Many commenters Perrin’’); and Watson Wyatt Worldwide (‘‘Watson
compensation that remained contingent Wyatt’’).
124 ‘‘PEO’’ refers to principal executive officer.
or an opportunity.131 132 Compensation is generally calculated in a
manner that reflects the cost of the compensation

See Section II.C.6.a. below for a description of the 127 See, e.g., letters from CFA Centre 1; CII; to the company and its shareholders.
proposed named executive officers for whom 133 See, e.g., letter from ABA (noting that option
Frederic W. Cook & Co.; ISS; Standard Life; and
compensation disclosure is required. Walden. In addition, over 20,000 form letters from grants made early in the year may be viewed by the
125 ‘‘PFO’’ refers to principal financial officer.
individuals specifically supported this proposal. compensation committee primarily as an award for
126 Instruction 2 to Item 402(c) (requiring all See Letter Type A, available at www.sec.gov/rules/ the prior year’s performance or as an incentive for
compensation values in the Summary proposed/s70306.shtml. future performance).
134 The approach as to the timing of disclosure
Compensation Table to be reported in dollars and 128 See, e.g., letters from Fenwick & West LLP
(‘‘Fenwick’’); Chamber of Commerce; and Hodak that we proposed and that we adopt today is the
rounded to the nearest dollar). Prior to today’s
same approach that has been used in the Summary
amendments, some stock-based compensation was Value Advisors, LLC (‘‘Hodak Value Advisors’’).
Compensation Table since it was first proposed in
disclosed in per share increments rather than in 129 See, e.g., letters from Caterpillar Inc. and
1992. See Executive Compensation Disclosure,
dollar amounts. Instruction 2 to Item 402(c) further Corporate Library. Release No. 33–6940 (June 23, 1992) [57 FR 29582]
requires, where compensation was paid or received 130 See, e.g., letters from Business Roundtable
(noting that the Summary Compensation Table will
in a different currency, footnote disclosure (‘‘BRT’’) and Mercer. ‘‘provide shareholders a concise, comprehensive
identifying that currency and describing the rate 131 See, e.g., letters from Eli Lilly and Company overview of compensation awarded, earned or paid
and methodology used for conversion to dollars. (‘‘Eli Lilly’’); Hewitt; Society of Corporate in the reporting period’’).
We note that some commenters were response to these comments, we have rules where salary or bonus for the most
particularly concerned that non-equity moved the Total column to the final recent fiscal year is determined
incentive plan awards are reported column in the table. following compliance with Item 402
when earned, while equity incentive disclosure. Under our new rules, where
b. Salary and Bonus Columns
plan awards are reported based on grant salary or bonus cannot be calculated as
date value when awarded.135 No single The first columns providing of the most recent practicable date, a
accepted standard for measuring non- compensation information that we are current report under Item 5.02 of Form
equity incentive plan awards at grant requiring are the salary and bonus 8–K will be triggered by a payment,
date currently exists. Some commenters columns (columns (c) and (d), decision or other occurrence as a result
nonetheless suggested that we require respectively), which are retained of which either of such amounts become
grant date fair value estimates of non- substantially in their previous form. calculable in whole or part.145 The Form
equity incentive plan awards in the However, we are adopting some 8–K will include disclosure of the salary
Summary Compensation Table.136 We changes, as proposed, that will give an or bonus amount and a new total
do not believe it is appropriate at this investor a clearer picture of the total compensation figure including that
time for us to develop such a standard amount earned. salary or bonus amount.
expressly for compensation disclosure As we proposed, compensation that is
earned, but for which payment will be c. Plan-Based Awards
purposes. Nevertheless, we believe that
the Summary Compensation Table that deferred, must be included in the salary, As we proposed, the next three
we adopt today, including a total of all bonus or other column, as appropriate. columns—Stock Awards, Option
of the various elements presented, A new instruction, applicable to the Awards and Non-Equity Incentive Plan
provides meaningful disclosure to entire Summary Compensation Table, Compensation—cover plan-based
investors and allows for comparability provides that if receipt of any amount of awards.
between companies and within a compensation is currently payable but
has been deferred for any reason, the i. Stock Awards and Option Awards
company. Columns
However, in response to comments, amount so deferred must be included in
we have created a separate column for the appropriate column.141 This As proposed and adopted, the Stock
the annual change in actuarial value of treatment is no longer limited to salary Awards column (column (e)) discloses
defined benefit plans and earnings on and bonus, as it was prior to these stock-related awards that derive their
nonqualified deferred compensation.137 amendments, and under the amended value from the company’s equity
rules this treatment applies regardless of securities or permit settlement by
As proposed, these compensation
the reason for the deferral.142 issuance of the company’s equity
elements would have been included in
We also proposed that the amount so securities and, as we have clarified, are
the aggregate amount reported in the All
deferred must be disclosed in a footnote thus within the scope of FAS 123R for
Other Compensation column. We
to the applicable column. As described financial reporting, such as restricted
believe that presenting these items in a
below, the amount deferred will also stock, restricted stock units, phantom
separate column will permit investors
generally be reflected as a contribution stock, phantom stock units, common
and other users of the Summary
in the deferred compensation stock equivalent units or other similar
Compensation Table to readily identify
presentation.143 The proposed footnote instruments that do not have option-like
elements included in the Total column
disclosure was intended to clarify the features.146 Valuation is based on the
that may relate principally to longevity
extent to which amounts disclosed in
of service. These items will not be used
the Nonqualified Deferred 145 New Item 5.02(f) of Form 8–K and Instruction
to determine the officers included in the 1 to Item 402(c)(2)(iii) and (iv). Prior to these
Compensation Table described below
table.138 represent compensation already
amendments, in the event that such amounts were
We proposed that the new column not determinable at the most recent practicable
reported, rather than additional date, they were generally reported in the annual
disclosing total compensation would
compensation. Because commenters report on Form 10–K or proxy statement for the
appear as the first column providing following fiscal year. We believe providing the
thought it could lead to potential double
compensation information.139 Some information more quickly is appropriate and are
counting, we have not adopted this therefore adopting the use of a current report on
commenters suggested moving this
proposed footnote requirement.144 Form 8–K. Instruction 1 to Item 402(c)(2) (iii) and
column to the right of the table, so that As proposed, we have eliminated the (iv) requires that the company disclose in a footnote
it would follow—rather than precede— delay that existed under the former that the salary or bonus is not calculable through
the relevant component numbers.140 In the latest practicable date and the date that the
salary or bonus is expected to be determined. We
141 Instruction 4 to Item 402(c).
135 See, proposed to include this requirement in an
e.g., letters from ACC; Amalgamated; BDO 142 Prior to the amendments, this requirement was instruction to proposed paragraph (e) of Item 5.02
Seidman, LLP (‘‘BDO Seidman’’); CII; IUE–CWA; triggered only if the officer elected the deferral. We of Form 8–K. We are adopting it as a separate
and Mercer. are amending this requirement as we proposed to
136 See, e.g., letters from CII; IUE–CWA; and
paragraph of Item 5.02 in order to make it clearer
cover all deferrals, no matter who has initiated the that it is a separate triggering event.
CRPTF. Information about the amounts that could deferrals. 146 Generally speaking, a restricted stock award is
be earned under non-equity incentive plans is 143 See Section II.C.5.b., describing the
an award of stock subject to vesting conditions,
required to be disclosed in the Grants of Plan-Based Nonqualified Deferred Compensation Table. such as performance-based conditions or conditions
Awards Table when such awards are granted. Disclosure of these amounts as contributions will
137 See Section II.C.1.d.i. below, which describes
based on continued employment for a specified
now be required for nonqualified deferred period of time. This type of award is referred to as
a modification of the proposed Summary compensation plans. This disclosure will not be ‘‘nonvested equity shares’’ in FAS 123R. Phantom
Compensation Table disclosure of nonqualified required for qualified plans. Nonqualified deferred stock, phantom stock units, common stock
deferred compensation earnings to present only the compensation plans and arrangements provide for equivalent units and other similar awards are
above-market or preferential portion in this table. the deferral of compensation that does not satisfy typically awards where an executive obtains a right
138 See Section II.C.6.b. below describing how in
the minimum coverage, nondiscrimination and to receive payment in the future of an amount based
response to commenters this column is excluded other rules that ‘‘qualify’’ broad-based plans for on the value of a hypothetical, or notional, amount
from total compensation for the purpose of favorable tax treatment under the Internal Revenue of shares of common equity (or in some cases stock
identifying named executive officers. Code. based on that value). To the extent that the terms
139 Columns (a) and (b) specify the executive 144 See, e.g., letter from WorldatWork. As of phantom stock, phantom stock units, common
officer and the year in question. described in Section II.C.5.b. below, however, we stock equivalents or other similar awards include
140 See,e.g., letters from Buck Consultants; have adopted the corresponding footnote proposed option-like features, the awards will be required to
Frederic W. Cook & Co.; and SCSGP. for the Nonqualified Deferred Compensation Table. Continued
grant date fair value of the award generally recognized for financial we stated in the Proposing Release, we
determined pursuant to FAS 123R for reporting purposes over the period in believe that this approach is more
financial reporting purposes. Stock which the employee is required to consistent with the purpose of executive
awards granted pursuant to an equity provide service in exchange for the compensation disclosure. We are
incentive plan are also included in this award (generally the vesting period). adopting an approach that subscribes to
column to ensure consistent reporting of Some commenters suggested that rather the measurement method of FAS 123R
stock awards and to ensure their than requiring disclosure of the grant based on grant date fair value, but also
inclusion in the revised Summary date fair value of equity awards, we provides for immediate disclosure of
Compensation Table.147 should require a company to disclose compensation. This timing of disclosure
Awards of options, stock appreciation just the portion of the award expensed of option awards remains the same as it
rights, and similar equity-based in the company’s financial has been since 1992. The only change is
compensation instruments that have statements.151 These commenters that the awards are now disclosed in
option-like features that, as we have expressed concerns that disclosing the dollars rather than numbers of units or
clarified, are within the scope of FAS full grant date fair value would be shares. Disclosing these awards as they
123R, must be disclosed in the Option inconsistent with the company’s are expensed for financial statement
Awards column (column (f)) in a financial statements, would overstate reporting purposes would not mirror the
manner similar to the treatment of stock compensation earned related to service timing of disclosure of non-equity
and other equity-based awards under rendered for the year, and would be incentive plan compensation. While we
the amendments.148 Instead of the inconsistent with the presentation of have imported a financial statement
disclosure of the number of securities non-equity incentive plan reporting principle to enable disclosure
underlying the awards as was the case compensation. Other commenters of compensation costs, executive
prior to today’s amendments, this expressed support for requiring compensation disclosure must continue
column requires disclosure of the grant companies to report the full grant date to inform investors of current actions
date fair value of the award as fair value in the year of the award regarding plan awards—a function that
determined pursuant to FAS 123R. In because it would provide a more would not be fulfilled applying
order to calculate a total dollar amount complete representation of financial reporting recognition timing. If
of compensation, the value rather than compensation.152 a company does not believe that the full
the number of securities underlying an We are adopting these columns grant date fair value reflects
award must be used. The FAS 123R substantially as proposed.153 Under our compensation earned, awarded or paid
valuation must be used whether the amendments, the compensation cost during a fiscal year, it can provide
award itself is in the form of stock, calculated as the grant date fair value appropriate explanatory disclosure in
options or similar instruments or the will be shown as compensation in the the accompanying narrative section.
award is settled in cash but the amount year in which the grant is made.154 As Furthermore, disclosing grant date fair
of payment is tied to performance of the value will give investors a clearer
company’s stock.149 classified as liability awards under FAS 123R. For picture of the value of any in-the-money
an award classified as an equity award under FAS awards. As we proposed, the number of
Under FAS 123R, the compensation 123R, the compensation cost recognized is fixed for
cost is initially measured based on the a particular award, and absent modification, is not shares underlying an award and other
grant date fair value of an award,150 and revised with subsequent changes in market prices details regarding the award must be
or other assumptions used for purposes of the disclosed in a separate table covering
valuation. In contrast, liability awards are initially grants of plan-based awards
be included in the Option Awards column. Prior to measured at fair value on the grant date, but for
these amendments, restricted stock awards were purposes of recognition in financial statement supplementing the Summary
valued in the Summary Compensation Table by reporting are then re-measured at each reporting Compensation Table.155 This
multiplying the closing market price of the
company’s unrestricted stock on the date of grant
date through the settlement date under FAS 123R. supplemental table, which combines the
These re-measurements would not be the basis for disclosure that would have been
by the number of shares awarded. executive compensation disclosure under our
147 Prior to these amendments, these
amended rules, unless the award has been required by the proposed Grants of
performance-based stock awards could be reported modified, as described later in this release. Performance-Based Awards Table and
at the company’s election as incentive plan awards 151 See, e.g., letters from the SEC Regulations Grants of All Other Equity Awards
under what was then specified in Instruction 1 to Committee of the American Institute of Certified
Item 402(b)(2)(iv). Our amendments today eliminate
Table, discloses equity awards granted
Public Accountants (‘‘AICPA’’); Baker, Donelson,
this alternative. Bearman, Caldwell & Berkowitz, P.C.; Chamber of pursuant to incentive plans separately
148 A stock appreciation right usually gives the
Commerce; Computer Sciences Corporation from other equity awards.
executive the right to receive the value of the (‘‘Computer Sciences’’); Deloitte & Touche LLP; We are adopting as proposed an
increase in the price of a specified number of shares Ernst & Young LLP (‘‘E&Y’’); Fenwick; Foley; HR instruction that requires a footnote
over a specified period of time. These awards may Policy Association (‘‘HRPA’’); American Bar
be settled in cash or in shares. Association, Joint Committee on Employee Benefits
referencing the discussion of the
149 As proposed, we are eliminating the (‘‘ABA–JCEB’’); and KPMG LLP (‘‘KPMG’’). relevant assumptions in the notes to the
requirement that had been specified in Options/ 152 See, e.g., letters from CalPERS; CFA Centre 1; company’s financial statements or the
SAR Grants in Last Fiscal Year Table under Item CRPTF; L. Burns; Governance for Owners; Laborers discussion of relevant assumptions in
402(c)(2)(vi) to report the potential realizable value International Union of North America; Nancy Lucke
of each option grant under 5% or 10% increases in Ludgus (‘‘N. Ludgus’’); Institutional Investors
the MD&A.156 The same instruction also
value or the present value of each grant (computed Group; State Board of Administration (SBA) of
under any option pricing model). These alternative Florida (‘‘SBAF’’); Teamsters Local 671; Teamsters purposes of FAS 123R or to affect the judgments as
disclosures are no longer necessary insofar as the PA/MD; United Church Foundation, Inc. (‘‘UCF’’); to reasonable groupings for purposes of determining
grant date fair value of equity-based awards is Washington State Investment Board (‘‘WSIB’’); and the expected term assumption required by FAS
included in the Summary Compensation Table. Western PA Teamsters Fund. 123R. Under the rules we adopt today, where a
150 Under FAS 123R, the classification of an 153 Item 402(c)(2)(v) and (vi). company uses more than one group, the
award as an equity or liability award is an 154 FAS 123R requires a company to aggregate measurement of grant date fair value for purposes
important aspect of the accounting because the individuals receiving awards into relatively of Item 402 would be derived using the expected
classification will affect the measurement of homogenous groups with respect to exercise and term assumption for the group that includes the
compensation cost. Awards with cash-based post-vesting employment termination behaviors for named executive officers (or the group that includes
settlement, repurchase features, or other features the purpose of determining expected term, for directors for purposes of Item 402(k)).
155 See Section II.C.2., discussing the Grants of
that do not result in an employee bearing the risks example executives and non-executives. The rules
and rewards normally associated with share we adopt today are not intended to change the Plan-Based Awards Table required by Item 402(d).
ownership for a specified period of time would be method used to value employee stock options for 156 Instruction 1 to Item 402(c)(2)(v) and (vi).
provides that the referenced sections Awards and Option Awards columns • Defined ‘‘non-equity incentive
will be deemed to be part of the when paid. Several commenters noted plan’’ as ‘‘an incentive plan or portion
disclosure provided pursuant to Item that the value of the right to receive of an incentive plan that is not an equity
402. The referenced sections containing dividends is factored into the grant date incentive plan.’’ 168
this disclosure are required in the fair value computed under FAS 123R.163
ii. Non-Equity Incentive Plan
company’s annual report to If the stock award or option award
Compensation Column
shareholders that must precede or entitles the holder to receive dividends,
accompany the company’s proxy then such ‘‘dividend protection’’ is The Non-Equity Incentive Plan
statement.157 In the case of Internet included in the grant date fair value Compensation column (column (g)) will
disclosure of proxy materials, computed under FAS 123R. We are report, as proposed, the dollar value of
companies could provide hyperlinks persuaded by the commenters that all amounts earned during the fiscal
from the proxy statement to the subsequent disclosure of the value of year pursuant to non-equity incentive
referenced sections contained in the dividends in these circumstances, as plans.169 This column includes all other
annual report.158 While some they are received, would repeat in the incentive plan awards not included in
commenters recommended requiring same table compensation that was the stock awards and option awards
these valuation assumptions to be previously disclosed. Therefore, we columns.170 Compensation awarded
presented in the proxy statement,159 we have revised the requirement. However, under an incentive plan that is not
believe that investors will be able to we note that if the stock award or option within the scope of FAS 123R will be
easily access this information without award does not entitle the holder to disclosed in the Summary
requiring it to be repeated from other receive dividends, then ‘‘dividend Compensation Table in the year when
documents. protection’’ is not included in the grant the relevant specified performance
We proposed that previously awarded date fair value computed under FAS criteria under the plan are satisfied and
options or freestanding stock 123R. Accordingly, the value of any the compensation earned, whether or
appreciation awards that the company dividends received would not have been
previously disclosed in the Summary rendering service for a specified (either explicitly or
repriced or otherwise materially implicitly) period of time and (b) achieving a
modified during the last fiscal year be Compensation Table as part of the grant specified performance target that is defined solely
disclosed in the Summary date fair value of the award. In order to by reference to the employer’s own operations (or
Compensation Table based on the total appropriately capture the compensation activities). Attaining a specified growth rate in
in these latter circumstances, we are return on assets, obtaining regulatory approval to
fair value of the award as so modified. market a specified product, selling shares in an
Under FAS 123R, only the incremental adopting a requirement to disclose any initial public offering or other financing event, and
fair value, computed as of the repricing earnings on stock awards or option a change in control are examples of performance
or modification date, is recognized for awards that are not included in the conditions for purposes of this Statement. A
grant date fair value computation for performance target also may be defined by reference
such an award. Several commenters to the same performance measure of another entity
recommended conforming Summary those awards in the All Other or group of entities. For example, attaining a growth
Compensation Table reporting to the Compensation column of the Summary rate in earnings per share that exceeds the average
Compensation Table when the growth rate in earnings per share of other entities
incremental fair value recognition in the same industry is a performance condition for
approach of FAS 123R, objecting that dividends or other earnings are paid.164 purposes of this Statement. A performance target
the proposed total fair value approach In addition, the material terms of any might pertain either to the performance of the
would inappropriately double count the equity award (including whether enterprise as a whole or to some part of the
dividends will be paid, the applicable enterprise, such as a division or an individual
fair value of many modified awards.160 employee.’’ An award also would be considered to
As adopted, the new rules reflect this dividend rate and whether that rate is have a performance condition if it is subject to a
recommendation.161 Grants of reload or preferential) may be factors to be market condition, which is ‘‘a condition affecting
restorative options, however, are discussed in the related narrative the exercise price, exercisability, or other pertinent
section.165 factors used in determining the fair value of an
reportable based on total grant date fair award under a share-based payment arrangement
value because they are new awards that We had proposed a definition of that relates to the achievement of (a) a specified
do not replace previously cancelled ‘‘non-stock incentive plan’’ that some price of the issuer’s shares or a specified amount
awards.162 commenters stated would result in of intrinsic value indexed solely to the issuer’s
confusing and potentially anomalous shares or (b) a specified price of the issuer’s shares
We proposed that all earnings, such as in terms of a similar (or index of similar) equity
dividends, be included in the Stock treatment of some awards.166 To clarify security (securities).’’ An award that vests on an
the reporting treatment of different accelerated basis upon the occurrence of a change
157 See Exchange Act Rule 14a–3 [17 CFR types of awards, we have: in control is not considered an award under an
240.14a–3]. • Adopted a separate definition of equity incentive plan if (a) the award contains no
other performance or market conditions and (b) the
158 In addition, in December 2005, we proposed ‘‘equity incentive plan’’ as ‘‘an incentive award would otherwise vest based on the
rules that would allow companies and other plan or portion of an incentive plan completion of a specified employee service period.
persons to use the Internet to satisfy proxy material under which awards are granted that fall 168 Item 402(a)(6)(iii). See also discussion of the
delivery requirements. Internet Availability of Proxy
Materials, Release No. 34–52926 (Dec. 8, 2005) [70 within the scope of FAS 123R’’; 167 and definition of ‘‘incentive plan’’ at Section II.C.1.f.
below.
FR 74597]. 169 Item 402(c)(2)(vii). An incentive plan
159 See, e.g., letters from Buck Consultants; CII; 163 See, e.g., letters from Cleary; Emerson Electric
generally provides for compensation intended to
Frederic W. Cook & Co.; and IUE–CWA. Co. (‘‘Emerson’’); Foley; Hewitt; SCSGP; and
serve as an incentive for performance to occur over
160 See, e.g., letters from AICPA; Cleary Gottlieb Towers Perrin.
164 Item 402(c)(2)(ix)(G).
a specified period, whether such performance is
Steen & Hamilton LLP (‘‘Cleary’’); Compass measured by reference to financial performance of
Bancshares; Cravath, Swaine & Moore LLP 165 Item 402(e)(1)(iii), discussed in Section
the company or an affiliate, the company’s stock
(‘‘Cravath’’); Hewitt; KPMG; Leggett & Platt, II.C.3.a. below. price, or any other performance measure. See Item
Incorporated (‘‘Leggett & Platt’’); SCSGP; and 166 See, e.g., letter from ABA.
402(a)(6)(iii) for the definition of ‘‘incentive plan.’’
Sullivan. 167 Item 402(a)(6)(iii). An equity incentive plan 170 Awards disclosed in this column, column (g),
161 Instruction 2 to Item 402(c)(2)(v) and (vi).

includes plans that have a performance or market are not covered by FAS 123R for financial reporting
162 Generally speaking, reload or restorative condition. As defined in Appendix E of FAS 123R, purposes because they do not involve share-based
options are grants of new options that are granted a performance condition is ‘‘a condition affecting payment arrangements. Awards that involve share-
automatically when an executive exercises the old the vesting, exercisability, exercise price or other based payment arrangements should be disclosed in
option. Reload or restorative options are treated as pertinent factors used in determining the fair value the Stock Awards or Option Awards columns, as
new grants under FAS 123R. of an award that relates to both (a) an employee’s appropriate.
not payment is actually made to the reported in the table with respect to disclosed only to the extent of any
named executive officer in that year. previous fiscal years.175 portion that was ‘‘above-market or
The grant of an award under a non- As proposed and adopted, earnings on preferential.’’ This limitation generated
equity incentive plan will be disclosed outstanding non-equity incentive plan criticism that the rule prior to today’s
in the supplemental Grants of Plan- awards are also included in the Non- amendments permitted companies to
Based Awards Table in the year of grant, Equity Incentive Plan Compensation avoid disclosure of substantial
which may be some year prior to the column and identified and quantified in compensation.
year in which compensation under the a footnote to the table.176 Some commenters supported this
non-equity incentive plan is reported in d. Change in Pension Value and proposal.181 However, many
the Summary Compensation Table.171 Nonqualified Deferred Compensation commenters asserted that the Summary
As noted above, several commenters Earnings Column Compensation Table should continue to
recommended Summary Compensation require disclosure only of earnings at
As we proposed, we are expanding
Table reporting of non-equity incentive above-market or preferential rates.182
the Summary Compensation Table to
plan awards on a grant date fair value Commenters stated that differences in
include information regarding the
basis, consistent with the reporting of earnings on nonqualified deferred
aggregate increase in actuarial value to
equity incentive plans.172 However, the named executive officer of all compensation among executives may
because there is not one clearly required defined benefit and actuarial plans result entirely from the executives’
or accepted standard for measuring the (including supplemental plans) accrued investment acumen and decisions as to
value at grant date of these non-equity during the year and earnings on amounts to defer. Commenters further
incentive plan awards that reflects the nonqualified deferred compensation. claimed that deferred amounts invested
applicable performance contingencies, However, as mentioned above, we have at market rates are conceptually no
as there is for equity-based awards with decided to present this information in a different from amounts invested directly
FAS 123R, we are not including such a separate column rather than include it by an executive. Absent providing an
value in the Summary Compensation in the All Other Compensation column above-market return, contributing
Table. Instead, we continue the as proposed.177 Footnote identification additional amounts or guaranteeing
disclosure approach of reflecting these and quantification of the full amount of investment returns, commenters
items of compensation when earned.173 each element is required.178 Any asserted that the company has no role in
Once the disclosure has been amount attributable to the defined the annual growth of the account.
provided in the Summary benefit and actuarial plans that is a We are persuaded that Summary
Compensation Table when the specified negative number should be disclosed by Compensation Table disclosure of
performance criteria have been satisfied footnote, but should not be reflected in nonqualified deferred compensation
and the compensation earned, and the the amount reported in the column.179 earnings should continue to be limited
grant of the award has been disclosed in to the above-market or preferential
the Grants of Plan-Based Awards Table, i. Earnings on Deferred Compensation
portion.183 As under the rule prior to
no further disclosure will be specifically We proposed to require disclosure of these amendments, the above-market or
required when payment is actually all earnings on compensation that is preferential portion is determined for
made to the named executive officer. deferred on a basis that is not tax- interest by reference to 120% of the
Some commenters objected to Summary qualified, including non-tax qualified applicable federal long-term rate and for
Compensation Table reporting of awards defined contribution retirement dividends by reference to the dividend
for which the relevant performance plans.180 Prior to our amendments, rate on the company’s common stock.184
condition has been satisfied that remain these earnings were required to be Footnote or narrative disclosure of the
subject to forfeiture conditions (such as company’s criteria for determining any
conditions requiring continued service 175 Commenters’ issues concerning the scope of
portion considered to be above-market
or conditions that provide for forfeiture awards reportable in this column, in particular as
compared to compensation reportable in the bonus
may be provided. The above-market or
based on future company column, are discussed in Section II.C.1.f. below. preferential earnings in this column
performance).174 We continue to believe 176 Item 402(c)(2)(vii). These earnings were would always be positive, as it would
that satisfaction of the relevant reportable prior to today’s amendments in the Other not be possible for above-market or
performance condition (including an Annual Compensation or All Other Compensation preferential losses to occur.
columns of the Summary Compensation Table
interim performance condition in a long under Items 402(b)(2)(iii)(C)(3) and 402(b)(2)(v)(C), However, we do not overlook the fact
term plan) is the event that is material respectively. that the company is obligated to pay the
to investors for Summary Compensation 177 See the discussion of the Total column in
executive the entire amount of the
Table reporting purposes. We encourage Section II.C.1.a. above and the discussion of
nonqualified deferred compensation
companies to use the related narrative determination of named executive officers in
Section II.C.6. below. account, which represents a claim on
section to disclose material features that 178 Instruction 3 to Item 402(c)(2)(viii). In company assets and is part of a plan that
are not reflected in the tabular contrast, as proposed to be disclosed in the All provides the executive with tax
disclosure including, for example, Other Compensation Column, separate
subsequent forfeitures of amounts identification and quantification of each element
181 See, e.g., letters from CFA Centre 1 and jointly,
would have been required only if the element
exceeded $10,000, although the amounts would Lucian A. Bebchuk, Jesse M. Fried and Robert J.
171 See Section II.C.2., discussing the Grants of Jackson, Jr. (‘‘Professor Bebchuk, et al.’’).
have been included in that column without regard
Plan-Based Awards Table. to size. 182 See, e.g., letters from American Academy of
172 See, e.g., letters from Amalgamated; 179 Instruction 3 to Item 402(c)(2)(viii). Actuaries’ Pension Committee (‘‘Academy of
Anonymous Compensation Consultant; BDO 180 Nonqualified defined contribution and other Actuaries’’); BRT; Frederic W. Cook & Co.;
Seidman; CII; CRPTF; Mercer; and Teamsters Local nonqualified deferred compensation plans are plans Computer Sciences; Kimball International, Inc.;
671. See discussion at Section II.C.1.a. above. providing for deferral of compensation that do not NAM; and Sullivan.
173 Prior to these amendments, Items 183 Item 402(c)(2)(viii)(B).
satisfy the minimum coverage, nondiscrimination
402(b)(2)(iv)(C) and 402(e) required disclosure of and other rules that ‘‘qualify’’ broad-based plans for 184 Instruction 2 to Item 402(c)(2)(viii), which is
long-term incentive plan payouts when earned. favorable tax treatment under the Internal Revenue based on the language which had appeared in
174 See, e.g., letters from Mercer; Watson Wyatt; Code. A typical 401(k) plan, by contrast, is a Instructions 3 and 4 to Item 402(b)(2)(iii)(C) prior
and Richard E. Wood. qualified deferred compensation plan. to these amendments.
benefits.185 To reflect this obligation, we the absence of such a disclosure under generally accepted accounting
have decided to require disclosure of all requirement creates an incentive to shift principles.194
earnings on nonqualified deferred compensation to pensions, results in the Other commenters objected to this
compensation in the separate understatement of non-performance- item’s potential to ‘‘distort’’ the Total
Nonqualified Deferred Compensation based compensation, and distorts pay column and the determination of named
Table, as we proposed.186 The comparisons between executives and executive officers.195 As described
disclosure required by that table between companies. above, we continue to believe that
discloses the rate at which the inclusion of this element in the table is
We are adopting the requirement
company’s obligation grows on an necessary to permit the Summary
substantially as proposed.189 As
annual basis. Compensation Table to reflect total
Further, the method of calculating proposed and adopted, an instruction
compensation. However, we have
earnings on deferred compensation specifies that this disclosure applies to
addressed commenters’ concerns by
plans is an example of a factor that may each plan that provides for the payment
segregating this item and above-market
be material and therefore described in of retirement benefits, or benefits that
or preferential earnings on nonqualified
the narrative disclosure to the Summary will be paid primarily following
deferred compensation from the All
Compensation Table and the Grants of retirement, including but not limited to
Other Compensation column, presenting
Plan-Based Awards Table.187 tax-qualified defined benefit plans and
their sum in a separate column so that
supplemental executive retirement it will be deducted from the total for
ii. Increase in Pension Value plans, but excluding defined purposes of determining the named
We proposed to require Summary contribution plans.190 The retirement executive officers.196
Compensation Table disclosure of the section, discussed below, provides more
aggregate increase in actuarial value to information regarding these covered e. All Other Compensation Column
the executive officer of defined benefit plans.191 The next column in the Summary
and actuarial plans (including Some commenters raised issues Compensation Table discloses all other
supplemental plans) accrued during the regarding computation of the amount to compensation not required to be
year. be disclosed.192 In response to these included in any other column.197 This
In contrast to defined contribution approach allows the capture of all
comments, we have revised the
plans, for which the Summary compensation in the Summary
language of the requirement as adopted
Compensation Table requires disclosure Compensation Table and also allows a
to clarify that the disclosure applies to
of company contributions, the rules total compensation calculation. We
the change, from the pension plan
prior to our amendments did not require confirm that disclosure of all
measurement date used for the
disclosure of the annual change in value compensation is clearly required under
company’s audited financial statements
of defined benefit plans, such as the rules.198
for the prior completed fiscal year to the
pension plans, in which the named As proposed, we are clarifying the
pension plan measurement date used for
executive officers participated.188 The disclosure required in the All Other
the company’s audited financial
annual increase in actuarial value of Compensation column (revised column
statements for the covered fiscal year, in
these plans may be a significant element (i)) in two principal respects:
of compensation that is earned on an the actuarial present value of the named
executive officer’s accumulated benefit • Consistent with the requirement
annual basis, thus we proposed to that the Summary Compensation Table
include it in the computation of total under all defined benefit and actuarial
compensation. pension plans (including supplemental 194 Instruction 1 to Item 402(c)(2)(viii) and
Such disclosure is necessary to permit plans). The disclosure therefore Instruction 2 to Item (h)(2). Regarding such key
the Summary Compensation Table to includes both: assumptions as itnerest rate, form of benefit,
number of years of service, level of compensation
reflect total compensation for the year. • The increase in value due to an used to determine the benefit and mortality tables,
Such disclosure also permits a full additional year of service, compensation a company must use the same assumptions as it
understanding of the company’s increases, and plan amendments (if applies pursuant to Financial Accounting Standards
compensation obligations to named any); and Board Statement of Financial Accounting Standards
No. 87, Employers’ Accounting for Pensions (FAS
executive officers, given that defined • The increase (or decrease) in value 87) both for this Summary Compensation Table
benefit plans guarantee what can be a attributable to interest. column and the separate Pension Benefits Table.
lifetime stream of payments and allocate 195 See, e.g., letters from Eli Lilly and SCSGP.
risk of investment performance to the As discussed below, this disclosure 196 See Section II.C.6. below.
company and its shareholders. In relates to the disclosure provided in the 197 Item 402(c)(2)(ix).
addition commentators have noted that Pension Benefits Table 193 and promotes 198 The only exception, as discussed below, is for
company-to-company comparability. In perquisites and personal benefits if they aggregate

185 Nonqualified defined contribution and other computing the amount to be disclosed, less than $10,00 for a named executive officer. The
1992 Release, at Section II.A.4., also noted ‘‘the
nonqualified deferred compensation plans are the company must use the assumptions revised item includes an express statement that it
generally unfunded, and their taxation is governed it uses for financial reporting purposes requires disclosure of all compensation to the
by Section 409A of the Internal Revenue Code [26 named executive officers and directors for services
U.S.C. 409A]. rendered in all capacities to the registrant and its
186 This separate table is discussed in Section 189 Item 402(c)(2)(viii)(A).
190 Instruction
subsidiaries.’’ See also Item 402(a)(2) as stated prior
II.C.5.b. below. 1 to Item 402(c)(2)(viii). Defined to these amendments. Further, as described above,
187 See Section II.C.3.a. below. benefit plans include, for example, cash balance Summary Compensation Table disclosure of
188 A typical defined contribution plan is a plans in which the retiree’s benefit may be nonqualified deferred compensation earnings is
retirement plan in which the company and/or the determined by the amount represented in an limited to the above-market or preferential portion
executive makes contributions of a specified account rather than based on a formula referencing of earnings. As was previously the case before these
amount, and the amount that is paid out to the salary while still employed. amendments, companies may omit information
191 See Section II.C.5.a., discussing the Pension

executive depends on the return on investments regarding group life, health, hospitalization and
from the contributed amounts. A typical defined Benefits Table. medical reimbursement plans that do not
192 See, e.g., letters from Academy of Actuaries;
benefit plan is a retirement plan in which the discriminate in scope, terms or operation in favor
company pays the executive specified amounts at Frederick W. Cook & Co.; ABA–JCEB; and Mercer. of executive officers or directors of the company
retirement which are not tied to investment 193 Item 402(h), discussed in Section III.C.5.a. and that are available generally to all salaried
performance of the contributions that fund the plan. below. employees. See Item 402(a)(6)(ii).
disclose all compensation, we state amount of compensation, we believe the Commission engage in a separate
explicitly that compensation not $10,000 is a reasonable balance between rulemaking to adopt a definition of
properly reportable in the other investors’ need for disclosure of total perquisites in Regulation S–K.205 As we
columns reporting specified forms of compensation and the burden on a noted in the Proposing Release, for
compensation must be reported in this company to track every benefit, no decades questions have arisen as to
column; and matter how small. Prior to today’s what is a perquisite or other personal
• To simplify the Summary amendments, the rule permitted benefit required to be disclosed. We
Compensation Table and eliminate omission of perquisites and other continue to believe that it is not
confusing distinctions between items personal benefits if the aggregate appropriate for Item 402 to define
currently reported as ‘‘Annual’’ and amount of such compensation was the perquisites or personal benefits, given
‘‘Long Term’’ compensation, we have lesser of either $50,000 or 10% of the that different forms of these items
moved into this column all items total of annual salary and bonus, continue to develop, and thus a
formerly reportable as ‘‘Other Annual allowing omission of too much definition would become outdated. As
Compensation.’’ 199 information that investors may consider stated in the Proposing Release, we are
We also are requiring that each item material. concerned that sole reliance on a bright
of compensation included in the All The amendments we adopt today line definition in our rules might
Other Compensation column that require, as proposed, footnote disclosure provide an incentive to characterize
exceeds $10,000 be separately identified that identifies perquisites and other perquisites or personal benefits in ways
and quantified in a footnote. We believe personal benefits. Prior to these that would attempt to circumvent the
that the $10,000 threshold balances our amendments, the rule required bright lines. Many commenters sought
desire to avoid disclosure of clearly de identification and quantification only of additional or modified interpretive
minimis matters against the interests of perquisites and other personal benefits guidance, including guidance with
investors in the nature of items that were 25% of the total amount for respect to an item that is integrally and
comprising compensation. Each item of each named executive officer.203 We directly related to the performance of
compensation less than that amount have modified this requirement so that, the executive’s duties but has a personal
will be included in the column (other unless the aggregate value of perquisites benefit aspect as well.206 Accordingly,
than aggregate perquisites and other and personal benefits is less than we are providing additional explanation
personal benefits less than $10,000 as $10,000, any perquisite or other regarding how to apply this guidance.
discussed below), but is not required to personal benefit must be identified and, The amendments we adopt today
be identified by type and amount.200 if it is valued at the greater of $25,000 require perquisites and personal
Items to be disclosed in the All Other or ten percent of total perquisites and benefits to be disclosed for both named
Compensation column include, but are other personal benefits, its value must executive officers and directors.207
not limited to, the items discussed be disclosed.204 Consistent with our Further, the disclosure requirements we
below. objective to streamline the Summary adopt regarding potential payments
Compensation Table, the revised upon termination or change-in-control
i. Perquisites and Other Personal include disclosure of perquisites.208
Benefits threshold is intended to avoid requiring
separate quantification of perquisites Accordingly, this discussion also
Perquisites and other personal having de minimis value. Where applies in the context of each of these
benefits are included in the All Other perquisites are subject to identification, disclosure requirements.
Compensation column. As we proposed, they must be described in a manner that Among the factors to be considered in
we are adopting changes to the identifies the particular nature of the determining whether an item is a
disclosure of perquisites and other benefit received. For example, it is not perquisite or other personal benefit are
personal benefits to improve disclosure sufficient to characterize generally as the following:
and facilitate computing a total amount • An item is not a perquisite or
‘‘travel and entertainment’’ different
of compensation. Our amendments personal benefit if it is integrally and
company-financed benefits, such as
require the disclosure of perquisites and directly related to the performance of
clothing, jewelry, artwork, theater
other personal benefits unless the the executive’s duties.
tickets and housekeeping services. • Otherwise, an item is a perquisite or
aggregate amount of such compensation As was formerly the case, tax ‘‘gross-
is less than $10,000. Some commenters personal benefit if it confers a direct or
ups’’ or other reimbursement of taxes
thought this threshold was too high; 201 indirect benefit that has a personal
owed with respect to any compensation,
while other commenters thought it was aspect, without regard to whether it may
including but not limited to perquisites
too low.202 While we realize that this be provided for some business reason or
and other personal benefits, must be for the convenience of the company,
threshold may result in the total amount separately quantified and identified in
of compensation reportable in the unless it is generally available on a non-
the tax reimbursement category discriminatory basis to all employees.
Summary Compensation Table being described below, even if the associated
slightly less than a complete total We believe the way to approach this
perquisites or other personal benefits is by initially evaluating the first prong
are eligible for exclusion or would not of the analysis. If an item is integrally
199 Prior to today’s amendments, Item
require identification or footnote and directly related to the performance
402(b)(2)(iii)(c) had required the separate column
entitled ‘‘Other Annual Compensation.’’ quantification under the rule. of the executive’s duties, that is the end
200 See Section II.C.1.e.i. regarding separate In the Proposing Release, we provided of the analysis—the item is not a
standards for identification of perquisites and other interpretive guidance about factors to be perquisite or personal benefit and no
personal benefits. considered in determining whether an
201 See, e.g., letters from Association of BellTel
item is a perquisite or other personal 205 See letter from Chamber of Commerce.
Retirees (‘‘ABTR’’); AFL–CIO; Amalgamated;
benefit. One commenter suggested that
206 See, e.g., letter from SCSGP.

Association of US West Retirees (‘‘AUSWR’’);
Corporate Library; ISS; UCF; and Walden. 207 For directors, the disclosure will be required
202 See e.g., letters from Buck Consultants; 203 The requirement had been set forth in in the Director Compensation Table discussed
Chamber of Commerce; Compass Bancshares; Instruction 1 to Item 402(b)(2)(iii)(C) prior to these below in Section II.C.9.
Computer Sciences; Eli Lilly; Emerson; Hodak amendments. 208 Item 402(j), discussed in Section II.C.5.c.
Value Advisors; C. Kollar; NAM; and SCSGP. 204 Instruction 4 to Item 402(c)(2)(ix). below.
compensation disclosure is required. disclosure requirements are triggered by that it is generally available on a non-
Moreover, if an item is integrally and different and broader concepts. discriminatory basis to all employees.
directly related to the performance of an As we noted in the Proposing Release, Applying the concepts that we outline
executive’s duties under this analysis, business purpose or convenience does above, examples of items requiring
there is no requirement to disclose any not affect the characterization of an item disclosure as perquisites or personal
incremental cost over a less expensive as a perquisite or personal benefit where benefits under Item 402 include, but are
alternative. For example, with respect to it is not integrally and directly related not limited to: club memberships not
business travel, it is not necessary to to the performance by the executive of used exclusively for business
disclose the cost differential between his or her job. Therefore, for example, a entertainment purposes, personal
renting a mid-sized car over a compact company’s decision to provide an item financial or tax advice, personal travel
car. of personal benefit for security purposes using vehicles owned or leased by the
Because of the integral and direct does not affect its characterization as a company, personal travel otherwise
connection to job performance, the perquisite or personal benefit. A financed by the company, personal use
elements of the second part of the company policy that for security of other property owned or leased by the
analysis (e.g., whether there is also a purposes an executive (or an executive company, housing and other living
personal benefit or whether the item is and his or her family) must use expenses (including but not limited to
generally available to other employees) company aircraft or other company relocation assistance and payments for
are irrelevant. An example of such an means of travel for personal travel, or the executive or director to stay at his
item could be a ‘‘Blackberry’’ or a laptop must use company or company- or her personal residence), security
computer if the company believes it is provided property for vacations, does provided at a personal residence or
an integral part of the executive’s duties not affect the conclusion that the item during personal travel, commuting
to be accessible by e-mail to the provided is a perquisite or personal expenses (whether or not for the
executive’s colleagues and clients when company’s convenience or benefit), and
benefit.
out of the office. Just as these devices discounts on the company’s products or
If an item is not integrally and services not generally available to
represent advances over earlier directly related to the performance of employees on a non-discriminatory
technology (such as voicemail), we the executive’s duties, the second step basis.
expect that as new technology facilitates of the analysis comes into play. Does the Beyond the examples provided, we
the extent to which work is conducted item confer a direct or indirect benefit assume that companies and their
outside the office, additional devices that has a personal aspect (without advisors, who are more familiar with the
may be developed that will fall into this regard to whether it may be provided for detailed facts of a particular situation
category. some business reason or for the and who are responsible for providing
The concept of a benefit that is convenience of the company)? If so, is materially accurate and complete
‘‘integrally and directly related’’ to job it generally available on a nondisclosure satisfying our requirements,
performance is a narrow one. The discriminatory basis to all employees? can apply the two-step analysis to assess
analysis draws a critical distinction For example, a company’s provision of whether particular arrangements require
between an item that a company helicopter service for an executive to disclosure as perquisites or personal
provides because the executive needs it commute to work from home is not benefits. In light of the importance of
to do the job, making it integrally and integrally and directly related to job the subject to many investors, all
directly related to the performance of performance (although it would benefit participants should approach the
duties, and an item provided for some the company by getting the executive to subject of perquisites and personal
other reason, even where that other work faster), clearly bestows a benefit benefits thoughtfully.211
reason can involve both company that has a personal aspect, and is not The amendments we adopt today, as
benefit and personal benefit. Some generally available to all employees on proposed, call for aggregate incremental
commenters objected that ‘‘integrally a non-discriminatory basis. As we have cost to the company as the proper
and directly related’’ is too narrow a noted, business purpose or convenience measure of value of perquisites and
standard, suggesting that other business does not affect the characterization of an other personal benefits.212 Some
reasons for providing an item should item as a perquisite or personal benefit commenters instead recommended
not be disregarded in determining where it is not integrally and directly valuing perquisites based on current
whether an item is a perquisite.209 We related to the performance by the market values.213 Consistent with our
do not adopt this suggested approach. executive of his or her job.
As we stated in the Proposing Release, A company may reasonably conclude 211 The Commission has taken action in
the fact that the company has circumstances where perquisites were not properly
that an item is generally available to all disclosed. See SEC v. Greg A. Gadel and Daniel J.
determined that an expense is an employees on a non-discriminatory Skrypek, Litigation Release No. 19720 (June 7, 2006)
‘‘ordinary’’ or ‘‘necessary’’ business basis if it is available to those employees and In the Matter of Tyson Foods, Inc. and Donald
expense for tax or other purposes or that to whom it lawfully may be provided. Tyson, Litigation Release No. 19208 (Apr. 28, 2005).
212 Instruction 4 to Item 402(c)(2)(is).
an expense is for the benefit or For this purpose, a company may 213 See e.g., letters from ABTR; AUSWR; CH;
convenience of the company is not recognize jurisdictionally based legal Computer Sciences; Pearl Meyer & Partners; and
responsive to the inquiry as to whether restrictions (such as for foreign Institutional Investors Group. As we stated in the
the expense provides a perquisite or employees) or the employees’ Proposing Release, the amount attributed to
other personal benefit for disclosure ‘‘accredited investor’’ 210 status. In perquisites and other personal benefits for federal
purposes. Whether the company should income tax purposes is not the incremental cost for
contrast, merely providing a benefit purposes of our disclosure rules unless,
pay for an expense or it is deductible for consistent with its availability to independently of the tax characterization, it
tax purposes relates principally to employees in the same job category or constitutes such incremental cost. Therefore, for
questions of state law regarding use of at the same pay scale does not establish example, the cost of aircraft travel attributed to an
corporate assets and of tax law; our executive for federal income tax purposes is not
generally the incremental cost of such a perquisite
210 ‘‘Accredited investor’’ is defined in Securities or personal benefit for purposes of our disclosure
209 See,
e.g., letters from NACCO Industries, Inc. Act Rule 501(a)[17 CFR 230.501(a)] for purposes of rules. See IRS Regulation § 1.61–21(g) [26 CFR
(‘‘NACCO Industries’’) and NAM. Regulation D [17 CFR 230.501–508]. Continued
approach of disclosing a company’s • ‘‘Gross-ups’’ or other amounts captions created distinctions that may
compensation costs, we remain of the reimbursed during the fiscal year for the have been confusing to both users and
view that perquisites should be valued payment of taxes; 220 and preparers of the Summary
based on aggregate incremental cost. • For any security of the company or Compensation Table. As proposed, the
Finally, commenters observed that its subsidiaries purchased from the amendments we adopt today do not
investors cannot fully understand company or its subsidiaries (through separately identify some columns as
disclosed perquisite amounts without deferral of salary or bonus) at a discount ‘‘annual’’ and other columns as ‘‘long
disclosure of the methodology used to from the market price of such security term’’ compensation. Consistent with
compute them.214 We agree that this at the date of purchase, unless that this change, as described above, we are
disclosure will improve investors’ discount is available generally either to merging the current Other Annual
ability to compare the cost of perquisites all security holders or to all salaried Compensation column into the new All
from company to company. The rule as employees of the company, the Other Compensation column, and
adopted requires footnote disclosure of compensation cost, if any, computed in include current earnings information
the methodology for computing the accordance with FAS 123R.221 regarding non-equity incentive plan
aggregate incremental cost for the An additional requirement to include compensation in the column for that
perquisites.215 the dollar value of any dividends or form of award.
other earnings paid on stock or option In eliminating this distinction, we
ii. Additional All Other Compensation awards when the dividends or earnings
Column Items also revise the former definition of
were not factored into the grant date fair ‘‘long term incentive plan’’ to eliminate
We are adopting as proposed a value has been adopted for this column any distinction between a ‘‘long term’’
requirement that items to be disclosed as discussed above.222 plan and one that may provide for
in the All Other Compensation column In response to commenters’ concerns periods shorter than one year. Like the
include, but are not limited to, the about double counting pension captions, the former approach created
following items: 216 benefits,223 we have not retained the distinctions that may have been
• Amounts paid or accrued pursuant aspect of proposed Instruction 2 to this confusing to users and preparers. As
to a plan or arrangement in connection column that would have required proposed and adopted, the amendments
with any termination (or constructive disclosure of pension benefits paid to define an ‘‘incentive plan’’ as any plan
termination) of employment or a change the named executive officer during the providing compensation intended to
in control; 217 period covered by the table.224 As serve as incentive for performance to
• Annual company contributions or adopted, an instruction provides that occur over a specified period.226 The
other allocations to vested and unvested benefits paid pursuant to defined related definition of ‘‘incentive plan
defined contribution plans; 218 benefit and actuarial plans are not
• The dollar value of any insurance award’’ as an award provided under an
reportable as All Other Compensation incentive plan is also adopted as
premiums paid by the company with unless accelerated pursuant to a change
respect to life insurance for the benefit proposed.227
in control.225 Similarly, distributions of Noting that companies formerly
of a named executive officer; 219 nonqualified deferred compensation are reported as ‘‘bonuses’’ awards that
not reportable as All Other would be short-term incentive plan
1.61–21(g)] regarding Internal Revenue Service Compensation.
guidelines for imputing taxable personal income to awards under this definition,
an employee who travels for personal reasons on f. Captions and Table Layout commenters requested guidance as to
corporate aircraft. These complex regulations are what distinguishes items reportable as
known as the Standard Industry Fare Level or SIFL Before today’s amendments, a portion
non-equity incentive plan compensation
rules. of the table was labeled as ‘‘annual
214 See, e.g., letter from Mercer. from those reportable as bonuses under
compensation’’ and another portion as
215 Instruction 4 to Item 402(c)(2)(ix). the amended rules.228 An award would
‘‘long term compensation.’’ These
216 All of these items were required to be be considered ‘‘intended to serve as an
disclosed either under All Other Compensation or
insurance premiums, rather than only premiums
incentive for performance to occur over
under Other Annual Compensation proir to these a specified period’’ if the outcome with
amendments. with respect to term life insurance (as was required
217 Unlike the text of Item 402(b)(2)(v)(A) prior to prior to these amendments), the requirement that respect to the relevant performance
had been previously specified in Item target is substantially uncertain at the
these amendments, Item 402(c)(2)(ix)(D) as
402(b)(2)(v)(E)(1) and (2) to disclose the value of
amended does not refer to amounts payable under
any remaining premiums with respect to
time the performance target is
post-employment benefits. Instruction 5 to Item established and the target is
circumstances where the named executive officer
402(c)(2)(ix) provides that an accrued amount is an
amount for which payment has become due, such
has an interest in the policy’s cash surrender value communicated to the executive.
is not retained in the amended rule. Compensation pursuant to such a non-
as a severance payment currently owed by the 220 Item 402(c)(2)(ix)(B).
company to an executive officer. These items, as
221 Item 402(c)(2)(ix)(C). This requirement as
equity award would be reported in the
well as amounts that are payable in the future, are Summary Compensation Table as non-
also the subject of disclosure as post-termination adopted has been revised from the proposal to
compenstaion, as described in Section II.C.5.c. clarify that no amount of compensation is required equity incentive plan compensation and
below. For any compensation as a result of a to be disclosed if there is no compensation cost the grant of the award would be
business combination, other than pursuant to a plan computed for the discounted securities purchase in reported as a non-equity incentive plan
or arrangement in connection with any termination accordance with FAS 123R. For example, under
FAS 123R, if the discount is five percent or less,
award in the Grants of Plan-Based
of employment or change-in-control, such as a
retention bonus, acceleration of option or stock all qualified employees can participate in the offer Awards Table.229 In contrast, a cash
vesting period, or performance-based compensation and there are no option features, then there is no
intended to serve as an incentive for named compensation cost to recognize for financial 226 Item 402(a)(6)(iii).
executive officers to acquire other companies or reporting purposes and thus no compensation is 227 Id.
enter into a merger agreement, disclosure will now reported for this item in the All Other 228 See, e.g., letters from Hewitt; Mercer; NACCO
be requlired in the appropriate Summary Compensation column. Industries; and SCSGP.
222 Item 402(c)(2)(ix)(G).

Compensation Table column and in the other tables 229 This table is described in Section II.C.2.
or narrative disclosure where the particular element 223 See, e.g., letter from Cravath.
immediately below. Further, no longer reporting
of compensation is required to be disclosed. 224 We have moved this disclosure requirement to
compensation pursuant to these awards as ‘‘bonus’’
218 Item 402(c)(2)(ix)(E). the Pension Benefits Table, described in Section in the Summary Compensation Table does not
219 Item 402(c)(2)(ix)(F). Because the amendments II.C.5.a. below. affect the determination of named executive officers
call for disclosure of the dollar value of any life 225 Instruction 2 to Item 402(c)(2)(ix). because, as described in Section II.C.6.b. below, that
award based on satisfaction of a tables were derived from two tables supplement the Summary
performance target that was not pre- required under the rules prior to these Compensation Table would have shown
established and communicated, or the amendments. the equity-based compensation awards
outcome of which is not substantially The first table we proposed to granted in the last fiscal year that are
uncertain, would be reportable in the supplement the Summary not performance-based, such as stock,
Summary Compensation Table as a Compensation Table would have options or similar instruments where
bonus. included information regarding non- the payout or future value is tied to the
stock grants of incentive plan awards, company’s stock price, and not to other
2. Supplemental Grants of Plan-Based
stock-based incentive plan awards and performance criteria.231
Awards Table
awards of options, restricted stock and Because much of the information for
Following the Summary similar instruments under plans that are each proposed table is consistent, we
Compensation Table, we proposed two performance-based (and thus provide have followed the recommendation of a
supplemental tables to explain the opportunity for future compensation commenter to simplify the disclosure
information in the Summary if conditions are satisfied).230 The format by combining the proposed
Compensation Table. The proposed second table we proposed to disclosure in a single table.232
GRANTS OF PLAN-BASED AWARDS

Estimated future payouts under Estimated future payouts under All other
All other
non-equity incentive plan awards equity incentive plan awards option
stock Exercise
awards:
awards: or base
Number
Grant Number price of
Name of securi-
date of shares option
Threshold Target Maximum Threshold Target Maximum ties un-
of stock awards
($) ($) ($) (#) (#) (#) derlying
or units ($/Sh)
options
(#) (#)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k)
PEO
PFO
Disclosure in this table complements the proposed columns reporting vesting in a footnote to the appropriate
Summary Compensation Table date, or performance or other period column.238
disclosure of grant date fair value of until vesting or payout. As a commenter As proposed, the Grants of All Other
stock awards and option awards by noted, vesting information typically Equity Awards Table would have
disclosing the number of shares of stock cannot be reported easily in a single line permitted aggregation of option grants
or units comprising or underlying the in a table.235 Similarly, because the with the same exercise or base price. We
award. This supplemental table shows modifications we are making to the have not adopted such an instruction for
the terms of grants made during the Outstanding Equity Awards at Fiscal this table, based on our belief that grant-
current year, including estimated future Year-End Table require that table to by-grant disclosure is the most
payouts for both equity incentive plans report the expiration dates of options appropriate approach, particularly given
and non-equity incentive plans, with and similar awards,236 we are our particular disclosure concerns
separate disclosure for each grant.233 eliminating the proposed expiration regarding option grants. For incentive
To simplify the presentation further, date column. Finally, the proposed plan awards, threshold, target and
we have eliminated some of the column reporting the dollar amount of maximum payout information should be
proposed columns. Because the consideration paid for the award, if any, provided, but if the award provides only
narrative section identifies the material is not adopted, reflecting comments that for a single estimated payout, that
terms of an award reported in this table this column would be used only amount should be reported as the
as an example of a material factor to be rarely.237 Instead, in those rare instances target.239 Where there is a tandem grant
described,234 and thus will cover the where consideration is paid for an of two instruments, only one of which
same information, we have eliminated award, this disclosure will be provided is granted under an incentive plan, only
determination is not limited to consideration of amendments by the Option/SAR Grants Table 235 See letter from ABA.
salary and bonus. (formerly specified in Item 402(c)). 236 See Section II.C.4.a. below.
230 Proposed Item 402(d). 232 See letter from Hewitt. 237 Proposed Item 402(d)(2)(v). See, e.g., letters
231 Proposed Item 402(e), containing much of the 233 Instruction 1 to Item 402(d). from Frederic W. Cook & Co. and SCSGP.
234 Item 402(e)(1)(iii), described in Section 238 Instruction 5 to Item 402(d).
information that was required prior to these
II.C.3.a. immediately below. 239 Instruction 2 to Item 402(d).
the instrument that is not granted under grant date closing market price per share compensation policies, the narrative
an incentive plan is reported in the is the last sale price on the principal disclosures following the Summary
table, with the tandem feature noted.240 United States market for the security on Compensation Table and other tables
Because the rules as adopted require the specified date.247 Moreover, if the focus on and provide specific context to
Summary Compensation Table exercise or base price is not the grant the quantitative disclosure in the tables.
disclosure of the incremental fair value, date closing market price per share, we For example, narrative disclosure
computed in accordance with FAS require a description of the following a table might explain material
123R, of options, stock appreciation methodology for determining the aspects of a plan that are not evident
rights and similar option-like exercise or base price either by footnote from the quantitative tabular disclosure
instruments granted in connection with to the table or in the accompanying and are not addressed in the
a repricing transaction, rather than the narrative section.248 Further reflecting Compensation Discussion and Analysis.
total fair value as we had proposed, the significance of grant date issues in The material factors that require
grants of these instruments are not awards of option grants and in response disclosure will vary depending on the
reported in this table.241 Disclosure to comments,249 we are also providing facts and circumstances. As one
should be provided in the that if the date on which the example, such material factors might
Compensation Discussion and Analysis compensation committee (or a include descriptions of the material
and the narrative disclosures for the committee of the board of directors terms in the named executive officers’
Summary Compensation Table and performing a similar function or the full employment agreements as those
Grants of Plan-Based Awards, as board of directors) takes action or is descriptions might provide material
appropriate, regarding awards granted deemed to take action to grant equity- information necessary to an
in connection with repricing based awards is different from the date understanding of the tabular disclosure.
transactions. of grant, a column must be added to The narrative disclosure covers written
As proposed and adopted, if the per- disclose the date of action.250 For these or unwritten agreements or
share exercise or base price of options, purposes, the ‘‘date of grant’’ or ‘‘grant arrangements.254 Requiring this
stock appreciation rights and similar date’’ is the grant date determined for disclosure in proximity to the Summary
option-like instruments is less than the financial statement reporting purposes Compensation Table is intended to
market price of the underlying security pursuant to FAS 123R.251 Finally, in make the tabular disclosure more
on the grant date, a separate column combining the proposed tables, we have meaningful. Mere filing of employment
must be added showing market price on adopted an instruction specifying that if agreements (or summaries of oral
the grant date.242 Some commenters a non-equity incentive plan award is agreements) may not be adequate to
objected to our proposal to calculate denominated in units or other rights, disclose material factors depending on
grant date market price for this purpose then a separate, adjoining column the circumstances. As stated in the
using the closing price per share of the would be required to disclose the units Proposing Release, provisions regarding
underlying security on that date. These or other rights awarded.252 post-termination compensation need to
commenters stated that plans requiring be addressed in the narrative section
awards to be granted with an exercise 3. Narrative Disclosure to Summary
Compensation Table and Grants of Plan- only to the extent disclosure of such
price equal to the underlying security’s compensation is required in the
grant date fair market value may define Based Awards Table
Summary Compensation Table;
‘‘fair market value’’ based on a formula a. Narrative Description of Additional
otherwise these provisions will be
related to the average market price on Material Factors
disclosable as post-termination
the grant date or a range of days either As we proposed, we are requiring compensation.255
before or after the grant date.243 Our narrative disclosure following the The factors that could be material
proposed departure from the rule prior Summary Compensation Table and the include each repricing or other material
to these amendments, which permitted Grants of Plan-Based Awards Table in modification of any outstanding option
use of such formulas even for securities order to give context to the tabular or other equity-based award during the
traded on an established market,244 was disclosure. A company will be required last fiscal year. This disclosure
considered, and along with the to provide a narrative description of any addresses not only option repricings,
requirement to disclose the grant date, additional material factors necessary to but also other significant changes to the
reflects the significance of issues in an understanding of the information
awards of option grants.245 Moreover, terms of equity-based awards.256 As
disclosed in the tables.253 Unlike the proposed, we are eliminating the former
commenters expressed concern Compensation Discussion and Analysis,
regarding the manipulation of option ten-year option repricing table.257 In its
which focuses on broader topics place, the narrative disclosure following
grant dates to achieve below-market regarding the objectives and
exercise prices.246 The rule as adopted the Summary Compensation Table will
implementation of executive describe, to the extent material and
uses the measure for grant date market
price of the underlying security that we 247 Because the concept of closing market price is
necessary to an understanding of the
proposed, modified to specify that the used in a number of provisions of Item 402, we are
tabular disclosure, repricing, extension
adopting a definition of the term closing market of exercise periods, change of vesting or
240 Instruction 4 to Item 402(d). price in Item 402(a)(6)(v). A foreign company forfeiture conditions, change or
241 See discussion at Section II.C.1.c.i. above. complying with this requirement may instead look
242 Item 402(d)(2)(vii). to the principal foreign market in which the 254 Item 402(e)(1)(i).
underlying securities trade. 255 Item
243 See, e.g., letters from Cravath; Eli Lilly; and
248 Instruction 3 to Item 402(d).
402(j), described in Section II.C.5.c.
Sidley Austin LLP (‘‘Sidley Austin’’). 256 Item 402(e)(1)(ii).
249 See, e.g., letter from CFA Centre 2.
244 This requirement had been set forth in 257 The ten-year option repricing table had been
250 Item 402(d)(2)(ii).
Instruction 6 to Item 402(c) prior to today’s required by Item 402(i) prior to its elimination with
251 Item 402(a)(6)(iv).

amendments. these amendments. We believe that the narrative
245 See the discussion of options disclosure in 252 Instruction 6 to Item 402(d).
disclosure requirement will provide investors with
Section II.A., above. 253 Item 402(e)(1). The standard of materiality that material information regarding repricings and
246 See, e.g., letter from CFA Centre for Financial applies in Item 402(e) is that of Basic v. Levinson, modifications and eliminate the arguably dated
Market Integrity, dated May 30, 2006 (‘‘CFA Centre 485 U.S. 224 (1988) and TSC Industries v. information contained in the former ten-year option
2’’). Northway, 426 U.S. 438 (1976). repricing table.
elimination of applicable performance compensated officers,262 we specify as officers.268 After considering the issues
criteria, change of the bases upon which an additional example an explanation of raised by these commenters, we remain
returns are determined, or any other the level of salary and bonus in concerned about disclosure with respect
material modification.258 proportion to total compensation.263 to employees, particularly within very
Narrative text accompanying the large companies, whether or not they
tables will also describe, to the extent b. Request for Additional Comment on are executive officers, whose total
material and necessary to an Compensation Disclosure for up to compensation for the last completed
understanding of the tabular disclosure, Three Additional Employees fiscal year was greater than that of one
award terms relating to disclosure As part of this narrative disclosure or more of the named executive officers.
provided in the Grants of Plan-Based requirement, we had proposed an If any of these employees exert
Awards Table. This could include, for additional item that would have significant policy influence at the
example, a general description of the required disclosure for up to three company, at a significant subsidiary of
formula or criteria to be applied in employees who were not executive the company or at a principal business
determining the amounts payable, the officers during the last completed fiscal unit, division, or function of the
vesting schedule, a description of the year and whose total compensation for company, then investors seeking a fuller
performance-based conditions and any the last completed fiscal year was understanding of a company’s
other material conditions applicable to greater than that of any of the named compensation program may believe that
the award, whether dividends or other executive officers.264 We received disclosure of these employees’ total
amounts would be paid, the applicable extensive comment on this proposal. compensation is important
rate and whether that rate is Some commenters supported the information.269 Knowing the
preferential.259 As noted above and proposal or suggested that it should go compensation, and job positions within
consistent with current disclosure further.265 Many commenters expressed the organization, of these highly
requirements, however, companies will concern that the benefits of this compensated policy-makers whose total
not be required to disclose any factor, disclosure to investors would be compensation for the last fiscal year was
criteria, or performance-related or other negligible, yet compliance might require greater than that of a named executive
condition to payout or vesting of a the outlay of considerable company officer, should assist in placing in
particular award that involves resources.266 Some commenters context and permit a better
confidential trade secrets or confidential expressed concern that the proposed understanding of the compensation
commercial or financial information, disclosure would raise privacy issues or structure of the named executive
disclosure of which would result in negatively impact competition for officers and directors.
competitive harm to the company.260 employees.267 While we continue to Our intention is to provide investors
We proposed that this example also consider whether to adopt such a with information regarding the most
include material assumptions requirement as part of the executive highly compensated employees who
underlying the determination of the compensation disclosure rules, in exert significant policy influence by
amount of increase in the actuarial Release No. 33–8735 we are requesting having responsibility for significant
value of defined benefit and actuarial additional comment as to whether policy decisions. Responsibility for
plans. However, in light of the potential modifications would address significant policy decisions could
modifications we are adopting, we have the concerns that commenters have consist of, for example, the exercise of
concluded that the better place to raised. strategic, technical, editorial, creative,
discuss these assumptions is in the We note in particular that some managerial, or similar responsibilities.
narrative section accompanying the commenters questioned the materiality Examples of employees who might not
Pension Benefits Table.261 of the information that would have been be executive officers but who might
Further, in response to commenters’ have responsibility for significant policy
required by the proposal, given that the
concerns regarding the computation of decisions could include the director of
covered employees would not be in
total compensation and the expanded the news division of a major network;
basis for determining the most highly policy-making positions as executive
the principal creative leader of the
262 See Section II.C.1.a. above and Section
entertainment function of a media
258 As described in Section II.C.1.c.i. above, the
II.C.6.b. below. conglomerate; or the head of a principal
tabular disclosure will report the incremental fair
value of the modification for financial reporting
263 Item 402(e)(1)(iv). business unit developing a significant
purposes. However, narrative disclosure will not 264 Proposed Item 402(f)(2). technological innovation. By contrast,
apply to any repricing that occurs through a pre- 265 See, e.g., letters from Corporate Library; The we are convinced by commenters that a
existing formula or mechanism in the plan or award Greenlining Institute; Institutional Investor Group;
that results in the periodic adjustment of the option and SBAF. 268 See, e.g., letters from CalSTRS; Cleary; CNET
or stock appreciation right exercise or base price, 266 See, e.g., letters from ABA; Chamber of
Networks; Compass Bancshares; DreamWorks;
an antidilution provision, or a recapitalization or Commerce; Eli Lilly; Leggett & Platt; N. Ludgus; and Entertainment Industry Group; Fried, Frank, Harris,
similar transaction equally affecting all holders of Mercer. Shriver & Jacobson LLP (‘‘Fried Frank’’); FSR;
the class of securities underlying the options or 267 See, e.g., letters from ABA-JCEB; BRT; jointly,
Hewitt; ICI; Intel; Kellogg; Kennedy; Leggett & Platt;
stock appreciation rights. Instruction 1 to Item CBS Corporation, The Walt Disney Company, NBC Peabody Energy; Pearl Meyer & Partners; SCSGP;
402(e). Universal, News Corporation, and Viacom, Inc. SIA; Stradling Yocca Carlson & Rauth (‘‘Stradling
259 Item 402(e)(1)(iii), which combines some
(‘‘Entertainment Industry Group’’); Committee on Yocca’’); Top Five Data Services, Inc. (‘‘Top Five
information that had been required by Instruction Corporate Finance of Financial Executives Data’’); Towers Perrin; and Walden.
2 to Item 402(b)(2)(iv) with information that had International (‘‘FEI’’); Chamber of Commerce; 269 The Commission expressed similar concerns
been required by Instruction 1 to Item 402(e) as they Cleary; CNET Networks, Inc. (‘‘CNET Networks’’); in 1978, when it stated ‘‘a key employee or director
were stated in the rule before these amendments. Compass Bancshares; Compensia; Cravath; of a subsidiary might be the highest-paid person in
260 We have adopted Instruction 2 to Item
DreamWorks Animation SKG (‘‘DreamWorks’’); Eli the entire corporate structure and have managerial
402(e)(1), which specifically applies to the narrative Lilly; Emerson; Fenwick; The Financial Services responsibility for major aspects of the registrant’s
disclosure of Item 402(e)(1) the same standard Roundtable (‘‘FSR’’); Professor Joseph A. Grundfest, overall operations.’’ 1978 Release. See n. 327 for a
applicable to Compensation Discussion and dated April 10, 2006 (‘‘Grundfest’’); ICI; Intel discussion of the term ‘‘executive officer.’’ In light
Analysis for determining whether disclosure would Corporation (‘‘Intel’’); Kellogg Company of some of the comments that we received, we have
result in competitive harm for the company. See (‘‘Kellogg’’); Kennedy & Baris, LLP (‘‘Kennedy’’); clarified that the definition of ‘‘executive officer’’
Section II.B.2., above, for a discussion of this Mercer; Peabody Energy; Pearl Meyer & Partners; includes all individuals in a registrant policy-
standard. Securities Industry Association (‘‘SIA’’); Sullivan; making role. See, e.g., letters from SCSGP and
261 See Section II.C.5.a. below. SCSGP; and WorldatWork. Cravath.
salesperson, entertainment personality, For each of the company’s three most those who are not executive officers,
actor, singer, or professional athlete who highly compensated employees, material to investors? In answering this
is highly compensated but who does not whether or not they were executive question, commenters are encouraged to
have responsibility for significant policy officers during the last completed fiscal address the following additional
decisions would not be the type of year, whose total compensation for the questions:
employee about whom we would seek last completed fiscal year was greater Æ Would modifications limiting the
disclosure. Nor, as a general matter, than that of any of the named executive disclosure to employees who make
would investment professionals (such as officers, disclose each such employee’s significant policy decisions within the
a trader, or a portfolio manager for an total compensation for that year and company, a significant subsidiary of the
investment adviser who is responsible describe the employee’s job position, company, or a principal business unit,
for one or more mutual funds or other without naming the employee; division, or function of the company
clients) be deemed to have provided, however, that employees with appropriately focus the disclosure on
responsibility for significant policy no responsibility for significant policy employees for whom compensation
decisions at the company, at a decisions within the company, a information is material to investors?
significant subsidiary or at a principal significant subsidiary of the company, Æ Would the approach that we are
business unit, division or function or a principal business unit, division, or considering provide investors with
simply as a result of performing the function of the company are not material information about how policy-
duties associated with those positions. included when determining who are making responsibilities are allocated
On the other hand, an investment each of the three most highly within a company? Are the examples
professional, such as a trader or compensated employees for the describing responsibility for significant
portfolio manager, who does have purposes of this requirement, and policy decisions too broad or too
broader duties within a firm (such as, therefore no disclosure is required narrow?
for example, oversight of all equity under this requirement for any Æ Would the proposed rule, with the
funds for an investment adviser) may be employee with no responsibility for modifications described above, provide
considered to have responsibility for significant policy decisions within the investors with material information
significant policy decisions. company, a significant subsidiary of the necessary to understand the company’s
We continue to consider whether it is company, or a principal business unit, compensation policies and structure?
appropriate to require some level of division, or function of the company? How should we address those concerns?
narrative disclosure so that shareholders • Would it be appropriate to Æ What is typically the role of the
will have information about these most determine the highest paid employees compensation committee in determining
highly compensated employees. This in the same manner that named or approving the compensation of the
consideration includes the appropriate executive officers are determined, by additional employees if they are not
level of information about these calculating total compensation but executive officers? If the compensation
employees and their compensation in excluding pension plan benefits and committee does not oversee their
light of their roles. above-market or preferential earnings on compensation, is the additional
As to issues regarding privacy and nonqualified deferred compensation employee compensation information
competition for employees, to the extent plans, and by comparing that amount to material to investors? What types of
that commenters objected that the the same amount earned by the named decisions would investors make based
disclosure could result in a competitor executive officers (excluding the on this information?
stealing a company’s top ‘‘talent,’’ 270 we amount required to be disclosed for • Would the proposed rule, with the
have tried to address these concerns by those named executive officers pursuant modifications described above, raise
focusing the disclosure on persons who to paragraph (c)(2)(viii) of Item 402)? If privacy issues or negatively impact
exert significant policy influence within so, should the total amount disclosed competition for employees in a manner
the company or significant parts of the include these amounts as it does for that would outweigh the materiality of
company. named executive officers? Should the the disclosure to investors?
pension benefit and above-market • Should we require that the three
Request for Comment earnings be separately disclosed in a additional employees be named? If not,
We request additional comment on footnote so investors can calculate the what additional information should be
the proposal to require compensation amounts used in determining highest required? Should more information be
disclosure for up to three additional paid employees? required regarding the employee’s
employees. In addition to general • Would modifying the proposed rule compensation or job position?
comment, we encourage commenters to to apply only to large accelerated • Should we define ‘‘responsibility
address the following specific questions: filers271 properly focus this disclosure for significant policy decisions’’?
• Would the rule more appropriately obligation on companies that are more Should we use another test to describe
require disclosure of the employees likely to have these additional highly those employees who exert a significant
described above if it were structured in compensated employees? Would that policy influence on the company? Do
the following or similar manner: modification address concerns that the the examples provided above help
proposed rule would impose identify and delimit the number of
270 See, e.g., letter from Entertainment Industry disproportionate compliance burdens by employees whose compensation would
Group. In addition, we note our intention is not to limiting the disclosure obligation to be subject to disclosure under this
suggest that these additional employees, whether or companies that are presumptively better provision? What would help companies
not they are executive officers, are individuals identify these employees?
whose compensation is required to be reported able to track the covered employees?
under the Exchange Act ‘‘by reason of such Would a different limitation as to • What additional work and costs are
employee being among the 4 highest compensated applicability be appropriate? involved in collecting the information
officers for the taxable year,’’ as stated in Internal • Is information regarding highly necessary to identify the three
Revenue Code Section 162(m)(3)(B) [26 U.S.C. additional employees? What are the
162(m)(3)(B)]. See letter from Cleary (expressing compensated employees, including
concern that the additional individuals not fall
types of costs, and in what amounts? In
within the purview of Section 162(m) of the 271 The term large accelerated filer is defined in what way can the proposal be further
Internal Revenue Code). Exchange Act Rule 12b–2 [17 CFR 240.12b–2]. modified to mitigate the costs?
• In connection with the original disclosure. In that event, for purposes of executive officer exercises an option or
proposal, we solicited comment on all seeking comment, we estimate that his or her stock award vests. We are
aspects of the proposal, including this 1,700 272 companies will on average adopting substantially as proposed two
one. No commenter supplied cost retain outside counsel for 8 hours in the tables: one table shows the amounts of
estimates. We are now considering first year and 2 hours in each of two awards outstanding at fiscal year-end,
whether to limit this provision to only succeeding years, at $400 per hour, for and the other shows the exercise or
large accelerated filers. For some large a total estimated average annual cost of vesting of equity awards during the
accelerated filers, the number of approximately $3 million. Assuming all fiscal year.273 In response to comment,
employees potentially subject to this large accelerated filers spend 60 hours we are requiring additional information
requirement may already be known or in the first year and 10 hours in each of regarding out-of-the-money awards.
easy to identify. Other, more complex the two succeeding years, with an
average internal cost of $175 per hour, a. Outstanding Equity Awards at Fiscal
companies may need to establish
the total average annual burden of Year-End Table
systems to identify such employees.
Every large accelerated filer would need collecting and monitoring employee
As we noted in the Proposing Release,
to evaluate whether any employees compensation would be approximately
45,000 hours, or approximately $8 outstanding awards that have been
exerted significant policy influence at granted but the ultimate outcomes of
million. The total average annual cost is
the company, at a significant subsidiary which have not yet been realized in
therefore estimated to be $11 million.
or at a principal business unit, division effect represent potential amounts that
We invite comment on this estimate and
or function and would have to track the named executive officer might or
its assumptions.
their compensation in order to comply might not realize, depending on the
with the proposed requirement. These 4. Exercises and Holdings of Previously outcome for the measure or measures
monitoring costs may be new to some Awarded Equity (for example, stock price or performance
companies. We believe the cost of The next section of the revised benchmarks) to which the award relates.
actually disclosing the compensation executive compensation disclosure We are adopting a table that will
would be incremental and minimal. The provides investors with an disclose information regarding
monitoring and information collection understanding of the compensation in outstanding awards, for example, under
costs are likely to be greatest in the first the form of equity that has previously stock option (or stock appreciation
year and significantly less in later years. been awarded and remains outstanding, rights) plans, restricted stock plans,
We also assume that costs would largely and is unexercised or unvested. As incentive plans and similar plans and
be borne internally, although some proposed, this section also discloses disclose the market-based values of the
companies may seek the advice of amounts realized on this type of rights, shares or units in question as of
outside counsel in determining which compensation during the most recent the company’s most recent fiscal year
employees meet the standard for fiscal year when, for example, a named end.274
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

Option awards Stock awards
Equity in-
Equity incentive
centive plan
Equity in- plan awards:
centive plan Market awards:
Number of Number of Number Market or
awards: value of Number
securities securities un- of shares payout
Number of Option shares or of un-
Name underlying derlying Option or units of value of
securities exercise units of earned
unexercised unexercised expiration stock that unearned
underlying price stock that shares,
options options date have not shares,
unexercised ($) have not units or
(#) (#) vested units or
unearned vested other
Exercisable Unexercisable (#) other
options ($) rights that rights that
(#) have not have not
vested vested
(#) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
PEO
PFO
A
272 We estimate there are approximately 1,700 273 Some of this information had been required in 274 Item 402(f). Under the rules prior to today’s
companies that are large accelerated filers. See the Aggregated Option/SAR Exercises in Last Fiscal amendments, such disclosure was provided only for
Revisions to Accelerated Filer Definition and Year and Fiscal Year-End Option/SAR Value Table, holdings of outstanding stock options and stock
Accelerated Deadlines for Reporting Periodic which was required under Item 402(d) prior to appreciation rights.
Reports, Release No. 33–8644 (Dec. 21, 2005) [70 FR
adoption of these amendments.
76626], at Section V.A.2.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END—Continued

Equity in-
Equity incentive
centive plan
centive plan Market awards:
Number of Number of Number Market or
awards: value of Number
securities securities un- of shares payout
Number of Option shares or of un-
Name underlying derlying Option or units of value of
securities exercise units of earned
unexercised unexercised expiration stock that unearned
underlying price stock that shares,
options options date have not shares,
unexercised ($) have not units or
(#) (#) vested units or
unearned vested other
Exercisable Unexercisable (#) other
options ($) rights that rights that
(#) have not have not
vested vested
(#) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
As proposed, the table included a • The number of securities reported.281 Because an award that a
column reporting aggregate dollar underlying unexercised instruments named executive officer transferred for
amounts of in-the-money unexercised that are unexercisable; value is not an award for which the
options.275 Some commenters believed • The exercise or base price; and outcome remains to be realized, the
that this table should not include • The expiration date. rules adopted today instead require
information on out-of-the-money After evaluating the comments disclosure in the Option Exercises and
options because they believed that these received, we believe disclosure of Stock Vested Table of the amounts
awards have no value to executives at individual exercise prices and realized upon transfer for value.282
In view of our approach in the Grants
the point they are out-of-the-money.276 expiration dates is required to provide
of Plan-Based Awards Table as adopted
Several other commenters a full understanding of the potential
and the purposes of this table in
recommended disclosure of the number compensation opportunity. In showing all outstanding equity awards,
and key terms of out-of-the-money particular, with respect to out-of-the- we are adopting a column (column (d))
instruments, so investors can money awards, this allows investors to for reporting the number of securities
understand the potential compensation see the amount the stock price must rise underlying unexercised options
opportunity of these awards if the and the amount of time remaining for it awarded under equity incentive
market price of the underlying shares to happen. Consequently, this plans.283 We have also revised the
increases.277 We proposed to require disclosure is required for each format of the table to more clearly
expiration date information in footnote instrument, rather than on the aggregate delineate between the information
disclosure. We note that some basis that was proposed.279 regarding option awards and the
commenters expressed concern that As suggested by another commenter, information regarding stock awards.
disclosure of expiration and vesting we also modify the table to clarify that The remaining disclosure, relating to
dates of the instruments would be these columns apply to options and numbers and market values of
similar awards that have been nonvested stock and equity incentive
lengthy.278 However, because we agree
transferred other than for value.280 The plan awards, is adopted on an aggregate
with other commenters that information
proposal reflected interpretations of the basis, substantially as proposed. One
regarding out-of-the-money options is former rule that the transfer of an option commenter expressed the view that the
material to investors, we have revised or similar award by an executive does table should not include unearned
the columns applicable to unexercised not negate the award’s status as performance-based awards because it
options, stock appreciation rights and compensation that should be would be difficult to disclose a
similar instruments with option-like meaningful value before the
features to require disclosure of: 279 Multiple awards may be aggregated where the performance conditions are satisfied.284
• The number of securities expiration date and the exercise and/or base price Another commenter requested
of the instruments is identical. A single award clarification of valuation of awards that
underlying unexercised instruments consisting of a combination of options, SARs and/
that are exercisable; or similar option-like instruments must be reported are performance-based and nonvested,
as separate awards with respect to each tranche specifically whether value should be
275 Proposed with a different exercise and/or base price or based on actual performance to date or
Item 402(g)(2)(iii).
276 See,
expiration date. Instruction 4 to Item 402(f)(2). We
e.g., letters from Frederic W. Cook & Co.; have not adopted the proposed requirements to
N. Ludgus; and SCSGP. disclose whether an option that expired after fiscal
281 See Registration of Securities on Form S–8,
277 See, e.g., letters from Amalgamated; Brian

year-end had been exercised, in response to Release No. 33–7646 (Feb. 25, 1999) [64 FR 11103],
Foley & Company, Inc. (‘‘Brian Foley & Co.’’); Buck comment that this would unnecessarily deviate at Section III.D.
Consultants; CII; Hodak Value Advisors; IUE–CWA; 282 Item 402(g), described in Section II.C.4.b.
from the standard of reporting last fiscal year
and SBAF. information. See letter from ABA. immediately below.
278 See, e.g., letters from Leggett & Platt; SCSGP; 280 Instruction 1 to Item 402(f)(2). See letter from 283 Item 402(f)(2)(iv).
and Sidley Austin. ABA. 284 See letter from Sullivan.
on achieving target performance payout, that amount should be reported. options are reported in columns (b) or
goals.285 As adopted, an instruction If the target amount is not determinable, (c), or (g) and (h), as appropriate.287
provides that the number of shares registrants must provide a b. Option Exercises and Stock Vested
reported in the appropriate columns for representative amount based on the Table
equity incentive plan awards (columns previous fiscal year’s performance.286
(d) and (i)) or the payout value reported We have also adopted an instruction We are adopting substantially as
in column (j) is based on achieving clarifying that stock or options under proposed a table that will show the
threshold performance goals, except that equity incentive plans are reported in amounts received upon exercise of
if the previous fiscal year’s performance columns (d) or (i) and (j), as appropriate, options or similar instruments or the
has exceeded the threshold, the until the relevant performance vesting of stock or similar instruments
disclosure shall be based on the next condition has been satisfied. Once the during the most recent fiscal year. This
higher performance measure (target or relevant performance condition has table will allow investors to have a
maximum) that exceeds the previous picture of the amounts that a named
been satisfied, if stock remains unvested
fiscal year’s performance. If the award executive officer realizes on equity
or the option unexercised, the stock or
provides only for a single estimated compensation through its final stage.288
OPTION EXERCISES AND STOCK VESTED

Number of Number of
Value Value
Name shares shares
realized on realized on
acquired on acquired on
exercise vesting
exercise vesting
($) ($)
(#) (#)
(a) (b) (c) (d) (e)
PEO
PFO
We proposed that this table include awards consistent with the presentation from the table proposed. Second, we are
the grant date fair value of these in other tables. adding a table and narrative disclosure
instruments that would have been that will disclose information regarding
5. Post-Employment Compensation nonqualified defined contribution plans
disclosed in the Summary
Compensation Table for the year in As we proposed, we are making and other deferred compensation. We
which they were awarded. We proposed significant revisions to the disclosure have adopted this table substantially as
this column to eliminate the possible requirements regarding post- proposed. Finally, we are adopting
impact of double disclosure by showing employment compensation to provide a revised requirements substantially as
amounts previously disclosed. We have clearer picture of this potential future proposed regarding disclosure of
adopted the table without the grant date compensation. As we noted in the compensation arrangements triggered
fair value column in response to Proposing Release, executive retirement upon termination and on changes in
commenters’ concerns that this column packages and other post-termination control.
would confuse investors and increase compensation may represent a a. Pension Benefits Table
the potential for double counting.289 As significant commitment of corporate
described in the preceding section, in resources and a significant portion of We proposed significant revisions to
response to comment that transfers of overall compensation. First, we are the rules disclosing retirement benefits
awards for value also are realization replacing the former pension plan table, to require disclosure of the estimate of
events, amounts realized upon such alternative plan disclosure and some of retirement benefits to be payable at
transfers must be included in columns the other narrative descriptions with a normal retirement age and, if available,
(c) and (e) of this table.290 Finally, we table regarding defined benefit pension early retirement. Disclosure under the
have reformatted the columns to make plans and enhanced narrative rules prior to today’s amendments
the presentation of stock and option disclosure. We have revised the table frequently did not provide investors
285 See,
e.g., letter from Hewitt. Year and FY-End Options/SAR Values Table that Commentators have noted a need for comparable
286 Instruction3 to Item 402(f). was required prior to these amendments, except disclosure of restricted stock vesting.
287 Instruction 5 to Item 402(f). unlike that table it also includes the vesting of 289 See, e.g., letters from Foley; SCSGP; and
288 This table is similar to a portion of the restricted stock and similar instruments. Stradling Yocca.
Aggregate Options/SAR Exercises in Last Fiscal 290 Item 402(g)(2)(iii) and (v).
useful information regarding specific suggested disclosure of the present form(s) of benefit payment available
potential pension benefits relating to a value of the current accrued benefit under the plan.
particular named executive officer.291 In computed as of the end of the Whether or not the plan allows for a
particular, it may have been difficult to company’s last completed fiscal year,294 lump-sum payment, presentation of the
understand which amounts related to achieving comparability by reporting present value of the accrued plan
any particular named executive officer, the economic value of the benefit that benefit provides investors an
obscuring the value of a significant the executive has accumulated through understanding of the cost of promised
component of compensation. the plan. future benefits in present value
We therefore proposed a new table Because the latter approach achieves
terms.296 Companies must use the same
that would have required disclosure of comparability and transparency by
the estimated retirement benefits disclosing a benefit that already has assumptions, such as interest rate
payable at normal retirement age and, if accrued, we view it as preferable to an assumptions, that they use to derive the
available, early retirement, under approach that would ‘‘normalize’’ amounts disclosed in conformity with
defined benefit plans. Under the disclosure based on hypothetical annual generally accepted accounting
proposal, benefits would have been benefit assumptions prescribed by the principles, but would assume that
quantified based on the form of benefit Commission that might bear no retirement age is normal retirement age
currently elected by the named relationship to the assumptions that the as defined in the plan, or if not so
executive officer, such as joint and company actually applies with respect defined, the earliest time at which a
survivor annuity or single life annuity. to the plan. Furthermore, this approach participant may retire under the plan
Some commenters objected that the will make clearer the relationship of this without any benefit reduction due to
proposed revisions would result in table to the Summary Compensation age.297 The estimates are to be based on
disclosure that would not be Table disclosure of increase in pension current compensation, and as such,
comparable and could be value. This approach will also lessen future levels of compensation need not
manipulated.292 In particular, the the burden on companies, since they are be estimated for purposes of the
calculation of benefits would depend on required to calculate the present value calculation. The valuation method and
such factors as the form of benefit for the Summary Compensation Table. all material assumptions applied will be
payment, the named executive officer’s Accordingly, the table we adopt today described in the narrative section
marital status, and the actuarial requires disclosure of the actuarial accompanying this table.298 A separate
assumptions applied, which would vary present value of the named executive row will be provided for each plan in
from company to company and plan to officer’s accumulated benefit under the which a named executive officer
plan. Explanations of the complicated plan and the number of years of service participates.299 For purposes of
methodologies involved could hinder credited to the named executive officer allocating the current accrued benefit
transparency. under the plan reported in the table, between tax qualified defined benefit
Some commenters suggested that the each computed as of the same pension plans and related supplemental plans, a
Commission prescribe standard plan measurement date for financial company will apply the applicable
assumptions for calculating annual statement reporting purposes with Internal Revenue Code limitations in
benefits for disclosure purposes, such as respect to the audited financial effect as of the pension plan
a single life annuity and retirement at statements for the company’s last measurement date.300 At the suggestion
age 65, in order to facilitate completed fiscal year.295 This disclosure of a commenter, we have simplified the
comparability.293 Other commenters applies without regard to the particular name of the table.301
PENSION BENEFITS
Present
Number of Payments
value of
years cred- during last
Name Plan name accumulated
ited service fiscal year
benefit
(#) ($)
($)
(a) (b) (c) (d) (e)
PEO
291 The rules prior to today’s amendments formula and estimated annual benefits payable to deferred compensation plan disclosure, which, as
provided that, for defined benefit or actuarial plans, the officers upon retirement at normal retirement described in Section II.C.5.b. immediately below,
disclosure was required under Item 402(f) by way age. reports an aggregate account balance.
of a general table showing estimated annual benefits 292 See, e.g., letters from BRT; Chadbourne & 297 Instruction 2 to Item 402(h)(2). Of course, the
under the plan payable upon retirement (including Parke LLP (‘‘Chadbourne’’); Cleary; and ABA–JCEB. benefits included in the plan document or the
amounts attributable to supplementary or excess 293 See, e.g., letters from ABA and NACCO
executive’s contract itself is not an assumption.
pension award plans) for specified compensation Industries. 298 Item 402(h)(3) and Instruction 2 to Item
levels and years of service. This table did not 294 See, e.g., letters from Buck Consultants;
402(h)(2). This requirement could be satisfied by
provide disclosure for any specific named executive Frederic W. Cook & Co.; Professor Bebchuk, et al.; reference to a discussion of those assumptions in
officer. This requirement applied to plans under and SBAF. the company’s financial statements, footnotes to the
which benefits were determined primarily by final 295 Item 402(h)(2)(iv). If the number of years of
financial statements, or Management’s Discussion
compensation (or average final compensation) and credited service for a plan differs from the named and Analysis. The sections so referenced would be
years of service, and included narrative disclosure. executive officer’s number of actual years of service
deemed a part of the disclosure provided by this
If named executive officers were subject to other with the company, footnote quantification of the
plans under which benefits were not determined difference and any resulting benefit augmentation is Item.
299 Instruction 1 to Item 402(h)(2).
primarily by final compensation (or average final required. Instruction 4 to Item 402(h)(2).
300 Instruction 3 to Item 402(h).
compensation), narrative disclosure had been 296 Further, basing pension plan disclosure on the
required prior to these amendments of the benefit accumulated benefit is consistent with nonqualified 301 See letter from ABA.
PENSION BENEFITS—Continued
Present
Number of Payments
value of
benefit
(#) ($)
($)
(a) (b) (c) (d) (e)
PFO
We have moved the disclosure • The specific elements of disclosure of the compensation when
proposed to be included in the compensation, such as salary and earned and only the above-market or
Summary Compensation Table of various forms of bonus, included in preferential earnings on nonqualified
pension benefits paid to a named applying the benefit formula, deferred compensation.305 The full
executive officer during the last identifying each such element; value of those earnings and the accounts
completed fiscal year to the Pension • Regarding participation in multiple on which they are payable was not
Benefits Table so that pension benefits plans, the different purposes for each subject to disclosure, nor were investors
plan; and informed regarding the rate at which
are disclosed only once in the Summary • Company policies with regard to
Compensation Table.302 We remain of these amounts, and the corresponding
such matters as granting extra years of cost to the company, grow.306
the view that disclosure of these credited service.
payments would be material to As noted above, we are requiring
investors, particularly where the named b. Nonqualified Deferred Compensation disclosure in the Summary
executive officer receives them while Table Compensation Table only of the above-
still employed by the company.303 In order to provide a more complete market or preferential portion of
picture of potential post-employment earnings on compensation that is
The table will be followed by a
compensation, we are adopting deferred on a basis that is not tax-
narrative description of material factors
substantially as proposed a new table to qualified. To provide investors with
necessary to an understanding of each
disclose contributions, earnings and disclosure of the full amount of
plan disclosed in the table. Examples of nonqualified deferred compensation
balances under each defined
such factors may include, in given contribution or other plan that provides accounts that the company is obligated
cases, among other things: for the deferral of compensation on a to pay named executive officers,
• The material terms and conditions basis that is not tax-qualified. These including the full amount of earnings
of benefits available under the plan, plans may be a significant element of for the last fiscal year, we are also
including the plan’s retirement benefit retirement and post-termination requiring new tabular and narrative
formula and eligibility standards, and compensation. Prior to these disclosure of nonqualified deferred
early retirement arrangements;304 amendments, the rules had elicited compensation, as we proposed.307
NONQUALIFIED DEFERRED COMPENSATION
Executive Registrant Aggregate Aggregate Aggregate
contributions contributions earnings in withdrawals/ balance at
Name in last FY in last FY last FY distributions last FYE
($) ($) ($) ($) ($)
(a) (b) (c) (d) (e) (f)
PEO
PFO
302 Item 402(h)(2)(v). See also Instruction 1 to required to be reported in that column in any fiscal or otherwise available to the executive under the
Item 402(c)(2)(viii). We have included these year covered by that table. plan. Item 402(h)(3)(i) and (ii).
amounts in this table rather than the Summary 304 For this purpose, ‘‘normal retirement age’’ 305 See Section II.C.1.d.i. above.
Compensation Table since the increase in the value means the normal retirement age defined in the 306 See Lucian A. Bebchuk and Jesse M. Fried,
of the pension benefit would have been previously plan, or if not so defined, the earliest time at which
disclosed in the Summary Compensation Table. a participant may retire under the plan without any Stealth Compensation via Retirement Benefits, 1
303 Item 402(a)(5) as amended provides that a benefit reduction due to age. ‘‘Early retirement age’’ Berkeley Bus. L.J. 291, 314–316 (2004).
column may be omitted if there is no compensation means early retirement age as defined in the plan, 307 Item 402(i).
NONQUALIFIED DEFERRED COMPENSATION—Continued

Name in last FY in last FY last FY distributions last FYE
($) ($) ($) ($) ($)
(a) (b) (c) (d) (e) (f)
One commenter noted that the title • The measures of calculating interest responsibilities,313 or a change in
proposed—Nonqualified Defined or other plan earnings (including control of the company.
Contribution and Other Deferred whether such measure(s) are selected by Our amendments call for narrative
Compensation Plans—suggested that tax the named executive officer or the disclosure of the following information
qualified plans that provide for deferral company and the frequency and manner regarding termination and change in
of compensation, such as Section 401(k) in which such selections may be control provisions: 314
plans, would be covered.308 We have changed), quantifying interest rates and • the specific circumstances that
adopted the commenter’s other earnings measures applicable would trigger payment(s) or the
recommendation to modify the title to during the company’s last fiscal year; provision of other benefits (references to
clarify that the table covers only and benefits include perquisites and health
deferred compensation that is not tax- care benefits);
qualified, and we have also shortened • material terms with respect to • the estimated payments and
the title consistent with our payouts, withdrawals and other benefits that would be provided in each
amendments regarding the Pension distributions. covered circumstance, and whether they
Benefits Table. Where plan earnings are calculated by would or could be lump sum or annual,
As proposed and adopted, an reference to actual earnings of mutual disclosing the duration and by whom
instruction requires footnote funds or other securities, such as they would be provided; 315
quantification of the extent to which company stock, it is sufficient to • how the appropriate payment and
amounts in the contributions and identify the reference security and benefit levels are determined under the
earnings columns are reported as quantify its return. This disclosure may various circumstances that would
compensation in the year in question be aggregated to the extent the same trigger payments or provision of
and other amounts reported in the table measure applies to more than one benefits; 316
in the aggregate balance column were named executive officer. • any material conditions or
reported previously in the Summary obligations applicable to the receipt of
Compensation Table for prior years.309 c. Other Potential Post-Employment payments or benefits, including but not
This footnote provides information so Payments limited to non-compete, non-
that investors can avoid ‘‘double solicitation, non-disparagement or
We are adopting the significant confidentiality covenants; and
counting’’ of deferred amounts by
revisions that we proposed to our
clarifying the extent to which amounts
requirements to describe termination or 313 We confirm that this aspect of the disclosure
payable as deferred compensation
change in control provisions. The requirement is not limited to a change in
represent compensation previously responsibilities in connection with a change in
reported, rather than additional Commission has long recognized that
control.
currently earned compensation.310 ‘‘termination provisions are distinct 314 Item 402(j).
The table will be followed by a from other plans in both intent and 315 We have eliminated the $100,000 disclosure
narrative description of material factors scope and, moreover, are of particular threshold that was specified in the rule prior to
necessary to an understanding of the interest to shareholders.’’ 312 Prior to today’s amendments. For post-termination
today’s amendments, disclosure did not perquisites, however, the same disclosure and
disclosure in the table.311 Examples of itemization thresholds used for the amended
such factors may include, in given in many cases capture material Summary Compensation Table apply. See Section
cases, among other things: information regarding these plans and II.C.1.e.i. above. We have modified Item 402(j)(2)
• The type(s) of compensation potential payments under them. We from the proposal in response to comments to
therefore proposed and are adopting clarify that the required description covers both
permitted to be deferred, and any annual and lump sum payments. See letter from
limitations (by percentage of disclosure of specific aspects of written ABA.
compensation or otherwise) on the or unwritten arrangements that provide 316 We have modified Item 402(j)(3) from the
extent to which deferral is permitted; for payments at, following, or in proposal to clarify the scope of the required
connection with the resignation, disclosure. The proposal would have required the
company to describe and explain the specific
308 See
letter from Foley. severance, retirement or other factors used to determine the appropriate payment
309 Instructionto Item 402(i)(2). termination (including constructive and benefit levels under the various triggering
310 As described in Section II.C.1.b. above, the
termination) of a named executive circumstances. A commenter suggested that the
rules as adopted do not include the corresponding proposed language was overly broad and ambiguous
footnote that was proposed for the Summary
officer, a change in his or her
and could result in mere repetition of the pension
Compensation Table. payout formula and actuarial assumptions. See
311 Item 402(i)(3). 312 1983 Release, at Section III.E. letter from ABA.
• any other material factors regarding health care benefits are included in this as was the case prior to these
each such contract, agreement, plan or requirement, and quantifiable based on amendments, up to two additional
arrangement.317 the assumptions used for financial individuals for whom disclosure would
The item contemplates disclosure of reporting purposes under generally have been required but for the fact that
the duration of non-compete and similar accepted accounting principles.322 they were no longer serving as executive
agreements, and provisions regarding We further clarify in response to officers at the end of the last completed
waiver of breach of these agreements, comments that to the extent that the fiscal year shall be included.
and disclosure of tax gross-up form and amount of any payment or As we noted in the Proposing Release,
payments. benefit that would be provided in we believe that compensation of the
A company will be required to connection with any triggering event is principal financial officer is important
provide quantitative disclosure under fully disclosed in the Pension Benefits to shareholders because, along with the
these requirements even where Table or the Nonqualified Deferred principal executive officer, the principal
uncertainties exist as to amounts Compensation Table and the narrative financial officer provides the
payable under these plans and disclosure related to those tables, certifications required with the
arrangements. We clarify that in the reference may be made to that company’s periodic reports and has
event uncertainties exist as to the disclosure.323 However, to the extent important responsibility for the fair
provision of payments and benefits or that the form or amount of any such presentation of the company’s financial
the amounts involved, the company is payment or benefit would be increased, statements and other financial
required to make a reasonable estimate or its vesting or other provisions information.328 Like the principal
(or a reasonable estimated range of accelerated upon any triggering event, executive officer, disclosure about the
amounts), and disclose material such increase or acceleration must be principal financial officer will be
assumptions underlying such estimates specifically disclosed in this section.324 required even if he or she was no longer
or estimated ranges in its disclosure. In In addition, we have added an serving in that capacity at the end of the
such event, the disclosure will be instruction that companies need not last completed fiscal year.329 As was the
considered forward-looking information disclose payments or benefits under this case for the chief executive officer prior
as appropriate that falls within the safe requirement to the extent such to today’s amendments, all persons who
harbors for disclosure of such payments or benefits do not served as the company’s principal
information.318 discriminate in scope, terms or executive officer or principal financial
We have modified the requirement operation, in favor of a company’s officer during the last completed fiscal
somewhat in response to comments that executive officers and are available year are named executive officers.
compliance with the proposal would generally to all salaried employees.325 We are not requiring compensation
involve multiple complex calculations
6. Officers Covered disclosure for all of the officers listed in
and projections based on circumstantial
Items 5.02(b) and (c) of Form 8–K.330
and variable assumptions.319 We adopt a. Named Executive Officers
Those Form 8–K Items were adopted to
commenters’ suggestions that the As proposed, we are amending the provide current disclosure in the event
quantitative disclosure required be disclosure rules so that the principal of an appointment, resignation,
calculated applying the assumptions executive officer, the principal financial retirement or termination of the
that: officer 326 and the three most highly
• the triggering event took place on specified officers, based on the principle
compensated executive officers other that changes in employment status of
the last business day of the company’s than the principal executive officer and
last completed fiscal year; and these particular officers are
principal financial officer comprise the unquestionably or presumptively
• the price per share of the company’s
named executive officers.327 In addition, material. At the time when a decision is
securities is the closing market price as
of that date.320 made regarding the employment status
322 Item 402(j)(1) and Instruction 2 to Item 402(j).
We have also revised the rule to of a particular officer, it will not always
These would be the assumptions applied under
provide that if a triggering event has Financial Accounting Standards Board Statement of be clear who will be the named
occurred for a named executive officer Financial Accounting Standards No. 106, executive officers for the current year.
Employer’s Accounting for Postretirement Benefits
who was not serving as a named Other Than Pensions (FAS 106). See, e.g., letters provision describing the determination of named
executive officer at the end of the last from Peabody Energy and WorldatWork. executive officer. Instruction 2 to Item 402(a)(3).
completed fiscal year, disclosure under 323 See letter from Academy of Actuaries. 328 Exchange Act Rules 13a–14 and 15d–14.
this provision is required for that named 324 Instruction 3 to Item 402(j). 329 Paragraphs (a)(3)(i) and (a)(3)(ii) of Item 402
executive officer only with respect to 325 Instruction 5 to Item 402(j).

provide that all individuals who served as a
326 We are adopting the nomenclature used in principal executive officer and principal financial
the actual triggering event that
Item 5.02 of Form 8–K, which refers to ‘‘principal officer or in similar capacities during the last
occurred.321 These modifications will executive officer’’ and ‘‘principal financial officer.’’ completed fiscal year must be considered named
both facilitate company compliance and 327 Item 402(a)(3). As defined in Securities Act executive officers. Item 402(a)(4) specifies that if the
provide investors with disclosure that is Rule 405 [17 CFR 230.405] and Exchange Act Rule principal executive officer or principal financial
more meaningful. We further clarify that 3b–7 [17 CFR 240.3b–7], ‘‘the term ’executive officer served in that capacity for only part of a
officer,’ when used with reference to a registrant, fiscal year, information must be provided as to all
317 This would include, for example, disclosure of means its president, any vice president of the of the individual’s compensation for the full fiscal
registrant in charge of a principal business unit, year. Item 402(a)(4) also specifies that if a named
whether an executive simultaneously receives both executive officer (other than the principal executive
division or function (such as sales, administration
severance and retirement benefits, a practice officer or principal financial officer) served as an
or finance), any other officer who performs a policy-
commonly known as a ‘‘double dip.’’ See letter from executive officer of the company (whether or not in
making function or any other person who performs
WorldatWork. the same position) during any part of the fiscal year,
318 See, e.g., Securities Act Section 27A and
similar policy-making functions for the registrant.
Executive officers of subsidiaries may be deemed then information is required as to all compensation
Exchange Act Section 21E. executive officers of the registrant if they perform of that individual for the full fiscal year.
319 See, e.g., letters from Cleary; Foley; HRPA; and

such policy-making functions for the registrant.’’ 330 These are the registrant’s principal executive
Top Five Data. Therefore, as was formerly the case, a named officer, president, principal financial officer,
320 Instruction 1 to Item 402(j). See, e.g., letters
executive officer may be an executive officer of a principal accounting officer, principal operating
from Emerson; Foley; and Frederic W. Cook & Co. subsidiary or an employee of a subsidiary who officer or any person performing similar functions.
321 Instruction 4 to Item 402(j). See letter from performs such policy-making functions for the As described in Section III.A. below, the rules we
ABA. registrant. We have clarified this point in the adopt today also amend Item 5.02 of Form 8–K.
Given these factors, it is reasonable for consistent with our decision to requirements of Item 404.338 Further,
the two groups not to be identical. eliminate the distinction between instructions to amended Item 404 clarify
‘‘annual’’ and ‘‘long-term’’ what compensatory transactions with
b. Identification of Most Highly
compensation in the Summary executive officers and directors need not
Compensated Executive Officers; Dollar
Compensation Table.334 We realize that be disclosed under Item 404.339
Threshold for Disclosure As noted in the Proposing Release, the
this may result in more frequent
In the rule prior to today’s changes to the officers designated as result of these amendments may be that
amendments, the determination of the named executive officers, but believe in some cases compensation
most highly compensated executive that it will provide a clearer picture of information will be required to be
officers was based solely on total annual compensation at a company. disclosed under Item 402, while the
salary and bonus for the last fiscal year, Accordingly, we require the most highly related person transaction giving rise to
subject to a $100,000 disclosure compensated executive officers to be that compensation is also disclosed
threshold. We proposed to revise the determined based on total under Item 404. We believe that the
dollar threshold for disclosure of named compensation, reduced by the sum of possibility of additional disclosure in
executive officers other than the the increase in pension values and the context of each of these respective
principal executive officer and the nonqualified deferred compensation items is preferable to the possibility that
principal financial officer to $100,000 of above-market or preferential earnings compensation is not properly and fully
total compensation for the last fiscal reported in column (h) of the Summary disclosed under Item 402.
year. Given the proliferation of various Compensation.335
Prior to these amendments, 8. Other Changes
forms of compensation other than salary
and bonus, we believe that total companies were permitted to exclude an Before today’s amendments, a
compensation would more accurately executive officer (other than the chief company was permitted to omit from
identify those officers who are, in fact, executive officer) due to either an Item 402 disclosure of ‘‘information
the most highly compensated. unusually large amount of cash regarding group life, health,
Several commenters objected to using compensation that was not part of a hospitalization, medical reimbursement
total compensation to identify named recurring arrangement and was unlikely or relocation plans that do not
executive officers.331 In particular, to continue, or cash compensation discriminate in scope, terms or
commenters stated that this measure relating to overseas assignments operation, in favor of executive officers
would minimize the importance of the attributed predominantly to such or directors of the registrant and that are
compensation committee’s assignments.336 Because payments available generally to all salaried
compensation decisions for the most attributed to overseas assignments have employees.’’ 340 Because relocation
recent year and include significant the potential to skew the application of plans, even when available generally to
elements beyond the committee’s Item 402 disclosure away from all salaried employees, are susceptible
control, such as the increase in pension executives whose compensation to operation in a discriminatory manner
value and earnings on nonqualified otherwise properly would be disclosed, that favors executive officers, this
deferred compensation. Some we are retaining this basis for exclusion, exclusion may have deprived investors
commenters recommended continuing as we proposed. However, we believe of disclosure of significant
to rely solely on salary and bonus, that other compensation that is ‘‘not compensatory benefits. For this reason,
stating that these measures more recurring and unlikely to continue’’ we are deleting relocation plans from
accurately reflect the executives who are should be considered compensation for this exclusion, as we proposed. For the
most highly valued in the company and disclosure purposes. There has been same reason, as we proposed, we are
permit greater year-to-year inconsistent interpretation of the ‘‘not also deleting relocation plans from the
consistency.332 Other commenters recurring and unlikely to continue’’ exclusion from portfolio manager
expressed concern that including standard, and it is susceptible to compensation in forms used by
episodic option awards would result in manipulation. We therefore are management investment companies to
more frequent changes to the named eliminating this basis for exclusion, as register under the Investment Company
executive officer roster.333 we proposed.337 Act and offer securities under the
We are persuaded that it is 7. Interplay of Items 402 and 404 Securities Act.341 We also are revising
appropriate to exclude from the named the definition of ‘‘plan’’ so that it is
We are amending Item 402 so that it more principles-based, as we
executive officer determination
requires disclosure of all transactions proposed.342 Finally, in order to
compensation elements that principally
between the company and a third party
reflect executives’ decisions to defer
where the primary purpose of the 338 These relevant provisions were set forth in
compensation and wealth accumulation
transaction is to furnish compensation paragraphs (a)(2) and (a)(5) of Item 402 before
in pension plans, or are unduly today’s amendments. Because paragraph (a)(5) of
to a named executive officer as
influenced by age or years of service. Item 402 as it had been stated prior to these
proposed. Also as proposed, amended
However, as we stated in the Proposing amendments was otherwise redundant with
Item 402 will no longer exclude from its paragraph (a)(2) of Item 402 as that provision had
Release, basing identification of named
disclosure requirements information been stated, we are eliminating the language that
executive officers solely on the had been set forth in paragraph (a)(5) in its entirety
about compensatory transaction that
compensation reportable in the salary and making a conforming amendment to paragraph
had been disclosed under the related
and bonus categories may provide an (a)(2) of Item 402.
person transaction disclosure 339 See Instruction 5 to Item 404(a), discussed in
incentive to re-characterize
Section V.A.3., below.
compensation. Further, limiting the 334 See Section II.C.1.f. above, discussing the 340 This language appeared in Item 402(a)(7)(ii)
determination to salary and bonus is not effect of this change on compensation formerly prior to today’s amendments, which generally
reported as ‘‘bonus.’’ defined the term ‘‘plan.’’

331 See, e.g., letters from ACC; Emerson; Leggett 335 Instruction 1 to Item 402(a)(3). 341 Amendment to Instruction 2 to Item 15(b) of
& Platt; SCSGP; and Unitrin. 336 This exclusion had been set forth in Form N–1A; amendment to Instruction 2 to Item
332 See, e.g., letters from Frederic W. Cook & Co. Instruction 3 to Item 402(a)(3) prior to these 21.2 of Form N–2; amendment to Instruction 2 to
and Intel. amendments. Item 22(b) of Form N–3.
333 See, e.g., letter from Intel. 337 Instruction 3 to Item 402(a)(3). 342 Item 402(a)(6)(ii).
simplify the language of the individual compensation.344 In light of this presents information only with respect
requirements, we have consolidated into complexity, we proposed to require to the company’s last completed fiscal
one provision the definitions for the formatted tabular disclosure for director year. Consistent with the modifications
terms stock, option and equity as used compensation, accompanied by to the Summary Compensation Table,
in Item 402.343 narrative disclosure of additional this table moves pension and
material information. In doing so, we nonqualified deferred compensation
9. Compensation of Directors
revisited an approach that the plan disclosure from All Other
Director compensation has continued Commission proposed in 1995 but did Compensation to a separate column.346
to evolve from simple compensation not adopt at that time.345 Because the same instructions as
packages mostly involving cash Director compensation has continued provided in the Summary
compensation and attendance fees to to evolve since 1995 so that we are Compensation Table govern analogous
more complex packages, which can also today adopting a Director Compensation matters in the Director Compensation
include equity-based compensation, Table, which resembles the revised Table, our modifications to those
incentive plans and other forms of Summary Compensation Table, but instructions also apply to this table.
DIRECTOR COMPENSATION
Change in
Non-equity pension
Fees earned All other
Option incentive value and
or paid in Stock awards compensa- Total
Name awards plan com- nonqualified
cash ($) tion ($)
($) pensation deferred
($) ($)
($) compensa-
tion earnings
(a) (b) (c) (d) (e) (f) (g) (h)
As proposed and adopted, director compensation cost, if any, computed in An additional requirement to include
fees earned or paid in cash would be accordance with FAS 123R; the dollar value of any dividends or
reported separately from fees paid in • Amounts paid or accrued to any other earnings paid in stock or option
stock. The All Other Compensation director pursuant to a plan or awards when the dividend or earnings
column of the Director Compensation arrangement in connection with the were not factored into the grant date fair
Table includes, but is not limited to: resignation, retirement or any other value has been adopted for this column
• All perquisites and other personal termination of such director or a change as discussed above.
benefits if the total is $10,000 or greater; in control of the company; In addition to the disclosure specified
• All tax reimbursements; • Annual company contributions to in the columns of the table, we
• For any security of the company or vested and unvested defined proposed to require, by footnote to the
its subsidiaries purchased from the contribution plans; appropriate column, disclosure for each
company or its subsidiaries (through • All consulting fees; director of the outstanding equity
deferral of fees or otherwise) at a • Awards under director legacy or awards at fiscal year end as would be
discount from the market price of such charitable awards programs; 347 and required if the Outstanding Equity
security at the date of purchase, unless • The dollar value of any insurance Awards at Fiscal Year-End table for
the discount is generally available to all premiums paid by, or on behalf of, the named executive officers were required
security holders or to all salaried company for life insurance for the for directors. In response to a comment
employees of the company, the director’s benefit. that this disclosure would be provided
343 Item
402(a)(6)(i). 345 1995 Release. The 1995 proposed amendment 347 Under director legacy programs, also known as
344 See,
e.g., National Association of Corporate was coupled with a proposed amendment to permit charitable award programs, registrants typically
Directors and Pearl Meyer & Partners, 2003–2004 companies to reduce the detailed executive agree to make a future donation to one or more
compensation information provided in the proxy charitable institutions in the director’s name,
Director Compensation Survey (2004); National
statement by instead furnishing that information in payable by the company upon a designated event
Association of Corporate Directors, Report of the
the Form 10–K. We did not act upon these proposed such as death or retirement. The amount to be
NACD Blue Ribbon Commission On Director amendments. disclosed in the table shall be the annual cost of
Compensation (2001); and Dennis C. Carey, et al, 346 As noted in n. 303 above, Item 402(a)(5) such promises and payments, with footnote
How Should Corporate Directors Be Compensated?, provides that a column may be omitted if there is disclosure of the total dollar amount and other
Investment Dealers’ Digest Inc.—Special Issue: no compensation required to be reported in that material terms of each such program. Instruction 1
Boards and Directors (Jan. 1996). column. to Item 402(k)(2)(vii).
in the narrative accompanying the table, satisfying disclosure requirements consider all recommendations of the
we have simplified the relevant designed to capture more complicated Advisory Committee.
instruction to require footnote compensation arrangements may As proposed and adopted, small
disclosure only of the aggregate impose new, unwarranted burdens on business issuers will be required to
numbers of stock awards and option small business issuers.354 provide, along with related narrative
awards outstanding at fiscal year end.348 disclosure:
Some commenters addressing the • The Summary Compensation
As with the Summary Compensation proposed amendments to Item 402 of
Table, the new rules make clear that all Table; 358
Regulation S–B expressed the view that • The Outstanding Equity Awards at
compensation must be included in the all companies whose shares are publicly
table.349 As is the case with the current Fiscal Year-End Table; 359 and
traded should have to meet the same • The Director Compensation
director disclosure requirement, reporting and disclosure standards,
companies will not be required to Table.360
regardless of their size, or urged that Small business issuers will be
include in the director disclosure any exemptions for smaller public required to provide information in the
amounts of compensation paid to a companies be limited,355 suggesting that Summary Compensation Table only for
named executive officer and disclosed they be required to file some form of a the last two fiscal years. In addition,
in the Summary Compensation Table basic Compensation Discussion and small business issuers will be required
with footnote disclosure indicating what Analysis.356 We are not following these to provide information for fewer named
amounts reflected in that table are recommendations, because the executive officers, namely the principal
compensation for services as a executive compensation arrangements executive officer and the two most
director.350 An instruction to the of small business issuers generally are highly compensated officers other than
Director Compensation Table permits so much less complex than those of the principal executive officer.361 In
the grouping of multiple directors in a other public companies that they do not light of our decision to link the
single row of the table if all of their warrant the more extensive disclosure Summary Compensation Table pension
elements and amounts of compensation requirements imposed on companies plan disclosure to the disclosure in the
are identical.351 that are not small business issuers and Pension Benefits Table, which is not
Following the table, narrative
related regulatory burdens that could be required for small business issuers, and
disclosure will describe any material
disproportionate for small business in response to comment,362 we have
factors necessary to an understanding of
issuers. decided not to require that small
the table. Such factors may include, for business issuers include pension plan
example, a breakdown of types of Other commenters who supported the
Commission’s proposal to require less disclosure in the Summary
fees.352 In addition, as noted in Section Compensation Table. Narrative
II.A., disclosure regarding option timing extensive disclosure for companies
subject to Regulation S–B suggested that discussion of a number of items to the
or dating practices may be necessary extent material replaces tabular or
under this narrative disclosure the Commission amend the definition of
small business issuer to encompass a footnote disclosure, for example
requirement when the recipients of the identification of other items in the All
stock option grants are directors of the larger group of smaller public
companies, such as by adopting the Other Compensation column and a
company. As we proposed, we are not description of post-employment
requiring a supplemental Grants of Plan- definition of ‘‘smaller public company’’
recommended by the Advisory payments and other benefits.363 In light
Based Awards Table for directors. of our request in Release No. 33–8735
Committee on Smaller Public
D. Treatment of Specific Types of Companies, and scale back the for further comment on the proposed
Issuers additional narrative disclosure
disclosure thresholds for all such
requirement regarding up to three
1. Small Business Issuers smaller companies.357 We are not
highly compensated employees so that
following this recommendation at this
The Item 402 amendments continue it might apply only to large accelerated
time, but would instead defer
to differentiate between small business filers, we have not adopted this
consideration until we can fully
issuers and other issuers, as we proposal for Item 402 of Regulation S–
proposed. In adopting the amendments, B. Small business issuers are not
available to small business issuers under Regulation
we recognize that the executive S–B into Regulation S–K and make them available
required to provide a Compensation
compensation arrangements of small to all microcap companies. Final Report of the
business issuers typically are less Advisory Committee on Smaller Public Companies 358 Items 402(b) and 402(c) of Regulation S–B.
complex than those of other public to the United States Securities and Exchange Consistent with the instructions to the narrative
Commission (Apr. 23, 2006). Any future disclosure required by Item 402(e) of Regulation S–
companies.353 We also recognize that consideration of this recommendation would be the K, we have added an instruction to Item 402(c) of
subject of a separate rulemaking. Regulation S–B so that disclosure is not required
348 Instruction to Item 402(k)(2)(iii) and (iv). See 354 Prior to today’s amendments, under both Item regarding any repricing that occurs through
letter from ABA. 402 of Regulation S7–B and Item 402 of Regulation specified provisions. Instruction to Item 402(c) of
349 The only exception is if all perquisites
S–K, a small business issuer was not required to Regulation S–B.
received by the director total less than $10,000, they provide the Compensation Committee Report, the 359 Item 402(d) of Regulation S–B.
do not need to be disclosed. Further, as described Performance Graph, the Compensation Committee 360 Item 402(f) of Regulation S–B.
above for the Summary Compensation Table, Interlocks disclosure, the Ten-Year Option/SAR 361 Item 402(a) of Regulation S–B. Item 402(c)(7)
disclosure of nonqualified deferred compensation Repricings Table, and the Option Grant Table of Regulation S–B requires an identification to the
earnings is limited to the above-market or columns disclosing potential realizable value or extent material of any item included under All
preferential portion. grant date value. The rules prior to today’s Other Compensation in the Summary
350 Instruction 3 to Item 402(c). amendments also permitted small business issuers Compensation Table. However, identification of an
351 Instruction to Item 402(k)(2). to exclude the Pension Plan Table. item will not be considered material if it does not
352 Item 402(k)(3). 355 See, e.g., letters from CII; CRPTF; IUE–CWA; exceed the greater of $25,000 or 10% of all items
353 These amendments apply only to small SBAF; and WSIB. included in the specified category. All items of
business issuers, as defined by Item 10(a)(1) of 356 See, e.g., letters from ISS and Institutional compensation are required to be included in the
Regulation S–B. The Commission’s Advisory Investors Group. Summary Compensation Table without regard to
Committee on Smaller Public Companies has 357 See letters from America’s Community whether such items are required to be identified.
362 See letter from ABA.
recommended that the Commission incorporate the Bankers (‘‘ACB’’); Independent Community Bankers
scaled disclosure accommodations currently of America (‘‘ICBA’’); and SCSGP. 363 Items 402(c) and 402(e) of Regulation S–B.
Discussion and Analysis or the related required in the proxy and information • the Item 201(d) of Regulations S–K
Compensation Committee Report.364 statements of business development and S–B and proxy rule references to
companies if action is to be taken with the Item 402 definition of ‘‘plan;’’ 373
2. Foreign Private Issuers • the Item 601(b)(10) of Regulation S–
respect to the election of directors or
Prior to today’s amendments, a with respect to the compensation K reference to the Item 402 treatment of
foreign private issuer was deemed to arrangements and other matters foreign private issuers; 374 and
comply with Item 402 of Regulation S– enumerated in Items 8(b) through (d) of • the proxy rule references to Item
K if it provided the information required Schedule 14A.369 Business development 402 retirement plan disclosure.375
by Items 6.B. and 6.E.2. of Form 20–F, companies will also be required to make III. Revisions to Form 8–K and the
with more detailed information these disclosures in their annual reports Periodic Report Exhibit Requirements
provided if otherwise made publicly
on Form 10–K.370 As part of our broader effort to revise
available. We proposed to continue this
treatment of these issuers and clarify As a result of these amendments, the our executive and director
that the treatment of foreign private persons covered by the compensation compensation disclosure requirements,
issuers under Item 402 parallels that disclosure requirements will be we proposed revisions to Item 1.01 of
under Form 20–F. Commenters changed. The compensation disclosure Form 8–K. This item requires real-time
supported this approach, stating that it in the proxy and information statements disclosure about an Exchange Act
showed appropriate deference to a and registration statements of business reporting company’s entry into a
foreign private issuer’s home country development companies will be material definitive agreement outside of
requirements.365 We are adopting these required to cover the same officers as for the ordinary course of the company’s
requirements as proposed.366 operating companies, including the business, as well as any material
principal executive officer and principal amendment to such an agreement. Our
3. Business Development Companies staff’s experience since Item 1.01
financial officer, as well as the three
As proposed, we are applying the most highly compensated executive became effective in 2004 suggests that
same executive compensation officers that have total compensation this item has elicited executive
disclosure requirements to business exceeding $100,000,371 instead of each compensation disclosure regarding
development companies that we are of the three highest paid officers of the types of matters that do not appear
adopting for operating companies.367 company that have aggregate always to be unquestionably or
We received no comments on this presumptively material, which is the
compensation from the company for the
proposal. Our amendments eliminate standard we set for the expanded Form
most recently completed fiscal year in
the inconsistency between Form 10–K, 8–K disclosure events.376 We therefore
excess of $60,000. In addition, the
on the one hand, which requires proposed to revise Items 1.01 and 5.02
business development companies to registration statements of business
of Form 8–K to require real-time
furnish all of the information required development companies will no longer disclosure of employee compensation
by Item 402 of Regulation S–K, and the be required to disclose compensation of events that more clearly satisfy this
proxy rules and Form N–2, on the other, members of the advisory board or standard. We are adopting the revisions
which require business development certain affiliated persons of the substantially as proposed.
companies to provide some of the company. In addition to the amendments to
information from Item 402 and other Finally, under the amendments, the Items 1.01 and 5.02 of Form 8–K, we
information that applies to registered proxy and information statements and proposed to revise General Instruction D
investment companies. registration statements of business of Form 8–K to permit companies in
Under the amendments, the development companies will not be most cases to omit the Item 1.01 heading
registration statements of business required to include compensation from if multiple items including Item 1.01 are
development companies will be the ‘‘fund complex.’’ Previously, this applicable, so long as all of the
required to include all of the disclosures information was required in some substantive disclosure required by Item
required by Item 402 of Regulation S– circumstances.372 1.01 is included. We are adopting this
K for all of the persons covered by Item provision as proposed.
402.368 This disclosure will also be E. Conforming Amendments
A. Items 1.01 and 5.02 of Form 8–K
364 We are also eliminating a provision of Item The Item 402 amendments necessitate Item 1.01 of Form 8–K requires an
402 of Regulation S–K that allows small business conforming amendments to the Items of Exchange Act reporting company to
issuers using forms that call for Regulation S–K Regulations S–K and S–B and the proxy disclose, within four business days, the
disclosure to exclude the disclosure required by
certain paragraphs of that Item. This provision had
rules that cross reference amended company’s entry into a material
been set forth in Item 402(a)(1)(i) of Regulation S– paragraphs of Item 402. On this basis, definitive agreement outside of its
K prior to today’s amendments. we are amending: ordinary course of business, or any
365 See, e.g., letters from Federation of German
Industries; DaimlerChrysler AG; and jointly, Allianz 369 Amendment to Item 8 of Schedule 14A. Under 373 Amendments to: Instruction 2 to paragraph (d)
AG, Deutsche Bank AG and Siemens AG.
366 Item 402(a)(1). the amendments, business development companies of Item 201 of Regulation S–B; Instruction 2 to
367 Business development companies are a
will no longer be required to respond to Item paragraph (d) of Item 201 of Regulation S–K;
22(b)(13) of Schedule 14A, and Item 22(b)(13)(iii) of Exchange Act Rules 14a–6(a)(4) and 14c–5(a)(4);
category of closed-end investment companies that
Schedule 14A is being deleted. Amendments to and Instruction 1 to Item 10 of Schedule 14A.
are not required to register under the Investment
Item 22(b)(13) of Schedule 14A. 374 Amendment to Item 601(b)(10)(iii)(C)(5).
Company Act [15 U.S.C. 80a–2(a)(48)]. 370 Item 11 of Form 10–K. 375 Amendments to Item 10(b)(1)(ii) and
368 New Item 18.14 of Form N–2. Under the
371 See Section II.C.6., above. Instruction to Item 10(b)(1)(ii) of Schedule 14A.
amendments, business development companies will
372 See instructions 4 and 6 to Item 22(b)(13)(i) of 376 We stated in Section I of Additional Form 8–
no longer be required to respond to Item 18.13 of
Form N–2, and Item 18.13(c) of Form N–2 is being Schedule 14A; and instructions 4 and 6 to Item K Disclosure Requirements and Acceleration of
deleted. Items 18.14 and 18.15 of Form N–2 are 18.13(a) of Form N–2 (prior to today’s amendments Filing Date, Release No 33–8400 (Mar. 16, 2004) [69
being redesignated as Items 18.15 and 18.16, requiring certain entries in the compensation table FR 15594] (the ‘‘Form 8–K Adopting Release’’):
respectively. As a result of the redesignation of Item in the proxy and information statements and ‘‘The revisions that we adopt today will benefit
18.15 of Form N–2, a change to the cross reference registration statements of business development markets by increasing the number of
to this Item in Instruction 8(a) of Item 24 of the form companies to include compensation from the fund unquestionably or presumptively material events
is also being made. complex). that must be disclosed currently.’’
amendment of such agreement that is • any other management contract or executive compensation disclosures that
material to the company. When we any other compensatory plan, contract, are much more frequent and accelerated
initially proposed this item, several or arrangement in which any other than those included in a company’s
commenters stated that it would be executive officer of the company proxy statement. In addition,
difficult to determine, within the participates, unless immaterial in particularly because of the terms of Item
shortened Form 8–K filing period, amount or significance; and 601(b)(10), Item 1.01 of Form 8–K
whether a particular definitive • any compensation plan, contract or triggered compensation disclosure of the
agreement met the materiality threshold arrangement adopted without the types of matters that, in some cases,
of Item 1.01, and whether the agreement approval of security holders pursuant to appear to have fallen short of the
was outside of the ordinary course of which equity may be awarded, ‘‘unquestionably or presumptively
business.377 Some of these commenters including, but not limited to, options, material’’ standard associated with the
suggested that we apply to Item 1.01 the warrants or rights in which any expanded Form 8–K disclosure items.
standards used in pre-existing Item employee (whether or not an executive Companies and their counsel have
601(b)(10) of Regulation S–K, which officer of the company) participates raised concerns that the expanded Form
governs the filing as exhibits to unless immaterial in amount or 8–K requirements have resulted in real-
Commission reports of material significance.379 time disclosure of compensation events
contracts entered into outside the Therefore, entry into these types of that should be disclosed, if at all, in a
ordinary course, because these contracts triggered the filing of a Form company’s proxy statement for its
standards had been in place for many 8–K within four business days. annual meeting or as an exhibit to the
years and were familiar to reporting Importantly, the requirement for company’s next periodic report, such as
companies.378 directors and named executive officers the Form 10–Q or Form 10–K.
In response to the concerns raised by does not include an exception for those As we stated in the Proposing Release,
these comments, we adopted Item 1.01 that are ‘‘immaterial in amount or we believe that much of the disclosure
of Form 8–K so that it uses the significance.’’ The incorporation of the regarding employment compensation
standards of Item 601(b)(10) to Item 601(b)(10) standards into Item 1.01 matters required in real-time under the
determine the types of agreements that of Form 8–K has therefore significantly Form 8–K requirements is viewed by
are material to a company and not in the affected executive compensation investors as material. However, we also
ordinary course of business. Item disclosure practices. Prior to the Form believe it is appropriate to restore a
601(b)(10) of Regulation S–K requires a 8–K amendments in 2004, it was more balanced approach to this aspect
company to file, as an exhibit to customary for a company’s annual of Form 8–K, an approach which is
Securities Act and Exchange Act filings, proxy statement to be the primary designed to elicit unquestionably or
material contracts that are not made in vehicle for disclosure of executive and presumptively material information on a
director compensation information.
the ordinary course of business and are real-time basis, but seeks to limit Form
However, Item 1.01 of Form 8–K as
to be performed in whole or part at or 8–K required disclosure of information
originally adopted has resulted in
after the filing of the registration below that threshold.
statement or report, or were entered into 379 Item 601(b)(10)(iii) of Regulation S–K. We note
Accordingly, we are adopting
not more than two years before the the provision in Item 601(b)(10)(iii)(A) that carves amendments to Form 8–K that will
filing. Item 601(b)(10)(iii) refers out any plan, contract or arrangement in which uncouple Item 601(b)(10)(iii) of
specifically to employment named executive officers and directors do not Regulation S–K from the current
participate that is ‘‘immaterial in amount or
compensation arrangements and significance.’’ In 1980, the Commission adopted
disclosure requirements of Form 8–K.
established a company’s obligation to amendments to Regulation S–K that consolidated As proposed, we are eliminating
file the following as exhibits: all of the exhibit requirements of various disclosure employment compensation
• any management contract or any forms into a single item in Regulation S–K. arrangements from the scope of Item
Amendments Regarding Exhibit Requirements,
compensatory plan, contract or Release No. 33–6230 (Aug. 27, 1980) [45 FR 58822],
1.01 altogether and expanding Item 5.02
arrangement, including but not limited at Section II.B. This item was a forerunner of the of Form 8–K to cover only those
to plans relating to options, warrants or current Item 601. As part of that 1980 adopting compensatory arrangements with
rights, pension, retirement or deferred release, the definition of material contract executive officers and directors that we
contained in the new item was also revised in an
compensation or bonus, incentive or effort to reduce the number of remunerative plans believe are unquestionably or
profit sharing (or if not set forth in any or arrangements that must be filed. Not long after, presumptively material. Commenters
formal document, a written description though, the staff discovered that rather than reduce generally supported these proposed
thereof) in which any director or any the number of exhibits filed, the provision actually amendments.380 We are adopting these
had the opposite effect. The staff found that the
named executive officer (as defined by revised definition of material contract ‘‘has resulted amendments substantially as proposed.
Item 402(a)(3) of Regulation S–K) in registrants filing a large volume of varied
remunerative contracts involving directors and 1. Item 1.01—Entry Into a Material
participates;
executive officers, contracts which are not material Definitive Agreement
and which would not have been filed under the
377 See, e.g., letters on Additional Form 8–K
previously existing ‘material in amount or Specifically, we are deleting the last
Disclosure Requirements and Acceleration of Filing significance’ standard.’’ Technical Amendment sentence of former Instruction 1 to Item
Date, Release No. 33–8106 (June 17, 2002) [67 FR Regarding Exhibit Requirement, Release No. 33– 1.01 of Form 8–K, which references the
42914] in File No. S7–22–02 from the Committee 6287 (Feb. 6, 1981) [46 FR 11952], at Section I.
on Federal Regulation of Securities, Section of
portions of Item 601(b)(10) of Regulation
Therefore, in February 1981, the Commission added
Business Law of the American Bar Association, ‘‘unless immaterial in amount or significance’’ to S–K that specifically relate to
dated September 12, 2002; Cleary, Gottlieb, Steen the definition of ‘‘material contracts’’ as applied to management compensation and
& Hamilton, dated August 26, 2002; Intel remunerative plans, contracts or arrangements compensatory plans. In place of the
Corporation, dated August 26, 2002; Professor participated in by executives who are not named
Joseph A. Grundfest, et al. dated October 3, 2002;
deleted sentence, we are adding a
executive officers. Id. We reiterate that this phrase
sentence specifying that agreements
Perkins Coie LLP, dated August 26, 2002; Shearman was intended to indicate that whether plans,
& Sterling, dated August 30, 2002; and Sullivan & contracts or arrangements in which executive
Cromwell, dated August 26, 2002. officers other than named executive officers 380 See, e.g., letters from ABA; Chamber of
378 See, e.g., letter in File No. S7–22–02 from the participate are required to be disclosed under Item Commerce; N. Ludgus; Committee on Securities
Section of Business Law of the American Bar 601(b)(10) must be determined on the basis of Regulation of the Business Law Section of the New
Association. materiality. York State Bar Association; SCSGP; and Sullivan.
involving the subject matter identified amended Item 5.02, one commenter • With respect to the principal
in Item 601(b)(10)(iii)(A) and (B) of noted that because the definition of executive officer, the principal financial
Regulation S–K need not be disclosed ‘‘named executive officer’’ is officer, or persons falling within the
under amended Item 1.01 of Form 8–K. determined with reference to a definition of named executive officer for
This change also will apply to the company’s last completed fiscal year, the company’s previous fiscal year,
disclosure of terminations of material greater clarity is needed to determine expanding the disclosure items to
definitive agreements under Item 1.02 of how the standard should be applied for include a brief description of any
Form 8–K, which references the current Form 8–K reporting throughout material new compensatory plan,
definition of ‘‘material definitive the year.383 The commenter suggested contract or arrangement, or new grant or
agreement’’ in Item 1.01 of Form 8–K.381 that companies might find it difficult to award thereunder (whether or not
Instead of being required to be disclosed identify their named executive officers written), and any material amendment
based on the general requirements with for purposes of real-time disclosure to any compensatory plan, contract or
regard to material definitive agreements under Item 5.02 during the period arrangement (or any modification to a
in Item 1.01 and Item 1.02 of Form 8– following the completion of their last grant or award thereunder), whether or
K, employment compensation fiscal year but prior to preparing their not such occurrence is in connection
arrangements will now be covered proxy statements or Forms 10–K in the with a triggering event specified in Item
under Item 5.02 of Form 8–K, as new fiscal year. Accordingly, we are 5.02. Grants or awards or modifications
amended. including a new Instruction to Item 5.02 thereto will not be required to be
that will clarify that for purposes of this disclosed if they are consistent with the
2. Item 5.02—Departure of Directors or terms of previously disclosed plans or
Item the named executive officers are
Certain Officers; Election of Directors; arrangements and they are disclosed the
the persons for whom disclosure was
Appointment of Certain Officers; next time the company is required to
required in the most recent filing with
Compensatory Arrangements of Certain provide new disclosure under Item 402
the Commission that required disclosure
Officers of Regulation S–K; 387 and
under Item 402(c) of Regulation S–K or
Item 5.02 generally requires Item 402(b) of Regulation S–B, as • Adding a requirement for disclosure
disclosure within four business days of applicable.384 of salary or bonus for the most recent
the appointment or departure of In general, our revisions to Form 8– fiscal year that was not available at the
directors and specified officers. In K will both modify the overall latest practicable date in connection
particular, Item 5.02(b) has required requirements for disclosure of with disclosure under Item 402 of
disclosure if a company’s principal employment compensation Regulation S–K.388 This disclosure will
executive officer, president, principal arrangements on Form 8–K and locate also require a new total compensation
financial officer, principal accounting all such disclosure under a single item. recalculation to reflect the new salary or
officer, principal operating officer, or We are accomplishing this by taking the bonus information.
any person performing similar In the case of each of these disclosure
following steps:
items for amended Item 5.02, we
functions, retires, resigns or is • Expanding the information
terminated from that position and Item emphasize that we are requiring that a
regarding retirement, resignation or
5.02(c) has required disclosure if a brief description of the specified matter
termination to include all persons
company appoints a new principal be included. We have observed that in
falling within the definition of named
executive officer, president, principal response to the requirements to disclose
executive officers for the company’s
financial officer, principal accounting the entry into material definitive
previous fiscal year, whether or not
officer, principal operating officer, or agreements under Item 1.01, some
included in the list specified in Item
any person performing similar companies have included disclosure
5.02 prior to these amendments; 385 that resembles an updating of the
functions. Item 5.02 has also required • Expanding the disclosure items disclosure required under former Item
disclosure if a director retires, resigns, is covered under Item 5.02 beyond
removed, or declines to stand for re- 402 of Regulation S–K. In the context of
employment agreements to require a current disclosure under Form 8–K, we
election.382 Before adopting today’s brief description of any material plan,
amendments, the required disclosure are seeking disclosure that informs
contract or arrangement to which a investors of specified material events
under Item 5.02 included a brief covered officer or director is a party or and developments. However, the
description of the material terms of any in which he or she participates that is information we are seeking does not
employment agreement between the entered into or materially amended in require the information necessary to
company and the officer and a connection with any of the triggering comply with Item 402.
description of disagreements, if any. events specified in Item 5.02(c) and (d), In response to comments received,389
As proposed, we are modifying Item or any grant or award to any such we have revised Instruction 2 to new
5.02 to capture generally the covered person, or modification thereto, Item 5.02(e) from the text we proposed
information already required under that under any such plan, contract or and created a new Item 5.02(f), as
item, as well as additional information arrangement in connection with any described above. The revised Instruction
regarding material employment such event; 386 2 to Item 5.02(e) that we are adopting:
compensation arrangements involving
(i) Changes or eliminates prior
named executive officers that, prior to 383 See letter from ABA. references to ‘‘original terms’’ and uses
today’s amendments, would be called 384 Instruction 4 to Item 5.02. instead the phrase ‘‘previously
for under Item 1.01. 385 Item 5.02(b) of Form 8–K will continue to
disclosed terms,’’ in order to minimize
With respect to the additional cover the officers currently specified therein,
disclosure that we are requiring for whether or not named executive officers for the
387 Item 5.02(e) and Instruction 2 to Item 5.02(e).
previous or current years, and all directors.
named executive officers under
386 Items 5.02(c)(3) and (d)(5). Plans, contracts or 388 Item 5.02(f). See Section II.C.1.b. above for a
arrangements (but not material amendments or discussion of the reporting delay that exists under
381 Item 1.02(b) states: ‘‘For purposes of this Item the current disclosure rules when bonus and salary
grants or awards or modifications thereto) may be
1.02, the term material definitive agreement shall denoted by reference to the description in the are not determinable at the most recent practicable
have the same meaning as set forth in Item 1.01(b).’’ company’s most recent annual report on Form 10– date.
382 Items 5.02(a) and (b) of Form 8–K. K or proxy statement. 389 See letter from ABA.
ambiguity; and (ii) clarifies that, for In particular, the burden resulting from contracts or compensatory plans in
purposes of the Instruction, no a company’s sudden loss of eligibility to which directors or members of
distinction should be made between use Form S–3 could be a management participate generally were
awards granted under cash or equity- disproportionately large negative required to be filed as exhibits, unless
based plans. New Item 5.02(f) responds consequence of an untimely Form 8–K the foreign private issuer provided
to comments we received that our filing under one of the specified compensation information on an
proposed Instruction 3 to 5.02(e) should items.393 We believe that this safe aggregate basis and not on an individual
be codified as a separate item because harbor should be extended to Item basis. Under those pre-amendment
it called for disclosure (determining 5.02(e) of Form 8–K and, therefore, we provisions, an issuer that provided any
salary or bonus amounts for a completed are amending General Instruction individualized compensation disclosure
fiscal year) that otherwise may not be I.A.3.(b) of Form S–3, which pertains to was required to file as an exhibit to
required under Item 5.02(e).390 the eligibility requirements for use of Form 20–F management employment
Form S–3 to reflect this position. agreements that potentially relate to
B. Extension of Limited Safe Harbor
matters that have not otherwise been
Under Section 10(b) and Rule 10b–5 to C. General Instruction D to Form 8–K disclosed.
Item 5.02(e) of Form 8–K and Exclusion Our amendment of the exhibit
We are adopting the revision to
of Item 5.02(e) From Form S–3 Eligibility instructions to Form 20–F 395 is
General Instruction D as proposed.
Requirements intended to be consistent with the
Frequently, an event may trigger a Form
We are extending the safe harbors 8–K filing under multiple items, existing disclosure requirements under
regarding Section 10(b) and Rule 10b–5 particularly under both Item 1.01 and Form 20–F relating to executive
and Form S–3 eligibility in the event another item. General Instruction D to compensation matters for foreign private
that a company fails to timely file Form 8–K permits a company to file a issuers. In the same way that executive
reports required by Item 5.02(e) of Form single Form 8–K to satisfy one or more compensation disclosure under Form
8–K. disclosure items, provided that the 20–F largely mirrors the disclosure that
In March 2004, we adopted a limited company identifies by item number and a foreign private issuer makes under
safe harbor from liability under Section caption all applicable items being home country requirements or
10(b) of the Exchange Act and Rule 10b– satisfied and provides all of the voluntarily, so too the public filing of
5 thereunder for failure to timely file substantive disclosure required by each management employment agreements as
reports required by Form 8–K Items of the items. In order to promote prompt an exhibit to Form 20–F under our
1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a) filings on Form 8–K and avoid potential amendments will mirror the public
and 6.03. Because we believed that non-compliance with Form 8–K due to availability of such agreements under
these items may require management to inadvertent exclusions of captions, we home country requirements or
make rapid materiality and similar are amending General Instruction D to otherwise. In addition, we believe that
judgments within the condensed permit companies to omit the Item 1.01 the amendments may encourage foreign
timeframe required for filing of a Form heading in a Form 8–K that also private issuers to provide more
8–K, we established a safe harbor that discloses any other item, so long as the compensation disclosure in their filings
applies until the filing due date of the substantive disclosure required by Item with the Commission by eliminating
company’s quarterly or annual report for 1.01 is included in the Form 8–K. This privacy concerns associated with filing
the period in question. We concluded would not extend to allowing a an individual’s employment agreement
that the risk of liability under these company to omit any other caption if when such agreement is not required to
provisions for the failure to timely file the Item 1.01 caption is included. be made public by a home country
was disproportionate to the benefit of exchange or securities regulator. As
real-time disclosure and therefore D. Foreign Private Issuers foreign disclosure related to executive
justified the need for a limited safe We are amending the exhibit remuneration varies in different
harbor of a fixed duration. For the same instructions to Form 20–F so that countries but continues to improve,396
reasons, we believe that the safe harbor foreign private issuers will be required the revisions recognize that trend and
should also extend to Item 5.02(e) of to file an employment or compensatory provide for greater harmonization of
Form 8–K. We therefore are amending plan with management or directors (or international disclosure standards with
Exchange Act Rules 13a–11(c) and 15d– portion of such plan) only when the respect to executive compensation in a
11(c) accordingly. foreign private issuer either is required manner consistent with other
In addition, a company forfeits its to publicly file the plan (or portion of requirements of Form 20–F.
eligibility to use Form S–3 if it fails to it) in its home country or if the foreign IV. Beneficial Ownership Disclosure
timely file all reports required under private issuer has otherwise publicly
Exchange Act Section 13(a) or 15(d) disclosed the plan.394 Item 403 requires disclosure of
during the 12 month period prior to Under Item 6.B.1 of Form 20–F, a company voting securities beneficially
filing of the registration statement.391 foreign private issuer must disclose the owned by more than five percent
For the same reasons, when adopting compensation of directors and holders,397 and company equity
the expanded Form 8–K rules in 2004, management on an aggregate basis and, securities beneficially owned by
we revised the Form S–3 eligibility additionally, on an individual basis,
395 New Instruction 4(c)(v) to Exhibits to Form
requirements so that a company would unless individual disclosure is not 20–F.
not lose its eligibility to use Form S–3 required in the issuer’s home country 396 Many jurisdictions now require or encourage
registration statements if it failed to and is not otherwise publicly disclosed disclosure of executive compensation information.
timely file reports required by the Form by the foreign private issuer. Under the For example, enhanced disclosure of executive
8–K items to which the Section 10(b) exhibit instructions to Form 20–F prior remuneration is included as part of the European
Commission’s 2003 Company Law Action Plan. See

and Rule 10b–5 safe harbor applies.392 to our amendments, management Guido Ferrarini and Niamh Moloney, Executive
Remuneration in the EU: The Context for Reform,
390 Seeletter from ABA. 393 Id. European Corporate Governance Institute, Law
391 General Instruction I.A.3 to Form S–3. 394 We are also making a similar revision to Item Working Paper N. 32/2005 (April 2005).
392 Form 8–K Adopting Release, at Section II.E. 601(b)(10)(iii)(C)(5) of Regulation S–K. 397 Item 403(a).
directors, director nominees and named complete tally of the securities • Item 404(a) contains a general
executive officers.398 These disclosure beneficially owned by directors. disclosure requirement for related
requirements provide investors with One commenter recommended that person transactions, including those
information regarding concentrated we expand this section to also require involving indebtedness.
holdings of voting securities and disclosure of hedging arrangements • Item 404(b) requires disclosure
management’s equity stake in the whereby the executive has altered his or regarding the company’s policies and
company, including securities for which her economic interest in the securities procedures for the review, approval or
these holders have the right to acquire that he or she beneficially owns.405 ratification of related person
beneficial ownership within 60 days.399 These transactions frequently involve transactions.
Item 403 also requires disclosure of the purchase or sale of a derivative • Item 404(c) requires disclosure
arrangements known to the company security that the named executive regarding promoters and certain control
that may result in a change in control of officer would be required to report persons of a company.410
the company.400 within two business days under Section • Item 407 consolidates corporate
As proposed, we are amending Item 16(a) of the Exchange Act.406 Because governance disclosure requirements.411
403(b) 401 by adding a requirement for information concerning these Also, Item 407(a) requires disclosure
footnote disclosure of the number of transactions frequently would be regarding the independence of directors,
shares pledged as security by named available on a prompt basis in the including whether each director and
executive officers, directors and director Section 16(a) filings and companies nominee for director of the company is
nominees.402 To the extent that shares would disclose their policies regarding independent, as well as a description by
beneficially owned by named executive these transactions in Compensation specific category or type of any
officers, directors and director nominees Discussion and Analysis,407 we have not transactions, relationships or
are used as collateral, these shares may followed the commenter’s arrangements not disclosed under
be subject to material risk or recommendation. paragraph (a) of Item 404 that were
contingencies that do not apply to other considered when determining whether
V. Certain Relationships and Related each director and nominee for director
shares beneficially owned by these
Transactions Disclosure is independent.
persons. These circumstances have the
potential to influence management’s As we explained in the Proposing
A. Transactions With Related Persons
performance and decisions.403 As a Release, we believe that, in addition to
result, we believe that the existence of disclosure regarding executive We are adopting amendments to Item
these securities pledges could be compensation, a materially complete 404 to make the certain relationships
material to shareholders. Because picture of financial relationships with a and related transactions disclosure
significant shareholders who are not company involves disclosure regarding requirements clearer and easier to
members of management are in a related party transactions. Therefore, we follow. The revisions retain the
different relationship with other are also adopting significant revisions to principles for disclosure of related
shareholders and have different Item 404 of Regulation S–K, previously person transactions that were previously
obligations to them, the amendments do titled ‘‘Certain Relationships and specified in Item 404(a), but no longer
not require disclosure of their pledges Related Transactions.’’ In 1982, various include all of the instructions that
pursuant to Item 403(a), other than provisions that had been adopted in a served to delineate what transactions
pledges that may result in a change of piecemeal fashion and had been subject are reportable or excludable from
control currently required to be to frequent amendment were disclosure based on bright lines that can
disclosed.404 The amendments also consolidated into Item 404 of Regulation depart from a more appropriate
specifically require disclosure of S–K.408 Today we are amending Item materiality analysis. Instead, Item 404(a)
beneficial ownership of directors’ 404 of Regulation S–K and S–B to as amended consists of a general
qualifying shares, which was not streamline and modernize this statement of the principle for disclosure,
required prior to these amendments, disclosure requirement, while making it followed by specific disclosure
because we believe the beneficial more principles-based. Although the requirements and instructions. The
ownership disclosure should include a amendments significantly modify this instructions to Item 404(a) explain the
disclosure requirement, its purpose—to related persons covered by the Item, the
398 Item 403(b). elicit disclosure regarding transactions scope of transactions covered by the
399 As specified in Exchange Act Rule 13d–3(d)(1) and relationships, including Item, the method for computation of the
[17 CFR 240.13d–3(d)(1)]. indebtedness, involving the company amount involved in the transaction,
400 Item 403(c).
and related persons and the special requirements regarding
401 Item 403(b) of Regulation S–K and Item 403(b)
independence of directors and indebtedness, the interaction with Item
of Regulation S–B are both amended in the same
manner. nominees for director and the interests 402, the materiality of certain interests,
402 This was similar to a proposal the Commission of management—remains unchanged. and the circumstances in which
made in 2002. See Form 8–K Disclosure of Certain As discussed in greater detail below, disclosure need not be provided.
Management Transactions, Release No. 33–8090 the amendments have four parts: 409
(Apr. 12, 2002) [67 FR 19914]. to Items of Regulation S–K, unless otherwise
403 See, e.g., Marianne M. Jennings, The
405 See indicated.
Disconnect Between and Among Legal Ethics, letter from ABA. 410 Prior to adoption of these amendments,
406 15 U.S.C. 78p(a).
Business Ethics, Law, and Virtue: Learning Not to disclosure regarding promoters was required under
407 See Item 402(b)(2)(xiii) of Regulation S–K,
Make Ethics So Complex, 1 U. St. Thomas L.J. 995, Item 404(d).
1010 (Spring 2004) (arguing that the extension of discussed in Section II.B.1., above. 411 These matters previously were required to be
loans to the CEO of WorldCom, which were 408 See the 1982 Release. For a discussion of these
disclosed pursuant to various provisions, including
collateralized by WorldCom shares owned by the provisions, see also Disclosure of Certain Item 7 of Schedule 14A and Items 306, 401(h), (i)
CEO, contributed to WorldCom’s financial demise). Relationships and Transactions Involving and (j), 402(j) and 404(b). We are eliminating as
Regarding commenters’ views, contrast letters from Management, Release No. 33–6416 (July 9, 1982) proposed the requirement for disclosure regarding
Frederic W. Cook & Co.; PB–UCC; and SBAF with [47 FR 31394], at Section II. specific director and director nominee relationships
letters from FSR; NACCO Industries; Unitrin; and 409 The discussion that follows focuses on that had been set forth in Item 404(b) prior to
Compass Bancshares. changes to Regulation S–K, with Section V.E.1. today’s amendments, in favor of the disclosures
404 Item 403(c) of Regulation S–K. See also Items explaining the modifications to Regulation S–B. regarding director independence required by Item
6 and 7(3) of Schedule 13D [17 CFR 240.13d–101]. References throughout the following discussion are 407(a).
Item 404(a) as adopted extends to determining the materiality of the filed pursuant to the Securities Act or
disclosure of indebtedness, by information to investors. the Exchange Act.416
consolidating the disclosure formerly We are also eliminating as proposed One commenter questioned whether
required under Item 404(a) regarding an instruction to Item 404(a) which had changing the test of company
transactions involving the company and indicated that the dollar threshold is not involvement from being a ‘‘party’’ to a
related persons with the disclosure a bright line materiality standard.414 It transaction to being a ‘‘participant’’ in a
regarding indebtedness which had been remains true, however, that when the transaction is intended to be a
separately required by Item 404(c) prior amount involved in a transaction substantive change.417 The purpose of
to these amendments. We have exceeds the prescribed threshold this change is to more accurately
consolidated these two provisions ($120,000 under the amended rule we connote the company’s involvement in
substantially as proposed in order to adopt today), a company should a transaction by clarifying that being a
eliminate confusion regarding the evaluate whether the related person has ‘‘participant’’ encompasses situations
circumstances in which each item a direct or indirect material interest in where the company benefits from a
applied and to streamline duplicative the transaction to determine if transaction but is not technically a
portions of Item 404. disclosure is required. We eliminated contractual ‘‘party’’ to the
the instruction because it was repetitive transaction.418
1. Broad Principle for Disclosure of the general materiality standard Commenters expressed diverse views
Item 404(a) as proposed and adopted applicable to the Item. We believe that on the appropriate disclosure threshold.
articulates a broad principle for application of the materiality principles While some commenters supported
disclosure; it states that a company must under the Item are more consistent with increasing the threshold for disclosure
provide disclosure regarding: a principles-based approach and will from $60,000 to $120,000,419 others
• Any transaction since the beginning lead to more appropriate disclosure recommended retaining the $60,000
of the company’s last fiscal year, or any outcomes than application of the threshold,420 using a minimal dollar
currently proposed transaction; instruction that was eliminated. By threshold,421 not including any de
• In which the company was or is to deleting this instruction, we do not minimis dollar threshold,422 or
be a participant; intend to change the materiality increasing the threshold even further
standard applicable to Item 404(a). As through use of a sliding scale.423 We
• In which the amount involved
was the case with Item 404(a) prior to believe that a fixed dollar amount for
exceeds $120,000; and
adoption of these amendments, there the disclosure threshold will provide
• In which any related person had or the most certainty as to the size of
will have a direct or indirect material may be situations where, although the
instructions to Item 404(a) do not transactions that must be tracked for
interest. disclosure purposes under Item 404,424
expressly provide that disclosure is not
As proposed, amended Item 404(a) no and that increasing the dollar amount of
required, the interest of a related person
longer includes an instruction that is the threshold based on inflation is
in a particular transaction is not a direct
repetitive of the general materiality appropriate given the amount of time
or indirect material interest. In that case,
standard applicable to the Item.412 By that has elapsed since it was last set
information regarding such interest and
omitting this instruction, we do not nearly twenty-five years ago.
transaction is not required to be
intend to change the materiality Finally, the rule changes include as
disclosed under Item 404(a).
standard applicable to Item 404(a). The proposed a technical modification. Prior
In addition, as proposed the
materiality standard for disclosure to today’s amendments, Item 404(a)
amendments:
embodied in Item 404(a) prior to these • Call for disclosure if a company is stated that disclosure was required
amendments is retained; a company a ‘‘participant’’ in a transaction, rather
must disclose based on whether the than if it is ‘‘a party’’ to the transaction, 416 However, if the disclosure is being
related person had or will have a direct as ‘‘participant’’ more accurately incorporated by reference into a registration
or indirect material interest in the statement on Form S–4, the additional two years of
connotes the company’s involvement; disclosure will not be required, as specified in
transaction. The materiality of any • Modify the $60,000 threshold for Instruction 1 to Item 404.
interest will continue to be determined disclosure to $120,000 to adjust for 417 See letter from Sullivan. See also letter from
on the basis of the significance of the inflation; SCSGP.
information to investors in light of all • Include a defined term for
418 For example, disclosure would be required if
the circumstances.413 As was the case a company benefits from a transaction with a
‘‘transaction’’ to provide that it includes related person that the company has arranged and
before adoption of amended Item 404(a), a series of similar transactions and to in which it participates, notwithstanding the fact
the relationship of the related persons to make clear its broad scope; and that it is not a party to a contract.
the transaction, and with each other, the • Include a defined term for ‘‘related 419 See, e.g., letters from BRT and Sullivan.
importance of the interest to the person persons.’’ 415 420 See, e.g., letters from Amalgamated and
having the interest and the amount CalSTRS.

As was the case before these 421 See letter from Teamsters (recommending a
involved in the transaction are among amendments, disclosure is required for $250 disclosure threshold).
the factors to be considered in three years in registration statements 422 See, e.g., letters from CII and ISS.
423 See letter from SCSGP recommending a
412 Prior to today’s amendments, Instruction 1 to 414 Prior to today’s amendments, Instruction 9 to disclosure threshold for companies that are not
Item 404(a) had stated that ‘‘[t]he materiality of any Item 404(a) had stated that ‘‘There may be small business issuers of the greater of $120,000 or
interest is to be determined on the basis of the situations where, although these instructions do not a percentage (which it believes could be as low as
significance of the information to investors in light expressly authorize nondisclosure, the interest of a two percent) of consolidated gross revenues of the
of all the circumstances of the particular case. The person specified in paragraphs (a)(1) through (4) in recipient for certain types of transactions.
importance of the interest to the person having the a particular transaction or series of transactions is 424 The disclosure threshold in amended Item
interest, the relationship of the parties to the not a direct or indirect material interest. In that 404(a) of Regulation S–B is the lesser of $120,000
transaction with each other and the amount case, information regarding such interest and or one percent of the average of the small business
involved in the transactions are among the factors transaction is not required to be disclosed in issuer’s total assets at year-end for the last three
to be considered in determining the significance of response to this paragraph.’’ completed fiscal years because we believe that
the information to investors.’’ 415 The ‘‘related persons’’ covered by the transactions that are below $120,000 can be
413 See Basic v. Levinson and TSC Industries v. amended Item are discussed below in Section significant for small business issuers given their
Northway. V.A.1.b. relative size.
regarding situations involving ‘‘the of indebtedness transactions of or relationship or any series of similar
registrant or any of its subsidiaries.’’ significant shareholders (or their transactions, arrangements or
Because companies must include immediate family members).429 Another relationships. The definition of
subsidiaries in making materiality result of integrating the disclosure ‘‘transaction’’ also specifically notes that
determinations in all circumstances, the requirements that had been specified in the term includes indebtedness and
reference to ‘‘subsidiaries’’ is paragraph (c) of Item 404 into paragraph guarantees of indebtedness.
superfluous, and we have therefore (a) of Item 404, is that the rule changes The definition of ‘‘related person’’
eliminated it. This modification does set a $120,000 threshold and require identifies the persons covered, and
not change the scope of disclosure disclosure if there is a direct or indirect clarifies the time periods during which
required under the Item.425 material interest in an indebtedness they are covered. The term ‘‘related
transaction, while prior to these person’’ 433 means any person who was
a. Indebtedness in any of the following categories at any
amendments Item 404(c) required
Section 402 of the Sarbanes-Oxley Act disclosure of all indebtedness exceeding time during the specified period for
prohibits most personal loans by a $60,000.430 For example, under which disclosure under paragraph (a) of
company to its officers and directors.426 amended Item 404(a) disclosure is Item 404 is required:
This development raises the issue of required if an executive officer had a • Any director or executive officer of
whether disclosure of indebtedness of material indirect interest in an the company and his or her immediate
the sort required under our rules prior indebtedness transaction (exceeding family members; and
to the amendments should be $120,000) between the company and • If disclosure were provided in a
maintained. We believe that the another entity due to that executive proxy or information statement relating
approach to disclosure of indebtedness officer’s ownership interest in the other to the election of directors, any nominee
involving related persons that we adopt entity. Disclosure of material indirect for director and the immediate family
today is appropriate because of the interests of related persons in members of any nominee for director.
scope of the direct and indirect interests transactions involving the company will In addition, a security holder known
covered by our disclosure requirements, be required by Item 404(a) as amended, to the company to beneficially own
because related persons include persons just as it was prior to adoption of these more than five percent of any class of
not covered by the prohibitions, and amendments. We believe that disclosure the company’s voting securities or any
because there are certain exceptions to requirements for indebtedness and for immediate family member of any such
the prohibitions. We have, however, other related person transactions should person, when a transaction in which
eliminated the distinction between be congruent. In particular, we believe such security holder or family member
indebtedness and other types of related that loans by companies other than had a direct or indirect material interest
person transactions. financial institutions should be treated occurred or existed, is also a related
As a result of integrating what had like any other related person person.
been required to be disclosed under transactions; however, as discussed The definition of ‘‘related person’’
paragraph (c) of Item 404 into paragraph below,431 we address certain ordinary that we have adopted will require
(a) of Item 404, the rule proposals would course loans by financial institutions in disclosure of related person transactions
have changed the situations in which an instruction to Item 404(a). involving the company and a person
indebtedness disclosure is necessary by (other than a significant shareholder or
requiring disclosure of indebtedness b. Definitions immediate family member of such
transactions with regard to all related We have defined the terms shareholder) that occurred during the
persons covered by the related person ‘‘transaction,’’ ‘‘related person’’ and last fiscal year, if the person was a
transaction disclosure requirement, ‘‘amount involved’’ substantially as ‘‘related person’’ during any part of that
including significant shareholders.427 proposed in order to streamline Item year.434 A person who had a position or
Some commenters questioned whether 404(a) and to clarify the broad scope of relationship giving rise to the person
disclosure of indebtedness of significant financial transactions and relationships being a ‘‘related person’’ during only
shareholders would be useful to covered by the rule. part of the last fiscal year may have had
investors and whether companies would The term ‘‘transaction’’ has a broad a material interest in a transaction with
have access to the information necessary scope in Item 404(a).432 This term is not the company during that year. While
to provide this disclosure.428 In to be interpreted narrowly, but rather prior to these amendments Item 404(a)
response to these comments, the broadly includes, but is not limited to, did not indicate whether disclosure was
amendments do not require disclosure any financial transaction, arrangement required for the transaction in this
situation, the history of Item 404
425 For the same reason, we have eliminated as 429 See Instruction 4.b. to Item 404(a). Disclosure
suggests that disclosure was required if
proposed the references to ‘‘subsidiaries’’ in the would be required, however, if the significant
‘‘compensation committee interlocks and insider shareholder (or such shareholder’s immediate the requisite relationship existed at the
participation in compensation decisions’’ family member) was also a related person specified time of the transaction, even if the
disclosure requirement adopted in Item 407(e)(4). in Instruction 1.a. to Item 404(a), for example, if the person was no longer a related person
This revision does not change the scope of significant shareholder was also an executive
disclosure required under the rule. officer.
at the end of the year.435 We believe
426 Codified in Section 13(k) of the Exchange Act 430 Prior to these amendments, Item 404(c) also
433 Instruction 1 to Item 404(a).
[15 U.S.C. 78m(k)]. had required disclosure of some specific indirect
427 Prior to today’s amendments, the related interests of directors, nominees for director, and 434 As proposed, the principle for disclosure that
person transaction disclosure requirement in Item executive officers of the company in indebtedness we have adopted only applies to nominees for
404(a) covered significant shareholders, while the through corporations, organizations, trusts, and director if disclosure is being provided in a proxy
indebtedness disclosure requirement in Item 404(c) estates. Disclosure of these specific interests had or information statement involving the election of
did not. The significant shareholders covered by been required by subparagraphs (c)(4) and (c)(5) of directors. Also, as proposed, ongoing disclosure is
Item 404(a) as adopted will continue to be any Item 404. Under the amendments, these not required regarding nominees for director who
security holder who is known to the company to subparagraphs have been eliminated as duplicative were not elected (unless a nominee has been
beneficially own more than five percent of any class and the need for disclosure in these situations will nominated again for director).
of the company’s voting securities. See Instruction be determined using a materiality analysis under 435 This position, which had been included in the
1.b.i. to Item 404(a). the principle for disclosure in Item 404(a). proxy rule provisions that were the precursor to
431 See Section V.A.3. below.
428 See, e.g., letter from Sullivan. See also, letter Item 404, was deleted from those provisions in 1967
from SCSGP. 432 Instruction 2 to Item 404(a). Continued
that, because of the potential for abuse prior to these amendments regarding the context of the transaction that is
and the close proximity in time between how to determine the ‘‘amount material to investors in light of the
the transaction and the person’s status involved’’ in transactions, and clarifies circumstances of the particular
as a ‘‘related person,’’ it is appropriate that the amounts reported must be in transaction.
to require disclosure for transactions in dollars even if the amount was set or As was the case prior to adoption of
which the person had a material interest expensed in a different currency. As these amendments, the dollar value of
occurring at any time during the fiscal adopted, the term ‘‘amount involved’’ the related person’s interest in the
year. For example, it is possible that a means the dollar value of the transaction will be computed without
material interest of a person in a transaction, or series of similar regard to the amount of the profit or loss
transaction during this timeframe could transactions, and includes: involved in the transaction.441 One
influence the person’s performance of • In the case of any lease or other commenter pointed out that the
his or her duties. transaction providing for periodic proposals expanded the application of
We believe that transactions with payments or installments, the aggregate this provision to also cover the
persons who have been or who will amount of all periodic payments or computation of the ‘‘amount involved’’
become significant shareholders (or installments due on or after the when the provision was moved from an
their immediate family members), but beginning of the company’s last fiscal instruction into the body of Item
are not at the time of the transaction, year, including any required or optional 404(a).442 In streamlining Item 404(a),
raise different considerations and are payments due during or at the we did not intend to change the scope
harder to track, and thus we are conclusion of the lease or other of the prior instruction. Therefore, the
excluding them as proposed. Disclosure transaction providing for periodic final rule clarifies the context in which
will be required, however, regarding a payments or installments; 438 and profit or loss is not to be considered.
transaction that begins before a • In the case of indebtedness, the Consistent with the principles-based
significant shareholder becomes a largest aggregate amount of all approach that we are applying to related
significant shareholder, and continues indebtedness outstanding at any time person transaction disclosure, we are
(for example, through the on-going since the beginning of the company’s eliminating an instruction that, in the
receipt of payments) on or after the time last fiscal year and all amounts of case of a related person transaction
that the person becomes a significant interest payable on it during the last involving a purchase or sale of assets by
shareholder. fiscal year.439 or to the company otherwise than in the
We are adopting the definition of ordinary course of business, called for
‘‘immediate family member’’ as 2. Disclosure Requirements specific disclosure of the cost of the
proposed. Under Item 404(a), the term Subparagraphs of Item 404(a) as assets to the purchaser, and if acquired
‘‘immediate family member’’ means any adopted provide the disclosure within two years of the transaction, the
child, stepchild, parent, stepparent, requirements for related person cost of the assets to the seller and
spouse, sibling, mother-in-law, father- transactions. The company will be related information about the price of
in-law, son-in-law, daughter-in-law, required to describe the transaction, the assets. We note, however, that if
brother-in-law, or sister-in-law, and any including: such information is material under the
person (other than a tenant or employee) • The person’s name and relationship revised standards of Item 404(a),
sharing the household of any director, to the company; because, for example, the recent
nominee for director, executive officer, • The person’s interest in the purchase price to the related person is
or significant shareholder of the transaction with the company, materially less than the sale price to the
company. The amended definition including the related person’s position company, or the sale price to the related
differs from the former definition in that or relationship with, or ownership in, a person is materially more than the
it includes stepchildren, stepparents, firm, corporation, or other entity that is recent purchase price to the company,
and any person (other than a tenant or a party to or has an interest in the disclosure of such prior purchase price
employee) sharing the household of a transaction; and and related information about the prices
director, nominee for director, executive • The approximate dollar value of the could be required.
officer, or significant shareholder of the amount involved in the transaction and Prior to adoption of today’s
company.436 of the related person’s interest in the amendments, disclosure was required
The amended definition of ‘‘amount transaction.440 under Item 404(c) regarding amounts
involved’’ is adopted as proposed.437 Companies will also be required to possibly owed to the company under
The definition incorporates two disclose any other information regarding Section 16(b) of the Exchange Act.443
concepts that were included in Item 404 the transaction or the related person in We believe that the purpose of related
person transaction disclosure differs
as duplicative of a note that applied to all of the 438 Prior to today’s amendments, Instruction 3 to from the purpose of Section 16(b), and
disclosure required in Schedule 14A (including the Item 404(a) had provided guidance regarding one commenter expressed support for
related party disclosure requirement in Schedule computing the amount involved in lease or other eliminating this requirement.444
14A). Adoption of Amendments to Proxy Rules and agreements providing for periodic payments or Accordingly, the rule amendments
Information Rules, Release No. 34–8206 (Dec. 14, installments.
1967) [32 FR 20960], at ‘‘Schedule 14A—Item7(f).’’ 439 Prior to today’s amendments, the basis for
eliminate this former Section 16(b)-
Before today’s amendments, Note C to Schedule determining the amount involved in indebtedness related disclosure requirement.
14A provided that ‘‘[i]nformation need not be transactions had been set forth in Item 404(c).
included for any portion of the period during which 440 Because of the manner in which the amount
3. Exceptions
such person did not hold any such position or involved in the transaction is calculated for Some categories of transactions do not
relationship, provided a statement to that effect is indebtedness, as discussed above, disclosure with
made.’’ We have amended Note C to Schedule 14A
fall within the principle for disclosure
respect to indebtedness will include the largest
as proposed so that it will no longer apply to aggregate amount of principal outstanding during
441 Item 404(a)(4).

disclosure of related person transactions. the period for which disclosure is provided, as well
436 The persons included in these additions to the 442 See letter from Sullivan.
as the amount of principal and interest paid during
definition are also included in the definition of the period for which disclosure is provided, the 443 This requirement had been set forth in
‘‘family member’’ in General Instruction A.1.(a)(5) aggregate amount of principal outstanding as of the Instruction 4 to Item 404(c) prior to these
to Securities Act Form S–8. latest practicable date, and the rate or amount of amendments.
437 Instruction 3 to Item 404(a). interest payable on the indebtedness. Item 404(a)(5). 444 See letter from SCSGP.
and therefore Item 404(a) as amended Item 404(a).449 These exceptions thus Sarbanes-Oxley Act on personal loans to
includes disclosure exceptions that we clarify the limited situations in which officers and directors.454
believe are consistent with our disclosure of compensation to related Second, we are adopting as proposed
principles-based approach.445 The first persons is not required under Item 404. an instruction indicating that a person
category of transactions involves The second category of transactions who has a position or relationship with
compensation. Disclosure of involves three types of situations that a firm, corporation, or other entity that
compensation to an executive officer we believe do not raise the potential engages in a transaction with the
will not be required if: issues underlying our principle for company shall not be deemed to have
disclosure. First, in the case of an indirect material interest within the
• The compensation is reported
transactions involving indebtedness, as meaning of paragraph (a) of Item 404 if:
pursuant to Item 402 of Regulation S– • The interest arises only: (i) From
K; or proposed we have adopted amendments
so that the following items of the person’s position as a director of
• The executive officer is not an indebtedness may be excluded from the another corporation or organization that
immediate family member and such calculation of the amount of is a party to the transaction; or (ii) from
compensation would have been indebtedness and need not be disclosed the direct or indirect ownership by such
reported under Item 402 as because they do not have the potential person and all other related persons, in
compensation earned for services to the to impact the parties as do the the aggregate, of less than a ten percent
company if the executive officer was a transactions for which disclosure is equity interest in another person (other
named executive officer, and such required: Amounts due from the related than a partnership) which is a party to
compensation had been approved, or person for purchases of goods and the transaction; or (iii) from both such
recommended to the board of directors services subject to usual trade terms, for position and ownership; or
of the company for approval, by the ordinary business travel and expense • The interest arises only from the
compensation committee of the board of payments and for other transactions in person’s position as a limited partner in
directors (or group of independent the ordinary course of business.450 Also, a partnership in which the person and
directors performing a similar function) in the case of a transaction involving all other related persons, have an
of the company.446 indebtedness, the amendments provide, interest of less than ten percent, and the
As proposed, this disclosure as proposed, that if the lender is a bank, person is not a general partner of and
exception would have required savings and loan association, or broker- does not have another position in the
compensation committee approval of an dealer extending credit under Federal partnership.455
executive officer’s compensation if that Reserve Regulation T 451 and the loans Finally, disclosure will not be
executive officer’s compensation was are not disclosed as nonaccrual, past required under paragraph (a) of Item 404
not reported under Item 402. However, due, restructured or potential in three other types of circumstances.
one commenter noted that in problems,452 disclosure under First, disclosure will not be required
accordance with listing standards, paragraph (a) of Item 404 may consist of under paragraph (a) of Item 404 as to
compensation committees may only a statement, if correct, that the loans to any transaction where the rates or
need to recommend to the board of such persons satisfied the following charges involved in the transaction are
directors, rather than approve, the conditions: determined by competitive bids, or the
compensation of executive officers • They were made in the ordinary transaction involves the rendering of
(other than the chief executive course of business; services as a common or contract
officer).447 We believe that it is • They were made on substantially carrier, or public utility, at rates or
appropriate for this disclosure exception the same terms, including interest rates charges fixed in conformity with law or
to apply a standard that is consistent and collateral, as those prevailing at the governmental authority.456 We had
with the listing standards and we have time for comparable loans with persons proposed to eliminate this exception
thus modified this exception from the not related to the lender; and because we considered such bright-line
proposal accordingly. Finally, as • They did not involve more than the presumptions as inconsistent with our
proposed disclosure of compensation to normal risk of collectibility or present principles-based approach to the rule.
a director will not be required if the other unfavorable features.453 We are persuaded, however, by a
compensation is reported pursuant to This exception is based on the commenter who indicated that the prior
the director compensation disclosure exception that was included in 454 Specifically, the language that was in
requirement in Item 402(k).448 Instruction 3 to Item 404(c) prior to Instruction 3 to paragraph (c) of Item 404 prior to
As we explained in the Proposing these amendments, and has been these amendments has been modified to replace the
Release, since the disclosure either modified as proposed to be more reference ‘‘comparable transactions with other
consistent with the prohibition of the persons’’ with the phrase ‘‘comparable loans with
would be reported under Item 402, or persons not related to the lender.’’
would not be required under Item 402, 449 One commenter believed that the proposals
455 Instruction 6 to Item 404(a). This amendment
we do not believe that these particular would have eliminated disclosure of related person
is based on the language that was in parts A and
compensation transactions fall within B of Instruction 8 to Item 404(a) prior to these
transactions involving the employment of amendments. This amendment omits the portion of
our Item 404 disclosure principle, or immediate family members. See letter from CRPTF. that instruction (Instruction 8.C.) regarding interests
they will have already been disclosed. Item 404(a), as amended, continues to require arising solely from holding an equity or a creditor
disclosure of these types of related person
Transactions involving compensation transactions when the threshold for disclosure has
interest in a person other than the company that is
that do not fall within these exceptions, a party to the transaction, when the transaction is
been met and the immediate family member has or not material to the other person. This exception
such as compensation of immediate will have a direct or indirect material interest. may have resulted in inappropriate non-disclosure
family members, are within the scope of 450 Instruction 4.a. to Item 404(a), which is based
of transactions without regard to whether they were
the principle for disclosure in amended on Instruction 2 to Item 404(c) as it was stated prior material to the company. In addition, we are
to today’s amendments. eliminating the language that had been set forth in
451 12 CFR part 220.
Instruction 6 to Item 404(a) prior to these
445 Instructions 4, 5, 6 and 7 to Item 404(a). 452 See Item III.C.1. and 2. of Industry Guide 3, amendments, which had covered a subset of
446 Instruction 5.a. to Item 404(a). Statistical Disclosure by Bank Holding Companies transactions now covered by Instruction 6, as
447 See letter from NYCBA. [17 CFR 229.802(c)]. amended, and therefore was duplicative.
448 Instruction 5.b. to Item 404(a). 453 Instruction 4.c. to Item 404(a). 456 Instruction 7.a. to Item 404(a).
exception embodied a conclusion that undertaken in the ordinary course of • The types of transactions that are
the terms of these types of transactions business of the company and conducted covered by such policies and
would likely not be influenced by the on the same terms that the company procedures, and the standards to be
related persons and therefore should be offers generally in transactions with applied pursuant to such policies and
excluded as not material.457 As a result, persons who are not related persons.464 procedures;
the instruction is retained in the rule as Former Item 404(a) did not include such • The persons or groups of persons on
adopted. an ‘‘ordinary course of business’’ the board of directors or otherwise who
Second, disclosure need not be disclosure exception, and we are not are responsible for applying such
provided under paragraph (a) of Item persuaded that it should be expanded to policies and procedures; and
404 if the transaction involves services include one. In this regard, we note that • Whether such policies and
as a bank depositary of funds, transfer transactions which should properly be procedures are in writing and, if not,
agent, registrar, trustee under a trust disclosed under Item 404(a) might be how such policies and procedures are
indenture, or similar services.458 We excluded under an ordinary course of evidenced.
had proposed to eliminate this business exception, such as Item 404(b) requires identification of
exception. We are persuaded by employment of immediate family any transactions required to be reported
commenters’ concerns that eliminating members of officers and directors. under paragraph (a) of Item 404 where
this exception may be detrimental to However, we note that whether a the company’s policies and procedures
financial institutions and may not result transaction which was not material to do not require review, approval or
in additional meaningful disclosure.459 the company or the other entity ratification or where such policies and
Accordingly, we are retaining this involved and which was undertaken in procedures have not been followed.
exception. the ordinary course of business of the One commenter expressed concern
Third, we are adopting an exception company and on the same terms that the that it is not reasonable or customary for
indicating that disclosure need not be company offers generally in transactions a company’s related person transaction
provided pursuant to paragraph (a) of with persons who are not related policy to extend to transactions
Item 404 if the interest of the related persons, are factors that could be taken occurring before an individual becomes
person arises solely from the ownership into consideration when performing the affiliated with a company.466 In
of a class of equity securities of the materiality analysis for determining response, we have added an instruction
company and all holders of that class of whether disclosure is required under indicating that disclosure need not be
equity securities of the company the principle for disclosure. provided pursuant to paragraph (b) of
received the same benefit on a pro rata B. Procedures for Approval of Related Item 404 regarding any transaction that
basis.460 Commenters expressed concern Person Transactions occurred at a time before the related
that our proposal to eliminate the person had the relationship that would
former exception 461 would require We are adopting a new requirement
trigger disclosure under Item 404(a), if
disclosure if a related person receives for disclosure of the policies and
the transaction did not continue after
over $120,000 in dividends on company procedures established by the company
the related person had that
stock in a year, even though those and its board of directors regarding
relationship.467
dividends are paid on the same terms as related person transactions substantially
for all other stockholders.462 We are as proposed. State corporate law and C. Promoters and Control Persons
persuaded by the commenters that increasingly robust corporate
As proposed and adopted, the
governance practices support or provide
related person transaction disclosure is amendments require a company to
for such procedures in connection with
not necessary for transactions where a provide disclosure regarding the
transactions involving conflicts of
related person receives pro rata identity of promoters and its
interest.465 We believe that this type of
dividends or returns on the ownership transactions with those promoters if the
information may be material to
of equity securities, and therefore we company had a promoter at any time
investors, and our amendments
have adopted an instruction to provide during the last five fiscal years.468 The
therefore require disclosure of policies
an exception from disclosure in these disclosure will be required in Securities
and procedures regarding related person
limited circumstances.463 Act registration statements on Form S–
transactions under paragraph (b) of Item
Some commenters requested that we 1 or on Form SB–2 and Exchange Act
404, as amended.
create a new exception for transactions Specifically, the amendments require Form 10 or Form 10–SB. The disclosure
a description of the company’s policies includes:
457 Letter from SCSGP.
and procedures for the review, approval • The names of the promoters;
458 Instruction 7.b. to Item 404(a).
or ratification of transactions with • The nature and amount of anything
459 See, e.g., letters from American Bankers
related persons that are reportable under of value received by each promoter from
Association (‘‘American Bankers’’); Compass
Bancshares; and Whitney Holding Corporation paragraph (a) of Item 404. The the company and the nature and amount
(‘‘Whitney Holding’’). description must include the material
460 Instruction 7.c. to Item 404(a). 466 See
features of these policies and letter from NYCBA.
461 Before the adoption of these amendments, 467 See
procedures that are necessary to Instruction to Item 404(b). For example,
Instruction 7.C. to Item 404(a) provided that no disclosure would not be required under Item 404(b)
information was required under Item 404(a) for understand them. While the material in a company’s Form 10–K for the fiscal year ended
transactions where the interest of the related person features of such policies and procedures December 31, 2005 of a transaction that occurred in
arose solely from the ownership of securities of the will vary depending on the particular March 2005 between the company and an
company and such person received no extra or immediate family member of a person who later
special benefit not shared on a pro rata basis.
circumstances, examples of such
became a director of the company in August 2005.
462 See, e.g., letters from SCSGP and Sullivan. features may include, in given cases, However, disclosure would be required under Item
463 The instruction as adopted differs from the among other things: 404(a) in this circumstance. This Instruction to Item
language of Instruction 7.C. prior to these 404(b) does not apply to transactions of significant
amendments in that it is limited to ownership of a 464 See,
e.g., letters from SCSGP and Sullivan. shareholders of the company, because Item 404(a)
class of equity securities rather than securities 465 Del.
Code Ann. tit. 8, § 144 (2004). See also does not require disclosure of transactions with
generally and focuses on benefits being provided NYSE, Inc. Listed Company Manual Section 307.00 significant shareholders that are completed before
pro rata to the holders of that class rather than the and NASD Manual, Marketplace Rules 4350(h) and they become significant shareholders.
absence of certain extra or special benefits. 4360(i). 468 Item 404(c).
of any consideration received by the these amendments, Item 404(b) had that imposed specific additional
company; and required disclosure of specific business independence standards for boards of
• Additional information regarding relationships between a director or directors, and the compensation and
any assets acquired by the company nominee for director and the company nominating committees or persons
from a promoter. that could bear on the ability of performing similar functions. Each
The amendments are consistent with directors and nominees for director to listed company (unless exempt)
the previous disclosure requirements exercise independent judgment in the determines whether its directors and
regarding promoters. However, prior to performance of their duties. We committee members are independent
these amendments this disclosure was proposed to eliminate the disclosure based on definitions that it adopts
not required if the company had been requirement that was stated under which, at a minimum, are required to
organized more than five years ago, even paragraph (b) of Item 404 in favor of comply with the listing standards
if the company otherwise had a more direct disclosure about the applicable to the company.
promoter within the last five years. Our determination of the independence of The amendments we are adopting
staff’s experience in reviewing directors and nominees for director, today, substantially as proposed,
registration statements, especially of including information supplementing include a disclosure requirement to
smaller companies, suggests that the the amended related person transaction identify the independent directors of the
more appropriate five-year test for disclosure that would permit qualitative company (and, in the case of disclosure
which the disclosure should be assessment of those independence in proxy or information statements
provided relates to the period of time determinations. While one commenter relating to the election of directors,
during which the company had a suggested that we retain a revised nominees for director) under the
promoter, as our revision provides, version of paragraph (b) to Item 404 as definition for determining board
rather than the date of organization of it was stated prior to these independence applicable to it.475 The
the company.469 We are also requiring amendments,472 we continue to believe amendments also require disclosure of
the same disclosure that is required for that disclosure focused on the any members of the compensation,
promoters for any person who acquired determinations made regarding director nominating and audit committees that
control, or is part of a group that independence is the appropriate the company has not identified as
acquired control, of an issuer that is a approach. The comprehensive director independent under the definition of
shell company.470 We are revising the independence disclosure requirement
title of this item to include the term that we are adopting today recognizes Rule Change and Notice of Filing and Order
control persons in order to clarify the the significant development of Granting Accelerated Approval to Amendment Nos.
scope of the disclosure requirement. independence requirements since the 2 and 3 to the Proposed Rule Change by the Chicago
Stock Exchange, Inc. Relating to Governance of
D. Corporate Governance Disclosure disclosure requirements in former Issuers on the Exchange, Release No. 34–49911
paragraph (b) of Item 404 were (June 24, 2004) [69 FR 39989]; Notice of Filing and
We are consolidating our disclosure originally adopted. As directed by the Order Granting Accelerated Approval of Proposed
requirements regarding director Sarbanes-Oxley Act of 2002, we adopted Rule Change by the Boston Stock Exchange, Inc. to
independence and related corporate a rule requiring national securities
Amend Chapter XXVII, Section 10 of the Rules of
governance disclosure requirements the Board of Governors by Adding Requirements
exchanges and national securities Concerning Corporate Governance Standards of
under a single disclosure item and associations to adopt listing standards Exchange-Listed Companies, Release No. 34–49955
updating such disclosure requirements requiring independent audit committees (July 1, 2004) [69 FR 41555]; Notice of Filing and
regarding director independence to meeting the standards of our rule.473 Order Granting Accelerated Approval of Proposed
reflect our current requirements and Rule Change and Amendment Nos. 1 and 2 Thereto
Further, in 2003 and 2004, we approved by the Chicago Board Options Exchange,
current listing standards.471 Prior to amendments to additional listing Incorporated, Relating to Enhanced Corporate
standards, including those of the New Governance Requirements for Listed Companies,
469 We also adopt as proposed similar revisions to Release No. 34–49995 (July 9, 2004) [69 FR 42476];
the disclosure requirement referencing promoters in
York Stock Exchange and Nasdaq,474 Notice of Filing and Order Granting Accelerated
Item 401(g)(1) of Regulation S–K. In addition, as Approval of Proposed Rule Change and
proposed our revisions add Form SB–2 to the list Oversight Board rules. See PCAOB Rulemaking: Amendment Nos. 1 and 2 Thereto by National
of registration statement forms in Item 404 for Public Company Accounting Oversight Board; Stock Exchange Relating to Corporate Governance,
which promoter disclosure is required. While this Order Approving Proposed Technical Amendments Release No. 34–49998 (July 9, 2004) [69 FR 42788];
revision updates the registration statement forms to Interim Standards Rules, Release No. 34–49624 and Notice of Filing and Immediate Effectiveness of
listed in Item 404, it does not change the promoter (Apr. 28, 2004) [69 FR 24199]; and Order Regarding Proposed Rule Change by the Pacific Exchange, Inc.
disclosure requirement of Form SB–2. Section 101(d) of the Sarbanes-Oxley Act of 2002, to Amend the Corporate Governance Requirements
470 Item 404(c)(2). The term ‘‘group’’ has the same Release No. 33–8223 (Apr. 25, 2003) [68 FR 2336]. for PCX Listed Companies, Release No. 34–50677
472 Letter from Fenwick. (Nov. 16, 2004) [69 FR 68205].
meaning as in Exchange Act Rule 13d–5(b)(1) [17
CFR 240.13d–5(b)(1)], that is, any two or more 473 See Section 10A(m) of the Exchange Act [15 The Commission has previously received a
persons that agree to act together for the purpose U.S.C. 78j–1(m)]; Exchange Act Rule 10A–3 [17 CFR rulemaking petition submitted by the AFL/CIO,
of acquiring, holding, voting or disposing of equity 240.10A–3]; and Standards Relating to Listed which requested the Commission to amend Items
securities of an issuer. The term ‘‘shell company’’ Company Audit Committees, Release No. 33–8220 401 and 404 of Regulation S–K to require disclosure
is defined in Securities Act Rule 405 and Exchange (Apr. 9, 2003) (the ‘‘Audit Committee Release’’) [68 about transactions with non-profit organizations
Act Rule 12b–2. FR 18788]. (letter dated Dec. 12, 2001 from Richard Trumka,
471 Item 407 of Regulations S–K and S–B. As 474 NASD and NYSE Listing Standards Release. Secretary-Treasurer, AFL/CIO, File No. 4–499,
adopted, Item 407 consolidates corporate The other exchanges have also adopted corporate available at www.sec.gov/rules/petitions/petn4-
governance disclosure requirements located in governance listing standards. See Order Granting 499.pdf) and a rulemaking petition submitted by the
several places under our rules and the principal Approval of Proposed Rule Change by the American Council of Institutional Investors, which requested
markets’ listing standards, including in particular Stock Exchange LLC and Notice of Filing and Order amendments to Item 401 of Regulation S–K to
requirements that had been specified in Items 306, Granting Accelerated Approval of Amendment No. require disclosure of certain transactions between
401(h), (i) and (j), 402(j) and 404(b) of Regulation 2 Relating to Enhanced Corporate Governance directors, executive officers and nominees (letter
S–K and Item 7 of Schedule 14A under the Requirements Applicable to Listed Companies, dated Oct. 1, 1997, as amended Oct. 19, 1998, from
Exchange Act prior to these amendments. We are Release No. 34–48863 (Dec. 1, 2003) [68 FR 68432]; Sarah A.B. Teslik, Executive Director, Council of
not making any changes to the substance of the Notice of Filing and Order Granting Accelerated Institutional Investors, File No. 4–404). We believe
requirements under Item 306, Item 401(h), (i) or (j), Approval of Proposed Rule Change and these requests have in large part been addressed by
or Item 402(j) as part of this consolidation. Amendment Nos. 1 and 2 Thereto by the revised listing standards instituted by the
However, as proposed, Item 407 reorders some Philadelphia Stock Exchange, Inc. Relating to exchanges, so that we are not now taking additional
provisions that were specified in Item 306 and Corporate Governance, Release No. 34–49881 (June action under these petitions.
reflects the relevant Public Company Accounting 17, 2004) [69 FR 35408]; Order Approving Proposed 475 Item 407(a).
independence for that board committee One commenter pointed out the rule identified as independent, a description,
applicable to it.476 proposals did not make clear what by specific category or type, of any
More specifically, if the company is disclosure would be required for listed transactions, relationships or
an issuer 477 with securities listed, or for issuers that relied upon an exemption arrangements not disclosed pursuant to
which it has applied for listing, on a from independence requirements, most paragraph (a) of Item 404 that were
national securities exchange 478 or in an notably a ‘‘controlled company’’ considered by the board of directors of
automated inter-dealer quotation system exemption.481 To clarify the disclosure the company in determining that the
of a national securities association 479 required in this situation, we added a applicable independence standards
which has requirements that a majority requirement to the amendments that if were met. Under our proposals,
of the board of directors be the company is a listed issuer whose disclosure of the specific details of each
independent, Item 407(a) requires securities are listed on a national such transaction, relationship or
disclosure of those directors and securities exchange or in an inter-dealer arrangement would have been required.
director nominees that the company quotation system which has Several commenters objected to
identifies as independent (and requirements that a majority of the providing this disclosure, given the
committee members not identified as board of directors be independent, and potential for extensive detail about these
independent), using the definition for also has exemptions to those types of transactions, relationships or
independence for directors (and for requirements (for board or committee arrangements, and some suggested
committee members) that it uses for member independence) upon which the instead providing disclosure by category
determining compliance with the company relied, the company must or type of transaction.485 In response to
applicable listing standards. If the disclose the exemption relied upon and the commenters, we have revised the
company is not a listed issuer, we are explain the basis for its conclusion that disclosure requirement to permit
requiring disclosure of those directors such exemption is applicable.482 Similar transactions, relationships or
and director nominees that the company disclosure is required for those arrangements of each director or
identifies as independent (and companies that are not listed issuers but director nominee to be described by the
committee members not identified as would qualify for an exemption under specific category or type. Consistent
independent) using the definition for the listing standards selected. In with the rule proposals, the amended
independence for directors (and for addition, this instruction clarifies that rule requires that the disclosure be
committee members) of a national small business issuers listed on made on a director by director basis,
securities exchange or a national exchanges where at least half of the with separate disclosure of categories or
securities association, specified by the members of the board of directors, types of transactions, relationships or
company. The company will be required rather than a majority, are required to be arrangements for each director and
to apply the same definition independent must comply with the director nominee. We have also adopted
consistently to all directors and also to disclosure requirements specified in an instruction indicating that the
use the independence standards of the Item 407(a).483 description of the category or type must
same national securities exchange or The amendments require as proposed be sufficiently detailed so that the
national securities association for that an issuer which has adopted nature of the transactions, relationships
purposes of determining the definitions of independence for or arrangements is readily apparent.486
independence of members of the directors and committee members must As proposed, this independence
compensation, nominating and audit disclose whether those definitions are disclosure is required for any person
committees.480 posted on the company’s Web site, and who served as a director of the company
if they are not include the definitions as during any part of the year for which
476 Id. If the company does not have a separately
an appendix to the company’s proxy or disclosure must be provided,487 even if
designated compensation, nominating or audit information statement at least once the person no longer serves as director
committee or committee performing similar
functions, it must provide this disclosure regarding every three years or if the policies have at the time of filing the registration
independence under committee independence been materially amended since the statement or report or, if the information
standards with respect to all members of the board beginning of the company’s last fiscal is in a proxy statement, if the director’s
of directors. year.484 Further, if the policies are not term of office as a director will not
477 Under the amendments, ‘‘listed issuer’’ has the
same meaning as in Exchange Act Rule 10A–3.

on the company’s Web site, or included continue after the meeting. In this
478 Under the amendments, ‘‘national securities as an appendix to the company’s proxy regard, we believe that the
exchange’’ means a national securities exchange or information statement, the company independence status of a director is
registered pursuant to Section 6(a) of Exchange Act must disclose in which of the prior material while the person is serving as
[15 U.S.C. 78f(a)]. fiscal years the policies were included director, and not just as a matter of
479 Under the amendments, ‘‘inter-dealer
in the company’s proxy or information reelection.488
quotation system’’ means an automated inter-dealer
quotation system of a national securities association statement.
registered pursuant to Section 15A(a) of the In addition, the amendments require, 485 See, e.g., letters from Chamber of Commerce;
Exchange Act [15 U.S.C. 78o–3(a)], and a ‘‘national for each director or director nominee FSR; and Sidley Austin.
securities association’’ means a national securities
association registered pursuant to Section 15A(a) of 487 Instruction 2 to Item 407(a) has been revised
the Exchange Act [15 U.S.C. 78o–3(a)] that has been 407, we adopt revised language for these provisions to clarify this requirement. As proposed, disclosure
approved by the Commission (as that definition that reflects the general approach discussed above under these amendments will not be required for
may be modified or supplemented). Inter-dealer with regard to disclosure of director independence persons no longer serving as a director in
quotation systems such as the OTC Bulletin Board, for board and committee purposes. registration statements under the Securities Act or
481 Letter from NYCBA.
the Pink Sheets and the Yellow Sheets, which do the Exchange Act filed at a time when the company
not maintain or impose listing standards and do not is not subject to the reporting requirements of
have listing agreements or arrangements with the 483 See Section 121.B.(2)(c) of the American Stock Exchange Act Section 13(a) or 15(d). As proposed,
issuers whose securities are quoted through them, Exchange Company Guide; paragraph (g) of Chapter disclosure will not be required of anyone who was
are not within this definition. See Section II.F.1. in XXVII, Listed Securities, Section 10, Corporate a director only during the time period before the
the Audit Committee Release. Governance, of the Rules of the Board of Governors company made its initial public offering if he or she
480 Similar disclosure had been required pursuant of the Boston Stock Exchange; and Rule 19(a)(1) of was no longer a director at the time of the offering.
to Item 7(d)(2)(ii) and Item 7(d)(3)(iv) of Schedule Article XXVIII, Listed Securities, of the Chicago 488 For this reason, we are not incorporating the
14A prior to these amendments. As part of our Stock Exchange Rules. concept previously found in Instruction 4 to Item
consolidation of these provisions into new Item 484 Item 407(a)(2). 404(b) into Item 407(a) as adopted.
We also amend the disclosure describing the nature and scope of their necessary. Therefore, we are adopting
requirements regarding the audit assignment, and the material elements the compensation consultant disclosure
committee and nominating committee of the instructions or directions given to requirement in Item 407(e) as proposed,
applicable prior to these amendments in the consultants with respect to the except for the required disclosure
order to eliminate duplicative performance of their duties under the regarding contacts with executive
committee member independence engagement. officers, which has not been adopted.497
disclosure and to update the required Several commenters viewed this item Further, the amendments consolidate
audit committee charter disclosure as redundant with the Compensation into this compensation committee
requirements for consistency with the Discussion and Analysis required under disclosure requirement the disclosure
more recently adopted nominating Item 402, and suggested that they be requirements regarding compensation
committee charter disclosure combined.493 While this item and the committee interlocks and insider
requirements.489 As a result, as Compensation Discussion and Analysis participation in compensation
proposed the audit committee charter both involve the determination of decisions, as proposed.498
will no longer be required to be executive officer compensation, they Finally, for registrants other than
delivered to security holders if it is have different focuses. Item 407(e) registered investment companies, the
posted on the company’s Web site.490 focuses on the company’s corporate amendments eliminate an existing
We also are moving the disclosure governance structure that is in place for proxy disclosure requirement regarding
required by Section 407 of the Sarbanes- considering and determining executive directors who have resigned or declined
Oxley Act regarding audit committee and director compensation—such as the to stand for re-election 499 which is no
financial experts to Item 407, although scope of authority of the compensation longer necessary since it has been
as proposed we are not making any committee and others in making these superseded by a disclosure requirement
substantive changes to that determinations, as well as the resources in Form 8–K.500 For registered
requirement.491 utilized by the committee. In contrast, investment companies, which do not
The amendments require new the Compensation Discussion and file current reports on Form 8–K, the
disclosures regarding the compensation Analysis focuses on material requirement has been moved to Item
committee that are similar to the information about the compensation 22(b) of Schedule 14A.501 Also as
disclosures required regarding audit and policies and objectives of the company proposed, the amendments combine
nominating committees of the board of and seeks to put the quantitative various proxy disclosure requirements
directors.492 The company must state disclosure about named executive regarding board meetings and
whether the compensation committee officer compensation into perspective. committees into one location.502 In
has a charter, and if it does make the We believe it is appropriate to discuss addition, we are adopting as proposed
charter available through its Web site or each of these matters separately and, two instructions to Item 407 to combine
proxy materials in one of the ways that accordingly, we have not combined repetitive provisions, one relating to
the audit and nominating committee them. independence disclosure, and the other
charters may be made available. As As for the required disclosure relating to board committee charters.503
proposed, the company will be required regarding compensation consultants,
E. Treatment of Specific Types of
to describe its processes and procedures some commenters objected to the
Issuers
for the consideration and determination proposed requirements,494 while other
of executive and director compensation commenters suggested expanding the 1. Small Business Issuers
including: requirement to include, among other We are adopting amendments to Item
• The scope of authority of the things, a discussion of the work 404 of Regulation S–B substantially as
compensation committee (or persons performed by the compensation proposed. Amended Item 404 of
performing the equivalent functions); consultant for the company or others.495 Regulation S–B is substantially similar
• The extent to which the In addition, some commenters suggested to amended Item 404 of Regulation S–
compensation committee (or persons deleting the requirement in proposed K, except for the following two matters:
performing the equivalent functions) Item 407(e) that companies identify any • Paragraph (b) of Item 404 of
may delegate any authority to other executive officer of the company that Regulation S–K relating to policies and
persons, specifying what authority may the compensation consultants contacted procedures for reviewing related person
be so delegated and to whom; in carrying out their assignment.496 We transactions is not included in
• Any role of executive officers in continue to believe that the involvement Regulation S–B, and
determining or recommending the of compensation consultants and their • Regulation S–B provides for a
amount or form of executive and interaction with the compensation disclosure threshold of the lesser of
director compensation; and committee is material information that
• Any role of compensation should be required. However, we are 497 Under the rules as adopted, disclosure would
consultants in determining or persuaded that disclosure regarding any also not be required under this Item if an employee
recommending the amount or form of executive officers of the company that of a consulting firm met with company management
executive and director compensation, to work on matters not involving compensation. See
the compensation consultants contacted letter from Hewitt.
identifying such consultants, stating in carrying out their assignment is not 498 Prior to these amendments, disclosure
whether such consultants are engaged regarding compensation committee interlocks and
directly by the compensation committee 493 See, e.g., letters from J. Brill 1; Hewitt; Mercer; insider participation in compensation decisions
(or persons performing the equivalent Pearl Meyer & Partners; and SCSGP. was required by Item 402(j).
494 See, e.g., letters from Buck Consultants; 499 Prior to these amendments, this disclosure
functions) or any other person, was required by Item 7(g) of Schedule 14A.
Chamber of Commerce; Hewitt; Pearl Meyer &
500 Item 5.02(a) of Form 8–K.
Partners; Mercer; and Steven Hall & Partners.
489 However, we are not revising the provision 501 Item 22(b)(17) of Schedule 14A.
495 See, e.g., letters from Brian Foley & Co.; 3C-
that the Audit Committee Report is furnished and Compensation Consulting Consortium; BCIMC; CFA 502 Item 407(b) includes disclosure requirements
not filed. Centre 1; Governance for Owners; Michelle Leder; previously specified in paragraphs (d)(1), (f), and
490 Item 407(d)(1) and Instruction 2 to Item 407.
James McFadden; Institutional Investor Group; (h)(3) of Item 7 of Schedule 14A.
491 Item 407(d)(5). SBAF; and Theodore Schlissel. 503 Instructions 1 and 2 to Item 407. Instruction
492 These compensation committee disclosure 496 See, e.g., letters from Compensia; FedEx 2 also includes as proposed a requirement that the
requirements are included in Item 407(e). Corporation; Hewitt; and Mercer. charter be provided if it is materially amended.
$120,000 or one percent of the average change from the proposal also results in disclosure of this information prior to
of the small business issuer’s total assets the structure of Item 404(a) of adoption of these amendments.
at year-end for the last three completed Regulation S–B more closely resembling 2. Foreign Private Issuers
fiscal years,504 to require disclosure for the structure of Item 404(a) of
small business issuers that may have Regulation S–K, particularly in Before today’s amendments, a foreign
material related person transactions situations where Item 404(a) of private issuer would be deemed to
even though smaller than the absolute Regulation S–K applies to time periods comply with Item 404 of Regulation S–
dollar amount of $120,000. longer than one year. K if it provided the information required
Both amended items consist of by Item 7.B. of Form 20–F. The
In addition, amended Item 404 of amendments retain this approach, but
disclosure requirements regarding
related person transactions and Regulation S–B retains a paragraph require that if more detailed information
promoters. These provisions of Item 404 requiring disclosure of a list of all is otherwise made publicly available or
of Regulation S–B are substantially parents of the small business issuer required to be disclosed by the issuer’s
identical to those of Item 404 of showing the basis of control and as to home jurisdiction or a market in which
Regulation S–K, except for certain each parent, the percentage of voting its securities are listed or traded, that
changes conforming amended Item 404 securities owned or other basis of same information must also be disclosed
of Regulation S–B to former Item 404 of control by the small business issuer’s pursuant to Item 404.511
Regulation S–B. These changes consist immediate parent, if any.509
3. Registered Investment Companies
of the following: One conforming change that we are
• Retaining in amended Item 404 of not making to Regulation S–B, however, We are revising Items 7 and 22(b) of
Regulation S–B an instruction in former concerns the calculation of a related Schedule 14A, substantially as
Item 404 of Regulation S–B regarding person’s interest in a given transaction. proposed, to reflect the reorganization
underwriting discounts and Prior to today’s amendments, Item that we have undertaken with respect to
commissions;505 and 404(a) of Regulation S–B differed from operating companies. Under the
• Not including an instruction in Item 404(a) of Regulation S–K with amendments, information that was
amended Item 404 of Regulation S–B respect to, among other things, the required to be provided by registered
regarding the treatment of foreign investment companies under Item 7
calculation of the dollar value of a
private issuers that is included in prior to the amendments is instead
person’s interest in a related person
amended Item 404 of Regulation S–K.506 required by Item 22(b).512 The
transaction. Prior to these amendments,
The two year time period for requirements of Item 7 that prior to the
Instruction 4 to Item 404(a) of
disclosure embodied in Item 404 of amendments applied to registered
Regulation S–K had specifically investment companies regarding the
Regulation S–B prior to these
provided that the amount of such nominating and audit committees, board
amendments was retained in the
interest was to be computed without meetings, the nominating process, and
principle for disclosure in proposed
Item 404(a) of Regulation S–B. regard to the amount of profit or loss shareholder communications generally
Amended Item 404(a) of Regulation S– involved in the transaction. In contrast, will be included in Item 22(b) by cross-
B continues to require two years of Item 404(a) of Regulation S–B contained references to the appropriate paragraphs
disclosure, but does so by including an no such instruction prior to these of new Item 407 of Regulation S–K.513
instruction to Item 404(a) of Regulation amendments. We are adopting The substance of these requirements has
S–B 507 requiring a second year of amendments as proposed so that the not been altered. In addition, the
disclosure, rather than by including the method of calculation of a related revisions to Item 22(b) directly
two year time period in the principle for person’s interest in a transaction will be incorporate disclosures relating to the
disclosure in Item 404(a) of Regulation the same for both Regulation S–B and independence of members of
S–B as was proposed. This change from Regulation S–K. We believe that
the proposal clarifies that for purposes differences, if any, between the types of 511 Instruction 2 to Item 404 of Regulation S–K.
of applying the definition of ‘‘related transactions that small business issuers 512 Amendments to Item 7(e) of Schedule 14A.
may engage in with related persons as Business development companies will furnish the
person’’ to determine whether information required by Item 7 of Schedule 14A, in
disclosure is required of a transaction compared to transactions of larger addition to the information required by Items 8 and
that occurred prior to a person having issuers would not warrant a different 22(b) of Schedule 14A. See amendments to Items
the relationship that resulted in the approach for calculating a related 7, 8, and 22(b) of Schedule 14A.
513 Amendments to Items 22(b)(15)(i) and (ii)(A)
person becoming a related person, a one person’s interest in a transaction.
and 22(b)(16)(i) of Schedule 14A. Amended Item
year time period should be used rather As proposed, new Item 407 of 22(b)(15)(i) requires the information required by
than a two year time period.508 This Regulation S–K is substantially identical new Items 407(b)(1) and (2) and (f), corresponding
to the information that registered investment
to new Item 407 of Regulation S–B,510 companies have been required to provide pursuant
504 We are revising Item 404(a) of Regulation S–
except that it would not require to Items 7(f) and 7(h) prior to today’s amendments.
B from the proposal to clarify that the
determination of a small business issuer’s total disclosure regarding compensation Amended Item 22(b)(15)(ii)(A) requires the
committee interlocks and insider information required by new Items 407(c)(1) and
assets for purposes of this Item shall be made as of
(2), corresponding to the information that registered
the issuer’s fiscal year-end for its last three participation in compensation decisions investment companies have been required to
completed fiscal years. or the Compensation Committee Report,
505 Instruction 8 to Item 404(a) of Regulation S–
provide pursuant to Items 7(d)(2)(i) and 7(d)(2)(ii)
B.
since Regulation S–B did not require (other than the nominating committee
independence disclosures required prior to today’s
506 This is consistent with the requirements of
amendments by Item 7(d)(2)(ii)(C)). Amended Item
Regulation S–B prior to these amendments. 31, 2005. However, if the transaction had occurred 22(b)(16)(i) requires closed-end investment
507 Instruction 9 to Item 404(a) of Regulation S– in February 2004, disclosure would not be required companies to provide the information required by
B. in the small business issuer’s 2005 Form 10–KSB. new Items 407(d)(1) through (3), corresponding to
508 For example, if an employee had a material 509 Item 404(b) of Regulation S–B.
the information that closed-end investment
interest in a transaction with the small business 510 The requirements that were specified in companies have been required to provide prior to
issuer which occurred in February 2005 and then paragraphs (e), (f), and (g) of Item 401 of Regulation today’s amendments pursuant to Item 7(d)(3) (other
became an executive officer in July 2005, disclosure S–B prior to these amendments are now specified than the audit committee independence disclosures
would be required in the small business issuer’s in paragraphs (d)(5), (d)(4) and (c)(3), respectively, required prior to today’s amendments by Items
Form 10–KSB for the fiscal year ended December of Item 407 of Regulation S–B. 7(d)(3)(iv)(A)(1) and (B)).
nominating and audit committees that BTR defines terms used in Section non-director services, except for an
are similar to those contained in new 306(a) and Regulation BTR, including amount that does not exceed the Item
Item 407(a) of Regulation S–K and the term ‘‘acquired in connection with 404(a) dollar disclosure threshold;
contained in Item 7 prior to the service or employment as a director or • Do not possess an interest in any
amendments.514 We are also adding executive officer.’’ 520 Under this other transaction for which Item 404(a)
instructions that are similar to new definition as originally adopted, one of disclosure would be required; and
Instruction 1 to Item 407(a).515 the specified methods by which a • Are not engaged in a business
As proposed, we are also raising from director or executive officer directly or relationship required to be disclosed
$60,000 to $120,000 the threshold for indirectly acquires equity securities in under Item 404(b).
disclosure of certain interests, connection with such service is an As described above, the Item 404
transactions, and relationships of each acquisition ‘‘at a time when he or she amendments substantially revise or
director or nominee for election as was a director or executive officer, as a rescind the Item 404 provisions on
director who is not or would not be an result of any transaction or business which the Non-Employee Director
‘‘interested person’’ of an investment relationship described in paragraph (a) definition was based. To minimize
company within the meaning of Section or (b) of Item 404 of Regulation S– potential disruptions and because no
2(a)(19) of the Investment Company K.’’ 521 To conform this provision of problems were brought to our attention
Act.516 This disclosure is required in Regulation BTR to the Item 404 regarding any aspect of the definition as
investment company proxy and amendments, we are amending Rule it was stated before adoption of these
information statements and registration 100(a)(2) so that it references only amendments, we proposed a conforming
statements. The increase in the transactions described in paragraph (a) amendment that would delete the
disclosure threshold corresponds to the of Item 404, as we proposed. provision referring to business
increase in the disclosure threshold for relationships subject to disclosure under
amended Item 404 from $60,000 to 2. Rule 16b–3 Non-Employee Director Item 404(b) as it was stated prior to
$120,000. Definition today’s amendments, without otherwise
We also are adopting conforming revising the text of the rule.
F. Conforming Amendments In the interest of providing certainty
amendments to the definition of Non-
The changes to Item 404 necessitate Employee Director in Exchange Act regarding Non-Employee Director status
conforming amendments to other rules Rule 16b–3.522 Section 16(b) provides and to recognize corporate governance
that refer specifically to Item 404. an issuer (or shareholders suing on its changes since the definition was
1. Regulation Blackout Trading behalf) the right to recover from an adopted, one commenter suggested
Restriction officer, director, or ten percent basing the definition instead on whether
shareholder profits realized from a a director meets the independence
We are adopting, as proposed, standards under the rules of the
purchase and sale of issuer equity
conforming changes to Regulation principal national securities exchange
Blackout Trading Restriction,517 also securities within a period of less than
six months. However, Rule 16b–3 where the company’s securities are
known as Regulation BTR, which we traded.524 If the company has no
originally adopted to clarify the scope exempts transactions between issuers of
securities and their officers and securities traded on an exchange, the
and operation of Section 306(a) 518 of commenter suggested relying on the
the Sarbanes-Oxley Act of 2002 and to directors if specified conditions are met.
In particular, acquisitions from and director’s eligibility to serve on the
prevent evasion of the statutory trading issuer’s audit committee under
restriction.519 Rule 100 of Regulation dispositions to the issuer are exempt if
the transaction is approved in advance Exchange Act Section 10A(m) and
514 Amendments to Items 22(b)(15)(ii)(B) and by the issuer’s board of directors, or Exchange Act Rule 10A–3.525 We are
(16)(ii) of Schedule 14A. Amended Item board committee composed solely of not following the suggested approach.
22(b)(15)(ii)(B) requires disclosure about the two or more Non-Employee Directors.523 As we stated in the Proposing Release,
independence of nominating committee members Before adoption of these amendments, the standards for an exemption from
that is similar to those required by Item Section 16(b) liability should be readily
7(d)(2)(ii)(C) prior to today’s amendments and
the definition of ‘‘Non-Employee
amended Item 22(b)(16)(ii) requires disclosure Director,’’ among other things, limited determinable by reference to the
about the independence of audit committee these directors to those who: exemptive rule, and not variable
members that is similar to those required by Items • Do not directly or indirectly receive depending upon where the issuer’s
7(d)(3)(iv)(A)(1) and (B) prior to today’s securities are listed.526 Further, basing
amendments.
compensation from the issuer, its parent
515 Instruction to Item 22(b)(15)(ii)(B) of Schedule or subsidiary for consulting or other the Non-Employee Director definition
14A; Instruction to Item 22(b)(16)(ii) of Schedule on eligibility to serve on the issuer’s
14A. equity security, if the director or executive officer audit committee could burden the audit
516 Amendments to Items 22(b)(7), 22(b)(8), and acquires the equity security in connection with his committee with a compensation
22(b)(9) of Schedule 14A; amendments to Items or her service or employment as a director or committee function.
12(b)(6), 12(b)(7), and 12(b)(8) of Form N–1A; executive officer. This provision equalizes the
amendments to Items 18.9, 18.10, and 18.11 of treatment of corporate executives and rank-and-file As proposed and adopted, the Non-
Form N–2; amendments to Items 20(h), 20(i), and employees with respect to their ability to engage in Employee Director definition continues
20(j) of Form N–3. transactions involving issuer equity securities to permit consulting and similar
517 17 CFR 245.100–104. during a pension plan blackout period if the arrangements subject to limits measured
518 15 U.S.C. 7244(a), entitled ‘‘Prohibition of securities were acquired in connection with their
service to, or employment with, the issuer. by reference to the revised Item 404(a)
Insider Trading During Pension Fund Blackout
Periods.’’
520 This term is defined in Rule 100(a) of disclosure requirements. Because the
519 Insider Trades During Pension Fund Blackout Regulation BTR. disclosure threshold of Item 404(a) is
Periods, Release No. 34–47225 (Jan. 22, 2003) [68
521 Rule 100(a)(2) of Regulation BTR.
raised from $60,000 to $120,000,
522 Exchange Act Rule 16b–3(b)(3)(ii), which
FR 4337]. Section 306(a) makes it unlawful for any however, the effect in some cases may
director or executive officer of an issuer of any defines a Non-Employee Director of a closed-end

investment company as ‘‘a director who is not an
be to permit previously ineligible
equity security (other than an exempted security),
directly or indirectly, to purchase, sell, or otherwise ‘interested person’ of the issuer, as that term is
524 See letter from Sullivan.
acquire or transfer any equity security of the issuer defined in Section 2(a)(19) of the Investment
(other than an exempted security) during any Company Act of 1940,’’ is not amended. 525 15 U.S.C. 78j–1(m) and 17 CFR 240.10A–3.
pension plan blackout period with respect to such 523 Exchange Act Rules 16b–3(d)(1) and 16b–3(e). 526 Proposing Release at n. 309.
directors to be Non-Employee Directors. the Exchange Act. The amendments and/or (d)(5) of new Item 407, as
In other cases, where revised Item modify: appropriate; 534
404(a) may require disclosure of director • Forms that prior to these • Forms that prior to these
indebtedness and disclosure of business amendments required disclosure of the amendments required disclosure of the
relationships not subject to disclosure information required by Item 404 to information required by Item 401(j), to
under former Item 404(b), some instead require disclosure of the instead require disclosure of the
formerly eligible directors may become information required by amended Item information required by new Item
ineligible. 404 and new Item 407(a); 530 407(c)(3); 535 and
In response to concerns of • Item 10 of Form N–CSR to include
commenters about the potential • Some forms that prior to these a cross reference to new Item
difficulty of making a determination,527 amendments required disclosure of the 407(c)(2)(iv) of Regulation S–K and new
we have revised the rule as it was information required by Item 404(a) or Item 22(b)(15) of Schedule 14A, in lieu
proposed to include an additional note by Items 404(a) and (c), to instead of the former reference to Item
to Rule 16b–3.528 The Non-Employee require disclosure of the information 7(d)(2)(ii)(G) of Schedule 14A.
Director definition contemplates that required by Items 404(a) and (b) as In addition, conforming amendments
the director must satisfy the definition’s amended, or amended Item 404(a), as have been made to a provision in
tests at the time he or she votes to appropriate; 531 Regulation AB, which prior to these
approve a transaction. For purposes of • A form that prior to these amendments required disclosure of the
determining a director’s status under amendments cross-referenced an information required by Items 401, 402
those tests that are based on Item 404(a), instruction in Item 404 which we are and 404, so that instead it will require
a company may rely on the disclosure eliminating to instead include the text disclosure of the information required
provided under Item 404 of Regulation of this instruction; 532 by amended Items 401, 402, 404 and
S–K for the issuer’s most recent fiscal • Item 7 of Schedule 14A, to require paragraphs (a), (c)(3), (d)(4), (d)(5) and
year contained in the most recent filing disclosure of the information required (e)(4) of new Item 407.536
in which Item 404 disclosure is by new Item 407(a) rather than the VI. Plain English Disclosure
presented.529 Where a transaction disclosure that was required prior to
disclosed in that filing was terminated these amendments by Item 404(b), to We are adopting as proposed a
before the director’s proposed service as eliminate paragraphs (d)–(h) of Item 7 requirement that most of the disclosure
a Non-Employee Director, that called for by amended Items 402, 403,
that were duplicative of new Item 407
transaction will not bar such service. 404 and 407 be provided in plain
and replace them with a requirement to
The issuer must believe in good faith English. This plain English requirement
disclose information specified by
that any current or contemplated will apply when information
corresponding paragraphs of new Item
transaction in which the director responding to these items is included
407;
participates will not require Item 404(a) (whether directly or through
• Forms that prior to these incorporation by reference) in reports
disclosure, based on information readily amendments required disclosure of the
available to the issuer and the director required to be filed under Exchange Act
information required by Item 402 to Sections 13(a) or 15(d). Commenters
at the time such director proposes to act instead require disclosure of the
as a Non-Employee Director. At such were generally supportive of the plain
information required by amended Item English requirement,537 and some
time as the issuer believes in good faith, 402 and new Item 407(e)(4), and, in the
based on readily available information, commenters suggested extending the
case of proxy statements and annual plain English requirements to the proxy
that a current (or contemplated)
reports on Form 10–K, new Item statement as a whole and to other
transaction with a director will require
407(e)(5); 533 Commission filings.538
Item 404(a) disclosure in a future filing,
the director no longer is eligible to serve • Some forms that prior to these In 1998, we adopted rule changes
as a Non-Employee Director. However, amendments required disclosure of the requiring issuers preparing prospectuses
this determination does not result in information required by Item 401 to to write the cover page, summary and
retroactive loss of a Rule 16b–3 instead require disclosure of the
534 See amendments to General Instruction
exemption for a transaction previously information required by Item 401 as
I.B.4.(c) of Form S–3, and Item 10 of Form 10–K,
approved by the director while serving amended and paragraphs (c)(3), (d)(4) which refer to Item 401 and paragraphs (c)(3), (d)(4)
as a Non-Employee director consistent and (d)(5) of new Item 407, and Item 7(b) of
with the note. In making determinations 530 See amendments to Item 15 of Form SB–2, Schedule 14A, which refers to Item 401 and
Item 11(n) of Form S–1, Item 18(a)(7)(iii) and Item paragraphs (d)(4) and (d)(5) of new Item 407. The
under the note, an issuer may rely on 19(a)(7)(iii) of Form S–4, Item 23 of Form S–11, amendments to Form 10–KSB require disclosure of
information it obtains from the director, Item 7 of Form 10, Item 13 of Form 10–K, Item 7 the information required by amended Item 401 and
for example pursuant to a response to an of Form 10–SB and Item 12 of Form 10–KSB. The new Item 407(c)(3), (d)(4) and (d)(5) of Regulation
inquiry. amendments to Forms SB–2, 10–SB and 10–KSB S–B. We are not making any changes to the
require disclosure of the information required by reference to Item 401 in Note G to Form 10–K,
3. Other Conforming Amendments amended Item 404 and new Item 407(a) of however, because the portion of Item 401 applicable
Regulation S–B. in Note G (certain disclosure regarding executive
The changes to Item 404, along with 531 See amendment to Item 7(b) of Schedule 14A, officers) does not include the part of Item 401 that
the consolidation of provisions into which refers to amended Items 404(a) and (b), and we are combining into new Item 407.
535 See amendments to Item 5 in Part II of Form
Item 407, necessitate conforming Item 22(b)(11) and the Instruction to Item 22(b)(11)
of Schedule 14A, and Item 5.02(c)(2) of Form 8–K, 10–Q, and Item 5 in Part II of Form 10–QSB. The
amendments to various forms and amendments to Item 5 in Part II of Form 10–QSB
which refer to amended Item 404(a). The
schedules under the Securities Act and amendments to Form 8–K that reference Regulation require disclosure of the information required by
S–B require disclosure of the information required new Item 407(c)(3) of Regulation S–B.
527 See,e.g., letter from SCSGP. by amended Item 404(a) of Regulation S–B. 536 See amendments to Item 1107(e) of Regulation
528 Note 4 to Rule 16b–3. 532 See amendments to Item 23 of Form S–11. AB.
529 As under Rule 16b–3 prior to these 533 See amendments to Item 8 of Schedule 14A, 537 See, e.g., letters from SCSGP; jointly, Angela
amendments, each test referring to Item 404 is Item 11(l) of Form S–1, General Instruction I.B.4.(c) Chappa, Annie Gabel and Michelle Prater; SBAF;
measured by reference to Regulation S–K, even if of Form S–3, Items 18(a)(7)(ii) and 19(a)(7)(ii) of and Standard Life.
the disclosure requirements applicable to the Form S–4, Item 22 of Form S–11, Item 6 of Form 538 See, e.g., letters from SCSGP; Foley; and
company are governed by Regulation S–B. 10 and Item 11 of Form 10–K. Mercer.
risk factors section of prospectuses in information, drawn to scale and not commenters recommended using a
plain English and apply plain English misleading. separate supplemental table, rather than
principles to other portions of the The new rule also provides additional footnotes, to identify the components of
prospectus.539 These rules transformed guidance on drafting the disclosure that All Other Compensation, including
the landscape of public offering would comply with plain English individual perquisites, reported in the
disclosure and made prospectuses more principles, including guidance as to the Summary Compensation Table.542
accessible to investors. We believe that following practices that companies While we have not mandated such a
plain English principles should apply to should avoid: separate table, we encourage companies
the disclosure requirements that we are • Legalistic or overly complex to use additional tables wherever
adopting, so disclosure provided in presentations that make the substance of tabular presentation facilitates clearer,
response to those requirements is easier the disclosure difficult to understand; more concise disclosure. Several
to read and understand. Clearer, more • vague ‘‘boilerplate’’ explanations commenters also requested that we
concise presentation of executive and that are overly generic; specifically permit tabular disclosure of
director compensation, related person • complex information copied the required potential post-employment
transactions, beneficial ownership and directly from legal documents without payments disclosure.543 Because of the
corporate governance matters can any clear and concise explanation of the difficulty of prescribing a single format
facilitate more informed investing and provision(s); and that would cover all circumstances, the
voting decisions in the face of complex • disclosure repeated in different rule as proposed and adopted does not
information about these important areas. sections of the document that increases mandate tabular disclosure. However,
We are adding Exchange Act Rules the size of the document but does not consistent with the plain English
13a–20 and 15d–20 to require that enhance the quality of the information. principles that we adopt today, we
companies prepare their executive and Under the new rules, if disclosures encourage companies to develop their
director compensation, related person about executive compensation, own tables to report post-termination
transaction, beneficial ownership and beneficial ownership, related person compensation if such tabular
corporate governance disclosures transaction or corporate governance presentation facilitates clearer, more
included in Exchange Act reports using matters are incorporated by reference concise disclosure. Similarly, while we
plain English, including the following into an Exchange Act report from a do not require tabular presentation of
principles: company’s proxy or information the narrative disclosure following the
• Present information in clear, statement, the disclosure is required to director compensation table, such as a
concise sections, paragraphs and be in plain English in the proxy or breakdown of director fees, consistent
sentences; information statement.540 The plain with the plain English rules we adopt
• Use short sentences; English rules are part of the disclosure today, we encourage tabular
• Use definite, concrete, everyday rules applicable to filings required presentation where it facilitates an
words; under Sections 13(a) and 15(d) of the understanding of the disclosure.
• Use the active voice; Exchange Act. We believe that these Companies should also consider ways
• Avoid multiple negatives; plain English requirements are best in which design elements such as tables
• Uuse descriptive headings and administered by the Commission under can facilitate the presentation of the
subheadings; these rules, and therefore we are not at related person transaction disclosure
• Use a tabular presentation or bullet this time extending plain English and corporate governance disclosures.
lists for complex material, wherever requirements to the entire proxy
possible; statement or to other Commission VII. Transition
• Avoid legal jargon and highly filings.
technical business and other A number of commenters
We believe that several areas where recommended that we adopt the rules
terminology; commenters requested that information
• Avoid frequent reliance on by September or October 2006 in order
be required in a specific format, such as for companies to have sufficient time to
glossaries or defined terms as the tables, are best addressed by application
primary means of explaining implement them for the 2007 proxy
of our plain English principles. The season.544 One commenter expressed
information; plain English rules adopted today
• Define terms in the glossary or other concern on how the transition would
specifically provide that, in designing apply to Securities Act registration
section of the document only if the the presentation of the information,
meaning is unclear from the context; statements.545 In keeping with these
companies may include tables or other comments, we believe we have adopted
• Use a glossary only if it facilitates design elements, so long as the design
understanding of the disclosure; and the new rules and amendments in
is not misleading and the required sufficient time for compliance in the
• In designing the presentation of the information is clear, understandable,
information, include pictures, logos, 2007 proxy season. Therefore, the
consistent with applicable disclosure compliance dates are as follows:
charts, graphs, schedules, tables or other requirements, consistent with any other
design elements so long as the design is included information, and not 542 See, e.g., letters from Amalgamated; CFA
not misleading and the required misleading.541 In response to our Centre 1; CII; IUE–CWA; Mercer; and SBAF.
information is clear, understandable, request for comment, several 543 See, e.g., letters from Buck Consultants;
consistent with applicable disclosure Frederic W. Cook & Co.; HRPA; ISS; Mercer; and
requirements and any other included 540 See, e.g., General Instruction G(3) to Form 10– The Value Alliance and Corporate Governance
K and General Instruction E.3. to Form 10–KSB Alliance.
539 Plain English Disclosure, Release No. 33–7497 (specifying information that may be incorporated by 544 See, e.g., letters from ABA; ACC; Brian Foley
(Jan. 28, 1998) [63 FR 6369] (adopting revisions to reference from a proxy or information statement in & Co.; Jesse Brill, Chair of
Securities Act Rule 421 [17 CFR 230.421]). We have an annual report on Form 10–K or 10–KSB). CompensationStandards.com and Chair of the
also required that risk factor disclosure included in 541 Of course, the tables required under the rules National Association of Stock Plan Professionals,
annual reports and Summary Term Sheets in we adopt today must be included and cannot be dated April 28, 2006; Buck Consultants; Foley;
business combination filings be in plain English. modified except as specifically allowed for in the Frederic W. Cook & Co.; Fried Frank; Mercer; and
See Item 1A. to Form 10–K and Item 1001 of rules. See Item 402(a)(5) of Regulation S–K and Item Sullivan.
Regulation M–A [17 CFR 229.1001], respectively. 402(a)(4) of Regulation S–B. 545 See letter from BDO Seidman.
• For Forms 8–K, compliance is most recent fiscal year will be required Reduction Act.549 The titles for the
required for triggering events that occur to be reflected in the revised Summary collection of information are: 550
60 days or more after publication in the Compensation Table when the new (1) ‘‘Regulation S–B’’ (OMB Control
Federal Register; rules and amendments applicable to the No. 3235–0417);
• For Forms 10–K and 10–KSB, Summary Compensation Table become (2) ‘‘Regulation S–K’’ (OMB Control
compliance is required for fiscal years effective, and therefore the information No. 3235–0071);
ending on or after December 15, 2006; for years prior to the most recent fiscal (3) ‘‘Form SB–2’’ (OMB Control No.
• For proxy and information year will not have to be presented at all.
3235–0418);
statements covering registrants other (4) ‘‘Form S–1’’ (OMB Control No.
For the subsequent year’s Summary 3235–0065);
than registered investment companies,
Compensation Table, companies will be (5) ‘‘Form S–4’’ (OMB Control
compliance is required for any proxy or
required to present only the most recent Number 3235–0324);
information statements filed on or after
December 15, 2006 that are required to two fiscal years in the Summary (6) ‘‘Form S–11’’ (OMB Control
include Item 402 and 404 disclosure for Compensation Table, and for the next Number 3235–0067);
fiscal years ending on or after December and all subsequent years will be (7) ‘‘Regulation 14A and Schedule
15, 2006; required to present all three fiscal years 14A’’ (OMB Control Number 3235–
• For Securities Act registration in the Summary Compensation Table.547 0059);
statements covering registrants other As another example, if a calendar year- (8) ‘‘Regulation 14C and Schedule
than registered investment companies end company files its initial public 14C’’ (OMB Control Number 3235–
and Exchange Act registration offering on Form S–1 in November, the 0057);
statements (including pre-effective and initial filing will contain compensation (9) ‘‘Form 10’’ (OMB Control No.
post-effective amendments, as disclosure regarding 2005 following the 3235–0064);
(10) ‘‘Form 10–SB’’ (OMB Control No.
applicable), compliance is required for prior rules. If the registration statement 3235–0419);
registration statements that are filed does not become effective until after the (11) ‘‘Form 10–K’’ (OMB Control No.
with the Commission on or after Item 402 disclosure must be updated, 3235–0063);
December 15, 2006 that are required to then an amendment will have to be filed (12) ‘‘Form 10–KSB’’ (OMB Control
include Item 402 and 404 disclosure for that includes the 2006 compensation No. 3235–0420);
fiscal years ending on or after December information that complies with the rules (13) ‘‘Form 8–K’’ (OMB Control No.
15, 2006; we adopt today. The Summary 3235–0060); and
• For initial registration statements Compensation Table, however, will only (14) ‘‘Form N–2’’ (OMB Control No.
and post-effective amendments that are contain the information for 2006 and 3235–0026).
annual updates to effective registration We adopted all of the existing
will not need to contain the information
statements that are filed on Forms N– regulations and forms pursuant to the
restated from 2005.
1A, N–2 and N–3 (except those filed by Securities Act and the Exchange Act. In
business development companies), This transition approach will result in addition, we adopted Form N–2
compliance is required for registration phased-in implementation of the pursuant to the Investment Company
statements and post-effective amended Summary Compensation Table Act. These regulations and forms set
amendments that are filed with the and amended Item 404(a) disclosure forth the disclosure requirements for
Commission on or after December 15, over a three-year period for Regulation annual 551 and current reports,
2006; and S–K companies, and a two-year period registration statements, proxy
• For proxy and information for Regulation S–B companies. During statements and information statements
statements covering registered this phase-in period, companies will not that are prepared by issuers to provide
investment companies, compliance is be required to present prior years’ investors with the information they
required for any new proxy or compensation disclosure or Item 404(a) need to make informed investment
information statement filed on or after disclosure under the former rules. decisions in registered offerings and in
December 15, 2006.546 secondary market transactions, as well
Commenters expressed some VIII. Paperwork Reduction Act as informed voting decisions in the case
confusion concerning the periods for A. Background of proxy statements.
which disclosure under the new rules Our amendments to the forms and
and amendments will be required The new rules and amendments regulations are intended to:
during the transition from the former contain ‘‘collection of information’’ • Provide investors with a clearer and
rules. As we noted in the Proposing requirements within the meaning of the more complete picture of compensation
Release, companies will not be required Paperwork Reduction Act of 1995.548 awarded to, earned by or paid to
to ‘‘restate’’ compensation or related We published a notice requesting principal executive officers, principal
person transaction disclosure for fiscal comment on the collection of financial officers, the highest paid
years for which they previously were information requirements in the executive officers other than the
required to apply our rules prior to the Proposing Release, and we submitted principal executive officer and principal
effective date of today’s amendments. these requirements to the Office of financial officer, and directors;
This means, for example, that only the Management and Budget for review in 549 44 U.S.C. 3507(d) and 5 CFR 1320.11.
accordance with the Paperwork 550 The
546 The amendments to the cross-references in paperwork burden from Regulations S–K
Item 10 of Form N–CSR will appear in the Form and S–B is imposed through the forms that are
547 The other amended executive and director subject to the requirements in those Regulations
concurrent with the effective date of the
amendments to our proxy rules, and will be compensation disclosure requirements which relate and is reflected in the analysis of those forms. To
effective for a particular registrant’s Forms N–CSR to the last completed fiscal year will not be affected avoid a Paperwork Reduction Act inventory
that are filed after the filing of any proxy statement by this transition approach. The Summary reflecting duplicative burdens, for administrative
that includes a response to new Item 407(c)(2)(iv) Compensation Table will be treated differently convenience we estimate the burdens imposed by
of Regulation S–K (as required by new Item because, as amended, it requires disclosure of each of Regulations S–K and S–B to be a total of
22(b)(15) of Schedule 14A). The substance of the compensation to the named executive officers for one hour.
information required by the Item has not been the last three fiscal years. 551 The pertinent annual reports are those on
changed. 548 44 U.S.C. 3501 et seq. Form 10–K or 10–KSB.
• Provide investors with better information necessary for computing the person transaction disclosure
information about key financial total amount of compensation, such as requirement;
relationships among companies and the grant date fair value of equity-based • New disclosure regarding a
their executive officers, directors, awards computed in accordance with company’s policies and procedures for
significant shareholders and their FAS 123R, and the aggregate annual the review, approval or ratification of
respective immediate family members; change in the actuarial present value of transactions with related persons;
• Include more complete information the named executive officers’ • New disclosure regarding corporate
about independence regarding members accumulated benefit under defined governance matters such as the
of the board of directors and board benefit and actuarial pension plans; independence of directors; and
committees; • Disclosure at lower thresholds of • Additional disclosure regarding
• Reorganize and modify the type of information regarding perquisites and pledges of securities by officers and
executive and director compensation other personal benefits; directors and directors’ qualifying
information that must be disclosed in • A more focused presentation of shares.
current reports; and compensation plan awards in a Grants At the same time, the amendments
• Require most of the disclosure of Plan-Based Awards Table, which will decrease existing disclosure
required under these amendments to be builds upon former tabular disclosures burdens for annual reports on Form 10–
provided in plain English. regarding long term incentive plans and K and registration statements on Forms
The hours and costs associated with awards of option and stock appreciation 10, S–1, S–4 and S–11 by:
preparing disclosure, filing forms, and rights to supplement the information • Eliminating tabular presentation
retaining records constitute reporting required to be included in the amended regarding projected stock option values
and cost burdens imposed by the Summary Compensation Table; under alternative stock appreciation
collection of information. An agency • Expanded disclosure regarding scenarios;
may not conduct or sponsor, and a holdings and exercises by named • Eliminating a generalized tabular
person is not required to respond to, a executive officers of previously awarded presentation regarding defined benefit
collection of information unless it stock, options and similar instruments plans, which will offset in part the
displays a currently valid control (with disclosure regarding outstanding increased burdens regarding pension
number. option awards required on an award-by- plan disclosure; and
The information collection award basis), including disclosure of • Eliminating a disclosure
requirements related to annual and option exercise prices and expiration requirement regarding specific director
current reports, registration statements, dates, as well as the amounts (both the relationships that could affect
proxy statements and information number of shares and the value) realized independence.
upon the exercise of options and the In addition, the amendments may
statements are mandatory. However, the
vesting of stock; increase or decrease existing disclosure
information collection requirements
relating exclusively to proxy and • Improved narrative disclosure burdens, or not affect them at all, for
accompanying data presented in the annual reports on Form 10–K and
information statements will only apply
executive compensation tables and a registration statements on Forms 10, S–
to issuers subject to the proxy rules.
new Compensation Discussion and 1, S–4 and S–11, depending on a
There is no mandatory retention period
Analysis section to explain material company’s particular circumstances, by:
for the information disclosed, and the • Eliminating the requirement to
information disclosed will be made elements of compensation of named
executive officers; include in proxy or information
publicly available on the EDGAR filing
• With regard to Form 10–K, a short statements a compensation committee
system. report on the repricing of options and
Compensation Committee Report
B. Summary of Information Collections regarding the compensation committee’s stock appreciation rights and a table
review and discussion with reporting on the repricing of options
The amendments will increase
management of the Compensation and stock appreciation rights over the
existing disclosure burdens for annual
Discussion and Analysis, and the past ten years, in favor of a narrative
reports on Form 10–K 552 and
compensation committee’s discussion of repricings, if any occurred
registration statements on Forms 10, S–
recommendation to the board of in the last fiscal year, which will be
1, S–4 and S–11 by requiring:
directors concerning the disclosure of required to be included or incorporated
• An expanded and reorganized
the Compensation Discussion and by reference (as applicable) in annual
Summary Compensation Table, which
Analysis in the Form 10–K or proxy or reports and registration statements;
will require expanded disclosure of a
information statement; • Increasing the dollar value
‘‘total compensation’’ amount, and
• New tables and narrative disclosure threshold for determining if related
552 The amended disclosure requirements regarding retirement plans and person transaction disclosure is
regarding executive and director compensation, nonqualified defined contribution and required from $60,000 to $120,000;
beneficial ownership, related person transactions other deferred compensation plans; • Narrowing the scope of an
and parts of the amended corporate governance • Expanded disclosure regarding instruction that provides bright line
disclosure requirements are in Form 10–K, tests for determining whether
Schedule 14A and Schedule 14C. Form 10–K
post-employment payments other than
permits the incorporation by reference of pursuant to retirement and deferred transactions with related persons are
information in Schedule 14A or 14C to satisfy the compensation plans; required to be disclosed in particular
disclosure requirements of Form 10–K. The analysis • A new table and improved narrative circumstances; and
that follows assumes that companies would either disclosure for director compensation to • Requiring disclosure about reliance
provide the required disclosure in a Form 10–K
only, if the company is not subject to the proxy replace the more general disclosure on an exemption from requirements for
rules, or would incorporate the required disclosure requirements in place prior to these director independence when such an
into the Form 10–K by reference to the proxy or amendments; exemption is available.
information statement if the company is subject to • Disclosure regarding additional Specifically with respect to proxy and
the proxy rules. This approach takes into account
the burden from the amended disclosure
related persons by expanding the information statements, the
requirements that are included in both the Form definition of ‘‘immediate family amendments will impose a new
10–K and in Schedule 14A or Schedule 14C. member’’ under an amended related disclosure requirement regarding the
company’s processes and procedures for other modifications will be required to KSB and registration statements on
the consideration and determination of be included or incorporated by Forms 10–SB and SB–2 filed by small
executive and director compensation reference in annual reports and business issuers by:
with respect to the compensation registration statements, while the • Reducing by two the number of
committee or persons performing the Compensation Committee Report will named executive officers for the
equivalent functions, and disclosure only be required to be included or purposes of executive compensation
regarding the availability of the incorporated by reference from the disclosure, to include only the principal
compensation committee’s charter (if it proxy or information statement in the executive officer and the two most
has one), either as an appendix to the annual report on Form 10–K. We highly compensated executive officers
proxy or information statement at least estimate that, on balance, the changes other than the principal executive
once every three fiscal years or on the that are specific to proxy or information officer;
company’s Web site. These amendments statements will result in some • Reducing the required information
will not require a compensation incremental burdens on proxy or in the Summary Compensation Table
committee to establish or maintain a information statement collections of from three years to two years of data;
charter. The amended disclosure that information, as described in more detail • Eliminating tabular disclosure of
will be required regarding compensation below. grants of options and stock appreciation
committees is similar to what is The amendments will increase rights in the last fiscal year;
existing disclosure burdens for annual • Eliminating tabular disclosure
currently required for audit committees
reports on Form 10–KSB 553 and regarding exercises of options and stock
and nominating committees. The
registration statements on Forms 10–SB appreciation rights; and
amendments will decrease disclosure • Eliminating tabular disclosure
requirements for proxy and information and SB–2 filed by small business issuers
by requiring: regarding long-term incentive plan
statements by eliminating a disclosure awards in the last fiscal year.
requirement regarding the resignation of • An expanded and reorganized
Summary Compensation Table, which In addition, the amendments may
directors and a compensation committee increase or decrease, or not affect,
report on the repricing of options and will require expanded disclosure of a
‘‘total compensation’’ amount, and existing disclosure burdens for annual
stock appreciation rights. The reports on Form 10–KSB or registration
amendments require the Compensation information necessary for computing the
total amount of compensation, such as statements on Forms 10–SB and SB–2
Discussion and Analysis disclosure in filed by small business issuers
the annual report on Form 10–K and in the grant date fair value of equity-based
awards computed in accordance with depending on the small business
proxy or information statements to be issuer’s particular circumstances, by:
accompanied by a short Compensation FAS 123R;
• Eliminating the requirement to
Committee Report regarding the • Disclosure at lower dollar
include a compensation committee
compensation committee’s review and thresholds for information regarding
report on the repricing of options and
discussion with management of the perquisites and other personal benefits;
stock appreciation rights, in favor of a
Compensation Discussion and Analysis, • Expanded disclosure regarding
narrative discussion of repricings, if any
and the compensation committee’s holdings by named executive officers of
occurred in the last fiscal year, which
recommendation to the board of previously awarded stock, options and
will be required to be included or
directors with regard to the disclosure of similar instruments (with disclosure
incorporated by reference (as
the Compensation Discussion and regarding outstanding option awards
applicable) in annual reports and
Analysis. This new Compensation required on an award-by-award basis),
registration statements;
Committee Report, along with the including disclosure of option exercise • Changing the dollar value threshold
Compensation Discussion and Analysis, prices and expiration dates. used for determining if related person
is required instead of the Board • A new table for director
transaction disclosure is required from
Compensation Committee Report on compensation, to replace narrative
$60,000 to the lesser of $120,000 or one
Executive Compensation that was disclosure requirements that existed
percent of the average of the small
previously required to be furnished with prior to these amendments;
business issuer’s total assets at year-end
proxy and information statements prior • A narrative description of
for the last three completed fiscal years;
to these amendments. The extent to retirement plans;
and
which eliminating the former • Disclosure regarding additional • Narrowing the scope of an
requirements to provide the Board related persons under the amended instruction that provides bright line
Compensation Committee Report on related person transaction disclosure tests for determining whether
Executive Compensation and a requirement; transactions with related persons are
compensation committee report on the • New and reorganized disclosure required to be disclosed in particular
repricing of options and stock regarding corporate governance matters circumstances.
appreciation rights reduces burdens for such as the independence of directors The amendments may increase or
proxy and information statements will and members of the nominating, decrease existing disclosure burdens, or
be offset to a substantial extent, as compensation and audit committees of not affect them at all, depending on the
discussed above, by the periodic the board of directors; and particular circumstances, for Forms N–
reporting and proxy or information • Additional disclosure regarding 1A, N–2, and N–3 by increasing to
statement requirements for pledges of securities by officers and $120,000 the former $60,000 threshold
Compensation Discussion and Analysis, directors, and director qualifying shares. in such forms for disclosure of certain
the new Compensation Committee At the same time, the amendments interests, transactions, and relationships
Report and a narrative disclosure will decrease existing disclosure of disinterested directors, although as
burdens for annual reports on Form 10–
requirement regarding repricings and discussed below we do not believe the

other modifications of outstanding 553 The same analysis as discussed above with
increase in the disclosure threshold will
awards. The Compensation Discussion regard to the relationship of Form 10–K to the
significantly impact the hours of
and Analysis and narrative disclosure disclosure required in proxy or information company personnel time and cost of
requirement regarding repricings and statements is also applied to Form 10–KSB. outside professionals in responding to
these items. The amendments will process; and the cost analysis does not • Plan-by-plan disclosure of pension
increase the existing disclosure burdens reflect additional director time that will benefits; 564
for Form N–2 by requiring business be required to read the lengthy new • Numerical estimates of termination
development companies to provide disclosure.555 The commenter also or change in control payments; 565
additional disclosure regarding expressed the view that smaller to mid- • Amendments to the related person
compensation. However, the size issuers will be negatively affected transaction disclosure requirement; 566
amendments will decrease the existing disproportionately more than larger • Disclosure of director relationships
disclosure burden by no longer public companies, as disclosure (other than those disclosed under the
requiring compensation disclosure with requirements increase and greater related person transaction disclosure
respect to certain affiliated persons and reliance on external support is thus requirement) considered by the board of
the advisory board of business necessitated. directors when making independence
development companies and by no Other commenters stated their belief determinations; 567 and
longer requiring business development • Disclosure regarding the use of
that the Commission underestimated the
companies to disclose certain compensation consultants by the
cost of the proposed disclosure
compensation from the fund complex. compensation committee 568 as well as
requirements.556 One of these
The amendments will decrease the the contacts between compensation
commenters cited the limited
Form 8–K disclosure burdens, by consultants and executive officers of the
availability of information from existing
focusing the Form 8–K disclosure company.569
information systems and requested that Some commenters also noted their
requirement on more presumptively the Commission afford an adequate belief that costs and burdens arising
material employment agreements, plans transition period to accommodate the from the proposals would
or arrangements of the narrower group proposed changes,557 while another disproportionately affect small business
of named executive officers, which commenter suggested that the proposal issuers and smaller public
should reduce the number of current would notably impose a reporting and companies.570
reports on Form 8–K filed each year administrative burden that would add to We have made substantive
relating to executive and director the already substantial reporting modifications to the proposals that
compensation matters. obligations imposed by the Sarbanes- address, in part, the concerns expressed
We do not believe that our Oxley Act of 2002 and related rules.558 by commenters about costs. Some of the
amendments regarding exhibit filing Another commenter noted that changes in the final rules include:
requirements for Form 20–F and our companies will likely incur • Treating Compensation Discussion
treatment of foreign private issuers considerable costs in preparing the first and Analysis as filed (and not
under the revised rules will impose any proxy statement under the revised rules, furnished), but requiring a separate
incremental increase or decrease in the even if, as was proposed, they do not Compensation Committee Report over
disclosure burden for these issuers. have to ‘‘restate’’ compensation for prior the names of compensation committee
C. Summary of Comment Letters and years.559 members as a means of emphasizing the
Revisions to Proposals Other commenters noted that specific committee’s involvement in the
aspects of the proposals would result in disclosure and providing additional
We requested comment on the significant costs or burdens, including: information to which the principal
Paperwork Reduction Act analysis
• Compensation Discussion and executive officer and principal financial
contained in the Proposing Release. We officer may look to in completing their
Analysis generally, as well as the status
did not receive comments on our certifications;
of this disclosure as filed rather than
Paperwork Reduction Act estimates; 554 • Requiring disclosure of the actuarial
furnished; 560
however, a number of commenters present value of the named executive
expressed concerns that costs associated • Disclosure of the increase in
actuarial value of pension plans in the officers’ accumulated benefits under
with the proposals were understated. defined benefit and actuarial pension
Commenters also raised concerns with Summary Compensation Table and its
inclusion in the determination of named plans in the Pension Benefits Table,
costs and burdens associated with which under the final rules will include
particular aspects of the proposals. executive officer status; 561
• Lowering the disclosure threshold the actuarial present value of
One commenter indicated that the accumulated benefits computed by
Commission needs to take into for perquisites and other personal
benefits to $10,000, and changing the utilizing assumptions used for financial
consideration that the disclosure is reporting purposes under generally
more detailed and lengthy, and threshold for separate identification and
quantification; 562 accepted accounting principles (rather
realistically will require more than requiring disclosure of an estimate
preparation time by more people; • Footnote disclosure to the
of the annual benefit payable upon
historically, the individuals involved in Outstanding Equity Awards at Year-End
retirement as proposed), and requiring
the process outside a company have Table regarding expiration and vesting
in the Summary Compensation Table
been attorneys and accountants who are dates; 563
preparing or reviewing the documents, 564 See, e.g., letters from ABA; Hewitt; HRPA; and
but compensation consultants and their 555 See letter from Chamber of Commerce. Towers Perrin.
556 See, e.g., letters from Computer Sciences;
advisors and special counsel to the 565 See, e.g., letters from Sullivan; Kellogg;
HRPA; N. Ludgus; and Kathy B. Wheby. SCSGP; and Chamber of Commerce.
directors would be introduced into the 557 See letter from Computer Sciences. 566 See, e.g., letters from American Bankers;
558 See letter from HRPA.
554 One commenter noted our aggregate burden Whitney Holding; SCSGP; and FSR.
559 See letter from Sullivan. 567 See, e.g., letters from BRT; Chadbourne;
estimates in commenting that the ‘‘administrative 560 See, e.g., letters from Hodak Value Advisors
costs’’ noted in the Proposing Release did not Chamber of Commerce; FSR; Intel; SCSGP; Sidley
account for the need to overcome compliance risks and Chamber of Commerce. Austin; and Sullivan.
561 See, e.g., letters from E&Y and KPMG. 568 See, e.g., letters from Chamber of Commerce
‘‘where concern for satisfying new rules is
multiplied by the potential legal risks associated 562 See, e.g., letters from Hodak Value Advisors; and Compensia.
with sufficiency and completeness under a regime ACC; Eli Lilly; and NACCO Industries. 569 See, e.g., letters from Mercer and Compensia.
of CEO and CFO certification.’’ Letter from Hodak 563 See, e.g., letters from ABA; Leggett & Platt; 570 See, e.g., letters from ABA; ACB; ICBA; and
Value Advisors. SCSGP; and Sidley Austin. SCSGP.
the aggregate annual change in that description of the methodology for Form N–2; 571 5 hours for Form 8–K;
value, so that the Summary determining the exercise price of 84.5 hours for Schedule 14A; and 84
Compensation Table data will directly options if the exercise price is not hours for Schedule 14C. The estimated
relate to the data presented in the determined based on the closing market incremental burden arising from today’s
Pension Benefits Table; price on the date of grant, and the amendments for each of these forms has
• Specifying that companies compute amount of securities underlying been estimated with reference to each of
estimates of compensation under post- unexercised options, the exercise prices these pre-existing burden estimates.
termination arrangements applying the and the option expiration dates for each For purposes of the Paperwork
assumptions that the triggering event outstanding option (rather than on an Reduction Act, we now estimate that the
occurred on the last day of the aggregate basis as proposed); annual incremental increase in the
company’s last completed fiscal year paperwork burden for companies to
and the price per share of the company’s • Require disclosure of the comply with our collection of
securities is the closing market price on Performance Graph (which would have information requirements to be
that day; been eliminated under the proposals) in approximately 783,284 hours of in-
• Specifying that companies must annual reports to security holders that house company personnel time and to
exclude the amounts for the aggregate precede or accompany a proxy or be approximately $133,883,300 for the
annual change in the actuarial present information statement relating to an services of outside professionals.572
value of accumulated benefits under annual meeting at which directors are to These estimates include the additional
defined benefit and actuarial pension be elected; and time and the cost of collecting
plans and the above-market or • Require disclosure about reliance information, preparing and reviewing
preferential earnings on nonqualified on an exemption from requirements for disclosure, filing documents and
deferred compensation when director independence when such an retaining records over our existing
determining which executive officers exemption is available. burden estimate for preparing executive
are named executive officers for the compensation, related person
purposes of disclosure in the D. Revisions to Paperwork Reduction transaction and corporate governance
compensation tables; Act Burden Estimates disclosures. Our methodologies for
• Including some instructions to the deriving these revised estimates are
related person disclosure requirement As discussed above, in consideration
discussed below.
that were proposed to be eliminated, so of commenters’ concerns that the costs
Our revised estimates represent the
that some bright line standards for non- associated with the disclosure average burden for all issuers, both large
disclosure, as modified, continue to requirements were understated in the and small.573 As described below, we
apply with respect to specific Proposing Release, we are revising our expect that the burdens and costs could
transactions; Paperwork Reduction Act burden be greater for larger issuers and lower
• Requiring disclosure of director estimates that were originally submitted for smaller issuers under the rules as
relationships (other than any to the Office of Management and adopted. For Exchange Act annual
transactions, relationships or Budget. In revising our estimates, we reports on Forms 10–K or 10–KSB,
arrangements disclosed under the have considered the comments current reports on Form 8–K, proxy
related person transaction disclosure identifying increased costs and burdens statements and information statements,
requirement) considered by the board of in the proposals, as well as the revisions we estimate that 75% of the burden of
directors when making independence that we have made in the final rules as preparation is carried by the company
determinations by specific category or compared to the proposals in response internally and that 25% of the burden
type, rather than by individual to some of the commenters’ concerns. is carried by outside professionals
transactions, relationships or The discussion that follows focuses retained by the issuer at an average cost
arrangements as proposed; and on the incremental change in burden of $400 per hour.574 For Securities Act
• Not requiring that companies estimates resulting from the registration statements on Forms SB–2,
identify the executive officers that amendments adopted today. The pre- S–1, S–4, S–11, or N–2 and Exchange
compensation consultants have existing burden estimates to which Act registration statements on Forms 10
contacted as proposed. these incremental changes will be added
Further, the final rules applicable to reflect the current aggregate burden 571 The pre-existing estimate for Form N–2
small business issuers are adopted represents the internal hour burden per response.
assigned to each information collection,
substantially as proposed, providing for In addition there is a pre-existing external cost
which already include the estimated estimate for Form N–2 of $12,766 per response.
significantly less detailed disclosure
burden of complying with the executive 572 For administrative convenience, the
regarding executive compensation for
compensation, related person presentation of the totals related to the paperwork
these companies as compared to the burden hours have been rounded to the nearest
transaction and corporate governance
disclosure required for larger issuers. whole number and the cost totals have been
We made other modifications to the disclosure requirements in place before rounded to the nearest hundred.
proposals in response to issues raised by adoption of these amendments. The 573 Our estimates are based on annual responses
commenters that could, depending on burden estimates (expressed as total on Form 10–K of 8,602 and annual responses on
burden hours per form) prior to adding Form 10–KSB of 3,504. Our estimates of the number
the particular circumstances, increase of annual responses to the collections of
costs relative to the costs estimated for the additional burdens imposed by the information are based on the number of filings
the proposals. In this regard, the final amended executive compensation, made in the period from October 1, 2004 through
rules: related person transaction and corporate September 30, 2005.
• Require expanded disclosure about governance rules are as follows: 2,202 574 At the proposing stage, we used an estimated
hourly rate of $300.00 to determine the estimated

option grants and outstanding options, hours for Form 10–K; 1,646 hours for cost to public companies of executive compensation
Form 10–KSB; 156 hours for Form 10;
including disclosure of the date the and related disclosure prepared or reviewed by
compensation committee or full board 133 hours for Form 10–SB; 593 hours outside counsel. We recently have increased this
for Form SB–2; 1,102 hours for Form S– hourly rate estimate to $400.00 per hour after
took action or was deemed to take consulting with several private law firms. The cost
action to grant an award if that date is 1; 4,048 hours for Form S–4; 1,892 estimates in this release are based on the $400.00
different from the grant date, a hours for Form S–11; 271.4 hours for hourly rate.
or 10–SB, we estimate that 25% of the reorganization of the amended to prepare the amended disclosure in
burden of preparation is carried by the disclosure requirements relative to the year one, 80 hours in year two and 35
company internally and that 75% of the disclosure requirements on these topics hours in year three and thereafter,
burden is carried by outside in place prior to adoption of these which results in an average of 95 hours
professionals retained by the issuer at amendments, in particular the over the three year period to comply
an average cost of $400 per hour.575 The requirements regarding Compensation with the amended disclosure
portion of the burden carried by outside Discussion and Analysis, expanded requirements. This estimate takes into
professionals is reflected as a cost, while disclosures concerning options and account that the burden will be incurred
the portion of the burden carried by the other equity-based awards and new by either including the required
company internally is reflected in disclosure requirements regarding disclosure in the report directly or
hours. pension benefits, non-qualified deferred incorporating by reference from a proxy
compensation, other potential post- or information statement. This
1. Securities Act Registration
employment payments and director estimated incremental burden is based
Statements, Exchange Act Registration
compensation. on a consideration of the extent to
Statements, Exchange Act Annual • Companies filing annual reports on which the amendments will increase,
Reports, Proxy Statements and Form 10–K that will be required to decrease or not affect the burden
Information Statements include disclosure under Item 402 of imposed by the requirements in place
For the purposes of the Paperwork Regulation S–K, as we are amending it, prior to these amendments, as described
Reduction Act, we estimate that, over a and Item 407(e)(4) of Regulation S–K in Section VIII.B., above. The
three year period,576 the annual (regarding compensation committee incremental burden represents the
incremental disclosure burden imposed interlocks and insider participation), estimate of the average burden across
by the amendments will average 95 will experience greater costs in the range of companies that file annual
hours per Form 10–K; 50 hours per responding to these disclosure reports on Form 10–K, recognizing that
Form 10–KSB; 85 hours per Form 10; 45 requirements in the first year of larger companies with more complex
hours per Forms 10–SB and SB–2; 74 compliance with them, and, to a lesser executive and director compensation
hours per Form S–1; 17 hours per Form extent, in the second and third years, as arrangements, more related person
S–4; 85 hours per Form S–11; 3 hours systems and processes are implemented transactions and more involved
per Schedules 14A and 14C; and 5 to obtain the relevant data and corporate governance structures may
hours per Form N–2.577 While the disclosure controls and procedures with require more time to comply with the
amendments to Item 22(b) of Schedule respect to new or expanded disclosure amended disclosure requirements,
14A and increasing to $120,000 the requirements are implemented, with while smaller issuers with potentially
former $60,000 threshold in Forms N– lower incremental costs expected in less complex circumstances are likely to
1A, N–2, and N–3 for disclosure of subsequent years. require less time to comply with the
certain interests, transactions, and • The hours of company personnel amended requirements.
relationships of disinterested directors time and outside professional time • For proxy statements on Schedule
may increase or decrease existing required to prepare the disclosure 14A and information statements on
disclosure burdens, or not affect them at regarding related person transactions Schedule 14C, we estimate that it would
all, depending on the particular under amended Item 404, director take companies 6 additional hours to
circumstances, we estimate that, as independence under new Item 407(a) prepare the additional corporate
discussed below, the amendments will and compensation committee functions governance and other compensation
not impose an annual incremental under paragraphs (e)(1) through (e)(3) of committee disclosures required only in
disclosure burden. Item 407 of both Regulation S–K and the proxy or information statement in
These estimates were based on the Regulation S–B, will be greater as year one, and 2 hours in year two and
following assumptions: compared to the burden that was 2 hours in year three and thereafter,
• The hours of company personnel imposed in complying with the related which results in an average of
time and outside professional time party transaction disclosure approximately 3 hours over the three
required to prepare the disclosure requirements and disclosure about the year period.578 As with the estimates for
regarding executive and director board of directors required by Item 404 Form 10–K, this estimated incremental
compensation under amended Item 402 of Regulations S–K and S–B and Item 7 burden is based on a consideration of
of Regulation S–K will be greater in of Schedule 14A prior to these the extent to which the amendments
light of the expansion and amendments. The new Compensation will increase, decrease or not affect the
Committee Report that is required in the burden imposed by the requirements in
575 As mentioned above, we do not believe that
Form 10–K (and is not required for place prior to these amendments, as
the amendments increasing to $120,000 the current
$60,000 threshold in Forms N–1A, N–2, and N–3
small business issuers, because they are described in Section VIII.B., above. The
for disclosure of certain interests, transactions, and not required to include Compensation incremental burden represents the
relationships of disinterested directors will Discussion and Analysis) will increase estimate of the average burden across
significantly impact the hours of company the burdens. Other amendments to be
personnel time and cost of outside professionals in
the range of companies that file proxy
responding to these items.
made by moving disclosure statements on Schedule 14A and
576 We calculated an annual average over a three requirements relating to corporate
year period because OMB approval of Paperwork governance to new Item 407 of 578 Similarly, the hours of company personnel
Reduction Act submissions covers a three year Regulations S–K and S–B will not time and outside professional time required to
period. Embedded in the three year period is the prepare the disclosure required by the amended
recognition that the costs in the initial year of
change the substance of the disclosure
conforming revisions to Item 22(b) relating to the
compliance are likely to be higher than in later requirements and will therefore not independence of members of nominating and audit
years. increase burdens, particularly for proxy committees of investment companies will be
577 In the Proposing Release, we estimated that

or information statements where much approximately the same as for compliance with the
the proposed revisions would average 67 hours per of the disclosure about these topics is requirements regarding disclosure of the
Form 10–K; 35 hours per Form 10–KSB; 60 hours independence of nominating and audit committee
per Form 10; 30 hours per Forms 10–SB and SB– currently required. members of investment companies that were
2; 60 hours per Forms S–1, S–4 and S–11; and 1.675 • For Form 10–K, we estimate that it required by Item 7 of Schedule 14A prior to today’s
hours per Form N–2. would take issuers 170 additional hours amendments.
information statements on Schedule amendments, is generally required for business issuers that are not already
14C, taking into account that larger three years in Securities Act and filing periodic reports pursuant to
companies may require more time to Exchange Act registration statements, so Exchange Act Sections 13(a) or 15(d)
comply with the amended disclosure that any additional burden associated and thus will not have been required to
requirements, while smaller companies with obtaining data and compiling the comply with the amended disclosure
(including small business issuers) with related person transaction disclosure requirements prior to filing such
potentially less complex circumstances under the amended requirements would registration statements, will take an
may require less additional time to be with respect to this three year period. estimated 45 additional hours on
comply with the amended requirements. • Small business issuers filing annual average to comply with the changes in
• Companies filing registration reports on Form 10–KSB will be subject the disclosure requirements. The
statements on Forms 10, S–1, S–4 and to lower incremental costs than other additional time required by these
S–11 that are not already filing periodic issuers as a result of the amendments, registrants to obtain the relevant data
reports pursuant to Exchange Act given the reduced disclosure required and to compile the required information
Sections 13(a) or 15(d) will in many by Item 402 of Regulation S–B relative is offset to some extent by the fact that
cases not have been required to comply to Item 402 of Regulation S–K, as only one year of compensation
with the amended disclosure described above. As with companies information will generally be required
requirements prior to filing such filing annual reports on Form 10–K, we for presentation in the Summary
registration statements, and will expect that small business issuers will Compensation Table, as compared to
therefore take an estimated 85 experience greater costs in responding two years for small business issuers
additional hours on average to comply to the amended disclosure requirements already subject to Exchange Act
with the changes in the disclosure in the first year of compliance with reporting requirements.
requirements. For Forms S–1 and S–4, them, as systems are implemented to • Based on our experience with the
which permit incorporation of obtain the relevant data and disclosure requirement we adopted in 1998 for
information by reference to disclosure controls and procedures with respect to issuers to write certain sections of
provided in Exchange Act reports, we new or expanded disclosure prospectuses in plain English, drafting
have estimated a lower average requirements are implemented, with documents in plain English will result
incremental number of burden hours in lower incremental costs in subsequent in an initial increase in time and cost
order to recognize that the incremental years. burdens in the first year of
burden arising from the amendments is • For Form 10–KSB, we estimate that implementation, and to a lesser extent,
already factored into the estimated it would take issuers an estimated 100 the second year, with those time or cost
average incremental burden for Forms additional hours on average to prepare burdens decreasing in the year
10–K and 10–KSB.579 These estimated their disclosure under the amended following implementation of the new
incremental burdens are based on a requirements in year one, 35 additional rules. To the extent that companies
consideration of the extent to which the hours in year two and 15 additional incorporate required information by
amendments will increase, decrease or hours in year three and thereafter, reference to proxy or information
not affect the burden imposed by the which results in an average of 50 statements, the amended plain English
requirements in place prior to these additional hours over the three year requirements would apply to disclosure
amendments, as described in Section period. This estimate assumes that the in those filings; however, the
VIII.B., above. The additional time burden would be incurred by either incremental burden of preparing plain
required by these companies to obtain including the amended disclosure in the English disclosure is factored into the
the relevant data and to compile the report directly or incorporating by burden estimates for Forms 10–K and
required executive compensation reference from a proxy or information 10–KSB. The plain English rule
information is offset to some extent by statement. This estimated incremental amendments will not affect the
the fact that only one year of executive burden is based on a consideration of substance of the required disclosure,
compensation information will the extent to which the amendments and companies that have filed
generally be required for presentation in will increase, decrease or not affect the registration statements under the
burden imposed by the requirements in Securities Act are already familiar with
the Summary Compensation Table, as
place prior to these amendments, as the requirements.
compared to three years for issuers
described in Section VIII.B., above. The • The amendments to increase to
already subject to Exchange Act
incremental burden represents the $120,000 the former $60,000 threshold
reporting requirements. By contrast,
estimate of the average burden across for disclosure of certain interests,
information regarding related person
the range of companies that file annual transactions, and relationships of
transactions, as was the case prior to the
reports on Form 10–KSB, recognizing disinterested directors in Forms N–1A,
579 For Form S–1, we estimate an average
that small business issuers with more N–2, and N–3 and in proxy and
incremental burden of 74 hours, based on an complex executive and director information statements may increase or
estimate that 459 out of the 528 registration compensation arrangements, more decrease existing disclosure burdens, or
statements that we estimate will be filed on Form related person transactions and more not affect them at all, depending on the
S–1 will not include the disclosure contemplated involved corporate governance particular circumstances. Because these
by these rule changes through incorporation by
reference to a Form 10–K or Form 10–KSB (459 structures may require more time to forms are already required to disclose
filings times 85 hours = 39,015 hours, which when comply with the amended disclosure these interests, transactions, and
divided by the 528 total annual filings results in requirements, while other small relationships in amounts exceeding
approximately 74 hours per Form S–1). For Form business issuers with potentially less $60,000, we do not believe the increase
S–4, we estimate an average incremental burden of
17 hours, based on an estimate that 123 out of the complex circumstances, particularly the in the disclosure threshold will
619 registration statements that we estimate will be smallest companies in this group, are significantly impact the hours of
filed on Form S–4 will not include the disclosure likely to require less time to comply company personnel time and cost of
contemplated by these rule changes through with the amended requirements. outside professionals in responding to
incorporation by reference to a Form 10–K or Form
10–KSB (123 filings times 85 hours = 10,455 hours,
• Small business issuers filing these items, and we estimate these
which when divided by the 619 total annual filings registration statements on Forms 10–SB amendments will neither increase nor
results in approximately 17 hours per Form S–4). and SB–2, including those small decrease the annual paperwork burden.
• Business development companies are implemented to obtain the relevant in the collection of information in hours
filing Form N–2 will be required to data and compliance efforts with respect and cost for Exchange Act periodic
include Item 402 of Regulation S–K, as to new or expanded disclosure reports for companies other than
we are amending it, and will experience requirements are implemented, with registered investment companies, proxy
higher costs in responding to these lower incremental costs expected in statements, information statements,
disclosure requirements in the first year subsequent years.580 Securities Act registration statements
of complying with them, and, to a lesser Tables 1 and 2 below illustrate the and Exchange Act registration
extent, in the second year, as systems incremental annual compliance burden statements.
TABLE 1.—CALCULATION OF INCREMENTAL PAPERWORK REDUCTION ACT BURDEN ESTIMATES FOR EXCHANGE ACT
PERIODIC REPORTS, PROXY STATEMENTS AND INFORMATION STATEMENTS
$400 Profes-
Annual Incremental Incremental 25% Profes-
Form 75% Issuer sional
responses hours/form burden sional cost
(A) (B) (C)=(A)*(B) (D)=(C)*0.75 (E)=(C)*0.25 (F)=(E)*$400
10–K 581. ................................................... 8,602 95 817,190 612,892.50 204,297.50 $81,719,000

10–KSB .................................................... 3,504 50 175,200 131,400.00 43,800.00 17,520,000
DEF 14A .................................................. 7,250 3 21,750 16,312.50 5,437.50 2,175,000
DEF 14C .................................................. 681 3 2,043 1,532.25 510.75 204,300
Total .................................................. ........................ ........................ 1,016,183 762,137.25 254,045.75 101,618,300
TABLE 2.—CALCULATION OF INCREMENTAL PAPERWORK REDUCTION ACT BURDEN ESTIMATES FOR SECURITIES ACT
REGISTRATION STATEMENTS AND EXCHANGE ACT REGISTRATION STATEMENTS
$400 Profes-
Annual Incremental Incremental 25% Profes-
Form 75% Issuer sional
responses hours/form burden sional cost
(A) (B) (C)=(A)*(B) (D)=(C)*0.25 (E)=(C)*0.75 (F)=(E)*$400
10 ............................................................. 72 85 6,120 1,530.00 4,590.00 $1,836,000

10–SB ...................................................... 166 45 7,470 1,867.50 5,602.50 2,241,000
SB–2 ........................................................ 885 45 39,825 9,956.25 29,868.75 11,947,500
S–1 ........................................................... 528 74 39,072 9,768.00 29,304.00 11,721,600
S–4 ........................................................... 619 17 10,523 2,630.75 7,892.25 3,156,900
S–11 ......................................................... 60 85 5,100 1,275.00 3,825.00 1,530,000
N–2 ........................................................... 462 5 2,310 577.50 1,732.50 693,000
Total .................................................. ........................ ........................ 110,420 27,605.00 82,815.00 33,126,000
2. Exchange Act Current Reports approximately $861,000 for the services estimate that approximately 22,083
of outside professionals. This estimate current reports filed on Forms 8–K
For purposes of the Paperwork reflects the reduction in the number of would be filed annually pursuant to
Reduction Act, we estimate that the filings that could result from our Item 1.01 of Form 8–K;
amendments affecting the collection of amendments.582 These estimates were
information requirements related to • Based on a review of Item 1.01 of
based on the following assumptions:
current reports on Form 8–K will reduce Form 8–K filings made in September
• The number of annual responses for 2005, we estimate that 6,625 of the
the annual paperwork burden by Form 8–K is estimated to be 110,416.583
approximately 6,458 hours of company 22,083 current reports on Form 8–K that
Based on a study of current reports on
personnel time and by a cost of would be filed annually under Item 1.01
Form 8–K filed in September 2005, we
580 For Form N–2, we estimate that it will take (representing all Form N–2 and N–2/A filings estimate that the changes to executive
business development companies 150 additional during the year ended December 31, 2005) (2,295 compensation and corporate governance disclosure
hours to prepare the amended disclosure in year hours divided by 462 filings on Form N–2 requirements applicable only in proxy or
one, 75 hours in year two and 30 hours in year three (including amendments) = approximately 5 hours information statements (and thus not in Securities
and thereafter, which results in an average of 85 per Form N–2 (including amendments)). Act registration statements or Exchange Act reports
hours for each business development company to We note that in the Proposing Release, we or registration statements) will impose an
comply with the amended compensation estimated 935 total annual filings on Form N–2 and incremental burden.
disclosures that would be required on Form N–2. N–2/A, but this higher number double counted 582 The amendments do not change the exhibit
We estimate an average annual incremental certain filings that were made under both the filing requirements under Item 601(b)(10) of
disclosure burden of 5 hours per Form N–2, based Securities Act and the Investment Company Act. Regulations S–K and S–B, therefore companies may
on 85 hours per Form N–2 filing by business Our revised estimate is 462 annual filings. be required to file compensatory plans, contracts or
development companies times 27 filings on Form 581 The burden estimates for Form 10–K and 10– arrangements as exhibits to filings even if current
N–2 by business development companies KSB assume that the amended requirements are reporting on Form 8–K is no longer required for the
(representing all Form N–2 and N–2/A filings by satisfied by either including information directly in entry into or amendment of those plans, contracts
business development companies during the year the annual reports or incorporating the information or arrangements.
ended December 31, 2005) (85 hours times 27 Form by reference from the proxy statement or 583 This is based on the number of responses
N–2 filings (including amendments) = 2,295 hours), information statement in Schedule 14A or Schedule made in the period from October 1, 2004 through
divided by 462 total annual filings on Form N–2 14C, respectively. As described above, we now September 30, 2005.
would relate to executive or director statements. While we believe that these disclosure accompany the Summary
compensation matters; and amendments will result in significant Compensation Table; 586
• Based on a review of Item 1.01 of benefits, we also recognize that the • Provide a higher threshold for
Form 8–K filings made in September amendments to the disclosure separate identification of categories of
2005, we estimate that 1,722 fewer requirements will impose additional ‘‘All Other Compensation’’ in the
current reports on Form 8–K would be costs. We have considered the costs and Summary Compensation Table;
filed annually as a result of more benefits in adopting these amendments. • Require a new Outstanding Equity
focused current reporting of executive Awards at Fiscal Year-End Table that
officer and director compensation B. Summary of Amendments
includes expanded disclosure regarding
transactions under new Item 5.02(e) of In light of the complexity of, and holdings of previously awarded stock,
Form 8–K.584 variations in, compensation programs, options and similar instruments, which
the sometimes inflexible and highly includes the value of stock and other
IX. Cost-Benefit Analysis
formatted nature of former Item 402 of similar incentive plan awards that have
A. Background Regulations S–K and S–B has resulted, not vested, as well as information
We are adopting amendments to our in some cases, in disclosure that does regarding options on an award-by-award
rules governing disclosure of executive not clearly inform investors as to all basis;
and director compensation, related elements of compensation. The changes • Require additional narrative
person transactions, director to Item 402 apply a broader approach disclosure addressing the material terms
independence and other corporate that eliminates some tables, simplifies of defined benefit and defined
governance matters and security or refocuses other tables, reflects total contribution plans and other post-
ownership of officers and directors. The compensation in the Summary termination compensation
revisions to the executive and director Compensation Table, and reorganizes arrangements; and
compensation disclosure rules are the compensation tables to group • Require a new Director
intended to provide investors with a together compensation elements that Compensation Table.
clearer and more complete picture of have similar functions so that the Item 402 of Regulation S–B will not
compensation to principal executive quantitative disclosure is both more include the following disclosures that
officers, principal financial officers, the informative and more easily understood. will be required by amended Item 402
highest paid executive officers and This improved quantitative disclosure of Regulation S–K:
directors. We are also amending our will be complemented by enhanced • Compensation Discussion and
rules relating to current reports on Form narrative disclosure clearly and Analysis or a Compensation Committee
8–K to require real-time disclosure of comprehensively describing the context Report;
only executive and director in which compensation is paid and • Information regarding two
compensation events that are received. In particular, the narrative additional executive officers;
unquestionably or presumptively disclosure requirements will provide • A third fiscal year of Summary
material, thereby reducing the number transparency regarding company Compensation Table disclosure;
of filings for events relating to executive compensation policies and procedures, • The supplementary Grants of Plan-
officers other than named executive and is designed to be sufficiently Based Awards Table, the Option
officers and those officers specified in flexible to operate effectively as new Exercises and Stock Vested Table, the
Item 5.02. We are amending our closely forms of compensation continue to Pension Benefits Table, the
related rules requiring disclosure evolve. Nonqualified Deferred Compensation
regarding the extent to which executive Table, and the separate Potential
We have also taken into account the Payments Upon Termination or Change-
officers, directors, significant relative burden of providing disclosure
shareholders and other related persons in-Control narrative section, while
by smaller companies that file providing a general requirement to
participate in financial transactions and information pursuant to Regulation S–B
relationships with the issuer. We are discuss the material terms of retirement
(as opposed to Regulation S–K). Under plans and the material terms of
amending our beneficial ownership the amendments, the scope and
disclosure requirement to require contracts providing for payment upon a
presentation of information in Item 402 termination or change in control.
disclosure regarding pledges of of Regulation S–B will differ in a
securities by management and directors’ number of significant ways from Item In addition, the application of Item
qualifying shares. Finally, we are 402 of Regulation S–K. Item 402 of 1.01 of Form 8–K to compensatory
requiring that most of the disclosure Regulation S–B will: arrangements has raised concerns that
that will be called for by the real-time disclosure may be required for
• Limit the named executive officers executive compensation events that are
amendments be provided in plain
for whom disclosure is required to a not unquestionably or presumptively
English, so that investors can more
smaller group, consisting of the material, and that are more
easily understand this information
principal executive officer and the two appropriately disclosed, if at all, in the
when it is required to be included in
other highest paid executive officers; 585 company’s proxy statement for its
Exchange Act reports or is incorporated
by reference from proxy or information • Require a revised Summary annual meeting of shareholders. The
Compensation Table to disclose amendments to Items 1.01 and 5.02 of
584 For Form 8–K, the current burden estimate is compensation information for the small
5 hours per filing. We estimate that 75% of the business issuer’s two most recent fiscal 586 Prior to these amendments, Item 402(b)(1) of
burden of preparation is carried by the company years, and to require that narrative Regulation S–B required disclosure in the Summary
internally and that 25% of the burden is carried by Compensation Table of compensation of the named
outside professionals retained by the issuer at an executive officers for each of the last three fiscal
average cost of $400 per hour. The computation of 585 Prior to these amendments, Item 402(a)(2) of years, and narrative disclosure was not required to
the reduction in burden is thus based on 1,722 Regulation S–B required compensation disclosure accompany the Summary Compensation Table.
fewer current reports on Form 8–K filed with a per for all individuals serving as the small business Under the amendments adopted today, new
filing burden of 3.75 hours carried by the company issuer’s chief executive officer and the small narrative disclosure will address some elements of
and 1.25 hours at a cost of $400 per hour (or $500 business issuer’s four highest paid executive compensation previously required to be disclosed
per filing). officers other than the chief executive officer. in tables.
Form 8–K focus real-time disclosure on the amendments, some of the disclosure least once every three fiscal years or on
compensation arrangements with that had been required under the certain the company’s Web site. The
executives and directors that we believe business relationship disclosure amendments to Item 407 of Regulation
are unquestionably or presumptively requirement may be required by the S–K require a short Compensation
material, and eliminate the obligation to consolidated disclosure requirement Committee Report regarding the
file Form 8–K with respect to other regarding transactions and relationships compensation committee’s review and
compensatory arrangements. with related persons in Item 404(a) of discussion with management of the
Further, the amendments streamline Regulation S–K. Item 404(b) of Compensation Discussion and Analysis,
and modernize Item 404 of Regulation Regulation S–K as amended requires and the compensation committee’s
S–K, while making it more principles- disclosure regarding the company’s recommendation to the Board with
based. For example, indebtedness of policies for the review, approval or regard to the disclosure of the
related persons is limited by the ratification of transactions with related Compensation Discussion and Analysis.
Sarbanes-Oxley Act, and the disclosure persons. This new Compensation Committee
requirement regarding indebtedness of We are adopting similar amendments Report, along with the Compensation
related persons has been combined into to Item 404 of Regulation S–B, which Discussion and Analysis, is required
the requirement regarding other will result in a more detailed related instead of the Board Compensation
transactions with related persons. This person transaction disclosure Committee Report on Executive
consolidated disclosure requirement requirement than had existed in Item Compensation that was previously
applies to an expanded group of related 404 of Regulation S–B prior to these required by Item 402 of Regulation S–
persons through amendments to the amendments. However, unlike Item 404 K prior to today’s amendments.
definition of the term ‘‘immediate of Regulation S–K, Item 404 of To the extent that shares beneficially
family member.’’ While the pre-existing Regulation S–B as amended does not owned by named executive officers,
principles for disclosure have been require disclosure regarding the directors and director nominees are
retained, the amendments increase the company’s policies for the review, used as collateral for loans, these shares
threshold for disclosure from $60,000 to approval or ratification of transactions are subject to risks or contingencies that
$120,000 and eliminate or narrow the with related persons. We are retaining do not apply to other shares beneficially
scope of certain instructions delineating the requirement that transactions owned by these persons. These
what transactions are reportable or occurring within the last two years must circumstances have the potential to
excludable. The disclosure requirements be disclosed under Item 404 of influence management’s performance
in Item 404 regarding transactions with Regulation S–B, whereas Item 404 of and decisions. As a result, we believe
promoters have been slightly expanded Regulation S–K requires disclosure for that the existence of these securities
in the amendments to apply when a the last fiscal year, unless the pledges could be material to
company had a promoter over the past information is included in a Securities shareholders and should be disclosed.
five years, as well as to require Act or Exchange Act registration We therefore are amending Item 403 of
analogous disclosure regarding statement, where information as to the Regulations S–K and S–B to require this
transactions with control persons of a last three fiscal years is required. disclosure as well as disclosure
shell company. We are adopting a new disclosure regarding directors’ beneficial
With respect to registered investment requirement in Item 407 of Regulations ownership of qualifying shares.
companies and business development S–K and S–B that consolidates We are requiring that most of the
companies, amendments to Items disclosures previously required in information that is required by these
22(b)(7), 22(b)(8), and 22(b)(9) of several places throughout our rules amendments be provided in plain
Schedule 14A and to Forms N–1A, addressing director independence, English in Exchange Act reports or in
N–2, and N–3 similarly increase to board committee functions and other proxy or information statements
$120,000 the former $60,000 threshold related corporate governance matters. incorporated by reference into those
for disclosure of certain interests, This new Item, which requires new reports. The plain English requirements
transactions, and relationships of each disclosure regarding independence of will make these documents easier to
director (and, in the case of Items members of the board of directors and understand.
22(b)(7), 22(b)(8), and 22(b)(9) of The amendments to Item 402 of
board committees, is intended to
Schedule 14A, each nominee for Regulation S–K, Items 402 and 404 of
enhance disclosures regarding
election as director) who is not or would Regulation S–B, and Form 8–K will
independence required by corporate affect all companies reporting under
not be an ‘‘interested person’’ of the
governance listing standards of national Sections 13(a) and 15(d) of the Exchange
fund within the meaning of Section
securities exchanges and automated Act, other than registered investment
2(a)(19) of the Investment Company Act
inter-dealer quotation systems of a companies. The amendments to Item
(and their immediate family members).
national securities association.587 Item 404 of Regulation S–K will affect all
In addition, amended Form N–2
407 of Regulations S–K and S–B also companies reporting under Sections
requires business development
includes a new disclosure requirement 13(a) and 15(d) of the Exchange Act,
companies to include the compensation
disclosure required by Item 402 of regarding the compensation committee’s other than registered investment
Regulation S–K, as amended. processes and procedures for the companies, and all companies,
The amendments also replace the consideration and determination of including registered investment
disclosure requirement for certain executive and director compensation, companies, filing proxy or information
business relationships of directors that and disclosure regarding the availability statements with respect to the election
had been required by Item 404(b) of of the compensation committee’s charter of directors. The changes to Items 402
Regulation S–K prior to these (if it has one), either as an appendix to and 404 of Regulation S–K and
the proxy or information statement at
amendments, which focused on Regulation S–B will also affect

relationships relevant to director 587 We are also adopting conforming revisions to
additional companies filing Securities
independence, with requirements for Item 22(b) relating to the independence of members
Act and Exchange Act registration
director independence disclosure in of nominating and audit committees of investment statements. The changes to Item 22(b) of
new Item 407 discussed below. Under companies. Schedule 14A will affect business
development companies and registered quality of compensation disclosure in executive and director compensation
investment companies filing proxy across companies. Disclosure of total will affect investors’ decision-making
statements with respect to the election compensation will benefit investors by with respect to that company.
of directors. The changes to Form N–1A reducing the need to make individual Disclosure under these new
will affect open-end investment computations in order to assess the size regulations will provide substantial
companies registering with the of current compensation. Further, benefit to investors in terms of the
Commission on Form N–1A. The improved executive and director accuracy, transparency, completeness
changes to Form N–2 will affect closed- compensation disclosure will enhance and accessibility of executive
end investment companies (including investors’ understanding of this use of compensation and related person
business development companies) corporate resources and the actions of transaction disclosure. Improved
registering with the Commission on boards of directors and compensation transparency in executive and director
Form N–2. The changes to Form N–3 committees in making decisions in this compensation under these amendments
will affect separate accounts, organized area.588 Particularly with respect to the could have other benefits in terms of the
as management investment companies proxy statement for the annual meeting allocative efficiency of affected
and offering variable annuities, at which directors are elected, this corporations with regard to the use of
registering with the Commission on improved disclosure will provide better resources for executive compensation
Form N–3. information to shareholders for relative to other corporate needs, as well
purposes of evaluating the actions of the as improvements in efficiency of
C. Benefits managerial labor markets. Benefits such
board of directors in fulfilling its
As discussed, the overall goal of the responsibilities to the company and its as these depend on the extent to which
executive and director compensation shareholders. the amendments, including
amendments is to provide investors With respect to the new requirements to disclose a total amount
with clearer, better organized and more Compensation Committee Report of compensation and more detail
complete disclosure regarding the mix, regarding the compensation committee’s regarding compensation policies, alter
size and incentive components of review and discussion with existing and future policies or practices
executive and director compensation. management of the Compensation in these areas. We emphasize that we
This goal is accomplished by Discussion and Analysis, and the are not seeking to foster any particular
eliminating some tables and other compensation committee’s policy or practice. Our objective is to
disclosures that we believe may no recommendation to the board of increase transparency to enable
longer be useful to investors, revising directors with regard to disclosure of the decision-makers to make more informed
other tables so that they are more Compensation Discussion and Analysis, decisions, which could result in
informative, and requiring new we believe that benefits will be derived different policies or practices or an
disclosure for retirement plans and from the attention of the compensation increase in investor confidence in
similar benefits, nonqualified deferred committee to the disclosure provided in existing policies or practices.
compensation, post-termination benefits Compensation Discussion and Analysis. Enhanced disclosure of outstanding
and director compensation. The Further, the principal executive officer option awards on an award-by-award
amendments require enhanced narrative and principal financial officer can look basis, and additional disclosure
disclosure, in the form of a to the Compensation Committee Report regarding other equity-based awards,
Compensation Discussion and Analysis when providing their certifications. will further benefit investors by making
section and narrative disclosure Finally, the Board Compensation it easier to evaluate the components of
accompanying the tables, to explain the Committee Report on Executive equity compensation for each named
significant factors underlying the Compensation has been eliminated in executive officer and the valuations of
compensation decisions reflected in the favor of company disclosure in the form those equity awards provided by
tabular data. The amendments also of the Compensation Discussion and companies in the Summary
require companies to report the total Analysis, which will provide investors Compensation Table.
amount of compensation for named with enhanced disclosure about the The amendments to Form 8–K will
executive officers and directors, and objectives and implementation of facilitate shareholder and investor
provide important context to the executive compensation programs. access to real-time disclosure of public
disclosure of total compensation. We believe that the extent to which companies’ significant personnel and
Improved disclosure under the increased transparency and compensation decisions by focusing this
amendments of executive and director completeness in executive and director disclosure only on what we believe are
compensation, such as equity-based compensation disclosure will result in the most important compensatory
compensation, non-equity incentive broader benefits depends at least in part arrangements with executive officers
plan compensation, and retirement and on the extent to which current executive and directors. This information will be
other post-employment compensation, and director compensation practices are filed pursuant to Item 5.02 of Form 8–
combined with the ability of investors to aligned with the interests of investors as K. To find this information,
track the elements of compensation and reflected in their investment and voting shareholders and investors no longer
the relative weights of those elements decisions. Any changes to a company will need to examine multiple Item 1.01
over time (and the reasons why that might occur, including changes in disclosures relating to other actions.
companies allocate compensation in the corporate governance, changes in Companies will also be relieved of
manner that they do), will better enable control, changes in the employment of obligations to quickly report arguably
investors to make comparisons both particular executives or other changes less important compensation
within and across companies. A could depend to some extent on the information on Form 8–K.
presentation facilitating the degree to which improved transparency The amendments to Item 404 will
comparability of different elements of provide investors with more complete

compensation in different companies 588 For a discussion of the debate concerning
disclosure of related person transactions
should make it easier for investors to board of directors and managerial decision-making and director independence, and new
in the area of executive compensation, see, e.g.,
analyze both the manner of Steven M. Bainbridge, Executive Compensation: disclosure regarding a company’s
compensation across companies and the Who Decides?, 83 Tex. L. Rev. 1615 (2005). policies and procedures for the review,
approval or ratification of relationships Finally, presentation in plain English commenters’ concerns that it is
with related persons. These will facilitate investor understanding of appropriate for the compensation
amendments will enhance investors’ most of the matters contemplated by our committee to continue to focus on the
understanding of how corporate amendments. executive compensation disclosure
resources are used in related person process as well as concerns with
D. Costs
transactions, and provide improved certifications, we are adopting a new
information to shareholders for In our view, the amendments to the Compensation Committee Report
purposes of better evaluating the actions executive officer and director regarding the compensation committee’s
of the board of directors and executive compensation, related person review and discussion with
officers in fulfilling their transaction and corporate governance management of the Compensation
responsibilities to the company and its disclosure requirements will increase Discussion and Analysis, and the
shareholders. the costs of complying with the compensation committee’s
In addition, by combining similar Commission’s rules. We further believe recommendation to the board of
provisions of former Item 404 into a that the costs related to preparing directors with regard to the disclosure of
single combined disclosure required disclosure in plain English will the Compensation Discussion and
requirement, the amendments will be short-term costs arising mainly in the Analysis. To the extent that members of
reduce confusion that may have first two years of implementation.589 the compensation committee would
occurred regarding the disclosure We believe that compliance with need to spend additional time and
required when more than one of the these amendments will, on balance, be resources reviewing the executive and
provisions of Item 404 applied to a more costly for companies than director compensation disclosures and
particular transaction or relationship compliance with the former disclosure potentially retaining experts and
before these amendments. Improved requirements, with the highest advisors to assist them in that review,591
corporate governance disclosure in new incremental annual costs occurring this requirement will result in
Item 407 will provide investors with principally in the first two years as additional costs to issuers.
better organized and more complete companies and their advisors determine In addition to the Compensation
information regarding the independence how best to compile and report Discussion and Analysis section, we are
of members of the board of directors. information in response to new or requiring narrative disclosure to
The amendments to Item 403 of expanded disclosure requirements. accompany tabular presentations so that
Regulation S–K and Regulation S–B will The improved quantitative and the data included in the tables may be
provide investors with disclosure of textual disclosure regarding executive understood in context. We are also
pledges of the securities beneficially and director compensation that we are expanding disclosure regarding
owned by management and directors adopting will incrementally increase compensation-related equity-based and
and full disclosure of beneficial costs for companies in several ways as other plan-based holdings, as well as
ownership by directors, including a result of the following new or retirement and similar plans. Finally,
directors’ qualifying shares. This expanded requirements. First, we are we are adopting a Director
information will contribute to investor requiring that companies provide a Compensation Table that will require
understanding of the economic Compensation Discussion and Analysis more detailed information regarding
incentives for executives and directors involving a discussion and analysis of director compensation than was
of public companies. material factors underlying specified in the narrative disclosure
Changes to Items 22(b)(7), 22(b)(8) compensation decisions reflected in the requirement that existed prior to today’s
and 22(b)(9) of Schedule 14A and to tabular presentations.590 To respond to amendments. Each of these revisions
Forms N–1A, N–2, and N–3 may seeks to elicit clearer and more
increase or decrease existing disclosure 589 The new plain English requirements will
complete information than was required
burdens imposed on investment require both the rewriting of existing disclosures in under the requirements in place before
plain English, as well as drafting new disclosures
companies, or not affect them at all, in plain English, such as Compensation Discussion adoption of these amendments. We have
depending on the particular and Analysis. also decided to retain the Performance
circumstances, by increasing the 590 The Compensation Discussion and Analysis, Graph in light of commenters’
threshold for disclosure of certain unlike the Board Compensation Committee Report overwhelming support for this
interests, transactions, and relationships on Executive Compensation that was required prior
to the adoption of these amendments, but like all
disclosure requirement, but we are
of each director (and, in the case of of the rest of the current compensation disclosure, moving it to new paragraph (e) of Item
Items 22(b)(7), 22(b)(8), and 22(b)(9) of is considered filed and as such will be part of the 201 of Regulation S–K and requiring
Schedule 14A, each nominee for documents for which certifications apply. The new that it will be furnished in the annual
election as director) who is not or would Compensation Committee Report will be furnished report to security holders rather than the
rather than filed. The release adopting our
not be an ‘‘interested person’’ of the certification requirements discussed the costs and proxy or information statement. Since
fund within the meaning of Section benefits of the requirements as follows: we originally proposed to delete the
2(a)(19) of the Investment Company Act The new certification requirement may lead to Performance Graph altogether, its
(and their immediate family members). some additional costs for issuers. The new rules retention requires us to consider the
The amendments to the executive and require an issuer’s principal executive and financial
officers to review the issuer’s periodic reports and
costs incurred by issuers to continue to
director compensation, related person to make the required certification. To the extent that comply with this requirement; however,
transaction, beneficial ownership and corporate officers would need to spend additional
corporate governance disclosure time thinking critically about the overall context of executive and financial officers. Certification
requirements will in many respects their company’s disclosure, issuers would incur Release, at Section VII.
costs (although investors would benefit from 591 While our rules do not require the retention
make these requirements clearer for improved disclosure). The certification requirement of consultants or other advisers, to the extent that
companies and their advisors, which creates a new legal obligation for an issuer’s companies do retain compensation consultants or
could have the benefit of improving principal executive and financial officers, but does other professionals we understand that they would
overall compliance with these not change the standard of legal liability. * * * generally charge per-hour rates comparable to those
Conversely, the new rules are likely to provide rates charged by outside counsel, which we have
provisions, including those provisions significant benefits by ensuring that information estimated for the purposes of our Paperwork
where disclosure requirements have not about an issuer’s business and financial condition Reduction Act analysis are approximately $400 per
changed substantively. is adequately reviewed by the issuer’s principal hour.
the substance of what is required with the expiration date with respect to each applying standard assumptions as to the
regard to the Performance Graph will award of unexercised options, stock share price of the company’s securities
not change substantially from what was appreciation rights and similar and the date of the event triggering
required prior to the adoption of these instruments with option-like features. termination.
amendments. Given the detailed information required, In addition, because the
While the Summary Compensation the disclosure generated may be determination of named executive
Table as amended will require reporting lengthy, but commenters indicated that officers will be based on total
of the grant date fair value of equity- this information is meaningful to compensation rather than salary and
based awards, we do not believe that them.592 Instead of disclosure on an bonus, some companies will incur
this change will increase costs for aggregate basis, as was proposed and as higher costs tracking the compensation
companies, because the computation of was required for some outstanding paid to all executive officers in order to
the grant date fair values of stock, option awards before adoption of these determine which are the most highly
options and similar instruments already amendments, the disclosure of compensated. At the same time,
is required for financial statement individual awards will enable investors however, companies will not be
purposes as a result of the to understand the extent and magnitude required to track the incremental change
implementation of FAS 123R. to which an executive’s previously in the value of pension benefits or the
Companies may incur additional costs, awarded options provide the potential amount of above-market or preferential
however, in determining the year to year to generate upside growth in the value earnings on nonqualified deferred
incremental changes in the actuarial of these holdings.593 We have attempted compensation for purposes of
present value of the named executive to minimize the cost of this rule as identifying named executive officers, as
officers’ accumulated benefit under amended by requiring that companies they would have under the proposed
defined benefit and actuarial pension list only the key terms of the securities, requirements.
plans for the purposes of reporting such as opposed to computing the weighted Under the amendments regarding
compensation in the Summary average of exercise prices or some other Form 8–K, disclosure regarding
Compensation Table. In an effort to calculation necessary for the purposes executive and director arrangements
reduce costs in response to commenters’ of aggregation. and other plans that are no longer
suggestions, we have revised the Additional costs may also be incurred required to be reported within four days
requirement to specify that in in preparing and presenting required under Item 1.01 of Form 8–K will be
computing the amount to be disclosed disclosures regarding retirement required to be disclosed by way of the
under the amendments, companies must benefits, deferred compensation and exhibit filing requirements on at least a
use the same assumptions (other than post-termination or change in control quarterly basis. To the extent that a
the normal retirement age) that they use payments, to the extent that information reduction in timeliness of this
for financial reporting purposes under regarding these matters is not currently information will reduce its value to
generally accepted accounting collected in a way that would facilitate investors, the amendments may impose
principles. Another change which may disclosure under the amendments. costs on investors other than those
help to make the calculation less costly However, these costs will likely be associated with transitioning to the new
is our revision to the proposal that the mitigated to some extent for the threshold.
incremental change in the actuarial following reasons: We believe that there will be some
present value of the named executive • As noted above, the calculation of increase in the cost of complying with
officers’ accumulated benefit under the actuarial value of pension benefits the related person transaction disclosure
defined benefit and actuarial pension required in the Pension Benefits Table requirement and corporate governance
plans required in the Summary and the Summary Compensation Table disclosures. The amendments may
Compensation Table directly will be standardized to a significant increase the cost of complying with the
correspond to the disclosure required in extent by requiring companies to use related person transaction disclosure
the Pension Benefits Table. Therefore, a many of the same assumptions for requirement by eliminating or reducing
second and different calculation of purposes of these calculations as they the scope of certain instructions and by
pension benefits is not being adopted as use for financial reporting purposes expanding the group of related persons
proposed. Costs may also arise from the under generally accepted accounting covered to include additional
reporting of other compensation in the principles; ‘‘immediate family members.’’ We did
All Other Compensation Column of the • The Pension Benefits Table will not not adopt, as proposed, a requirement
Summary Compensation Table. We do require different calculations from those for disclosure of indebtedness
not believe that the addition of a called for in the Summary transactions with significant
‘‘Total’’ column to the Summary Compensation Table and will not shareholders. Similarly, with respect to
Compensation Table in and of itself will require the disclosure of estimated registered investment companies and
increase costs, because former retirement benefits payable upon early business development companies,
disclosure requirements already retirement, as proposed; and amendments to Items 22(b)(7), 22(b)(8),
mandated the disclosure of all • We have adopted commenters’ and 22(b)(9) of Schedule 14A and to
compensation, and the mechanical suggestions that the quantitative Forms N–1A, N–2, and N–3 will
process of adding up disclosure disclosure required for post-termination increase to $120,000 the former $60,000
amounts should not be significant. agreements in new Item 402(j) of threshold for disclosure of certain
Companies will incur additional costs Regulation S–K be calculated by interests, transactions, and relationships
associated with disclosing the number of each director (and, in the case of
and key terms of out-of-the-money 592 Several commenters recommended expanded Items 22(b)(7), 22(b)(8), and 22(b)(9) of
instruments in the Outstanding Equity disclosure of the number and key terms of out-of- Schedule 14A, each nominee for
Awards at Fiscal Year-End Table. As the-money instruments. See n. 277. Other election as director) who is not or would
adopted, this table will require commenters suggested award-by-award disclosure not be an ‘‘interested person’’ of the
for options. See letters from Hodak Value Advisors
companies to disclose, on an award-by- and The Rock Center for Corporate Governance. fund within the meaning of Section
award basis, the number of underlying 593 See, e.g., letters from Brian Foley & Co.; Buck 2(a)(19) of the Investment Company Act
securities, the exercise or base price and Consultants; and Grundfest. (and their immediate family members).
Since these forms already require such listing standards. Finally, additional requirement under new Item 407(e) to
disclosure using the $60,000 threshold, costs may be incurred by companies identify any executive officer within the
we do not believe the amendments complying with Item 407(a) when company that a compensation
would impose additional costs. companies rely on an exemption from consultant contacted in carrying out its
Amended Item 404(b) of Regulation independence standards, as we are assignment. The overall effect of these
S–K introduces new costs by imposing requiring disclosure regarding reliance modifications to Items 404(a) and 407 as
new disclosure requirements on on any such exemption, including the they were proposed will be to reduce
companies regarding their policies for basis for the conclusion that the the number and type of transactions or
review, approval or ratification of exemption is available. contacts for which disclosure will be
related person transactions. In order to We believe that, overall, the costs required under the new rules and lessen
comply with disclosure requirements noted above which are associated with the aggregate burden imposed on
regarding policies for the review, the amended disclosure requirements companies to comply with the new
approval or ratification of related person for related person transactions and rules. We recognize, as suggested by
transactions, we understand that director independence will be offset to commenters, that additional costs may
companies will incur costs of collecting some extent by cost decreases associated be incurred in preparing the additional
the type of information that will be with narrowing the scope of other disclosures required regarding the
required to be disclosed. These costs disclosure requirements under the compensation committee process,
will be higher to the extent companies amendments, such as the disclosure that including disclosure regarding the use
do not already collect this information, was required about director of compensation consultants, as well as
either pursuant to their corporate relationships under Item 404(b) of in the compensation committee’s
governance policies or through Regulation S–K before today’s involvement with the Compensation
directors’ and officers’ questionnaires. amendments. In this regard, we believe Discussion and Analysis through the
The new rules do not require companies that companies will generally be Compensation Committee Report.
to create new policies or processes for required to provide an amount of Our plain English amendments
review, approval or ratification of information that is comparable to what require that companies use a clear
relationships with related persons. had been required by our rules before writing style to present the information
However, to the extent that companies the amendments. However, under the about executive and director
do create new policies or processes that amendments the information regarding compensation, related person
require the collection of different or these matters will be presented in a transactions, beneficial ownership and
additional information, they may incur manner that recognizes recent changes, some corporate governance matters that
incremental costs. such as the imposition of corporate are required to be disclosed in Exchange
The amended disclosures regarding governance listing standards at the Act reports such as annual reports on
director independence are similar to major markets. Forms 10–K or 10–KSB. We believe the
disclosure requirements under the Moreover, our amendments to the amended rules will result in a short-
proxy rules regarding the independence related person transaction and director term increase in costs for companies as
of directors who are members of the independence disclosure requirements they rewrite the information required to
company’s audit and nominating differ in certain respects from the be included in annual reports or
committees. Thus, for companies that proposals, which may lessen the incorporated by reference from proxy or
are subject to the proxy rules, the task expected compliance costs. In response information statements, but few
of complying with the disclosure to commenters’ concerns, we are additional costs after the first year or
requirement regarding director retaining certain exceptions to the two of implementation, as companies
independence can be performed by the related person transaction disclosure become familiar with the organizational,
same person or group of persons already requirements that existed under the language, and document structure
responsible for compliance with the rules prior to these amendments, and changes necessary to comply with these
rules requiring disclosure about the we are not requiring disclosure of amendments. Additional costs, if any,
independence of nominating and audit indebtedness transactions with should be one-time or otherwise short-
committee members. Because the rules significant shareholders (or their term.
prior to these amendments already immediate family members). For the We believe that there would be little,
required companies subject to the proxy amended disclosures under new Item if any, increase in the cost of complying
rules to collect and disclose information 407(a), any additional compliance costs with the beneficial ownership rule
about the independence of directors associated with requiring companies to amendments. A company will be
who serve on the audit and nominating disclose the transactions, relationships required to disclose named executive
committees, this amended disclosure and arrangements considered by the officer, director and director nominee
should not impose significant new costs board of directors in determining the pledges of securities, and directors’ full
for the collection of information by independence of directors or director beneficial ownership of equity
companies that are subject to the proxy nominees is mitigated to some extent securities, including directors’
rules. The new disclosure requirement because the amendments require only qualifying shares. The company can
regarding director and committee the disclosure of the specific type or inquire as to this information in
member independence may require category of transactions considered by questionnaires it already circulates to
disclosure of additional categories or the board of directors that are not the company’s officers and directors.
types of director relationships. otherwise disclosed under the related For purposes of the Paperwork
Additional costs may be incurred in person transaction disclosure Reduction Act, we have estimated the
seeking this information. However, such requirement of Item 404(a). In contrast, annual incremental increase in the
costs are limited by the extent to which under the rule proposals, disclosure of paperwork burden for companies to
companies already identify and track the specific details of each such comply with our collection of
the relationships that may be required to transaction, relationship or arrangement information requirements to be
be disclosed for the purposes of would have been required. Furthermore, approximately 783,284 hours of in-
complying with pre-existing disclosure in response to several commenters, we house company personnel time and to
requirements or corporate governance have eliminated the proposed be approximately $133,883,300 for the
services of outside professionals. As purposes of the Exchange Act. is intended to make Exchange Act
noted in the Paperwork Reduction Act Furthermore, Securities Act Section reports and proxy or information
section, we have revised these estimates 2(b),596 Exchange Act Section 3(f) 597 statements incorporated by reference in
both in response to comments about the and Investment Company Act Section those reports easier to understand.
proposed estimates and in light of the 2(c) 598 require us, when engaging in Thus, the amended rules will enhance
changes we have made from the rulemaking where we are required to the reporting requirements in place
proposal.594 These costs are based on consider or determine whether an action before adoption of these amendments by
our estimates that the annual is necessary or appropriate in the public providing more effective material
incremental disclosure burden imposed interest, to consider, in addition to the disclosure to investors in a timely
by the revisions that we adopt today protection of investors, whether the manner. We anticipate that these
will average 95 hours per Form 10–K; 50 action will promote efficiency, amendments will improve investors’
hours per Form 10–KSB; 3 hours per competition, and capital formation. ability to make informed investment
Schedule 14A and Schedule 14C; 85 We have also discussed other impacts and voting decisions and, therefore, may
hours per Form 10; 45 hours per Forms of the amendments in our Cost-Benefit, lead to increased efficiency and
10–SB and SB–2; 74 hours per Form S– Paperwork Reduction Act and Final competitiveness of the U.S. capital
1; 17 hours per Form S–4; 85 hours per Regulatory Flexibility Act Analyses. The markets. As discussed more fully in our
Form S–11; and 5 hours per Form N–2. amendments to Regulations S–K and S– Cost-Benefit Analysis, improved
We estimate that the amendments to B, to Items 8 and 22(b) of Schedule 14A, transparency in disclosure under these
Item 22(b) of Schedule 14A and and to Forms N–1A, N–2, and N–3 are amendments could have other benefits
increasing to $120,000 the former intended to improve the completeness in terms of the allocative efficiency of
$60,000 threshold for disclosure of and clarity of executive compensation affected corporations with regard to the
certain interests, transactions, and and related person transactions use of resources for executive
relationships of each director in Forms disclosure available to investors and the compensation relative to other corporate
N–1A, N–2, and N–3 will not impose an financial markets. These amendments needs, as well as improvements in
annual incremental disclosure burden. will enhance investors’ understanding efficiency of managerial labor markets.
These estimated costs include an of how corporate resources are used, Some commenters were concerned as
estimated reduction in costs attributable and enable shareholders to better to whether including examples in the
to current reports on Form 8–K of evaluate the actions of the board of principles-based Compensation
approximately 6,458 hours of company directors in fulfilling their Discussion and Analysis disclosure item
personnel time and by a cost of responsibilities, as well as the would in some way cause companies
approximately $861,000 for the services incentives for executive officers. and compensation committees to feel
of outside professionals, based on an The amendments to Form 8–K are obligated to conform their compensation
estimate that 1,722 fewer current reports intended to facilitate the ability of decision-making processes to those
on Form 8–K will be filed because of investors and shareholders to access examples. As we discussed in Section
more focused current reporting of real-time disclosure of public II.B.1., we emphasize that application of
compensation transactions. Based on companies’ executive compensation a particular example must be tailored to
these estimates solely computed for the events that are unquestionably or the company. We believe using a
purposes of the Paperwork Reduction presumptively material by requiring this disclosure concept along with
Act and assuming that the cost of in- disclosure only for compensatory illustrative examples strikes an
house company personnel time is $175, agreements with specified executive appropriate balance to effectively elicit
the total estimated incremental costs of officers. To find this information, meaningful disclosure applicable to the
the amendments is approximately shareholders and investors no longer company. Companies must assess the
$270,958,000. These estimates of need to examine multiple Form 8–K materiality to investors of the
incremental costs, which were prepared disclosures relating to other executive information that is identified by the
for the purposes of the Paperwork officers or other material non-ordinary examples in light of the particular
Reduction Act, are limited to hours and course definitive agreements. situation of the company.
costs associated with collecting The amendments to expand and We recognize that increased time and
information, preparing disclosure, filing consolidate into one item the director resources will need to be devoted by
forms, and retaining records imposed by independence and related corporate companies and their officers, directors
the applicable forms, and were based in governance disclosure requirements in and advisors to prepare the revised
part with reference to the pre-existing new Item 407 of Regulation S–K will disclosures required by these
burden estimates for each of the forms. improve the understanding of amendments. As discussed in more
shareholders and investors about the detail above, we have made substantive
X. Consideration of Burden on
composition and functions of the board modifications to the proposals to
Competition and Promotion of
of directors and board committees. address, in part, cost and burden
Efficiency, Competition and Capital
Amendments to beneficial ownership concerns raised by some
Formation
reporting requiring disclosure of commenters.599 We have also revisited
Exchange Act Section 23(a)(2) 595 pledged securities and director and increased our burden estimates for
requires us, when adopting rules under qualifying shares are intended to Paperwork Reduction Act purposes.
the Exchange Act, to consider the improve the disclosure regarding Ultimately, the impact of additional
impact that any new rule would have on security holdings of directors and
competition. In addition, Section executive officers. 599 For example, we have attempted to reduce the
23(a)(2) prohibits us from adopting any The requirement that most of the burden on quantifying post-employment
rule that would impose a burden on information called for in these compensation. See Section II.C.5. In addition,
competition not necessary or amendments be written in plain English several of our other modifications to the proposals
were made to address some commenter concerns
appropriate in furtherance of the over the possible perception of ‘‘double-counting’’
596 15 U.S.C. 77b(b). of compensation elements, which should also help
594 See Section VIII. above. 597 15 U.S.C. 78c(f). to improve the utility of the compensation
595 15 U.S.C. 78w(a)(2). 598 15 U.S.C. 80a–2(c). disclosures to investors.
resources being used by companies to likely to be less complex than those of of the board of directors, as well as
prepare the new disclosures will be larger issuers. We believe the changes requiring that most of the disclosure
borne by the companies’ shareholders. that are reflected in the amendments to required by the amended rules be
Based on the extensive comment we Regulation S–B will balance the provided in plain English.
received from investors supporting our information needs of investors in
smaller companies with the burdens A. Need for the Rules and Amendments
proposals, strong evidence suggests that
shareholders are willing to bear these imposed on such companies by the On January 27, 2006, we issued
costs.600 disclosure requirements. proposals to change the rules requiring
Because only companies subject to the We do not expect that the incremental disclosure of executive and director
reporting requirements of Sections 13 effect of the amendments overall will compensation, related person
and 15 of the Exchange Act, and have a material effect on competition. transactions, director independence and
companies filing registration statements We expect that the amended reporting other corporate governance matters, and
under the Securities Act and Exchange requirements will enhance the security ownership of officers and
Act, will be required to make the efficiency of capital formation. Investors directors.
amended disclosures required by Items have stated that they believe that the We are adopting amendments that
402, 404 and 407, competitors not in improved transparency and establish a broader-based approach to
those categories could gain an completeness of executive eliciting executive and director
informational advantage. However, with compensation information resulting compensation disclosure, while
respect to executive compensation, as from these amendments will help them retaining comparability. In addition, we
under Item 402 before adoption of these make more informed investment and are adopting amendments to Form 8–K
amendments, a company will not be voting decisions.601 Investors are likely in order to focus current disclosure on
required to disclose target levels with to be more confident allocating capital compensation-related events that are
respect to specific quantitative or to firms in which compensation unquestionably or presumptively
qualitative performance-related factors, practices are well-aligned with the material to investors. Given the close
or any other factors or criteria involving investors’ interests when investors relationship between executive and
confidential trade secrets and possess more information regarding director compensation and other
commercial or financial information, the executive compensation. Improved financial transactions and relationships
disclosure of which would result in transparency thus may encourage involving companies and their directors,
competitive harm to the company. investors to commit their capital and executive officers, significant
Notwithstanding this exception for thereby facilitate issuers’ access to shareholders and respective immediate
competitively sensitive information, capital. family members, we are also adopting
competitors could potentially gain XI. Final Regulatory Flexibility Act amendments to streamline and
additional insight into the executive Analysis modernize the related person
compensation policies of companies transaction disclosure requirements,
This Final Regulatory Flexibility Act
through disclosure required in while also making the requirements
Analysis has been prepared in
Compensation Discussion and Analysis more principles-based and expanding
accordance with 5 U.S.C. 603. It relates
and in other portions of the required the requirements to elicit disclosure
to revisions to the rules and forms under
disclosure. Further, the availability of about policies and procedures for the
the Securities Act and Exchange Act
more broad-based compensation review, approval or ratification of
that seek to improve the clarity and
disclosure may provide additional related person transactions.603 With
completeness of companies’ disclosure
information to be used by competitors respect to disclosure about director
of the compensation earned by the
in recruiting executive talent, although principal executive officer, principal independence, we are replacing
much of this information is already financial officer,602 other highly paid requirements for disclosure about
available from compensation executive officers and all members of specific relationships that can affect
consultants and other sources. the board of directors, and of related director independence with a narrative
We have considered any impact the explanation of the independence status
person transactions. These changes
amendments may have on smaller as include amending the executive and of directors under a company’s
opposed to larger public companies, director compensation disclosure independence policies for the majority
including the ability of smaller requirements, modifying our rules so of the board and for the nominating,
companies to absorb the costs of the that only elements of compensation that audit and compensation committees.
amendments and whether any resulting are unquestionably or presumptively We are also consolidating these and
disproportionate impact might affect the material to investors must be disclosed other requirements regarding director
competitiveness of smaller issuers or in current reports on Form 8–K, independence, board committees and
their capital formation decisions. streamlining and modernizing other corporate governance matters in a
Further, as discussed in our Final disclosure requirements regarding new disclosure item. In addition, we are
Regulatory Flexibility Act Analysis, we related person transactions, adding adopting corresponding changes to
have considered alternatives to disclosure regarding pledges of items in our registration forms and
minimize any significant adverse impact securities beneficially owned by proxy and information statements filed
on smaller companies, including executive officers and directors and by registered investment companies and
adopting different and less restrictive regarding directors’ qualifying shares, business development companies that
reporting requirements for small consolidating corporate governance impose requirements to disclose certain
business issuers under Regulation S–B, disclosure requirements and expanding interests, transactions, and relationships
particularly given that small business disclosure regarding the independence of each director or nominee for election
issuer compensation structures are as director who is not or would not be
601 See, e.g., letters from CII; CFA Centre 1; ICI;

600 See,e.g., letters from CalPERS; CalSTRS; D. and ISS. 603 Item 404 of Regulation S–B as adopted does
Cayot; CII; CRPTF; C. Green; ICI; Institutional 602 The principal financial officer is not specified not require disclosure about policies and
Investors Group; M. McPherson; A. Silverstein; and as a named executive officer in Item 402 of procedures for the review, approval or ratification
M. von Euler. Regulation S–B. of related person transactions.
an ‘‘interested person’’ of the fund ‘‘small business’’ or ‘‘small principal executive officer and the two
within the meaning of Section 2(a)(19) organization’’ for purposes of the other highest paid executive officers;
of the Investment Company Act (and Regulatory Flexibility Act if it had total • Require that the Summary
their immediate family members). assets of $5 million or less on the last Compensation Table disclose the two
Further, we are adopting amendments to day of its most recent fiscal year. These most recent fiscal years and that
require disclosure of the number of are the types of entities that we refer to narrative disclosure accompany the
shares pledged by named executive as small entities in this section. We Summary Compensation Table;
officers, directors and director believe that the amendments will affect • Provide a higher threshold for
nominees, given that these shares are small entities that are operating separate identification of categories of
subject to risks and contingencies that companies. We estimate that there are ‘‘All Other Compensation’’ in the
do not apply to other shares beneficially approximately 2,500 issuers, other than Summary Compensation Table;
owned by these persons. Finally, in investment companies, that may be • Require the Outstanding Equity
order to emphasize that most of these considered small entities. An Awards at Fiscal Year-End Table;
amended requirements must be investment company is considered to be • Require additional narrative
presented in a manner that is clear, a ‘‘small business’’ if it, together with disclosure addressing the material terms
concise and understandable for other investment companies in the same of defined benefit and defined
investors, we are adopting rules group of related investment companies, contribution plans and other post-
termination compensation
requiring that the disclosure regarding has net assets of $50 million or less as
arrangements; and
executive and director compensation, of the end of its most recent fiscal
• Require the Director Compensation
beneficial ownership, related person year.607 We believe that the Table.
transactions and most corporate amendments will affect small entities New Item 402 of Regulation S–B does
governance matters be provided in plain that are investment companies. We not include the following disclosures
English when included in Exchange Act estimate that there are approximately that are required by new Item 402 of
reports. 240 investment companies that may be Regulation S–K:
considered small entities. • Compensation Discussion and
B. Significant Issues Raised by Public
Comment D. Reporting, Recordkeeping and Other Analysis or a Compensation Committee
Compliance Requirements Report;
In the Proposing Release, we • Information regarding two
requested comment on any aspect of the We note that small business additional executive officers;
Initial Regulatory Flexibility Act issuers,608 which is a broader category • The third fiscal year of Summary
Analysis, including the number of small of issuers than small entities, in certain Compensation Table disclosure; and
entities that would be affected by the circumstances may provide the • The supplementary Grants of Plan-
proposals, and both the qualitative and executive and director compensation, Based Awards Table, the Option
quantitative nature of the impact. relationships with related persons and Exercises and Stock Vested Table, the
Several commenters noted that costs promoters, beneficial ownership and Pension Benefits Table, and the
and burdens arising from the proposals corporate governance disclosure Nonqualified Deferred Compensation
would have disproportionately affected specified, respectively, in Items 402, Table and the separate Potential
small business issuers and smaller 403, 404 and 407 of Regulation S–B, Payments Upon Termination or Change-
public companies that are not small rather than the corresponding disclosure in-Control narrative section, while
business issuers but did not provide any specified in Items 402, 403, 404 and 407 providing a general requirement to
specific comments on the Initial of Regulation S–K. discuss the material terms of retirement
Regulatory Flexibility Act Analysis.604 The amendments to Item 402 of plans and the material terms of
As summarized in Section XI.D. below Regulation S–K expand some former contracts providing for payment upon a
and discussed in greater detail in disclosure requirements, and termination or change in control.
previous sections, we have taken these As a result, the amendments to Item
consolidate or eliminate others. The
comments into account in adopting 402 of Regulation S–B will not result in
amendments to Item 402 of Regulation
different requirements for small the same level of incremental increase
S–B will require less extensive
business issuers. in costs or burdens as will the
disclosure for small business issuers
requirements of amendments to Item
C. Small Entities Subject to the Rules than will be required for companies
402 of Regulation S–K.
and Amendments complying with Item 402 of Regulation The amendments to Item 404 of
The amendments will affect small S–K as amended. Under the Regulations S–K and S–B will decrease
entities, the securities of which are amendments, the scope and the related person transaction disclosure
registered under Section 12 of the presentation of information in Item 402 requirement that companies, including
Exchange Act or that are required to file of Regulation S–B will differ in a small entities, must comply with in
reports under Section 15(d) of the number of significant ways from Item some respects and expand it in other
Exchange Act. The amendments also 402 of Regulation S–K. Item 402 of respects. The amendments to Item 404
will affect small entities that file, or Regulation S–B will: of Regulation S–B will potentially
have filed, a registration statement that • Limit the named executive officers decrease the scope of the related person
has not yet become effective under the for whom disclosure will be required to transaction disclosure requirement by
Securities Act or the Exchange Act and a smaller group, consisting of the changing the $60,000 threshold for
that has not been withdrawn. Securities disclosure of related person transactions
Act Rule 157 605 and Exchange Act Rule 607 17 CFR 270.0–10(a). to the lesser of $120,000 or one percent
0–10(a) 606 define an issuer to be a 608 Item 10 of Regulation S–B (17 CFR 228.10) of the average of the small business
defines a small business issuer as a registrant that issuers’ total assets at year-end for the
has revenues of less than $25 million, is a U.S. or
604 See, e.g., letters from ABA; ACB; ICBA; and
Canadian issuer, is not an investment company, and last three completed fiscal years.609 At
SCSGP. has a public float of less than $25 million. Also, if
605 17 CFR 230.157.
it is a majority owned subsidiary, the parent 609 Amended Item 404(a) of Regulation S–K only
606 17 CFR 240.0–10(a). corporation also must be a small business issuer. includes $120,000 as the threshold.
the same time, the amendments to Item $60,000 threshold for disclosure of such are required to be disclosed in Exchange
404 of Regulation S–B will increase the interests, transactions, and Act reports such as annual reports on
scope of the related person transaction relationships. Forms 10–K or 10–KSB. We believe the
disclosure requirement by expanding The amendments to Item 403 of new rules will result in a short-term
the group of related persons covered to Regulations S–K and S–B require increase in costs for companies as they
include additional ‘‘immediate family footnote disclosure to the beneficial rewrite the information required to be
members.’’ In addition, the amendments ownership table of the number of shares included in annual reports or
may decrease or increase the scope of pledged by named executive officers, incorporated by reference from proxy or
the related person transaction disclosure directors and director nominees and information statements, but few
requirement by eliminating or reducing disclosure of directors’ qualifying additional costs after the first year or
the scope of instructions that provide shares. This imposes an additional two of implementation, as companies
bright line tests for whether related disclosure requirement on companies, become familiar with the organizational,
person transaction disclosure is including small entities. language, and document structure
required. The new plain English rules changes necessary to comply with these
Unlike the amendments to Item 404 of applicable to Exchange Act reports and amendments. Additional costs, if any,
Regulation S–K, the amendments to proxy or information statements should be one-time or otherwise short-
Item 404 of Regulation S–B will not incorporated by reference into Exchange term.
impose an additional disclosure Act reports will not affect the substance For purposes of the Paperwork
requirement for small business issuers, of disclosures that companies must Reduction Act, we estimate that with
including small entities, regarding their make. The new plain English rules will respect to Form 10–KSB, it will take
policies and procedures for the review, also not impose any new recordkeeping issuers 100 additional hours to prepare
approval or ratification of relationships requirements or require reporting of the revised disclosure in year one, 35
with related persons. The amendments additional information. Other changes additional hours in year two, and 15
to Item 404 of Regulation S–B and new to our rules will decrease the scope of additional hours in year three and
Item 407 of Regulation S–B require, the disclosure requirements for Form 8– thereafter, which results in an average of
depending upon the particular K, and thereby result in a reduction in 50 additional hours over the three year
circumstances of a company, more or the number of current reports on Form period. The same estimates apply to
less disclosure by changing the 8–K filed each year. preparation of information in the proxy
disclosure requirement regarding Overall, the amendments are expected or information statement that is then
director independence.610 Unlike the to result in increased costs to all subject incorporated by reference into the Form
amendments to Item 407 of Regulation companies, large or small, as follows: 10–KSB. With regard to persons other
S–K, the amendments to Item 407 of • Incremental increase in costs is than small business issuers who will file
Regulation S–B do not require a expected with changes to executive and a Form 10–K, we estimate for purposes
Compensation Committee Report director compensation disclosure of the Paperwork Reduction Act that it
regarding the compensation committee’s requirements; will take issuers 170 additional hours to
• Incremental increase in costs is prepare the revised disclosure in year
review and discussion with
expected from the amendments to the one, 80 additional hours in year two,
management of the Compensation
related person transaction rules and and 35 additional hours in year three
Discussion and Analysis, and the
corporate governance disclosures; and and thereafter, which results in an
compensation committee’s • Decreased costs are expected as a
recommendation to the board of average of 95 hours over the three year
result of the revisions to Form 8–K. period. If we assume that a small entity
directors with regard to the disclosure of Because the current proxy rules
the Compensation Discussion and complies with the disclosure provisions
require a subject registrant to collect and of Regulation S–B rather than
Analysis, because Item 402 of disclose information about the
Regulation S–B does not require Regulation S–K and 75% of the burden
independence of its directors who serve will be performed by the company
Compensation Discussion and Analysis on the audit or nominating committee of
disclosure. internally at a cost of $175 per hour and
its board, the amended disclosure 25% of the burden will be carried by
Similar to amended Item 404(a) of should not impose on companies
Regulation S–K, amendments to Items outside professionals retained by the
subject to the proxy rules significant company at a cost of $400 per hour, the
22(b)(7), 22(b)(8), and 22(b)(9) of new costs for the collection of
Schedule 14A and to Forms N–1A, N– average annual cost to comply with the
information regarding the independence amended disclosure requirements in
2, and N–3 decrease the scope of the of directors. Thus, the task of complying
requirement imposed on registered periodic reports and/or proxy or
with the expanded director information statements will be
investment companies and business independence disclosure in new Item approximately $11,563. The extent to
development companies to disclose 407 of Regulations S–K and S–B could which an additional average compliance
certain interests, transactions, and be performed by the same person or cost of approximately $11,563 per small
relationships of each director (and, in group of persons responsible for entity over a three year period
the case of Items 22(b)(7), 22(b)(8), and compliance under the former rules at a constitutes a significant economic
22(b)(9) of Schedule 14A, each nominee minimal incremental cost. Additional impact for small entities will depend on
for election as director) who is not or costs will likely be incurred to provide the relative revenues, costs and
would not be an ‘‘interested person’’ of additional disclosure regarding allocation of resources toward
the fund within the meaning of Section compensation committee processes. compliance with the Commission’s
2(a)(19) of the Investment Company Act Our plain English amendments rules for small entities both individually
(and their immediate family members) require that companies use a clear and as a group.
by increasing to $120,000 the former
writing style to present the information For purposes of the Paperwork

610 As was the case prior to these amendments,
about executive and director Reduction Act, we estimate that with
compensation committee interlocks disclosure is
compensation, related person respect to Form N–2, it will take
required by Regulation S–K but is not required transactions, beneficial ownership and business development companies 150
under Regulation S–B. some corporate governance matters that additional hours to prepare the revised
disclosure in year one, 75 hours in year benefit of investors. Finally, although ■ 2. Amend § 228.201 by revising
two and 30 hours in year three and we are exempting some information Instruction 2 to paragraph (d) to read as
thereafter, which results in an average of required of larger issuers, a wholesale follows:
85 hours for each business development exemption for small entities is not
appropriate because the amendments § 228.201 (Item 201) Market for common
company to comply with the revised
equity and related stockholder matters.
compensation disclosures that will be are designed to make uniform the
required on Form N–2. If we assume application of the disclosure and other * * * * *
Instructions to paragraph (d).
that 25% of the burden will be borne requirements that we are adopting. 1. * * *
internally at a cost of $175 per hour and We have used design rather than
2. For purposes of this paragraph, an
75% of the burden will be carried by performance standards in connection ‘‘individual compensation arrangement’’
outside professionals retained by the with the amendments for two reasons. includes, but is not limited to, the following:
company at a cost of $400 per hour, the First, based on our past experience, we a written compensation contract within the
average annual cost for business believe the disclosure provided in meaning of ‘‘employee benefit plan’’ under
development companies to comply with response to the amended requirements § 230.405 of this chapter and a plan (whether
will be more useful to investors if there or not set forth in any formal document)
the revised disclosure requirements on applicable to one person as provided under
Form N–2 will be approximately are specific informational requirements.
Item 402(a)(5)(ii) of Regulation S–B
$29,219. The extent to which an The mandated disclosures we are (§ 228.402(a)(5)(ii)).
additional average compliance cost of adopting are intended to result in more
focused and comprehensive disclosure. * * * * *
approximately $29,219 per small entity
over a three year period constitutes a Second, the specific disclosure § 228.306 [Removed and reserved]
significant economic impact for small requirements in the amendments will ■ 3. Remove and reserve § 228.306.
entities will depend on the relative promote more consistent disclosure
assets, income, operating expenses and among public companies, because they § 228.401 [Amended]
the allocation of resources toward provide greater certainty as to the scope
■ 4. Amend § 228.401 by removing
compliance with the Commission’s of required disclosure.
paragraphs (e), (f) and (g).
rules for small entities both individually XII. Statutory Authority and Text of the ■ 5. Revise § 228.402 to read as follows:
and as a group. Amendments
E. Agency Action To Minimize Effect on We are adopting new rules and § 228.402 (Item 402) Executive
Small Entities compensation.
amendments pursuant to Sections 3(b),
The Regulatory Flexibility Act directs 6, 7, 10, and 19(a) of the Securities Act, (a) General—(1) All compensation
us to consider significant alternatives as amended, Sections 10(b), 12, 13, 14, covered. This Item requires clear,
that would accomplish the stated 15(d), 16 and 23(a) of the Exchange Act, concise and understandable disclosure
objectives, while minimizing any as amended, Sections 8, 20(a), 24(a), 30 of all plan and non-plan compensation
significant adverse impact on small and 38 of the Investment Company Act awarded to, earned by, or paid to the
entities. In connection with the of 1940, as amended, and Sections 3(a) named executive officers designated
amendments, we considered the and 306(a) of the Sarbanes-Oxley Act of under paragraph (a)(2) of this Item, and
following alternatives: 2002. directors covered by paragraph (f) of this
1. Establishing different compliance Item, by any person for all services
List of Subjects rendered in all capacities to the small
or reporting requirements which take
into account the resources available to 17 CFR Part 228 business issuer and its subsidiaries,
smaller entities; Reporting and recordkeeping unless otherwise specifically excluded
2. The clarification, consolidation or requirements, Securities, Small from disclosure in this Item. All such
simplification of disclosure for small businesses. compensation shall be reported
entities; pursuant to this Item, even if also called
3. Use of performance standards 17 CFR Parts 229, 232, 239, 240, 245 for by another requirement, including
rather than design standards; and and 249 transactions between the small business
4. Exempting smaller entities from Reporting and recordkeeping issuer and a third party where a purpose
coverage of the disclosure requirements, requirements, Securities. of the transaction is to furnish
or any part thereof. compensation to any such named
17 CFR Part 274 executive officer or director. No amount
With regard to Alternative 1, we have
adopted different compliance or Investment companies, Reporting and reported as compensation for one fiscal
reporting requirements for small recordkeeping requirements, Securities. year need be reported in the same
entities. We nevertheless believe ■ For the reasons set out in the manner as compensation for a
improving the clarity and completeness preamble, Title 17, Chapter II of the subsequent fiscal year; amounts
of disclosure regarding executive and Code of Federal Regulations, is reported as compensation for one fiscal
director compensation and related amended as follows: year may be required to be reported in
person transactions requires a high a different manner pursuant to this Item.
degree of comparability between all PART 228—INTEGRATED (2) Persons covered. Disclosure shall
issuers. Regarding Alternative 2, the DISCLOSURE SYSTEM FOR SMALL be provided pursuant to this Item for
amendments clarify, consolidate and BUSINESS ISSUERS each of the following (the ‘‘named
simplify the requirements for all public ■ 1. The authority citation for part 228 executive officers’’):
companies, and some especially for continues to read in part as follows: (i) All individuals serving as the small
small entities. Regarding Alternative 3, business issuer’s principal executive
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, officer or acting in a similar capacity
we believe that design rather than 77k, 77s, 77z–2, 77z–3, 77aa(25), 77aa(26),
performance standards are appropriate, 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, during the last completed fiscal year
because design standards for small 77sss, 78l, 78m, 78n, 78o, 78u–5, 78w, 78ll, (‘‘PEO’’), regardless of compensation
entities are necessary to promote the 78mm, 80a–8, 80a–29, 80a–30, 80a–37, 80b– level;
goal of relatively uniform presentation 11, and 7201 et seq.; and 18 U.S.C. 1350. (ii) The small business issuer’s two
of comparable information for the * * * * * most highly compensated executive
officers other than the PEO who were fiscal year. If a named executive officer operation, in favor of executive officers
serving as executive officers at the end (other than the PEO) served as an or directors of the small business issuer
of the last completed fiscal year; and executive officer of the small business and that are available generally to all
(iii) Up to two additional individuals issuer (whether or not in the same salaried employees.
for whom disclosure would have been position) during any part of the fiscal (iii) The term incentive plan means
provided pursuant to paragraph (a)(2)(ii) year with respect to which information any plan providing compensation
of this Item but for the fact that the is required, information shall be intended to serve as incentive for
individual was not serving as an provided as to all compensation of that performance to occur over a specified
executive officer of the small business individual for the full fiscal year. period, whether such performance is
issuer at the end of the last completed (4) Omission of table or column. A measured by reference to financial
fiscal year. table or column may be omitted if there performance of the small business issuer
Instructions to Item 402(a)(2). has been no compensation awarded to, or an affiliate, the small business
1. Determination of most highly earned by, or paid to any of the named issuer’s stock price, or any other
compensated executive officers. The executive officers or directors required performance measure. An equity
determination as to which executive officers to be reported in that table or column incentive plan is an incentive plan or
are most highly compensated shall be made in any fiscal year covered by that table.
by reference to total compensation for the last
portion of an incentive plan under
(5) Definitions. For purposes of this which awards are granted that fall
completed fiscal year (as required to be
Item: within the scope of Financial
disclosed pursuant to paragraph (b)(2)(x) of
this Item) reduced by the amount required to (i) The term stock means instruments Accounting Standards Board Statement
be disclosed pursuant to paragraph such as common stock, restricted stock, of Financial Accounting Standards No.
(b)(2)(viii) of this Item, provided, however, restricted stock units, phantom stock, 123 (revised 2004), Share-Based
that no disclosure need be provided for any phantom stock units, common stock Payment, as modified or supplemented
executive officer, other than the PEO, whose equivalent units or any similar (‘‘FAS 123R’’). A non-equity incentive
total compensation, as so reduced, does not instruments that do not have option-like
exceed $100,000. plan is an incentive plan or portion of
features, and the term option means an incentive plan that is not an equity
2. Inclusion of executive officer of instruments such as stock options, stock
subsidiary. It may be appropriate for a small incentive plan. The term incentive plan
business issuer to include as named appreciation rights and similar award means an award provided under
executive officers one or more executive instruments with option-like features. an incentive plan.
officers or other employees of subsidiaries in The term stock appreciation rights
(iv) The terms date of grant or grant
the disclosure required by this Item. See Rule (‘‘SARs’’) refers to SARs payable in cash
date refer to the grant date determined
3b–7 under the Exchange Act (17 CFR or stock, including SARs payable in
240.3b–7). for financial statement reporting
cash or stock at the election of the small
3. Exclusion of executive officer due to purposes pursuant to FAS 123R.
business issuer or a named executive
overseas compensation. It may be officer. The term equity is used to refer (v) Closing market price is defined as
appropriate in limited circumstances for a the price at which the small business
small business issuer not to include in the
generally to stock and/or options.
(ii) The term plan includes, but is not issuer’s security was last sold in the
disclosure required by this Item an
individual, other than its PEO, who is one of limited to, the following: Any plan, principal United States market for such
the small business issuer’s most highly contract, authorization or arrangement, security as of the date for which the
compensated executive officers due to the whether or not set forth in any formal closing market price is determined.
payment of amounts of cash compensation document, pursuant to which cash, (b) Summary compensation table—(1)
relating to overseas assignments attributed securities, similar instruments, or any General. Provide the information
predominantly to such assignments. other property may be received. A plan specified in paragraph (b)(2) of this
(3) Information for full fiscal year. If may be applicable to one person. Small Item, concerning the compensation of
the PEO served in that capacity during business issuers may omit information the named executive officers for each of
any part of a fiscal year with respect to regarding group life, health, the small business issuer’s last two
which information is required, hospitalization, or medical completed fiscal years, in a Summary
information should be provided as to all reimbursement plans that do not Compensation Table in the tabular
of his or her compensation for the full discriminate in scope, terms or format specified below.

Non-
Nonequity qualified All other
Stock Option incentive deferred
Salary Bonus com- Total
Name and principal position Year awards awards plan com- com-
($) ($) pensation ($)
($) ($) pensation pensation ($)
($) earnings
($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
PEO .
A .................................................
B .................................................
(2) The Table shall include: 2. If at any time during the last completed dividends or equivalents must be included.
(i) The name and principal position of fiscal year, the small business issuer has Footnote or narrative disclosure may be
the named executive officer (column adjusted or amended the exercise price of provided explaining the small business
options or SARs previously awarded to a issuer’s criteria for determining any portion
(a));
named executive officer, whether through considered to be above-market.
(ii) The fiscal year covered (column amendment, cancellation or replacement
(b)); grants, or any other means (‘‘repriced’’), or
(ix) All other compensation for the
(iii) The dollar value of base salary otherwise has materially modified such covered fiscal year that the small
(cash and non-cash) earned by the awards, the small business issuer shall business issuer could not properly
named executive officer during the include, as awards required to be reported in report in any other column of the
fiscal year covered (column (c)); column (f), the incremental fair value, Summary Compensation Table (column
(iv) The dollar value of bonus (cash computed as of the repricing or modification (i)). Each compensation item that is not
and non-cash) earned by the named date in accordance with FAS 123R, with properly reportable in columns (c)–(h),
respect to that repriced or modified award. regardless of the amount of the
executive officer during the fiscal year
covered (column (d)); (vii) The dollar value of all earnings compensation item, must be included in
Instructions to Item 402(b)(2)(iii) and (iv).
for services performed during the fiscal column (i). Such compensation must
1. If the amount of salary or bonus earned year pursuant to awards under non- include, but is not limited to:
in a given fiscal year is not calculable equity incentive plans as defined in (A) Perquisites and other personal
through the latest practicable date, a footnote paragraph (a)(5)(iii) of this Item, and all benefits, or property, unless the
shall be included disclosing that the amount earnings on any outstanding awards aggregate amount of such compensation
of salary or bonus is not calculable through (column (g)); is less than $10,000;
the latest practicable date and providing the
Instructions to Item 402(b)(2)(vii).
(B) All ‘‘gross-ups’’ or other amounts
date that the amount of salary or bonus is reimbursed during the fiscal year for the
1. If the relevant performance measure is
expected to be determined, and such amount payment of taxes;
satisfied during the fiscal year (including for
must then be disclosed in a filing under Item (C) For any security of the small
a single year in a plan with a multi-year
5.02(f) of Form 8–K (17 CFR 249.308). business issuer or its subsidiaries
performance measure), the earnings are
2. Small business issuers need not include
in the salary column (column (c)) or bonus
reportable for that fiscal year, even if not purchased from the small business
payable until a later date, and are not issuer or its subsidiaries (through
column (column (d)) any amount of salary or reportable again in the fiscal year when
bonus forgone at the election of a named deferral of salary or bonus, or otherwise)
amounts are paid to the named executive at a discount from the market price of
executive officer pursuant to a small business officer.
issuer’s program under which stock, equity- 2. All earnings on non-equity incentive
such security at the date of purchase,
based or other forms of non-cash plan compensation must be identified and unless that discount is available
compensation may be received by a named quantified in a footnote to column (g), generally, either to all security holders
executive officer instead of a portion of whether the earnings were paid during the or to all salaried employees of the small
annual compensation earned in a covered fiscal year, payable during the period but business issuer, the compensation cost,
fiscal year. However, the receipt of any such deferred at the election of the named
form of non-cash compensation instead of
if any, computed in accordance with
executive officer, or payable by their terms at FAS 123R;
salary or bonus earned for a covered fiscal a later date.
year must be disclosed in the appropriate (D) The amount paid or accrued to
column of the Summary Compensation Table (viii) Above-market or preferential any named executive officer pursuant to
corresponding to that fiscal year (e.g., stock earnings on compensation that is a plan or arrangement in connection
awards (column (e)); option awards (column deferred on a basis that is not tax- with:
(f)); all other compensation (column (i))), or, qualified, including such earnings on (1) Any termination, including
if made pursuant to a non-equity incentive nonqualified defined contribution plans without limitation through retirement,
plan and therefore not reportable in the (column (h)); resignation, severance or constructive
Summary Compensation Table when granted, termination (including a change in
a footnote must be added to the salary or Instruction to Item 402(b)(2)(viii).
Interest on deferred compensation is responsibilities) of such executive
bonus column so disclosing and referring to
the narrative disclosure to the Summary above-market only if the rate of interest officer’s employment with the small
Compensation Table (required by paragraph exceeds 120% of the applicable federal long- business issuer and its subsidiaries; or
(c) of this Item) where the material terms of term rate, with compounding (as prescribed (2) A change in control of the small
the award are reported. under section 1274(d) of the Internal business issuer;
Revenue Code, (26 U.S.C. 1274(d))) at the rate (E) Small business issuer
(v) For awards of stock, the aggregate that corresponds most closely to the rate contributions or other allocations to
grant date fair value computed in under the small business issuer’s plan at the vested and unvested defined
accordance with FAS 123R (column (e)); time the interest rate or formula is set. In the contribution plans;
(vi) For awards of options, with or event of a discretionary reset of the interest (F) The dollar value of any insurance
without tandem SARs (including rate, the requisite calculation must be made premiums paid by, or on behalf of, the
awards that subsequently have been on the basis of the interest rate at the time
of such reset, rather than when originally
small business issuer during the covered
transferred), the aggregate grant date fair fiscal year with respect to life insurance
value computed in accordance with established. Only the above-market portion of
the interest must be included. If the for the benefit of a named executive
FAS 123R (column (f)); applicable interest rates vary depending officer; and
Instructions to Item 402(b)(2)(v) and (vi). upon conditions such as a minimum period (G) The dollar value of any dividends
1. For awards reported in columns (e) and of continued service, the reported amount or other earnings paid on stock or
(f), include a footnote disclosing all should be calculated assuming satisfaction of option awards, when those amounts
assumptions made in the valuation by all conditions to receiving interest at the were not factored into the grant date fair
reference to a discussion of those highest rate. Dividends (and dividend value required to be reported for the
assumptions in the small business issuer’s equivalents) on deferred compensation
stock or option award in columns (e) or

financial statements, footnotes to the denominated in the small business issuer’s
financial statements, or discussion in the stock (‘‘deferred stock’’) are preferential only
(f); and
Management’s Discussion and Analysis. The if earned at a rate higher than dividends on Instructions to Item 402(b)(2)(ix).
sections so referenced are deemed part of the the small business issuer’s common stock. 1. Non-equity incentive plan awards and
disclosure provided pursuant to this Item. Only the preferential portion of the earnings and earnings on stock or options,
except as specified in paragraph (b)(2)(ix)(G) 3. If a named executive officer is also a exercisability, any tandem feature, any
of this Item, are required to be reported director who receives compensation for his reload feature, any tax-reimbursement
elsewhere as provided in this Item and are or her services as a director, reflect that feature, and any provision that could
not reportable as All Other Compensation in compensation in the Summary Compensation
column (i). Table and provide a footnote identifying and
cause the exercise price to be lowered;
2. Benefits paid pursuant to defined benefit itemizing such compensation and amounts. (5) The material terms of any non-
and actuarial plans are not reportable as All Use the categories in the Director equity incentive plan award made to a
Other Compensation in column (i) unless Compensation Table required pursuant to named executive officer during the last
accelerated pursuant to a change in control; paragraph (f) of this Item. completed fiscal year, including a
information concerning these plans is 4. Any amounts deferred, whether
pursuant to a plan established under section general description of the formula or
reportable pursuant to paragraph (e)(1) of this
Item. 401(k) of the Internal Revenue Code (26 criteria to be applied in determining the
3. Reimbursements of taxes owed with U.S.C. 401(k)), or otherwise, shall be amounts payable and vesting schedule;
respect to perquisites or other personal included in the appropriate column for the (6) The method of calculating
benefits must be included in the columns as fiscal year in which earned.
earnings on nonqualified deferred
tax reimbursements (paragraph (b)(2)(ix)(B) (c) Narrative disclosure to summary compensation plans including
of this Item) even if the associated perquisites
compensation table. Provide a narrative nonqualified defined contribution
or other personal benefits are not required to
be included because the aggregate amount of description of any material factors plans; and
such compensation is less than $10,000. necessary to an understanding of the (7) An identification to the extent
4. Perquisites and other personal benefits information disclosed in the Table
material of any item included under All
shall be valued on the basis of the aggregate required by paragraph (b) of this Item.
Other Compensation (column (i)) in the
incremental cost to the small business issuer. Examples of such factors may include,
5. For purposes of paragraph (b)(2)(ix)(D) of Summary Compensation Table.
in given cases, among other things:
this Item, an accrued amount is an amount (1) The material terms of each named Identification of an item shall not be
for which payment has become due. executive officer’s employment considered material if it does not exceed
agreement or arrangement, whether the greater of $25,000 or 10% of all
(x) The dollar value of total
written or unwritten; items included in the specified category
compensation for the covered fiscal year
(2) If at any time during the last fiscal in question set forth in paragraph
(column (j)). With respect to each
year, any outstanding option or other (b)(2)(ix) of this Item. All items of
named executive officer, disclose the
equity-based award was repriced or compensation are required to be
sum of all amounts reported in columns
otherwise materially modified (such as included in the Summary Compensation
(c) through (i).
by extension of exercise periods, the Table without regard to whether such
Instructions to Item 402(b). items are required to be identified.
1. Information with respect to the fiscal change of vesting or forfeiture
year prior to the last completed fiscal year conditions, the change or elimination of Instruction to Item 402(c).
will not be required if the small business applicable performance criteria, or the The disclosure required by paragraph (c)(2)
issuer was not a reporting company pursuant change of the bases upon which returns of this Item would not apply to any repricing
to section 13(a) or 15(d) of the Exchange Act are determined), a description of each that occurs through a pre-existing formula or
(15 U.S.C. 78m(a) or 78o(d)) at any time such repricing or other material mechanism in the plan or award that results
during that year, except that the small in the periodic adjustment of the option or
modification;
business issuer will be required to provide SAR exercise or base price, an antidilution
(3) The waiver or modification of any
information for any such year if that provision in a plan or award, or a
specified performance target, goal or recapitalization or similar transaction equally
information previously was required to be
provided in response to a Commission filing condition to payout with respect to any affecting all holders of the class of securities
requirement. amount included in non-stock incentive underlying the options or SARs.
2. All compensation values reported in the plan compensation or payouts reported
Summary Compensation Table must be in column (g) to the Summary (d) Outstanding equity awards at
reported in dollars and rounded to the Compensation Table required by fiscal year-end table. (1) Provide the
nearest dollar. Reported compensation values paragraph (b) of this Item, stating information specified in paragraph
must be reported numerically, providing a whether the waiver or modification (d)(2) of this Item, concerning
single numerical value for each grid in the unexercised options; stock that has not
applied to one or more specified named
table. Where compensation was paid to or
received by a named executive officer in a executive officers or to all compensation vested; and equity incentive plan
different currency, a footnote must be subject to the target, goal or condition; awards for each named executive officer
provided to identify that currency and (4) The material terms of each grant, outstanding as of the end of the small
describe the rate and methodology used to including but not limited to the date of business issuer’s last completed fiscal
convert the payment amounts to dollars. exercisability, any conditions to year in the following tabular format:

Equity
Equity incentive
incentive
Equity plan
plan
incentive awards:
Market awards:
Number of Number of plan Number Market or
value of Number
securities securities un- awards: of shares payout
Option shares of of un-
Name underlying derlying Number of Option or units of value of
exercise units of earned
unexercised unexercised securities expiration stock that unearned
price stock that shares,
options options underlying date have not shares,
($) have not units or
(#) (#) unexercised vested units or
vested other
exercisable unexercisable unearned (#) others
($) rights that
options rights that
have not
(#) have not
vested vested
(#) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
PEO
(2) The Table shall include: (x) The aggregate market or payout with a different exercise and/or base price or
(i) The name of the named executive value of shares of stock, units or other expiration date.
officer (column (a)); rights awarded under any equity 5. Options or stock awarded under an
(ii) On an award-by-award basis, the equity incentive plan are reported in
incentive plan that have not vested and columns (d) or (i) and (j), respectively, until
number of securities underlying that have not been earned (column (j)). the relevant performance condition has been
unexercised options, including awards Instructions to Item 402(d)(2). satisfied. Once the relevant performance
that have been transferred other than for 1. Identify by footnote any award that has condition has been satisfied, even if the
value, that are exercisable and that are been transferred other than for value, option or stock award is subject to forfeiture
not reported in column (d) (column (b)); disclosing the nature of the transfer. conditions, options are reported in column
(iii) On an award-by-award basis, the 2. The vesting dates of options, shares of (b) or (c), as appropriate, until they are
number of securities underlying stock and equity incentive plan awards held exercised or expire, or stock is reported in
unexercised options, including awards at fiscal-year end must be disclosed by columns (g) and (h) until it vests.
that have been transferred other than for footnote to the applicable column where the (e) Additional narrative disclosure.
value, that are unexercisable and that outstanding award is reported. Provide a narrative description of the
are not reported in column (d) (column 3. Compute the market value of stock following to the extent material:
reported in column (h) and equity incentive (1) The material terms of each plan
(c));
plan awards of stock reported in column (j)
(iv) On an award-by-award basis, the by multiplying the closing market price of
that provides for the payment of
total number of shares underlying the small business issuer’s stock at the end retirement benefits, or benefits that will
unexercised options awarded under any of the last completed fiscal year by the be paid primarily following retirement,
equity incentive plan that have not been number of shares or units of stock or the including but not limited to tax-
earned (column (d)); amount of equity incentive plan awards, qualified defined benefit plans,
(v) For each instrument reported in respectively. The number of shares or units supplemental executive retirement
columns (b), (c) and (d), as applicable, reported in column (d) or (i), and the payout plans, tax-qualified defined contribution
the exercise or base price (column (e)); value reported in column (j), shall be based plans and nonqualified defined
(vi) For each instrument reported in on achieving threshold performance goals, contribution plans.
except that if the previous fiscal year’s (2) The material terms of each
columns (b), (c) and (d), as applicable,
performance has exceeded the threshold, the
the expiration date (column (f)); disclosure shall be based on the next higher
contract, agreement, plan or
(vii) The total number of shares of performance measure (target or maximum) arrangement, whether written or
stock that have not vested and that are that exceeds the previous fiscal year’s unwritten, that provides for payment(s)
not reported in column (i) (column (g)); performance. If the award provides only for to a named executive officer at,
(viii) The aggregate market value of a single estimated payout, that amount following, or in connection with the
shares of stock that have not vested and should be reported. If the target amount is resignation, retirement or other
that are not reported in column (j) not determinable, small business issuers termination of a named executive
(column (h)); must provide a representative amount based officer, or a change in control of the
(ix) The total number of shares of on the previous fiscal year’s performance. small business issuer or a change in the
4. Multiple awards may be aggregated
stock, units or other rights awarded named executive officer’s
where the expiration date and the exercise
under any equity incentive plan that and/or base price of the instruments is responsibilities following a change in
have not vested and that have not been identical. A single award consisting of a control, with respect to each named
earned, and, if applicable the number of combination of options, SARs and/or similar executive officer.
shares underlying any such unit or right option-like instruments shall be reported as (f) Compensation of directors. (1)
(column (i)); and separate awards with respect to each tranche Provide the information specified in
paragraph (f)(2) of this Item, concerning fiscal year, in the following tabular
the compensation of the directors for the format:
small business issuer’s last completed
Non-eq- Non-
Fees uity qualified All other
earned or Stock Option incentive deferred com- Total
Name paid in awards awards plan compensation ($)
cash ($) ($) compensation ($)
($) pensation earnings
($) ($)
(a) (b) (c) (d) (e) (f) (g) (h)
(2) The Table shall include: qualified, including such earnings on (1) The resignation, retirement or any
(i) The name of each director unless nonqualified defined contribution plans other termination of such director; or
such director is also a named executive (column (f)); (2) A change in control of the small
officer under paragraph (a) of this Item (vii) All other compensation for the business issuer;
and his or her compensation for service covered fiscal year that the small (E) Small business issuer
as a director is fully reflected in the business issuer could not properly contributions or other allocations to
Summary Compensation Table pursuant report in any other column of the vested and unvested defined
to paragraph (b) of this Item and Director Compensation Table (column contribution plans;
otherwise as required pursuant to (g)). Each compensation item that is not (F) Consulting fees earned from, or
paragraphs (c) through (e) of this Item properly reportable in columns (b)–(f), paid or payable by the small business
(column (a)); regardless of the amount of the issuer and/or its subsidiaries (including
(ii) The aggregate dollar amount of all compensation item, must be included in joint ventures);
fees earned or paid in cash for services column (g) and must be identified and (G) The annual costs of payments and
as a director, including annual retainer quantified in a footnote if it is deemed promises of payments pursuant to
fees, committee and/or chairmanship material in accordance with paragraph director legacy programs and similar
fees, and meeting fees (column (b)); (c)(7) of this Item. Such compensation charitable award programs;
(iii) For awards of stock, the aggregate must include, but is not limited to: (H) The dollar value of any insurance
grant date fair value computed in (A) Perquisites and other personal premiums paid by, or on behalf of, the
accordance with FAS 123R (column (c)); benefits, or property, unless the small business issuer during the covered
(iv) For awards of options, with or aggregate amount of such compensation fiscal year with respect to life insurance
without tandem SARs (including is less than $10,000; for the benefit of a director; and
awards that subsequently have been (B) All ‘‘gross-ups’’ or other amounts (I) The dollar value of any dividends
transferred), the aggregate grant date fair reimbursed during the fiscal year for the or other earnings paid on stock or
value computed in accordance with payment of taxes; option awards, when those amounts
FAS 123R (column (d)); (C) For any security of the small were not factored into the grant date fair
Instruction to Item 402(f)(2)(iii) and (iv). business issuer or its subsidiaries value required to be reported for the
For each director, disclose by footnote to purchased from the small business stock or option award in column (c) or
the appropriate column, the aggregate issuer or its subsidiaries (through (d); and
number of stock awards and the aggregate deferral of salary or bonus, or otherwise) Instruction to Item 402(f)(2)(vii).
number of option awards outstanding at at a discount from the market price of Programs in which small business issuers
fiscal year end. such security at the date of purchase, agree to make donations to one or more
(v) The dollar value of all earnings for unless that discount is available charitable institutions in a director’s name,
services performed during the fiscal generally, either to all security holders payable by the small business issuer
year pursuant to non-equity incentive or to all salaried employees of the small currently or upon a designated event, such as
the retirement or death of the director, are
plans as defined in paragraph (a)(5)(iii) business issuer, the compensation cost, charitable awards programs or director legacy
of this Item, and all earnings on any if any, computed in accordance with programs for purposes of the disclosure
outstanding awards (column (e)); FAS 123R; required by paragraph (f)(2)(vii)(G) of this
(vi) Above-market or preferential (D) The amount paid or accrued to Item. Provide footnote disclosure of the total
earnings on compensation that is any director pursuant to a plan or dollar amount payable under the program
deferred on a basis that is not tax- arrangement in connection with: and other material terms of each such
program for which tabular disclosure is (ii) Whether any director has a (b) Security ownership of
provided. different compensation arrangement, management. Furnish the following
(viii) The dollar value of total identifying that director and describing information, as of the most recent
compensation for the covered fiscal year the terms of that arrangement. practicable date, in substantially the
(column (h)). With respect to each Instruction to Item 402(f). tabular form indicated, as to each class
director, disclose the sum of all amounts In addition to the Instruction to paragraph of equity securities of the small business
reported in columns (b) through (g). (f)(2)(vii) of this Item, the following apply issuer or any of its parents or
Instruction to Item 402(f)(2). equally to paragraph (f) of this Item: subsidiaries, including directors’
Two or more directors may be grouped in Instructions 2 and 4 to paragraph (b) of this
qualifying shares, beneficially owned by
a single row in the Table if all elements of Item; the Instructions to paragraphs (b)(2)(iii)
and (iv) of this Item; the Instructions to all directors and nominees, naming
their compensation are identical. The names
paragraphs (b)(2)(v) and (vi) of this Item; the them, each of the named executive
of the directors for whom disclosure is
presented on a group basis should be clear Instructions to paragraph (b)(2)(vii) of this officers as defined in Item 402(a)(2)
from the Table. Item; the Instruction to paragraph (b)(2)(viii) (§ 228.402(a)(2)), and directors and
of this Item; the Instructions to paragraph executive officers of the small business
(3) Narrative to director compensation (b)(2)(ix) of this Item; and paragraph (c)(7) of
table. Provide a narrative description of issuer as a group, without naming them.
this Item. These Instructions apply to the
any material factors necessary to an columns in the Director Compensation Table Show in column (3) the total number of
understanding of the director that are analogous to the columns in the shares beneficially owned and in
compensation disclosed in this Table. Summary Compensation Table to which they column (4) the percent of the class so
While material factors will vary refer and to disclosures under paragraph (f) owned. Of the number of shares shown
depending upon the facts, examples of of this Item that correspond to analogous in column (3), indicate, by footnote or
such factors may include, in given disclosures provided for in paragraph (b) of otherwise, the amount of shares that are
this Item to which they refer.
cases, among other things: pledged as security and the amount of
(i) A description of standard ■ 6. Amend § 228.403 by revising shares with respect to which such
compensation arrangements (such as paragraph (b) to read as follows: persons have the right to acquire
fees for retainer, committee service, beneficial ownership as specified in
service as chairman of the board or a § 228.403 (Item 403) Security ownership of § 240.13d–3(d)(1) of this chapter.
committee, and meeting attendance); certain beneficial owners and management.
and * * * * *
(3) Amount and nature of

(1) Title of class (2) Name of beneficial owner (4) Percent of class
beneficial ownership
* * * * * (4) The approximate dollar value of i. Any director or executive officer of the
the amount of the related person’s small business issuer;
■ 7. Revise § 228.404 to read as follows:
interest in the transaction, which shall ii. Any nominee for director, when the
§ 228.404 (Item 404) Transactions with information called for by paragraph (a) of this
be computed without regard to the Item is being presented in a proxy or
related persons, promoters and certain amount of profit or loss.
control persons. information statement relating to the election
(5) In the case of indebtedness, of that nominee for director; or
(a) Transactions with related persons. iii. Any immediate family member of a
disclosure of the amount involved in the
Describe any transaction, since the director or executive officer of the small
transaction shall include the largest
beginning of the small business issuer’s business issuer, or of any nominee for
aggregate amount of principal director when the information called for by
last fiscal year, or any currently
outstanding during the period for which paragraph (a) of this Item is being presented
proposed transaction, in which the
disclosure is provided, the amount in a proxy or information statement relating
small business issuer was or is to be a
thereof outstanding as of the latest to the election of that nominee for director,
participant and the amount involved which means any child, stepchild, parent,
practicable date, the amount of
exceeds the lesser of $120,000 or one stepparent, spouse, sibling, mother-in-law,
principal paid during the periods for
percent of the average of the small father-in-law, son-in-law, daughter-in-law,
which disclosure is provided, the
business issuer’s total assets at year-end brother-in-law, or sister-in-law of such
amount of interest paid during the
for the last three completed fiscal years, director, executive officer or nominee for
period for which disclosure is provided, director, and any person (other than a tenant
and in which any related person had or
and the rate or amount of interest or employee) sharing the household of such
will have a direct or indirect material
payable on the indebtedness. director, executive officer or nominee for
interest. Disclose the following
(6) Any other information regarding director; and
information regarding the transaction: b. Any person who was in any of the
(1) The name of the related person the transaction or the related person in following categories when a transaction in
and the basis on which the person is a the context of the transaction that is which such person had a direct or indirect
related person. material to investors in light of the material interest occurred or existed:
(2) The related person’s interest in the circumstances of the particular i. A security holder covered by Item 403(a)
transaction with the small business transaction. (§ 228.403(a)); or
issuer, including the related person’s ii. Any immediate family member of any
Instructions to Item 404(a).
position(s) or relationship(s) with, or such security holder, which means any child,
1. For the purposes of paragraph (a) of this stepchild, parent, stepparent, spouse, sibling,
ownership in, a firm, corporation, or Item, the term related person means: mother-in-law, father-in-law, son-in-law,
other entity that is a party to, or has an a. Any person who was in any of the daughter-in-law, brother-in-law, or sister-in-
interest in, the transaction. following categories at any time during the law of such security holder, and any person
(3) The approximate dollar value of specified period for which disclosure under (other than a tenant or employee) sharing the
the amount involved in the transaction. paragraph (a) of this Item is required: household of such security holder.
2. For purposes of paragraph (a) of this Instruction 1 to paragraph (a) of this Item) (b) Parents. List all parents of the
Item, a transaction includes, but is not and such compensation would have been small business issuer showing the basis
limited to, any financial transaction, reported under Item 402 (§ 228.402) as of control and as to each parent, the
arrangement or relationship (including any compensation earned for services to the small
percentage of voting securities owned or
indebtedness or guarantee of indebtedness) business issuer if the executive officer was a
or any series of similar transactions, named executive officer as that term is other basis of control by its immediate
arrangements or relationships. defined in Item 402(a)(2) (§ 228.402(a)(2)), parent, if any.
3. The amount involved in the transaction and such compensation had been approved, (c) Promoters and control persons. (1)
shall be computed by determining the dollar or recommended to the board of directors of Small business issuers that had a
value of the amount involved in the the small business issuer for approval, by the promoter at any time during the past
transaction in question, which shall include: compensation committee of the board of five fiscal years shall:
a. In the case of any lease or other directors (or group of independent directors (i) State the names of the promoter(s),
transaction providing for periodic payments performing a similar function) of the small the nature and amount of anything of
or installments, the aggregate amount of all business issuer. value (including money, property,
periodic payments or installments due on or b. Disclosure of compensation to a director
need not be provided pursuant to paragraph contracts, options or rights of any kind)
after the beginning of the small business
issuer’s last fiscal year, including any (a) of this Item if the compensation is received or to be received by each
required or optional payments due during or reported pursuant to Item 402(f) promoter, directly or indirectly, from
at the conclusion of the lease or other (§ 228.402(f)). the small business issuer and the nature
transaction providing for periodic payments 6. A person who has a position or and amount of any assets, services or
or installments; and relationship with a firm, corporation, or other other consideration therefore received
b. In the case of indebtedness, the largest entity that engages in a transaction with the or to be received by the small business
aggregate amount of all indebtedness small business issuer shall not be deemed to issuer; and
outstanding at any time since the beginning have an indirect material interest within the
meaning of paragraph (a) of this Item where:
(ii) As to any assets acquired or to be
of the small business issuer’s last fiscal year acquired by the small business issuer
and all amounts of interest payable on it a. The interest arises only:
i. From such person’s position as a director from a promoter, state the amount at
during the last fiscal year.
4. In the case of a transaction involving of another corporation or organization that is which the assets were acquired or are to
indebtedness: a party to the transaction; or be acquired and the principle followed
a. The following items of indebtedness may ii. From the direct or indirect ownership by or to be followed in determining such
be excluded from the calculation of the such person and all other persons specified amount, and identify the persons
in Instruction 1 to paragraph (a) of this Item, making the determination and their
amount of indebtedness and need not be
in the aggregate, of less than a ten percent
disclosed: amounts due from the related
equity interest in another person (other than relationship, if any, with the small
person for purchases of goods and services business issuer or any promoter. If the
a partnership) which is a party to the
subject to usual trade terms, for ordinary assets were acquired by the promoter
transaction; or
business travel and expense payments and within two years prior to their transfer
iii. From both such position and
for other transactions in the ordinary course
of business;
ownership; or to the small business issuer, also state
b. The interest arises only from such the cost thereof to the promoter.
b. Disclosure need not be provided of any person’s position as a limited partner in a
indebtedness transaction for the related (2) Small business issuers shall
partnership in which the person and all other provide the disclosure required by
persons specified in Instruction 1.b. to persons specified in Instruction 1 to
paragraph (a) of this Item; and paragraphs (c)(1)(i) and (c)(1)(ii) of this
paragraph (a) of this Item, have an interest of
c. If the lender is a bank, savings and loan less than ten percent, and the person is not Item as to any person who acquired
association, or broker-dealer extending credit a general partner of and does not hold control of a small business issuer that is
under Federal Reserve Regulation T (12 CFR another position in the partnership. a shell company, or any person that is
part 220) and the loans are not disclosed as 7. Disclosure need not be provided part of a group, consisting of two or
nonaccrual, past due, restructured or pursuant to paragraph (a) of this Item if: more persons that agree to act together
potential problems (see Item III.C.1. and 2. of a. The transaction is one where the rates
Industry Guide 3, Statistical Disclosure by
for the purpose of acquiring, holding,
or charges involved in the transaction are voting or disposing of equity securities
Bank Holding Companies (17 CFR determined by competitive bids, or the
229.802(c))), disclosure under paragraph (a) of a small business issuer, that acquired
transaction involves the rendering of services
of this Item may consist of a statement, if as a common or contract carrier, or public control of a small business issuer that is
such is the case, that the loans to such utility, at rates or charges fixed in conformity a shell company. For purposes of this
persons: with law or governmental authority; Item, shell company has the same
i. Were made in the ordinary course of b. The transaction involves services as a meaning as in Rule 405 under the
business; bank depositary of funds, transfer agent, Securities Act (17 CFR 230.405) and
ii. Were made on substantially the same registrar, trustee under a trust indenture, or Rule 12b–2 under the Exchange Act (17
terms, including interest rates and collateral, similar services; or
as those prevailing at the time for comparable
CFR 240.12b–2).
c. The interest of the related person arises
loans with persons not related to the lender; ■ 8. Add § 228.407 to read as follows:
solely from the ownership of a class of equity
and securities of the small business issuer and all § 228.407 (Item 407) Corporate
iii. Did not involve more than the normal holders of that class of equity securities of governance.
risk of collectibility or present other the small business issuer received the same
unfavorable features. benefit on a pro rata basis. (a) Director independence. Identify
5.a. Disclosure of an employment 8. Include information for any material each director and, when the disclosure
relationship or transaction involving an underwriting discounts and commissions called for by this paragraph is being
executive officer and any related upon the sale of securities by the small presented in a proxy or information
compensation solely resulting from that business issuer where any of the specified statement relating to the election of
employment relationship or transaction need persons was or is to be a principal directors, each nominee for director,
not be provided pursuant to paragraph (a) of underwriter or is a controlling person or that is independent under the
this Item if: member of a firm that was or is to be a
i. The compensation arising from the principal underwriter.

independence standards applicable to
relationship or transaction is reported 9. Information shall be given for the period the small business issuer under
pursuant to Item 402 (§ 228.402); or specified in paragraph (a) of this Item and, paragraph (a)(1) of this Item. In
ii. The executive officer is not an in addition, for the fiscal year preceding the addition, if such independence
immediate family member (as specified in small business issuer’s last fiscal year. standards contain independence
requirements for committees of the members of a specific committee of the policies were so included in satisfaction
board of directors, identify each director board of directors are independent, if of this requirement.
that is a member of the compensation, the national securities exchange or (3) For each director and nominee for
nominating or audit committee that is national securities association whose director that is identified as
not independent under such committee standards are used has independence independent, describe, by specific
independence standards. If the small standards for the members of a specific category or type, any transactions,
business issuer does not have a committee, use those committee specific relationships or arrangements not
separately designated audit, nominating standards. disclosed pursuant to Item 404(a)
or compensation committee or (iii) If the information called for by (§ 228.404(a)) that were considered by
committee performing similar functions, paragraph (a) of this Item is being the board of directors under the
the small business issuer must provide presented in a registration statement on applicable independence definitions in
the disclosure of directors that are not Form S–1 (§ 239.11 of this chapter) or determining that the director is
independent with respect to all Form SB–2 (§ 239.10 of this chapter) independent.
members of the board of directors under the Securities Act or on a Form
applying such committee independence Instructions to Item 407(a).
10 (§ 249.210 of this chapter) or Form 1. If the small business issuer is a listed
standards. 10–SB (§ 249.210b of this chapter) under
(1) In determining whether or not the issuer whose securities are listed on a
the Exchange Act where the small national securities exchange or in an inter-
director or nominee for director is business issuer has applied for listing dealer quotation system which has
independent for the purposes of with a national securities exchange or in requirements that a majority of the board of
paragraph (a) of this Item, the small an inter-dealer quotation system which directors be independent, and also has
business issuer shall use the applicable has requirements that a majority of the exemptions to those requirements (for
definition of independence, as follows: board of directors be independent, the independence of a majority of the board of
(i) If the small business issuer is a directors or committee member
definition of independence that the
listed issuer whose securities are listed independence) upon which the small
small business issuer uses for business issuer relied, disclose the
on a national securities exchange or in
determining if a majority of the board of exemption relied upon and explain the basis
an inter-dealer quotation system which
directors is independent, and the for the small business issuer’s conclusion
has requirements that a majority of the
definition of independence that the that such exemption is applicable. The same
board of directors be independent, the
small business issuer uses for disclosure should be provided if the small
small business issuer’s definition of business issuer is not a listed issuer and the
determining if members of the specific
independence that it uses for national securities exchange or inter-dealer
committee of the board of directors are
determining if a majority of the board of quotation system selected by the small
independent, that is in compliance with
directors is independent in compliance business issuer has exemptions that are
with the listing standards applicable to the independence listing standards of
applicable to the small business issuer. Any
the small business issuer. When the national securities exchange or national securities exchange or inter-dealer
determining whether the members of a inter-dealer quotation system on which quotation system which has requirements
committee of the board of directors are it has applied for listing, or if the small that at least 50 percent of the members of a
independent, the small business issuer’s business issuer has not adopted such small business issuer’s board of directors
definition of independence that it uses definitions, the independence standards must be independent shall be considered a
for determining if the majority of the national securities exchange or inter-dealer
for determining if the members of that quotation system which has requirements
specific committee are independent in board of directors is independent and if
members of the committee of the board that a majority of the board of directors be
compliance with the independence independent for the purposes of the
standards applicable for the members of of directors are independent of that
disclosure required by paragraph (a) of this
the specific committee in the listing national securities exchange or inter- Item.
standards of the national securities dealer quotation system. 2. Small business issuers shall provide the
exchange or inter-dealer quotation (2) If the small business issuer uses its disclosure required by paragraph (a) of this
system that the small business issuer own definitions for determining Item for any person who served as a director
uses for determining if a majority of the whether its directors and nominees for during any part of the last completed fiscal
board of directors are independent. If director, and members of specific year, except that no information called for by
committees of the board of directors, are paragraph (a) of this Item need be given in
the small business issuer does not have a registration statement filed at a time when
independence standards for a independent, disclose whether these
the small business issuer is not subject to the
committee, the independence standards definitions are available to security reporting requirements of section 13(a) or
for that specific committee in the listing holders on the small business issuer’s 15(d) of the Exchange Act (15 U.S.C. 78m(a),
standards of the national securities Web site. If so, provide the small or 78o(d)) respecting any director who is no
exchange or inter-dealer quotation business issuer’s Web site address. If longer a director at the time of effectiveness
system that the small business issuer not, include a copy of these policies in of the registration statement.
uses for determining if a majority of the an appendix to the small business 3. The description of the specific categories
board of directors are independent. issuer’s proxy statement or information or types of transactions, relationships or
(ii) If the small business issuer is not statement that is provided to security arrangements required by paragraph (a)(3) of
holders at least once every three fiscal this Item must be provided in such detail as
a listed issuer, a definition of
is necessary to fully describe the nature of
independence of a national securities years or if the policies have been the transactions, relationships or
exchange or of an inter-dealer quotation materially amended since the beginning arrangements.
system which has requirements that a of the small business issuer’s last fiscal
majority of the board of directors be year. If a current copy of the policies is (b) Board meetings and committees;
independent, and state which definition not available to security holders on the annual meeting attendance. (1) State the
is used. Whatever such definition the small business issuer’s Web site, and is total number of meetings of the board of
small business issuer chooses, it must not included as an appendix to the directors (including regularly scheduled
use the same definition with respect to small business issuer’s proxy statement and special meetings) which were held
all directors and nominees for director. or information statement, identify the during the last full fiscal year. Name
When determining whether the most recent fiscal year in which the each incumbent director who during the
last full fiscal year attended fewer than will consider director candidates aggregate, more than 5% of the small
75 percent of the aggregate of: recommended by security holders; business issuer’s voting common stock,
(i) The total number of meetings of the (iii) If the nominating committee does with each of the securities used to
board of directors (held during the not have a policy with regard to the calculate that ownership held for at
period for which he has been a director); consideration of any director candidates least one year as of the date the
and recommended by security holders, state recommendation was made, identify the
(ii) The total number of meetings held that fact and state the basis for the view candidate and the security holder or
by all committees of the board on which of the board of directors that it is security holder group that
he served (during the periods that he appropriate for the small business issuer recommended the candidate and
served). not to have such a policy; disclose whether the nominating
(2) Describe the small business (iv) If the nominating committee will committee chose to nominate the
issuer’s policy, if any, with regard to consider candidates recommended by candidate, provided, however, that no
board members’ attendance at annual security holders, describe the such identification or disclosure is
meetings of security holders and state procedures to be followed by security required without the written consent of
the number of board members who holders in submitting such both the security holder or security
attended the prior year’s annual recommendations; holder group and the candidate to be so
meeting. (v) Describe any specific minimum identified.
qualifications that the nominating
Instruction to Item 407(b)(2). committee believes must be met by a Instructions to Item 407(c)(2)(ix).
In lieu of providing the information nominating committee-recommended 1. For purposes of paragraph (c)(2)(ix) of
required by paragraph (b)(2) of this Item in this Item, the percentage of securities held by
nominee for a position on the small
the proxy statement, the small business a nominating security holder may be
issuer may instead provide the small business issuer’s board of directors, and determined using information set forth in the
business issuer’s Web site address where describe any specific qualities or skills small business issuer’s most recent quarterly
such information appears. that the nominating committee believes or annual report, and any current report
are necessary for one or more of the subsequent thereto, filed with the
(3) State whether or not the small small business issuer’s directors to Commission pursuant to the Exchange Act,
business issuer has standing audit, possess; unless the party relying on such report
nominating and compensation (vi) Describe the nominating knows or has reason to believe that the
committees of the board of directors, or committee’s process for identifying and information contained therein is inaccurate.
committees performing similar evaluating nominees for director, 2. For purposes of the small business
functions. If the small business issuer including nominees recommended by issuer’s obligation to provide the disclosure
has such committees, however security holders, and any differences in specified in paragraph (c)(2)(ix) of this Item,
designated, identify each committee where the date of the annual meeting has
the manner in which the nominating been changed by more than 30 days from the
member, state the number of committee committee evaluates nominees for
meetings held by each such committee date of the previous year’s meeting, the
director based on whether the nominee obligation under that Item will arise where
during the last fiscal year and describe is recommended by a security holder; the small business issuer receives the
briefly the functions performed by each (vii) With regard to each nominee security holder recommendation a reasonable
such committee. Such disclosure need approved by the nominating committee time before the small business issuer begins
not be provided to the extent it is for inclusion on the small business to print and mail its proxy materials.
duplicative of disclosure provided in issuer’s proxy card (other than 3. For purposes of paragraph (c)(2)(ix) of
accordance with paragraph (c), (d) or (e) nominees who are executive officers or this Item, the percentage of securities held by
of this Item. who are directors standing for re- a recommending security holder, as well as
(c) Nominating committee. (1) If the election), state which one or more of the the holding period of those securities, may be
small business issuer does not have a determined by the small business issuer if
following categories of persons or the security holder is the registered holder of
standing nominating committee or entities recommended that nominee: the securities. If the security holder is not the
committee performing similar functions, Security holder, non-management registered owner of the securities, he or she
state the basis for the view of the board director, chief executive officer, other can submit one of the following to the small
of directors that it is appropriate for the executive officer, third-party search business issuer to evidence the required
small business issuer not to have such firm, or other specified source; ownership percentage and holding period:
a committee and identify each director (viii) If the small business issuer pays a. A written statement from the ‘‘record’’
who participates in the consideration of a fee to any third party or parties to holder of the securities (usually a broker or
director nominees. identify or evaluate or assist in bank) verifying that, at the time the security
(2) Provide the following information identifying or evaluating potential holder made the recommendation, he or she
regarding the small business issuer’s nominees, disclose the function had held the required securities for at least
director nomination process: one year; or
performed by each such third party; and b. If the security holder has filed a
(i) State whether or not the (ix) If the small business issuer’s Schedule 13D (§ 240.13d-101 of this chapter),
nominating committee has a charter. If nominating committee received, by a Schedule 13G (§ 240.13d-102 of this chapter),
the nominating committee has a charter, date not later than the 120th calendar Form 3 (§ 249.103 of this chapter), Form 4
provide the disclosure required by day before the date of the small business (§ 249.104 of this chapter), and/or Form 5
Instruction 2 to this Item regarding the issuer’s proxy statement released to (§ 249.105 of this chapter), or amendments to
nominating committee charter; security holders in connection with the those documents or updated forms, reflecting
(ii) If the nominating committee has a previous year’s annual meeting, a ownership of the securities as of or before the
policy with regard to the consideration recommended nominee from a security date of the recommendation, a copy of the
of any director candidates holder that beneficially owned more schedule and/or form, and any subsequent
amendments reporting a change in
recommended by security holders, than 5% of the small business issuer’s ownership level, as well as a written
provide a description of the material voting common stock for at least one statement that the security holder
elements of that policy, which shall year as of the date the recommendation continuously held the securities for the one-
include, but need not be limited to, a was made, or from a group of security year period as of the date of the
statement as to whether the committee holders that beneficially owned, in the recommendation.
4. For purposes of the small business (B) The audit committee has designated standing audit committee
issuer’s obligation to provide the disclosure discussed with the independent established in accordance with section
specified in paragraph (c)(2)(ix) of this Item, auditors the matters required to be 3(a)(58)(A) of the Exchange Act (15
the security holder or group must have discussed by the statement on Auditing U.S.C. 78c(a)(58)(A)), or a committee
provided to the small business issuer, at the
time of the recommendation, the written
Standards No. 61, as amended (AICPA, performing similar functions. If the
consent of all parties to be identified and, Professional Standards, Vol. 1, AU small business issuer has such a
where the security holder or group members section 380),1 as adopted by the Public committee, however designated,
are not registered holders, proof that the Company Accounting Oversight Board identify each committee member. If the
security holder or group satisfied the in Rule 3200T; entire board of directors is acting as the
required ownership percentage and holding (C) The audit committee has received small business issuer’s audit committee
period as of the date of the recommendation. the written disclosures and the letter as specified in section 3(a)(58)(B) of the
Instruction to Item 407(c)(2). from the independent accountants Exchange Act (15 U.S.C. 78c(a)(58)(B)),
For purposes of paragraph (c)(2) of this required by Independence Standards so state.
Item, the term nominating committee refers Board Standard No. 1 (Independence (B) If applicable, provide the
not only to nominating committees and Standards Board Standard No. 1, disclosure required by § 240.10A–3(d) of
committees performing similar functions, but Independence Discussions with Audit
also to groups of directors fulfilling the role
this chapter regarding an exemption
of a nominating committee, including the
Committees),2 as adopted by the Public from the listing standards for audit
entire board of directors. Company Accounting Oversight Board committees.
in Rule 3600T, and has discussed with (5) Audit committee financial expert.
(3) Describe any material changes to the independent accountant the (i)(A) Disclose that the small business
the procedures by which security independent accountant’s issuer’s board of directors has
holders may recommend nominees to independence; and determined that the small business
the small business issuer’s board of (D) Based on the review and issuer either:
directors, where those changes were discussions referred to in paragraphs (1) Has at least one audit committee
implemented after the small business (d)(3)(i)(A) through (d)(3)(i)(C) of this financial expert serving on its audit
issuer last provided disclosure in Item, the audit committee recommended committee; or
response to the requirements of to the board of directors that the audited (2) Does not have an audit committee
paragraph (c)(2)(iv) of this Item, or financial statements be included in the financial expert serving on its audit
paragraph (c)(3) of this Item. company’s annual report on Form 10– committee.
Instructions to Item 407(c)(3). KSB (17 CFR 249.310b) for the last fiscal (B) If the small business issuer
1. The disclosure required in paragraph year for filing with the Commission. provides the disclosure required by
(c)(3) of this Item need only be provided in (ii) The name of each member of the paragraph (d)(5)(i)(A)(1) of this Item, it
a small business issuer’s quarterly or annual company’s audit committee (or, in the must disclose the name of the audit
reports. absence of an audit committee, the committee financial expert and whether
2. For purposes of paragraph (c)(3) of this board committee performing equivalent that person is independent, as
Item, adoption of procedures by which functions or the entire board of independence for audit committee
security holders may recommend nominees
directors) must appear below the members is defined in the listing
to the small business issuer’s board of
directors, where the small business issuer’s disclosure required by paragraph standards applicable to the listed issuer.
most recent disclosure in response to the (d)(3)(i) of this Item. (C) If the small business issuer
requirements of paragraph (c)(2)(iv) of this (4)(i) If the small business issuer provides the disclosure required by
Item, or paragraph (c)(3) of this Item, meets the following requirements, paragraph (d)(5)(i)(A)(2) of this Item, it
indicated that the small business issuer did provide the disclosure in paragraph must explain why it does not have an
not have in place such procedures, will (d)(4)(ii) of this Item: audit committee financial expert.
constitute a material change. (A) The small business issuer is a
Instruction to Item 407(d)(5)(i).
(d) Audit committee. (1) State whether listed issuer, as defined in § 240.10A–3 If the small business issuer’s board of
or not the audit committee has a charter. of this chapter; directors has determined that the small
(B) The small business issuer is filing business issuer has more than one audit
If the audit committee has a charter,
either an annual report on Form 10–KSB committee financial expert serving on its
provide the disclosure required by
(17 CFR 249.310b), or a proxy statement audit committee, the small business issuer
Instruction 2 to this Item regarding the
or information statement pursuant to the may, but is not required to, disclose the
audit committee charter. names of those additional persons. A small
Exchange Act (15 U.S.C. 78a et seq.) if
(2) If a listed issuer’s board of action is to be taken with respect to the business issuer choosing to identify such
directors determines, in accordance election of directors; and persons must indicate whether they are
with the listing standards applicable to (C) The small business issuer is independent pursuant to paragraph
the issuer, to appoint a director to the (d)(5)(i)(B) of this Item.
neither:
audit committee who is not (1) A subsidiary of another listed (ii) For purposes of this Item, an audit
independent (apart from the issuer that is relying on the exemption committee financial expert means a
requirements in § 240.10A–3 of this in § 240.10A–3(c)(2) of this chapter; nor person who has the following attributes:
chapter), including as a result of (2) Relying on any of the exemptions (A) An understanding of generally
exceptional or limited or similar in § 240.10A–3(c)(4) through (c)(7) of accepted accounting principles and
circumstances, disclose the nature of the this chapter. financial statements;
relationship that makes that individual (ii)(A) State whether or not the small (B) The ability to assess the general
not independent and the reasons for the business issuer has a separately- application of such principles in
board of directors’ determination. connection with the accounting for
(3)(i) The audit committee must state 1 Available at http://www.pcaobus.org/standards/

estimates, accruals and reserves;
whether: interim_standards/auditing_standards/ (C) Experience preparing, auditing,
index_au.asp?series=300&section=300.
(A) The audit committee has reviewed 2 Available at http://www.pcaobus.org/Standards/ analyzing or evaluating financial
and discussed the audited financial Interim_Standards/Independence_Standards/ statements that present a breadth and
statements with management; ISB1.pdf. level of complexity of accounting issues
that are generally comparable to the 2. If a person qualifies as an audit (2) State whether or not the
breadth and complexity of issues that committee financial expert by means of compensation committee has a charter.
can reasonably be expected to be raised having held a position described in If the compensation committee has a
paragraph (d)(5)(iii)(D) of this Item, the small charter, provide the disclosure required
by the small business issuer’s financial
business issuer shall provide a brief listing of
statements, or experience actively that person’s relevant experience. Such
by Instruction 2 to this Item regarding
supervising one or more persons disclosure may be made by reference to the compensation committee charter.
engaged in such activities; disclosures required under Item 401(a)(4) (3) Provide a narrative description of
(D) An understanding of internal (§ 228.401(a)(4)). the small business issuer’s processes
control over financial reporting; and 3. In the case of a foreign private issuer and procedures for the consideration
(E) An understanding of audit with a two-tier board of directors, for and determination of executive and
committee functions. purposes of paragraph (d)(5) of this Item, the director compensation, including:
(iii) A person shall have acquired term board of directors means the (i) (A) The scope of authority of the
supervisory or non-management board. Also, compensation committee (or persons
such attributes through:
in the case of a foreign private issuer, the performing the equivalent functions);
(A) Education and experience as a term generally accepted accounting
principal financial officer, principal and
principles in paragraph (d)(5)(ii)(A) of this (B) The extent to which the
accounting officer, controller, public Item means the body of generally accepted
accountant or auditor or experience in accounting principles used by that issuer in
compensation committee (or persons
one or more positions that involve the its primary financial statements filed with performing the equivalent functions)
performance of similar functions; the Commission. may delegate any authority described in
(B) Experience actively supervising a 4. Following the effective date of the first paragraph (e)(3)(i)(A) of this Item to
principal financial officer, principal registration statement filed under the other persons, specifying what authority
Securities Act (15 U.S.C. 77a et seq.) or may be so delegated and to whom;
accounting officer, controller, public Exchange Act (15 U.S.C. 78a et seq.) by a (ii) Any role of executive officers in
accountant, auditor or person small business issuer, the small business determining or recommending the
performing similar functions; issuer or successor issuer need not make the amount or form of executive and
(C) Experience overseeing or assessing disclosures required by this Item in its first
director compensation; and
the performance of companies or public annual report filed pursuant to section 13(a)
(iii) Any role of compensation
accountants with respect to the or 15(d) (15 U.S.C. 78m(a) or 78o(d)) of the
Exchange Act after effectiveness. consultants in determining or
preparation, auditing or evaluation of
recommending the amount or form of
financial statements; or Instructions to Item 407(d).
1. The information required by paragraphs executive and director compensation,
(D) Other relevant experience. identifying such consultants, stating
(iv) Safe harbor. (A) A person who is (d)(1)–(3) of this Item shall not be deemed to
be ‘‘soliciting material,’’ or to be ‘‘filed’’ with whether such consultants are engaged
determined to be an audit committee directly by the compensation committee
the Commission or subject to Regulation 14A
financial expert will not be deemed an or 14C (17 CFR 240.14a–1 through 240.14b– (or persons performing the equivalent
expert for any purpose, including 2 or 240.14c–1 through 240.14c–101), other functions) or any other person,
without limitation for purposes of than as provided in this Item, or to the describing the nature and scope of their
section 11 of the Securities Act (15 liabilities of section 18 of the Exchange Act assignment, and the material elements
U.S.C. 77k), as a result of being (15 U.S.C. 78r), except to the extent that the
of the instructions or directions given to
designated or identified as an audit small business issuer specifically requests
that the information be treated as soliciting the consultants with respect to the
committee financial expert pursuant to performance of their duties under the
this Item 407. material or specifically incorporates it by
reference into a document filed under the engagement.
(B) The designation or identification (f) Shareholder communications. (1)
Securities Act or the Exchange Act. Such
of a person as an audit committee information will not be deemed to be State whether or not the small business
financial expert pursuant to this Item incorporated by reference into any filing issuer’s board of directors provides a
407 does not impose on such person any under the Securities Act or the Exchange Act, process for security holders to send
duties, obligations or liability that are except to the extent that the small business communications to the board of
greater than the duties, obligations and issuer specifically incorporates it by directors and, if the small business
liability imposed on such person as a reference.
2. The disclosure required by paragraphs
issuer does not have such a process for
member of the audit committee and security holders to send
board of directors in the absence of such (d)(1)–(3) of this Item need only be provided
one time during any fiscal year. communications to the board of
designation or identification. directors, state the basis for the view of
3. The disclosure required by paragraph
(C) The designation or identification (d)(3) of this Item need not be provided in the board of directors that it is
of a person as an audit committee any filings other than a small business appropriate for the small business issuer
financial expert pursuant to this Item issuer’s proxy or information statement not to have such a process.
does not affect the duties, obligations or relating to an annual meeting of security (2) If the small business issuer has a
liability of any other member of the holders at which directors are to be elected process for security holders to send
audit committee or board of directors. (or special meeting or written consents in communications to the board of
lieu of such meeting).
Instructions to Item 407(d)(5). directors:
1. The disclosure under paragraph (d)(5) of (e) Compensation committee. (1) If the (i) Describe the manner in which
this Item is required only in a small business small business issuer does not have a security holders can send
issuer’s annual report. The small business standing compensation committee or communications to the board and, if
issuer need not provide the disclosure committee performing similar functions, applicable, to specified individual
required by paragraph (d)(5) of this Item in state the basis for the view of the board directors; and
a proxy or information statement unless that of directors that it is appropriate for the (ii) If all security holder
small business issuer is electing to
incorporate this information by reference

small business issuer not to have such communications are not sent directly to
from the proxy or information statement into a committee and identify each director board members, describe the small
its annual report pursuant to General who participates in the consideration of business issuer’s process for
Instruction E(3) to Form 10–KSB (17 CFR executive officer and director determining which communications
249.310b). compensation. will be relayed to board members.
Instructions to Item 407(f). PART 229—STANDARD (A) A published industry or line-of-

1. In lieu of providing the information INSTRUCTIONS FOR FILING FORMS business index;
required by paragraph (f)(2) of this Item in UNDER SECURITIES ACT OF 1933, (B) Peer issuer(s) selected in good
the proxy statement, the small business faith. If the registrant does not select its
issuer may instead provide the small
SECURITIES EXCHANGE ACT OF 1934
AND ENERGY POLICY AND peer issuer(s) on an industry or line-of-
business issuer’s Web site address where
such information appears. CONSERVATION ACT OF 1975— business basis, the registrant shall
2. For purposes of the disclosure required REGULATION S–K disclose the basis for its selection; or
by paragraph (f)(2)(ii) of this Item, a small (C) Issuer(s) with similar market
business issuer’s process for collecting and ■ 9. The authority citation for part 229 capitalization(s), but only if the
organizing security holder communications, continues to read in part as follows: registrant does not use a published
as well as similar or related activities, need Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, industry or line-of-business index and
not be disclosed provided that the small 77k, 77s, 77z-2, 77z-3, 77aa(25), 77aa(26), does not believe it can reasonably
business issuer’s process is approved by a 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, identify a peer group. If the registrant
majority of the independent directors. 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, uses this alternative, the graph shall be
3. For purposes of this paragraph, 78o, 78u-5, 78w, 78ll, 78mm, 79e, 79j, 79n, accompanied by a statement of the
communications from an officer or director of 79t, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-
the small business issuer will not be viewed
reasons for this selection.
31(c), 80a-37, 80a-38(a), 80a-39, 80b-11, and (2) For purposes of paragraph (e)(1) of
as ‘‘security holder communications.’’ 7201 et seq.; and 18 U.S.C. 1350, unless
Communications from an employee or agent otherwise noted.
this Item, the term ‘‘measurement
of the small business issuer will be viewed period’’ shall be the period beginning at
* * * * * the ‘‘measurement point’’ established by
as ‘‘security holder communications’’ for
purposes of this paragraph only if those ■ 10. Amend § 229.201 by revising the market close on the last trading day
communications are made solely in such Instruction 2 to paragraph (d) and before the beginning of the registrant’s
employee’s or agent’s capacity as a security adding paragraph (e) before the fifth preceding fiscal year, through and
holder. Instructions to Item 201 to read as including the end of the registrant’s last
4. For purposes of this paragraph, security follows: completed fiscal year. If the class of
holder proposals submitted pursuant to
§ 240.14a–8 of this chapter, and § 229.201 (Item 201) Market price of and securities has been registered under
communications made in connection with dividends on the registrant’s common section 12 of the Exchange Act (15
such proposals, will not be viewed as equity and related stockholder matters. U.S.C. 78l) for a shorter period of time,
‘‘security holder communications.’’ * * * * * the period covered by the comparison
Instructions to Item 407. Instructions to paragraph (d). may correspond to that time period.
1. For purposes of this Item: 1. * * * (3) For purposes of paragraph
a. Listed issuer means a listed issuer as 2. For purposes of this paragraph, an (e)(1)(ii)(A) of this Item, the term
defined in § 240.10A–3 of this chapter; ‘‘individual compensation arrangement’’ ‘‘published industry or line-of-business
b. National securities exchange means a includes, but is not limited to, the following: index’’ means any index that is
national securities exchange registered a written compensation contract within the prepared by a party other than the
pursuant to section 6(a) of the Exchange Act meaning of ‘‘employee benefit plan’’ under registrant or an affiliate and is accessible
(15 U.S.C. 78f(a)); § 230.405 of this chapter and a plan (whether to the registrant’s security holders;
c. Inter-dealer quotation system means an or not set forth in any formal document)
applicable to one person as provided under
provided, however, that registrants may
automated inter-dealer quotation system of a
national securities association registered Item 402(a)(6)(ii) of Regulation S–K use an index prepared by the registrant
pursuant to section 15A(a) of the Exchange (§ 229.402(a)(6)(ii)). or affiliate if such index is widely
Act (15 U.S.C. 78o–3(a)); and * * * * * recognized and used.
d. National securities association means a (e) Performance graph. (1) Provide a (4) If the registrant selects a different
national securities association registered line graph comparing the yearly index from an index used for the
pursuant to section 15A(a) of the Exchange
percentage change in the registrant’s immediately preceding fiscal year,
Act (15 U.S.C. 78o–3(a)) that has been explain the reason(s) for this change and
approved by the Commission (as that
cumulative total shareholder return on a
class of common stock registered under also compare the registrant’s total return
definition may be modified or with that of both the newly selected
supplemented). section 12 of the Exchange Act (as
measured by dividing the sum of the index and the index used in the
2. With respect to paragraphs (c)(2)(i),
(d)(1) and (e)(2) of this Item, disclose whether cumulative amount of dividends for the immediately preceding fiscal year.
a current copy of the applicable committee measurement period, assuming Instructions to Item 201(e):
charter is available to security holders on the dividend reinvestment, and the 1. In preparing the required graphic
small business issuer’s Web site, and if so, difference between the registrant’s share comparisons, the registrant should:
provide the small business issuer’s Web site price at the end and the beginning of the a. Use, to the extent feasible, comparable
address. If a current copy of the charter is not methods of presentation and assumptions for
available to security holders on the small
measurement period; by the share price the total return calculations required by
business issuer’s Web site, include a copy of at the beginning of the measurement paragraph (e)(1) of this Item; provided,
the charter in an appendix to the small period) with: however, that if the registrant constructs its
business issuer’s proxy or information (i) The cumulative total return of a own peer group index under paragraph
statement that is provided to security holders broad equity market index assuming (e)(1)(ii)(B), the same methodology must be
at least once every three fiscal years, or if the reinvestment of dividends, that includes used in calculating both the registrant’s total
charter has been materially amended since companies whose equity securities are return and that on the peer group index; and
the beginning of the small business issuer’s traded on the same exchange or are of b. Assume the reinvestment of dividends
last fiscal year. If a current copy of the comparable market capitalization; into additional shares of the same class of
charter is not available to security holders on equity securities at the frequency with which
provided, however, that if the registrant
the small business issuer’s Web site, and is dividends are paid on such securities during
not included as an appendix to the small is a company within the Standard & the applicable fiscal year.
business issuer’s proxy or information Poor’s 500 Stock Index, the registrant 2. In constructing the graph:
statement, identify in which of the prior must use that index; and a. The closing price at the measurement
fiscal years the charter was so included in (ii) The cumulative total return, point must be converted into a fixed
satisfaction of this requirement. assuming reinvestment of dividends, of: investment, stated in dollars, in the
registrant’s stock (or in the stocks represented (g) Promoters and control persons. (1) last completed fiscal year (‘‘PEO’’),
by a given index) with cumulative returns for Registrants, which have not been subject regardless of compensation level;
each subsequent fiscal year measured as a to the reporting requirements of section (ii) All individuals serving as the
change from that investment; and 13(a) or 15(d) of the Exchange Act (15 registrant’s principal financial officer or
b. Each fiscal year should be plotted with
U.S.C. 78m(a) or 78o(d)) for the twelve acting in a similar capacity during the
points showing the cumulative total return as
of that point. The value of the investment as months immediately prior to the filing last completed fiscal year (‘‘PFO’’),
of each point plotted on a given return line of the registration statement, report, or regardless of compensation level;
is the number of shares held at that point statement to which this Item is (iii) The registrant’s three most highly
multiplied by the then-prevailing share price. applicable, and which had a promoter at compensated executive officers other
3. The registrant is required to present any time during the past five fiscal than the PEO and PFO who were
information for the registrant’s last five fiscal years, shall describe with respect to any serving as executive officers at the end
years, and may choose to graph a longer promoter, any of the events enumerated of the last completed fiscal year; and
period; but the measurement point, however, in paragraphs (f)(1) through (f)(6) of this (iv) Up to two additional individuals
shall remain the same. for whom disclosure would have been
4. Registrants may include comparisons
Item that occurred during the past five
years and that are material to a voting provided pursuant to paragraph
using performance measures in addition to
total return, such as return on average or investment decision. (a)(3)(iii) of this Item but for the fact that
common shareholders’ equity. * * * * * the individual was not serving as an
5. If the registrant uses a peer issuer(s) executive officer of the registrant at the
■ 13. Revise § 229.402 to read as end of the last completed fiscal year.
comparison or comparison with issuer(s)
with similar market capitalizations, the follows:
Instructions to Item 402(a)(3).
identity of those issuers must be disclosed § 229.402 (Item 402) Executive 1. Determination of most highly
and the returns of each component issuer of compensation. compensated executive officers. The
the group must be weighted according to the determination as to which executive officers
respective issuer’s stock market (a) General—(1) Treatment of foreign
are most highly compensated shall be made
capitalization at the beginning of each period private issuers. A foreign private issuer by reference to total compensation for the last
for which a return is indicated. will be deemed to comply with this Item completed fiscal year (as required to be
6. A registrant that qualifies as a ‘‘small if it provides the information required disclosed pursuant to paragraph (c)(2)(x) of
business issuer,’’ as defined by Item 10(a)(1) by Items 6.B and 6.E.2 of Form 20–F (17 this Item) reduced by the amount required to
of Regulation S–B (17 CFR 228.10(a)(1)) is CFR 249.220f), with more detailed be disclosed pursuant to paragraph (c)(2)(viii)
not required to provide the information information provided if otherwise made of this Item, provided, however, that no
required by paragraph (e) of this Item. disclosure need be provided for any
publicly available or required to be
7. The information required by paragraph executive officer, other than the PEO and
(e) of this Item need not be provided in any disclosed by the issuer’s home
PFO, whose total compensation, as so
filings other than an annual report to security jurisdiction or a market in which its reduced, does not exceed $100,000.
holders required by Exchange Act Rule 14a- securities are listed or traded. 2. Inclusion of executive officer of
3 (17 CFR 240.14a-3) or Exchange Act Rule (2) All compensation covered. This subsidiary. It may be appropriate for a
14c-3 (17 CFR 240.14c-3) that precedes or Item requires clear, concise and registrant to include as named executive
accompanies a registrant’s proxy or understandable disclosure of all plan officers one or more executive officers or
information statement relating to an annual and non-plan compensation awarded to, other employees of subsidiaries in the
meeting of security holders at which earned by, or paid to the named disclosure required by this Item. See Rule
directors are to be elected (or special meeting 3b–7 under the Exchange Act (17 CFR
or written consents in lieu of such meeting).
executive officers designated under
240.3b–7).
Such information will not be deemed to be paragraph (a)(3) of this Item, and 3. Exclusion of executive officer due to
incorporated by reference into any filing directors covered by paragraph (k) of overseas compensation. It may be
under the Securities Act or the Exchange Act, this Item, by any person for all services appropriate in limited circumstances for a
except to the extent that the registrant rendered in all capacities to the registrant not to include in the disclosure
specifically incorporates it by reference. registrant and its subsidiaries, unless required by this Item an individual, other
8. The information required by paragraph otherwise specifically excluded from than its PEO or PFO, who is one of the
(e) of this Item shall not be deemed to be disclosure in this Item. All such registrant’s most highly compensated
‘‘soliciting material’’ or to be ‘‘filed’’ with the executive officers due to the payment of
compensation shall be reported
Commission or subject to Regulation 14A or amounts of cash compensation relating to
14C (17 CFR 240.14a-1–240.14a-104 or
pursuant to this Item, even if also called overseas assignments attributed
240.14c-1–240.14c-101), other than as for by another requirement, including predominantly to such assignments.
provided in this item, or to the liabilities of transactions between the registrant and (4) Information for full fiscal year. If the
section 18 of the Exchange Act (15 U.S.C. a third party where a purpose of the PEO or PFO served in that capacity during
78r), except to the extent that the registrant transaction is to furnish compensation any part of a fiscal year with respect to which
specifically requests that such information be to any such named executive officer or information is required, information should
treated as soliciting material or specifically director. No amount reported as be provided as to all of his or her
incorporates it by reference into a filing compensation for one fiscal year need compensation for the full fiscal year. If a
under the Securities Act or the Exchange Act. named executive officer (other than the PEO
be reported in the same manner as or PFO) served as an executive officer of the
* * * * * compensation for a subsequent fiscal registrant (whether or not in the same
§ 229.306 [Removed and Reserved]
year; amounts reported as compensation position) during any part of the fiscal year
for one fiscal year may be required to be with respect to which information is
■ 11. Remove and reserve § 229.306. reported in a different manner pursuant required, information shall be provided as to
to this Item. all compensation of that individual for the
■ 12. Amend § 229.401 by removing
(3) Persons covered. Disclosure shall full fiscal year.
paragraphs (h), (i) and (j) and by (5) Omission of table or column. A table or
revising paragraph (g)(1) to read as be provided pursuant to this Item for
column may be omitted if there has been no
follows: each of the following (the ‘‘named compensation awarded to, earned by, or paid
executive officers’’): to any of the named executive officers or
§ 229.401 (Item 401) Directors, executive (i) All individuals serving as the directors required to be reported in that table
officers, promoters and control persons. registrant’s principal executive officer or or column in any fiscal year covered by that
* * * * * acting in a similar capacity during the table.
(6) Definitions. For purposes of this Item: (v) How the registrant determines the with any termination or change-in-control,
(i) The term stock means instruments such amount (and, where applicable, the formula) the basis for selecting particular events as
as common stock, restricted stock, restricted for each element to pay; and triggering payment (e.g., the rationale for
stock units, phantom stock, phantom stock (vi) How each compensation element and providing a single trigger for payment in the
units, common stock equivalent units or any the registrant’s decisions regarding that event of a change-in-control);
similar instruments that do not have option- element fit into the registrant’s overall (xii) The impact of the accounting and tax
like features, and the term option means compensation objectives and affect decisions treatments of the particular form of
instruments such as stock options, stock regarding other elements. compensation;
appreciation rights and similar instruments (2) While the material information to be (xiii) The registrant’s equity or other
with option-like features. The term stock disclosed under Compensation Discussion security ownership requirements or
appreciation rights (‘‘SARs’’) refers to SARs and Analysis will vary depending upon the guidelines (specifying applicable amounts
payable in cash or stock, including SARs facts and circumstances, examples of such and forms of ownership), and any registrant
payable in cash or stock at the election of the information may include, in a given case, policies regarding hedging the economic risk
registrant or a named executive officer. The among other things, the following: of such ownership;
term equity is used to refer generally to stock (i) The policies for allocating between long- (xiv) Whether the registrant engaged in any
and/or options. term and currently paid out compensation; benchmarking of total compensation, or any
(ii) The term plan includes, but is not (ii) The policies for allocating between material element of compensation,
limited to, the following: Any plan, contract, cash and non-cash compensation, and among identifying the benchmark and, if applicable,
authorization or arrangement, whether or not different forms of non-cash compensation; its components (including component
set forth in any formal document, pursuant (iii) For long-term compensation, the basis companies); and
to which cash, securities, similar for allocating compensation to each different (xv) The role of executive officers in
form of award (such as relationship of the determining executive compensation.
instruments, or any other property may be
award to the achievement of the registrant’s Instructions to Item 402(b).
received. A plan may be applicable to one
long-term goals, management’s exposure to 1. The purpose of the Compensation
person. Registrants may omit information
downside equity performance risk, Discussion and Analysis is to provide to
regarding group life, health, hospitalization,
correlation between cost to registrant and investors material information that is
or medical reimbursement plans that do not
expected benefits to the registrant); necessary to an understanding of the
discriminate in scope, terms or operation, in
(iv) How the determination is made as to registrant’s compensation policies and
favor of executive officers or directors of the
when awards are granted, including awards decisions regarding the named executive
registrant and that are available generally to
of equity-based compensation such as officers.
all salaried employees.
options; 2. The Compensation Discussion and
(iii) The term incentive plan means any
(v) What specific items of corporate Analysis should be of the information
plan providing compensation intended to performance are taken into account in setting
serve as incentive for performance to occur contained in the tables and otherwise
compensation policies and making disclosed pursuant to this Item. The
over a specified period, whether such compensation decisions;
performance is measured by reference to Compensation Discussion and Analysis
(vi) How specific forms of compensation should also cover actions regarding executive
financial performance of the registrant or an are structured and implemented to reflect
affiliate, the registrant’s stock price, or any compensation that were taken after the
these items of the registrant’s performance, registrant’s last fiscal year’s end. Actions that
other performance measure. An equity including whether discretion can be or has
incentive plan is an incentive plan or portion should be addressed might include, as
been exercised (either to award examples only, the adoption or
of an incentive plan under which awards are compensation absent attainment of the
granted that fall within the scope of Financial implementation of new or modified programs
relevant performance goal(s) or to reduce or and policies or specific decisions that were
Accounting Standards Board Statement of increase the size of any award or payout), made or steps that were taken that could
Financial Accounting Standards No. 123 identifying any particular exercise of affect a fair understanding of the named
(revised 2004), Share-Based Payment, as discretion, and stating whether it applied to executive officer’s compensation for the last
modified or supplemented (‘‘FAS 123R’’). A one or more specified named executive fiscal year. Moreover, in some situations it
non-equity incentive plan is an incentive officers or to all compensation subject to the may be necessary to discuss prior years in
plan or portion of an incentive plan that is relevant performance goal(s); order to give context to the disclosure
not an equity incentive plan. The term (vii) How specific forms of compensation provided.
incentive plan award means an award are structured and implemented to reflect the 3. The Compensation Discussion and
provided under an incentive plan. named executive officer’s individual Analysis should focus on the material
(iv) The terms date of grant or grant date performance and/or individual contribution principles underlying the registrant’s
refer to the grant date determined for to these items of the registrant’s performance, executive compensation policies and
financial statement reporting purposes describing the elements of individual decisions and the most important factors
pursuant to FAS 123R. performance and/or contribution that are relevant to analysis of those policies and
(v) Closing market price is defined as the taken into account; decisions. The Compensation Discussion and
price at which the registrant’s security was (viii) Registrant policies and decisions Analysis shall reflect the individual
last sold in the principal United States regarding the adjustment or recovery of circumstances of the registrant and shall
market for such security as of the date for awards or payments if the relevant registrant avoid boilerplate language and repetition of
which the closing market price is performance measures upon which they are the more detailed information set forth in the
determined. based are restated or otherwise adjusted in a tables and narrative disclosures that follow.
(b) Compensation discussion and analysis. manner that would reduce the size of an 4. Registrants are not required to disclose
(1) Discuss the compensation awarded to, award or payment; target levels with respect to specific
earned by, or paid to the named executive (ix) The factors considered in decisions to quantitative or qualitative performance-
officers. The discussion shall explain all increase or decrease compensation related factors considered by the
material elements of the registrant’s materially; compensation committee or the board of
compensation of the named executive (x) How compensation or amounts directors, or any other factors or criteria
officers. The discussion shall describe the realizable from prior compensation are involving confidential trade secrets or
following: considered in setting other elements of confidential commercial or financial
(i) The objectives of the registrant’s compensation (e.g., how gains from prior information, the disclosure of which would
compensation programs; option or stock awards are considered in result in competitive harm for the registrant.
(ii) What the compensation program is setting retirement benefits); The standard to use when determining
designed to reward; (xi) With respect to any contract, whether disclosure would cause competitive
(iii) Each element of compensation; agreement, plan or arrangement, whether harm for the registrant is the same standard
(iv) Why the registrant chooses to pay each written or unwritten, that provides for that would apply when a registrant requests
element; payment(s) at, following, or in connection confidential treatment of confidential trade
secrets or confidential commercial or that the disclosure would cause competitive calculated from the registrant’s audited
financial information pursuant to Securities harm in reliance on this instruction; financial statements.
Act Rule 406 (17 CFR 230.406) and Exchange however, in that case, the registrant must
(c) Summary compensation table—(1)
Act Rule 24b–2 (17 CFR 240.24b–2), each of discuss how difficult it will be for the
General. Provide the information
which incorporates the criteria for non- executive or how likely it will be for the
disclosure when relying upon Exemption 4 of registrant to achieve the undisclosed target
specified in paragraph (c)(2) of this
the Freedom of Information Act (5 U.S.C. levels or other factors. Item, concerning the compensation of
552(b)(4)) and Rule 80(b)(4) (17 CFR 5. Disclosure of target levels that are non- the named executive officers for each of
200.80(b)(4)) thereunder. A registrant is not GAAP financial measures will not be subject the registrant’s last three completed
required to seek confidential treatment under to Regulation G (17 CFR 244.100—102) and fiscal years, in a Summary
the procedures in Securities Act Rule 406 Item 10(e) (§ 229.10(e)); however, disclosure Compensation Table in the tabular
and Exchange Act Rule 24b-2 if it determines must be provided as to how the number is format specified below.

Change
in pen-
Non-eq- sion value
uity and non- All other
Stock Option
Salary Bonus incentive qualified com- Total
Name and principal position Year awards awards
($) ($) plan com- deferred pensation ($)
($) ($) pensation com- ($)
($) pensation
earnings
($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
PEO.
PFO.
A.
B.
C.
(2) The Table shall include: 2. Registrants need not include in the (v) For awards of stock, the aggregate
(i) The name and principal position of salary column (column (c)) or bonus column grant date fair value computed in
the named executive officer (column (column (d)) any amount of salary or bonus accordance with FAS 123R (column (e));
(a)); forgone at the election of a named executive (vi) For awards of options, with or
officer pursuant to a registrant’s program without tandem SARs (including
(ii) The fiscal year covered (column
under which stock, equity-based or other awards that subsequently have been
(b));
forms of non-cash compensation may be transferred), the aggregate grant date fair
(iii) The dollar value of base salary received by a named executive officer instead
(cash and non-cash) earned by the value computed in accordance with
of a portion of annual compensation earned
named executive officer during the FAS 123R (column (f));
in a covered fiscal year. However, the receipt
fiscal year covered (column (c)); of any such form of non-cash compensation Instructions to Item 402(c)(2)(v) and (vi).
(iv) The dollar value of bonus (cash instead of salary or bonus earned for a 1. For awards reported in columns (e) and
and non-cash) earned by the named covered fiscal year must be disclosed in the (f), include a footnote disclosing all
executive officer during the fiscal year appropriate column of the Summary assumptions made in the valuation by
reference to a discussion of those
covered (column (d)); Compensation Table corresponding to that
assumptions in the registrant’s financial
fiscal year (e.g., stock awards (column (e));
Instructions to Item 402(c)(2)(iii) and (iv). statements, footnotes to the financial
1. If the amount of salary or bonus earned option awards (column (f)); all other statements, or discussion in the
in a given fiscal year is not calculable compensation (column (i))), or, if made Management’s Discussion and Analysis. The
through the latest practicable date, a footnote pursuant to a non-equity incentive plan and sections so referenced are deemed part of the
shall be included disclosing that the amount therefore not reportable in the Summary disclosure provided pursuant to this Item.
of salary or bonus is not calculable through Compensation Table when granted, a 2. If at any time during the last completed
the latest practicable date and providing the footnote must be added to the salary or bonus fiscal year, the registrant has adjusted or
date that the amount of salary or bonus is column so disclosing and referring to the amended the exercise price of options or
expected to be determined, and such amount Grants of Plan-Based Awards Table (required SARs previously awarded to a named
must then be disclosed in a filing under Item by paragraph (d) of this Item) where the executive officer, whether through
5.02(f) of Form 8–K (17 CFR 249.308). award is reported. amendment, cancellation or replacement
grants, or any other means (‘‘repriced’’), or should use the same amounts required to be or to all salaried employees of the
otherwise has materially modified such disclosed pursuant to paragraph (h)(2)(iv) of registrant, the compensation cost, if any,
awards, the registrant shall include, as this Item for the covered fiscal year and the computed in accordance with FAS
awards required to be reported in column (f), amounts that were or would have been
123R;
the incremental fair value, computed as of required to be reported for the executive
the repricing or modification date in officer pursuant to paragraph (h)(2)(iv) of this (D) The amount paid or accrued to
accordance with FAS 123R, with respect to Item for the prior completed fiscal year. any named executive officer pursuant to
that repriced or modified award. 2. Regarding paragraph (c)(2)(viii)(B) of this a plan or arrangement in connection
Item, interest on deferred compensation is with:
(vii) The dollar value of all earnings
above-market only if the rate of interest (1) Any termination, including
for services performed during the fiscal exceeds 120% of the applicable federal long- without limitation through retirement,
year pursuant to awards under non- term rate, with compounding (as prescribed resignation, severance or constructive
equity incentive plans as defined in under section 1274(d) of the Internal termination (including a change in
paragraph (a)(6)(iii) of this Item, and all Revenue Code, (26 U.S.C. 1274(d))) at the rate
that corresponds most closely to the rate
responsibilities) of such executive
earnings on any outstanding awards
under the registrant’s plan at the time the officer’s employment with the registrant
(column (g));
interest rate or formula is set. In the event of and its subsidiaries; or
Instructions to Item 402(c)(2)(vii). a discretionary reset of the interest rate, the (2) A change in control of the
1. If the relevant performance measure is requisite calculation must be made on the registrant;
satisfied during the fiscal year (including for basis of the interest rate at the time of such (E) Registrant contributions or other
a single year in a plan with a multi-year reset, rather than when originally
performance measure), the earnings are
allocations to vested and unvested
established. Only the above-market portion of defined contribution plans;
reportable for that fiscal year, even if not the interest must be included. If the
payable until a later date, and are not (F) The dollar value of any insurance
applicable interest rates vary depending
reportable again in the fiscal year when premiums paid by, or on behalf of, the
upon conditions such as a minimum period
amounts are paid to the named executive of continued service, the reported amount registrant during the covered fiscal year
officer. should be calculated assuming satisfaction of with respect to life insurance for the
2. All earnings on non-equity incentive all conditions to receiving interest at the benefit of a named executive officer; and
plan compensation must be identified and highest rate. Dividends (and dividend (G) The dollar value of any dividends
quantified in a footnote to column (g), equivalents) on deferred compensation or other earnings paid on stock or
whether the earnings were paid during the
denominated in the registrant’s stock option awards, when those amounts
fiscal year, payable during the period but
(‘‘deferred stock’’) are preferential only if were not factored into the grant date fair
deferred at the election of the named
earned at a rate higher than dividends on the value required to be reported for the
executive officer, or payable by their terms at
registrant’s common stock. Only the stock or option award in columns (e) or
a later date.
preferential portion of the dividends or
(viii) The sum of the amounts equivalents must be included. Footnote or
(f); and
specified in paragraphs (c)(2)(viii)(A) narrative disclosure may be provided Instructions to Item 402(c)(2)(ix).
and (B) of this Item (column (h)) as explaining the registrant’s criteria for 1. Non-equity incentive plan awards and
follows: determining any portion considered to be earnings and earnings on stock and options,
(A) The aggregate change in the above-market. except as specified in paragraph (c)(2)(ix)(G)
3. The registrant shall identify and quantify of this Item, are required to be reported
actuarial present value of the named
by footnote the separate amounts attributable elsewhere as provided in this Item and are
executive officer’s accumulated benefit to each of paragraphs (c)(2)(viii)(A) and (B) not reportable as All Other Compensation in
under all defined benefit and actuarial of this Item. Where such amount pursuant to column (i).
pension plans (including supplemental paragraph (c)(2)(viii)(A) is negative, it should 2. Benefits paid pursuant to defined benefit
plans) from the pension plan be disclosed by footnote but should not be and actuarial plans are not reportable as All
measurement date used for financial reflected in the sum reported in column (h). Other Compensation in column (i) unless
statement reporting purposes with accelerated pursuant to a change in control;
(ix) All other compensation for the
respect to the registrant’s audited information concerning these plans is
covered fiscal year that the registrant reportable pursuant to paragraphs
financial statements for the prior could not properly report in any other (c)(2)(viii)(A) and (h) of this Item.
completed fiscal year to the pension column of the Summary Compensation 3. Any item reported for a named executive
plan measurement date used for Table (column (i)). Each compensation officer pursuant to paragraph (c)(2)(ix) of this
financial statement reporting purposes item that is not properly reportable in Item that is not a perquisite or personal
with respect to the registrant’s audited columns (c)–(h), regardless of the benefit and whose value exceeds $10,000
financial statements for the covered amount of the compensation item, must must be identified and quantified in a
fiscal year; and be included in column (i). Such footnote to column (i). This requirement
(B) Above-market or preferential compensation must include, but is not applies only to compensation for the last
earnings on compensation that is fiscal year. All items of compensation are
limited to: required to be included in the Summary
deferred on a basis that is not tax- (A) Perquisites and other personal
qualified, including such earnings on Compensation Table without regard to
benefits, or property, unless the whether such items are required to be
nonqualified defined contribution aggregate amount of such compensation identified other than as specifically noted in
plans; is less than $10,000; this Item.
Instructions to Item 402(c)(2)(viii). (B) All ‘‘gross-ups’’ or other amounts 4. Perquisites and personal benefits may be
1. The disclosure required pursuant to reimbursed during the fiscal year for the excluded as long as the total value of all
paragraph (c)(2)(viii)(A) of this Item applies payment of taxes; perquisites and personal benefits for a named
to each plan that provides for the payment (C) For any security of the registrant executive officer is less than $10,000. If the
of retirement benefits, or benefits that will be or its subsidiaries purchased from the total value of all perquisites and personal
paid primarily following retirement, registrant or its subsidiaries (through benefits is $10,000 or more for any named
including but not limited to tax-qualified executive officer, then each perquisite or
defined benefit plans and supplemental

deferral of salary or bonus, or otherwise) personal benefit, regardless of its amount,
executive retirement plans, but excluding at a discount from the market price of must be identified by type. If perquisites and
tax-qualified defined contribution plans and such security at the date of purchase, personal benefits are required to be reported
nonqualified defined contribution plans. For unless that discount is available for a named executive officer pursuant to this
purposes of this disclosure, the registrant generally, either to all security holders rule, then each perquisite or personal benefit
that exceeds the greater of $25,000 or 10% of (x) The dollar value of total describe the rate and methodology used to
the total amount of perquisites and personal compensation for the covered fiscal year convert the payment amounts to dollars.
benefits for that officer must be quantified (column (j)). With respect to each 3. If a named executive officer is also a
and disclosed in a footnote. The director who receives compensation for his
requirements for identification and
named executive officer, disclose the
sum of all amounts reported in columns or her services as a director, reflect that
quantification apply only to compensation
for the last fiscal year. Perquisites and other (c) through (i). compensation in the Summary Compensation
personal benefits shall be valued on the basis Table and provide a footnote identifying and
Instructions to Item 402(c).
of the aggregate incremental cost to the itemizing such compensation and amounts.
1. Information with respect to fiscal years
registrant. With respect to the perquisite or Use the categories in the Director
prior to the last completed fiscal year will not
other personal benefit for which footnote be required if the registrant was not a Compensation Table required pursuant to
quantification is required, the registrant shall paragraph (k) of this Item.
reporting company pursuant to section 13(a)
describe in the footnote its methodology for 4. Any amounts deferred, whether
or 15(d) of the Exchange Act (15 U.S.C.
computing the aggregate incremental cost. pursuant to a plan established under section
Reimbursements of taxes owed with respect 78m(a) or 78o(d)) at any time during that
year, except that the registrant will be 401(k) of the Internal Revenue Code (26
to perquisites or other personal benefits must
be included in column (i) and are subject to required to provide information for any such U.S.C. 401(k)), or otherwise, shall be
separate quantification and identification as year if that information previously was included in the appropriate column for the
tax reimbursements (paragraph (c)(2)(ix)(B) of required to be provided in response to a fiscal year in which earned.
this Item) even if the associated perquisites Commission filing requirement.
or other personal benefits are not required to 2. All compensation values reported in the (d) Grants of plan-based awards table.
be included because the total amount of all Summary Compensation Table must be (1) Provide the information specified in
perquisites or personal benefits for an reported in dollars and rounded to the paragraph (d)(2) of this Item, concerning
individual named executive officer is less nearest dollar. Reported compensation values each grant of an award made to a named
than $10,000 or are required to be identified must be reported numerically, providing a
single numerical value for each grid in the
executive officer in the last completed
but are not required to be separately
quantified. table. Where compensation was paid to or fiscal year under any plan, including
5. For purposes of paragraph (c)(2)(ix)(D) of received by a named executive officer in a awards that subsequently have been
this Item, an accrued amount is an amount different currency, a footnote must be transferred, in the following tabular
for which payment has become due. provided to identify that currency and format:
GRANTS OF PLAN-BASED AWARDS

Estimated future payouts under Estimated future payouts under All other
All other
Non-equity incentive plan awards equity incentive plan awards option
stock Exercise
awards:
awards: or base
number of
Grant number of price of
Name securities
date Thresh- Thresh- shares of option
Target Maximum Target Maximum under-
old old stock or awards
($) ($) (#) (#) lying op-
($) (#) units ($/Sh)
tions
(#) (#)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k)
PEO
PFO
(2) The Table shall include: between columns (b) and (c) showing question under equity incentive plan
(i) The name of the named executive such date; awards granted in the fiscal year, or the
officer (column (a)); (iii) The dollar value of the estimated applicable range of estimated payouts
future payout upon satisfaction of the denominated in the number of shares of
(ii) The grant date for equity-based stock, or the number of shares
awards reported in the table (column conditions in question under non-equity
incentive plan awards granted in the underlying options under the award
(b)). If such grant date is different than (threshold, target and maximum
fiscal year, or the applicable range of
the date on which the compensation amount) (columns (f) through (h)).
estimated payouts denominated in
committee (or a committee of the board dollars (threshold, target and maximum (v) The number of shares of stock
of directors performing a similar amount) (columns (c) through (e)). granted in the fiscal year that are not
function or the full board of directors) required to be disclosed in columns (f)

takes action or is deemed to take action (iv) The number of shares of stock, or
the number of shares underlying options through (h) (column (i));
to grant such awards, a separate,
to be paid out or vested upon (vi) The number of securities
adjoining column shall be added
satisfaction of the conditions in underlying options granted in the fiscal
year that are not required to be plan, such as an option granted in tandem so, the applicable dividend rate and
disclosed in columns (f) through (h) with a performance share, need be reported whether that rate is preferential.
(column (j)); and only in column (i) or (j), as applicable. For Describe any performance-based
(vii) The per-share exercise or base example, an option granted in tandem with
conditions, and any other material
a performance share would be reported only
price of the options granted in the fiscal conditions, that are applicable to the
as an option grant in column (j), with the
year (column (k)). If such exercise or tandem feature noted either by a footnote or award. For purposes of the Table
base price is less than the closing accompanying textual narrative. required by paragraph (d) of this Item
market price of the underlying security 5. Disclose the dollar amount of and the narrative disclosure required by
on the date of the grant, a separate, consideration, if any, paid by the executive paragraph (e) of this Item, performance-
adjoining column showing the closing officer for the award in a footnote to the based conditions include both
market price on the date of the grant appropriate column. performance conditions and market
shall be added after column (k). 6. If non-equity incentive plan awards are
conditions, as those terms are defined in
denominated in units or other rights, a
Instructions to Item 402(d). separate, adjoining column between columns FAS 123R; and
1. Disclosure on a separate line shall be (b) and (c) shall be added quantifying the (iv) An explanation of the amount of
provided in the Table for each grant of an units or other rights awarded. salary and bonus in proportion to total
award made to a named executive officer
during the fiscal year. If grants of awards (e) Narrative disclosure to summary compensation.
were made to a named executive officer compensation table and grants of plan- Instructions to Item 402(e)(1).
during the fiscal year under more than one based awards table. (1) Provide a 1. The disclosure required by paragraph
plan, identify the particular plan under narrative description of any material (e)(1)(ii) of this Item would not apply to any
which each such grant was made. factors necessary to an understanding of repricing that occurs through a pre-existing
2. For grants of incentive plan awards, the information disclosed in the tables formula or mechanism in the plan or award
provide the information called for by that results in the periodic adjustment of the
columns (c), (d) and (e), or (f), (g) and (h), as required by paragraphs (c) and (d) of
this Item. Examples of such factors may option or SAR exercise or base price, an
applicable. For columns (c) and (f), threshold
include, in given cases, among other antidilution provision in a plan or award, or
refers to the minimum amount payable for a
certain level of performance under the plan. things: a recapitalization or similar transaction
For columns (d) and (g), target refers to the (i) The material terms of each named equally affecting all holders of the class of
amount payable if the specified performance securities underlying the options or SARs.
executive officer’s employment
target(s) are reached. For columns (e) and (h), 2. Instructions 4 and 5 to Item 402(b) apply
agreement or arrangement, whether regarding disclosure pursuant to paragraph
maximum refers to the maximum payout written or unwritten;
possible under the plan. If the award (e)(1) of this Item of target levels with respect
provides only for a single estimated payout,
(ii) If at any time during the last fiscal to specific quantitative or qualitative
that amount must be reported as the target in year, any outstanding option or other performance-related factors considered by
columns (d) and (g). In columns (d) and (g), equity-based award was repriced or the compensation committee or the board of
registrants must provide a representative otherwise materially modified (such as directors, or any other factors or criteria
amount based on the previous fiscal year’s by extension of exercise periods, the involving confidential trade secrets or
performance if the target amount is not change of vesting or forfeiture confidential commercial or financial
determinable. conditions, the change or elimination of information, the disclosure of which would
3. In determining if the exercise or base applicable performance criteria, or the result in competitive harm for the registrant.
price of an option is less than the closing
market price of the underlying security on change of the bases upon which returns
are determined), a description of each (2) [Reserved]
the date of the grant, the registrant may use
either the closing market price as specified in such repricing or other material (f) Outstanding equity awards at fiscal
paragraph (a)(6)(v) of this Item, or if no modification; year-end table. (1) Provide the
market exists, any other formula prescribed (iii) The material terms of any award information specified in paragraph (f)(2)
for the security. Whenever the exercise or reported in response to paragraph (d) of of this Item, concerning unexercised
base price reported in column (k) is not the this Item, including a general options; stock that has not vested; and
closing market price, describe the description of the formula or criteria to equity incentive plan awards for each
methodology for determining the exercise or
base price either by a footnote or be applied in determining the amounts named executive officer outstanding as
accompanying textual narrative. payable, and the vesting schedule. For of the end of the registrant’s last
4. A tandem grant of two instruments, only example, state where applicable that completed fiscal year in the following
one of which is granted under an incentive dividends will be paid on stock, and if tabular format:

Equity in-
Equity incentive
centive plan
centive plan Market
Number of Number of Number awards: market or
awards: value of
securities securities un- of shares number of payout
number of Option shares or
Name underlying derlying Option or units of unearned value of
securities exercise units of
unexercised unexercised expiration stock that shares, unearned
underlying price stock that
options options date have not units or shares,
unexercised ($) have not
(#) exer- (#) vested other units or
unearned vested
cisable unexercisable (#) rights that other
options (#) have not rights that
(#) vested have not
(#) vested
($)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
PEO
PFO
(2) The Table shall include: under any equity incentive plan that should be reported. If the target amount is
(i) The name of the named executive have not vested and that have not been not determinable, registrants must provide a
officer (column (a)); earned, and, if applicable the number of representative amount based on the previous
(ii) On an award-by-award basis, the shares underlying any such unit or right fiscal year’s performance.
number of securities underlying (column (i)); and 4. Multiple awards may be aggregated
unexercised options, including awards (x) The aggregate market or payout where the expiration date and the exercise
that have been transferred other than for value of shares of stock, units or other and/or base price of the instruments is
value, that are exercisable and that are identical. A single award consisting of a
rights awarded under any equity
not reported in column (d) (column (b)); combination of options, SARs and/or similar
incentive plan that have not vested and option-like instruments shall be reported as
(iii) On an award-by-award basis, the that have not been earned (column (j)).
number of securities underlying separate awards with respect to each tranche
Instructions to Item 402(f)(2). with a different exercise and/or base price or
unexercised options, including awards 1. Identify by footnote any award that has expiration date.
that have been transferred other than for been transferred other than for value, 5. Options or stock awarded under an
value, that are unexercisable and that disclosing the nature of the transfer. equity incentive plan are reported in
are not reported in column (d) (column 2. The vesting dates of options, shares of columns (d) or (i) and (j), respectively, until
(c)); stock and equity incentive plan awards held the relevant performance condition has been
(iv) On an award-by-award basis, the at fiscal-year end must be disclosed by satisfied. Once the relevant performance
total number of shares underlying footnote to the applicable column where the
condition has been satisfied, even if the
unexercised options awarded under any outstanding award is reported.
option or stock award is subject to forfeiture
3. Compute the market value of stock
equity incentive plan that have not been conditions, options are reported in column
reported in column (h) and equity incentive
earned (column (d)); plan awards of stock reported in column (j) (b) or (c), as appropriate, until they are
(v) For each instrument reported in by multiplying the closing market price of exercised or expire, or stock is reported in
columns (b), (c) and (d), as applicable, the registrant’s stock at the end of the last columns (g) and (h) until it vests.
the exercise or base price (column (e)); completed fiscal year by the number of
(vi) For each instrument reported in shares or units of stock or the amount of (g) Option exercises and stock vested
columns (b), (c) and (d), as applicable, equity incentive plan awards, respectively. table. (1) Provide the information
the expiration date (column (f)); The number of shares or units reported in specified in paragraph (g)(2) of this
(vii) The total number of shares of columns (d) or (i), and the payout value Item, concerning each exercise of stock
stock that have not vested and that are reported in column (j), shall be based on options, SARs and similar instruments,
not reported in column (i) (column (g)); achieving threshold performance goals, and each vesting of stock, including
except that if the previous fiscal year’s restricted stock, restricted stock units
(viii) The aggregate market value of
performance has exceeded the threshold, the
shares of stock that have not vested and disclosure shall be based on the next higher
and similar instruments, during the last
that are not reported in column (j) performance measure (target or maximum) completed fiscal year for each of the
(column (h)); that exceeds the previous fiscal year’s named executive officers on an
(ix) The total number of shares of performance. If the award provides only for aggregated basis in the following tabular
stock, units or other rights awarded a single estimated payout, that amount format:
OPTION EXERCISES AND STOCK VESTED

Number of Number of
Value Value
Name shares shares
realized on realized on
acquired on acquired on
exercise vesting
exercise vesting
($) ($)
(#) (#)
(a) (b) (c) (d) (e)
PEO
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(2) The Table shall include: Report in column (c) the aggregate dollar the vesting of stock or the transfer of such
(i) The name of the executive officer amount realized by the named executive instruments for value. Compute the aggregate
(column (a)); officer upon exercise of the options or upon dollar amount realized upon vesting by
(ii) The number of securities for the transfer of such instruments for value. multiplying the number of shares of stock or
which the options were exercised Compute the dollar amount realized upon units by the market value of the underlying
exercise by determining the difference shares on the vesting date. For any amount
(column (b)); between the market price of the underlying
(iii) The aggregate dollar value realized upon exercise or vesting for which
securities at exercise and the exercise or base receipt has been deferred, provide a footnote
realized upon exercise of options, or price of the options. Do not include the value quantifying the amount and disclosing the
upon the transfer of an award for value of any related payment or other consideration terms of the deferral.
(column (c)); provided (or to be provided) by the registrant
(iv) The number of shares of stock that to or on behalf of a named executive officer, (h) Pension benefits. (1) Provide the
have vested (column (d)); and whether in payment of the exercise price or information specified in paragraph
(v) The aggregate dollar value realized related taxes. (Any such payment or other
consideration provided by the registrant is
(h)(2) of this Item with respect to each
upon vesting of stock, or upon the plan that provides for payments or other
transfer of an award for value (column required to be disclosed in accordance with
paragraph (c)(2)(ix) of this Item.) Report in benefits at, following, or in connection
(e)). column (e) the aggregate dollar amount with retirement, in the following tabular
Instruction to Item 402(g)(2). realized by the named executive officer upon format:
PENSION BENEFITS
Number of Present Payments

value of
benefit
(#) ($)
($)
(a) (b) (c) (d) (e)
PEO
PFO
C
(2) The Table shall include: (i) The name of the executive officer (ii) The name of the plan (column (b));
(column (a));
(iii) The number of years of service participant may retire under the plan without formula and eligibility standards, and
credited to the named executive officer any benefit reduction due to age. The the effect of the form of benefit elected
under the plan, computed as of the same registrant must disclose in the accompanying on the amount of annual benefits. For
textual narrative the valuation method and
pension plan measurement date used for this purpose, normal retirement means
all material assumptions applied in
financial statement reporting purposes quantifying the present value of the current retirement at the normal retirement age
with respect to the registrant’s audited accrued benefit. A benefit specified in the as defined in the plan, or if not so
financial statements for the last plan document or the executive’s contract defined, the earliest time at which a
completed fiscal year (column (c)); itself is not an assumption. Registrants may participant may retire under the plan
(iv) The actuarial present value of the satisfy all or part of this disclosure by without any benefit reduction due to
named executive officer’s accumulated reference to a discussion of those age;
benefit under the plan, computed as of assumptions in the registrant’s financial
statements, footnotes to the financial
(ii) If any named executive officer is
the same pension plan measurement currently eligible for early retirement
statements, or discussion in the
date used for financial statement Management’s Discussion and Analysis. The under any plan, identify that named
reporting purposes with respect to the sections so referenced are deemed part of the executive officer and the plan, and
registrant’s audited financial statements disclosure provided pursuant to this Item. describe the plan’s early retirement
for the last completed fiscal year 3. For purposes of allocating the current payment and benefit formula and
(column (d)); and accrued benefit between tax qualified defined eligibility standards. For this purpose,
(v) The dollar amount of any benefit plans and related supplemental plans, early retirement means retirement at the
payments and benefits paid to the apply the limitations applicable to tax
qualified defined benefit plans established by
early retirement age as defined in the
named executive officer during the plan, or otherwise available to the
registrant’s last completed fiscal year the Internal Revenue Code and the
regulations thereunder that applied as of the executive under the plan;
(column (e)).
pension plan measurement date. (iii) The specific elements of
Instructions to Item 402(h)(2). 4. If a named executive officer’s number of compensation (e.g., salary, bonus, etc.)
1. The disclosure required pursuant to this years of credited service with respect to any included in applying the payment and
Table applies to each plan that provides for plan is different from the named executive benefit formula, identifying each such
specified retirement payments and benefits, officer’s number of actual years of service
or payments and benefits that will be element;
with the registrant, provide footnote
provided primarily following retirement, disclosure quantifying the difference and any (iv) With respect to named executive
including but not limited to tax-qualified resulting benefit augmentation. officers’ participation in multiple plans,
defined benefit plans and supplemental the different purposes for each plan; and
executive retirement plans, but excluding (3) Provide a succinct narrative
description of any material factors (v) Registrant policies with regard to
tax-qualified defined contribution plans and
nonqualified defined contribution plans. necessary to an understanding of each such matters as granting extra years of
Provide a separate row for each such plan in plan covered by the tabular disclosure credited service.
which the named executive officer required by this paragraph. While (i) Nonqualified defined contribution
participates. material factors will vary depending and other nonqualified deferred
2. For purposes of the amount(s) reported upon the facts, examples of such factors compensation plans. (1) Provide the
in column (d), the registrant must use the information specified in paragraph (i)(2)
may include, in given cases, among
same assumptions used for financial
reporting purposes under generally accepted other things: of this Item with respect to each defined
accounting principles, except that retirement (i) The material terms and conditions contribution or other plan that provides
age shall be assumed to be the normal of payments and benefits available for the deferral of compensation on a
retirement age as defined in the plan, or if under the plan, including the plan’s basis that is not tax-qualified in the
not so defined, the earliest time at which a normal retirement payment and benefit following tabular format:
NONQUALIFIED DEFERRED COMPENSATION

Name in last FY in ast FY last FY distributions last FYE
($) ($) ($) ($) ($)
(a) (b) (c) (d) (e) (f)
PEO
PFO
C
(2) The Table shall include: (ii) The dollar amount of aggregate (iii) The dollar amount of aggregate
(i) The name of the executive officer executive contributions during the registrant contributions during the
(column (a)); registrant’s last fiscal year (column (b)); registrant’s last fiscal year (column (c));
(iv) The dollar amount of aggregate Regarding each contract, agreement, as to the provision of payments and benefits
interest or other earnings accrued plan or arrangement, whether written or or the amounts involved, the registrant is
during the registrant’s last fiscal year unwritten, that provides for payment(s) required to make a reasonable estimate (or a
(column (d)); to a named executive officer at, reasonable estimated range of amounts)
(v) The aggregate dollar amount of all following, or in connection with any applicable to the payment or benefit and
withdrawals by and distributions to the disclose material assumptions underlying
termination, including without
such estimates or estimated ranges in its
executive during the registrant’s last limitation resignation, severance, disclosure. In such event, the disclosure
fiscal year (column (e)); and retirement or a constructive termination would require forward-looking information
(vi) The dollar amount of total balance of a named executive officer, or a as appropriate.
of the executive’s account as of the end change in control of the registrant or a 2. Perquisites and other personal benefits
of the registrant’s last fiscal year change in the named executive officer’s or property may be excluded only if the
(column (f)). responsibilities, with respect to each aggregate amount of such compensation will
Instruction to Item 402(i)(2). named executive officer: be less than $10,000. Individual perquisites
Provide a footnote quantifying the extent to (1) Describe and explain the specific and personal benefits shall be identified and
which amounts reported in the contributions circumstances that would trigger quantified as required by Instruction 4 to
and earnings columns are reported as payment(s) or the provision of other paragraph (c)(2)(ix) of this Item. For purposes
compensation in the last completed fiscal benefits, including perquisites and of quantifying health care benefits, the
year in the registrant’s Summary health care benefits; registrant must use the assumptions used for
Compensation Table and amounts reported (2) Describe and quantify the financial reporting purposes under generally
in the aggregate balance at last fiscal year end accepted accounting principles.
(column (f)) previously were reported as
estimated payments and benefits that 3. To the extent that the form and amount
compensation to the named executive officer would be provided in each covered of any payment or benefit that would be
in the registrant’s Summary Compensation circumstance, whether they would or provided in connection with any triggering
Table for previous years. could be lump sum, or annual, event is fully disclosed pursuant to
(3) Provide a succinct narrative disclosing the duration, and by whom paragraph (h) or (i) of this Item, reference
description of any material factors they would be provided; may be made to that disclosure. However, to
(3) Describe and explain how the the extent that the form or amount of any
necessary to an understanding of each
appropriate payment and benefit levels such payment or benefit would be enhanced
plan covered by tabular disclosure or its vesting or other provisions accelerated
are determined under the various
required by this paragraph. While in connection with any triggering event, such
circumstances that trigger payments or
material factors will vary depending enhancement or acceleration must be
provision of benefits;
upon the facts, examples of such factors (4) Describe and explain any material disclosed pursuant to this paragraph.
may include, in given cases, among conditions or obligations applicable to 4. Where a triggering event has actually
other things: the receipt of payments or benefits, occurred for a named executive officer and
(i) The type(s) of compensation that individual was not serving as a named
including but not limited to non- executive officer of the registrant at the end
permitted to be deferred, and any
compete, non-solicitation, non- of the last completed fiscal year, the
limitations (by percentage of
disparagement or confidentiality disclosure required by this paragraph for that
compensation or otherwise) on the
agreements, including the duration of named executive officer shall apply only to
extent to which deferral is permitted;
(ii) The measures for calculating such agreements and provisions that triggering event.
interest or other plan earnings regarding waiver of breach of such 5. The registrant need not provide
agreements; and information with respect to contracts,
(including whether such measure(s) are agreements, plans or arrangements to the
(5) Describe any other material factors
selected by the executive or the extent they do not discriminate in scope,
regarding each such contract,
registrant and the frequency and manner terms or operation, in favor of executive
agreement, plan or arrangement.
in which selections may be changed), officers of the registrant and that are available
quantifying interest rates and other Instructions to Item 402(j). generally to all salaried employees.
earnings measures applicable during the 1. The registrant must provide quantitative
disclosure under these requirements, (k) Compensation of directors. (1)
registrant’s last fiscal year; and applying the assumptions that the triggering
(iii) Material terms with respect to Provide the information specified in
event took place on the last business day of
payouts, withdrawals and other the registrant’s last completed fiscal year, and paragraph (k)(2) of this Item, concerning
distributions. the price per share of the registrant’s the compensation of the directors for the
(j) Potential payments upon securities is the closing market price as of registrant’s last completed fiscal year, in
termination or change-in-control. that date. In the event that uncertainties exist the following tabular format:
Change in
Non-equity pension
cash ($) tion ($)
($) ($)
($) compensa-
tion earnings
(a) (b) (c) (d) (e) (f) (g) (h)
A
DIRECTOR COMPENSATION—Continued
Change in
Non-equity pension
cash ($) tion ($)
($) ($)
($) compensa-
tion earnings
(a) (b) (c) (d) (e) (f) (g) (h)
(2) The Table shall include: respect to the registrant’s audited financial awards, when those amounts were not
(i) The name of each director unless statements for the covered fiscal year; and factored into the grant date fair value
(B) Above-market or preferential earnings required to be reported for the stock or option
such director is also a named executive on compensation that is deferred on a basis award in column (c) or (d); and
officer under paragraph (a) of this Item that is not tax-qualified, including such
and his or her compensation for service earnings on nonqualified defined Instructions to Item 402(k)(2)(vii).
as a director is fully reflected in the contribution plans; 1. Programs in which registrants agree to
Summary Compensation Table pursuant (vii) All other compensation for the make donations to one or more charitable
to paragraph (c) of this Item and covered fiscal year that the registrant could institutions in a director’s name, payable by
not properly report in any other column of the registrant currently or upon a designated
otherwise as required pursuant to
the Director Compensation Table (column event, such as the retirement or death of the
paragraphs (d) through (j) of this Item (g)). Each compensation item that is not director, are charitable awards programs or
(column (a)); properly reportable in columns (b)–(f), director legacy programs for purposes of the
(ii) The aggregate dollar amount of all regardless of the amount of the compensation disclosure required by paragraph
fees earned or paid in cash for services item, must be included in column (g). Such (k)(2)(vii)(G) of this Item. Provide footnote
as a director, including annual retainer compensation must include, but is not disclosure of the total dollar amount payable
fees, committee and/or chairmanship limited to: under the program and other material terms
(A) Perquisites and other personal benefits, of each such program for which tabular
fees, and meeting fees (column (b)); or property, unless the aggregate amount of
(iii) For awards of stock, the aggregate disclosure is provided.
such compensation is less than $10,000;
2. Any item reported for a director
grant date fair value computed in (B) All ‘‘gross-ups’’ or other amounts
reimbursed during the fiscal year for the pursuant to paragraph (k)(2)(vii) of this Item
accordance with FAS 123R (column (c)); that is not a perquisite or personal benefit
(iv) For awards of stock options, with payment of taxes;
(C) For any security of the registrant or its and whose value exceeds $10,000 must be
or without tandem SARs (including subsidiaries purchased from the registrant or identified and quantified in a footnote to
awards that subsequently have been its subsidiaries (through deferral of salary or column (g). All items of compensation are
transferred), the aggregate grant date fair bonus, or otherwise) at a discount from the required to be included in the Director
value computed in accordance with market price of such security at the date of Compensation Table without regard to
FAS 123R (column (d)); purchase, unless that discount is available whether such items are required to be
generally, either to all security holders or to identified other than as specifically noted in
Instruction to Item 402(k)(2)(iii) and (iv). all salaried employees of the registrant, the this Item.
For each director, disclose by footnote to compensation cost, if any, computed in 3. Perquisites and personal benefits may be
the appropriate column, the aggregate accordance with FAS 123R; excluded as long as the total value of all
number of stock awards and the aggregate (D) The amount paid or accrued to any perquisites and personal benefits for a
number of option awards outstanding at director pursuant to a plan or arrangement in director is less than $10,000. If the total value
fiscal year end. connection with:
(v) The dollar value of all earnings for of all perquisites and personal benefits is
(1) The resignation, retirement or any other $10,000 or more for any director, then each
services performed during the fiscal year termination of such director; or
pursuant to non-equity incentive plans as perquisite or personal benefit, regardless of
(2) A change in control of the registrant; its amount, must be identified by type. If
defined in paragraph (a)(6)(iii) of this Item, (E) Registrant contributions or other
and all earnings on any outstanding awards perquisites and personal benefits are required
allocations to vested and unvested defined
(column (e)); to be reported for a director pursuant to this
contribution plans;
(vi) The sum of the amounts specified in (F) Consulting fees earned from, or paid or rule, then each perquisite or personal benefit
paragraphs (k)(2)(vi)(A) and (B) of this Item payable by the registrant and/or its that exceeds the greater of $25,000 or 10% of
(column (f)) as follows: subsidiaries (including joint ventures); the total amount of perquisites and personal
(A) The aggregate change in the actuarial (G) The annual costs of payments and benefits for that director must be quantified
present value of the director’s accumulated promises of payments pursuant to director and disclosed in a footnote. Perquisites and
benefit under all defined benefit and legacy programs and similar charitable award other personal benefits shall be valued on the
actuarial pension plans (including programs; basis of the aggregate incremental cost to the
supplemental plans) from the pension plan (H) The dollar value of any insurance registrant. With respect to the perquisite or
measurement date used for financial premiums paid by, or on behalf of, the other personal benefit for which footnote
statement reporting purposes with respect to registrant during the covered fiscal year with quantification is required, the registrant shall
the registrant’s audited financial statements respect to life insurance for the benefit of a describe in the footnote its methodology for
for the prior completed fiscal year to the director; and computing the aggregate incremental cost.
pension plan measurement date used for (I) The dollar value of any dividends or Reimbursements of taxes owed with respect
financial statement reporting purposes with other earnings paid on stock or option to perquisites or other personal benefits must
be included in column (g) and are subject to information, as of the most recent (5) In the case of indebtedness,
separate quantification and identification as practicable date, in substantially the disclosure of the amount involved in the
tax reimbursements (paragraph (k)(2)(vii)(B) tabular form indicated, as to each class transaction shall include the largest
of this Item) even if the associated perquisites
or other personal benefits are not required to
of equity securities of the registrant or aggregate amount of principal
be included because the total amount of all any of its parents or subsidiaries, outstanding during the period for which
perquisites or personal benefits for an including directors’ qualifying shares, disclosure is provided, the amount
individual director is less than $10,000 or are beneficially owned by all directors and thereof outstanding as of the latest
required to be identified but are not required nominees, naming them, each of the practicable date, the amount of
to be separately quantified. named executive officers as defined in principal paid during the periods for
(viii) The dollar value of total Item 402(a)(3) (§ 229.402(a)(3)), and which disclosure is provided, the
compensation for the covered fiscal year directors and executive officers of the amount of interest paid during the
(column (h)). With respect to each registrant as a group, without naming period for which disclosure is provided,
director, disclose the sum of all amounts them. Show in column (3) the total and the rate or amount of interest
reported in columns (b) through (g). number of shares beneficially owned payable on the indebtedness.
and in column (4) the percent of the (6) Any other information regarding
Instruction to Item 402(k)(2).
Two or more directors may be grouped in class so owned. Of the number of shares the transaction or the related person in
a single row in the Table if all elements of shown in column (3), indicate, by the context of the transaction that is
their compensation are identical. The names footnote or otherwise, the amount of material to investors in light of the
of the directors for whom disclosure is shares that are pledged as security and circumstances of the particular
presented on a group basis should be clear the amount of shares with respect to transaction.
from the Table. which such persons have the right to Instructions to Item 404(a).
(3) Narrative to director compensation acquire beneficial ownership as 1. For the purposes of paragraph (a) of this
table. Provide a narrative description of specified in § 240.13d–3(d)(1) of this Item, the term related person means:
any material factors necessary to an chapter. a. Any person who was in any of the
understanding of the director following categories at any time during the
(3) specified period for which disclosure under
compensation disclosed in this Table. paragraph (a) of this Item is required:
While material factors will vary (2) Amount
(1) (4) i. Any director or executive officer of the
Name of and na-
depending upon the facts, examples of Title of Percent registrant;
beneficial ture of
such factors may include, in given class of class
owner beneficial ii. Any nominee for director, when the
cases, among other things: ownership information called for by paragraph (a) of this
(i) A description of standard Item is being presented in a proxy or
compensation arrangements (such as information statement relating to the election
fees for retainer, committee service, of that nominee for director; or
service as chairman of the board or a * * * * * iii. Any immediate family member of a
director or executive officer of the registrant,
committee, and meeting attendance); ■ 15. Revise § 229.404 to read as or of any nominee for director when the
and follows: information called for by paragraph (a) of this
(ii) Whether any director has a Item is being presented in a proxy or
different compensation arrangement, § 229.404 (Item 404) Transactions with
information statement relating to the election
related persons, promoters and certain
identifying that director and describing control persons.
of that nominee for director, which means
the terms of that arrangement. any child, stepchild, parent, stepparent,
(a) Transactions with related persons. spouse, sibling, mother-in-law, father-in-law,
Instruction to Item 402(k). son-in-law, daughter-in-law, brother-in-law,
In addition to the Instructions to paragraph
Describe any transaction, since the
beginning of the registrant’s last fiscal or sister-in-law of such director, executive
(k)(2)(vii) of this Item, the following apply officer or nominee for director, and any
equally to paragraph (k) of this Item: year, or any currently proposed
person (other than a tenant or employee)
Instructions 2 and 4 to paragraph (c) of this transaction, in which the registrant was sharing the household of such director,
Item; Instructions to paragraphs (c)(2)(iii) and or is to be a participant and the amount executive officer or nominee for director; and
(iv) of this Item; Instructions to paragraphs involved exceeds $120,000, and in b. Any person who was in any of the
(c)(2)(v) and (vi) of this Item; Instructions to which any related person had or will following categories when a transaction in
paragraph (c)(2)(vii) of this Item; and have a direct or indirect material which such person had a direct or indirect
Instructions to paragraph (c)(2)(viii) of this material interest occurred or existed:
interest. Disclose the following
Item. These Instructions apply to the i. A security holder covered by Item 403(a)
columns in the Director Compensation Table information regarding the tranaction:
(§ 229.403(a)); or
that are analogous to the columns in the (1) The name of the related person ii. Any immediate family member of any
Summary Compensation Table to which they and the basis on which the person is a such security holder, which means any child,
refer and to disclosures under paragraph (k) related person. stepchild, parent, stepparent, spouse, sibling,
of this Item that correspond to analogous (2) The related person’s interest in the mother-in-law, father-in-law, son-in-law,
disclosures provided for in paragraph (c) of daughter-in-law, brother-in-law, or sister-in-
this Item to which they refer.
transaction with the registrant,
including the related person’s law of such security holder, and any person
Instruction to Item 402. Specify the (other than a tenant or employee) sharing the
applicable fiscal year in the title to each table
position(s) or relationship(s) with, or
household of such security holder.
required under this Item which calls for ownership in, a firm, corporation, or 2. For purposes of paragraph (a) of this
disclosure as of or for a completed fiscal year. other entity that is a party to, or has an Item, a transaction includes, but is not
interest in, the transaction. limited to, any financial transaction,
■ 14. Amend § 229.403 by revising (3) The approximate dollar value of arrangement or relationship (including any
paragraph (b) to read as follows: the amount involved in the transaction. indebtedness or guarantee of indebtedness)
or any series of similar transactions,
§ 229.403 (Item 403) Security ownership of (4) The approximate dollar value of
arrangements or relationships.
certain beneficial owners and management. the amount of the related person’s 3. The amount involved in the transaction
* * * * * interest in the transaction, which shall shall be computed by determining the dollar
(b) Security ownership of be computed without regard to the value of the amount involved in the
management. Furnish the following amount of profit or loss. transaction in question, which shall include:
a. In the case of any lease or other directors (or group of independent directors who are responsible for applying such
transaction providing for periodic payments performing a similar function) of the policies and procedures; and
or installments, the aggregate amount of all registrant. (iv) A statement of whether such
periodic payments or installments due on or b. Disclosure of compensation to a director policies and procedures are in writing
after the beginning of the registrant’s last need not be provided pursuant to paragraph
fiscal year, including any required or
and, if not, how such policies and
(a) of this Item if the compensation is
optional payments due during or at the reported pursuant to Item 402(k) procedures are evidenced.
conclusion of the lease or other transaction (§ 229.402(k)). (2) Identify any transaction required
providing for periodic payments or 6. A person who has a position or to be reported under paragraph (a) of
installments; and relationship with a firm, corporation, or other this Item since the beginning of the
b. In the case of indebtedness, the largest entity that engages in a transaction with the registrant’s last fiscal year where such
aggregate amount of all indebtedness registrant shall not be deemed to have an policies and procedures did not require
outstanding at any time since the beginning indirect material interest within the meaning review, approval or ratification or where
of the registrant’s last fiscal year and all of paragraph (a) of this Item where: such policies and procedures were not
amounts of interest payable on it during the a. The interest arises only:
last fiscal year.
followed.
i. From such person’s position as a director
4. In the case of a transaction involving of another corporation or organization that is Instruction to Item 404(b).
indebtedness: a party to the transaction; or Disclosure need not be provided pursuant
a. The following items of indebtedness may ii. From the direct or indirect ownership by to this paragraph regarding any transaction
be excluded from the calculation of the such person and all other persons specified that occurred at a time before the related
amount of indebtedness and need not be in Instruction 1 to paragraph (a) of this Item, person became one of the enumerated
disclosed: Amounts due from the related in the aggregate, of less than a ten percent persons in Instruction 1.a.i., ii., or iii. to Item
person for purchases of goods and services equity interest in another person (other than 404(a) if such transaction did not continue
subject to usual trade terms, for ordinary a partnership) which is a party to the after the related person became one of the
business travel and expense payments and transaction; or enumerated persons in Instruction 1.a.i., ii.,
for other transactions in the ordinary course iii. From both such position and or iii. to Item 404(a).
of business; ownership; or (c) Promoters and certain control
b. Disclosure need not be provided of any b. The interest arises only from such persons. (1) Registrants that are filing a
indebtedness transaction for the related person’s position as a limited partner in a
persons specified in Instruction 1.b. to registration statement on Form S–1 or
partnership in which the person and all other
paragraph (a) of this Item; and Form SB–2 under the Securities Act
persons specified in Instruction 1 to
c. If the lender is a bank, savings and loan paragraph (a) of this Item, have an interest of (§ 239.11 or § 239.10 of this chapter) or
association, or broker-dealer extending credit less than ten percent, and the person is not on Form 10 or Form 10–SB under the
under Federal Reserve Regulation T (12 CFR a general partner of and does not hold Exchange Act (§ 249.210 or § 249.210b
part 220) and the loans are not disclosed as another position in the partnership. of this chapter) and that had a promoter
nonaccrual, past due, restructured or 7. Disclosure need not be provided at any time during the past five fiscal
potential problems (see Item III.C.1. and 2. of pursuant to paragraph (a) of this Item if: years shall:
Industry Guide 3, Statistical Disclosure by a. The transaction is one where the rates (i) State the names of the promoter(s),
Bank Holding Companies (17 CFR or charges involved in the transaction are
229.802(c))), disclosure under paragraph (a)
the nature and amount of anything of
determined by competitive bids, or the value (including money, property,
of this Item may consist of a statement, if transaction involves the rendering of services
such is the case, that the loans to such as a common or contract carrier, or public
contracts, options or rights of any kind)
persons: utility, at rates or charges fixed in conformity received or to be received by each
i. Were made in the ordinary course of with law or governmental authority; promoter, directly or indirectly, from
business; b. The transaction involves services as a the registrant and the nature and
ii. Were made on substantially the same bank depositary of funds, transfer agent, amount of any assets, services or other
terms, including interest rates and collateral, registrar, trustee under a trust indenture, or consideration therefore received or to be
as those prevailing at the time for comparable similar services; or received by the registrant; and
loans with persons not related to the lender; c. The interest of the related person arises (ii) As to any assets acquired or to be
and solely from the ownership of a class of equity
iii. Did not involve more than the normal
acquired by the registrant from a
securities of the registrant and all holders of promoter, state the amount at which the
risk of collectibility or present other that class of equity securities of the registrant
unfavorable features. received the same benefit on a pro rata basis.
assets were acquired or are to be
5.a. Disclosure of an employment acquired and the principle followed or
relationship or transaction involving an (b) Review, approval or ratification of to be followed in determining such
executive officer and any related transactions with related persons. (1) amount, and identify the persons
compensation solely resulting from that Describe the registrant’s policies and making the determination and their
employment relationship or transaction need procedures for the review, approval, or relationship, if any, with the registrant
not be provided pursuant to paragraph (a) of ratification of any transaction required or any promoter. If the assets were
this Item if: to be reported under paragraph (a) of
i. The compensation arising from the
acquired by the promoter within two
this Item. While the material features of years prior to their transfer to the
relationship or transaction is reported
pursuant to Item 402 (§ 229.402); or such policies and procedures will vary registrant, also state the cost thereof to
ii. The executive officer is not an depending on the particular the promoter.
immediate family member (as specified in circumstances, examples of such (2) Registrants shall provide the
Instruction 1 to paragraph (a) of this Item) features may include, in given cases, disclosure required by paragraphs
and such compensation would have been among other things: (c)(1)(i) and (c)(1)(ii) of this Item as to
reported under Item 402 (§ 229.402) as (i) The types of transactions that are any person who acquired control of a
compensation earned for services to the covered by such policies and registrant that is a shell company, or any
registrant if the executive officer was a procedures; person that is part of a group, consisting
named executive officer as that term is
defined in Item 402(a)(3) (§ 229.402(a)(3)),

(ii) The standards to be applied of two or more persons that agree to act
and such compensation had been approved, pursuant to such policies and together for the purpose of acquiring,
or recommended to the board of directors of procedures; holding, voting or disposing of equity
the registrant for approval, by the (iii) The persons or groups of persons securities of a registrant, that acquired
compensation committee of the board of on the board of directors or otherwise control of a registrant that is a shell
company. For purposes of this Item, that it uses for determining if a majority listing standards of the national
shell company has the same meaning as of the board of directors is independent securities exchange or inter-dealer
in Rule 405 under the Securities Act (17 in compliance with the listing standards quotation system on which it has
CFR 230.405) and Rule 12b–2 under the applicable to the registrant. When applied for listing, or if the registrant
Exchange Act (17 CFR 240.12b–2). determining whether the members of a has not adopted such definitions, the
Instructions to Item 404. committee of the board of directors are independence standards for determining
1. If the information called for by this Item independent, the registrant’s definition if the majority of the board of directors
is being presented in a registration statement of independence that it uses for is independent and if members of the
filed pursuant to the Securities Act or the determining if the members of that committee of the board of directors are
Exchange Act, information shall be given for specific committee are independent in independent of that national securities
the periods specified in the Item and, in compliance with the independence exchange or inter-dealer quotation
addition, for the two fiscal years preceding standards applicable for the members of system.
the registrant’s last fiscal year, unless the the specific committee in the listing (2) If the registrant uses its own
information is being incorporated by
standards of the national securities definitions for determining whether its
reference into a registration statement on
Form S–4 (17 CFR 239.25), in which case, exchange or inter-dealer quotation directors and nominees for director, and
information shall be given for the periods system that the registrant uses for members of specific committees of the
specified in the Item. determining if a majority of the board of board of directors, are independent,
2. A foreign private issuer will be deemed directors are independent. If the disclose whether these definitions are
to comply with this Item if it provides the registrant does not have independence available to security holders on the
information required by Item 7.B. of Form standards for a committee, the registrant’s Web site. If so, provide the
20–F (17 CFR 249.220f) with more detailed independence standards for that specific registrant’s Web site address. If not,
information provided if otherwise made committee in the listing standards of the include a copy of these policies in an
publicly available or required to be disclosed national securities exchange or inter-
by the issuer’s home jurisdiction or a market
appendix to the registrant’s proxy
dealer quotation system that the statement or information statement that
in which its securities are listed or traded.
registrant uses for determining if a is provided to security holders at least
■ 16. Add § 229.407 to read as follows: majority of the board of directors are once every three fiscal years or if the
independent. policies have been materially amended
§ 229.407 (Item 407) Corporate (ii) If the registrant is not a listed
governance. since the beginning of the registrant’s
issuer, a definition of independence of last fiscal year. If a current copy of the
(a) Director independence. Identify a national securities exchange or of an
each director and, when the disclosure policies is not available to security
inter-dealer quotation system which has holders on the registrant’s Web site, and
called for by this paragraph is being requirements that a majority of the
presented in a proxy or information is not included as an appendix to the
board of directors be independent, and registrant’s proxy statement or
statement relating to the election of state which definition is used. Whatever
directors, each nominee for director, information statement, identify the most
such definition the registrant chooses, it recent fiscal year in which the policies
that is independent under the must use the same definition with
independence standards applicable to were so included in satisfaction of this
respect to all directors and nominees for requirement.
the registrant under paragraph (a)(1) of director. When determining whether the (3) For each director and nominee for
this Item. In addition, if such members of a specific committee of the director that is identified as
independence standards contain board of directors are independent, if independent, describe, by specific
independence requirements for the national securities exchange or category or type, any transactions,
committees of the board of directors, national securities association whose relationships or arrangements not
identify each director that is a member standards are used has independence disclosed pursuant to Item 404(a)
of the compensation, nominating or standards for the members of a specific (§ 229.404(a)), or for investment
audit committee that is not independent committee, use those committee specific companies, Item 22(b) of Schedule 14A
under such committee independence standards. (§ 240.14a–101 of this chapter), that
standards. If the registrant does not have (iii) If the information called for by were considered by the board of
a separately designated audit, paragraph (a) of this Item is being directors under the applicable
nominating or compensation committee presented in a registration statement on
independence definitions in
or committee performing similar Form S–1 (§ 239.11 of this chapter) or
determining that the director is
functions, the registrant must provide Form SB–2 (§ 239.10 of this chapter)
independent.
the disclosure of directors that are not under the Securities Act or on a Form
independent with respect to all 10 (§ 249.210 of this chapter) or Form Instructions to Item 407(a).
members of the board of directors 10–SB (§ 249.210b of this chapter) under 1. If the registrant is a listed issuer whose
securities are listed on a national securities
applying such committee independence the Exchange Act where the registrant
exchange or in an inter-dealer quotation
standards. has applied for listing with a national system which has requirements that a
(1) In determining whether or not the securities exchange or in an inter-dealer majority of the board of directors be
director or nominee for director is quotation system which has independent, and also has exemptions to
independent for the purposes of requirements that a majority of the those requirements (for independence of a
paragraph (a) of this Item, the registrant board of directors be independent, the majority of the board of directors or
shall use the applicable definition of definition of independence that the committee member independence) upon
independence, as follows: registrant uses for determining if a which the registrant relied, disclose the
(i) If the registrant is a listed issuer majority of the board of directors is exemption relied upon and explain the basis
whose securities are listed on a national for the registrant’s conclusion that such
independent, and the definition of
exemption is applicable. The same disclosure
securities exchange or in an inter-dealer independence that the registrant uses should be provided if the registrant is not a
quotation system which has for determining if members of the listed issuer and the national securities
requirements that a majority of the specific committee of the board of exchange or inter-dealer quotation system
board of directors be independent, the directors are independent, that is in selected by the registrant has exemptions that
registrant’s definition of independence compliance with the independence are applicable to the registrant. Any national
securities exchange or inter-dealer quotation committee. Such disclosure need not be for inclusion on the registrant’s proxy
system which has requirements that at least provided to the extent it is duplicative card (other than nominees who are
50 percent of the members of a small of disclosure provided in accordance executive officers or who are directors
business issuer’s board of directors must be with paragraph (c), (d) or (e) of this standing for re-election), state which
independent shall be considered a national
securities exchange or inter-dealer quotation
Item. one or more of the following categories
system which has requirements that a
(c) Nominating committee. (1) If the of persons or entities recommended that
majority of the board of directors be registrant does not have a standing nominee: Security holder, non-
independent for the purposes of the nominating committee or committee management director, chief executive
disclosure required by paragraph (a) of this performing similar functions, state the officer, other executive officer, third-
Item. basis for the view of the board of party search firm, or other specified
2. Registrants shall provide the disclosure directors that it is appropriate for the source. With regard to each such
required by paragraph (a) of this Item for any registrant not to have such a committee nominee approved by a nominating
person who served as a director during any and identify each director who committee of an investment company,
part of the last completed fiscal year, except participates in the consideration of
that no information called for by paragraph
state which one or more of the following
director nominees. additional categories of persons or
(a) of this Item need be given in a registration
statement filed at a time when the registrant
(2) Provide the following information entities recommended that nominee:
is not subject to the reporting requirements regarding the registrant’s director Security holder, director, chief
of section 13(a) or 15(d) of the Exchange Act nomination process: executive officer, other executive
(15 U.S.C. 78m(a) or 78o(d)) respecting any (i) State whether or not the officer, or employee of the investment
director who is no longer a director at the nominating committee has a charter. If company’s investment adviser,
time of effectiveness of the registration the nominating committee has a charter, principal underwriter, or any affiliated
statement. provide the disclosure required by person of the investment adviser or
3. The description of the specific categories Instruction 2 to this Item regarding the
or types of transactions, relationships or
principal underwriter;
nominating committee charter; (viii) If the registrant pays a fee to any
arrangements required by paragraph (a)(3) of (ii) If the nominating committee has a
this Item must be provided in such detail as third party or parties to identify or
policy with regard to the consideration evaluate or assist in identifying or
is necessary to fully describe the nature of
the transactions, relationships or
of any director candidates evaluating potential nominees, disclose
arrangements. recommended by security holders, the function performed by each such
provide a description of the material third party; and
(b) Board meetings and committees; elements of that policy, which shall
annual meeting attendance. (1) State the (ix) If the registrant’s nominating
include, but need not be limited to, a committee received, by a date not later
total number of meetings of the board of statement as to whether the committee
directors (including regularly scheduled than the 120th calendar day before the
will consider director candidates date of the registrant’s proxy statement
and special meetings) which were held recommended by security holders;
during the last full fiscal year. Name released to security holders in
(iii) If the nominating committee does connection with the previous year’s
each incumbent director who during the not have a policy with regard to the
last full fiscal year attended fewer than annual meeting, a recommended
consideration of any director candidates nominee from a security holder that
75 percent of the aggregate of: recommended by security holders, state
(i) The total number of meetings of the beneficially owned more than 5% of the
that fact and state the basis for the view registrant’s voting common stock for at
board of directors (held during the of the board of directors that it is
period for which he has been a director); least one year as of the date the
appropriate for the registrant not to have recommendation was made, or from a
and such a policy;
(ii) The total number of meetings held group of security holders that
(iv) If the nominating committee will beneficially owned, in the aggregate,
by all committees of the board on which consider candidates recommended by
he served (during the periods that he more than 5% of the registrant’s voting
security holders, describe the common stock, with each of the
served). procedures to be followed by security
(2) Describe the registrant’s policy, if securities used to calculate that
holders in submitting such ownership held for at least one year as
any, with regard to board members’ recommendations;
attendance at annual meetings of of the date the recommendation was
(v) Describe any specific minimum
security holders and state the number of made, identify the candidate and the
qualifications that the nominating
board members who attended the prior security holder or security holder group
committee believes must be met by a
year’s annual meeting. that recommended the candidate and
nominating committee-recommended
disclose whether the nominating
Instruction to Item 407(b)(2). nominee for a position on the
In lieu of providing the information
committee chose to nominate the
registrant’s board of directors, and
required by paragraph (b)(2) of this Item in candidate, provided, however, that no
describe any specific qualities or skills
the proxy statement, the registrant may such identification or disclosure is
that the nominating committee believes
instead provide the registrant’s Web site required without the written consent of
are necessary for one or more of the
address where such information appears. both the security holder or security
registrant’s directors to possess;
(3) State whether or not the registrant (vi) Describe the nominating holder group and the candidate to be so
has standing audit, nominating and committee’s process for identifying and identified.
compensation committees of the board evaluating nominees for director, Instructions to Item 407(c)(2)(ix).
of directors, or committees performing including nominees recommended by 1. For purposes of paragraph (c)(2)(ix) of
similar functions. If the registrant has security holders, and any differences in this Item, the percentage of securities held by
such committees, however designated, a nominating security holder may be
the manner in which the nominating determined using information set forth in the
identify each committee member, state committee evaluates nominees for registrant’s most recent quarterly or annual
the number of committee meetings held director based on whether the nominee report, and any current report subsequent
by each such committee during the last is recommended by a security holder; thereto, filed with the Commission pursuant
fiscal year and describe briefly the (vii) With regard to each nominee to the Exchange Act (or, in the case of a
functions performed by each such approved by the nominating committee registrant that is an investment company
registered under the Investment Company the registrant last provided disclosure in independent accountant’s
Act of 1940, the registrant’s most recent response to the requirements of independence; and
report on Form N–CSR (§§ 249.331 and paragraph (c)(2)(iv) of this Item, or (D) Based on the review and
274.128 of this chapter)), unless the party
paragraph (c)(3) of this Item. discussions referred to in paragraphs
relying on such report knows or has reason
to believe that the information contained Instructions to Item 407(c)(3). (d)(3)(i)(A) through (d)(3)(i)(C) of this
therein is inaccurate. 1. The disclosure required in paragraph Item, the audit committee recommended
2. For purposes of the registrant’s (c)(3) of this Item need only be provided in to the board of directors that the audited
obligation to provide the disclosure specified a registrant’s quarterly or annual reports. financial statements be included in the
in paragraph (c)(2)(ix) of this Item, where the 2. For purposes of paragraph (c)(3) of this company’s annual report on Form 10–K
date of the annual meeting has been changed Item, adoption of procedures by which (17 CFR 249.310) (or, for closed-end
by more than 30 days from the date of the security holders may recommend nominees investment companies registered under
previous year’s meeting, the obligation under to the registrant’s board of directors, where
the Investment Company Act of 1940
that Item will arise where the registrant the registrant’s most recent disclosure in
receives the security holder recommendation response to the requirements of paragraph (15 U.S.C. 80a–1 et seq.), the annual
a reasonable time before the registrant begins (c)(2)(iv) of this Item, or paragraph (c)(3) of report to shareholders required by
to print and mail its proxy materials. this Item, indicated that the registrant did not section 30(e) of the Investment
3. For purposes of paragraph (c)(2)(ix) of have in place such procedures, will Company Act of 1940 (15 U.S.C. 80a–
this Item, the percentage of securities held by constitute a material change. 29(e)) and Rule 30d–1 (17 CFR 270.30d–
a recommending security holder, as well as 1) thereunder) for the last fiscal year for
the holding period of those securities, may be (d) Audit committee. (1) State whether
filing with the Commission.
determined by the registrant if the security or not the audit committee has a charter.
(ii) The name of each member of the
holder is the registered holder of the If the audit committee has a charter,
company’s audit committee (or, in the
securities. If the security holder is not the provide the disclosure required by
registered owner of the securities, he or she absence of an audit committee, the
Instruction 2 to this Item regarding the
can submit one of the following to the board committee performing equivalent
audit committee charter.
registrant to evidence the required ownership functions or the entire board of
(2) If a listed issuer’s board of directors) must appear below the
percentage and holding period:
a. A written statement from the ‘‘record’’ directors determines, in accordance disclosure required by paragraph
holder of the securities (usually a broker or with the listing standards applicable to (d)(3)(i) of this Item.
bank) verifying that, at the time the security the issuer, to appoint a director to the
(4)(i) If the registrant meets the
holder made the recommendation, he or she audit committee who is not
following requirements, provide the
had held the required securities for at least independent (apart from the
one year; or
disclosure in paragraph (d)(4)(ii) of this
requirements in § 240.10A–3 of this
b. If the security holder has filed a Item:
chapter), including as a result of
Schedule 13D (§ 240.13d–101 of this (A) The registrant is a listed issuer, as
exceptional or limited or similar
chapter), Schedule 13G (§ 240.13d–102 of defined in § 240.10A–3 of this chapter;
circumstances, disclose the nature of the
this chapter), Form 3 (§ 249.103 of this (B) The registrant is filing either an
chapter), Form 4 (§ 249.104 of this chapter), relationship that makes that individual
annual report on Form 10–K or 10–KSB
and/or Form 5 (§ 249.105 of this chapter), or not independent and the reasons for the
(17 CFR 249.310 or 17 CFR 249.310b),
amendments to those documents or updated board of directors’ determination.
or a proxy statement or information
forms, reflecting ownership of the securities (3)(i) The audit committee must state statement pursuant to the Exchange Act
as of or before the date of the whether:
recommendation, a copy of the schedule and/ (15 U.S.C. 78a et seq.) if action is to be
(A) The audit committee has reviewed taken with respect to the election of
or form, and any subsequent amendments
and discussed the audited financial directors; and
reporting a change in ownership level, as
well as a written statement that the security statements with management; (C) The registrant is neither:
holder continuously held the securities for (B) The audit committee has (1) A subsidiary of another listed
the one-year period as of the date of the discussed with the independent issuer that is relying on the exemption
recommendation. auditors the matters required to be in § 240.10A–3(c)(2) of this chapter; nor
4. For purposes of the registrant’s discussed by the statement on Auditing (2) Relying on any of the exemptions
obligation to provide the disclosure specified Standards No. 61, as amended (AICPA,
in paragraph (c)(2)(ix) of this Item, the
in § 240.10A–3(c)(4) through (c)(7) of
Professional Standards, Vol. 1. AU this chapter.
security holder or group must have provided
section 380),1 as adopted by the Public (ii)(A) State whether or not the
to the registrant, at the time of the
recommendation, the written consent of all Company Accounting Oversight Board registrant has a separately-designated
parties to be identified and, where the in Rule 3200T; standing audit committee established in
security holder or group members are not (C) The audit committee has received accordance with section 3(a)(58)(A) of
registered holders, proof that the security the written disclosures and the letter the Exchange Act (15 U.S.C.
holder or group satisfied the required from the independent accountants 78c(a)(58)(A)), or a committee
ownership percentage and holding period as required by Independence Standards performing similar functions. If the
of the date of the recommendation. Board Standard No. 1 (Independence
Instruction to Item 407(c)(2).
registrant has such a committee,
Standards Board Standard No. 1, however designated, identify each
For purposes of paragraph (c)(2) of this
Item, the term nominating committee refers Independence Discussions with Audit committee member. If the entire board
not only to nominating committees and Committees),2 as adopted by the Public of directors is acting as the registrant’s
committees performing similar functions, but Company Accounting Oversight Board audit committee as specified in section
also to groups of directors fulfilling the role in Rule 3600T, and has discussed with 3(a)(58)(B) of the Exchange Act (15
of a nominating committee, including the the independent accountant the U.S.C. 78c(a)(58)(B)), so state.
entire board of directors. (B) If applicable, provide the
(3) Describe any material changes to 1 Available at http://www.pcaobus.org/standards/

disclosure required by § 240.10A–3(d) of
the procedures by which security interim_standards/auditing_standards/ this chapter regarding an exemption
index_au.asp?series=300&section=300.
holders may recommend nominees to 2 Available at http://www.pcaobus.org/Standards/ from the listing standards for audit
the registrant’s board of directors, where Interim_Standards/Independence_Standards/ committees.
those changes were implemented after ISB1.pdf. (5) Audit committee financial expert.
(i)(A) Disclose that the registrant’s accounting officer, controller, public 4. A registrant that is an Asset-Backed
board of directors has determined that accountant, auditor or person Issuer (as defined in § 229.1101) is not
the registrant either: performing similar functions; required to disclose the information required
(1) Has at least one audit committee (C) Experience overseeing or assessing by paragraph (d)(5) of this Item.
the performance of companies or public Instructions to Item 407(d).
financial expert serving on its audit 1. The information required by paragraphs
committee; or accountants with respect to the (d)(1)–(3) of this Item shall not be deemed to
(2) Does not have an audit committee preparation, auditing or evaluation of be ‘‘soliciting material,’’ or to be ‘‘filed’’ with
financial expert serving on its audit financial statements; or the Commission or subject to Regulation 14A
committee. (D) Other relevant experience. or 14C (17 CFR 240.14a–1 through 240.14b–
(B) If the registrant provides the (iv) Safe harbor. (A) A person who is 2 or 240.14c–1 through 240.14c–101), other
disclosure required by paragraph determined to be an audit committee than as provided in this Item, or to the
(d)(5)(i)(A)(1) of this Item, it must financial expert will not be deemed an liabilities of section 18 of the Exchange Act
disclose the name of the audit expert for any purpose, including (15 U.S.C. 78r), except to the extent that the
committee financial expert and whether without limitation for purposes of registrant specifically requests that the
section 11 of the Securities Act (15 information be treated as soliciting material
that person is independent, as or specifically incorporates it by reference
independence for audit committee U.S.C. 77k), as a result of being
into a document filed under the Securities
members is defined in the listing designated or identified as an audit
Act or the Exchange Act. Such information
standards applicable to the listed issuer. committee financial expert pursuant to will not be deemed to be incorporated by
(C) If the registrant provides the this Item 407. reference into any filing under the Securities
disclosure required by paragraph (B) The designation or identification Act or the Exchange Act, except to the extent
(d)(5)(i)(A)(2) of this Item, it must of a person as an audit committee that the registrant specifically incorporates it
explain why it does not have an audit financial expert pursuant to this Item by reference.
committee financial expert. 407 does not impose on such person any 2. The disclosure required by paragraphs
duties, obligations or liability that are (d)(1)–(3) of this Item need only be provided
Instruction to Item 407(d)(5)(i). greater than the duties, obligations and one time during any fiscal year.
If the registrant’s board of directors has 3. The disclosure required by paragraph
liability imposed on such person as a
determined that the registrant has more than (d)(3) of this Item need not be provided in
one audit committee financial expert serving member of the audit committee and
any filings other than a registrant’s proxy or
on its audit committee, the registrant may, board of directors in the absence of such
information statement relating to an annual
but is not required to, disclose the names of designation or identification. meeting of security holders at which
those additional persons. A registrant (C) The designation or identification directors are to be elected (or special meeting
choosing to identify such persons must of a person as an audit committee or written consents in lieu of such meeting).
indicate whether they are independent financial expert pursuant to this Item
pursuant to paragraph (d)(5)(i)(B) of this does not affect the duties, obligations or (e) Compensation committee. (1) If the
Item. liability of any other member of the registrant does not have a standing
audit committee or board of directors. compensation committee or committee
(ii) For purposes of this Item, an audit
performing similar functions, state the
committee financial expert means a Instructions to Item 407(d)(5). basis for the view of the board of
person who has the following attributes: 1. The disclosure under paragraph (d)(5) of
(A) An understanding of generally this Item is required only in a registrant’s directors that it is appropriate for the
accepted accounting principles and annual report. The registrant need not registrant not to have such a committee
financial statements; provide the disclosure required by paragraph and identify each director who
(B) The ability to assess the general (d)(5) of this Item in a proxy or information participates in the consideration of
statement unless that registrant is electing to executive officer and director
application of such principles in incorporate this information by reference
connection with the accounting for compensation.
from the proxy or information statement into (2) State whether or not the
estimates, accruals and reserves; its annual report pursuant to General
(C) Experience preparing, auditing, Instruction G(3) to Form 10–K (17 CFR compensation committee has a charter.
analyzing or evaluating financial 249.310). If the compensation committee has a
statements that present a breadth and 2. If a person qualifies as an audit charter, provide the disclosure required
level of complexity of accounting issues committee financial expert by means of by Instruction 2 to this Item regarding
having held a position described in the compensation committee charter.
that are generally comparable to the
paragraph (d)(5)(iii)(D) of this Item, the (3) Provide a narrative description of
breadth and complexity of issues that registrant shall provide a brief listing of that
can reasonably be expected to be raised the registrant’s processes and
person’s relevant experience. Such disclosure
by the registrant’s financial statements, may be made by reference to disclosures procedures for the consideration and
or experience actively supervising one required under Item 401(e) (§ 229.401(e)). determination of executive and director
or more persons engaged in such 3. In the case of a foreign private issuer compensation, including:
activities; with a two-tier board of directors, for (i)(A) The scope of authority of the
(D) An understanding of internal purposes of paragraph (d)(5) of this Item, the compensation committee (or persons
term board of directors means the performing the equivalent functions);
control over financial reporting; and supervisory or non-management board. In the
(E) An understanding of audit and
case of a foreign private issuer meeting the
committee functions. requirements of § 240.10A–3(c)(3) of this (B) The extent to which the
(iii) A person shall have acquired chapter, for purposes of paragraph (d)(5) of compensation committee (or persons
such attributes through: this Item, the term board of directors means performing the equivalent functions)
(A) Education and experience as a the issuer’s board of auditors (or similar may delegate any authority described in
principal financial officer, principal body) or statutory auditors, as applicable. paragraph (e)(3)(i)(A) of this Item to
accounting officer, controller, public Also, in the case of a foreign private issuer, other persons, specifying what authority
the term generally accepted accounting
accountant or auditor or experience in may be so delegated and to whom;

principles in paragraph (d)(5)(ii)(A) of this
one or more positions that involve the Item means the body of generally accepted (ii) Any role of executive officers in
performance of similar functions; accounting principles used by that issuer in determining or recommending the
(B) Experience actively supervising a its primary financial statements filed with amount or form of executive and
principal financial officer, principal the Commission. director compensation; and
(iii) Any role of compensation of any such committee, the entire board information be treated as soliciting material
consultants in determining or of directors) of the registrant; and or specifically incorporates it by reference
recommending the amount or form of (C) An executive officer of the into a document filed under the Securities
executive and director compensation, registrant served as a member of the Act or the Exchange Act.
2. The disclosure required by paragraph
identifying such consultants, stating compensation committee (or other board
(e)(5) of this Item need not be provided in
whether such consultants are engaged committee performing equivalent any filings other than an annual report on
directly by the compensation committee functions or, in the absence of any such Form 10–K (§ 249.310 of this chapter), a
(or persons performing the equivalent committee, the entire board of directors) proxy statement on Schedule 14A (§ 240.14a–
functions) or any other person, of another entity, one of whose 101 of this chapter) or an information
describing the nature and scope of their executive officers served as a director of statement on Schedule 14C (§ 240.14c–101 of
assignment, and the material elements the registrant. this chapter). Such information will not be
of the instructions or directions given to (iv) Disclosure required under deemed to be incorporated by reference into
the consultants with respect to the paragraph (e)(4)(iii) of this Item any filing under the Securities Act or the
regarding a compensation committee Exchange Act, except to the extent that the
performance of their duties under the registrant specifically incorporates it by
engagement. member or other director of the reference. If the registrant elects to
(4) Under the caption ‘‘Compensation registrant who also served as an incorporate this information by reference
Committee Interlocks and Insider executive officer of another entity shall from the proxy or information statement into
Participation’’: be accompanied by the disclosure called its annual report on Form 10–K pursuant to
(i) Identify each person who served as for by Item 404 with respect to that General Instruction G(3) to Form 10–K, the
a member of the compensation person. disclosure required by paragraph (e)(5) of this
committee of the registrant’s board of Item will be deemed furnished in the annual
Instruction to Item 407(e)(4). report on Form 10–K and will not be deemed
directors (or board committee For purposes of paragraph (e)(4) of this incorporated by reference into any filing
performing equivalent functions) during Item, the term entity shall not include an under the Securities Act or the Exchange Act
the last completed fiscal year, indicating entity exempt from tax under section as a result as a result of furnishing the
each committee member who: 501(c)(3) of the Internal Revenue Code (26 disclosure in this manner.
(A) Was, during the fiscal year, an U.S.C. 501(c)(3)). 3. The disclosure required by paragraph
officer or employee of the registrant; (5) Under the caption ‘‘Compensation (e)(5) of this Item need only be provided one
(B) Was formerly an officer of the Committee Report:’’ time during any fiscal year.
registrant; or (i) The compensation committee (or (f) Shareholder communications. (1)
(C) Had any relationship requiring other board committee performing State whether or not the registrant’s
disclosure by the registrant under any equivalent functions or, in the absence board of directors provides a process for
paragraph of Item 404 (§ 229.404). In of any such committee, the entire board security holders to send
this event, the disclosure required by of directors) must state whether: communications to the board of
Item 404 (§ 229.404) shall accompany (A) The compensation committee has directors and, if the registrant does not
such identification. reviewed and discussed the have such a process for security holders
(ii) If the registrant has no Compensation Discussion and Analysis to send communications to the board of
compensation committee (or other board required by Item 402(b) (§ 229.402(b)) directors, state the basis for the view of
committee performing equivalent with management; and the board of directors that it is
functions), the registrant shall identify (B) Based on the review and appropriate for the registrant not to have
each officer and employee of the discussions referred to in paragraph such a process.
registrant, and any former officer of the (e)(5)(i)(A) of this Item, the (2) If the registrant has a process for
registrant, who, during the last compensation committee recommended security holders to send
completed fiscal year, participated in to the board of directors that the communications to the board of
deliberations of the registrant’s board of Compensation Discussion and Analysis directors:
directors concerning executive officer be included in the registrant’s annual (i) Describe the manner in which
compensation. report on Form 10–K (§ 249.310 of this security holders can send
(iii) Describe any of the following chapter), proxy statement on Schedule communications to the board and, if
relationships that existed during the last 14A (§ 240.14a–101 of this chapter) or applicable, to specified individual
completed fiscal year: information statement on Schedule 14C directors; and
(A) An executive officer of the (§ 240.14c–101 of this chapter). (ii) If all security holder
registrant served as a member of the (ii) The name of each member of the communications are not sent directly to
compensation committee (or other board registrant’s compensation committee (or board members, describe the registrant’s
committee performing equivalent other board committee performing process for determining which
functions or, in the absence of any such equivalent functions or, in the absence communications will be relayed to
committee, the entire board of directors) of any such committee, the entire board board members.
of another entity, one of whose of directors) must appear below the
disclosure required by paragraph Instructions to Item 407(f).
executive officers served on the 1. In lieu of providing the information
compensation committee (or other board (e)(5)(i) of this Item. required by paragraph (f)(2) of this Item in
committee performing equivalent Instructions to Item 407(e)(5). the proxy statement, the registrant may
functions or, in the absence of any such 1. The information required by paragraph instead provide the registrant’s Web site
committee, the entire board of directors) (e)(5) of this Item shall not be deemed to be address where such information appears.
of the registrant; ‘‘soliciting material,’’ or to be ‘‘filed’’ with 2. For purposes of the disclosure required
(B) An executive officer of the the Commission or subject to Regulation 14A by paragraph (f)(2)(ii) of this Item, a
or 14C (17 CFR 240.14a–1 through 240.14b– registrant’s process for collecting and
registrant served as a director of another 2 or 240.14c–1 through 240.14c–101), other organizing security holder communications,
entity, one of whose executive officers than as provided in this Item, or to the as well as similar or related activities, need
served on the compensation committee liabilities of section 18 of the Exchange Act not be disclosed provided that the registrant’s
(or other board committee performing (15 U.S.C. 78r), except to the extent that the process is approved by a majority of the
equivalent functions or, in the absence registrant specifically requests that the independent directors or, in the case of a
registrant that is an investment company, a foreign private issuer that furnishes (e) Notwithstanding the provisions of
majority of the directors who are not compensatory information under Item paragraphs (a) through (d) of this
‘‘interested persons’’ of the investment 402(a)(1) (§ 229.402(a)(1)) and the public section, electronically filed HTML
company as defined in section 2(a)(19) of the filing of the plan, contract or
Investment Company Act of 1940 (15 U.S.C.
documents must present the following
80a–2(a)(19)). arrangement, or portion thereof, is not information in an HTML graphic or
3. For purposes of this paragraph, required in the registrant’s home image file within the electronic
communications from an officer or director of country and is not otherwise publicly submission in compliance with the
the registrant will not be viewed as ‘‘security disclosed by the registrant. formatting requirements of the EDGAR
holder communications.’’ Communications * * * * * Filer Manual: The performance graph
from an employee or agent of the registrant that is to appear in registrant annual
■ 18. Amend § 229.1107 by revising
will be viewed as ‘‘security holder
communications’’ for purposes of this paragraph (e) to read as follows: reports to security holders required by
paragraph only if those communications are Exchange Act Rule 14a–3 (§ 240.14a–3
§ 229.1107 (Item 1107) Issuing entities.
made solely in such employee’s or agent’s of this chapter) or Exchange Act Rule
capacity as a security holder. * * * * * 14c–3 (§ 240.14c–3 of this chapter) to
4. For purposes of this paragraph, security (e) If the issuing entity has executive precede or accompany registrant proxy
holder proposals submitted pursuant to officers, a board of directors or persons statements or information statements
§ 240.14a–8 of this chapter, and performing similar functions, provide relating to annual meetings of security
communications made in connection with the information required by Items 401,
such proposals, will not be viewed as holders at which directors are to be
402, 403 404 and 407(a), (c)(3), (d)(4),
‘‘security holder communications.’’ elected (or special meetings or written
(d)(5) and (e)(4) of Regulation S–K
Instructions to Item 407. consents in lieu of such meetings), as
(§§ 229.401, 229.402, 229.403, 229.404
1. For purposes of this Item:
and 229.407(a), (c)(3), (d)(4), (d)(5) and required by Item 201(e) of Regulation S–
a. Listed issuer means a listed issuer as K (§ 229.201(e) of this chapter); the line
defined in § 240.10A–3 of this chapter; (e)(4)) for the issuing entity.
graph that is to appear in registrant
b. National securities exchange means a * * * * * annual reports to security holders, as
national securities exchange registered
pursuant to section 6(a) of the Exchange Act PART 232—REGULATION S–T— required by paragraph (b)(7)(ii) of Item
(15 U.S.C. 78f(a)); GENERAL RULES AND REGULATIONS 22 of Form N–1A (§ 274.11A of this
c. Inter-dealer quotation system means an FOR ELECTRONIC FILINGS chapter); and any other graphic material
automated inter-dealer quotation system of a required by rule or form to be filed with
national securities association registered ■ 19. The authority citation for part 232 the Commission. Filers may, but are not
pursuant to section 15A(a) of the Exchange continues to read in part as follows: required to, submit any other graphic
Act (15 U.S.C. 78o–3(a)); and
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, material in a HTML document by
d. National securities association means a
national securities association registered 77s(a), 77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), presenting the data in an HTML graphic
pursuant to section 15A(a) of the Exchange 78w(a), 78ll(d), 79t(a), 80a–8, 80a–29, 80a– or image file within the electronic filing,
Act (15 U.S.C. 78o–3(a)) that has been 30, 80a–37, and 7201 et seq.; and 18 U.S.C. in compliance with the formatting
approved by the Commission (as that 1350. requirements of the EDGAR Filer
definition may be modified or * * * * * Manual. However, filers may not
supplemented). ■ 20. Amend § 232.304 to revise present in a graphic or image file
2. With respect to paragraphs (c)(2)(i), paragraphs (d) and (e) to read as follows:
(d)(1) and (e)(2) of this Item, disclose whether
information such as text or tables that
a current copy of the applicable committee § 232.304 Graphic, image, audio and video
users must be able to search and/or
charter is available to security holders on the material. download into spreadsheet form (e.g.,
registrant’s Web site, and if so, provide the financial statements); filers must present
* * * * *
registrant’s Web site address. If a current
(d) For electronically filed ASCII such material as text in an ASCII
copy of the charter is not available to security document or as text or an HTML table
holders on the registrant’s Web site, include documents, the performance graph that
is to appear in registrant annual reports in an HTML document.
a copy of the charter in an appendix to the
registrant’s proxy or information statement to security holders required by * * * * *
that is provided to security holders at least Exchange Act Rule 14a-3 (§ 240.14a–3 of
once every three fiscal years, or if the charter this chapter) or Exchange Act Rule 14c– PART 239—FORMS PRESCRIBED
has been materially amended since the 3 (§ 240.14c–3 of this chapter) to UNDER THE SECURITIES ACT OF 1933
beginning of the registrant’s last fiscal year. precede or accompany proxy statements
If a current copy of the charter is not or information statements relating to ■ 21. The authority citation for part 239
available to security holders on the continues to read in part as follows:
annual meetings of security holders at
registrant’s Web site, and is not included as
an appendix to the registrant’s proxy or which directors are to be elected (or Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s,
information statement, identify in which of special meetings or written consents in 77z–2, 77z–3, 77sss, 78c, 78l, 78m, 78n,
the prior fiscal years the charter was so lieu of such meetings), as required by 78o(d), 78u–5, 78w(a), 78ll(d), 77mm, 79e,
included in satisfaction of this requirement. Item 201(e) of Regulation S–K 79f, 79g, 79j, 79l, 79m, 79n, 79q, 79t, 80a–
(§ 229.201(e) of this chapter), and the 2(a), 80a–3, 80a–8, 80a–9, 80a–10, 80a–13,
■ 17. Amend § 229.601 to revise line graph that is to appear in registrant
paragraph (b)(10)(iii)(C)(5) to read as 80a–24, 80a–26, 80a–29, 80a–30, and 80a–37,
annual reports to security holders, as unless otherwise noted.
follows: required by paragraph (b)(7)(ii) of Item
§ 229.601 (Item 601) Exhibits. 22 of Form N–1A (§ 274.11A of this * * * * *
* * * * * chapter), must be furnished to the ■ 22. Amend Form SB–2 (referenced in
(b) * * * Commission by presenting the data in
§ 239.10) by revising Item 15 to read as
(10) * * * tabular or chart form within the

follows:
(iii) * * * electronic ASCII document, in
(C) * * * compliance with paragraph (a) of this Note: The text of Form SB–2 does not, and
(5) Any compensatory plan, contract section and the formatting requirements this amendment will not, appear in the Code
or arrangement if the registrant is a of the EDGAR Filer Manual. of Federal Regulations.
Form SB–2 pursuant to Item 1.01, 1.02, 2.03, 2.04, (iii) Item 404 of Regulation S–K
Registration Statement Under the 2.05, 2.06, 4.02(a) or 5.02(e) of Form 8– (§ 229.404), transactions with related
Securities Act of 1933 K (§ 249.308 of this chapter). If the persons, promoters and certain controls
registrant has used (during the twelve persons, and Item 407(a) of Regulation
* * * * * calendar months and any portion of a S–K (§ 229.407(a)), corporate
Item 15. Certain Relationships and month immediately preceding the filing governance.
Transactions and Corporate of the registration statement) Rule 12b– * * * * *
Governance. 25(b) (§ 240.12b–25(b) of this chapter) ■ 26. Amend Form S–11 (referenced in
Furnish the information required by under the Exchange Act with respect to § 239.18) by revising Items 22 and 23 to
Item 404 of Regulation S–B and Item a report or a portion of a report, that read as follows:
407(a) of Regulation S–B. report or portion thereof has actually
* * * * * Note: The text of Form S–11 does not, and
been filed within the time period this amendment will not, appear in the Code
■ 23. Amend Form S–1 (referenced in prescribed by that rule. of Federal Regulations.
§ 239.11) by revising Item 11, * * * * *
paragraphs (l) and (n) to read as follows: B. Transaction Requirements. * * * Form S–11
Note: The text of Form S–1 does not, and
4. * * * For Registration Under the Securities
this amendment will not, appear in the Code (c) The issuer also must have Act of 1933 of Securities of Certain Real
of Federal Regulations. provided, within the twelve calendar Estate Companies
months immediately before the Form S–
Form S–1 3 registration statement is filed, the * * * * *
information required by Items 401, 402, Item 22. Executive Compensation.
Registration Statement Under the 403 and 407(c)(3), (d)(4), (d)(5) and Furnish the information required by
Securities Act of 1933 (e)(4) of Regulation S–K (§ 229.401— Item 402 of Regulation S–K (§ 229.402 of
* * * * * § 229.403 and § 229.407(c)(3),(d)(4), this chapter), and the information
Item 11. Information with Respect to (d)(5) and (e)(4) of this chapter) to: required by paragraph (e)(4) of Item 407
the Registrant. of Regulation S–K (§ 229.407(e)(4) of
* * * * * this chapter).
* * * * * ■ 25. Amend Form S–4 (referenced in Item 23. Certain Relationships and
(l) Information required by Item 402 § 239.25) by revising Items 18(a)(7)(ii) Related Transactions and Director
of Regulation S–K (§ 229.402 of this and (iii) and 19(a)(7)(ii) and (iii) to read Independence.
chapter), executive compensation, and as follows: Furnish the information required by
information required by paragraph (e)(4) Items 404 and 407(a) of Regulation S–
of Item 407 of Regulation S–K (§ 229.407 Note: The text of Form S–4 does not, and
this amendment will not, appear in the Code K (§§ 229.404 and 229.407(a) of this
of this chapter), corporate governance; of Federal Regulations. chapter). If a transaction involves the
* * * * * purchase or sale of assets by or to the
(n) Information required by Item 404 Form S–4 registrant, otherwise than in the
of Regulation S–K (§ 229.404 of this ordinary course of business, state the
chapter), transactions with related Registration Statement Under the
Securities Act of 1933 cost of the assets to the purchaser and,
persons, promoters and certain control if acquired by the seller within two
persons, and Item 407(a) of Regulation * * * * * years prior to the transaction, the cost
S–K (§ 229.407(a) of this chapter), Item 18. Information if Proxies, thereof to the seller. Furthermore, if the
corporate governance. Consents or Authorizations are to be assets have been acquired by the seller
* * * * * Solicited. within five years prior to the
■ 24. Amend Form S–3 (referenced
(a) * * * transaction, disclose the aggregate
(7) * * * depreciation claimed by the seller for
§ 239.13) by revising General Instruction
(ii) Item 402 of Regulation S–K federal income tax purposes. Indicate
I.A.3.(b) and the introductory text of
(§ 229.402 of this chapter), executive the principle followed in determining
General Instruction I.B.4.(c) to read as
compensation, and paragraph (e)(4) of the registrant’s purchase or sale price
follows:
Item 407 of Regulation S–K and the name of the person making such
Note: The text of Form S–3 does not, and (§ 229.407(e)(4) of this chapter), determination.
this amendment will not, appear in the Code corporate governance;
of Federal Regulations. * * * * *
(iii) Item 404 of Regulation S–K
(§ 229.404 of this chapter), transactions PART 240—GENERAL RULES AND
Form S–3
with related persons, promoters and REGULATIONS, SECURITIES
Registration Statement Under the certain control persons, and Item 407(a) EXCHANGE ACT OF 1934
Securities Act of 1933 of Regulation S–K (§ 229.407(a) of this
* * * * * chapter), corporate governance. ■ 27. The authority citation for part 240
* * * * * continues to read in part as follows:
General Instructions Item 19. Information if Proxies, Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
I. Eligibility Requirements for Use of Consents or Authorizations are not to be 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
Form S–3 * * * Solicited or in an Exchange Offer. 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
A. Registrant Requirements. * * * (a) * * * 78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p,
3. * * * (7) * * * 78q, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 79q,
79t, 80a–20, 80a–23, 80a–29, 80a–37, 80b–3,
(b) has filed in a timely manner all (ii) Item 402 of Regulation S–K 80b–4, 80b–11, and 7201 et seq.; and 18
reports required to be filed during the (§ 229.402 of this chapter), executive U.S.C. 1350, unless otherwise noted.
twelve calendar months and any portion compensation, and paragraph (e)(4) of
of a month immediately preceding the Item 407 of Regulation S–K * * * * *
filing of the registration statement, other (§ 229.407(e)(4) of this chapter), ■ 28. Amend § 240.13a–11 by revising
than a report that is required solely corporate governance; paragraph (c) to read as follows:
§ 240.13a–11 Current reports on Form 8–K Note to § 240.13a–20. In drafting the ■ d. Adding Items 22(b)(15), (b)(16), and
(§ 249.308 of this chapter). disclosure to comply with this section, you (b)(17).
* * * * * should avoid the following: The revisions and additions read as
(c) No failure to file a report on Form 1. Legalistic or overly complex follows:
presentations that make the substance of the
8–K that is required solely pursuant to
disclosure difficult to understand; § 240.14a–101 Schedule 14A. Information
Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 2. Vague ‘‘boilerplate’’ explanations that required in proxy statement.
4.02(a), 5.02(e) or 6.03 of Form 8–K are imprecise and readily subject to different
shall be deemed to be a violation of 15 interpretations;
* * * * *
U.S.C. 78j(b) and § 240.10b–5. 3. Complex information copied directly Notes.
■ 29. Add § 240.13a–20 to read as from legal documents without any clear and * * * * *
follows: concise explanation of the provision(s); and C. Except as otherwise specifically
4. Disclosure repeated in different sections provided, where any item calls for
§ 240.13a–20 Plain English presentation of of the document that increases the size of the information for a specified period with
specified information. document but does not enhance the quality regard to directors, executive officers, officers
(a) Any information included or of the information. or other persons holding specified positions
incorporated by reference in a report or relationships, the information shall be
■ 30. Amend § 240.14a–3 to revise given with regard to any person who held
filed under section 13(a) of the Act (15 paragraph (b)(9) to read as follows:
U.S.C. 78m(a)) that is required to be any of the specified positions or relationship
at any time during the period. Information,
disclosed pursuant to Item 402, 403, 404 § 240.14a–3 Information to be furnished to
other than information required by Item 404
or 407 of Regulation S–B (§§ 228.402, security holders.
of Regulation S–B (§ 228.404 of this chapter)
228.403, 228.404 or 228.407 of this * * * * * or Item 404 of Regulation S–K (§ 229.404 of
chapter) or Item 402, 403, 404 or 407 of (b) * * * this chapter), need not be included for any
Regulation S–K (§§ 229.402, 229.403, (9) The report shall contain the portion of the period during which such
229.404 or 229.407 of this chapter) must market price of and dividends on the person did not hold any such position or
be presented in a clear, concise and registrant’s common equity and related relationship, provided a statement to that
understandable manner. You must security holder matters required by effect is made.
prepare the disclosure using the Items 201(a), (b) and (c) of Regulation S– * * * * *
following standards: K (§ 229.201(a), (b) and (c) of this Item 7. Directors and executive
(1) Present information in clear, chapter). If the report precedes or officers. * * *
concise sections, paragraphs and accompanies a proxy statement or (b) The information required by Items
sentences; information statement relating to an 401, 404(a) and (b), 405 and 407(d)(4)
(2) Use short sentences; annual meeting of security holders at and (d)(5) of Regulation S–K (§ 229.401,
(3) Use definite, concrete, everyday which directors are to be elected (or § 229.404(a) and (b), § 229.405 and
words; special meeting or written consents in § 229.407(d)(4) and (d)(5) of this
(4) Use the active voice; lieu of such meeting), furnish the
(5) Avoid multiple negatives; chapter).
performance graph required by Item (c) The information required by Item
(6) Use descriptive headings and 201(e) (§ 229.201(e) of this chapter).
subheadings; 407(a) of Regulation S–K (§ 229.407 of
(7) Use a tabular presentation or bullet * * * * * this chapter).
lists for complex material, wherever ■ 31. Amend § 240.14a–6 to revise (d) The information required by Item
possible; paragraph (a)(4) to read as follows: 407(b), (c)(1), (c)(2), (d)(1), (d)(2), (d)(3),
(8) Avoid legal jargon and highly (e)(1), (e)(2), (e)(3) and (f) of Regulation
§ 240.14a-6 Filing requirements. S–K (§ 229.407(b), (c)(1), (c)(2), (d)(1),
technical business and other
terminology; (a) * * * (d)(2), (d)(3), (e)(1), (e)(2), (e)(3) and (f)
(9) Avoid frequent reliance on (4) The approval or ratification of a of this chapter).
glossaries or defined terms as the plan as defined in paragraph (a)(6)(ii) of (e) In lieu of the information required
primary means of explaining Item 402 of Regulation S–K by this Item 7, investment companies
information. Define terms in a glossary (§ 229.402(a)(6)(ii) of this chapter) or registered under the Investment
or other section of the document only if amendments to such a plan; Company Act of 1940 (15 U.S.C. 80a)
the meaning is unclear from the context. * * * * * must furnish the information required
Use a glossary only if it facilitates ■ 32. Amend § 240.14a–101 by: by Item 22(b) of this Schedule 14A.
understanding of the disclosure; and ■ a. Removing paragraphs (f), (g), and Item 8. Compensation of directors and
(10) In designing the presentation of (h) of Item 7 and paragraph (b)(13)(iii) executive officers.
the information you may include of Item 22; Furnish the information required by
pictures, logos, charts, graphs and other ■ b. Revising ‘‘$60,000’’ to read Item 402 of Regulation S–K (§ 229.402 of
design elements so long as the design is ‘‘$120,000’’ in the introductory text of this chapter) and paragraphs (e)(4) and
not misleading and the required Items 22(b)(7), (b)(8), and (b)(9); (e)(5) of Item 407 of Regulation S–K
information is clear. You are encouraged Instruction 2 to Item 22(b)(7); and (§ 229.407(e)(4) and (e)(5) of this
to use tables, schedules, charts and Instruction 6 to Item 22(b)(9); chapter) if action is to be taken with
graphic illustrations that present ■ c. Revising Note C, Item 7(b), (c), (d), regard to:
relevant data in an understandable and (e), the introductory text of Item 8, * * * * *
manner, so long as such presentations the undesignated paragraph following (d) * * *
are consistent with applicable Item 8(d), Item 10(b)(1)(ii), the However, if the solicitation is made
disclosure requirements and consistent Instruction to Item 10(b)(1)(ii), on behalf of persons other than the
with other information in the document. Instruction 1 to Item 10, the registrant, the information required
You must draw graphs and charts to introductory text of Item 22(b), Item need be furnished only as to nominees
scale. Any information you provide 22(b)(11), the Instruction to paragraph of the persons making the solicitation
must not be misleading. (b)(11) of Item 22, and the introductory and associates of such nominees. In the
(b) [Reserved] text of Item 22(b)(13); and case of investment companies registered
under the Investment Company Act of the Fund for the most recently committee, or committee performing
1940 (15 U.S.C. 80a), furnish the completed fiscal year in excess of similar functions, the Fund must
information required by Item 22(b)(13) $60,000 (‘‘Compensated Persons’’): provide the disclosure with respect to
of this Schedule 14A. * * * * * all members of its board of directors.
* * * * * (15)(i) Provide the information (and in (A) If the Fund is a listed issuer (as
Item 10. Compensation Plans. * * * the format) required by Items 407(b)(1), defined in § 240.10A–3 of this chapter)
(b)(1) Additional information (b)(2) and (f) of Regulation S–K whose securities are listed on a national
regarding specified plans subject to (§ 229.407(b)(1), (b)(2) and (f) of this securities exchange registered pursuant
security holder action. * * * chapter); and to section 6(a) of the Act (15 U.S.C.
(ii) The estimated annual payment to (ii) Provide the following regarding 78f(a)) or in an automated inter-dealer
be made with respect to current the requirements for the director quotation system of a national securities
services. In the case of a pension or nomination process: association registered pursuant to
retirement plan, information called for (A) The information (and in the section 15A of the Act (15 U.S.C. 78o–
by paragraph (a)(2) of this Item may be format) required by Items 407(c)(1) and 3(a)) that has independence
furnished in the format specified by (c)(2) of Regulation S–K (§ 229.407(c)(1) requirements for audit committee
paragraph (h)(2) of Item 402 of and (c)(2) of this chapter); and members, in determining whether the
Regulation S–K (§ 229.402(h)(2) of this (B) If the Fund is a listed issuer (as audit committee members are
chapter). defined in § 240.10A–3 of this chapter) independent, use the Fund’s definition
whose securities are listed on a national of independence that it uses for
Instruction to paragraph (b)(1)(ii).
In the case of investment companies securities exchange registered pursuant determining if the members of the audit
registered under the Investment Company to section 6(a) of the Act (15 U.S.C. committee are independent in
Act of 1940 (15 U.S.C. 80a), refer to 78f(a)) or in an automated inter-dealer compliance with the independence
Instruction 4 in Item 22(b)(13)(i) of this quotation system of a national securities standards applicable for the members of
Schedule in lieu of paragraph (h)(2) of Item association registered pursuant to the audit committee in the listing
402 of Regulation S–K (§ 229.402(h)(2) of this section 15A of the Act (15 U.S.C. 78o– standards applicable to the Fund. If the
chapter). 3(a)) that has independence Fund does not have independence
* * * * * requirements for nominating committee standards for the audit committee, use
Instructions members, identify each director that is the independence standards for the
1. The term plan as used in this Item a member of the nominating committee audit committee in the listing standards
means any plan as defined in paragraph that is not independent under the applicable to the Fund.
(a)(6)(ii) of Item 402 of Regulation S–K (B) If the Fund is not a listed issuer
independence standards described in
(§ 229.402(a)(6)(ii) of this chapter).
this paragraph. In determining whether whose securities are listed on a national
* * * * * the nominating committee members are securities exchange registered pursuant
Item 22. Information required in independent, use the Fund’s definition to section 6(a) of the Act (15 U.S.C.
investment company proxy statement. of independence that it uses for 78f(a)) or in an automated inter-dealer
* * * * * determining if the members of the quotation system of a national securities
(b) Election of Directors. If action is to nominating committee are independent association registered pursuant to
be taken with respect to the election of in compliance with the independence section 15A of the Act (15 U.S.C. 78o–
directors of a Fund, furnish the standards applicable for the members of 3(a)), in determining whether the audit
following information in the proxy the nominating committee in the listing committee members are independent,
statement in addition to, in the case of standards applicable to the Fund. If the use a definition of independence of a
business development companies, the Fund does not have independence national securities exchange registered
information (and in the format) required standards for the nominating committee, pursuant to section 6(a) of the Act (15
by Item 7 and Item 8 of this Schedule use the independence standards for the U.S.C. 78f(a)) or an automated inter-
14A. nominating committee in the listing dealer quotation system of a national
* * * * * standards applicable to the Fund. securities association registered
(11) Provide in tabular form, to the Instruction to paragraph (b)(15)(ii)(B). pursuant to section 15A of the Act (15
extent practicable, the information If the national securities exchange or inter- U.S.C. 780–3(a)) which has
required by Items 401(f) and (g), 404(a), dealer quotation system on which the Fund’s requirements that a majority of the
and 405 of Regulation S–K securities are listed has exemptions to the board of directors be independent and
independence requirements for nominating that has been approved by the
(§§ 229.401(f) and (g), 229.404(a), and committee members upon which the Fund
229.405 of this chapter). Commission, and state which definition
relied, disclose the exemption relied upon is used. Whatever such definition the
Instruction to paragraph (b)(11). and explain the basis for the Fund’s
conclusion that such exemption is
Fund chooses, it must use the same
Information provided under paragraph
applicable. definition with respect to all directors
(b)(8) of this Item 22 is deemed to satisfy the
requirements of Item 404(a) of Regulation and nominees for director. If the
(16) In the case of a Fund that is a national securities exchange or national
S–K for information about directors, closed-end investment company:
nominees for election as directors, and securities association whose standards
(i) Provide the information (and in the
Immediate Family Members of directors and are used has independence standards
format) required by Item 407(d)(1),
nominees, and need not be provided under for the members of the audit committee,
this paragraph (b)(11). (d)(2) and (d)(3) of Regulation S–K
use those specific standards.
(§229.407(d)(1), (d)(2) and (d)(3) of this
* * * * * chapter); and Instruction to paragraph (b)(16)(ii).
(13) In the case of a Fund that is an (ii) Identify each director that is a If the national securities exchange or inter-
dealer quotation system on which the Fund’s
investment company registered under member of the Fund’s audit committee

securities are listed has exemptions to the
the Investment Company Act of 1940 that is not independent under the independence requirements for nominating
(15 U.S.C. 80a), for all directors, and for independence standards described in committee members upon which the Fund
each of the three highest-paid Officers this paragraph. If the Fund does not relied, disclose the exemption relied upon
that have aggregate compensation from have a separately designated audit and explain the basis for the Fund’s
conclusion that such exemption is Regulation S–K (§§ 229.402, 229.403, ■ c. Removing paragraph (b)(3)(i)(D);
applicable. The same disclosure should be 229.404 or 229.407 of this chapter) must and
provided if the Fund is not a listed issuer and be presented in a clear, concise and
the national securities exchange or inter- ■ d. Adding Note (4) to read as follows:
understandable manner. You must
dealer quotation system selected by the Fund
prepare the disclosure using the § 240.16b–3 Transactions between an
has exemptions that are applicable to the
following standards: issuer and its officers or directors.
Fund.
(1) Present information in clear, * * * * *
(17) In the case of a Fund that is an concise sections, paragraphs and
investment company registered under Notes to § 240.16b–3:
sentences;
the Investment Company Act of 1940 * * * * *
(2) Use short sentences;
(15 U.S.C. 80a), if a director has (3) Use definite, concrete, everyday Note (4): For purposes of determining a
resigned or declined to stand for re- words; director’s status under those portions of
election to the board of directors since (4) Use the active voice; paragraph (b)(3)(i) that reference § 229.404(a)
the date of the last annual meeting of (5) Avoid multiple negatives; of this chapter, an issuer may rely on the
security holders because of a disclosure provided under § 229.404(a) of
(6) Use descriptive headings and this chapter for the issuer’s most recent fiscal
disagreement with the registrant on any subheadings;
matter relating to the registrant’s year contained in the most recent filing in
(7) Use a tabular presentation or bullet which disclosure required under § 229.404(a)
operations, policies or practices, and if lists for complex material, wherever is presented. Where a transaction disclosed
the director has furnished the registrant possible; in that filing was terminated before the
with a letter describing such (8) Avoid legal jargon and highly director’s proposed service as a Non-
disagreement and requesting that the technical business and other Employee Director, that transaction will not
matter be disclosed, the registrant shall terminology; bar such service. The issuer must believe in
state the date of resignation or (9) Avoid frequent reliance on good faith that any current or contemplated
declination to stand for re-election and glossaries or defined terms as the transaction in which the director participates
summarize the director’s description of will not be required to be disclosed under
primary means of explaining § 229.404(a) of this chapter, based on
the disagreement. If the registrant information. Define terms in a glossary information readily available to the issuer
believes that the description provided or other section of the document only if and the director at the time such director
by the director is incorrect or the meaning is unclear from the context. proposes to act as a Non-Employee Director.
incomplete, it may include a brief Use a glossary only if it facilitates At such time as the issuer believes in good
statement presenting its view of the understanding of the disclosure; and faith, based on readily available information,
disagreement. (10) In designing the presentation of that a current or contemplated transaction
* * * * * the information you may include with a director will be required to be
pictures, logos, charts, graphs and other disclosed under § 229.404(a) in a future
■ 33. Amend § 240.14c–5 to revise
filing, the director no longer is eligible to
paragraph (a)(4) before the undesignated design elements so long as the design is
serve as a Non-Employee Director; provided,
paragraph to read as follows: not misleading and the required however, that this determination does not
information is clear. You are encouraged result in retroactive loss of a Rule 16b-3
§ 240.14c–5 Filing requirements. to use tables, schedules, charts and exemption for a transaction previously
(a) * * * graphic illustrations that present approved by the director while serving as a
(4) The approval or ratification of a relevant data in an understandable Non-Employee Director consistent with this
plan as defined in paragraph (a)(6)(ii) of manner, so long as such presentations note. In making the determinations specified
Item 402 of Regulation S–K are consistent with applicable in this Note, the issuer may rely on
(§ 229.402(a)(6)(ii) of this chapter) or disclosure requirements and consistent information it obtains from the director, for
amendments to such a plan. example, pursuant to a response to an
with other information in the document.
inquiry.
* * * * * You must draw graphs and charts to
■ 34. Amend § 240.15d–11 by revising scale. Any information you provide
must not be misleading. PART 245—REGULATION BLACKOUT
paragraph (c) to read as follows:
(b) [Reserved] TRADING RESTRICTION
§ 240.15d–11 Current reports on Form 8–K (REGULATION BTR—BLACKOUT
(§ 249.308 of this chapter). Note to § 240.15d–20. In drafting the TRADING RESTRICTION)
disclosure to comply with this section, you
* * * * * should avoid the following:
(c) No failure to file a report on Form 1. Legalistic or overly complex
■ 37. The authority citation for Part 245
8–K that is required solely pursuant to presentations that make the substance of the continues to read in part as follows:
Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, disclosure difficult to understand; Authority: 15 U.S.C. 78w(a), unless
4.02(a), 5.02(e) or 6.03 of Form 8-K shall 2. Vague ‘‘boilerplate’’ explanations that otherwise noted.
be deemed to be a violation of 15 U.S.C. are imprecise and readily subject to different * * * * *
78j(b) and § 240.10b–-5. interpretations;
■ 35. Add § 240.15d–-20 to read as 3. Complex information copied directly § 245.100 [Amended]
from legal documents without any clear and
follows:
concise explanation of the provision(s); and ■ 38. Amend § 245.100, paragraph
§ 240.15d–-20 Plain English presentation 4. Disclosure repeated in different sections (a)(2), by revising the phrase ‘‘paragraph
of specified information. of the document that increases the size of the (a) or (b) of Item 404’’ to read
document but does not enhance the quality ‘‘paragraph (a) of Item 404’’.
(a) Any information included or
of the information.
incorporated by reference in a report * * * * *
filed under section 15(d) of the Act (15 ■ 36. Amend § 240.16b–3 by:
U.S.C. 78o(d)) that is required to be ■ a. Adding ‘‘and’’ at the end of PART 249—FORMS, SECURITIES
disclosed pursuant to Item 402, 403, 404 paragraph (b)(3)(i)(B); EXCHANGE ACT OF 1934
or 407 of Regulation S–B (§§ 228.402, ■ b. Removing ‘‘; and’’ at the end of
228.403, 228.404 or 228.407 of this paragraph (b)(3)(i)(C) and in its place ■ 39. The authority citation for part 249
chapter) or Item 402, 403, 404 or 407 of adding a period; continues to read in part as follows:
Authority: 15 U.S.C. 78a et seq. and 7201 Form 20–F Item 1.01 Entry into a Material
et seq.; and 18 U.S.C. 1350, unless otherwise Definitive Agreement.
noted. * * * * *
* * * * *
* * * * * Instructions as to Exhibits Instructions.
■ 40. Amend Form 10 (referenced in * * * * * 1. * * * An agreement involving the
§ 249.210) by revising Items 6 and 7 to 4.(a) * * * subject matter identified in Item
read as follows: (c) * * * 601(b)(10)(iii)(A) or (B) need not be
(v) Public filing of the management disclosed under this Item.
Note: The text of Form 10 does not, and contract or compensatory plan, contract * * * * *
this amendment will not, appear in the Code or arrangement, or portion thereof, is Item 5.02 Departure of Directors or
of Federal Regulations.
not required in the company’s home Certain Officers; Election of Directors;
country and is not otherwise publicly Appointment of Certain Officers;
Form 10 disclosed by the company. Compensatory Arrangements of Certain
General Form for Registration of * * * * * Officers.
Securities Pursuant to Section 12(B) or ■ 43. Form 8–K (referenced in * * * * *
(G) of the Securities Exchange Act of § 249.308) is amended by: (b) If the registrant’s principal
1934 ■ a. Revising General Instruction D; executive officer, president, principal
* * * * * ■ b. Revising the last sentence of financial officer, principal accounting
Instruction 1 to Item 1.01; officer, principal operating officer, or
Item 6. Executive Compensation.
■ c. Revising the heading of Item 5.02; any person performing similar
Furnish the information required by functions, or any named executive
■ d. Revising Item 5.02(b), the
Item 402 of Regulation S-K (§ 229.402 of officer, retires, resigns or is terminated
introductory text of Item 5.02(c), Item
this chapter) and paragraph (e)(4) of from that position, or if a director
5.02(c)(2) and (c)(3);
Item 407 of Regulation S-K (§ 229.407 of ■ e. Adding Items 5.02(d)(5), (e) and (f); retires, resigns, is removed, or refuses to
this chapter). and stand for re-election (except in
Item 7. Certain Relationships and ■ f. Adding Instructions 3 and 4 to Item circumstances described in paragraph
Related Transactions, and Director 5.02. (a) of this Item 5.02), disclose the fact
Independence. The revisions and additions read as that the event has occurred and the date
Furnish the information required by follows: of the event.
Item 404 of Regulation S–K (§ 229.404 of Note: The text of Form 8-K does not, and
(c) If the registrant appoints a new
this chapter) and Item 407(a) of this amendment will not, appear in the Code principal executive officer, president,
Regulation S–K (§ 229.407(a) of this of Federal Regulations. principal financial officer, principal
chapter). accounting officer, principal operating
* * * * * Form 8–K officer, or person performing similar
functions, disclose the following
■ 41. Amend Form 10–SB (referenced in Current Report information with respect to the newly
§ 249.210b), Information Required in Pursuant to Section 13 or 15(d) of the appointed officer:
Registration Statement, by revising Item Securities Exchange Act of 1934 (1) * * *
7 to read as follows: (2) the information required by Items
* * * * * 401(b), (d), (e) and Item 404(a) of
Note: The text of Form 10–SB does not,
and this amendment will not, appear in the General Instructions Regulation S-K (17 CFR 229.401(b), (d),
Code of Federal Regulations. (e) and 229.404(a)), or, in the case of a
* * * * *
D. Preparation of Report. small business issuer, Items 401(a)(4),
Form 10–SB This form is not to be used as a blank (a)(5), (c), and Item 404(a) of Regulation
form to be filled in, but only as a guide S-B (17 CFR 228.401(a)(4), (a)(5), (c),
General Form for Registration of and 228.404(a), respectively); and
Securities of Small Business Issuers in the preparation of the report on paper
(3) a brief description of any material
meeting the requirements of Rule 12b–
* * * * * plan, contract or arrangement (whether
12 (17 CFR 240.12b–12). The report
Information Required in Registration or not written) to which a covered
shall contain the number and caption of
Statement officer is a party or in which he or she
the applicable item, but the text of such
participates that is entered into or
* * * * * item may be omitted, provided the
material amendment in connection with
Item 7. Certain Relationships and answers thereto are prepared in the
the triggering event or any grant or
Related Transactions, and Director manner specified in Rule 12b–13 (17
award to any such covered person or
Independence. CFR 240.12b-13). To the extent that Item
modification thereto, under any such
Furnish the information required by 1.01 and one or more other items of the
plan, contract or arrangement in
Item 404 of Regulation S–B (§ 228.404 of form are applicable, registrants need not connection with any such event.
this chapter) and Item 407(a) of provide the number and caption of Item (d) * * *
Regulation S–B (§ 228.407(a) of this 1.01 so long as the substantive (5) a brief description of any material
chapter). disclosure required by Item 1.01 is plan, contract or arrangement (whether
disclosed in the report and the number or not written) to which the director is
* * * * *
and caption of the other applicable a party or in which he or she
■ 42. Amend Form 20–F (referenced in item(s) are provided. All items that are participates that is entered into or
§ 249.220f) by revising Instruction not required to be answered in a material amendment in connection with
4.(c)(v) to the Instructions as to Exhibits particular report may be omitted and no
the triggering event or any grant or

to read as follows: reference thereto need be made in the award to any such covered person or
Note: The text of Form 20–F does not, and
report. All instructions should also be modification thereto, under any such
this amendment will not, appear in the Code omitted. plan, contract or arrangement in
of Federal Regulations. * * * * * connection with any such event.
(e) If the registrant enters into, adopts, 3. The registrant need not provide Form 10–K
or otherwise commences a material information with respect to plans, * * * * *
compensatory plan, contract or contracts, and arrangements to the
arrangement (whether or not written), as extent they do not discriminate in Part III
to which the registrant’s principal scope, terms or operation, in favor of * * * * *
executive officer, principal financial executive officers or directors of the
officer, or a named executive officer registrant and that are available Item 10. Directors, Executive Officers
participates or is a party, or such generally to all salaried employees. and Corporate Governance.
compensatory plan, contract or 4. For purposes of this Item, the term Furnish the information required by
arrangement is materially amended or ‘‘named executive officer’’ shall refer to Items 401, 405, 406, and 407(c)(3), (d)(4)
modified, or a material grant or award those executive officers for whom and (d)(5) of Regulation S–K
under any such plan, contract or disclosure was required in the (§§ 229.401, 229.405, 229.406, and
arrangement to any such person is made registrant’s most recent filing with the 229.407(c)(3), (d)(4) and (d)(5) of this
or materially modified, then the Commission under the Securities Act chapter).
registrant shall provide a brief (15 U.S.C. 77a et seq.) or Exchange Act * * * * *
description of the terms and conditions (15 U.S.C. 78a et seq.) that required Item 11. Executive Compensation.
of the plan, contract or arrangement and disclosure pursuant to Item 402(c) of
the amounts payable to the officer Furnish the information required by
Regulation S–K (17 CFR 229.402(c)) or
thereunder. Item 402 of Regulation S–K (§ 229.402 of
Item 402(b) of Regulation S–B (17 CFR
this chapter) and paragraphs (e)(4) and
Instructions to paragraph (e). 228.402(b)), as applicable.
(e)(5) of Item 407 of Regulation S–K
1. Disclosure under this Item 5.02(e) shall * * * * * (§ 229.407(e)(4) and (e)(5) of this
be required whether or not the specified
event is in connection with events otherwise ■ 44. Amend Form 10–Q (referenced in chapter).
triggering disclosure pursuant to this Item § 249.308a) by revising Item 5(b) in Part * * * * *
5.02. II to read as follows: Item 13. Certain Relationships and
2. Grants or awards (or modifications Note: The text of Form 10–Q does not, and Related Transactions, and Director
thereto) made pursuant to a plan, contract or this amendment will not, appear in the Code Independence.
arrangement (whether involving cash or of Federal Regulations.
equity), that are materially consistent with Furnish the information required by
the previously disclosed terms of such plan, Item 404 of Regulation S–K (§ 229.404 of
Form 10–Q
contract or arrangement, need not be this chapter) and Item 407(a) of
disclosed under this Item 5.02(e), provided * * * * * Regulation S–K (§ 229.407(a) of this
the registrant has previously disclosed such chapter).
terms and the grant, award or modification is Part II—Other Information
disclosed when Item 402 of Regulation S–K * * * * *
* * * * *
(17 CFR 229.402) requires such disclosure. ■ 47. Amend Form 10–KSB (referenced
Item 5. Other Information.
(a) * * * in § 249.310b) by revising Item 9 before
(f) If the salary or bonus of a named
the instruction and Item 12 in Part III to
executive officer cannot be calculated as (b) Furnish the information required read as follows:
of the most recent practicable date and by Item 407(c)(3) of Regulation S–K
is omitted from the Summary (§ 229.407 of this chapter). Note: The text of Form 10–KSB does not,
Compensation Table as specified in and this amendment will not, appear in the
* * * * *
Instruction 1 to Item 402(b)(2)(iii) and Code of Federal Regulations.
(iv) of Regulation S–B or Instruction 1 ■ 45. Amend Form 10–QSB (referenced
to Item 402(c)(2)(iii) and (iv) of in § 249.308b) by revising Item 5(b) in Form 10–KSB
Regulation S–K, disclose the Part II to read as follows: * * * * *
appropriate information under this Item Note: The text of Form 10–QSB does not,
5.02(f) when there is a payment, grant, Part III
and this amendment will not, appear in the
award, decision or other occurrence as Code of Federal Regulations. Item 9. Directors, Executive Officers,
a result of which such amounts become Promoters, Control Persons and
calculable in whole or part. Disclosure Form 10–QSB Corporate Governance; Compliance
under this Item 5.02(f) shall include a * * * * * With Section 16(a) of the Exchange Act.
new total compensation figure for the
named executive officer, using the new Part II—Other Information Furnish the information required by
salary or bonus information to Items 401, 405, 406, and 407(c)(3), (d)(4)
* * * * * and (d)(5) of Regulation S–B
recalculate the information that was Item 5. Other Information.
previously provided with respect to the (§§ 228.401, 228.405, 228.406, and
(a) * * * 228.407(c)(3), (d)(4) and (d)(5) of this
named executive officer in the
registrant’s Summary Compensation (b) Furnish the information required chapter).
Table for which the salary and bonus by Item 407(c)(3) of Regulation S–B * * * * *
information was omitted in reliance on (§ 228.407 of this chapter). Item 12. Certain Relationships and
Instruction 1 to Item 402(b)(2)(iii) and * * * * * Related Transactions, and Director
(iv) of Regulation S–B (17 CFR ■ 46. Amend Form 10–K (referenced in Independence.
228.402(b)(2)(iii) and (iv)) or Instruction § 249.310) by revising Item 10 before the Furnish the information required by
1 to Item 402(c)(2)(iii) and (iv) of instruction and Items 11 and 13 in Part Item 404 of Regulation S–B (§ 228.404 of
Regulation S–K (17 CFR III to read as follows: this chapter) and Item 407(a) of
229.402(c)(2)(iii) and (iv)). Regulation S–B (§ 228.407(a) of this
Note: The text of Form 10–K does not, and
Instructions to Item 5.02. this amendment will not, appear in the Code chapter).
* * * * * of Federal Regulations. * * * * *
PART 274—FORMS PRESCRIBED ■ g. Revising the cite ‘‘Item 18.15’’ to ■ 52. Amend Form N–CSR (referenced
UNDER THE INVESTMENT COMPANY read ‘‘Item 18.16’’ in Instruction 8.a. to in §§ 249.331 and 274.128) by revising
ACT OF 1940 Item 24. Item 10 to read as follows:
The addition and revision read as
Note: The text of Form N–CSR does not,
■ 48. The authority citation for Part 274 follows:
and this amendment will not, appear in the
continues to read in part as follows: Note: The text of Form N–2 does not, and Code of Federal Regulations.
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, this amendment will not, appear in the Code
78c(b), 78l, 78m, 78n, 78o(d), 80a–8, 80a–24, of Federal Regulations.
Form N–CSR
80a–26, and 80a–29, unless otherwise noted.
Form N–2 * * * * *
* * * * *
■ 49. Amend Form N–1A (referenced in
* * * * * Item 10. Submission of Matters to a
Item 18. Management. Vote of Security Holders.
§§ 239.15A and 274.11A) by:
■ a. Revising ‘‘$60,000’’ to read
* * * * * Describe any material changes to the
13. In the case of a Registrant that is procedures by which shareholders may
‘‘$120,000’’ in the introductory text of
not a business development company, recommend nominees to the registrant’s
Items 12(b)(6), (b)(7), and (b)(8);
provide the following for all directors of
Instruction 2 to Item 12(b)(6); and board of directors, where those changes
the Registrant, all members of the
Instruction 5 to Item 12(b)(8); and were implemented after the registrant
advisory board of the Registrant, and for
■ b. Removing the word ‘‘relocation,’’ in
each of the three highest paid officers or last provided disclosure in response to
the second sentence of Instruction 2 to any affiliated person of the Registrant the requirements of Item 407(c)(2)(iv) of
Item 15(b). with aggregate compensation from the Regulation S–K (17 CFR 229.407) (as
Note: The text of Form N–1A does not, and Registrant for the most recently required by Item 22(b)(15) of Schedule
this amendment will not, appear in the Code completed fiscal year in excess of 14A (17 CFR 240.14a–101)), or this Item.
of Federal Regulations. $60,000 (‘‘Compensated Persons’’). Instruction. For purposes of this Item,
* * * * * adoption of procedures by which
■ 50. Amend Form N–2 (referenced in 14. In the case of a Registrant that is shareholders may recommend nominees
§§ 239.14 and 274.11a–1) by: a business development company, to the registrant’s board of directors,
■ a. Revising ‘‘$60,000’’ to read provide the information required by where the registrant’s most recent
‘‘$120,000’’ in the introductory text of Item 402 of Regulation S–K (17 CFR disclosure in response to the
paragraphs 9, 10, and 11 of Item 18; 229.402).
Instruction 2 to paragraph 9 of Item 18; requirements of Item 407(c)(2)(iv) of
* * * * * Regulation S–K (17 CFR 229.407) (as
and Instruction 5 to paragraph 11 of
■ 51. Amend Form N–3 (referenced in required by Item 22(b)(15) of Schedule
Item 18;
§§ 239.17a and 274.11b) by: 14A (17 CFR 240.14a–101)), or this Item,
■ b. Revising the introductory text of
■ a. Revising ‘‘$60,000’’ to read indicated that the registrant did not
paragraph 13 of Item 18; ‘‘$120,000’’ in the introductory text of
■ c. Removing paragraph 13(c) of Item
have in place such procedures, will
paragraphs (h), (i), and (j) of Item 20; constitute a material change.
18; Instruction 2 to paragraph (h) of Item 20;
■ d. Redesignating paragraphs 14 and 15 and Instruction 5 to paragraph (j) of Item * * * * *
of Item 18 as paragraphs 15 and 16, 20; and Dated: August 29, 2006.
respectively; ■ b. Removing the word ‘‘relocation,’’ in By the Commission.
■ e. Adding new paragraph 14 of Item the second sentence of Instruction 2 to Nancy M. Morris,
18; Item 22(b).
Secretary.
■ f. Removing ‘‘relocation,’’ from the Note: The text of Form N–3 does not, and
second sentence of Instruction 2 to [FR Doc. 06–6968 Filed 9–7–06; 8:45 am]
this amendment will not, appear in the Code
paragraph 2 of Item 21; and of Federal Regulations. BILLING CODE 8010–01–P

Rule: Securities, Etc: Executive and Director Compensation, Etc. Disclosure Requirements

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Rule: Securities, Etc: Executive and Director Compensation, Etc. Disclosure Requirements

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Friday,

intended to provide investors with a or 4 17 CFR 229.402 and 17 CFR 228.402.

financial officer and highest paid Paper Comments

executive officers and members of its 10 17 CFR 229.1107.

intended to provide better information to Nancy M. Morris, Secretary, 12 17 CFR 232.304.

Register, we also request additional review your comments more efficiently,

2006. inspection and copying in the 28 17 CFR 249.308b.

information to be included in Securities Act and

separately required to be disclosed under Item 57 1992 Release.

Discussion and Analysis: WorldatWork. The Commission has construed the

SUMMARY COMPENSATION TABLE

manner that reflects the cost of the compensation

161 Instruction 2 to Item 402(c)(2)(v) and (vi).

company-to-company comparability. In perquisites and personal benefits if they aggregate

191 See Section II.C.5.a., discussing the Pension

206 See, e.g., letter from SCSGP.

222 Item 402(c)(2)(ix)(G).

GRANTS OF PLAN-BASED AWARDS

251 Item 402(a)(6)(iv).

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END—Continued

277 See, e.g., letters from Amalgamated; Brian

and Sidley Austin. ABA. 284 See letter from Sullivan.

OPTION EXERCISES AND STOCK VESTED

(a) (b) (c) (d) (e)

(a) (b) (c) (d) (e)

(a) (b) (c) (d) (e)

(a) (b) (c) (d) (e) (f)

NONQUALIFIED DEFERRED COMPENSATION—Continued

(a) (b) (c) (d) (e) (f)

executive officer only with respect to 325 Instruction 5 to Item 402(j).

319 See, e.g., letters from Cleary; Foley; HRPA; and

reported as ‘‘bonus.’’ defined the term ‘‘plan.’’

(a) (b) (c) (d) (e) (f) (g) (h)

Commission’s 2003 Company Law Action Plan. See

having the interest and the amount CalSTRS.

441 Item 404(a)(4).

same meaning as in Exchange Act Rule 10A–3.

director or executive officer of an issuer of any defines a Non-Employee Director of a closed-end

changed. 548 44 U.S.C. 3501 et seq. Form 10–K or 10–KSB.

requirement regarding repricings and discussed below we do not believe the

Value Advisors. SCSGP; and Sidley Austin. SCSGP.

hourly rate of $300.00 to determine the estimated

577 In the Proposing Release, we estimated that

(A) (B) (C)=(A)*(B) (D)=(C)*0.75 (E)=(C)*0.25 (F)=(E)*$400

10–K 581. ................................................... 8,602 95 817,190 612,892.50 204,297.50 $81,719,000

Total .................................................. ........................ ........................ 1,016,183 762,137.25 254,045.75 101,618,300

(A) (B) (C)=(A)*(B) (D)=(C)*0.25 (E)=(C)*0.75 (F)=(E)*$400

10 ............................................................. 72 85 6,120 1,530.00 4,590.00 $1,836,000

Total .................................................. ........................ ........................ 110,420 27,605.00 82,815.00 33,126,000

amendments, which focused on Regulation S–B will also affect

comparability of different elements of provide investors with more complete

601 See, e.g., letters from CII; CFA Centre 1; ICI;

writing style to present the information For purposes of the Paperwork

SUMMARY COMPENSATION TABLE

stock or option award in columns (e) or

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

(a) (b) (c) (d) (e) (f) (g) (h)

(3) Amount and nature of

i. The compensation arising from the principal underwriter.

(3)(i) The audit committee must state 1 Available at http://www.pcaobus.org/standards/

incorporate this information by reference

Instructions to Item 407(f). PART 229—STANDARD (A) A published industry or line-of-

(A) (B) (C)=(A)(B) (D)=(C)0.75 (E)=(C)0.25 (F)=(E)$400

(A) (B) (C)=(A)(B) (D)=(C)0.25 (E)=(C)0.75 (F)=(E)$400