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

Wednesday,
February 8, 2006
Part II
Securities and
Exchange
Commission
17 CFR Parts 228, 229, 239, et al.
Executive Compensation and Related
Party Disclosure; Proposed Rule
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6542 Federal Register / Vol. 71, No. 26 / Wednesday, February 8, 2006 / Proposed Rules
SECURITIES AND EXCHANGE Paper Comments propose to amend Schedule 14A 20

COMMISSION • Send paper comments in triplicate under the Exchange Act, as well as
to Nancy M. Morris, Secretary, Exchange Act Forms 8–K,21 10,22
17 CFR Parts 228, 229, 239, 240, 245, Securities and Exchange Commission, 10SB,23 10–Q,24 10–QSB,25 10–K,26 10–
249 and 274 100 F Street, NE., Washington, DC KSB 27 and 20–F.28 Finally, we propose
[Release Nos. 33–8655; 34–53185; IC– 20549–9303. to amend Forms SB–2,29 S–1,30 S–3,31
27218; File No. S7–03–06] All submissions should refer to File S–4 32 and S–11 33 under the Securities
Number S7–03–06. This file number Act, Forms N–1A,34 N–2,35 and N–3 36
RIN 3235–AI80 under the Securities Act and the
should be included on the subject line
if e-mail is used. To help us process and Investment Company Act of 1940,37 and
Executive Compensation and Related
review your comments more efficiently, Form N–CSR 38 under the Investment
Party Disclosure
please use only one method. The Company Act and the Exchange Act.
AGENCY: Securities and Exchange Commission will post all comments on Table of Contents
Commission. the Commission’s Internet Web site I. Background and Overview of the Proposals
ACTION: Proposed rule. (http://www.sec.gov/rules/proposed/ II. Executive and Director Compensation
shtml). Comments are also available for Disclosure
SUMMARY: The Securities and Exchange A. Compensation Discussion and Analysis
public inspection and copying in the
Commission is proposing amendments Commission’s Public Reference Room, 1. Intent and Operation of the Proposed
to the disclosure requirements for 100 F Street, NE, Washington, DC Compensation Discussion and Analysis
executive and director compensation, 20549. All comments received will be 2. Proposed Instructions to Compensation
related party transactions, director Discussion and Analysis
posted without change; we do not edit 3. ‘‘Filed’’ Status of Compensation
independence and other corporate personal identifying information from Discussion and Analysis
governance matters and security submissions. You should submit only 4. Proposed Elimination of the
ownership of officers and directors. information that you wish to make Performance Graph and the
These amendments would apply to publicly available. Compensation Committee Report
disclosure in proxy and information B. Compensation Tables
FOR FURTHER INFORMATION CONTACT:
statements, periodic reports, current Anne Krauskopf, Carloyn Sherman, or 1. Compensation to Named Executive
reports and other filings under the Officers in the Last Three Completed
Daniel Greenspan, at (202) 551–3500, in Fiscal Years—The Summary
Securities Exchange Act of 1934 and to the Division of Corporation Finance,
registration statements under the Compensation Table and Related
U.S. Securities and Exchange Disclosure
Exchange Act and the Securities Act of Commission, 100 F Street, NE, a. Total Compensation Column
1933. We also propose to require that Washington, DC 20549–3010 or, with b. Salary and Bonus Columns
disclosure under the amended items respect to questions regarding c. Plan-Based Awards
generally be provided in plain English. investment companies, Kieran Brown in i. Stock Awards and Option Awards
The proposed amendments are intended the Division of Investment Management, Columns
to make proxy statements, reports and ii. Non-Stock Incentive Plan Compensation
at (202) 551–6784.
registration statements easier to Column
SUPPLEMENTARY INFORMATION: We d. All Other Compensation Column
understand. They are also intended to
propose to amend: Items 201,1 306,2 i. Earnings on Deferred Compensation
provide investors with a clearer and
401,3 402,4 403 5 and 404 6 of ii. Increase in Pension Value
more complete picture of the Regulations S–K 7 and S–B,8 Item 601 9 iii. Perquisites and Other Personal Benefits
compensation earned by a company’s of Regulation S–K, Item 1107 10 of iv. Additional All Other Compensation
principal executive officer, principal Regulation AB,11 and Rule 100 12 of Column Items
financial officer and highest paid Regulation BTR.13 We also propose to e. Captions and Table Layout
executive officers and members of its add new Item 407 to Regulations S–K
2. Supplemental Annual Compensation
board of directors. In addition, they are Tables
and S–B. In addition, we propose to a. Grants of Performance-Based Awards
intended to provide better information amend Rules 13a–11,14 14a–6,15 14c–
about key financial relationships among Table
5,16 15d–11 17 and 16b–3 18 under the b. Grants of All Other Equity Awards Table
companies and their executive officers, Securities Exchange Act of 1934.19 We 3. Narrative Disclosure to Summary
directors, significant shareholders and propose to add Rules 13a–20 and 15d– Compensation Table and Supplemental
their respective immediate family 20 under the Exchange Act. We further Tables
members.
20 17 CFR 240.14a–101.
DATES: Comments should be received on 1 17 CFR 229.201 and 17 CFR 228.201.
2 17 21 17 CFR 249.308.
or before April 10, 2006. CFR 229.306 and 17 CFR 228.306.
3 17 CFR 229.401 and 17 CFR 228.401. 22 17 CFR 249.210.
ADDRESSES: Comments may be 4 17 CFR 229.402 and 17 CFR 228.402. 23 17 CFR 249.210b.
submitted by any of the following 5 17 CFR 229.403 and 17 CFR 228.403. 24 17 CFR 249.308a.
methods: 6 17 CFR 229.404 and 17 CFR 228.404. 25 17 CFR 249.308b.
7 17 CFR 229.10 et seq. 26 17 CFR 249.310.

Electronic Comments 8 17 CFR 228.10 et seq. 27 17 CFR 249.310b.
• Use the Commission’s Internet 9 17 CFR 229.601. 28 17 CFR 249.220f.

29 17 CFR 239.10.
comment form (http://www.sec.gov/ 10 17 CFR 229.1107.
11 17 CFR 229.1100 et seq. 30 17 CFR 239.11.
rules/proposed.shtml); or 31 17 CFR 239.13.
• Send an e-mail to rule-
12 17 CFR 245.100.
13 17 CFR 245.100 et seq. 32 17 CFR 239.25.

comments@sec.gov. Please include File 14 17 CFR 240.13a–11. 33 17 CFR 239.18.
Number S7–03–06 on the subject line; 15 17 CFR 240.14a–6. 34 17 CFR 239.15A and 274.11A.
or 16 17 CFR 240.14c–5. 35 17 CFR 239.14 and 274.11a–1.
• Use the Federal Rulemaking Portal 17 17 CFR 240.15d–11. 36 17 CFR 239.17a and 274.11b.
(http://www.regulations.gov). Follow the 18 17 CFR 240.16b–3. 37 15 U.S.C. 80a–1 et seq.
instructions for submitting comments. 19 15 U.S.C. 78a et seq. 38 17 CFR 249.331 and 274.128.
Federal Register / Vol. 71, No. 26 / Wednesday, February 8, 2006 / Proposed Rules 6543
4. Exercises and Holdings of Previously C. Benefits Commission has on a number of

Awarded Equity D. Costs occasions explored the best methods for
a. Outstanding Equity Awards at Fiscal E. Request for Comment communicating clear, concise and
Year-End X. Consideration of Burden on Competition
meaningful information about executive
b. Option Exercises and Stock Vesting and Promotion of Efficiency,
5. Post-Employment Compensation Competition and Capital Formation and director compensation and
a. Retirement Plan Potential Annual XI. Initial Regulatory Flexibility Act Analysis relationships with the issuer.40 The
Payments and Benefits Table A. Reasons for the Proposed Action Commission also has had to reconsider
b. Nonqualified Defined Contribution and B. Objectives executive and director compensation
Other Deferred Compensation Plans C. Legal Basis disclosure requirements in light of
Table D. Small Entities Subject to the Proposed changing trends in executive
c. Other Potential Post-Employment Amendments compensation. Most recently, in 1992,
Payments E. Reporting, Recordkeeping and Other the Commission adopted amendments
6. Officers Covered Compliance Requirements
F. Duplicative, Overlapping or Conflicting
to the disclosure rules that eschewed a
a. Named Executive Officers
b. Identification of Most Highly Federal Rules mostly narrative disclosure approach
Compensated Officers; Dollar Threshold G. Significant Alternatives adopted in 1983 in favor of formatted
for Disclosure H. Solicitation of Comment tables that captured all compensation,
7. Interplay of Items 402 and 404 XII. Small Business Regulatory Enforcement while categorizing the various elements
8. Other Proposed Changes Fairness Act of compensation and promoting
9. Compensation of Directors XIII. Statutory Authority and Text of the comparability from year to year and
C. Treatment of Specific Types of Issuers Proposed Amendments from company to company.41
1. Small Business Issuers We believe this tabular approach
2. Foreign Private Issuers I. Background and Overview of the
Proposals remains a sound basis for disclosure.
3. Business Development Companies
However, especially in light of the
D. Conforming Amendments We are proposing revisions to our
E. General Comment Requests on the Item
complexity of and variations in
rules governing disclosure of executive compensation programs, the very
402 Proposals compensation, director compensation,
III. Proposed Revisions to Form 8–K and the formatted nature of the current rules
related party transactions, director results in too many cases in disclosure
Periodic Report Exhibit Requirements
A. Proposed Revisions to Items 1.01 and independence and other corporate that does not inform investors
5.02 of Form 8–K governance matters and current adequately as to all elements of
B. Proposed Extension of Limited Safe reporting regarding compensation compensation. In those cases investors
Harbor under Section 10(b) and Rule arrangements. The proposed revisions to may lack material information that we
10b-5 to Item 5.02(e) of Form 8–K and the compensation disclosure rules are believe they should receive.
Exclusion of that Item from Form S–3 intended to provide investors with a We are thus today proposing an
Eligibility Requirements clearer and more complete picture of approach that builds on the strengths of
C. General Instruction D to Form 8–K compensation to principal executive
D. Foreign Private Issuers
officers, principal financial officers, the directors or persons performing similar functions,
IV. Beneficial Ownership Disclosure
V. Certain Relationships and Related other highest paid executive officers and and (b) its officers and other persons, naming them
directors. wherever such remuneration exceeded $25,000
Transactions Disclosure during any such year.’’ Section 12(b) of the
A. Transactions with Related Persons Closely related to executive officer Exchange Act as enacted required disclosure of ‘‘(D)
1. Broad Principle for Disclosure and director compensation is the the directors, officers, and underwriters, and each
a. Indebtedness participation by executive officers, security holder of record holding more than 10 per
b. Definitions directors, significant shareholders and centum of any class of any equity security of the
2. Disclosure Requirements issuer (other than an exempted security), their
other related persons in financial remuneration and their interests in the securities of,
3. Exceptions transactions and relationships with the and their material contracts with, the issuers and
B. Procedures for Approval of Related company. We are also proposing to any person directly or indirectly controlling or
Person Transactions controlled by, or under direct or indirect common
C. Promoters
revise our disclosure rules regarding
control with the issuer;’’ and ‘‘(E) remuneration to
D. Corporate Governance Disclosure related party transactions and director others than directors and officers exceeding $20,000
E. Treatment of Specific Types of Issuers independence and board committee per annum.’’
1. Small Business Issuers functions. 40 In 1938, the Commission promulgated its first
2. Foreign Private Issuers Finally, some compensation executive and director compensation disclosure
rules for proxy statements. Release No. 34–1823
3. Registered Investment Companies arrangements must be disclosed under (Aug. 11, 1938). At different times thereafter, the
F. Conforming Amendments our recently revised rules relating to Commission has adopted rules mandating narrative,
1. Regulation Blackout Trading Restriction current reports on Form 8-K. We tabular, or combinations of narrative and tabular
2. Rule 16b-3 Non-Employee Director propose to reorganize and more disclosure as the best method for presenting
Definition appropriately focus our requirements on compensation disclosure in a manner that is clear
3. Other Conforming Amendments and useful to investors. See e.g., Release No. 34–
VI. Plain English Disclosure
the type of compensation information 3347 (Dec. 18, 1942) [7 FR 10653] (introducing first
VII. Transition that should be disclosed on a real-time tabular disclosure); Release No. 34–4775 (Dec. 11,
basis. 1952) [17 FR 11431] (introducing separate table for
VIII. Paperwork Reduction Act pensions and deferred remuneration); Uniform and
A. Background Since the enactment of the Securities Integrated Reporting Requirements: Management
B. Summary of Information Collections Act and the Exchange Act,39 the Remuneration, Release No. 33–6003 (Dec. 4, 1978)
C. Paperwork Reduction Act Burden [43 FR 58151] (expanding tabular disclosure to
Estimates 39 Initially, disclosure requirements regarding cover all forms of compensation); and Disclosure of
1. Securities Act Registration Statements, executive and director compensation were set forth Executive Compensation, Release No. 33–6486
Exchange Act Registration Statements in Schedule A to the Securities Act and Section (Sept. 23, 1983) [48 FR 44467] (the ‘‘1983 Release’’)
12(b) of the Exchange Act, which list the type of (limiting tabular disclosure to cash remuneration).
and Exchange Act Annual Reports
information to be included in Securities Act and 41 Executive Compensation Disclosure, Release
2. Exchange Act Current Reports Exchange Act registration statements. Item 14 of No. 33–6962 (Oct. 16, 1992) [57 FR 48125] (the
D. Request for Comment Schedule A called for disclosure of the ‘‘1992 Release’’); See also Executive Compensation
IX. Cost-Benefit Analysis ‘‘remuneration, paid or estimated to be paid, by the Disclosure; Securityholder Lists and Mailing
A. Background issuer or its predecessor, directly or indirectly, Requests, Release No. 33–7032 (Nov. 22, 1993) [58
B. Summary of Proposals during the past year and ensuing year to (a) the FR 63010], at Section II.
the current requirements rather than potential sources of future gains, with a amendment of, and termination of,
discarding them. However, today’s focus on compensation-related equity material definitive agreements entered
proposals do represent a thorough interests that were awarded in prior into outside the ordinary course of
rethinking of our current rules that years (and disclosed as current business within four business days of
would combine a broader-based tabular compensation for those years) and are the triggering event. Under our pre-
presentation with improved narrative ‘‘at risk,’’ as well as recent realization on existing definitions of material
disclosure supplementing the tables. these interests, such as through vesting contracts, many agreements regarding
This proposed approach would promote of restricted stock and similar executive compensation are deemed to
clarity and completeness of numerical instruments or the exercise of options be material agreements entered into
information through an improved and similar instruments; and outside the ordinary course, and when,
tabular presentation, continue to • Retirement and other post- for purposes of consistency, we adopted
provide the ability to make comparisons employment benefits, including those definitions for use in the
using tables, and call for material retirement and defined contribution and expanded Form 8–K requirements, we
qualitative information regarding the other deferred compensation plans, incorporated all of these executive
manner and context in which other retirement benefits and other post- compensation agreements into the
compensation is awarded and earned. employment benefits, such as those current disclosure requirements.
The proposals that we publish for payable in the event of a change in Therefore, many agreements regarding
comment today would require that all control. executive compensation, including
elements of compensation must be We propose to require improved some not related to named executive
disclosed. We also seek to structure the tabular disclosure for each of the above officers, are required to be disclosed
revised requirements sufficiently three categories that would be within four business days of the
broadly so that, if they are adopted, they supplemented by appropriate narrative applicable triggering event. Consistent
will continue to operate effectively as that provides material information with our intent in adopting the
new forms of compensation are necessary to an understanding of the expanded Form 8–K to capture only
developed in the future. information presented in the individual events that are unquestionably or
Under our proposals, compensation tables.43 We are also proposing a new presumptively material to investors, we
disclosure would begin with a narrative disclosure requirement of the total believe it is appropriate to modify the
providing a general overview. Much like compensation and job description of up Form 8–K requirements.
the overview that we have encouraged to an additional three most highly We believe that executive and director
companies to provide with their compensated employees who are not compensation is closely related to
Management’s Discussion and Analysis executive officers or directors but who financial transactions and relationships
of Financial Condition and Results of earn more than the highest paid involving companies and their directors,
Operations (MD&A),42 the proposed executive officers. executive officers and significant
Compensation Discussion and Analysis Finally, we propose a director shareholders and respective immediate
would call for a discussion and analysis compensation table that is similar to the family members. Disclosure
of the material factors underlying proposed Summary Compensation requirements regarding these matters
compensation policies and decisions Table.44 historically have been interconnected,
reflected in the data presented in the We also propose to modify some of
given that relationships among these
tables. This overview would address in the recently expanded Form 8–K
parties and the company can include
one place these factors with respect to requirements regarding compensation.
transactions that involve compensation
both the separate elements of executive Form 8–K requires disclosure on a
or analogous features. Such disclosure
compensation and executive current basis of the entry into,
also represents material information in
compensation as a whole. evaluating the overall relationship with
43 As discussed in more detail below, this
Following the Compensation a company’s executive officers and
narrative disclosure, together with the
Discussion and Analysis, we propose to Compensation Discussion and Analysis noted directors. Further, this disclosure
organize detailed disclosure of above, would replace the currently required provides material information regarding
executive compensation into three Compensation Committee Report and the
the independence of directors. The
broad categories: Performance Graph. Unlike the current
requirements under which both the report and the current related party transaction
• Compensation with respect to the
graph, although physically included in the proxy disclosure requirements were adopted
last fiscal year (and the two preceding statement, need only be furnished to the piecemeal over the years and were
fiscal years), as reflected in a revised Commission, the proposed narrative disclosure,
combined into one disclosure
Summary Compensation Table that along with the rest of the proposed executive officer
and director compensation, would be company requirement beginning in 1982.45 In
presents compensation paid currently or
disclosure filed with the Commission. light of the many developments since
deferred (including options, restricted Current Item 402(a)(9) of Regulation S–K provides then, including the increasing focus on
stock and similar grants) and that the Compensation Committee Report and
corporate governance and director
compensation consisting of current Performance Graph ‘‘shall not be deemed to be
‘‘soliciting material’’ or to be ‘‘filed’’ with the independence, we believe it is necessary
earnings or awards that are part of a
Commission or subject to Regulations 14A or 14C to revise our requirements. Today’s
plan, and as supplemented by two [17 CFR 240.14a–1 et seq. or 240.14c–1 et seq.], proposals include amendments to
tables providing back-up information for other than as provided in this item, or to the
update, clarify and slightly expand the
certain data in the Summary liabilities of section 18 of the Exchange Act [15
U.S.C. 78r], except to the extent that the registrant related party transaction disclosure
Compensation Table;
• Holdings of equity-related interests specifically requests that such information be requirements. The proposed
treated as soliciting material or specifically amendments would fold into the
that relate to compensation or are
incorporates it by reference into a filing under the

Securities Act or the Exchange Act.’’
disclosure requirements for related
42 Item 303 of Regulation S–K [17 CFR 229.303]. 44 We made similar proposals, which we did not party transactions the currently separate
See also Commission Guidance Regarding act on, regarding director compensation in 1995.
Management’s Discussion and Analysis of Financial Streamlining and Consolidation of Executive and 45 Disclosure of Certain Relationships and
Condition and Results of Operations, Release No. Director Compensation Disclosure, Release No. 33– Transactions Involving Management, Release No.
33–8350 (Dec. 19, 2003) [68 FR 75055], at Section 7184 (Aug. 6, 1995) [60 FR 35633] (the ‘‘1995 33–6441 (Dec. 2, 1982) [47 FR 55661] (the ‘‘1982
III.A. Release’’), at Section I.B. Release’’).
disclosure requirement regarding reasoning behind this approach remains overview that would provide narrative
indebtedness of management and fundamentally sound, significant disclosure that puts into context the
directors.46 Further, we propose a changes are appropriate. Much of the compensation disclosure provided
requirement that calls for a narrative concern with the current tables is also elsewhere.54 This overview would
explanation of the independence status their strength: they are highly formatted explain material elements of the
of directors under a company’s director and rigid.50 Thus, information not particular company’s compensation for
independence policies, consistent with specifically called for in the tables is named executive officers by answering
recent significant changes to the listing sometimes not provided. For example, the following questions:
standards of the nation’s principal the highly formatted and specific • What are the objectives of the
securities trading markets.47 We also approach has led some to suggest that company’s compensation programs?
propose to consolidate this and other items that do not fit squarely within a • What is the compensation program
corporate governance disclosure ‘‘box’’ specified by the rules need not be designed to reward and not reward?
requirements regarding director disclosed.51 As another example, • What is each element of
independence and board committees because the tables do not call for a compensation?
into a single expanded disclosure single figure for total compensation, that • Why does the company choose to
item.48 information is generally not provided, pay each element?
In order to ensure that these amended although there is considerable • How does the company determine
requirements result in disclosure that is commentary indicating that a single the amount (and, where applicable, the
clear, concise and understandable for total figure is high on the list of formula) for each element?
investors, we propose to add Rules 13a– information that some investors wish to • How does each element and the
20 and 15d–20 under the Exchange Act have. To preserve the strengths of the company’s decisions regarding that
to require that most of the disclosure current approach and build on them, we element fit into the company’s overall
provided in response to the amended propose several steps: compensation objectives and affect
items be presented in plain English. • First, retaining the tabular approach decisions regarding other elements?
This proposal would extend the plain to provide clarity and comparability 1. Intent and Operation of the Proposed
English requirements currently while improving the tabular disclosure Compensation Discussion and Analysis
applicable to portions of registration requirements;
statements under the Securities Act to • Second, confirming that all The purpose of the Compensation
the disclosure required under the elements of compensation must be Discussion and Analysis disclosure
amended items in Exchange Act reports included in the tables; would be to provide material
and proxy or information statements • Third, providing a format for the information about the compensation
incorporated by reference into those Summary Compensation Table that objectives and policies for named
reports. requires disclosure of a single figure for executive officers without resorting to
Finally, we propose to amend our total compensation; and boilerplate disclosure. The
beneficial ownership disclosure • Finally, requiring narrative Compensation Discussion and Analysis
requirements to require disclosure of disclosure comprising both a general is intended to put into perspective for
shares pledged by named executive discussion and analysis of investors the numbers and narrative that
officers, directors and director compensation and specific material follow it.
nominees, as well as directors’ information regarding tabular items The proposed Compensation
qualifying shares. where necessary to an understanding of Discussion and Analysis requirement
the tabular disclosure.52 would be principles-based, in that it
II. Executive and Director identifies the disclosure concept and
Compensation Disclosure A. Compensation Discussion and
Analysis provides several illustrative examples.
As discussed above, executive and The application of a particular example
director compensation disclosure has We propose requiring a new must be tailored to the company.
been required since 1933, and the Compensation Discussion and Analysis However, the scope of the
section.53 This section would be an
Commission has had disclosure rules in
this area since 1938. In 1992, the we are proposing revisions to the rules so that, to
50 See, e.g., Council of Institutional Investors’ the extent material, additional narrative disclosure
Commission proposed and adopted Discussion Paper on Executive Pay Disclosure, would be provided following certain tables to
substantially revised rules that embody Executive Compensation Disclosure: How It Works supplement the disclosure in the table. See, e.g.,
our current requirements.49 In doing so, Now, How It Can Be Improved, at 11 (available at Section II.B.3., discussing the narrative disclosure
www.cii.org/site_files/pdfs/ to the Summary Compensation Table and
the Commission moved away from CII%20pay%20primer%20edited.pdf). supplemental tables. We are also proposing
narrative disclosure and back to using 51 For examples, see, e.g., The Corporate Counsel disclosure of compensation committee procedures
tables that permit comparability from (Sept.–Oct. 2005) at 6–7; The Corporate Counsel and processes as well as information regarding
year to year and from company to (Sept.–Oct. 2004) at 7; but see Alan L. Beller, compensation committee interlocks and insider
company. We believe that while the Director, Division of Corporation Finance, U.S. participation in compensation decisions as part of
Securities and Exchange Commission, Remarks proposed Item 407 of Regulation S–K. See Section
Before Conference of the NASPP, The Corporate V.D., below.
46 Related party transactions are currently
Counsel and the Corporate Executive (October 20, 54 See Jeffrey N. Gordon, Executive
disclosed under Items 404(a) of Regulations S–K 2004) (indicating that the explicit language of the Compensation: What’s the Problem, What’s the
and S–B. Indebtedness is currently disclosed under current rules requires disclosure of such items), Remedy? The Case for Compensation Discussion
Item 404(c) of Regulation S–K. available at www.sec.gov/news/speech/ and Analysis, 30 J. Corp. L. (forthcoming Spring
47 See, e.g., NASD and NYSE Rulemaking: spch102004alb.htm. 2006) (arguing that the SEC should require proxy
Relating to Corporate Governance, Release No. 34– 52 The discussion that follows focuses on changes
disclosure that includes a ‘‘Compensation
48745 (Nov. 4, 2003) [68 FR 64154] (the ‘‘NASD and to Item 402 of Regulation S–K, with Section II.C.1 Discussion and Analysis’’ section that collects and
NYSE Listing Standards Release’’). This proposal explaining the different modifications proposed for summarizes all the compensation elements for
would replace our existing disclosure requirement Item 402 of Regulation S–B. References throughout senior executives, providing a ‘‘bottom line
about director relationships that can affect the following discussion are to current or proposed assessment’’ of the different compensation elements
independence. Items of Regulation S–K, unless otherwise and an explanation as to why the board thinks such
48 Proposed Item 407 of Regulation S–K and indicated. compensation is warranted). Also available at
Regulation S–B. 53 Proposed Item 402(b). In addition to the http://papers.ssrn.com/sol3/
49 1992 Release. narrative Compensation Discussion and Analysis, papers.cfm?abstract_id=686464.
Compensation Discussion and Analysis The Compensation Discussion and 3. ‘‘Filed’’ Status of Compensation
is intended to be comprehensive, so that Analysis should be sufficiently precise Discussion and Analysis
it would call for discussion of post- to identify material differences in The Compensation Discussion and
termination as well as in-service compensation policies and decisions for Analysis will be considered a part of the
compensation arrangements.55 individual named executive officers proxy statement and any other filing in
Boilerplate disclosure would not where appropriate. Where policies or which it is included. Unlike the current
comply with the proposed item. decisions are materially similar, officers Compensation Committee Report and
Examples of the issues that would could be grouped together. Where, Performance Graph, which would be
potentially be appropriate for the however, the policy for an executive eliminated under our proposals, as
company to address in given cases in officer is materially different, for discussed below, the proposed
the Compensation Discussion and example in the case of a principal Compensation Discussion and Analysis
Analysis include the following: executive officer, his or her would be soliciting material and would
• Policies for allocating between long- compensation would be discussed be filed with the Commission.
term and currently paid out separately. Therefore, it would be subject to
compensation; Regulations 14A or 14C and to the
• Policies for allocating between cash 2. Proposed Instructions to
liabilities of Section 18 of the Exchange
and non-cash compensation, and among Compensation Discussion and Analysis
Act.57 In addition, to the extent that the
different forms of non-cash Compensation Discussion and Analysis
compensation; We are proposing instructions to
make clear that the Compensation and any of the other disclosure
• For long-term compensation, the regarding executive officer and director
basis for allocating compensation to Discussion and Analysis should focus
on the material principles underlying compensation or other matters is
each different form of award; included or incorporated by reference
• For equity-based compensation, the company’s executive compensation
policies and decisions, and the most into a periodic report, the disclosure
how the determination is made as to
important factors relevant to analysis of would be covered by the certifications
when the award is granted;
• What specific items of corporate those policies and decisions, without that principal executives officers and
performance are taken into account in using boilerplate language or repeating principal financial officers are required
setting compensation policies and the more detailed information set forth to make under the Sarbanes-Oxley Act
making compensation decisions; in the tables and related narrative of 2002.58
In adopting the current rules in 1992,
• How specific elements of disclosures that follow. We also propose
the Commission took into account
compensation are structured to reflect to include an instruction to make clear,
comments that the Compensation
these items of the company’s as is currently the case, that companies
Committee Report should be furnished
performance and the executive’s are not required to disclose target levels
rather than filed to allow for a more
individual performance; with respect to specific quantitative or
• The factors considered in decisions open and robust discussion in the
qualitative performance-related factors
to increase or decrease compensation reports.59 Little that we see in current
considered by the compensation
materially; Compensation Committee Reports
committee or the board of directors, or
• How compensation or amounts suggests that this treatment has resulted
any factors or criteria involving
realizable from prior compensation (e.g., in such discussions, or at least the more
confidential commercial or business
gains from prior option or stock awards) transparent disclosure that the
information, the disclosure of which comments suggested would result.
are considered in setting other elements would have an adverse effect on the
of compensation (e.g., how gains from Further, we believe that it is appropriate
company, similar to the instruction with for companies to take responsibility for
prior option or stock awards are respect to the Compensation Committee
considered in setting retirement disclosure involving board matters as
Report today. In applying this with other disclosure.
benefits); instruction, we intend the standard for
• The impact of accounting and tax companies to use when determining 4. Proposed Elimination of the
treatments of a particular form of whether disclosure would have an Performance Graph and the
compensation; adverse effect on the company to be the Compensation Committee Report
• The company’s equity or other same one that would apply when
security ownership requirements or In light of the Compensation
companies request confidential Discussion and Analysis proposal, we
guidelines (specifying applicable treatment of confidential trade secrets
amounts and forms of ownership), and propose to eliminate the Performance
and commercial or financial information Graph and the Compensation
any company policies regarding hedging
that otherwise is required to be Committee Report that currently are
the economic risk of such ownership;
disclosed in registration statements, required by our rules.60 The graph and
• Whether the company engaged in
periodic reports and other documents
any benchmarking of total
compensation or any material element filed with us.56 Similarly, to the extent 57 15 U.S.C. 78r.
of compensation, identifying the a performance target has otherwise been 58 Exchange Act Rules 13a–14 [17 CFR 240.13a–
disclosed publicly, disclosure under 14] and 15d–14 [17 CFR 240.15d–14]. See also
benchmark and, if applicable, its Certification of Disclosure in Companies’ Quarterly
components (including component Item 402 would be required. and Annual Reports, Release No. 34–46427 (Aug.
companies); and 29, 2002) [67 FR 57275], at note 35 (the
‘‘Certification Release’’) (stating that ‘‘the
• The role of executive officers in the 56 See Securities Act Rule 406 [17 CFR 230.406]
certification in the annual report on Form 10–K or
and Exchange Act Rule 24b–2 [17 CFR 240.24b–2]
compensation process.
(incorporating the criteria for non-disclosure set 10–KSB would be considered to cover the Part III
forth in Exemption 4 of the Freedom of Information information in a registrant’s proxy or information
55 Forward looking information in the Act [5 U.S.C. 552(b)(4)] and Exchange Act Rule statement as and when filed’’).
59 1992 Release, at Section II.H.
Compensation Discussion and Analysis would fall 80(b)(4) [17 CFR 200.80(b)(4)]). Today’s proposed
with the safe harbor for disclosure of such rules, like the current rules, would not require a 60 The Compensation Committee Report is
information. See Securities Act Section 27A [15 company to seek confidential treatment under the currently required by Item 402(k) and the
U.S.C. 77z–2] and Exchange Act Section 21E [15 procedures in Securities Act Rule 406 and Performance Graph is currently required by Item
U.S.C. 78u–5]). Exchange Act Rule 24b–2. 402(l).
the report were intended to be potential adverse competitive effect on 3. Retirement and other post-
intertwined and their purpose was to the company of their disclosure? Why or employment compensation, including
show the relationship, if any, between why not? If so, what should be the retirement and deferred compensation
compensation and corporate standard for exclusion? Are there any plans, other retirement benefits and
performance, as reflected by stock price. other items that should be excludable other post-employment benefits, such as
Unfortunately, the Compensation based on potential adverse competitive those payable in the event of a change
Committee Report today often results in effect on the company of their in control.66
boilerplate disclosure that is of little disclosure? Reorganizing the tables along these
benefit to investors.61 Further, given the • Should we retain the Performance themes should help investors
widespread availability of stock Graph? understand how compensation
performance information about components relate to each other. At the
B. Compensation Tables
companies, industries and indexes same time we would retain the ability
through business-related Web sites or We believe that much about the for investors to use the tables to
similar sources, we believe that the tabular approach to eliciting compare compensation from year to
requirement for the Performance Graph compensation disclosure is sound.62 We year and from company to company.
is outdated, particularly since the also believe, however, that the tables We note that in more clearly
disclosure in the Compensation should be reorganized and streamlined organizing the compensation tables to
Discussion and Analysis regarding the to provide a clearer and more logical explain how the elements relate to each
elements of corporate performance that picture of total compensation and its other, we may in some situations be
a given company’s policies might reach elements for named executive officers. requiring disclosure of both amounts
is intended to allow broader discussion We propose reorganizing the earned (or potentially earned) and
than just that of the relationship of compensation tables and their related amounts subsequently paid out. This
compensation to the performance of the narrative disclosure into three broad approach raises the risk of ‘‘double
company as reflected by stock price. categories: counting’’ some elements of
1. Compensation with respect to the compensation. However, we believe the
Request for Comment last fiscal year (and the two preceding risk inherent in such double disclosure
• Does the proposed Compensation fiscal years), as reflected in a revised is outweighed by the clearer and more
Discussion and Analysis provide Summary Compensation Table that complete picture it would provide to
companies with the same flexibility as presents compensation paid currently or investors. We would encourage
MD&A to provide a clear picture to deferred (including options, restricted companies to use the narrative
investors? stock and similar grants) and following the tables (and where
• Are there any further changes that compensation consisting of current appropriate the Compensation
we can make to avoid boilerplate earnings or awards that are part of a Discussion and Analysis) to explain
disclosure about executive plan, and as supplemented by two how disclosures relate to each other in
compensation? tables providing back-up information for
• Is there any significant impact by their particular circumstances.
certain data in the Summary
not having the report over the names of Compensation Table; 63 1. Compensation to Named Executive
the compensation committee of the 2. Holdings of equity-based interests Officers in the Last Three Completed
board of directors? If so, please explain that relate to compensation or are Fiscal Years—The Summary
in detail. potential sources of future Compensation Table and Related
• Would any significant impact result compensation, focusing on Disclosure
from treating the Compensation compensation-related equity-based
Discussion and Analysis as filed and not Under today’s proposals, the
interests that were awarded in prior Summary Compensation Table would
furnished? A commenter that prefers years 64 and are ‘‘at risk,’’ as well as
furnishing over filing should describe continue to serve as the principal
recent realization on these interests, disclosure vehicle regarding executive
any benefits that would be obtained by such as through vesting of restricted
treating the material as furnished. In compensation. This table, with the
stock or the exercise of options and proposed revisions, would show the
particular, such a commenter should similar instruments; 65 and
describe those benefits in the context of named executive officers compensation
the expected benefits of the 62 The tabular disclosure and related narrative
for each of the last three years, whether
Commission’s decision in 1992 to treat disclosure under proposed Item 402 would apply,
or not actually paid out. Consistent with
the report of the Compensation as does existing Item 402, to named executive current requirements, the revised
Committee as furnished and should officers. As discussed below in Section II.B.6.a., we Summary Compensation Table would
are proposing certain changes to the definition of continue to require disclosure of
address whether and why those benefits named executive officer.
were achieved or not achieved. 63 The two tables that would supplement the
compensation for each of the company’s
• Are there any other specific items Summary Compensation Table would be the Grants last three completed fiscal years.67
we should list in the rule as possibly of Performance-Based Awards Table, discussed
below in Section II.B.2.a., and the Grants of All Stock Vested Table discussed below in Section
material information? Are there any Other Equity Awards Table, discussed below in II.B.4.b.
items that are listed that should not be? Section II.B.2.b. A proposed narrative disclosure 66 The proposed disclosure regarding retirement
• Are there any items that we should requirement accompanying these three tables is and post-employment compensation would be
explicitly mandate be disclosed by discussed below in Section II.B.3. required in the Retirement Plan Potential Annual
64 Under the proposals, these interests would be Payments and Benefits Table, discussed below in
every issuer?
disclosed as current compensation for those prior Section II.B.5.a., the Nonqualified Defined
• Should performance targets
years. Contribution and Other Deferred Compensation

continue to be excludable based on the 65 Information regarding holdings of such equity- Plans Table, discussed below in Section II.B.5.b.,
based interests that relate to compensation would and the narrative disclosure requirement for other
61 See Martin D. Mobley, Compensation be disclosed in the Outstanding Equity Awards at potential post-employment payments discussed
Committee Reports Post-Sarbanes-Oxley: Fiscal Year-End Table, discussed below in Section below in Section II.B.5.c.
Unimproved Disclosure for Executive II.B.4.a. Information regarding realization on 67 Current Instruction to Item 402(b), permitting
Compensation Policies and Practices, 2005 Colum. holdings of equity-related interests would be exclusion of information for fiscal years prior to the
Bus. L. Rev. 111 (2005). required to be disclosed in the Option Exercises and Continued
However, the proposals would require table. As described in greater detail disclosure would follow the three
disclosure of a figure representing total below, the proposals also provide for tables, providing disclosure of material
compensation, as reflected in other two supplementary tables disclosing information necessary to an
columns of the Summary Compensation additional information about grants of understanding of the information
Table, and would simplify the performance-based awards and all other disclosed in the tables.
presentation from that in the current equity awards, respectively. Narrative
SUMMARY COMPENSATION TABLE

Non-stock All other
Stock Option incentive
Total Salary Bonus compensa-
Name and principal position Year awards awards plan com-
($) ($) ($) tion
($) ($) pensation ($)
($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
PEO 68 .................................. —
—
—
PFO 69 .................................. —
—
—
A ........................................... —
—
—
B ........................................... —
—
—
C ........................................... —
—
—
Request for Comment be disclosed in dollars and that a total • Should total compensation be
of all compensation be provided.70 The calculated in a different manner from
• Should the Summary Compensation
new column disclosing total that proposed? For example, with
Table continue as it currently does to
compensation would appear as the first respect to stock-based and option-based
require disclosure of compensation for
column providing compensation awards, should exercise or vesting date
each of the company’s last three fiscal
information—column (c).71 This column valuations be used instead?
years, or is only the last completed • Is the proposed new instruction
would aggregate the total dollar value of
fiscal year necessary in light of the which would direct that all
each form of compensation quantified in
availability of historical data on compensation values are to be reported
the columns that would follow it
compensation through the in U.S. dollars necessary? Are there
(columns (d) through (i)). The proposed
Commission’s EDGAR system and other particular circumstances we should
‘‘Total’’ column would respond to
sources? address regarding disclosure of
concerns that investors, analysts and
• Should we require all of the other users of Item 402 disclosure compensation in foreign currencies?
proposed disclosures discussed below cannot compute aggregate amounts of
in addition to those in the Summary b. Salary and Bonus Columns
compensation using current disclosure
Compensation Table, or does the in a manner that is accurate or is The next columns we are proposing
Summary Compensation Table itself comparable across years or companies. are the salary and bonus columns
provide an adequate picture of (columns (d) and (e), respectively),
compensation? Is there some other Request for Comment which would be retained substantially
combination of the Summary in their current form. However, we
Compensation Table with other • Should we include a requirement to propose certain changes that should
proposed disclosures that would fulfill disclose a total compensation amount? give an investor a clearer picture of the
our objectives? • Will a total compensation number total amount earned, the amount
provide investors with meaningful deferred for the year, and the total
a. Total Compensation Column
information about compensation? If not, amount of deferred compensation that
We propose to modify the Summary why? Would disclosure of a total may be paid out at a later date.
Compensation Table to provide a clearer compensation number result in any Compensation that is earned, but for
picture of total compensation. We unintended consequences? If so, how which payment will be deferred, would
propose requiring that all compensation can they be mitigated? be included in the salary, bonus or other
last completed fiscal year if the registrant was not 68 ‘‘PEO’’ refers to principal executive officer. See disclosed in per share increments rather than in
a reporting company pursuant to Exchange Act Section II.B.6.a. below for a description of the dollar amounts. The instruction would further
Sections 13(a) or 15(d) at any time during that year, proposed named executive officers for whom require, where compensation was paid or received
unless the registrant previously was required to compensation disclosure would be required. in a different currency, footnote disclosure
provide information for any such year in response
69 ‘‘PFO’’ refers to principal financial officer. identifying that currency and describing the rate
70 Proposed Instruction 2 to Item 402(c) (requiring and methodology used for conversion to dollars.
to a Commission filing requirement, would be 71 Columns (a) and (b) would, as is currently the
retained and redesignated as proposed Instruction all compensation values in the Summary
Compensation Table to be reported in dollars). case, specify the executive officer and the year in
1 to Item 402(c).
Currently, some stock-based compensation is question.
column, as appropriate.72 A new amount and a new total compensation Payment (FAS 123R) for financial
instruction, applicable to the entire figure including that salary or bonus reporting purposes. Stock awards
Summary Compensation Table, would amount. subject to performance-based conditions
provide that if receipt of any amount of would also be included in this column
Request for Comment
compensation is currently payable to ensure consistent reporting of stock
(which must be included in the • Is the proposed presentation of awards and to ensure their inclusion in
appropriate column) but has been deferred compensation in the Summary the proposed Summary Compensation
deferred for any reason, the amount so Compensation Table and related Table.77
deferred must be disclosed in a footnote footnotes, along with the proposals Awards of options, stock appreciation
to the applicable column.73 As outlined below, the best means for right grants, and similar stock-based
described below, the amount deferred communicating the portion of compensation instruments that have
would also generally be reflected as a compensation that is deferred? option-like features (proposed column
contribution in the deferred • Are there ways that we could better (g)) would be disclosed in a manner
compensation presentation.74 The new clarify how the amounts that would be similar to the proposed treatment of
footnote disclosure of amounts deferred identified as deferred in a footnote to stock and other stock-based awards.78
would help to clarify the extent to the Summary Compensation Table Instead of the current disclosure of the
which amounts disclosed in the relate to the amounts that would be number of securities underlying the
proposed Nonqualified Defined required in the Nonqualified Defined awards, this column would require
Contribution and Other Deferred Contribution and Other Deferred disclosure of the grant date fair value of
Compensation Plans Table described Compensation Plans Table? the award as determined pursuant to
below represent compensation already • Is the proposed change to Form 8– FAS 123R for financial reporting
reported, rather than additional K to eliminate the delay in disclosing purposes. In order to calculate a total
compensation. salary or bonus when they cannot be dollar amount of compensation, the
We are also proposing a change calculated as of the most recent value rather than the number of
eliminating the delay that exists under practicable date appropriate? securities underlying an award must be
current rules where salary and bonus for c. Plan-Based Awards used. The FAS 123R valuation would be
the most recent fiscal year are used whether the award itself is in the
determined following compliance with The next three proposed columns— form of stock, options or similar
Item 402 disclosure. Under our Stock Awards, Option Awards and Non- instruments or the award is settled in
proposal, where salary and bonus Stock Incentive Plan Compensation — cash but the amount of payment is tied
cannot be calculated as of the most cover plan-based awards. to performance of the company’s stock.
recent practicable date, a current report i. Stock Awards and Option Awards We propose to eliminate the current
under Item 5.02 of Form 8–K would be Columns requirement in the Options/SAR Grants
triggered by a payment, decision or in Last Fiscal Year Table to report the
The Stock Awards Column (proposed potential realizable value of each option
other occurrence as a result of which
column (f)) would disclose stock-related grant under 5% or 10% increases in
such amounts become calculable in
awards that derive their value from the value or the present value of each grant
whole or part.75 The Form 8–K would
company’s equity securities or permit (computed under any option pricing
include disclosure of the salary or bonus settlement by issuance of the company’s model),79 because these alternative
72 This is the case today for salary and bonus.
equity securities, such as restricted disclosures would no longer be
This aspect of current Instruction 1 to Item stock, restricted stock units, phantom necessary if the grant date fair value of
402(b)(2)(iii)(A) and (B) will be expanded and stock, phantom stock units, common equity-based awards is included in the
redesignated as Proposed Instruction 4 to Item stock equivalent units or other similar
402(c). Summary Compensation Table.
73 Currently, the requirement is triggered only if
instruments that do not have option-like A new instruction would require a
the officer elects the deferral. We propose to revise features.76 Valuation would be based on footnote referencing the discussion of
this to cover all deferrals no matter who has the grant date fair value of the award the relevant assumptions in the notes to
initiated them. determined pursuant to Financial the company’s financial statements or to
74 See Section II.B.5.b., describing the
Accounting Standards Board Statement the discussion of relevant assumptions
Nonqualified Defined Contribution and Other
Deferred Compensation Plans Table. Disclosure of
of Financial Accounting Standards No. in the MD&A.80 The same proposed
these amounts as contributions would be required 123 (revised 2004), Share-Based instruction would also provide that the
for nonqualified deferred compensation plans. This referenced sections will be deemed to be
disclosure would not be required for qualified 76 Generally speaking, a restricted stock award is
plans. Nonqualified deferred compensation plans an award of stock subject to vesting conditions,
part of the disclosure provided pursuant
and arrangements provide for the deferral of such as performance-based conditions or conditions to Item 402. The referenced sections
compensation that does not satisfy the minimum based on continued employment for a specified containing this disclosure are required
coverage, nondiscrimination and other rules that period of time. This type of award is referred to an in the company’s annual report to
‘‘qualify’’ broad-based plans for favorable tax ‘‘nonvested equity shares’’ in FAS 123R. Phantom
treatment under the Internal Revenue Code. stock, phantom stock units, common stock 77 These performance-based stock awards can
75 Proposed Instruction 3 to Item 5.02(e) of Form equivalent units and other similar awards are
8–K and proposed Instruction 1 to Item 402(c)(2)(iv) typically awards where an executive obtains a right currently be reported at the company’s election as
and (v). Currently, in the event that such amounts to receive payment in the future of an amount based incentive plan awards. See current Instruction 1 to
are not determinable at the most recent practicable on the value of a hypothetical, or notional, amount Item 402(b)(2)(iv). Our proposal would eliminate
date, they are generally reported in the annual of shares of common equity (or in some cases stock this option. See the discussion of what are
report on Form 10–K or proxy statement for the based on that value). To the extent that the terms considered performance-based conditions in note
following fiscal year. We believe providing the of phantom stock, phantom stock units, common 87, below.
78 A stock appreciation right usually gives the

information more quickly is appropriate and are stock equivalents or other similar awards include
therefore proposing the use of a current report on option-like features, the awards would be required executive the right to receive the value of the
Form 8–K. Proposed Instruction 1 to Item to be included in the Option Awards column. increase in the price of a specified number of shares
402(c)(2)(iv) and (v) would require that the Currently, restricted stock awards are valued in the over a specified period of time. These awards may
company disclose in a footnote that the salary or Summary Compensation Table by multiplying the be settled in case or in shares.
79 Current Item 402(c)(2)(vi).
bonus is not calculable through the latest closing market price of the company’s unrestricted
practicable date and the date that the salary or stock on the date of grant by the number of shares 80 Proposed Instruction 1 to Item 402(c)(2)(vi) and
bonus is expected to be determined. awarded. (vii).
shareholders that must precede or categories.84 New instructions would award has a performance condition,
accompany the company’s proxy require footnote identification and then the details on the estimated future
statement.81 In the case of Internet quantification of all earnings, whether payouts will be disclosed in a second
disclosure of proxy materials, the earnings were paid during the fiscal separate supplemental table covering
companies could provide hyperlinks year, payable during the period but grants of performance-based awards.88
from the proxy statement to the deferred, or payable by their terms at a
Request for Comment
referenced sections contained in the later date but earned during the year.85
annual report.82 Previously awarded options or • Is the proposed presentation of
Under FAS 123R, the compensation freestanding stock appreciation awards stock awards that do not have option-
cost is initially measured based on the that the company repriced or otherwise like features in the Summary
grant date fair value of an award.83 The materially modified during the last Compensation Table the best means for
key measurement principle behind the fiscal year would be disclosed based on presenting restricted stock and similar
accounting standard, measuring stock- the total fair value of the award as so awards?
based payments at grant date fair value, modified.86 • Is FAS 123R the appropriate
is also followed in our proposals. Under If the award has no performance approach for valuing equity-based
FAS 123R, the compensation cost conditions, but instead vests with the awards, including restricted stock,
calculated as the fair value is generally passage of time and continued restricted stock units, phantom stock,
recognized for financial reporting employment, then the number of shares phantom stock units, common stock
purposes over the period in which the underlying the award and other details equivalent units, options, stock
employee is required to provide service regarding the award would be disclosed appreciation rights and other similar
in exchange for the award (generally the in a separate table covering grants of awards for purposes of Item 402
vesting period). Under our proposals, equity awards supplementing the disclosure? If not, why not and what
the compensation cost calculated as the Summary Compensation Table.87 If the other valuation methods would be
grant date fair value will be shown as appropriate? Would any other valuation
compensation in the year in which the 84 These earnings are currently reportable in the method provide the same
Other Annual Compensation or All Other comparability? If a different approach
grant is made. We believe that this Compensation columns of the Summary
approach is more consistent with the Compensation Table. Current Item
were used, would investors be confused
purpose of executive compensation 402(b)(2)(iii)(C)(2) requires disclosure of earnings by differences between the grant date
disclosure. We are in effect proposing on restricted stock, options, and SARs paid during fair value for financial reporting
the fiscal year (or payable during that period but purposes and the value in the
an approach that subscribes to the deferred at the election of the named executive
measurement method of FAS 123R officer), to the extent those earnings are above-
compensation tables? 89
based on grant date fair value, but that market or preferential. The proposal would require • Should the expected term
also provides for immediate disclosure disclosure of all such earnings, rather than merely assumption used in computing the grant
of compensation as preferable for any above-market or preferential portion. Current date fair value for financial statement
item 402(b)(2)(iii)(C)(3) requires similar disclosure purposes under FAS 123R also be used
compensation reporting purposes to the of all earnings on long-term incentive plan
timing of recognition of the compensation. See also current Item 402(b)(2)(v)(B) in measuring the value of an individual
compensation cost for the company’s and (C). named executive officer’s compensation
financial statement reporting purposes.
85 Proposed Instruction 3 to Item 402(c)(2)(vi) and for the purposes of Item 402? Or, should
(vii) and Proposed Instruction 2 to Item an expected term assumption used to
To consolidate related elements of 402(c)(2)(viii).
compensation, the Stock Awards and 86 See current instruction 3 to Item 402(b)(2)(iv)
determine an individual named
Option Awards columns would also and proposed Instruction 2 to Item 402(c)(2)(vi) and executive officer’s compensation be
require disclosure of the earnings on (vii). Under FAS 123R, unlike under our proposal, used if it differs from the expected term
outstanding awards in the respective only the incremental compensation cost is assumption used for FAS 123R
recognized for a modified award. purposes? 90 Should companies use the
87 See Section II.B.2.b., discussing the Grants of
81 See Exchange Act Rule 14a-3 [17 CFR 240.14a- All Other Equity Awards Table required by
3]. proposed Item 402(c). As defined in Appendix E of exercisability, or other pertinent factors used in
82 We recently proposed rules that would allow FAS 123R, a performance condition is ‘‘a condition determining the fair value of an award under a
companies and other persons to use the Internet to affecting the vesting, exercisability, exercise price share-based payment arrangement that relates to the
satisfy proxy material delivery requirements. or other pertinent factors used in determining the achievement of (a) a specified price of the issuer’s
Internet Availability of Proxy Materials, Release No. fair value of an award that relates to both (a) an shares or a specified amount of intrinsic value
34–52926 (Dec. 8, 2005) [70 FR 74597]. employee’s rendering service for a specified (either indexed solely to the issuer’s shares or (b) a
83 Under FAS 123R, the classification of an award explicitly or implicitly) period of time and (b) specified price of the issuer’s shares in terms of a
as an equity or liability award is an important achieving a specified performance target that is similar (or index of similar) equity security
aspect of the accounting because the classification defined solely by reference to the employer’s own (securities).’’
88 See Section II.B.2.a., discussing the Grants of
will affect the measurement of compensation cost. operations (or activities). Attaining a specified
Awards with cash-based settlement, repurchase growth rate in return on assets, obtaining regulatory Performance-Based Awards Table.
89 See, e.g., Jonathan Weil and Betsy McKay, Coke
features, or other features that do not allow an approval to market a specified product, selling
employee to bear the risks and rewards normally shares in an initial public offering or other Developed a New Way to Value Options, But
associated with share ownership for a specified financing event, and a change in control are Company Will Return to its Classic Formula, Wall
period of time would be classified as liability examples of performance conditions for puropses of St. J., Mar. 7, 2003, at C3 (highlighting potential
awards under FAS 123R. For an award classified as this Statement. A performance target also may be issue of using one valuation methodology for
an equity award under FAS 123R, the compensation defined by reference to the same performance financial statements and another for executive
cost recognized is fixed for a particular award, and measure of another entity or group of entities. For compensation disclosure).
absent modification, is not revised with subsequent example, attaining a growth rate in earnings per 90 FAS 123R requires a company to aggregate
changes in market prices or other assumptions used share that exceeds the average growth rate in individuals receiving awards into relatively
for purposes of the valuation. In contrast, liability earnings per share of other entities in the same homogeneous groups with respect to exercise and
awards are initially measured at fair value on the industry is a performance condition for purposes of post-vesting employment termination behaviors for
grant date, but for purposes of recognition in this Statement. A performance target might pertain the purpose of determining expected term; for
financial statement reporting are then re-measured either to the performance of the enterprise as a example executives and non-executives. Our
at each reporting date through the settlement date whole or to some part of the enterprise, such as a proposals today are not intended to change the
under FAS 123R. These re-measurements would not division or an individual employee.’’ An award also method used to value employee share options for
be the basis for executive compensation disclosure would be considered to have a performance purposes of FAS 123R or to affect the judgments as
unless the award has been modified, as described condition if it is subject to a market condition, to reasonable groups for purposes of determining
later in this proposal. which is ‘‘a condition affecting the exercise price, the expected term assumption required by GAS
full term rather than an expected term a company’s equity securities; those performance contingencies, is our
assumption for calculations for named awards would instead be disclosed in approach to include the amounts in the
executive officers? Would the the Stock Awards and Option Awards Summary Compensation Table when
complexity of such an approach for columns discussed above.92 earned appropriate? Are there particular
investors or the additional burden on Performance-based compensation under models or standards that would provide
companies outweigh any advantages, a long-term plan that is not tied to the a basis for measuring the value of these
such as possible increased performance of the company’s stock (but types of awards at grant date that we
comparability among companies, of instead is tied to other measures such as should consider incorporating into our
adjusting assumptions? a return on assets, return on equity, rules?
• Is the timing of reporting stock- performance of a division, or other such • Should earnings on outstanding
based compensation in our proposals measures) would be disclosed in the awards be reported as proposed in the
the best approach? Should stock-based Summary Compensation Table in the applicable award column or should they
compensation instead be reflected in year when the relevant specified be reported in another way, such as in
Item 402 according to the same time performance criteria under the plan are separate or different columns?
schedule by which it is recognized for satisfied and the compensation earned, d. All Other Compensation Column
a company’s financial statement whether or not payment is actually
reporting purposes? made to the named executive officer in The final column in the Summary
• Should the valuation method and that year. The grant of an award Compensation Table would disclose all
all of the assumptions regarding the (providing for future compensation if other compensation not required to be
valuation also be disclosed in the proxy such performance measures are included in any other column. This
statement when they are required to be satisfied) under such a plan would be approach would allow the capture of all
disclosed, described and analyzed disclosed in the supplemental Grants of current compensation in the Summary
elsewhere in a document furnished to Performance-Based Awards Table in the Compensation Table and also would
shareholders, including in the notes to year of grant, which would generally be allow a total compensation calculation.
the financial statements? some year prior to the year in which We confirm that disclosure of all
• We propose treating a modification performance-based compensation under compensation would clearly be required
of an award as a new award and the plan is reported in the Summary under the proposals.95
requiring disclosure of the total grant We propose to clarify the disclosure
Compensation Table.93 Because there is
date fair value at the time of required in the All Other Compensation
not one clearly required or accepted
modification. Would it be more Column (proposed column (i)) in two
standard for measuring the value at
appropriate to require only disclosure of principal respects:
grant date of these non-stock based • Consistent with the requirement
incremental compensation as is the
performance-based awards that reflects that the Summary Compensation Table
approach under FAS 123R?
the applicable performance
• Should we eliminate as proposed disclose all compensation, we would
the current instruction allowing contingencies, as there is for equity- state explicitly that compensation not
performance-based stock awards to be based awards with FAS 123R, we do not properly reportable in the other
reported at the company’s election as propose to include such a value in the columns reporting specified forms of
incentive plan awards? If not, please Summary Compensation Table, but compensation must be reported in this
explain whether the availability of this instead would continue the current column; and
election is helpful to and not confusing disclosure format of reflecting these • To simplify the Summary
to investors. items of compensation when earned.94 Compensation Table and eliminate
As with the Stock Awards and Option confusing distinctions between items
ii. Non-Stock Incentive Plan Awards columns, earnings on currently reported as ‘‘Annual’’ and
Compensation Column outstanding awards of other incentive ‘‘Long Term’’ compensation, we would
We propose that the Non-Stock plans would also be included in the move into this column all items
Incentive Plan Compensation column Non-Stock Incentive Plan Compensation currently reportable as ‘‘Other Annual
(proposed column (h)) would report the column. Compensation.’’ 96
dollar value of all other amounts earned Request for Comment We also propose that each item of
during the fiscal year pursuant to compensation included in the All Other
• Since there is not one clearly Compensation column that exceeds
incentive plans.91 This column would
required or accepted standard for $10,000 be separately identified and
be limited to awards where the relevant
measuring the value at grant date of quantified in a footnote. We believe that
performance measure under the
those cash awards that reflect the $10,000 threshold balances our
incentive plan is not based on the price
of the company’s equity securities or the desire to avoid disclosure of clearly de
92 Awards disclosed in this column are not
award may not be settled by issuance of covered by FAS 123R for financial reporting
minimis matters against the interests of
purposes because they do not involve share-based investors in the nature of items
123R. Under our proposals, where a company uses payment arrangements. Awards that involve share- comprising compensation. Each item of
more than one group, the measurement of grant date based payment arrangements would be disclosed in compensation less than that amount
fair value for purposes of Item 402 would be the Stock Awards or Option Awards columns, as
appropriate.
would be included in the column (other
derived using the expected term assumption for the
group that includes the named executive officers (or 93 See Section II.B.2.a., discussing the Grants of than aggregate perquisites and other
the group that includes directors for purposes of Performance-Based Awards Table. Under the
proposed Item 402(l)). proposals, once the disclosure has been provided in 95 The only exception, as discussed below, would
91 Proposed Item 402(c)(2)(viii). An incentive the Summary Compensation Table when the be perquisites and personal benefits if they
plan generally provides for compensation intended specified performance criteria have been satisfied aggregated less than $10,000 for a named executive.
to serve as an incentive for performance to occur and the compensation earned, and the grant of the The 1992 Release, at Section II.A.4, also noted ‘‘the
over a specific period, whether such performance award has been disclosed in the Grants of revised item includes an express statement that it
is measured by reference to financial performance Performance-Based Awards Table, no further requires disclosure of all compensation to the
of the company or an affiliate, the company’s stock disclosure would be required under proposed Item named executive officers and directors for services
price, or any other measure. See proposed Item 402 when payment is actually made to the named rendered in all capacities to the registrant and its
402(a)(6)(iii) for definitions of ‘‘incentive plan’’ and executive officer. subsidiaries.’’ See also current Item 402(a)(2).
‘‘non-stock incentive plan.’’ 94 Current Items 402(b)(2)(iv)(C) and 402(e). 96 Current Item 402(b)(2)(iii)(c).
personal benefits less than $10,000 as compensation that is deferred on a basis understanding of the company’s
discussed below), but would not be that is not tax-qualified or should we compensation obligations to named
required to be identified by type and require disclosure only of above-market executive officers, given that defined
amount.97 Items that would be disclosed or preferential earnings? If the latter, benefit plans guarantee what can be a
in the All Other Compensation column please explain why such an approach is lifetime stream of payments and allocate
would include, but would not be more useful or informative for investors risk of investment performance to the
limited to, the items discussed below. than our proposed approach. company and its shareholders. In
Request for Comment addition, commentators have noted that
ii. Increase in Pension Value
the absence of such a disclosure
• Should all compensation no matter We propose requiring in the All Other requirement creates an incentive to shift
how de minimis be required to be Compensation Column the aggregate of compensation to pensions, results in the
disclosed? Will companies be able to increase in actuarial value to the understatement of non-performance-
track this information without undue executive officer of defined benefit and based compensation, and distorts pay
burden? Is $10,000 the appropriate actuarial plans (including supplemental comparisons between executives and
threshold for separate identification and plans) accrued during the year.103 between companies.
quantification? An instruction would specify that this
disclosure applies to each plan that Request for Comment
i. Earnings on Deferred Compensation
provides for the payment of retirement • Is disclosure of any additional
We propose requiring disclosure in benefits, or benefits that will be paid information necessary to provide
the All Other Compensation column of primarily following retirement, investors with meaningful information
all earnings on compensation that is including but not limited to tax- about the compensation earned
deferred on a basis that is not tax- qualified defined benefit plans and annually through these plans?
qualified, including non-tax qualified supplemental employee retirement • Is there any particular form of
defined contribution retirement plans.98 plans, but excluding defined defined benefit or actuarial plan for
Currently, these earnings must be contribution plans.104 The retirement which the proposed disclosure format is
disclosed only to the extent of any section, discussed below, would not suitable? If so, how could the
portion that is ‘‘above-market or provide more information regarding proposed disclosure requirement be
preferential.’’ 99 This limitation has these covered plans.105 In contrast to adapted for such plans?
generated criticism that Item 402 defined contribution plans, for which • Should this disclosure instead be
permits companies to avoid disclosure the Summary Compensation Table provided as a separate column in the
of substantial compensation.100 requires disclosure of company Summary Compensation Table?
Separate footnote identification and contributions,106 Item 402 does not • Is the aggregate increase in accrued
quantification of all such earnings actuarial value the best measure for
currently require disclosure of the
would be required if the amount disclosing annual compensation earned
annual increase in value of defined
exceeds $10,000.101 A company would under defined benefit and actuarial
benefit plans, such as pension plans, in
be permitted to identify by footnote the plans? If not, why? What other method
which the named executive officers
portion of any earnings that it should be used?
participate.107 The annual increase in
considered to be paid at an above- • Rather than requiring disclosure of
actuarial value of these plans may be a
market rate, provided that the footnote the value based on the executive
significant element of compensation
explained the company’s criteria for officer’s benefit, should we require
that is earned on an annual basis, thus
determining the portion considered disclosure based on the company’s cost
we believe it is appropriate to include
‘‘above-market.’’ 102 for the plan? Under our proposals,
these values in the computation of total
Request for Comment compensation. disclosure of assumptions would be
Such disclosure is necessary to permit considered by companies in the
• Should we require, as proposed,
the Summary Compensation Table to narrative disclosure following the
disclosure of all earnings on
reflect total compensation for the year. Summary Compensation Table and
97 See Section II.B.1.d.iii. regarding separate Such disclosure would also permit a full supplementary tables. Are there other
standards for identification of perquisites and other preferable approaches? Should we
personal benefits. 103 Proposed Item 402(c)(2)(ix)(G). otherwise require disclosure of any of
98 Proposed Item 402(c)(2)(ix)(B). 104 Proposed Instruction 6 to Item 402(c)(2)(ix). the details of the calculation?
99 Current Items 402(b)(2)(iii)(C)(2) and Defined benefit plans include, for example, cash • Is it possible to provide meaningful
402(b)(2)(v)(B). An instruction specifies that interest balance plans in which the retiree’s benefit may be disclosure about total compensation
is above-market only if the rate exceeds 120% of the determined by the amount represented in an
applicable federal long-term rate. Furthermore, account rather than based on a formula referencing absent tabular disclosure of the
earnings disclosure is currently required in the salary while still employed. compensation earned annually through
Other Annual Compensation column or the All 105 See Section II.B.5.a., discussing the proposed these plans? If so, how? Would such an
Other Compensation column, depending upon Retirement Plan Potential Annual Payments and approach be preferable?
when paid or payable, complicating the preparation Benefits Table.
process and generating confusion among users of 106 Current Item 402(b)(2)(v)(D), which requires iii. Perquisites and Other Personal
the Summary Compensation Table. annual registrant contributions or other allocations
100 See, e.g., Ellen E. Schultz, Buried Treasure:
Benefits
to vested and unvested defined contribution plans
Well-Hidden Perk Means Big Money for Top to be disclosed in the All Other Compensation Perquisites and other personal
Executives, Wall St. J., Oct. 11, 2002, at A1. column. benefits would be included in the All
101 Proposed Instruction 3 to Item 402(c)(2)(ix). 107 A typical defined contribution plan is a
Other Compensation column. We
Consistent with current requirements, if applicable retirement plan in which the company and/or the
propose changes to disclosure of
interest rates vary depending upon conditions such executive makes contributions of a specified
as a minimum period of continued service, the amount, and the amount that is paid out to the perquisites and other personal benefits
reported amount should be calculated assuming executive depends on the return on investments to improve disclosure and facilitate
satisfaction of all conditions to receiving interest at from the contributed amounts. A typical defined computing a total amount of
the highest rate. Proposed Instruction 5 to Item benefit plan is a retirement plan in which the
402(c)(2)(ix), which is derived from current company pays the executive specified amounts at
compensation. We propose to require
Instruction 3 to Item 402(b)(2)(iii)(C). retirement which are not tied to investment the disclosure of perquisites and other
102 Proposed Instruction 5 to Item 402(c)(2)(ix). performance of the contributions that fund the plan. personal benefits unless the aggregate
amount of such compensation is less jewelry, artwork, theater tickets and unless it is generally available on a non-
than $10,000. We realize this may result housekeeping services.110 discriminatory basis to all employees.
in the total amount of compensation For decades questions have arisen as The concept of a benefit that is
reportable in the Summary to what is a perquisite or other personal ‘‘integrally and directly related’’ to job
Compensation Table being slightly less benefit required to be disclosed. We performance is a narrow one. As
than a complete total amount of continue to believe that it is not discussed below, it may extend, among
compensation, but we believe $10,000 is appropriate for Item 402 to define other things, to office space at a
a reasonable balance between investors’ perquisites or personal benefits, given company business location, a reserved
need for disclosure of total that different forms of these items parking space that is closer to business
compensation and the burden on a continue to develop, and thus a facilities but not otherwise preferential
company to track every benefit, no definition would become outdated. or additional clerical or secretarial
Further, we are concerned that sole services devoted to company matters. It
matter how small. The current provision
reliance on a bright line definition in does not extend to items that facilitate
permits omission of perquisites and
our rules might provide an incentive to job performance, such as use of
other personal benefits if the aggregate
characterize perquisites or personal company-provided aircraft, yachts or
amount of such compensation is the other watercraft, commuter
lesser of either $50,000 or 10% of the benefits in ways that would attempt to
circumvent the bright lines.111 transportation services, additional
total of annual salary and bonus.108 We clerical or secretarial services devoted to
believe this current rule permits the In today’s proposals, perquisites and
personal benefits are required to be personal matters, or investment
omission of too much information that management services. The fact that the
investors may consider material. disclosed for both named executive
officers and directors. This discussion company has determined that an
We propose requiring footnote regarding perquisites and personal expense is an ‘‘ordinary’’ or ‘‘necessary’’
disclosure that identifies perquisites business expense for tax or other
benefits therefore applies in the context
and other personal benefits. We propose purposes or that an expense is for the
of disclosure for both named executive
modifying the current requirement that benefit or convenience of the company
officers and directors.112 The concepts
only perquisites and other personal is not responsive to the inquiry as to
of perquisites and personal benefits
benefits that are 25% of the total whether the expense provides a
should not be interpreted artificially
amount for each named executive perquisite or other personal benefit for
narrowly to avoid disclosure. Based on
officer are required to be identified and disclosure purposes. Whether the
our long experience with disclosure in
quantified. We propose modifying this company should pay for an expense
this area, we are providing interpretive
requirement so that, unless the aggregate relates principally to questions of state
guidance that among the factors to be
value of perquisites and personal law regarding use of corporate assets;
considered in determining whether an our disclosure requirements are
benefits is less than $10,000, any item is a perquisite or other personal
perquisite or other personal benefit is triggered by different and broader
benefit are the following: concepts.
identified and, if it is valued at the • An item is not a perquisite or Applying the concepts that we outline
greater of $25,000 or ten percent of total personal benefit if it is integrally and above, examples of items requiring
perquisites and other personal benefits, directly related to the performance of disclosure as perquisites or personal
its value would be disclosed.109 the executive’s duties. benefits under Item 402 include, but are
Consistent with our objective to • Otherwise, an item is a perquisite or not limited to: club memberships not
streamline the Summary Compensation personal benefit if it confers a direct or used exclusively for business
Table, the revised threshold is intended indirect benefit that has a personal entertainment purposes, personal
to avoid requiring separate aspect, without regard to whether it may financial or tax advice, personal travel
quantification of perquisites having de be provided for some business reason or using vehicles owned or leased by the
minimis value. As is the case today, tax for the convenience of the company, company, personal travel otherwise
‘‘gross-ups’’ or other reimbursement of financed by the company, personal use
taxes owed with respect to any 110 See In the Matter of Tyson Foods, Inc. and of other property owned or leased by the
compensation, including but not limited Donald Tyson, Litigation Release No. 34–51625 company, housing and other living
to perquisites and other personal (Apr. 28, 2005) (failure to identify perquisites).
111 In the 1970s and early 1980s, the Commission
expenses (including but not limited to
benefits, would be separately quantified issued several interpretive releases regarding relocation assistance and payments for
and identified in the tax reimbursement executive compensation disclosure issues, the executive or director to stay at his
category described below, even if the including disclosure of perquisites and personal or her personal residence), security
associated perquisites or other personal benefits. See Disclosure of Management provided at a personal residence or
Remuneration, Release No. 33–5856 (Aug. 18, 1977)
benefits are eligible for exclusion or [42 FR 43058]; Disclosure of Management
during personal travel, commuting
would not require identification or Remuneration, Release No. 33–5904 (Feb. 6, 1978) expenses (whether or not for the
footnote quantification under the [43 FR 6060]; Disclosure of Management company’s convenience or benefit), and
Remuneration, Release No. 33–6027 (Feb. 22, 1979) discounts on the company’s products or
proposal. Where perquisites are subject [44 FR 16368]; Disclosure of Management
to identification, they must be described Remuneration, Release No. 33–6166 (Dec. 12, 1979)
services not generally available to
in a manner that identifies the particular [44 FR 74803]; and Interpretation of Rules Relating employees on a non-discriminatory
nature of the benefit received. For to Disclosure of Management Remuneration, basis.
example, it is not sufficient to Release No. 33–6364 (Dec. 3, 1981) [46 FR 60421]. In addition, as noted, business
In Section I of the 1983 Release, as part of a purpose or convenience does not affect
characterize generally as ‘‘travel and substantial revision to Item 402 adopted at the time,
the characterization of an item as a
entertainment’’ different company- the Commission rescinded those interpretive

financed benefits, such as clothing, releases. Subsequently, neither the Commission nor perquisite or personal benefit where it is
its staff has published interpretations addressing not integrally and directly related to the
what must be disclosed as a perquisite or personal performance by the executive of his or
108 Current Item 402(b)(2)(iii)(C)(1). benefit.
109 Proposed Instruction 3 to Item 402(c)(2)(ix). 112 For directors, the disclosure would be her job. Therefore, for example, a
Compare current Instruction 1 to Item required in the Director Compensation Table company’s decision to provide an item
402(b)(2)(iii)(C). discussed below in Section B.9. of personal benefit for security purposes
does not affect its characterization as a the company and its subsidiaries as the valuing compensation, including in
perquisite or personal benefit. A proper measure of value of perquisites respect of share-based compensation.
company policy that for security and other personal benefits.114 The Nevertheless, we realize that there may
purposes an executive (or an executive amount attributed to such benefits for be an issue whether the retail value of
and his or her family) must use federal income tax purposes is not the what is received by the executive officer
company aircraft or other company incremental cost for purposes of our or director, rather than the aggregate
means of travel for personal travel, or disclosure rules unless, independently incremental cost to the company, better
must use company or company- of the tax characterization, it constitutes measures the compensation provided by
provided property for vacations, does such incremental cost. Therefore, for perquisites and other personal benefits.
not affect the conclusion that the item example, the cost of aircraft travel Therefore we request comment as to
provided is a perquisite or personal attributed to an executive for federal whether we should require perquisites
benefit. income tax purposes is not generally the
Examples of items that would not be and other personal benefits to be valued
incremental cost of such a perquisite or
perquisites or personal benefits would based on the retail price of the item or,
personal benefit for purposes of our
include, among other things, travel to if none, the retail price of a
disclosure rules.115
and from business meetings, other commercially available equivalent. In
business travel, business entertainment, Request for Comment determining the commercially available
security during business travel, and • Is $10,000 the proper minimum equivalents, for example, for travel on
itemized expense accounts the use of below which disclosure of the total the company’s aircraft, the retail price of
which is limited to business purposes. amount of perquisites and personal a commercially available equivalent
In seeking to interpret current rules, benefits should not be required? Should would be the retail price to charter the
some legal advisers have put forward to there be no minimum? Should the same model aircraft. First-class airfare
the Commission staff examples of minimum be a higher amount, such as would not be considered equivalent to
arrangements that they believe raise $25,000 or $50,000? Should the current travel on a private aircraft.
issues requiring more detailed bright minimum of the lesser of $50,000 or • Would the proposed valuation
line guidance regarding the definition of 10% of total salary and bonus be standard facilitate Item 402 compliance
perquisites. These examples include retained? Would some other ratio be
larger offices or a level of secretarial while providing meaningful
more appropriate? compensation disclosure? Is there any
service not available to employees • Should all perquisites be required
generally. We believe that the factors other valuation methodology that is
to be separately identified when the preferable for valuing perquisites and
enumerated above provide sufficient $10,000 aggregate threshold is exceeded,
guidance in these areas. For example, an other personal benefits? If so, why?
as proposed?
office at the job location, even if larger • Is the greater of $25,000 or 10% of • Under the proposals a ‘‘gross-up’’ or
than that of other employees, is the total amount of perquisites and other reimbursement of taxes owed with
integrally and directly related to personal benefits the proper minimum respect to perquisites and other personal
performance of the executive’s job, as is below which perquisites and personal benefits would be required to be
secretarial service used for business benefits should not be required to be included in the table and separately
purposes, even if at a higher level than separately identified and their value quantified and identified in the tax
other employees. On the other hand, reported? Should there be a lower reimbursement category if it meets the
provision of additional secretarial minimum, such as $10,000, or no relevant threshold, even if the
services, such as a second secretary, that minimum? Should the current associated perquisites or other personal
is not directly related to performance of minimum of 25% of the total amount be benefits would not be required to be
an executive’s job would be a perquisite retained? included in the table or separately
or personal benefit. • Should perquisites and personal
Beyond these examples, we assume quantified. Is separate identification of
benefits below the proposed threshold items such as tax gross-ups material to
companies and their advisors, who are be separately identified by category,
more familiar with the detailed facts of investors even if it is clear the amount
even if not separately quantified? must be included in the All Other
a particular situation and who are Alternatively, is separate identification
responsible for providing materially Compensation column?
and quantification of all perquisites and
accurate and complete disclosure personal benefits so significant to • Should Item 402 include a
satisfying our requirements, can assess investors that no threshold should apply definition of perquisites or other
whether particular arrangements require for either purpose? personal benefits? If so, how should
disclosure as perquisites or personal • We propose to retain the current perquisites or other personal benefits be
benefits. In light of the importance of standard for valuing perquisites and defined? How can we assure that new
the subject to many investors, all other personal benefits, based on the perquisites will not be developed in a
participants should approach the aggregate incremental cost to the manner intended to avoid the definition
subject of perquisites and personal company and its subsidiaries which has and therefore disclosure? If such a
benefits thoughtfully.113 applied since 1983.116 We believe that definition is principles-based, what
Finally, we observe that the proposal
this approach is consistent with the principles in addition to those described
calls for aggregate incremental cost to
approach we are taking otherwise in in this release should be considered?
113 The Commission has recently taken action in
114 Proposed
• We are providing interpretive
circumstances where perquisites were not properly Instruction 4 to Item 402(c)(2)(ix).
guidance above regarding perquisites
115 See IRS Regulation § 1.61–21(g) [26 CFR 1.61–

disclosed. See In the Matter of Tyson Foods, Inc.
and Donald Tyson, note 110 above. See also Alex 21(g)] regarding Internal Revenue Service and personal benefits. Are there any
Berenson, From Coffee to Jets, Perks for Executives guidelines for imputing taxable personal income to areas regarding perquisites and personal
Come Out in Court, N.Y. Times, Feb. 22, 2004, at an employee who travels for personal reasons on benefits where we should consider
11 (citing criminal and civil litigation in which corporate aircraft. These complex regulations are
known as the Standard Industry Fare Level or SIFL
providing additional or different
perquisites were identified and commentators
discussing the benefits of improved perquisite rules. interpretive guidance? Should any of
disclosure). 116 See the 1983 Release, at Section III.C. our interpretive guidance be codified?
iv. Additional All Other Compensation • For any security of the company or column of the table? Is there another
Column Items its subsidiaries purchased from the reason to continue to show the two
company or its subsidiaries (through groups of items separately?
The proposals also would specify that deferral of fees or otherwise) at a
items disclosed in the All Other • Should we retain the treatment of
discount from the market price of such securities purchased at a discount in
Compensation column would include, security at the date of purchase, unless
but not be limited to, the following current Item 402(b)(2)(iii)(C)(5), which
that discount is available generally requires inclusion in the Other Annual
items: 117 either to all security holders or to all Compensation column of the dollar
• Amounts paid or accrued pursuant salaried employees of the company, the value of the difference between the
to a plan or arrangement in connection compensation cost computed in price paid by a named executive officer
with any termination (or constructive accordance with FAS 123R.122 for any security of the company or its
termination) of employment or a change subsidiaries purchased from the
Request for Comment
in control; 118 company or its subsidiaries (through
• Annual company contributions or • Are there other items that should be
specifically enumerated for inclusion in deferral of salary or bonus, or
other allocations to vested and unvested otherwise), and the fair market value of
defined contribution plans; 119 the All Other Compensation Column? If
so, what are they and how should they such a security at the date of purchase?
• The dollar value of any insurance be valued and reported? If so, why?
premiums paid by the company with • Will the combination of the current • Because so many different types of
respect to life insurance for the benefit Other Annual Compensation Column compensation would be reportable in
of a named executive officer; 120 and the All Other Compensation the ‘‘All Other Compensation’’ column,
• ‘‘Gross-ups’’ or other amounts Column result in too many would this disclosure be clearer if it
reimbursed during the fiscal year for the compensation items being aggregated were presented as a supplemental table
payment of taxes; 121 and and separately identified within one in the following or similar format:
Registrant
Perquisites Earnings on Payments/ contribu-
Discounted Increase in
and other deferred Tax reim- accruals on tions to de- Insurance
Name securities pension ac- Other
personal compensa- bursements termination fined con- premiums
purchases tuarial value
benefits tion plans tribution
plans
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
PEO ..........
PFO ..........
A ...............
B ...............
C ...............
e. Captions and Table Layout captions, the current approach creates Request for Comment
distinctions that may be confusing to
Currently a portion of the table is users and preparers. The proposals • Will these changes improve the
labeled as ‘‘annual compensation’’ and would thus define an ‘‘incentive plan’’ table? Are there any other changes to the
another portion as ‘‘long term captions and table layout that would
as any plan providing compensation
compensation.’’ These captions create improve the table?
intended to serve as incentive for
distinctions that may be confusing to
performance to occur over a specified 2. Supplemental Annual Compensation
both users and preparers of the
Summary Compensation Table. Today’s period.123 Consistent with this change, Tables
proposal would not separately identify as described above, we propose to merge
the current Other Annual Compensation Following the Summary
some columns as ‘‘annual’’ and other
column into the proposed All Other Compensation Table, we propose
columns as ‘‘long term’’ compensation.
In eliminating this distinction, we also Compensation column, and include requiring two supplemental tables.
propose to revise the definition of ‘‘long current information regarding incentive These two tables are intended to help
term incentive plan’’ to eliminate any plan compensation in the appropriate explain information in the Summary
distinction between a ‘‘long term’’ plan column for the relevant form of award. Compensation Table and would be
and one that may provide for periods derived from two tables currently
shorter than one year, because, like the required.
117 These items are all currently required to be pursuant to a plan or arrangement in connection 120 Proposed Item 402(c)(2)(ix)(H). Because the
disclosed either under All Other Compensation or with any termination of employment or change-in- proposal calls for disclosure of the dollar value of
under Other Annual Compensation. control, such as a retention bonus, acceleration of any life insurance premiums, rather than only
118 Unlike the current Item 402(b)(2)(v)(A) option or stock vesting periods, or performance- premiums with respect to term life insurance, as
requirement, proposed Item 402(c)(2)(ix)(E) does based compensation intended to serve as an currently required, the requirement of current Items
incentive for named executive officers to acquire 402(b)(2)(v)(E)(1) and (2) to disclose the value of
not refer to amounts payable under post-

employment benefits, because the focus for this other companies or enter into a merger agreement, any remaining premiums with respect to
item is current year compensation rather than disclosure would be required in the appropriate circumstances where the named executive officer
aggregate amounts potentially payable in the future. Summary Compensation Table column and in the has an interest in the policy’s cash surrender value
These items are also the subject of disclosure as other tables or narrative disclosure where the would be deleted.
121 Proposed Item 402(c)(2)(ix)(C).
post-termination compensation, as described in particular element of compensation is required to
Section II.B.5., below. For any compensation as a be disclosed. 122 Proposed Item 402(c)(2)(ix)(D).
result of a business combination, other than 119 Proposed Item 402(c)(2)(ix)(F). 123 Proposed Item 402(a)(6)(iii).
a. Grants of Performance-Based Awards compensation if conditions are Disclosure in this table of grants of
Table satisfied).124 This would ensure incentive plan awards would
consistent reporting treatment of these complement Summary Compensation
The first table that would supplement performance-based awards, disclosing Table disclosure of grant date fair value
the Summary Compensation Table information equivalent to that currently of stock awards and option awards, and
would include information regarding required for grants of other long-term the disclosure of annual amounts earned
non-stock grants of incentive plan incentive plan awards. For purposes of under non-stock based incentive
awards, stock-based incentive plan this table, awards would be considered compensation. This supplemental table
awards and awards of options, restricted performance-based if they are subject to would show the terms of grants made
stock and similar instruments under either a performance condition, or a during the current year, including
plans that are performance-based (and market condition, as those terms are estimated future payouts, with separate
thus provide the opportunity for future defined in FAS 123R.125 disclosure for each grant.126
GRANTS OF PERFORMANCE-BASED AWARDS

Perform- Estimated future payouts
ance-based Perform- Non-stock Perform-
stock and Dollar
ance-based incentive ance or
stock-based amount of
options: plan Grant date other period
incentive consider-
number of awards: for stock or until vesting
Name plans: num- ation paid
securities number of option or payout Threshold Target Maximum
ber of for award, if
underlying units or awards and option ($) or (#) ($) or (#) ($) or (#)
shares, any
options other rights expiration
units or ($)
(#) (#) date
other rights
(#)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
PEO ..........
PFO ..........
A ...............
B ...............
C ...............
Request for Comment table redundant with the information appropriate in defining performance-
• Will the proposed Grants of required in the Grants of Performance- based awards?
Performance-Based Awards Table Based Awards Table describing
b. Grants of All Other Equity Awards
effectively supplement the equity estimated future payouts to be required
Table
awards and non-stock incentive plan in columns (h), (i) and (j) of the Table,
compensation information to be such that any of these columns should The second table supplementing the
disclosed in the Summary be eliminated? Is any other tabular Summary Compensation Table would
Compensation Table? In particular, information needed to describe show the equity-based compensation
should tabular disclosure be required of estimated future payouts in addition to awards granted in the last fiscal year
any additional information relating to the information that would be required that are not performance-based, such as
performance-based equity awards and in proposed columns (h), (i) and (j)? stock, options or similar instruments
non-stock incentive plan awards? • Are the references to the definitions where the payout or future value is tied
• Is the information required by of ‘‘performance condition’’ and to the company’s stock price, and not to
columns (b), (c) and (d) of this proposed ‘‘market condition’’ in FAS 123R other performance criteria.127
GRANTS OF ALL OTHER EQUITY AWARDS

Number of Number of
securities shares of
Exercise or
underlying Expiration stock or
Name base price Vesting date Grant date
options date units grant-
($/Sh)
granted ed
(#) (#)
(a) (b) (c) (d) (e) (f) (g)
PEO ..................................................................................
PFO ..................................................................................
A .......................................................................................
B .......................................................................................
C .......................................................................................
124 This table would contain the information in also include awards with performance, market and 127 Proposed Item 402(e). Proposed Instruction 2
the current Long-Term Incentive Plan Awards other conditions affecting the terms of the award to Item 402(e) would require that if more than one
Table, augmented with information regarding (exercise price, for example) rather than vesting. award is made to a named executive officer during
125 See note 87.
performance-based stock, option and similar the last completed fiscal year, a separate line should
awards. See current Item 402(e). This table would 126 Proposed Instruction 1 to Item 402(d). be used to disclose each award.
Instructions would require options 3. Narrative Disclosure to Summary place, the narrative disclosure following
and stock appreciation rights granted in Compensation Table and Supplemental the Summary Compensation Table
connection with a repricing transaction Tables would describe, to the extent material
to be included in the table, and footnote and necessary to an understanding of
We propose requiring narrative the tabular disclosure, repricing,
descriptions of any material terms of a disclosure in order to give context to the
grant.128 Because the Summary extension of exercise periods, change of
tabular disclosure following the vesting or forfeiture conditions, change
Compensation Table would disclose Summary Compensation Table, the
grant date fair value of the options, or elimination of applicable
Grants of Performance-Based Awards performance criteria, change of the
stock appreciation rights or similar Table and the Grants of All Other Equity
instruments, the columns in the current bases upon which returns are
Awards Table. A company would be determined, or any other material
Option/SAR Grants in Last Fiscal Year required to provide a narrative
table requiring disclosure of that value modification. The tabular disclosure
description of any additional material would reflect the award’s total fair value
or, alternatively, potential realizable factors necessary to an understanding of after any such modification as a new
value at assumed five percent and ten the information disclosed in the award.133
percent annual rates of return, would be tables.130 Unlike the Compensation
Narrative text accompanying the
eliminated.129 This table would also Discussion and Analysis, which would
tables would also describe, to the extent
supplement the Summary focus on broader topics regarding the
material and necessary to an
Compensation Table disclosure of the objectives and implementation of
understanding of the tabular disclosure,
aggregate grant date fair value of stock, executive compensation policies, this
award terms relating to data provided in
units and similar instruments with narrative disclosure would focus on and
the Grants of Performance-Based
disclosure relating to the number of provide context to the quantitative
Awards Table, which could include, for
underlying securities and other material disclosure in the tables. The material
example, a general description of the
terms of the grants. factors will vary depending on the facts,
formula or criteria to be applied in
but may include, in given cases, among
Request for Comment determining the amounts payable, the
other things, descriptions of the material
vesting schedule, a description of the
terms in the named executive officers’
• Will the Grants of All Other Equity employment agreements, which may be
performance-based conditions and any
Awards Table, as proposed, effectively other material conditions applicable to
a potential source of material
supplement the option and stock grants the award, whether dividends or other
information necessary to an
information to be disclosed in the amounts would be paid, the applicable
understanding of the tabular disclosure.
Summary Compensation Table? In rate and whether that rate is
The proposed narrative disclosure
particular, should tabular disclosure be preferential. Consistent with current
would cover written or unwritten
required of any additional information disclosure requirements, however,
agreements or arrangements. Requiring
relating to these grants? companies would not be required to
this disclosure in proximity to the
disclose any factor, criteria, or
• Is this table or any aspect of it too Summary Compensation Table is
performance-related or other condition
repetitive? intended to make the tabular disclosure
to payout or vesting of a particular
more meaningful.131 Mere filing of
• Will it be clear to investors how the employment agreements (or summaries
award that involves confidential
two supplemental tables relate to the commercial or business information,
of oral agreements) may not be adequate
Summary Compensation Table? If not, disclosure of which would adversely
to disclose material factors depending
how could we make that more clear? affect the company’s competitive
on the circumstances.
position.134
• Are all plan-based awards covered The factors that could be material
by the two supplemental tables? What include each repricing or other material information contained in the ten-year option
additional provisions would we need to modification of any outstanding option repricing table.
add to cover all such awards? or other stock-based award during the 133 While this approach is different from that
last fiscal year. This disclosure would required for accounting and financial statement
• Instead, would it be preferable to reporting purposes under FAS 123R, it does
have two separate versions of the address not only option repricings, but proceed from the grant date fair value concept
Summary Compensation Table, with also other significant changes to the embodied in that standard, and we believe it
one showing all awards made during the terms of stock-based or other awards. provides more meaningful information for
We propose to eliminate the current ten- executive compensation disclosure than the
year and the other having exactly the financial statement reporting approach and is
year option repricing table.132 In its
same columns showing all the amounts consistent with our current requirement to treat
repricings as a new award. This treatment would
earned by services during the year? 130 Proposed Item 402(f)(1). Disclosure of
continue the current approach of essentially
Would this approach increase the risk of employment agreement information is currently treating a repricing as a new award in Instruction
double counting? Would it be required by Item 402(h)(1). The standard of 3 to Item 402(b)(2)(iv). However, this approach
materiality that would apply in proposed Item would not apply to any repricing that occurs
duplicative as to cash salary and bonus 402(f)(1) is that of Basic v. Levinson, 485 U.S. 224 through a pre-existing formula or mechanism in the
and other currently earned and paid (1988) and TSC Industries v. Northway, 426 U.S. plan or award that results in the periodic
amounts and benefits? 438 (1976). adjustment of the option or stock appreciation right
131 Provisions regarding post-termination exercise or base price, an antidilution provision, or
128 Proposed
compensation would need to be addressed in the a recapitalization or similar transaction equally
Instructions 3 and 4 to Item 402(e). narrative section only to the extent disclosure of affecting all holders of the class of securities
129 See current Item 402(c)(2)(vi). We also propose such compensation is required in the Summary underlying the options or stock appreciation rights.
removing the column, required by current Item
Compensation Table; otherwise these provisions See Proposed Instruction 2 to Item 402(f)(1).
402(c)(2)(iii), requiring disclosure of the percent would be disclosable as post-termination 134 Proposed Item 402(f)(1)(iii), which combines
that the grant represents of total options and stock compensation in the manner described in Section some information required by current Instruction 2
appreciation rights granted to all employees during II.B.5., below. to Item 402(b)(2)(iv) with information required by
the fiscal year. At this time, we do not believe that 132 Current Item 402(i). We believe that the current Instruction 1 to Item 402(e). For a
this relatively narrow disclosure is independently disclosure requirement would provide investors discussion of the standard companies should use
material to an understanding of a named executive with material information regarding repricings and when determining whether disclosure would have
officer’s compensation. modifications and eliminate the arguably dated Continued
Another factor that may be necessary do not have a policy making function at disclosure of this information consistent
to an understanding of the information the company.137 with the overall goals of this proposal?
disclosed in the tables is any material Request for Comment 4. Exercises and Holdings of Previously
waiver or modification of any specified Awarded Equity
performance target, goal or condition to • Will the proposed narrative
payout under any reported incentive disclosure to the Summary The next section of proposed
plan payout because each action can Compensation Table enhance an executive compensation disclosure
materially affect previously disclosed understanding of the table? would provide investors with an
• Are there any additional material
information about the plans. Companies understanding of the compensation in
factors that should be listed as possibly
would be required to disclose as part of the form of equity that has previously
requiring disclosure in the narrative to
this narrative discussion whether the been awarded and remains outstanding,
the Summary Compensation Table?
waiver or modification applied to one or • Is the difference between the that is unexercised or unvested. This
more specified named executive officers proposed required narrative disclosure section also would disclose amounts
or applied to all compensation subject and the Compensation Discussion and realized on this type of compensation
to the condition.135 Analysis requirement sufficiently clear? during the most recent fiscal year when,
How can it be made more clear? for example, a named executive officer
Material factors necessary to an exercises an option or his or her stock
understanding of the tabular disclosure • Should we require an additional
column in the Summary Compensation award vests. We propose two tables.
could also include information One table shows the amounts of prior
regarding defined benefit and deferred Table where companies must indicate
by checkmark whether a particular awards outstanding and the other shows
compensation plans. For example, such the exercise or vesting of equity awards
named executive officer has an
information could include material during the fiscal year.138
employment agreement, so that
assumptions underlying the
investors will know to look for a. Outstanding Equity Awards at Fiscal
determination of the amount of increase disclosure about the agreement in the
in actuarial value of defined benefit or Year-End
narrative accompanying the table or to
actuarial plans or the provisions in a look for the agreement as an exhibit to Outstanding awards that have been
plan or otherwise for determining a filing with us? granted but the ultimate outcomes of
earnings on deferred compensation • Is the proposed treatment of which have not yet been realized in
plans, including defined contribution repricings the most appropriate effect represent potential amounts that
plans, that are not tax-qualified. approach for executive compensation the named executive officer might or
We also propose an additional item disclosure purposes? Should the might not realize, depending on the
that would require disclosure for up to treatment be consistent with the outcome for the measure or measures
three employees who were not reporting approach of FAS 123R? Would (for example, stock price or performance
executive officers during the last tabular presentation rather than benchmarks) to which the award relates.
completed fiscal year and whose total discussion of material terms in the We are proposing a table that would
compensation for the last completed narrative be preferable? In addition to disclose information regarding
fiscal year was greater than that of any the disclosure proposed in the Summary outstanding awards under, for example,
Compensation Table and the related stock option (or stock appreciation
of the named executive officers.136 The
narrative, should we also require rights) plans, restricted stock plans,
item would require disclosure of the
quantification of the fair value of the incentive plans and similar plans and
amount of each of such employee’s total award both immediately before and disclose the market-based values of the
compensation for the most recent fiscal immediately after the repricing or other options, rights, shares or units in
year and a description of his or her job modification? question as of the company’s most
position. The individuals would not • Would the proposed disclosure of recent fiscal year end.139
need to be named. We are proposing up to three employees who are not
this requirement so that shareholders executive officers but earn more in total 138 Some of this information is currently required
will have information about the use of compensation than any of the named in one table, the Aggregated Option/SAR Exercises
corporate assets to compensate executive officers be appropriate in the in Last Fiscal Year and Fiscal Year-End Option/SAR
extremely highly paid employees in a narrative discussion? Should more Values Table required by current Item 402(d).
139 Proposed Item 402(g). Under current rules
company. More detailed information disclosure be required regarding these
such disclosure is provided only for holdings of
about these employees and their employees and their compensation? Is outstanding stock options and stock appreciation
compensation does not appear this information material to investors? rights. Consistent with current interpretations, this
appropriate in light of the fact that they Will disclosure of this information, table, like the Summary Compensation Table,
particularly in the case of smaller would reflect that the transfer of an option or
similar award by an executive does not negate the
an adverse impact on the company’s competitive companies, cause competitive harm? Is award’s status as compensation that should be
position, see Section II.A.2., above. reported. Registration of Securities on Form S–8,
135 Proposed Item 402(f)(1)(iv). 137 See note 162 below for a discussion of the Release No. 33–7646 (Feb. 25, 1999) [64 FR 11103],
136 Proposed Item 402(f)(2). term ‘‘executive officer.’’ at Section III.D.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

Incentive
Incentive
Number of Market plans: mar-
In-the-money Number of plans: num-
securities un- value of ket or pay-
amount of shares or ber of non-
derlying shares or out value of
unexercised units of vested
unexercised units of nonvested
Name options stock held shares,
options stock held shares,
($) exer- that have units or
(#) exer- that have units or
cisable/ not vested other rights
cisable/ not vested other rights
unexercisable (#) held
unexercisable ($) held
(#) ($)
(a) (b) (c) (d) (e) (f) (g)
PEO .............................................................................
PFO .............................................................................
A ..................................................................................
B ..................................................................................
C ..................................................................................
With respect to options, stock A new instruction would require • Should the table include the value
appreciation rights and similar footnote disclosure of the expiration of out-of-the-money options and stock
instruments, an instruction, which dates of options, stock appreciation appreciation rights? Why or why not? If
would be the same as the current rights and similar instruments held at such instruments were included, how
standard, would indicate that these fiscal year-end, separately identifying would the value be calculated and
instruments are ‘‘in-the-money’’ if the those that are exercisable and presented?
market price of the underlying securities unexercisable, and the vesting dates of • Should we require, as proposed,
exceeds the exercise or base price. The shares of stock (including restricted that options or similar awards that have
in-the-money amount of options, stock stock, restricted stock units or other been transferred by an executive must
appreciation rights and similar similar instruments) and incentive plan still be included in the table? Should
instruments would be calculated by awards held at fiscal year-end. If the continued disclosure depend on the
determining the difference, at fiscal expiration date of an option had nature of the transfer or the identity of
year-end, between the market price of the transferee?
occurred after fiscal year-end but before
the underlying securities and the
the date on which the disclosure is b. Option Exercises and Stock Vesting
exercise or base price.140 The market
made, the footnote would need to state
value of stock (including restricted We are proposing a table that would
stock, restricted stock units or other whether the option had been exercised show the amounts received upon
similar instruments) and incentive plan or had expired.142 exercise of options or similar
award holdings would be calculated by Request for Comment instruments or the vesting of stock or
multiplying the closing market price of similar instruments during the most
the company’s stock at the end of the • Will the proposed Outstanding recent fiscal year. This table would
last completed fiscal year by the Equity Awards at Fiscal Year-End Table allow investors to have a picture of the
respective numbers of stock or incentive provide material information for amounts that a named executive officer
plan award holdings that were not then investors regarding the named executive realizes on equity compensation
vested.141 officers’ outstanding awards? through its final stage.143
OPTION EXERCISES AND STOCK VESTED

Grant date
Number of fair value
Value real-
shares ac- previously
ized upon
quired on reported in
Name of Executive Officer exercise or
exercise or summary
vesting
vesting compensa-
($)
(#) tion table
($)
(a) (b) (c) (d)
PEO—Options .........................................................................................................................................
Stock ........................................................................................................................................................
PFO—Options ..........................................................................................................................................
Stock ........................................................................................................................................................
140 Proposed Instruction 1 to Item 402(g)(2), 142 Proposed Instruction 2 to Item 402(g)(2). Executive Pay Tally, Wall St. J. Online Edition, Jan.
which is based on current Instruction 1 to Item 143 Thistable is similar to a portion of the current 26, 2005. The number and value of unexercised
402(d)(2). Aggregate Options/SAR Exercises in Last Fiscal options and stock appreciation rights, included in
141 Proposed Instruction 3 to Item 402(g)(2). This Year and FY-End Options/SAR Values Table, the current option exercises table, would be shown
standard is based on the current Summary except unlike that table it would also include the in the proposed Outstanding Equity Awards at
Compensation Table footnote disclosure regarding vesting of restricted stock and similar instruments.
Fiscal Year-End Table described immediately
restricted stock, expanded to cover restricted stock Commentators have noted a need for comparable
units and incentive plans. Current Instruction 2 to disclosure of restricted stock vesting. See, e.g., above. See current Item 402(d).
Item 402(b)(2)(iv). Phyllis Plitch, Restricted Stock Grants Cloud
OPTION EXERCISES AND STOCK VESTED—Continued

Grant date
Value real-
ized upon
Name of Executive Officer exercise or
exercise or summary
vesting
vesting compensa-
($)
(#) tion table
($)
(a) (b) (c) (d)
A—Options ...............................................................................................................................................
Stock ........................................................................................................................................................
B—Options ...............................................................................................................................................
Stock ........................................................................................................................................................
C—Options ..............................................................................................................................................
Stock ........................................................................................................................................................
The grant date fair value of these the grant-date fair value of equity-based proposing revised requirements
instruments would have been disclosed awards? Are other sources of this regarding disclosure of compensation
in the Summary Compensation Table for information, such as reports filed by arrangements triggered upon
the year in which they were awarded. officers and directors pursuant to termination and on changes in control.
Therefore, to eliminate the impact of Section 16(a) of the Exchange Act,144
double disclosure, this table would adequate to inform investors of the a. Retirement Plan Potential Annual
show that amount from applicable information contained in this table? Payments and Benefits Table
previous years from the Summary • Would it be preferable to combine We are proposing significant revisions
Compensation Table. proposed Outstanding Equity Awards at to the rules disclosing retirement
Fiscal Year-End Table and the proposed benefits to require disclosure of the
Request for Comment Option Exercises and Stock Vested estimate of retirement benefits to be
• In light of the proposed disclosure Table into one table? payable at normal retirement age and, if
in the Summary Compensation Table of
5. Post-Employment Compensation available, early retirement.145 Current
the grant date fair value of the awards,
We are proposing significant revisions disclosure frequently does not provide
is separate reporting of the amounts
to the disclosure regarding post- investors useful information regarding
realized upon exercise or vesting
employment compensation to provide a specific potential pension benefits.
appropriate? Would it provide material
clearer picture of this potential future Current disclosure may make it difficult
information? Would separate reporting
compensation. Executive retirement for the reader to understand which
of the market value at exercise or
packages and other post-termination amounts relate to any particular named
vesting confuse users of financial
compensation may represent a executive officer, and may thus obscure
statements and perhaps cause them to
significant commitment of corporate the value of a significant component of
call into question the original grant date
resources and a significant portion of compensation.
fair value estimate?
• Would the proposed separate overall compensation. First, we are As a result, we propose a new table
column for grant date fair value proposing to replace the current pension disclosing estimated annual retirement
previously reported for the same award plan table, alternative plan disclosure payments under defined benefit plans
eliminate potential confusion about the and some of the other narrative for each named executive officer,
amount of compensation provided by descriptions with a table regarding followed by narrative disclosure.146 A
options, stock appreciation rights, stock defined benefit pension plans and separate line of tabular disclosure
and similar instruments? Are there other enhanced narrative disclosure. Second, would be required for each plan in
ways we could make this clear, such as we are proposing a table and narrative which a named executive officer
an explanatory footnote to the table? disclosure that will disclose information participates that provides for the
• Will investors understand that the regarding non-qualified defined payment of specified retirement
value of equity compensation had contribution plans and other deferred benefits, or benefits that will be paid
already been disclosed in the form of compensation. Finally, we are primarily following retirement.147
144 15 U.S.C. 78p(a). 402(f)(1). This requirement is for plans under which payable to the officers upon retirement at normal
145 Currently, for defined benefit or actuarial benefits are determined primarily by final retirement age. See current Item 402(f)(2).
plans, disclosure consists of a general table showing compensation (or average final compensation) and 146 Proposed Item 402(i).
estimated annual benefits under the plan payable years of service, and includes narrative disclosure. 147 These would include, but not be limited to,
upon retirement (including amounts attributable to If named executive officers are subject to other
supplementary or excess pension award plans) for plans under which benefits are not determined tax-qualified defined benefit plans, supplemental
specified compensation levels and years of service. primarily by final compensation (or average final employee retirement plans and cash balance plans,
The table does not provide disclosure for any compensation), narrative disclosure is required of but would exclude defined contribution plans, for
specific named executive officer. See current Item the benefit formula and estimated annual benefits which we propose disclosure as described below.
RETIREMENT PLAN POTENTIAL ANNUAL PAYMENTS AND BENEFITS

Estimated Estimated
Number of Normal re- normal re- Early retire- early retire-
years cred-
Name Plan name tirement age tirement an- ment age ment annual
ited service (#) nual benefit (#) benefit
(#) ($) ($)
(a) (b) (c) (d) (e) (f) (g)
PEO ..................................................................................
PFO ..................................................................................
A .......................................................................................
B .......................................................................................
C .......................................................................................
An instruction would provide that include, in given cases, among other the named executive officer currently is
quantification of benefits should reflect things: eligible to retire under the plan with a
the form of benefit currently elected by • The material terms and conditions lump sum distribution?
the named executive officer, such as of benefits available under the plan, • Is there any particular form of plan
joint and survivor annuity or single life including the plan’s retirement benefit for which the proposed disclosure
annuity, specifying that form in a formula and eligibility standards, and format is not suitable? If so, how could
footnote. Where the named executive early retirement arrangements; the proposed disclosure requirement be
officer is not yet eligible to retire, the • If the executive or company may adapted for such plans?
dollar amount of annual benefits to elect a lump sum distribution, the
which he or she would be entitled upon amount of such distribution that would b. Nonqualified Defined Contribution
becoming eligible would be computed be available on election as of the end of and Other Deferred Compensation Plans
assuming that the named executive the company’s last fiscal year, Table
officer continued to earn the same disclosing the valuation method and In order to provide a more complete
amount of compensation as reported for material assumptions applied in picture of potential post-employment
the company’s last fiscal year. If a quantifying such amount; compensation, we are proposing a new
named executive officer left during the • The specific elements of table to disclose contributions, earnings
year, the dollar amounts of annual compensation, such as salary and and balances under nonqualified
benefits to which he or she would be various forms of bonus, included in defined contribution and other deferred
entitled would be required to be applying the benefit formula, compensation plans. These plans may
disclosed. identifying each such element; be a significant element of retirement
• Regarding participation in multiple
‘‘Normal retirement age’’ would mean and post-termination compensation.150
plans, the reasons for each plan; and
the normal retirement age defined in the • Company policies with regard to Our current rules elicit disclosure of the
plan, or if not so defined, the earliest such matters as granting extra years of compensation when earned and only
time at which a participant may retire credited service. the above-market earnings on
under the plan without any benefit nonqualified deferred compensation.151
reduction due to age. ‘‘Early retirement Request for Comment The full value of those earnings and the
age’’ would be defined similarly as early • Should any other information accounts on which they are payable are
retirement age as defined in the plan, or (including information that may be not currently subject to disclosure, nor
otherwise available to the executive.148 disclosed in the narrative) be included are shareholders and investors informed
If the credited years of service for the in the proposed table? Should any of the regarding the rate at which these
executive under any plan differ from the information we propose to require to be amounts—and the corresponding cost to
actual years of service with the disclosed be excluded? the company—are growing.152
company, a footnote quantifying the • Should this item require Therefore, as noted above, we are
difference and any resulting benefit quantification of the aggregate actuarial proposing to require disclosure in the
increase would be required.149 value of a plan benefit as of the end of Summary Compensation Table of all
The table would be followed by a the company’s last fiscal year without earnings on compensation that is
narrative description of material factors regard to whether the plan permits a deferred on a basis that is not tax-
necessary to an understanding of each lump sum distribution? If so, why? qualified and are also proposing new
plan disclosed in the table. Examples of Alternatively, would this information tabular and narrative disclosure of
such factors in the proposed rule may provide meaningful disclosure only if nonqualified deferred compensation.153
148 Proposed Instruction 3 to Item 402(i). tax treatment under the Internal Revenue Code. A 152 See Lucian A. Bebchuk and Jesse M. Fried,
149 Proposed Instruction 2 to Item 402(i). typical 401(k) plan, by contrast, is a qualified Stealth Compensation via Retirement Benefits, 1
150 Nonqualified defined contribution and other deferred compensation plan. Nonqualified defined Berkeley Bus. L.J. 291, 314–316 (2004); See also The
contribution and other deferred compensation plans Corporate Counsel (Sept.–Oct. 2005) at 6–7 and
deferred compensation plans are plans providing are generally unfunded, and their taxation is
for deferral of compensation that do not satisfy the Gretchen Morgenson, Executive Pay, Hiding Behind
governed by Section 409A of the Internal Revenue
minimum coverage, nondiscrimination and other Code [26 U.S.C. 409A]. Small Print, N.Y. Times, Feb. 8, 2004, § 3, at 1.
153 Proposed Item 402(j).
rules that ‘‘qualify’’ broad-based plans for favorable 151 See Section II.B.1.d.i. above.
NONQUALIFIED DEFINED CONTRIBUTION AND OTHER DEFERRED COMPENSATION PLANS

Executive Registrant Aggregate Aggregate Aggregate
contribu- contribu- earnings in withdrawals/ balance at
Name tions in last tions in last last FY distributions last FYE
FY FY ($) ($) ($)
($) ($)
(a) (b) (c) (d) (e) (f)
PEO .........................................................................................................
PFO ..........................................................................................................
A ...............................................................................................................
B ...............................................................................................................
C ..............................................................................................................
An instruction would require footnote Request for Comment that provides for payments at, following,
quantification of the extent to which • Should tabular or narrative or in connection with the resignation,
amounts in the contributions and disclosure require presentation of any severance, retirement or other
earnings columns are reported as additional information necessary for termination (including constructive
compensation in the year in question investors to clearly understand termination) of a named executive
and other amounts reported in the table nonqualified deferred compensation? officer, a change in his or her
in the aggregate balance column were For example: responsibilities, or a change in control
reported previously in the Summary of the company. Our proposals would
Compensation Table for prior years.154 —Should the dollar amount of aggregate call for narrative disclosure of the
This would complement the proposed interest or other earnings accrued following information regarding
instruction to the Summary from inception of the named termination and change in control
Compensation Table that would require executive officer’s participation in the provisions: 158
footnote disclosure of amounts for plan through the end of the • The specific circumstances that
which receipt has been deferred.155 company’s last fiscal year be would trigger payment(s) under the
Together, these footnotes would operate disclosed in the proposed table? termination or change-in-control
to provide information so that investors —Is a narrative description of the tax arrangements or the provision of other
can avoid ‘‘double counting’’ of deferred implications for both the participant benefits (references to benefits include
amounts by clarifying the extent to and the company necessary to a perquisites);
which amounts payable as deferred material understanding of these • The estimated payments and
compensation represent compensation plans? benefits that would be provided in each
previously reported, rather than • In addition to the footnote required termination circumstance, and whether
additional currently earned by the proposed instruction, are any they would or could be lump-sum or
compensation. other provisions necessary or annual, disclosing the duration and by
The table would be followed by a appropriate to avoid ‘‘double counting’’ whom they would be provided; 159
narrative description of material factors of previously reported compensation • The specific factors used to
necessary to an understanding of the that will have been deferred? determine the appropriate payment and
disclosure in the table.156 Examples of • Should only above market or benefit levels under the various
such factors in the proposed rule may preferential earnings be included in the circumstances that would trigger
include, in given cases, among other table? If so, why would such disclosure payments or provision of benefits;
things: • Any material conditions or
be more useful or informative to
• The type(s) of compensation investors?
obligations applicable to the receipt of
permitted to be deferred, and any payments or benefits, including but not
• Is any of the proposed new
limitations (by percentage of limited to non-compete, non-
disclosure unnecessary? If so, please
compensation or otherwise) on the solicitation, non-disparagement or
explain. confidentiality covenants; and
extent to which deferral is permitted;
• The measures of calculating interest c. Other Potential Post-Employment • Any other material features
or other plan earnings (including Payments necessary for an understanding of the
whether such measure(s) are selected by provisions.
We are proposing significant revisions
the named executive officer or the to our requirements to describe The item contemplates disclosure of the
company and the frequency and manner termination or change in control duration of non-compete and similar
in which such selections may be agreements, and provisions regarding
provisions. The Commission has long
changed), quantifying interest rates and waiver of breach of these agreements,
recognized that ‘‘termination provisions
other earnings measures applicable and disclosure of tax gross-up
are distinct from other plans in both
during the company’s last fiscal year; payments.
intent and scope and, moreover, are of As proposed, a company would be
and particular interest to shareholders.’’ 157
• Material terms with respect to Currently, disclosure does not in many
required to provide quantitative
payouts, withdrawals and other cases capture material information
158 Proposed Item 402(k), which would replace

distributions. regarding these plans and potential current Item 402(h)(2).
154 Proposed
payments under them. We therefore 159 We propose to eliminate the current $100,000
Instruction to Item 402(j)(2). disclosure threshold. With respect to post-
155 Proposed Instruction 4 to Item 402(c),
propose disclosure of specific aspects of
termination perquisites, however, the same
described in Section II.B.1.b., above, regarding the any written or unwritten arrangement disclosure and itemization thresholds proposed for
Summary Compensation Table. the Summary Compensation Table would apply.
156 Proposed Item 402(j)(3). 157 1983 Release, at Section III.E. See Section II.B.1.d.iii, above.
disclosure under these requirements as is currently the case, up to two status of these particular officers are
even where uncertainties exist as to additional individuals for whom unquestionably or presumptively
amounts payable under these plans and disclosure would have been required material. At the time when a decision is
arrangements. In the event that but for the fact that they were no longer made regarding the employment status
uncertainties exist as to the provision of serving as executive officers at the end of a particular officer, it will not always
payments or benefits or the amounts of the last completed fiscal year would be clear who will be the named
involved, the company would be be included. executive officers for the current year.
required to make reasonable estimates We believe that compensation of the Given these factors, it is reasonable for
and disclose material assumptions principal financial officer is important the two groups not to be identical.
underlying such estimates in its to shareholders because, along with the
Request for Comment
disclosure. In such event, the disclosure principal executive officer, the principal
would be considered forward-looking financial officer provides the • Should the principal financial
information as appropriate that falls certifications required with the officer be specifically included as a
within the safe harbor for disclosure of company’s periodic reports and has named executive officer?
such information.160 important responsibility for the fair • Would the proposed named
presentation of the company’s financial executive officers be those executive
Request for Comment officers whose compensation is material
statements and other financial
• Should we, as proposed, eliminate information.163 Like the principal to investors? Is only the compensation
the current $100,000 threshold for executive officer, disclosure about the of the principal executive officer
disclosure for compensatory plans or principal financial officer would be material? The principal executive officer
arrangements providing payments upon required even if he or she was no longer and the principal financial officer?
termination or change-in-control? serving in that capacity at the end of the • Should Item 402 specifically
• Should the proposed item last completed fiscal year.164 As is require disclosure of the compensation
specifically require narrative disclosure currently the case for the chief executive of any other officers listed in Form 8–
of any additional information? If so, officer, all persons who served as the K Item 5.02? If so, which officers and
what information and why? company’s principal executive officer or why? If we were to require Item 402
• Would a tabular format result in principal financial officer during the disclosure regarding compensation of
more effective disclosure of any of this last completed fiscal year would be additional Item 5.02 officers, should we
information? If so, how should such a named executive officers. also require Item 402 disclosure for two
table be constructed so that it is easily We do not propose to require or three additional officers who receive
understood, given the wide variability compensation disclosure for all of the the highest compensation?
of the factors determining payments? officers listed in Item 5.02 of Form 8– • Are there any other specific
For example, should such a table have K.165 Item 5.02 of Form 8–K was executive officers, such as the general
separate columns for cash payments, adopted to provide current disclosure in counsel or principal accounting officer,
stock payments, and perquisites; the event of an appointment, who should be specifically identified as
separate lines for each potential resignation, retirement or termination of named executive officers? If so, which
termination event; and narrative the specified officers, based on the officers and why?
disclosure of other material terms, such principle that changes in employment • Should we retain, as proposed, the
as duration, renewal and applicable current requirement that up to two
covenants? to a registrant, means its president, any vice additional individuals for whom
• Should we require companies to president of the registrant in charge of a principal disclosure would have been required
provide quantitative disclosure as business unit, division or function (such as sales, but for the fact that they were no longer
proposed? If not, how can there be administration or finance), any other officer who serving as executive officers at the end
performs a policy making function or any other
assurance that investors can understand person who performs similar policy making of the year be included in the
the significant amounts of compensation functions for the registrant. Executive officers of disclosure?
that may be involved? subsidiaries may be deemed executive officers of • Is the continuation of the current
the registrant if they perform such policy making requirement for five named executive
6. Officers Covered functions for the registrant.’’ Therefore, as is
currently the case today, a named executive officer
officers appropriate? Should that
a. Named Executive Officers may be an executive officer of a subsidiary. number be higher or lower?
We propose to have the principal 163 Exchange Act Rules 13a–14 and 15d–14.
b. Identification of Most Highly
164 Proposed paragraphs (a)(3)(i) and (a)(3)(ii) of
executive officer, the principal financial Compensated Officers; Dollar Threshold
Item 402 would provide that all individuals who
officer 161 and the three most highly served as a principal executive officer and principal for Disclosure
compensated executive officers other financial officer or in similar capacities during the
than the principal executive officer and last completed fiscal year must be considered We propose to identify the most
principal financial officer comprise the named executive officers. Proposed Instruction 4 to highly compensated executive officers
named executive officers.162 In addition, Item 402(a)(3) would specify that if the principal on the basis of total compensation for
executive officer or principal financial officer the most recent fiscal year.166 We also
served in that capacity for only part of a fiscal year,
160 See Securities Act Section 27A and Exchange
information must be provided as to all of the propose to revise the dollar threshold
Act Section 21E. individual’s compensation for the full fiscal year. for disclosure of named executive
161 We propose to adopt the nomenclature used Proposed Instruction 4 to Item 402(a)(3) would also officers other than the principal
most recently in Item 5.02 of Form 8–K, which specify that if a named executive officer (other than executive officer and the principal
refers to ‘‘principal executive officer’’ and the principal executive officer or principal financial
‘‘principal financial officer.’’ officer) served as an executive officer of the financial officer to $100,000 of total
compensation for the last fiscal year.167
162 Proposed Item 402(a)(3). Currently, the named company (whether or not in the same position)
executive officers for whom disclosure is required during any part of the fiscal year, then information Both the determination of the most
include the company’s chief executive officer and is required as to all compensation of that individual highly compensated officers and the
the four most highly compensated executive officers for the full fiscal year.
excluding the chief executive officer. As defined in 165 These are the registrant’s principal executive
$100,000 disclosure threshold are
Securities Act Rule 405 [17 CFR 230.405] and officer, president, principal financial officer,
166 Proposed Instruction 1 to Item 402(a)(3).
Exchange Act Rule 3b–7 [17 CFR 240.3b–7], ‘‘the principal accounting officer, principal operating
term ‘executive officer,’ when used with reference officer or any person performing similar functions. 167 Id.
currently based only on total annual 7. Interplay of Items 402 and 404 benefits.175 For this reason, we propose
salary and bonus for the last fiscal to delete relocation plans from this
year.168 Given the proliferation of We propose that Item 402 require exclusion. For the same reason, we are
various forms of compensation other disclosure of all transactions between also deleting relocation plans from the
than salary and bonus, we believe that the company and a third party where exclusion from portfolio manager
total compensation more accurately the primary purpose of the transaction compensation in forms used by
identifies those officers who are, in fact, is to furnish compensation to a named management investment companies to
the most highly compensated. executive officer. Currently, while Item register under the Investment Company
Moreover, basing identification of 402 states that such compensation is Act and offer securities under the
named executive officers solely on the reportable under Item 402, even if also Securities Act.176 We also propose to
compensation reportable in the salary called for by another requirement, Item revise the definition of ‘‘plan’’ so that it
and bonus categories may provide an 402 also provides that information may is more principles-based.177
incentive to re-characterize be excluded if a transaction has been
compensation. reported in response to Item 404.171 Request for Comment
Under the current rules, companies This provision may cause Item 402 • Should relocation plans be required
are permitted to exclude an executive disclosure to omit compensation that a to be disclosed as compensation?
officer (other than the chief executive transaction disclosed under Item 404 Should group life, health,
officer) due to either an unusually large provides to executives. We propose to hospitalization and medical
amount of cash compensation that is not eliminate that exclusion from Item reimbursement also be included in
part of a recurring arrangement and is 402.172 We also propose instructions to reportable compensation? Can these
unlikely to continue, or cash Item 404 that would clarify what plans be operated in a manner that may
compensation relating to overseas compensation does not need to be obscure compensation disclosure? Are
assignments attributed predominantly to reported under Item 404.173 In some there other plans or benefits that should
such assignments.169 Because payments cases the result may nevertheless be that be excluded from the disclosure
attributed to overseas assignments have compensation information is disclosed requirements of Item 402? If so, why?
the potential to skew the application of under Item 402 while a related person • Should management investment
Item 402 disclosure away from transaction giving rise to that companies be required to disclose all
executives whose compensation compensation is disclosed under Item relocation plans as portfolio manager
otherwise properly would be disclosed, 404. We believe the possibility of compensation? Should all group life,
we propose to retain this basis for additional disclosure in the context of health, hospitalization, medical
exclusion. However, we believe that each of the respective items is preferable reimbursement, and pension and
other compensation that is ‘‘not to the possibility that compensation is retirement plans and arrangements also
recurring and unlikely to continue’’ not properly and fully disclosed under be included in compensation that is
should be considered compensation for Item 402. disclosed for portfolio managers of
disclosure purposes. There has been Request for Comment management investment companies?
inconsistent interpretation of the ‘‘not
9. Compensation of Directors
recurring and unlikely to continue’’ • In light of the amendments to Item
standard, and it is susceptible to 404 that we also propose, are there any Director compensation has continued
manipulation. We therefore propose to circumstances for which the current to evolve from simple compensation
eliminate this basis for exclusion.170 exclusion from Item 402 disclosure for packages mostly involving cash
transactions reported under Item 404 compensation and attendance fees to
Request for Comment
should be retained? If so, why? more complex packages, which can also
• Are there any particular include share-based compensation,
circumstances or categories of 8. Other Proposed Changes incentive plans and other forms of
companies for which a measure other compensation.178 In light of this
than total compensation should be A company is currently permitted to
omit from Item 402 disclosure complexity, we have determined to
applied to identify the most highly propose formatted tabular disclosure for
compensated executive officers? If so, ‘‘information regarding group life,
health, hospitalization, medical director compensation, accompanied by
what measure should be applied and narrative disclosure of additional
why? Is $100,000 the correct disclosure reimbursement or relocation plans that
do not discriminate in scope, terms or material information. In doing so, we
threshold? are revisiting an approach that the
• Should payments attributable to operation, in favor of executive officers
overseas assignments be included in or directors of the company and that are 175 See, e.g., Ellen Simon, At Corporate Helm,
determining the most highly available generally to all salaried Extra Benefits Still Alive and Well, Assoc. Press,
compensated officers, given that the employees.’’ 174 Because relocation Apr. 26, 2004; and Carrie Johnson, Former Tyco
purpose of such payments typically is to plans, even when available generally to Executive Takes Stand in Trial, Wash. Post, Feb. 11,
all salaried employees, are susceptible 2004, at E2.
compensate for disadvantageous 176 Proposed amendment to Instruction 2 to Item
currency exchange rates or high costs of to operation in a discriminatory manner 15(b) of Form N–1A; proposed amendment to
living? that favors executive officers, this Instruction 2 to Item 21.2 of Form N–2; proposed
• Are there any particular exclusion may deprive investors of amendment to Instruction 2 to Item 22(b) of Form
disclosure of significant compensatory N–3.
circumstances, such as commissions for 177 Proposed Item 402(a)(6)(ii).
executives responsible for sales, for 178 See, e.g., National Association of Corporate
171 Current Items 402(a)(2) and 402(a)(5).
which the ‘‘not recurring and unlikely
Directors and Pearl Meyer & Partners, 2003–2004

172 Because current Item 402(a)(5) otherwise is
to continue’’ standard should be Director Compensation Survey (2004); National
redundant with current Item 402(a)(2), we propose Association of Corporate Directors, Report of the
retained? to rescind Item 402(a)(5) in its entirety. We propose NACD Blue Ribbon Commission On Director
a conforming amendment to Item 402(a)(2). Compensation (2001); and Dennis C. Carey, et al.,
168 CurrentInstruction 1 to Item 402(a)(3). 173 Proposed Instructions 5 and 6 to Item 404(a).
How Should Corporate Directors Be Compensated?,
169 CurrentInstruction 3 to Item 402(a)(3). 174 Current Item 402(a)(7)(ii), which generally Investment Dealers’ Digest Inc.—Special Issue:
170 Proposed Instruction 3 to Item 402(a)(3). defines the term ‘‘plan.’’ Boards and Directors (Jan. 1996).
Commission proposed in 1995 but did opposing the proposal believed that proposing a Director Compensation
not adopt at that time.179 The non-executive directors were generally Table, which would resemble the
commenters supporting the proposal compensated uniformly, and therefore proposed Summary Compensation
generally believed that it was breaking out compensation for each Table, but would present information
appropriate to treat director director in a table often could yield only with respect to the company’s last
compensation similarly to executive repetitious data.181 completed fiscal year.
compensation.180 The commenters Director compensation has continued
to evolve since 1995 so that we are again
DIRECTOR COMPENSATION
Non-stock
Fees All other
earned or compensa-
Name Total awards awards plan com-
paid in cash tion
($) ($) pensation
($) ($)
($)
(a) (b) (c) (d) (e) (f) (g)
A ...........................................................................................
B ...........................................................................................
C ...........................................................................................
D ...........................................................................................
E ...........................................................................................
The All Other Compensation column contribution and other deferred amounts of compensation paid to a
of the proposed Director Compensation compensation plans; named executive officer and disclosed
Table would include, but not be limited • All consulting fees; in the Summary Compensation Table
to: • Awards under director legacy or with footnote disclosure indicating what
• All perquisites and other personal charitable awards programs; 182 and amounts reflected in that table are
benefits if the total is $10,000 or greater; • The dollar value of any insurance compensation for services as a director.
• All earnings on compensation that premiums paid by, or on behalf of, the A proposed instruction to the Director
company for life insurance for the Compensation Table would permit the
is deferred on a basis that is not tax-
director’s benefit. grouping of directors in a single row of
qualified;
In addition to the disclosure specified the table if all of their elements and
• All tax reimbursements; in the columns of the table, companies
• Annual company contributions or amounts of compensation are
would be required to disclose, for each identical.185
other allocations to vested and unvested director, by footnote to the appropriate Following the table, narrative
defined contribution plans; column, the outstanding equity awards disclosure would describe any material
• For any security of the company or at fiscal year end as would be required factors necessary to an understanding of
its subsidiaries purchased from the if the Outstanding Equity Awards at the table. Such factors may include, for
company or its subsidiaries (through Fiscal Year-End table for named example, a breakdown of types of
deferral of fees or otherwise) at a executive officers were required for fees.186 We are not proposing the
discount from the market price of such directors.183 The same instructions as supplemental tables for directors.
security at the date of purchase, unless provided in the Summary
the discount is generally available to all Compensation Table would govern Request for Comment
security holders or to all salaried analogous matters in the Director • Does the proposed table organize
employees of the company, the Compensation Table. As with the director compensation disclosure in a
compensation cost computed in Summary Compensation Table, the format that is easy to understand?
accordance with FAS 123R; proposed rules make clear that all • Do the proposed table and narrative
• Aggregate annual increase in compensation must be included in the disclose information that is material to
actuarial value of all defined benefit and table.184 As is the case with the current an investor’s analysis of director
actuarial pension plans; director disclosure requirement, compensation? Should other tables be
• Annual company contributions to companies would not be required to required, such as the Grants of
vested and unvested defined include in the director disclosure any Performance-Based Awards Table and
179 1995 Release. The 1995 proposal was coupled Amerian Bar Association; American Institute of agree to make a future donation to one or more
with a proposal to permit companies to reduce the Certified Public Accountants; Association of charitable institutions in the director’s name,
detailed executive compensation information Investment Management and Research; American payable by the registrant upon a designated event
provided in the proxy statement by instead Society of Corporate Secretaries; Instituional such as death or retirement. The amount to be
furnishing that information in the Form 10–K. We Shareholder Services; and Ernst & Young LLP
disclosed in the table would be the annual cost of
did not act upon the proposals. (favoring tabular disclosure of director
180 The Commission received approximately 153 compensation, but with suggested improvements to such promises and payments, with footnote
proposed rules). disclosure of the total dollar amount and other
letters supporting the proposal. Of those, 133, all
individuals, expressed their views via a brief 181 Approximately 20 commenters, primarily material terms of each such program.
statement submitted using a form letter. Additional corporations and associations, opposed the rules. 183 Proposed Instruction to item 402(l)(2)(iv) and
supporting commenters included corporations, See, e.g., comment letters in File No. S7–14–95 (v).
associations, unions, and security holder resource from the American Corporate Counsel Association; 184 The only exception would be if all perquisites
providers. See, e.g., comment letters on the 1995 AT&T Corp.; The Business Roundtable;
received by the director total less than $10,000, they
Release in File No. S7–14–95 from Bell Atlantic Consolidated Edison Company of New York; Deere
& Communications, Inc. would not need to be disclosed.
Network Services, Inc.; Chevron Corporation; and
185 Proposed Instruction to item 402(l)(2).
Scott Paper Company (generally offering support for 182 Under director legacy programs, also known as
proposal). See also, e.g., coment letters from the charitable award programs registrants typically 186 Proposed Item 402(l)(3).
the Grants of All Other Equity Awards crafting the proposals, we recognize that Request for Comment
Table? the executive compensation • Would reliance on narrative
• Should named executive officers arrangements of small business issuers disclosure adversely affect
who are also directors be omitted from typically are less complex than those of comparability of disclosure among small
the table, with any compensation for other public companies. We also business issuers? Are there particular
services as a director reported only in recognize that satisfying disclosure forms of compensation that for this
the Summary Compensation Table, as is requirements designed to capture more reason should instead be presented in a
currently the case? If so, should there be complicated compensation tabular format? If so, why?
some indication of their status as arrangements may impose new, • Should small business issuers be
directors and compensation related to unwarranted burdens on small business categorically exempted from providing a
their director service in the Summary issuers.
Compensation Table, the Director Compensation Discussion and Analysis?
Compensation Table, or both? Should As proposed, small business issuers Are there particular elements of the
the nature or extent of compensation to would be required to provide, along proposed Compensation Discussion and
the chairman of the board of directors be with related narrative disclosure: Analysis in Item 402 of Regulation S–K
that small business issuers should be
presented differently from that of other • The Summary Compensation
directors? required to address? If so, which
Table; 188
• With respect to disclosure of elements and why?
• The Outstanding Awards at Fiscal • Are there other provisions of our
perquisites, should the director
Year-End Table; 189 and rule proposal that should not apply to
compensation apply the same $10,000
disclosure threshold as proposed for the • The Director Compensation small business issuers?
Summary Compensation Table? Should Table.190 • Should the Summary Compensation
separate identification and Table require disclosure of
Also as proposed, small business issuers
quantification apply to director compensation for each of the last two
would only be required to provide fiscal years, or is only the last
perquisites? information in the Summary
• Does the proposed table cover any completed fiscal year necessary?
Compensation Table for the last two • Should compensation disclosure be
forms of compensation that typically are fiscal years. In addition, small business
not awarded to directors and therefore provided for a larger group of executive
issuers would be required to provide officers than we have proposed? If so,
should be omitted? Should the information for fewer named executive
requirements be modified to make it which officers and why?
officers, namely the principal executive • Should we require small business
easier to capture forms of compensation, officer and the two most highly
if any, that develop in the future? issuers to provide an Option Exercises
compensated officers other than the and Stock Vested Table?
• Does the proposed table omit any principal executive officer.191 Narrative
forms of compensation awarded to • Should the quantitative threshold
discussion of a number of items to the for identifying the most highly
directors that should be specifically extent material would replace tabular or
included or identified? compensated executive officers remain
footnote disclosure, for example
• Should narrative disclosure the same in both Regulation S–B and
identification of other items in the All Regulation S–K? For example, if we
regarding the company’s policies and
objectives with respect to director Other Compensation column and a raise this threshold in Item 402 of
compensation and share ownership or description of post-employment Regulation S–K, should it remain
retention policies accompany this table? payments and other benefits.192 Small $100,000 for Regulation S–B? Should
Should it be included in the business issuers would not be required any other threshold be different for
Compensation Discussion and Analysis? to provide a Compensation Discussion small business issuers?
• Would more specific footnote and Analysis.193 • Should small business issuers also
disclosure, as opposed to the proposed be required to identify perquisites and
accompanying narrative, provide Table columns disclosing potential realizable value personal benefits valued, in the
or grant date value. The current rules also permit aggregate, in excess of $10,000 and to
additional material information samll business issuers to exclude the Pension Plan
regarding director compensation? Table. quantify perquisites and personal
Should there be supplemental tables for 188 Proposed Items 402(b) and 402(c) of benefits valued at the greater of $25,000
directors, or should we require Regulation S–B. or ten percent of total perquisites and
disclosure of the number of shares, 189 Proposed Item 402(d) of Regulation S–B.
other personal benefits?
units, options and other securities
190 Proposed Item 402(f) of Regulation S–B.
• Should we require the
191 Proposed Item 402(a) of Regulation S–B.
awarded to directors in addition to the supplemental tables to the Summary
Proposed Item 402(c)(1)(vii) of Regulation S–B
grant date fair value of such awards? would require an identification to the extent Compensation Table?
material of any item included under All Other • Are there other items that should be
C. Treatment of Specific Types of Compensation in the Summary Compensation specifically required to be discussed in
Issuers Table, however identification of an item wold not the proposed narrative disclosure for
be considered material under the proposal if it did
1. Small Business Issuers not exceed the greater of $25,000 or 10% of all small business issuers?
The Item 402 proposals would items included in the specified category. All items
of compensation would be requred to be included
2. Foreign Private Issuers
continue to differentiate between small in the Summary Compensatio Table without regard Currently a foreign private issuer will
business issuers and other issuers.187 In to whether such items are required to be
indentified.
be deemed to comply with Item 402 of
Regulation S–K if it provides the
187 The term small business issuer is defined by 192 Proposed Item 402(c) and 402(e) of Regulation
Item 10(a)(1) of Regulation S–B. Currently, under S–B. information required by Items 6.B. and
both Item 402 of Regulation S–B and Item 402 of 193 We would also eliminate the current provision 6.E.2. of Form 20–F, with more detailed
Regulation S–K, a small business issuer is not of Item 402 of Regulation S–K that allows small information provided if otherwise made
required to provide the Compensation Committee business issuers using forms that call for Regulation
Report, the Performance Graph, the Compensation S–K disclosure to exclude the disclosure required
publicly available. The proposals would
Committee Interlocks disclosure, the Ten-Year by certain paragraphs of that Item. Current Item continue this treatment of these issuers
Option/SAR Repricings Table, and the Option Grant 402(a)(1)(i) of Regulation S–K. and clarify that the treatment of foreign
private issuers under Item 402 parallels members of the advisory board, and Business development companies
that under Form 20–F. each of the three highest paid officers or would also be required to make these
any affiliated person of the company disclosures in their annual reports on
Request for Comment
that have aggregate compensation from Form 10–K.200
• Should we eliminate the provision the company for the most recently As a result of these proposed
which permits a foreign private issuer to completed fiscal year in excess of amendments, the persons covered by
comply with Item 402 by complying $60,000.197 the compensation disclosure
with the more limited disclosure We are proposing to apply to business requirements would be changed. The
requirements under Form 20–F with development companies the same compensation disclosure in the proxy
respect to management remuneration? executive compensation rules that apply and information statements and
Should a foreign private issuer that is to operating companies because the registration statements of business
required to comply with Item 402 (for proposed disclosure requirements are development companies would be
example, by filing an annual report on intended to provide investors with a required to cover the same officers as for
Form 10–K) be required to provide all clearer and more complete picture of operating companies, including the
of the information required under Item executive compensation, and we are principal executive officer and principal
402 instead of the information required concerned that this purpose would not financial officer, as well as the three
under Form 20–F? be achieved through piecemeal most highly compensated executive
3. Business Development Companies application of some of the requirements. officers that have total compensation
Our proposal would also eliminate the exceeding $100,000,201 instead of each
We are proposing to apply the same of the three highest paid officers of the
executive compensation disclosure current inconsistency between Form
10–K, on the one hand, which requires company that have aggregate
requirements to business development compensation from the company for the
companies that we are proposing for business development companies to
furnish all of the information required most recently completed fiscal year in
operating companies.194 Currently, excess of $60,000. In addition, the
business development companies are by Item 402 of Regulation S–K, and the
proxy rules and Form N–2, on the other, registration statements of business
required to provide executive development companies would no
compensation disclosure based, in part, which require business development
companies to provide some of the longer be required to disclose
on the requirements that apply to compensation of members of the
operating companies and, in part, on the information from Item 402 and other
information that applies to registered advisory board or certain affiliated
requirements that apply to investment persons of the company.
companies registered under the investment companies. Finally, we
Finally, under the proposals, the
Investment Company Act. Moreover, the believe that, similar to operating
proxy and information statements and
executive compensation disclosure companies, business development
registration statements of business
requirements for business development companies should furnish
development companies would not be
companies are not uniform in Securities compensation disclosure on proxies
required to include compensation from
Act registration statements, proxy and relating to the compensation
the ‘‘fund complex.’’ Currently, this
information statements, and Form 10–K. arrangements and other matters
information is required in some
Under Form 10–K, business enumerated in Items 8(b) through (d) of circumstances.202
development companies are required to Schedule 14A and not just in the case
furnish all of the information required of director elections as currently Request for Comment
by Item 402 of Regulation S–K for all of required by Item 22(b)(13). • Should business development
the persons covered by Item 402.195 In Under the proposals, the registration companies be required to comply with
proxy and information statements, statements of business development the same compensation disclosure
business development companies are companies would be required to include requirements as operating companies or
required to provide for directors and all of the disclosures required by Item registered investment companies, a
each of the three highest paid officers 402 of Regulation S–K for all of the combination of the compensation
that have aggregate compensation from persons covered by Item 402.198 This disclosure requirements for operating
the company for the most recently disclosure would also be required in the companies and registered investment
completed fiscal year in excess of proxy and information statements of companies, or some other set of
$60,000, certain information required by business development companies if compensation disclosure requirements?
Item 402 of Regulation S–K and certain action is to be taken with respect to the Should the same compensation
other information that registered election of directors or with respect to disclosure requirements apply to
investment companies are required to the compensation arrangements and business development companies in
provide.196 In registration statements, other matters enumerated in Items 8(b) registration statements, proxy and
business development companies are through (d) of Schedule 14A.199 information statements, and Form 10–
required to provide the same K? In addressing the appropriate
information required in proxy 197 Item 18.14 of Form N–2. compensation disclosure requirements
198 Proposed Item 18.15 of Form N–2. Under the
statements, but with respect to directors, for business development companies,
proposals, business development companies would
no longer be required to respond to Item 18.14 of
commenters are requested to address
194 Business development companies are a
Form N–2, and Item 18.14(c) of Form N–2 would
category of closed-end investment companies that be deleted. Current Items 18.15 and 18.16 of Form Proposed amendments to Item 22(b)(13) of
are not required to register under the Investment N–2 would be redesignated as Items 18.16 and Schedule 14A.
Company Act [15 U.S.C. 80a–2(a)(48)]. 18.17, respectively. As a result of the redesignation 200 Item 11 of Form 10–K.
195 Item 11 of Form 10–K. of current Item 18.16 of Form N–2, a change to the 201 See Section II.B.6., above.
196 Items 8 and 22(b)(13) of Schedule 14A. These cross reference to this Item in Instruction 8(a) of 202 See Instructions 4 and 6 to Item 22(b)(13)(i) of
items require business development companies to Item 24 of the form is also proposed. Schedule 14A; Instructions 4 and 6 to Item 18.14(a)
provide certain information required by Item 199 Proposed amendment to Item 8 of Schedule of Form N–2 (requiring certain entries in the
402(b)(2)(iv) and (c) of Regulation S–K, as well as 14A. Under the proposals, business development compensation table in the proxy and information
a compensation table and a brief description of the companies would no longer be required to respond statements and registration statements of business
material provisions of certain pension, retirement to Item 22(b)(13) of Schedule 14A, and Item development companies to include compensation
and other plans. 22(b)(13)(iii) of Schedule 14A would be deleted. from the fund complex).
separately the persons covered by the executive compensation, should a staff’s experience over the last year
disclosure requirements and the company be required to list in its annual suggests that this item has elicited
disclosures required with respect to proxy statement for the election of executive compensation disclosure
those persons. Commenters are also directors all other documents filed since regarding types of matters that do not
requested to address separately the last proxy statement (such as Forms appear always to be unquestionably or
disclosures for executive officers and 8–K and exhibits filed with Forms 10– presumptively material, which is the
directors. K and 10–Q) that contain this standard we set for the expanded Form
• Should all business development information? Instead, should such a list 8–K disclosure events.207 We therefore
companies be subject to the same be provided solely as an EDGAR-filed propose to revise Items 1.01 and 5.02 to
executive compensation disclosure or annex to the proxy statement? require real-time disclosure of employee
should we distinguish between smaller • Would the presentation and content compensation events that more clearly
and larger business development of the executive and director satisfy this standard.
companies? Should business compensation disclosure be improved In addition to the proposed
development companies be subject to by making the information available in amendments to Items 1.01 and 5.02 of
the executive compensation disclosure the form of interactive data? For Form 8–K, we propose to revise General
requirements of Regulation S–B filers? example, could an understanding of the Instruction D of Form 8–K to permit
• Should we require disclosure of information reported in the proposed companies in most cases to omit the
compensation paid to affiliated persons tables be enhanced by the ability to Item 1.01 heading if multiple items
of a business development company and access more detailed information including Item 1.01 are applicable, so
members of the advisory board of the regarding discrete amounts or items long as all of the substantive disclosure
company? reported in the tables? If the required by Item 1.01 is included.
• Should we require disclosure of presentation of interactive data would A. Proposed Revisions to Items 1.01 and
certain compensation paid by the fund be desirable, what would be the best 5.02 of Form 8–K
complex that includes a business means for introducing interactive data
development company? Item 1.01 of Form 8–K requires an
capabilities into the proposed Item 402
Exchange Act reporting company to
D. Conforming Amendments disclosure requirements? For example,
disclose, within four business days, the
should we develop a data format that
The Item 402 proposals necessitate company’s entry into a material
could be used to submit the information
conforming amendments to the Items of definitive agreement outside of its
that has interactive capability while at
Regulations S–K and S–B and the proxy ordinary course of business, or any
the same time having the information
rules that cross reference amended amendment of such agreement that is
readable on its face? Should we
paragraphs of Item 402. On this basis, material to the company. When we
consider having the information
the rule proposals would amend: initially proposed this item, several
provided using Extensible Business
• The Item 201(d) of Regulations S– Reporting Language, also known as
commenters stated that it would be
K and S–B and proxy rule references to difficult to determine, within the
XBRL? Could the information be
the Item 402 definition of ‘‘plan;’’ 203 shortened Form 8–K filing period,
provided in a form that permits
• The Item 601(b)(10) of Regulation whether a particular definitive
interactive capability in proxy and
S–K reference to the Item 402 treatment agreement met the materiality threshold
information statements that are made
of foreign private issuers; 204 and of Item 1.01, and whether the agreement
• The proxy rule references to Item available on the Internet or otherwise
was outside of the ordinary course of
402 retirement plan disclosure.205 electronically?
business.208 Some of these commenters
E. General Comment Requests on the III. Proposed Revisions to Form 8–K suggested that we apply to Item 1.01 the
Item 402 Proposals and the Periodic Report Exhibit standards used in pre-existing Item
Requirements 601(b)(10) of Regulation S–K governing
We request comment on any aspect of the filing as exhibits to Commission
these proposals. In particular: In March 2004, the Commission
adopted amendments to Form 8–K that reports of material contracts entered
• Would the proposals effectively into outside the ordinary course because
provide clearer, more complete significantly expanded the number of
events that are reportable on Form 8–K these standards had been in place for
disclosure of executive and director many years and were familiar to
compensation? If not, what changes are and reduced the reporting deadline for
most Form 8–K disclosure items to four reporting companies.209
needed to accomplish this result? In response to the concerns raised by
• Are the proposals sufficiently business days after the triggering
event.206 These amendments became these comments, we adopted Item 1.01
broad-based to continue to operate of Form 8–K so that it used the
effectively as new forms of effective on August 23, 2004. As part of
compensation are developed in the our broader effort to revise our 207 We stated in Section I of the Form 8–K
future? If not, what changes are executive and director compensation Adopting Release: ‘‘The revisions that we adopt
necessary to achieve this flexibility? disclosure requirements, we are today will benefit markets by increasing the number
• To clarify what other filed proposing revisions to Item 1.01 of Form of unquestionably or presumptively material events
8–K, which currently requires this real- that must be disclosed currently.’’
documents provide information about 208 See, e.g., comment letters on Additional Form
time disclosure about an Exchange Act 8–K Disclosure Requirements and Acceleration of
203 Proposed amendments to: Instruction 2 to reporting company’s entry into a Filing Date, Release No. 33–8106 (June 17, 2002) [67
paragraph (d) of Item 201 of Regulation S–B; material definitive agreement outside of FR 42913] in File No. S7–22–02 from the
Instruction 2 to paragraph (d) of Item 201 of the ordinary course of the company’s Committee on Federal Regulation of Securities,
Regulation S–K; Exchange Act Rules 14a–6(a)(4) Section of Business Law of the American Bar
and 14c–5(a)(4); and Instruction 1 to Item 10(c) of business, as well as any material Association; Cleary, Gottlieb, Steen & Hamilton;
Schedule 14A. amendment to such an agreement. Our Intel Corporation; Professor Joseph A. Grundfest, et
204 Proposed amendment to Item al.; Perkins Coie LLP; Sherman & Sterling; and
601(b)(10)(iii)(C)(5). 206 Additional Form 8–K Disclosure Requirements Sullivan & Cromwell.
205 Proposed amendments to Item 10(b)(1)(ii) and and Acceleration of Filing Date, Release No. 33– 209 See e.g., comment letter in File No. S7–22–02
the Instruction following Item 10(c) of Schedule 8400 (Mar. 16, 2004) [69 FR 15593] (the ‘‘Form 8– from the Section of Business Law of the American
14A. K Adopting Release’’). Bar Association.
standards of Item 601(b)(10) to Therefore, entry into these types of a more balanced approach to this aspect
determine the types of agreements that contracts triggers the filing of a Form 8– of Form 8–K that is designed to elicit
are material to a company and not in the K within four business days. unquestionably or presumptively
ordinary course of business. Item Importantly, the requirement for material information on a real-time
601(b)(10) of Regulation S–K requires a directors and named executive officers basis, but seeks to limit Form 8–K
company to file, as an exhibit to does not include an exception for those disclosure of information below that
Securities Act and Exchange Act filings, that are ‘‘immaterial in amount or threshold. Accordingly, we propose to
material contracts that are not made in significance.’’ amend Item 1.01 of Form 8–K to
the ordinary course of business and are The incorporation of the Item eliminate employment compensation
to be performed in whole or part at or 601(b)(10) standards into Item 1.01 of arrangements and to cover such
after the filing of the registration Form 8–K has therefore significantly arrangements under a modified broader
statement or report, or were entered into affected executive compensation Item 5.02.213
not more than two years before the disclosure practices. Prior to the Form Item 5.02 of Form 8–K currently
filing. The item refers specifically to 8–K amendments, it was customary for generally requires disclosure within
employment compensation a company’s annual proxy statement to four business days of the appointment
arrangements and establishes a be the primary vehicle for disclosure of or departure of directors and specified
company’s obligation to file the executive and director compensation officers. In particular, Item 5.02 requires
following as exhibits: information. However, Item 1.01 of disclosure if a company’s principal
• Any management contract or any amended Form 8–K has resulted in executive officer, president, principal
compensatory plan, contract or executive compensation disclosures that financial officer, principal accounting
arrangement, including but not limited are much more frequent and accelerated officer, principal operating officer, or
to plans relating to options, warrants or than those included in a company’s any person performing similar
rights, pension, retirement or deferred proxy statement. In addition, functions, retires, resigns or is
compensation or bonus, incentive or particularly because of the terms of Item terminated from that position 214 or if a
profit sharing (or if not set forth in any 601(b)(10), Item 1.01 of Form 8–K has company appoints a new principal
formal document, a written description triggered compensation disclosure of the executive officer, president, principal
thereof) in which any director or any types of matters that, in some cases, financial officer, principal accounting
named executive officer (as defined by appear to fall short of the officer, principal operating officer, or
Item 402(a)(3) of Regulation S–K) ‘‘unquestionably or presumptively any person performing similar
participates; material’’ standard associated with the functions.215 Item 5.02 also requires
• Any other management contract or expanded Form 8–K disclosure items. disclosure if a director retires, resigns, is
any other compensatory plan, contract, Companies and their counsel have removed, or declines to stand for re-
or arrangement in which any other raised concerns that the new Form 8–K election.216 The required disclosure
executive officer of the registrant requirements have resulted in real-time currently includes a brief description of
participates, unless immaterial in disclosure of compensation events that the material terms of any employment
amount or significance; and should be disclosed, if at all, in a agreement between the registrant and
• Any compensation plan, contract or company’s proxy statement for its the officer and a description of
arrangement adopted without the annual meeting or as an exhibit to the disagreements, if any.
approval of security holders pursuant to company’s next periodic report, such as We propose to modify Item 5.02 to
which equity may be awarded, the Form 10–Q or Form 10–K.211 capture generally the currently required
including, but not limited to, options, We believe that much of the information under that item, as well as
warrants or rights in which any disclosure regarding employment additional information regarding
employee (whether or not an executive compensation matters required in real- material employment compensation
officer of the company) participates time under the new Form 8–K arrangements involving named
unless immaterial in amount or requirements is viewed by investors as executive officers that currently fall
significance.210 material.212 However, we also believe under Item 1.01. Our proposal will both
that it would be appropriate to restore modify the overall requirements for
210 Item 601(b)(10)(iii) of Regulation S-K. We note disclosure of employment compensation
the provision in Item 601(b)(10)(iii)(A) that carves Regarding Exhibit Requirement, Release No. 33– arrangements on Form 8–K and locate
out any plan, contract or arrangement in which 6287 (Feb. 6, 1981) 46 FR 11952], at Section I.
named executive officers and directors do not
all such disclosure under a single item.
Therefore, in February 1981, the Commission added
participate that is ‘‘immaterial in amount or ‘‘unless immaterial in amount or significance’’ to
213 We propose deleting the last sentence of
significance.’’ In 1980, the Commission adopted the definition of ‘‘material contracts’’ as applied to
amendments to Regulation S–K that consolidated remunerative plans, contracts or arrangements current Instruction 1 to Item 1.01 of Form 8–K,
all of the exhibit requirements of various disclosure participated in by executives that are not named which references the portions of Item 601(b)(10)
forms into a single item in Regulation S–K. executive officers. Id. We reiterate that this phrase that specifically relate to management
Amendments Regarding Exhibit Requirements, was intended to indicate that whether plans, compensation and compensatory plans. In place of
Release No. 33–6230 (Aug. 27, 1980) [45 FR 58822], contracts or arrangements which executive officers the deleted sentence, we propose to add a sentence
at Section II.B. This item was a forerunner of the other than named executive officers participate are specifying that agreements involving the subject
current Item 601. As part of that 1980 adopting to be included in the requirements of 601(b)(10) matter identified in Item 601(b)(10)(iii)(A) or (B) of
release, the definition of material contract must be determined on the basis of materiality. Regulation S–K need not be disclosed under Item
contained in the new item was also revised in an 211 See, e.g., Melissa Klein Aguilar, This Side of 1.01 of Form 8–K. This change also will apply to
effort to reduce the number of remunerative plans Caution: New Regs. Prompt 8–K Increases, disclosure of terminations of material definitive
or arrangements that must be filed. Not long after, Compliance Week, Aug. 23, 2005; Scott S. Cohen, agreements under Item 1.02 of Form 8–K, which
though, the staff discovered that rather than reduce Editorial: Debating the Materiality of ‘‘Material references the definition of ‘‘material definitive
the number of exhibits filed, the provision actually Definitive Agreements,’’ Compliance Week, Feb. 8, agreement’’ in Item 1.01 of Form 8–K. Instead of
had the opposite effect. The staff found that the 2005; and Patrick McGeehan, Now, an Advance being required to be disclosed based on the general
revised definition of material contract ‘‘has resulted Look at Those Big Paychecks, N.Y. Times, Sept. 26, requirements with regard to material definitive
in registrants filing a large volume of varied 2004, at 36. agreements in Item 1.01 and Item 1.02, employment
remunerative contracts involving directors and 212 See, e.g., Jerry Knight, Tiny SEC Filing Gave compensation arrangements would be covered
executive officers, contracts which are not material a Big Hint to Vastera’s Plans, Wash. Post, Jan. 24, under Item 5.02 of Form 8–K.
214 Item 5.02(b) of Form 8–K.
and which would not have been filed under the 2005, at E1; and Alex Berenson, Merck Offering Top
215 Item 5.02(c) of Form 8–K.
previously existing ‘material in amount or Executives Rich Way Out, N.Y. Times, Nov. 30,
significance’ standard.’’ Technical Amendment 2004, at A1. 216 Item 5.02(a) of Form 8–K.
We propose to accomplish this by taking brief description of the specified matter that a company fails to timely file
the following steps: be included. We have observed that in reports required by Item 5.02(e) of Form
• Expanding the information response to the current requirement 8–K. In the final rules for the new Form
regarding retirement, resignation or under Item 1.01, some companies have 8–K requirements, we adopted a limited
termination to include all persons included disclosure that resembles an safe harbor from liability under Section
falling within the definition of named updating of the disclosure required 10(b) of the Exchange Act and Rule 10b–
executive officers for the company’s under current Item 402 of Regulation S– 5 thereunder for failure to timely file
previous fiscal year, whether or not K. In the context of current disclosure reports required by Form 8–K Items
included in the list currently specified under Form 8–K, we are seeking a 1.01, 1.02, 2.03, 2.04, 2.05, 2.06 and
in Item 5.02; 217 disclosure that informs investors of 4.02(a). The safe harbor applies until the
• Expanding the disclosure items specified material events and filing due date of the company’s
covered under Item 5.02 beyond developments. However, the quarterly or annual report for the period
employment agreements to require a information we are seeking does not in question. As we stated at the time, we
brief description of any material plan, perforce extend to the information believe that these items may require
contract or arrangement to which a necessary to comply with Item 402. management to make rapid materiality
covered officer or director is a party or and similar judgments within the
in which he or she participates that is Request for Comment timeframe required for filing of a Form
entered into or materially amended in • Is there a particular benefit to 8–K. Under those circumstances we
connection with any of the triggering receiving information regarding concluded that the risk of liability under
events specified in Item 5.02, or any employment compensation on a current these provisions was sufficiently
grant or award to any such covered basis rather than annually or quarterly? disproportionate to justify the limited
person, or modification thereto, under What information is material in that safe harbor of fixed duration. For the
any such plan, contract or arrangement regard? same reasons, we believe that the safe
in connection with any such event; 218 • Is disclosure of material harbor should also extend to proposed
• In respect of the principal executive information about executive and Item 5.02(e) of Form 8–K. We therefore
officer, the principal financial officer, or director compensation and related propose to amend Exchange Act Rules
persons falling within the definition of person transactions avoided if 13a–11(c) and 15d–11(c) accordingly.
named executive officer for the comprehensive disclosure of In addition, under our current rules,
company’s previous fiscal year, compensation and related party a company forfeits its eligibility to use
expanding the disclosure items to transactions only occurs annually? Form S–3 if it fails to timely file all
include a brief description of any Should we also require quarterly reports required under Exchange Act
material new compensatory plan, disclosure of material changes to Sections 13(a) or 15(d) during the 12
contract or arrangement, or new grant or information required by Items 402 and months prior to filing of the registration
award thereunder (whether or not 404 in each company’s Form 10–Q? statement.220 For the same reasons,
written), and any material amendment • Would a quarterly update of when adopting the new Form 8–K rules,
to any compensatory plan, contract or material changes to Item 402 and Item we revised the Form S–3 eligibility
arrangement (or any modification to a 404 disclosure provide meaningful requirements so that a company would
grant or award thereunder), whether or disclosure to investors that they cannot not lose its eligibility to use Form S–3
not such occurrence is in connection get through other sources? If not, why? registration statements if it failed to
with a triggering event specified in Item • Would quarterly updates eliminate timely file reports required by the Form
5.02. Grants or awards or modifications the need for most of the current 8–K items to which the Section 10(b)
thereto will not be required to be disclosure about executive and director and Rule 10b–5 safe harbor applies.221
disclosed if they are consistent with the compensation transactions provided In particular, the burden resulting from
terms of previously disclosed plans or under Item 1.01 of Form 8–K? Should a company’s sudden loss of eligibility to
arrangements and they are disclosed the the information we propose to require use Form S–3 could be a
next time the company is required to under Item 5.02(e) of Form 8–K only be disproportionately large negative
provide new disclosure under Item 402 required quarterly? consequence of an untimely Form 8–K
of Regulation S–K; and • Are the proposed revisions to Items filing under one of the specified
• Adding a requirement for disclosure 1.01 and 5.02 of Form 8–K the most items.222 We believe that this safe
of salary and bonus for the most recent effective means to achieve an harbor should be extended to proposed
fiscal year that was not available at the appropriate balance regarding real-time Item 5.02(e) of Form 8–K. Therefore, we
latest practicable date in connection director and executive compensation propose to amend General Instruction
with disclosure under Item 402 of disclosure? Please describe any I.4 of Form S–3, which pertains to the
Regulation S–K.219 suggested alternatives in detail. eligibility requirements for use of Form
In the case of each of these disclosure • Should we require disclosure of all S–3 to reflect this position.223
items proposed for Item 5.02, we amendments to the plans, contracts and
emphasize that we are proposing that a arrangements encompassed by our Request for Comment
proposed disclosure requirements under • Should we extend the Section 10(b)
217 The Item would continue to cover the officers Item 5.02(e) of Form 8–K? Only material and Rule 10b–5 safe harbor and the
specified therein, whether or not named executive amendments? Form S–3 safe harbor to all of Item 5.02
officers for the previous or current years, and all
or just the provision proposed?
directors. B. Proposed Extension of Limited Safe
218 Plans, contracts or arrangements (but not
Harbor Under Section 10(b) and Rule 220 General Instruction I.A.3 to Form S–3.
material amendments or grants or awards or

modifications thereto) may be denoted by reference
10b–5 to Item 5.02(e) of Form 8–K and 221 Form 8–K Adopting Release, at Section II.E.
to the description in the company’s most recent Exclusion of That Item From Form S–3 222 Id.
annual report on Form 10–K or proxy statement. Eligibility Requirements 223 Because Form S–2 was eliminated effective
219 See Section II.B.1.b. above for a discussion of December 1, 2005, a similar proposed change to the
the reporting delay that exists under the current
We propose to extend the safe harbors eligibility rules of Form S–2 is unnecessary.
disclosure rules when bonus and salary are not regarding Section 10(b) and Rule 10b–5 Securities Offering Reform, Release No. 33–8591
determinable at the most recent practicable date. and Form S–3 eligibility in the event (July 19, 2005) [70 FR 44721], at Section V.B.3.c.
C. General Instruction D to Form 8–K matters that have not otherwise been IV. Beneficial Ownership Disclosure
Frequently an event may trigger a disclosed. We propose to amend Item 403(b) 227
Form 8–K filing under multiple items, The proposed revision to the exhibit by adding a requirement for footnote
particularly under both Item 1.01 and instructions to Form 20–F 225 is disclosure of the number of shares
another item. General Instruction D to intended to be consistent with the pledged as security by named executive
Form 8–K currently permits a company existing disclosure requirements under officers, directors and director
to file a single Form 8–K to satisfy one Form 20–F relating to executive nominees. To the extent that shares
or more disclosure items, provided that compensation matters for foreign private beneficially owned by named executive
the company identifies by item number issuers. In the same way that executive officers, directors and director nominees
and caption all applicable items being compensation disclosure under Form are used as collateral, these shares may
satisfied and provides all of the 20–F largely mirrors the disclosure that be subject to material risk or
substantive disclosure required by each contingencies that do not apply to other
a foreign private issuer makes under
of the items. In order to promote prompt shares beneficially owned by these
home country requirements or persons. These circumstances have the
filings on Form 8–K and avoid potential voluntarily, so too the public filing of
non-compliance with Form 8–K due to potential to influence management’s
management employment agreements as performance and decisions.228 As a
inadvertent exclusions of captions, we
an exhibit to Form 20–F would under result, we believe that the existence of
propose a revision to General
our proposal mirror the public these securities pledges could be
Instruction D to permit companies to
availability of such agreements under material to shareholders.229 Because
omit the Item 1.01 heading in a Form 8–
K also disclosing any other Item, so long home country requirements or significant shareholders who are not
as the substantive disclosure required otherwise. In addition, we believe that members of management are in a
by Item 1.01 is included in the Form 8– the proposed amendments may different relationship with other
K. This would not extend to allowing a encourage foreign private issuers to shareholders and have different
company to omit any other caption if provide more compensation disclosure obligations to them, the proposals
the Item 1.01 caption is included. in their SEC filings by eliminating would not require disclosure of their
privacy concerns associated with filing pledges pursuant to Item 403(a), other
Request for Comment an individual’s employment agreement than pledges that may result in a change
• Is it appropriate to allow a company when such agreement is not required to of control currently required to be
to omit the Item 1.01 heading in a Form be made public by a home country disclosed.230 The proposals also would
8–K disclosing any other item? exchange or securities regulator. As specifically require disclosure of
foreign disclosure related to executive beneficial ownership of directors’
D. Foreign Private Issuers qualifying shares, which is currently not
remuneration varies in different
We propose revising the exhibit required, because the beneficial
countries but continues to improve,226
instructions to Form 20–F under which ownership disclosure should include a
the proposed revisions would recognize complete tally of the securities
foreign private issuers would be that trend and provide for greater
required to file any employment or beneficially owned by directors.
harmonization of international
compensatory plan with management or disclosure standards with respect to Request for Comment
directors (or portion of such plan) only executive compensation in a manner • Should any specific categories of
when the foreign private issuer either is
consistent with other requirements of loans, such as margin loans, be treated
required to publicly file the plan (or
Form 20–F. differently under the proposal to
portion of it) in its home country or if
disclose management pledges of
the foreign private issuer had otherwise Request for Comment beneficially owned securities? If so,
publicly disclosed the plan.224
• Should we require the filing of please explain why.
Under Item 6.B.1 of Form 20–F, a • Should directors’ qualifying shares
foreign private issuer must disclose the employment agreements by foreign
continue to be excluded? If so, explain
compensation of directors and private issuers when individualized why that information is not material.
management on an aggregate basis and, compensation information is disclosed?
additionally, on an individual basis, Should we instead require the filing of V. Certain Relationships and Related
unless individual disclosure is not those portions of management Transactions Disclosure
required in the issuer’s home country employment agreements and plans that We believe that, in addition to
and is not otherwise publicly disclosed relate to the information that is disclosure regarding executive
by the foreign private issuer. Under the disclosed on an individualized basis compensation, a materially complete
exhibit instructions to Form 20–F, regardless of whether those portions are
management contracts or compensatory required to be made public in the 227 Item 403(b) of Regulation S–K and Item 403(b)
plans in which directors or members of of Regulation S–B are proposed to be revised in the
issuer’s home country or otherwise? same manner.
management participate generally must 228 See, e.g., Marianne M. Jennings, The
be filed as exhibits, unless the foreign Disconnect Between and Among Legal Ethics,
private issuer provides compensation Business Ethics, Law, and Virtue: Learning Not to
information on an aggregate basis and 225 Proposed Instruction 4(c) to Exhibits to Form Make Ethics So Complex, 1 U. St. Thomas L.J. 995,
not on an individual basis. Under these 20–F. 1010 (Spring 2004) (arguing that the extension of
loans to the CEO of WorldCom, which were
rules, an issuer that provides any 226 Many jurisdictions now require or encourage
collateralized by WorldCom shares owned by the
individualized compensation disclosure disclosure of executive compensation information.
CEO, contributed to WorldCom’s financial demise).

For example, enhanced disclosure of executive
is required to file as an exhibit to Form 229 This proposal is similar to a proposal the
remuneration is included as part of he European Commission made in 2002. See Form 8–K
20–F management employment Commission’s 2003 Company Law Action Plan. See Disclosure of Certain Management Transactions,
agreements that potentially relate to Guido Ferrarini and Niamh Moloney, Executive Release No. 33–8090 (Apr. 12, 2002) [67 FR 19914].
Remuneration in the EU: The Context for Reform, 230 Current Item 403(c) of Regulation S–K. See
224 We are also proposing a similar revision to European Corporate Governance Institute, Law also Items 6 and 7(3) of Schedule 13D [17 CFR
Item 601(b)(10)(iii)(C)(5) of Regulation S–K. Working Paper N. 32/2005 (April 2005). 240.13d–101].
picture of financial relationships with a considered when determining whether would state that a company must
company involves disclosure regarding each director and nominee for director provide disclosure regarding:
related party transactions. Therefore, we is independent. • Any transaction since the beginning
are also proposing significant revisions of the company’s last fiscal year, or any
A. Transactions With Related Persons currently proposed transaction.
to Item 404 of Regulation S–K ‘‘Certain
Relationships and Related We are proposing revisions to Item • In which the company was or is to
Transactions.’’ In 1982, various 404 to make the certain relationships be a participant;
provisions that had been adopted in a and related transactions disclosure • In which the amount involved
piecemeal fashion and had been subject requirements clearer and easier to exceeds $120,000; and
to frequent amendment were follow. The proposals would retain the • In which any related person had, or
consolidated into Item 404 of Regulation principles for disclosure of related will have, a direct or indirect material
S–K.231 Today we propose to amend person transactions that are specified in interest.
Item 404 of Regulation S–K and S–B to current Item 404(a), but would no longer We propose to eliminate current
streamline and modernize this include all of the instructions that serve Instruction 1 to Item 404(a), which is
disclosure requirement, while making it to delineate what transactions are repetitive of the general materiality
more principles-based. Although the reportable or excludable from disclosure standard applicable to the item. By
proposals would significantly modify based on bright lines that can depart proposing to delete this instruction we
this disclosure requirement, its from a more appropriate materiality do not intend to change the materiality
purpose—to elicit disclosure regarding analysis. Instead, proposed Item 404(a) standard applicable to Item 404(a). The
transactions and relationships, would consist of a general statement of ‘‘materiality’’ standard for disclosure
including indebtedness, involving the the principle for disclosure, followed by currently embodied in Item 404(a)
company and related persons and the specific disclosure requirements and would be retained; a company would
independence of directors and instructions. The instructions would disclose based on whether the related
nominees for director and the interests explain the related persons covered by person had, or will have, a direct or
of management—would remain the Item, the scope of transactions indirect material interest in the
unchanged. covered by the Item, the method for transaction. The materiality of any
As discussed in greater detail below, computation of the amounts involved in interest would continue to be
the proposal has four parts: 232 the relationship or transaction, the determined on the basis of the
• Item 404(a) would contain a general interaction with Item 402, special significance of the information to
disclosure requirement for related requirements for indebtedness with investors in light of all the
person transactions, including those circumstances and the significance of
banks, and the materiality of certain
involving indebtedness.233 the interest to the person having the
ownership interests.
• Item 404(b) would require The proposed Item would extend to interest.238 The relationship of the
disclosure regarding the company’s disclosure of indebtedness. Currently, related persons to the transaction, and
policies and procedures for the review, Item 404(a) requires disclosure with each other, and the amount
approval or ratification of related person regarding transactions involving the involved in the transaction would be
transactions. company and certain related persons,236 among the factors to be considered in
• Item 404(c) would require and Item 404(c) requires disclosure determining the materiality of the
disclosure regarding promoters of a information to investors.
regarding indebtedness.237 We propose
company.234 We propose to eliminate current
to consolidate these two provisions in
• New Item 407 would consolidate Instruction 7 to Item 404(a), which
order to eliminate confusion regarding establishes certain presumptions
current corporate governance disclosure
the circumstances in which each item regarding materiality and may operate to
requirements.235 Proposed Item 407(a)
applies and streamline duplicative exclude some transactions from
would require disclosure regarding the
portions of current paragraphs (a) and disclosure that might otherwise require
independence of directors, including
(c) of Item 404. disclosure under the principles
whether each director and nominee for
director of the registrant is independent, 1. Broad Principle for Disclosure enunciated by the Item. We also propose
as well as a description of any Proposed Item 404(a) would articulate to eliminate current Instruction 9 to
relationships not disclosed under a broad principle for disclosure; it Item 404(a), which indicates that the
paragraph (a) of Item 404 that were $60,000 threshold is not a bright line
236 The related persons specified in current Item materiality standard. We propose to
231 See the 1982 Release. For a discussion of these
404(a) are: (1) Any director or executive officer of eliminate current Instruction 9 to Item
provisions, see also Disclosure of Certain the company; (2) any nominee for election as a 404(a) because it is repetitive of the
Relationships and Transactions Involving director; (3) any security holder who is known to
Management, Release No. 33–6416 (July 9, 1982) general materiality standard applicable
the company to own of record or beneficially more
[47 FR 31394], at Section II. than five percent of any class of the company’s to the Item.239 We believe that
232 The discussion that follows focuses on
voting securities; and (4) any member of the application of the materiality principles
changes to Regulation S–K, with Section V.E.1. immediate family of any of the foregoing persons. under the Item would be more
explaining the modifications proposed for 237 The related persons specified in current Item
Regulation S–B. References throughout the
consistent with a principles-based
404(c) are: (1) Any director or executive officer of
following discussion are to current or proposed the company; (2) any nominee for election as a
approach and would lead to more
Items of Regulation S–K, unless otherwise director; (3) any member of the immediate family
indicated. of any of the persons specified in (1) or (2) above; 238 See Basic v. Levinson and TSC Industries v.
233 As previously noted, related party transactions
(4) any corporation or organization (other than the Northway.
are currently disclosed under Item 404(a). company or a majority-owned subsidiary of the 239 It is possible that some registrants have been
Indebtedness is currently disclosed under Item company) of which any of the persons in (1) or (2) operating under a misconception. The current
404(c). above is an executive officer or partner or is, $60,000 threshold is not, and the proposed
234 Disclosure requiring promoters is currently
directly or indirectly, the beneficial owner of ten $120,000 threshold would not be, a bright line
required under Item 404(d). percent or more of any class of equity securities; materiality standard. The rule calls for, and would
235 These matters are currently required pursuant and (5) any trust or other estate in which any of the continue to call for, a materiality analysis of
to various provisions, including Item 7 of Schedule persons in (1) or (2) above has a substantial transactions above the threshold in order to
14A and Items 306, 401(h), (i) and (j), 402(j) and beneficial interest or as to which such person serves determine if the related person has a direct or
404(b). as a trustee or in a similar capacity. indirect material interest.
appropriate disclosure outcomes than should we provide further guidance or require disclosure of all material
application of the instructions that we examples regarding the disclosure status indirect interests in indebtedness
propose to eliminate. of particular types of direct or indirect transactions of related persons,
In addition, the proposals would: interests? including significant shareholders and
• Call for disclosure if a company is • Is it appropriate to adjust the immediate family members.246
a ‘‘participant’’ in a transaction, rather threshold for disclosure to $120,000? Disclosure of material indirect interests
than if it is ‘‘a party’’ to the transaction, Should there be no threshold? Should of these related persons in transactions
as ‘‘participant’’ more accurately the threshold also operate on a sliding involving the company currently is, and
connotes the company’s involvement; scale (for example, the lower of would continue to be, required by Item
• Modify the $60,000 threshold for $120,000 or 1% of the average of total 404(a). Currently, Item 404(c) requires
disclosure to $120,000 to adjust for assets for the last three completed fiscal disclosure of specific indirect interests
inflation; years 243 or the lower of $120,000 or a of directors, nominees for director, and
• Include a defined term for percentage of annual corporate executive officers of the registrant in
‘‘transaction’’ to provide that it includes expenses) to capture smaller indebtedness through corporations,
a series of similar transactions and to transactions for smaller companies?
make clear its broad scope; and organizations, trusts, and estates.247 We
Explain whether a higher or lower
• Include a single defined term for believe that disclosure requirements for
threshold, or no threshold, would result
‘‘related persons.’’240 indebtedness and for other related
in more effective disclosure.
person transactions should be
As is currently the case, disclosure • In Item 404(a), should we require a
would be required for three years in company to be ‘‘involved’’ rather than to congruent. In particular, we believe that
registration statements filed pursuant to be ‘‘a participant’’ in transactions loans by companies other than financial
the Securities Act or the Exchange subject to disclosure? institutions should be treated like any
Act.241 other related person transactions, and,
Finally, the rule proposals would a. Indebtedness as discussed below, we propose to
include a technical modification. Section 402 of the Sarbanes-Oxley Act address certain ordinary course loans by
Currently, Item 404(a) states that prohibits most personal loans by an financial institutions in an instruction
disclosure must be provided regarding issuer to its officers and directors.244 to Item 404(a).
situations involving ‘‘the registrant or This development raises the issue of
any of its subsidiaries.’’ Because Request for Comment
whether disclosure of indebtedness of
companies must include subsidiaries in the sort required under our current rules • Is our proposal appropriate in light
making materiality determinations in all should be maintained. We believe that of the prohibition on personal loans to
circumstances, the reference to the approach to disclosure of officers and directors in the Sarbanes-
‘‘subsidiaries’’ is superfluous, and we indebtedness involving related persons Oxley Act?
propose to eliminate it. This proposal that we propose today would be
would not change the scope of appropriate because of the scope of the • Should we combine the related
disclosure required under the Item.242 direct and indirect interests covered by person and indebtedness disclosure
our disclosure requirements, because requirements in paragraphs (a) and (c) of
Request for Comment Item 404? As a result of combining these
related persons include persons not
• Should we recast Item 404(a) as a covered by the prohibitions, and disclosure requirements, would there be
more principles-based disclosure because there are certain exceptions to categories of indebtedness transactions
requirement as proposed? Why or why the prohibitions. We propose, however, for which disclosure would be required
not? to eliminate the current distinction that should not be required or for which
• In recasting Item 404(a) as a more between indebtedness and other types disclosure would not be required that
principles-based disclosure of related person transactions. should be disclosed?
requirement, should we eliminate all of As a result of integrating paragraph (c) • Should the disclosure requirements
the current instructions, not only the of Item 404 into paragraph (a) of Item for indebtedness be extended to
ones we propose eliminating? Are there 404, the proposals would change some significant shareholders?
any concepts in the instructions to Item situations in which indebtedness
404(a) that we propose to eliminate that disclosure is required. First, disclosure b. Definitions
should be retained? As a result of of indebtedness transactions would be
eliminating the instructions to Item We propose to define the terms
required with regard to all related
404(a), would there be any categories of persons covered by the related person ‘‘transaction,’’ ‘‘related person’’ and
transactions which would have an transaction disclosure requirement, ‘‘amount involved’’ to streamline Item
unclear disclosure status? Although the including significant shareholders.245 404(a) and clarify the broad scope of
analysis required for any particular Second, the rule proposals would financial transactions and relationships
transaction would be fact-specific, covered by the rule.
243 This is the standard proposed for Item 404 of
240 The ‘‘related persons’’ covered by the rules Regulation S–B, which is discussed in Section 246 As a result of integrating pragraph (c) of Item
proposal are discussed below in Section V.A.1.b. V.E.1. below. 404 into paragraph (a) of Item 404, the rule
241 However, if the disclosure were being 244 Codified in Section 13(k) of the Exchange Act proposals would set a $120,000 threshold and
incorporated by reference into a registration [15 U.S.C. 78m(k)]. require disclosure only if there is a direct or
statement on Form S–4, the additional two years of 245 The related person transaction disclosure indirect material interest in such an indebtedness
disclosure would not be required. Proposed requirement in current Item 404(a) covers transaction, while Item 404(c) currently generally
Instruction 1 to Item 404. significant shareholders, while the indebtedness requires disclosure of all indebtedness exceeding
242 For the same reason, we are eliminating the disclosure requirement in current Item 404(c) does $60,000.
references to ‘‘subsidiaries’’ in the ‘‘compensation not. The significant shareholders covered would 247 Disclosure of these interests currently is
committee interlocks and insider participation in continue to be any security holder who is known reuqired by subparagraphs (c)(4) and (c)(5) of Item
compensation decisions’’ disclosure requirement in to the registrant to own of record or beneficially 404. Under the rule proposals, these subparagraphs
current Item 402(j). This proposal would not change more than five percent of any class of the would be eliminated. See note 237 for a full
the scope of disclosure required under the rule. See registrant’s voting securities. Proposed Instruction description fo the related parties specified in these
proposed Item 407(e)(4). 1.b. to Item 404(a). subparagraphs.
The term ‘‘transaction’’ would have a transaction with the registrant during stepparents, and any person (other than
broad scope in proposed Item 404(a).248 that year. Although current Item 404(a) a tenant or employee) sharing the
As proposed, this term is not to be does not specifically indicate whether household of a related person.
interpreted narrowly, but rather would disclosure is required for the transaction The proposed definition of ‘‘amount
broadly include, but not be limited to, in this situation, the history of Item 404 involved’’ would incorporate two
any financial transaction, arrangement suggests that disclosure would be concepts included in current Item 404
or relationship or any series of similar required if the requisite relationship regarding how to determine the
transactions, arrangements or existed at the time of the transaction, ‘‘amount involved’’ in transactions, and
relationships. The proposals also would even if the person was no longer a to clarify that the amounts reported
specifically note that the term related person at the end of the year.251 must be in dollars even if the amount
‘‘transactions’’ is defined to include We believe that, because of the potential was set or expensed in a different
indebtedness and guarantees of for abuse and the close proximity in currency.253 Under the proposals, the
indebtedness. time between the transaction and the term ‘‘amount involved’’ would mean
The proposed definition of ‘‘related person’s status as a ‘‘related person,’’ it the dollar value of the transaction, or
person’’ would identify the persons is appropriate to require disclosure for series of similar transactions, and would
covered, and clarify the time periods transactions in which the person had a include:
during which they would be covered. material interest occurring at any time • In the case of any lease or other
As proposed, the term ‘‘related during the fiscal year. For example, it is transaction providing for periodic
person’’ 249 would mean any person possible that a material interest of a payments or installments, the aggregate
who was in any of the following person in a transaction during this amount of all periodic payments or
categories at any time during the proximity in time could influence the installments due on or after the
specified period for which disclosure person’s performance of his or her beginning of the company’s last fiscal
under paragraph (a) of Item 404 would duties. year, including any required or optional
be required: We believe that transactions with payments due during or at the
• Any director or executive officer of persons who have been or who will conclusion of the lease; 254 and
the registrant and his immediate family become significant shareholders (or • In the case of indebtedness, the
members; and their family members), but are not at the largest aggregate principal amount of all
• If disclosure were provided in a time of the transaction, raise different indebtedness outstanding at any time
proxy or information statement considerations and are harder to track, since the beginning of the company’s
involving the election of directors, any and thus we propose to exclude them. last fiscal year and all amounts of
nominee for director and the immediate Disclosure would be required, however, interest payable on it during the last
family members of any nominee for regarding a transaction that begins fiscal year.255
director. before a significant shareholder becomes Request for Comment
In addition, a security holder known to a significant shareholder, and continues
• Does the definition of ‘‘transaction’’
the registrant to own of record or (for example, through the on-going
make clear its broad scope? Are there
beneficially more than five percent of receipt of payments) on or after the
any additional categories that it should
any class of the company’s voting person becomes a significant
specifically identify? Alternatively, is it
securities or any immediate family shareholder.
Under the rule proposals, the term overly inclusive? If so, explain how.
member of any such person, when a • Should the same categories of
transaction in which such security ‘‘immediate family member’’ of a related
people be covered by the disclosure
holder or family member had a direct or person would mean any child,
requirements currently in paragraphs (a)
indirect material interest occurred or stepchild, parent, stepparent, spouse,
and (c) of Item 404? Specifically, are
existed would also be a related person. sibling, mother-in-law, father-in-law,
there any persons who would be
This is the same list of persons son-in-law, daughter-in-law, brother-in-
defined as ‘‘related persons’’ for whom
covered by current Item 404(a). This law, or sister-in-law, and any person
indebtedness disclosure should not be
proposed definition of ‘‘related person’’ (other than a tenant or employee)
required or are there any additional
would result in requiring disclosure for sharing the household of any director,
persons who should be covered?
nominee for director, executive officer,
all transactions involving the company • The proposed changes to Item 404
and a person (other than a significant or significant shareholder of the
would require disclosure of indirect
shareholder or family member of such registrant.252 The proposed definition
interests in indebtedness of related
shareholder) that occurred during the would differ from the current definition
persons. Should they?
last fiscal year, if the person was a in that it includes stepchildren, • Should disclosure be required
‘‘related person’’ during any part of that regarding portions of a period during
251 This position, which had been included in the
year.250 A person who had such a proxy rule provisions that were the precursor to
which a person did not have the
position or relationship giving rise to Item 404, was deleted from those provisions in 1967 relationship giving rise to the disclosure
the person being a ‘‘related person’’ as duplicative of a note that applied to all of the requirement? Is it appropriate, as we
during only part of the last fiscal year disclosure required in Schedule 14A (including the propose, to exclude significant
related party disclosure requirement in Schedule
may have had a material interest in a 14A). Adoption of Amendments to Proxy Rules and
shareholders and their immediate
Information Rules, Release No. 34–8206 (Dec. 14, family members from this approach?
248 The definition of ‘‘transaction’’ is in proposed
1967) [32 FR 20960], at ‘‘Schedule 14A—Item 7(f).’’ • Should we expand the definition of
Instruction 2 to Item 404(a). Note C to Schedule 14A currently provides that ‘‘immediate family member’’ as
249 The definition of ‘‘related person’’ is in ‘‘information need not be included for any portion
proposed? Specifically, are there any
proposed Instruction 1 to Item 404(a). of the period during which such person did not
250 The principle for disclosure would only apply hold any such position or relationship, provided a
253 The definition of ‘‘amount involved’’ is in
to nominees for director if disclosure were being statement to that effect is made.’’ The rule proposals
provided in a proxy or information statement would amend Note C to Schedule 14A so that it proposed Instruction 3 to Item 404(a).
involving the election of directors. Also, ongoing would no longer apply to disclosure of related 254 This proposal is based on current Instruction
disclosure would not be required regarding person transactions. 3 to Item 404(a).

nominees for director who were not elected (unless 252 These definitions would replace current 255 This proposal is based on and clarifies current
a nominee was nominated again for director). instructions to paragraphs (a) and (c) of Item 404. Item 404(c).
categories of people that should be Registrants would also be required to 3. Exceptions

added to, or removed from, the disclose any other information regarding The proposed rules would include
proposed definition? the transaction or the related person in categories of transactions that do not fall
• In 2002 we issued a release the context of the transaction that is within the principle and therefore are
regarding MD&A disclosure. At that material to investors in light of the subject to disclosure exceptions that we
time, we noted the possible need for circumstances of the particular believe are consistent with our
related party disclosure in transaction. principles-based approach.260 The first
circumstances additional to those Consistent with the principles-based category of transactions involves
specified in Item 404.256 Are there any approach that we propose to apply to compensation. Disclosure of
circumstances that fall within the related person transaction disclosure, compensation to an executive officer
MD&A requirements that should also be we have, as noted above, eliminated would not be required if:
covered by Item 404 where disclosure many of the instructions that provide • The compensation is reported
currently is not required, or would not bright line tests that may be inconsistent pursuant to Item 402 of Regulation S–
be required under the rule proposals? with general materiality standards. K; or
• Is there any reason to change the Similarly, we propose to eliminate a • The executive officer is not an
current meaning of amount involved in current instruction that, in the case of a immediate family member of a related
transactions involving leases, which we related person transaction involving a person and such compensation would
propose to retain? purchase of assets by the company or have been reported under Item 402 as
sale of assets to the company, calls for compensation earned for services to the
2. Disclosure Requirements
specific disclosure of the cost of the company if the executive officer was a
Proposed subparagraphs of Item assets if acquired within two years of named executive officer, and such
404(a) would provide the disclosure the transaction. We would note, compensation had been approved as
requirements for related person however, that if such information was such by the compensation committee of
transactions. The company would be material under the proposed standards the board of directors (or group of
required to describe the transaction, of Item 404(a), because, for example, the independent directors performing a
including: recent purchase price to the related similar function) of the company.
• The person’s relationship to the person was materially less than the sale Disclosure of compensation to a
company; price to the company, or the sale price director (or nominee for director) would
• The person’s interest in the to the related person was materially not be required if:
transaction with the company, more than the recent purchase price to • The compensation is reported
including the related person’s position the company, disclosure of such prior pursuant to proposed Item 402(l).261
or relationship with, or ownership in, a purchase price could be required.258 Since the disclosure either would be
firm, corporation, or other entity that is Currently, disclosure must be reported under Item 402, or would not
a party to or has an interest in the provided regarding amounts possibly be required under Item 402, we do not
transaction; and owed to the company under Section believe the transactions fall within our
• The dollar value of the amount 16(b) of the Exchange Act.259 The proposed principle or will have already
involved in the transaction and of the purpose of related person transaction been disclosed. We believe the
related person’s interest in the disclosure differs from the purpose of transactions involving compensation
transaction.257 Section 16(b). Accordingly, the rule that do not fall within these exceptions
proposals eliminate this Section 16(b)- would be within the scope of the
256 The release stated that:
related disclosure requirement. proposed Item 404(a) principle for
Registrants should * * * consider the need for disclosure. These exceptions would
[MD&A] disclosure about parties that fall outside Request for Comment clarify the limited situations in which
the definition of ‘‘related parties,’’ but with whom
the registrant or its related parties have a • Should Item 404 require specific disclosure of compensation to related
relationship that enables the parties to negotiate disclosure of the person determining the persons is not required under Item
terms of material transactions that may not be registrant’s purchase or sale price for 404.262
available from other, more clearly independent,
registrant purchases or sales of assets The second category of transactions
parties on an arm’s-length basis. For example, an involves three types of situations we
entity may be established and operated by not in the ordinary course of business?
individuals that were former senior management of, • Should Item 404 require disclosure believe do not raise the potential issues
or have some other current or former relationship of Section 16(b)-related indebtedness? underlying our principle for disclosure.
with, a registrant. The purpose of the entity may be
Why or why not? First, in the case of transactions
to own assets used by the registrant or provide involving indebtedness, the following
financing or services to the registrant. Although • Consistent with our principles-
former management or persons with other based approach, should we specify any items of indebtedness would be
relationships may not meet the definition of a other elements of the transaction for excluded from the calculation of the
related party pursuant to FAS 57, the former
disclosure? amount of indebtedness and need not be
management positions may result in negotiation of disclosed because they do not have the
terms that are more or less favorable than those
available on an arm’s-length basis from clearly involved is calculated for indebtedness, as potential to impact the parties as the
independent third parties that are material to the discussed above, disclosure with respect to transactions for which disclosure is
registrant’s financial position or results of indebtedness would include the largest aggregate required: amounts due from the related
operations. In some cases, investors may be unable amount of principal outstanding during the period person for purchases of goods and
to understand the registrant’s reported results of for which disclosure is provided, as well as the
operations without a clear explanation of these amount of principal and interest paid during the services subject to usual trade terms, for
arrangements and relationships. period for which disclosure is provided, the
Commission Statement about Management’s aggregate amount of principal outstanding as of the 260 Proposed Instructions 4, 5, 6, 7 and 8 to Item
Discussion and Analysis of Financial Condition and latest practicable date, and the rate or amount of 404(a).
Results of Operations, Release No. 33–8056 (Jan. 22, interest payable on the indebtedness. 261 Proposed Instructions 5 and 6 to Item 404(a),
2002) [67 FR 3746], at Section II.C. 258 Section 10(b) of the Exchange Act [15 U.S.C. which would replace current Instruction 1 to Item
257 As is the case today, the dollar value would 78j(b)], Rules 10b–5 [17 CFR 249,19b–5] and 12b-20 404.
be computed without regard to the amount of the [17 CFR 240.12b–20] under the Exchange Act and 262 In particular, current Instruction 1 to Item 404
profit or loss involved in the transaction. Because Section 17 of the Securities Act [15 U.S.C. 77q]. covers the scope of Items 402 and 404. We propose
of the manner in which the value of the amount 259 Current Instruction 4 to Item 404(c). to eliminate this instruction.
ordinary business travel and expense interest of less than ten percent, and the and the transaction is not material to the
payments and for other transactions in person is not a general partner of and other person) be retained or expanded?
the ordinary course of business.263 does not have another position in the
B. Procedures for Approval of Related
Second, also in the case of a partnership.269
Person Transactions
transaction involving indebtedness, if
Request for Comment We propose adopting a new
the lender is a bank, savings and loan
association, or broker-dealer extending • Does proposed Item 404(a) simplify requirement for disclosure of the
credit under Federal Reserve Regulation and clarify the requirements currently policies and procedures established by
T 264 and the loans are not disclosed as contained in paragraphs (a) and (c) of the company and its board of directors
nonaccrual, past due, restructured or Item 404? regarding related person transactions.
potential problems 265 disclosure under • Would the proposed rule clarify the State corporate law and increasingly
proposed paragraph (a) of Item 404 may situations in which compensation robust corporate governance practices
consist of a statement, if correct, that the would be reportable under Item 404? support or provide for such procedures
loans to such persons satisfied the Are there any categories of in connection with transactions
following conditions: compensation for which it would be involving conflicts of interest.270 We
• They were made in the ordinary unclear whether disclosure would be believe that this type of information is
course of business; required under proposed Item 404? material to investors, and our rule
• They were made on substantially • We propose to exclude from the proposals would therefore require
the same terms, including interest rates ‘‘amount involved’’ disclosure disclosure of policies and procedures
and collateral, as those prevailing at the requirements indebtedness due for regarding related person transactions
time for comparable loans with persons purchases subject to usual trade terms, under new paragraph (b) of Item 404.
not related to the bank; and ordinary business travel and expense Specifically, the proposal would
• They did not involve more than the payments, and ordinary course business require a description of the company’s
normal risk of collectibility or present transactions as is currently the case. Is policies and procedures for the review,
other unfavorable features.266 this exclusion appropriate? Why or why approval or ratification of transactions
This proposed exception is based on not? with related persons that would be
a current instruction to Item 404(c),267 • Do the current instructions that we reportable under paragraph (a) of Item
and is modified to be more consistent propose to modify or eliminate provide 404. The description would include the
with the prohibition of the Sarbanes- necessary guidance for determining if material features of these policies and
Oxley Act on personal loans to officers disclosure is necessary? Should any of procedures that are necessary to
and directors.268 these current instructions be retained? understand them. While the material
Finally, we propose an instruction Should other instructions be added to features of such policies and procedures
that indicates that a person who has a make the application of the principle for would vary depending on the particular
position or relationship with a firm, disclosure clearer? circumstances, examples of such
corporation, or other entity that engages • Does proposed Instruction 8 to Item features may include, in given cases,
in a transaction with the company shall 404(a), which indicates that a person among other things:
not be deemed to have an indirect having the specified positions or • The types of transactions that are
‘‘material’’ interest within the meaning relationships with a person that engages covered by such policies and
of paragraph (a) of Item 404 if: in a transaction with the company shall procedures, and the standards to be
• The interest arises only: (i) From not be deemed to have an indirect applied pursuant to such policies and
the person’s position as a director of material interest in the transaction, procedures;
another corporation or organization provide sufficient guidance for • The persons or groups of persons on
which is a party to the transaction; or determining whether disclosure is the board of directors or otherwise who
(ii) from the direct or indirect necessary in the circumstances are responsible for applying such
ownership by such person and all other identified in the instruction? Should the policies and procedures; and
potential exclusions contemplated in • Whether such policies and
related persons, in the aggregate, of less
the current instructions to Item 404(a), procedures are in writing and, if not,
than a ten percent equity interest in
including current Instruction 6 how such policies and procedures are
another person (other than a
(excluding remuneration transactions evidenced.
partnership) which is a party to the
for services when the person’s interest The proposal would also require
transaction; or (iii) from both such
arises solely from a ten percent equity identification of any transactions
position and ownership; or
ownership interest) and current required to be reported under paragraph
• The interest arises only from the
Instruction 8.C. (excluding transactions (a) of Item 404 where the company’s
person’s position as a limited partner in
where the interest arises from an equity policies and procedures did not require
a partnership in which the person and
or creditor interest in another person review, approval or ratification or where
all other related persons, have an
such policies and procedures were not
263 This proposal is based on current Instruction
269 Proposed Instruction 8 to Item 404(a). This followed.
2 to Item 404(c). proposal is based on parts A and B of current
Instruction 8 to Item 404(a). This proposal would Request for Comment
264 12 CFR Part 220.
265 See Item III.C.1. and 2. of Industry Guide 3,
omit the portion of the current instruction • Should we require disclosure
(Instruction 8.C.) regarding interests arising solely
Statistical Disclosure by Bank Holding Companies from holding an equity or a creditor interest in a regarding the review, approval or
[17 CFR 229.802(c)]. person other than the company that is a party to the ratification of related person
266 Proposed Instruction 7 to Item 404(a).
transaction, when the transaction is not material to transactions? Should the rule include
267 Current Instruction 3 to Item 404(c), which

the other person. This portion of the current the proposed requirements? Are there
would be eliminated. instruction may result in inappropriate non-
268 Specifically, the language of current disclosure of transactions without regard to whether other types of information that are
Instruction 3 to paragraph (c) of Item 404 would be they are material to the company. In addition, we
modified to replace the reference ‘‘comparable propose to eliminate current Instruction 6 to Item 270 Del. Code Ann. tit. 8, § 144 (2004). See also
transactions with other persons’’ with the phase 404(a) that covers a subset of transactions covered NYSE, Inc. Listed Company Manual Section 307.00
‘‘comparable loans with persons not related to the by this proposed instruction, and therefore is and NASD Manual, Marketplace Rules 4350(h) and
lender.’’ duplicative. 4360(i).
material that should be included in the is part of a group that acquired control, amendments to additional listing
description of the approval process? of an issuer that is a shell company.272 standards, including those of the New
• Should we require disclosure of York Stock Exchange and Nasdaq,276
Request for Comment
transactions required to be reported that imposed specific additional
under Item 404(a) where a company’s • Does the proposed requirement independence standards for boards of
policies and procedures did not require cover the circumstances where promoter directors, and the compensation and
review or were not followed? disclosure would be material to nominating committees or persons
investors? If not, what other performing similar functions. Currently,
C. Promoters circumstances should be covered? each listed company determines
The proposals would require a • Does the proposed requirement whether its directors and committee
company to provide disclosure cover circumstances where the required members are independent based on
regarding the identity of promoters and disclosure would not be material to definitions that it adopts which, at a
its transactions with those promoters if investors? If so, in what circumstance? minimum, are required to comply with
the company had a promoter at any time the listing standards applicable to the
D. Corporate Governance Disclosure
during the last five fiscal years. The company.
proposed disclosure would be required We propose to consolidate our The proposals would include a
in Securities Act registration statements disclosure requirements regarding disclosure requirement identifying the
on Form S–1 (generally, the registration director independence and related
statement form for initial public corporate governance disclosure 276 NASD and NYSE Listing Standards Release.
requirements under a single disclosure The other exchanges have also adopted corporate
offerings, offerings by unseasoned governance listing standards. See Order Granting
issuers or those with less than $75 item and to update such disclosure Approval of Proposed Rule Change by the American
million public float and offerings by requirements regarding director Stock Exchange LLC and Notice of Filing and Order
issuers otherwise ineligible to use Form independence to reflect our current Granting Accelerated Approval of Amendment No.
2 Relating to Enhanced Corporate Governance
S–3 or S–4) or on Form SB–2 (a requirements and current listing Requirements Applicable to Listed Companies,
registration statement form that small standards.273 Release No. 34–48863 (Dec. 1, 2003) [68 FR 68432];
business issuers may use) and Exchange Our current requirements provide for Notice of Filing and Order Granting Accelerated
disclosure of business relationships Approval of Proposed Rule Change and
Act Form 10 (used to register securities Amendment Nos. 1 and 2 Thereto by the
initially under the Exchange Act) or between a director or nominee for Philadelphia Stock Exchange, Inc. Relating to
Form 10–SB (a registration form that director and the company that may bear Corporate Governance, Release No. 34–49881 (June
small business issuers may use). The on the ability of directors and nominees 17, 2004) [69 FR 35408]; Order Approving Proposed
Rule Change and Notice of Filing and Order
proposed disclosure would include: for director to exercise independent Granting Accelerated Approval to Amendment Nos.
• The names of the promoters; judgment in the performance of their 2 and 3 to the Proposed Rule Change by the Chicago
• The nature and amount of anything duties.274 In addition, as directed by the Stock Exchange, Inc. Relating to Governance of
Sarbanes-Oxley Act of 2002, we adopted Issuers on the Exchange, Release No. 34–49911
of value received by each promoter from (June 24, 2004) [69 FR 39989]; Notice of Filing and
the company and the nature and amount a rule requiring national securities Order Granting Accelerated Approval of Proposed
of any consideration received by the exchanges to adopt listing standards Rule Change by the Boston Stock Exchange, Inc. to
company; and requiring independent audit committees Amend Chapter XXVII, Section 10 of the Rules of
the Board of Governors by Adding Requirements
• Additional information regarding meeting the standards of our rule.275 Concerning Corporate Governance Standards of
any assets acquired by the company Further, in 2003 and 2004, we approved Exchange-Listed Companies, Release No. 34–49955
from a promoter. (July 1, 2004) [69 FR 41555]; Notice of Filing and
The proposed disclosure requirements 272 Proposed Item 404(c)(2). The term ‘‘group’’ Order Granting Accelerated Approval of Proposed
would have the same meaning as in Exchange Act Rule Change and Amendment Nos. 1 and 2 Thereto
are consistent with those currently Rule 13d–5(b)(1) [17 CFR 240.13d–5(b)(1)], that is, by the Chicago Board Options Exchange,
required regarding promoters. However, any two or more persons that agree to act together Incorporated, Relating to Enhanced Corporate
this disclosure is not currently required for the purpose of acquiring, holding, voting, or Governance Requirements for Listed Companies,
disposing of equity securities of an issuer. Release No. 34–49995 (July 9, 2004) [69 FR 42476];
if the company has been organized more Notice of Filing and Order Granting Accelerated
273 Proposed Item 407 of Regulations S–K and S–
than five years ago, even if the company Approval of Proposed Rule Change and
B. As proposed, Item 407 would consolidate
otherwise had a promoter within the corporate governance disclosure requirements
Amendment Nos. 1 and 2 Thereto by National
last five years. Our staff’s experience in Stock Exchange Relating to Corporate Governance,
located in several places under our rules and the
Release No. 34–49998 (July 9, 2004) [69 FR 42788];
reviewing registration statements, principal markets’ listing standards, including in and Notice of Filing and Immediate Effectiveness of
especially of smaller companies, particular our requirements under current Items Proposed Rule Change by the Pacific Exchange, Inc.
306, 401(h), (i) and (j), 402(j) and 404(b) of to Amend the Corporate Governance Requirements
suggests that the more appropriate five- Regulation S–K and Item 7 of Schedule 14A under for PCX Listed Companies, Release No. 34–50677
year test would relate to the period of the Exchange Act. We are not proposing any (Nov. 16, 2004) [69 FR 68205].
time during which the company had a changes to the substance of Item 306, Item 401(h),
The Commission has previously received a
promoter for which the disclosure (i) or (j), or Item 402(j) as part of this consolidation.
rulemaking petition submitted by the AFL/CIO,
However, the proposed rules would reorder some
should be provided, as our proposal provisions in Item 306 and reflect the relevant
which requested the Commission to amend Items
provides, rather than the date of 401 and 404 of Regulation S–K to require disclosure
Public Company Accounting Oversight Board rules.
about transactions with non-profit organizations
organization of the company.271 We also See PCAOB Rulemaking: Public Company (letter dated Dec. 12, 2001 from Richard Trumka,
are proposing to require the same Accounting Oversight Board; Order Approving Secretary-Treasurer, AFL/CIO, File No. 4–499,
Proposed Technical Amendments to Interim available at www.sec.gov/rules/petitions/petn4–
disclosure that is required for promoters Standards Rules, Release No. 34–49624 (Apr. 28, 499.pdf) and a rulemaking petition submitted by the
for any person who acquired control, or 2004) [69 FR 24199]; and Order Regarding Section Council of Institutional Investors, which requested
101(d) of the Sarbanes-Oxley Act of 2002, Release amendments to Item 401 of Regulation S–K to
271 The proposed rules would similarly revise the No. 33–8223 (Apr. 25, 2003) [68 FR 2336]. require disclosure of certain transactions between
274 Current Item 404(b).

disclosure requirement referencing promoters in directors, executive officers and nominees (letter
Item 401(g)(1) of Regulation S–K. In addition, our 275 Section 10A(m) of the Exchange Act [15 U.S.C.
dated Oct. 1, 1997, as amended Oct. 19, 1998, from
proposal would add Form SB–2 to the list of 78j–1(m)], as added by Section 301of the Sarbanes- Sarah A.B. Teslik, Executive Director, Council of
registration statement forms in Item 404 for which Oxley Act of 2002 (15 U.S.C. 7201 et seq.); Institutional Investors, File No. 4–404). We believe
promoter disclosure would be required. While this Exchange Act Rule 10A–3 [17 CFR 240.10A–3]; and these requests have in large part been addressed by
revision would update the registration statement Standards Relating to Listed Company Audit revised listing standards instituted by the
forms listed in Item 404, it would not change the Committees, Release No. 33–8220 (Apr. 9, 2003) [68 exchanges, so that we are not now proposing
promoter disclosure requirement of Form SB–2. FR 18788]. additional action under these petitions.
independent directors of the company The proposals would require an issuer requirements.285 As a result, the audit
(and, in the case of disclosure in proxy that has adopted definitions of committee charter would no longer be
or information statements, nominees for independence for directors and required to be delivered to security
director) under the definition for committee members to disclose whether holders if it is posted on the company’s
determining board independence those definitions are posted on the Web site.286 We also propose moving
applicable to it. The proposals would company’s Web site, or include the the disclosure required by Section 407
also require disclosure of any members definitions as an appendix to the of the Sarbanes-Oxley Act regarding
of the compensation, nominating and company’s proxy materials at least once audit committee financial experts to
audit committee that the company had every three years or if the policies have Item 407, although we are not proposing
not identified as independent under the been materially amended since the any substantive changes to that
definition of independence for that beginning of the company’s last fiscal requirement.
board committee applicable to it. year.281 Further, if the policies are not In addition to the disclosures
More specifically, if the company is on the company’s Web site, or included currently required regarding audit and
an issuer 277 with securities listed, or for as an appendix to the company’s proxy nominating committees of the board of
which it has applied for listing, on a statement, the company would have to directors, we propose requiring similar
national securities exchange 278 or in an disclose in which of the prior fiscal disclosure regarding compensation
automated inter-dealer quotation system years the policies were included in the committees.287 The company would
of a national securities association 279 company’s proxy statement. also be required to describe its processes
which has requirements that a majority In addition, the proposals would and procedures for the consideration
of the board of directors be require, for each director or director and determination of executive and
independent, the proposal would nominee identified as independent, a director compensation including:
require disclosure of those directors and description of any transactions, • The scope of authority of the
director nominees that the company relationships or arrangements not compensation committee (or persons
identifies as independent (and disclosed pursuant to paragraph (a) of performing the equivalent functions);
committee members not identified as Item 404 that were considered by the • The extent to which the
independent), using a definition for board of directors of the company in compensation committee (or persons
independence for directors (and for determining that the applicable performing the equivalent functions)
committee members) that is in independence standards were met. may delegate any authority to other
compliance with the applicable listing persons, specifying what authority may
This independence disclosure would
standards. If the company is not a listed be so delegated and to whom;
be required for any person who served
issuer, the proposals would require • Whether the compensation
as a director of the company during any
disclosure of those directors and committee’s authority is set forth in a
part of the year for which disclosure
director nominees that the company charter or other document, and if so, the
must be provided,282 even if the person
identifies as independent (and company’s Web site address at which a
no longer serves as director at the time
committee members not identified as current copy is available if it is so
of filing the registration statement or
independent) using the definition for posted, and if not so posted, attaching
report or, if the information is in a proxy
independence for directors (and for the charter to the proxy statement once
statement, if the director’s term of office
committee members) of a national every three years;
as a director will not continue after the
securities exchange or a national • Any role of executive officers in
meeting. In this regard, we believe that
securities association, specified by the determining or recommending the
the independence status of a director is
company. The company would be amount or form of executive and
material while the person is serving as
required to apply the same definition director compensation; and
director, and not just as a matter of
consistently to all directors and also to • Any role of compensation
reelection.283
use the independence standards of the consultants in determining or
same national securities exchange or The proposals also would revise the
recommending the amount or form of
national securities association for current disclosure required regarding
executive and director compensation,
purposes of determining the the audit committee and nominating
identifying such consultants, stating
independence of members of the committee 284 to eliminate duplicative
whether such consultants are engaged
compensation, nominating and audit committee member independence
directly by the compensation committee
committees.280 disclosure and to update the required
(or persons performing the equivalent
audit committee charter disclosure
functions) or any other person,
277 Under the rule proposals, ‘‘listed issuer’’ requirement for consistency with the
describing the nature and scope of their
would have the same meaning as in Exchange Act more recently adopted nominating
Rule 10A–3. assignment, the material elements of the
committee charter disclosure
278 Under the rule proposals ‘‘national securities instructions or directions given to the
exchange’’ means a national securities exchange
281 Proposed
consultants with respect to the
registered pursuant to Section 6(a) of Exchange Act Item 407(a)(2).
performance of their duties under the
[15 U.S.C. 78f(a)]. 282 However, disclosure would not be required for
279 Under the rule proposals ‘‘automated inter- persons no longer serving as a director in engagement and identifying any
dealer quotation system of a national securities registration statements under the Securities Act or executive officer within the company
association’’ means an automated inter-dealer the Exchange Act filed at a time when the company the consultants contacted in carrying
quotation system of a national securities association is not subject to the reporting requirements of out their assignment.
registered pursuant to Section 15A(a) of the Exchange Act Sections 13(a) or 15(d). Disclosure
Exchange Act [15 U.S.C. 78o–3(a)]. would not be required of anyone who was a director
280 Similar disclosure is currently required only during the time period before the company 285 However, we are not proposing to revise the
pursuant to Item 7(d)(2)(ii)(C) and Item 7(d)(3)(iv) made its initial public offering if he was no longer provision that the audit committee report is
of Schedule 14A. As part of our consolidation of a director at the time of the offering. Proposed furnished and not filed.
these provisions into proposed Item 407, we Instruction to Item 407(a). 286 Proposed Item 407(d)(1) and Instruction 2 to
283 For this reason, we do not propose to Item 407.
propose to revise these provisions to reflect the
general approach discussed above with regard to incorporate the concept in current Instruction 4 to 287 Current Item 7(d) of Schedule 14A. These new
disclosure of director independence for board and Item 404(b) into proposed Item 407(a). proposed requirements also would be in proposed
committee purposes. 284 Current Item 7 of Schedule 14A. Item 407(e).
In addition, as noted above, under proposed Item 404(a)) when of the small business issuer’s total assets
disclosure would be required regarding determining if the independence for the last three completed fiscal years,
each member of the compensation standards were met? to require disclosure for small business
committee that the registrant has • Is there any reason why we should issuers that may have material related
identified as not independent. not eliminate the requirement that person transactions even though smaller
Further, the rule proposals would companies provide disclosure in their than the absolute dollar amount of
consolidate into this compensation proxy statements regarding directors $120,000.
committee disclosure requirement the who have resigned or declined to stand Both proposed items would consist of
disclosure currently required in Item for re-election? 294 disclosure requirements regarding
402 regarding compensation committee • Are there circumstances in which related person transactions and
interlocks and insider participation in disclosure should not be required under promoters. These provisions of Item 404
compensation decisions.288 proposed Item 407(a)? Should of Regulation S–B would be
Finally, for registrants other than disclosure not be required for a director substantially identical to those of Item
registered investment companies, the who is no longer a director at the time 404 of Regulation S–K, except for
rule proposals would eliminate an of filing any registration statement or certain changes conforming proposed
existing proxy disclosure requirement report? Should disclosure not be Item 404 of Regulation S–B to current
regarding directors that have resigned or required if information is being Item 404 of Regulation S–B. These
declined to stand for re-election 289 presented in a proxy or information changes consist of the following:
which is no longer necessary since it statement for a director whose term of • Throughout proposed Item 404 of
has been superseded by a disclosure officer as a director will not continue Regulation S–B using the two year time
requirement in Form 8–K.290 For after the meeting to which the statement period for disclosure in current Item 404
registered investment companies, which relates? of Regulation S–B;
do not file Form 8–K, the requirement • Given that registered investment • Retaining in proposed Item 404 of
would be moved to Item 22(b) of companies do not file Form 8–K, should Regulation S–B an instruction in current
Schedule 14A.291 Also, the rule we continue to require registered Item 404 of Regulation S–B regarding
proposals would combine various proxy investment companies to make proxy underwriting discounts and
disclosure requirements regarding board statement disclosures pursuant to commissions; 295 and
• Not including an instruction in
meetings and committees into one current Item 7(g) of Schedule 14A
proposed Item 404 of Regulation S–B
location.292 In addition, we propose two regarding directors who have resigned
regarding the treatment of foreign
instructions to Item 407 to combine or declined to stand for re-election?
private issuers that is included in
repetitive provisions, one relating to • Should we also move the disclosure
proposed Item 404 of Regulation S–K.296
independence disclosure, and the other required by Rule 10A–3(d) (under In addition, proposed Item 404 of
relating to board committee charters.293 which companies must disclose Regulation S–B would retain a
whether they have relied on an paragraph from current Item 404 of
Request for Comment
exemption from the audit committee Regulation S–B requiring disclosure of a
• Should the disclosure requirements independence requirements of Rule list of all parents of the small business
proposed to be consolidated in Item 407 10A–3) to proposed Item 407? issuer showing the basis of control and
continue to remain separate? If so, why? • Should the audit committee charter as to each parent, the percentage of
Is the proposed location of this disclosure requirement be changed to be voting securities owned or other basis of
consolidated disclosure appropriate, consistent with the nominating control by its immediate parent, if any.
including the proposed options for committee charter disclosure One conforming change that we are
disclosing adopted independence requirements? Should the compensation not making, however, concerns the
definitions? committee charter disclosure calculation of a related person’s interest
• Are there independence standards requirement be the same? Should there in a given transaction. Current Item
that would be preferable to the ones be any changes to the proposed 404(a) of Regulation S–B differs from
referenced in proposed new Item 407? compensation committee disclosure current Item 404(a) of S–K with respect
• Should companies that are not requirements? to, among other things, the calculation
listed on a national securities exchange • Are there any disclosure of the dollar value of a person’s interest
or on an inter-dealer quotation system of requirements regarding compensation in a related transaction. Current
a national securities association be able consultants that we should add to or Instruction 4 to Item 404(a) of
to reference their own standards of delete or change from the proposal? Regulation S–K specifically provides
independence that they have adopted, that the amount of such interest shall be
or should those companies be required E. Treatment of Specific Types of
Issuers computed without regard to the amount
to refer to established listing standards of profit or loss involved in the
as proposed? 1. Small Business Issuers transaction. In contrast, current Item
• Should we require as proposed a 404(a) of Regulation S–B contains no
Proposed Item 404 of Regulation S–B
description of transactions considered such instruction. We propose that the
is substantially similar to proposed Item
(other than those that would be reported method of calculation of a related
404 of Regulation S–K, except for the
288 Current
following two matters: person’s interest in a transaction will be
Item 402(j).
289 Item 7(g) of Schedule 14A. • Paragraph (b) relating to policies the same for both Regulation S–B and
290 Item 5.02(a) of Form 8–K. and procedures for reviewing related Regulation S–K. We believe that
party transactions is proposed not to be differences, if any, between the types of
291 Proposed Item 22(b)(17) of Schedule 14A.

292 Current paragraphs (d)(1), (f), and (h)(3) of included in Regulation S–B, and
Item 7 of Schedule 14A would be included in • Regulation S–B would provide for a 295 This instruction, which is current Instruction
proposed Item 407(b). 2 to Item 404 of Regulation S–B, is proposed

293 Proposed Instructions 1 and 2 to Item 407.
disclosure threshold of the lesser of Instruction 9 to Item 404 of Regulation S–B.
Proposed Instruction 2 also includes a requirement $120,000 or one percent of the average 296 This instruction, which is current Instruction
that the charter be provided if it is materially 3 to Item 404 of Regulation S–K, is not included in
amended. 294 Item 7(g) of Schedule 14A. current Item 404 of Regulation S–B.
transactions that small business issuers Form 20–F. The proposals would retain of members of nominating and audit
may engage in with related persons as this approach, but would require that if committees that are similar to those
compared to transactions of larger more detailed information is required to contained in proposed Item 407(a) of
issuers would not warrant a different be disclosed by the issuer’s home Regulation S–K and currently contained
approach for calculating a related jurisdiction or a market in which its in Item 7.301
person’s interest in a transaction. securities are listed or traded, that same We are also proposing to raise from
Proposed Item 407 of Regulation S–K information must also be disclosed $60,000 to $120,000 the threshold for
is substantially identical to proposed pursuant to Item 404. disclosure of certain interests,
Item 407 of Regulation S–B,297 except transactions, and relationships of each
Request for Comment
that it would it would not require director or nominee for election as
disclosure regarding compensation • Is there any reason to discontinue director who is not or would not be an
committee interlocks and insider this treatment of foreign private issuers? ‘‘interested person’’ of an investment
participation in compensation Should a foreign private issuer that is company within the meaning of Section
decisions, since Regulation S–B required to comply with Item 404 (for 2(a)(19) of the Investment Company
currently does not require disclosure of example, by filing an annual report on Act.302 This disclosure is required in
this information.298 Form 10–K) be required to provide all investment company proxy and
of the information required under Item information statements and registration
Request for Comment 404 instead of the information required statements. The increase in the
• Should small business issuers be under Form 20–F? disclosure threshold would correspond
categorically exempted from any to the proposal to increase the
3. Registered Investment Companies
additional aspect of the proposed Item disclosure threshold for Item 404 from
404 or Item 407 disclosure We propose to revise Items 7 and
22(b) of Schedule 14A to reflect the $60,000 to $120,000.
requirements? If so, which requirements
and why? Should any of the proposed reorganization that we have proposed Request for Comment
exclusions not be excluded? If so, why? with respect to operating companies.
• Should we reorganize in the
• Currently Item 404(a) of Regulation Under the proposals, information that is
manner proposed the disclosures that
S–K states that companies are not to currently required to be provided by
registered investment companies under registered investment companies are
consider the amount of profit or loss currently required to make under Item
when computing the amount involved Item 7 would instead be required by
Item 22(b).299 The requirements of Item 7 of Schedule 14A? If not, how should
in a transaction, but Item 404 of these disclosures be organized? Should
Regulation S–B does not include this 7 that are currently applicable to
registered investment companies any substantive changes be made to the
statement. We propose to provide the proposed disclosures?
same instruction in both Regulation S– regarding the nominating and audit
committees, board meetings, the • Is it appropriate to adjust to
K and Regulation S–B. Should Item
nominating process, and shareholder $120,000 the threshold for disclosure of
404(a) of Regulation S–B continue to
communications generally would be certain interests, transactions, and
omit this instruction? Why or why not?
included in Item 22(b) by cross- relationships of each director or
• Currently Item 404(a) of Regulation
references to the appropriate paragraphs nominee for election as director who is
S–K specifically provides for using the
of proposed Item 407 of Regulation S– not or would not be an ‘‘interested
value of the aggregate amount of all
K.300 The substance of these person’’ of an investment company?
periodic payments or installments when
requirements would not be altered. In Should there be no threshold? Should
computing the amount involved in a
addition, the proposed revisions to Item the threshold also operate on a sliding
transaction, but Item 404 of Regulation
22(b) would directly incorporate scale (for example, the lower of
S–B does not. Should Item 404(a) of
disclosures relating to the independence $120,000 or 1% of total or net assets for
Regulation S–B, as does proposed
the last three completed fiscal years or
Instruction 3 to Item 404(a) of
299 Proposed amendments to Item 7(e) of the lower of $120,000 or a percentage of
Regulation S–B, provide for this?
• Is the definition of ‘‘related person’’
Schedule 14A. Business development companies annual expenses) to capture smaller
would furnish the information required by Item 7 transactions for smaller companies?
in Item 404 of Regulation S–B of Schedule 14A, in addition to the information
sufficiently broad? Should this required by Items 8 and 22(b) of Schedule 14A. See Explain whether a higher or lower
definition be expanded to include proposed amendments to Items 7, 8, and 22(b) of threshold, or no threshold, would result
consultants and advisors?
Schedule 14A. in more effective disclosure.
300 Proposed Items 22(b)(15)(i) and (ii)(A) and
• Should we use a different 22(b)(16)(i) of Schedule 14A. Proposed Item F. Conforming Amendments
alternative threshold for disclosure in 22(b)(15)(i) would require the information required
proposed Item 404(a) of Regulation S–B? by Items 407(b)(1) and (2) and (f), corresponding to The changes we propose to Item 404
For example the lesser of $120,000 or a the information that registered investment necessitate conforming amendments to
companies are required to provide pursuant to
percentage of annual corporate current Items 7(f) and 7(h). Proposed Item
301 Proposed Items 22(b)(15)(ii)(B) and (16)(ii) of
expenses? 22(b)(15)(ii)(A) would require the information
required by proposed Items 407(c)(1) and (2), Schedule 14A. Proposed Item 22(b)(15)(ii)(B)
2. Foreign Private Issuers corresponding to the information that registered requires disclosure about the independence of
investment companies are required to provide nominating committee members that is similar to
Currently a foreign private issuer will pursuant to current Items 7(d)(2)(i) and 7(d)(2)(ii) those required by current Item 7(d)(2)(ii)(C) and
be deemed to comply with Item 404 of (other than the nominating committee proposed Item 22(b)(16)(ii) requires disclosure
Regulation S–K if it provides the independence disclosures required by current Item about the independence of audit committee
7(d)(2)(ii)(C)). Proposed Item 22(b)(16)(i) would members that is similar to those required by current
information required by Item 7.B. of
require closed-end investment companies to Items 7(d)(3)(iv)(A)(1) and (B).

302 Proposed amendments to Items 22(b)(7),
provide the information required by proposed Items
297 Current paragraphs (e), (f), and (g) of Item 401
407(d)(1) through (3), corresponding to the 22(b)(8), and 22(b)(9) of Schedule 14A; proposed
of Regulation S–B would become paragraphs (d)(5), information that closed-end investment companies amendments to Items 12(b)(6), 12(b)(7), and 12(b)(8)
(d)(4) and (c)(3), respectively, of Item 407 of are required to provide pursuant to current Item of Form N–1A; proposed amendments to Items 18.9,
Regulation S–B. 7(d)(3) (other than the audit committee 18.10, and 18.11 of Form N–2; proposed
298 This disclosure is currently required under independence disclosures required by Items amendments to Items 20(h), 20(i), and 20(j) of Form
Item 402(j) of Regulation S–K. 7(d)(3)(iv)(A)(1) and (B)). N–3.
other rules that refer specifically to Item exempts transactions between issuers of under current Item 404(b), some current
404. securities and their officers and Non-Employee Directors may become
directors if specified conditions are met. ineligible.
1. Regulation Blackout Trading
In particular, acquisitions from and
Restriction Request for Comment
dispositions to the issuer are exempt if
We are proposing conforming changes the transaction is approved in advance • Should the Rule 16b–3 Non-
to Regulation Blackout Trading by the issuer’s board of directors, or Employee Director definition continue
Restriction,303 also known as Regulation board committee composed solely of to permit consulting or similar
BTR, which we adopted to clarify the two or more Non-Employee Directors.308 arrangements with the issuer, as
scope and operation of Section The definition of ‘‘Non-Employee proposed?
306(a) 304 of the Sarbanes-Oxley Act of Director,’’ among other things, limits • Is the proposed Item 404(a)
2002 and to prevent evasion of the these directors to those who: disclosure threshold an appropriate
statutory trading restriction.305 Rule 100 • Do not directly or indirectly receive limit for permitting consulting or
of Regulation BTR defines terms used in compensation from the issuer, its parent similar arrangements? Instead, should
Section 306(a) and Regulation BTR, or subsidiary for consulting or other the dollar limit be lower, such as the
including the term ‘‘acquired in non-director services, except for an current $60,000 threshold? Explain the
connection with service or employment amount that does not exceed the Item basis for recommending a different
as a director or executive officer.’’ 306 404(a) dollar disclosure threshold; dollar limit.
Under this definition, one of the • Do not possess an interest in any • For business relationships for
specified methods by which a director other transaction for which Item 404(a) which disclosure is not required by
or executive officer directly or indirectly disclosure would be required; and current Item 404(b), but would be under
acquires equity securities in connection • Are not engaged in a business proposed Item 404(a), should there be a
with such service is an acquisition ‘‘at relationship required to be disclosed different test? Are there any particular
a time when he or she was a director or under Item 404(b). transactions or relationships that would
executive officer, as a result of any As described above, the Item 404 become disclosable under proposed
transaction or business relationship proposals would substantially revise or Item 404(a) that should not render a
described in paragraph (a) or (b) of Item rescind the Item 404 provisions on director ineligible to be a Non-Employee
404 of Regulation S–K.’’ 307 To conform which the Non-Employee Director Director? If so, explain why.
this provision of Regulation BTR to the definition is based. To minimize • Would continued use of Item 404 as
proposed Item 404 amendments, we potential disruptions and because no a measure for defining Non-Employee
propose to amend Rule 100(a)(2) so that problems have been brought to our Directors place an undue burden on
it references only transactions described attention regarding any aspect of the companies in forming their Non-
in paragraph (a) of Item 404. current definition, the proposed Employee Director committees? Would
2. Rule 16b–3 Non-Employee Director conforming amendment would continue reference to another disclosure
Definition to permit consulting and similar requirement or standard be better?
arrangements subject to limits measured
We also are proposing conforming by reference to the proposed Item 404(a) 3. Other Conforming Amendments
amendments to the definition of Non-
disclosure requirements.309 The The changes we propose to Item 404,
Employee Director in Exchange Act
amendment would delete the provision along with the consolidation of
Rule 16b–3. Section 16(b) provides an
referring to business relationships provisions into Item 407, necessitate
issuer (or shareholders suing on its
subject to disclosure under Item 404(b), conforming amendments to various
behalf) the right to recover from an
without otherwise revising the text of forms and schedules under the
officer, director, or ten percent
the rule.310 Because the disclosure Securities Act and the Exchange Act.
shareholder profits realized from a
threshold of Item 404(a) would be raised The rule proposals would amend:
purchase and sale of issuer equity
securities within a period of less than
from $60,000 to $120,000, however, the • Forms that require disclosure of the
effect in some cases may be to permit information required by Item 404 to
six months. However, Rule 16b–3
previously ineligible directors to be instead require disclosure of the
303 17 CFR 245.100–104.
Non-Employee Directors.311 In other information required by proposed Items
304 15 U.S.C. 7244(a), entitled ‘‘Prohibition of cases, where proposed Item 404(a) may 404 and 407(a); 312
Insider Trading During Pension Fund Blackout require disclosure of business • Some forms that require disclosure
Periods.’’ relationships not subject to disclosure of the information required by Item
305 Insider Trades During Pension Fund Blackout
Periods, Release No. 34–47225 (Jan. 22, 2003) [68

404(a) or by Items 404(a) and (c), to
FR 4337]. Section 306(a) makes it unlawful for any
308 Exchange Act Rules 16b–3(d)(1) and 16b–3(e). instead require disclosure of the
309 Because it appears appropriate that the
director or executive officer of an issuer of any information required by proposed Items
equity security (other than an exempted security), standards for an exemption from Section 16(b)
liability be readily determinable by reference to the
404(a) and (b), or proposed Item 404(a),
directly or indirectly, to purchase, sell, or otherwise
acquire or transfer any equity security of the issuer exemptive rule, and not variable depending upon as appropriate; 313
(other than an exempted security) during any where the issuer’s securities are listed, we do not
pension plan blackout period with respect to such propose to base the amended definition on the 312 See proposed amendments to Item 15 of Form
equity security, if the director or executive officer listing standards for director independence SB–2, Item 11(n) of Form S–1, Item 18(a)(7)(iii) and
acquired the equity security in connection with his applicable to the issuer. Item 19(a)(7)(iii) of Form S–4, Item 23 of Form S–
or her service or employment as a director or 310 Exchange Act Rule 16b–3(b)(3)(ii), which 11, Item 7 of Form 10, Item 13 of Form 10–K, Item
executive officer. This provision equalizes the defines a Non-Employee Director of a closed-end 7 of Form 10–SB, and Item 12 of Form 10–KSB. The
treatment of corporate executives and rank-and-file investment company as ‘‘a director who is not an proposed amendments to Forms SB–2, 10–SB and
employees with respect to their ability to engage in ‘‘interested person’’ of the issuer, as that term is 10–KSB would require disclosure of the
transactions involving issuer equity securities defined in Section 2(a)(19) of the Investment information required by proposed Items 404 and
during a pension plan blackout period if the Company Act of 1940,’’ would not be revised. 407(a) of Regulation S–B.
securities were acquired in connection with their 311 As under the current rule, each test referring 313 See proposed amendments to Item 7(b) of
service to, or employment with, the issuer. to Item 404 will be measured by reference to the Schedule 14A, which refers to proposed Items
306 This term is defined in Rule 100(a) of
Regulation S–K Item, even if the disclosure 404(a) and (b), and Item 22(b)(11) and the
Regulation BTR. requirements applicable to the company are Instruction to Item 22(b)(11) of Schedule 14A, and
307 Rule 100(a)(2) of Regulation BTR. governed by Regulation S–B. Continued
• A form that cross-references an disclosure of the information required • Use descriptive headings and
instruction in Item 404 which we by Items 401, 402 and 404, so that subheadings;
propose to eliminate to instead include instead it would require disclosure of • Use a tabular presentation or bullet
the text of this instruction; 314 the information required by proposed lists for complex material, wherever
• Item 7 of Schedule 14A to require Items 401, 402, 404 and paragraphs (a), possible;
disclosure of the information required (c)(3), (d)(4), (d)(5) and (e)(4) of Item • Avoid legal jargon and highly
by proposed Item 407(a) rather than 407.318 technical business and other
current Item 404(b), and to eliminate terminology;
current paragraphs (d)–(h) which are VI. Plain English Disclosure
• Avoid frequent reliance on
duplicative of proposed Item 407 and We are proposing that most of the glossaries or defined terms as the
replace them with a requirement to disclosure required by proposed Items primary means of explaining
disclose information specified by 402, 403, 404 and 407 be provided in information, defining terms in the
corresponding paragraphs of Item 407; plain English. We propose that this glossary or other section of the
• Forms that require disclosure of the plain English requirement apply when document only if the meaning is unclear
information required by Item 402 to information responding to these items is from the context and using a glossary
instead require disclosure of the included (whether directly or through only if it facilitates understanding of the
information required by proposed Item incorporation by reference) in reports disclosure; and
402 and Item 407(e)(4); 315 required to be filed under Exchange Act • In designing the presentation of the
• Some forms that require disclosure Sections 13(a) or 15(d). information, include pictures, logos,
of the information required by Item 401 In 1998, we adopted rule changes charts, graphs, schedules, tables or other
to instead require disclosure of the requiring issuers to write the cover page, design elements so long as the design is
information required by Item 401 and summary and risk factors section of not misleading and the required
paragraphs (c)(3), (d)(4) and/or (d)(5) of prospectuses in plain English and apply information is clear, understandable,
proposed Item 407, as appropriate; 316 plain English principles to other consistent with applicable disclosure
• Forms that require disclosure of the portions of the prospectus.319 These requirements and any other included
information required by Item 401(j), to rules transformed the landscape of information, drawn to scale and not
instead require disclosure of the public offering disclosure and made misleading.
information required by proposed Item prospectuses more accessible to
407(c)(3); 317 and The proposed rule would also provide
investors. We believe that plain English
• Item 10 of Form N–CSR to include additional guidance on drafting the
principles should apply to the
a cross reference to proposed Item disclosure that would comply with
disclosure requirements that we propose
407(c)(2)(iv) of Regulation S–K and plain English principles, including
to revise, so disclosure provided in
proposed Item 22(b)(15) of Schedule guidance as to the following practices
response to those requirements is easier
14A, in lieu of the current reference to that registrants should avoid:
to read and understand. Clearer, more
Item 7(d)(2)(ii)(G) of Schedule 14A. concise presentation of executive and • Legalistic or overly complex
In addition, conforming amendments director compensation, related person presentations that make the substance of
would be made to a provision in transactions, beneficial ownership and the disclosure difficult to understand;
Regulation AB, which currently requires corporate governance matters can • Vague ‘‘boilerplate’’ explanations
facilitate more informed investing and that are imprecise and readily subject to
Item 5.02(c)(2) of Form 8–K, which refer to voting decisions in the face of complex different interpretations;
proposed Item 404(a). The proposed amendments to
information about these important areas. • Complex information copied
Form 8–K that reference paragraphs (a) and (b) of
Item 404 of Regulation S–B would require We propose to add Exchange Act directly from legal documents without
disclosure of the information required by proposed Rules 13a–20 and 15d–20 to require that any clear and concise explanation of the
Item 404(a) of Regulation S–B. companies prepare their executive and provision(s); and
314 See proposed amendments to Item 23 of Form
director compensation, related person • Disclosure repeated in different
S–11.
315 See proposed amendments to Item 8 of transactions, beneficial ownership and sections of the document that increases
Schedule 14A, Item 11(l) of Form S–1, General corporate governance disclosures the size of the document but does not
Instruction I.B.4.(c) to Form S–3, Items 18(a)(7)(ii) included in Exchange Act reports using enhance the quality of the information.
and 19(a)(7)(ii) of Form S–4, Item 22 of Form S–11, plain English principles, including the Under the proposed rules, if the
Item 6 of Form 10 and Item 11 of Form 10–K.
316 See proposed amendments to General
following standards: executive compensation, beneficial
Instruction I.B.4.(c) of Form S–3, and Item 10 of • Present information in clear, ownership, related person transaction or
Form 10–K, which refer to Item 401 and paragraphs concise sections, paragraphs and corporate governance matters disclosure
(c)(3), (d)(4) and (d)(5) of proposed Item 407, and sentences; were incorporated by reference into an
Item 7(b) of Schedule 14A, which refers to Item 401
and paragraphs (d)(4) and (d)(5) of proposed Item
• Use short sentences; Exchange Act report from a company’s
407. • Use definite, concrete, everyday proxy or information statement, the
The proposed amendments to Forms SB–2, 10– words; disclosure would be required to be in
SB and 10–KSB would require disclosure of the • Use the active voice; plain English in the proxy or
information required by proposed Items 401 and • Avoid multiple negatives; information statement.320 The plain
407(c)(3), (d)(4) and (d)(5) of Regulation S–B. We
are not proposing any changes to the reference to
English rules are proposed as part of the
Item 401 in Note G to Form 10–K, however, because 318 See proposed amendments to Item 1107(e) of disclosure rules applicable to filings
the portion of Item 401 applicable in Note G Regulation AB. required under Sections 13(a) and 15(d)
(certain disclosure regarding executive officers) 319 Plain English Disclosure, Release No. 33–7497
of the Exchange Act. We believe that
does not include the part of Item 401 that we (Jan. 28, 1998) [63 FR 6369] (adopting revisions to
propose to combine into proposed Item 407.
these plain English requirements are
Securities Act Rule 421 [17 CFR 230.421]). We have
317 See proposed amendments to Item 5 in Part II also required that risk factor disclosure included in
of Form 10–Q, and Item 5 in Part II of Form 10– annual reports and Summary Term Sheets in 320 See, e.g., General Instruction G(3) to Form 10–
QSB. The proposed amendments to Item 5 in Part business combination filings be in plain English. K and General Instruction E.3. to Form 10–KSB
II of Form 10–QSB would require disclosure of the See General Instruction 1A. to Form 10–K and Item (specifying information that may be incorporated by
information required by proposed Item 407(c)(3) of 1001 of Regulation M–A 17 CFR 229.1001], reference from a proxy or information statement in
Regulation S–B. respectively. an annual report on Form 10–K or 10–KSB).
best administered by the Commission • For Forms 8–K, for triggering events on the amendments. We request
under these rules. that occur 60 days or more after comment from companies and all users
publication; of the executive compensation, related
Request for Comment
• For Securities Act and Investment party and corporate governance
• Will the plain English requirements Company Act registration statements information required by Commission
discussed above be sufficient to (including post-effective amendments) rules that may be affected by the
discourage boilerplate and promote and Exchange Act registration proposals. With respect to any
clear, more user-friendly Exchange Act statements that become effective 120 comments, we note that they are of
reports and proxy or information days or more after publication; and greatest assistance to our rulemaking
statements? If not, how should we revise • For proxy statements that are filed initiative if accompanied by supporting
the requirements? 90 days or more after publication.322 data and analysis of the issues
• Are there differences between proxy We do not propose to require addressed in those comments and by
statements and Exchange Act reports companies to ‘‘restate’’ compensation or alternatives to our proposals where
which would require different related person transaction disclosure for appropriate.
requirements in order to accomplish the fiscal years for which they previously
VIII. Paperwork Reduction Act
objectives of plain English? If so, what were required to apply the current rules.
are the different requirements and how Instead, the proposed Summary A. Background
should the different requirements be Compensation Table and disclosure The proposed rules and amendments
addressed? required by proposed Item 404(a) would contain ‘‘collection of information’’
• In addition to the proposal, should be required only for the most recent requirements within the meaning of the
we require that information provided fiscal year.323 This would result in Paperwork Reduction Act of 1995.324
under proposed Items 402, 403, 404 and phased-in implementation of the We are submitting these to the Office of
407 in other filings, such as Form S–1, proposed Summary Compensation Management and Budget for review and
be written in plain English? Table amendments and proposed Item approval in accordance with the
• Since only portions of the 404(a) disclosure over a three-year Paperwork Reduction Act.325 The titles
disclosure under proposed Item 407 period for Regulation S–K companies, for this information are: 326
would be required to be included in and a two-year period for Regulation S– (1) ‘‘Regulation S–B’’ (OMB Control
Exchange Act reports, should we B companies. No. 3235–0417);
specifically require that all Item 407 Request for Comment (2) ‘‘Regulation S–K’’ (OMB Control
disclosure be in plain English? If so, No. 3235–0071);
how should we impose this • Is the proposed effectiveness (3) ‘‘Form SB–2’’ (OMB Control No.
requirement? schedule workable? 3235–0418);
• Should we require that all or • Is the proposed phased-in transition (4) ‘‘Form S–1’’ (OMB Control No.
portions of proxy or information provision for the amended Summary 3235–0065);
statements be in plain English? If so, Compensation Table and proposed (5) ‘‘Form S–4’’ (OMB Control
should a plain English requirement related person transaction disclosure Number 3235–0324);
apply to disclosure provided by anyone necessary? Could companies revise the (6) ‘‘Form S–11’’ (OMB Control
who solicits a proxy with a proxy previous years’ required disclosure to Number 3235–0067);
statement, or should it be limited to just conform to the amended requirements (7) ‘‘Regulation 14A and Schedule
companies making a solicitation of their without incurring undue costs or 14A’’ (OMB Control Number 3235–
shareholders? Should shareholder burdens? 0059);
proposals under Exchange Act Rule • Are any special transition (8) ‘‘Regulation 14C and Schedule
14a–8 321 or financial statements and provisions necessary for any other 14C’’ (OMB Control Number 3235–
related disclosures under Item 13 of aspects of the proposed amendments? If 0057);
Schedule 14A be excluded from any so, explain what would be needed and (9) ‘‘Form 10’’ (OMB Control No.
plain English requirements applicable to why. 3235–0064);
proxy statements? Would a plain General Request for Comments (10) ‘‘Form 10–SB’’ (OMB Control No.
English requirement under the proxy 3235–0419);
rules have the potential to increase We request and encourage any (11) ‘‘Form 10–K’’ (OMB Control No.
disputes, including possible litigation, interested person to submit comments 3235–0063);
that could inappropriately delay or on any aspect of our proposals and any (12) ‘‘Form 10–KSB’’ (OMB Control
frustrate the conduct of solicitations and other matters that might have an impact No. 3235–0420);
shareholder meetings or otherwise 322 The proposed amendments to the cross-
(13) ‘‘Form 8–K’’ (OMB Control No.
interfere with the proper operation of references in Item 10 of Form N–CSR would appear
3235–0060); and
the proxy rules? in the Form concurrent with the effective date of (14) ‘‘Form N–2’’ (OMB Control No.
the amendments to our proxy rules, and would be 3235–0026).
VII. Transition effective for a particular registrant’s Forms N–CSR We adopted all of the existing
that are filed after the filing of any proxy statement
We propose that, following their that includes a response to proposed Item
regulations and forms pursuant to the
adoption, the proposed new rules and 407(c)(2)(iv) of Regulation S–K (as required by
amendments would become effective proposed Item 22(b)(15) of Schedule 14A). The 324 44 U.S.C. 3501 et seq.
following publication of the adopting substance of the information required by the Item 325 44 U.S.C. 3507(d) and 5 CFR 1320.11.
would not be changed. 326 The paperwork burden from Regulations S–K
release in the Federal Register as
323 The other proposed executive and director and S–B is imposed through the forms that are
follows: compensation disclosure requirements which relate subject to the requirements in those Regulations
• For Forms 10–K and 10–KSB, for to the last completed fiscal year would not be and is reflected in the analysis of those forms. To
fiscal years ending 60 days or more after affected by this proposed transition approach. The avoid a Paperwork Reduction Act inventory
publication; Summary Compensation Table would be treated reflecting duplicative burdens, for administrative
differently because, as proposed, it would require convenience we estimate the burdens imposed by
disclosure of compensation to the named executive each of Regulations S–K and S–B to be a total of
321 17 CFR 240.14a–8. officers for the last three fiscal years. one hour.
Securities Act and the Exchange Act. In publicly available on the EDGAR filing elements of compensation of named
addition, we adopted Form N–2 system. executive officers;
pursuant to the Investment Company • Disclosure regarding up to three
B. Summary of Information Collections employees who were not executive
Act. These regulations and forms set
forth the disclosure requirements for The proposals would increase existing officers and whose total compensation
annual 327 and current reports, disclosure burdens for annual reports on for the last completed fiscal year was
registration statements, proxy Form 10–K 328 and registration greater than that of any of the named
statements and information statements statements on Forms 10, S–1, S–4 and executive officers;
that are prepared by issuers to provide S–11 by requiring: • New tables and narrative disclosure
investors with the information they • An expanded and reorganized regarding retirement plans and
need to make informed investment Summary Compensation Table, which nonqualified defined contribution and
decisions in registered offerings and in would require expanded disclosure of a other deferred compensation plans;
secondary market transactions, as well ‘‘total compensation’’ amount, and • Expanded disclosure regarding
as informed voting decisions in the case information necessary for computing the post-employment payments other than
of proxy statements. total amount of compensation, such as pursuant to retirement and deferred
Our proposed amendments to existing the grant date fair value of stock-based compensation plans;
forms and regulations are intended to: and option-based awards computed in • A new table and improved narrative
• Provide investors with a clearer and accordance with FAS 123R, and the disclosure for director compensation to
more complete picture of compensation aggregate increase in actuarial value of replace current disclosure requirements;
awarded to, earned by or paid to defined benefit and actuarial pension • Disclosure regarding additional
principal executive officers, principal plans; related persons under the proposed
financial officers, the highest paid • Disclosure at lower thresholds of related person transaction disclosure
executive officers other than the information regarding perquisites and requirement;
principal executive officer and principal other personal benefits; • New disclosure regarding a
financial officer and directors; • A more focused presentation of company’s policies and procedures for
compensation plan awards in a Grants the review, approval or ratification of
• Provide investors with better
of Performance-Based Awards Table and transactions with related persons;
information about key financial
a Grants of All Other Equity Awards • New and reorganized disclosure
relationships among companies and
Table, which would build upon existing regarding corporate governance matters
their executive officers, directors,
tabular disclosures regarding long term such as the independence of directors
significant shareholders and their
incentive plans and awards of option and members of the nominating,
respective immediate family members;
and stock appreciation rights to compensation and audit committees of
• Include more complete information the board of directors; and
about independence regarding members supplement the information proposed to
be included in the Summary • Additional disclosure regarding
of the board of directors and board pledges of securities by officers and
committees; Compensation Table;
• Expanded disclosure regarding directors and directors’ qualifying
• Reorganize and modify the type of shares.
executive and director compensation holdings and exercises by named
executive officers of outstanding At the same time, the proposals
information that must be disclosed in would decrease existing disclosure
current reports; and previously awarded stock, options and
similar instruments which would burdens for annual reports on Form 10–
• Require most of the disclosure K and registration statements on Form
required under these proposals to be include the grant date of the award, the
vesting date of restricted stock and 10, S–1, S–4 and S–11 by:
provided in plain English. • Eliminating requirements to
The hours and costs associated with similar instruments and amounts (both
provide a Compensation Committee
preparing disclosure, filing forms, and number of shares and value) realized
Report and Performance Graph in proxy
retaining records constitute reporting upon vesting and the previously
materials and information statements,
and cost burdens imposed by the reported grant date fair value of awards
which would substantially offset the
collection of information. An agency exercised or vested;
increased burdens regarding
may not conduct or sponsor, and a • Improved narrative disclosure
Compensation Discussion and Analysis
person is not required to respond to, a accompanying data presented in the
that would be required to be included
collection of information unless it executive compensation tables and a
or incorporated by reference in annual
displays a currently valid control new Compensation Discussion and
reports or registration statements;
number. Analysis section to explain material • Eliminating tabular presentation
The information collection 328 The proposed disclosure requirements
regarding projected stock option values
requirements related to annual and regarding executive and director compensation, under alternative stock appreciation
current reports, registration statements, beneficial ownership, related person transactions scenarios, which would substantially
proxy statements and information and parts of the proposed corporate governance offset the increased burdens regarding
statements would be mandatory. disclosure requirements are in Form 10–K,
Schedule 14A and Schedule 14C. Form 10–K
equity holdings and exercises;
However, the information collection permits the incorporation by reference of • Eliminating a generalized tabular
requirements relating exclusively to information in Schedules 14A or 14C to satisfy the presentation regarding defined benefit
proxy and information statements disclosure requirements of Form 10–K. The analysis plans, which would offset in part the
would only apply to issuers subject to that follows assumes that companies would either increased burdens regarding defined
provide the proposed disclosure in a Form 10–K
the proxy rules. There would be no benefit plan disclosure;
only, if the company is not subject to the proxy

mandatory retention period for the rules, or would incorporate the required disclosure • Increasing the dollar value
information disclosed, and the into the Form 10–K by reference to the proxy or threshold for determining if related
information disclosed would be made information statement if the company is subject to person transaction disclosure is
the proxy rules. This approach takes into account
the burden from the proposed disclosure required from $60,000 to $120,000; and
327 The pertinent annual reports are those on requirements that are included in both the Form • Eliminating a current disclosure
Form 10–K or 10–KSB. 10–K and in Schedule 14A or 14C. requirement regarding specific director
relationships that could affect above, by the proposed Compensation • Reducing by two the number of
independence. Discussion and Analysis and narrative named executive officers for the
In addition, the proposals may disclosure requirement regarding purposes of executive compensation
increase or decrease existing disclosure repricings and other modifications, both disclosure, to include only the principal
burdens, or not affect them at all, for of which would be required to be executive officer and the two most
annual reports on Form 10–K and included or incorporated by reference in highly compensated executive officers
registration statements on Form 10, S– annual reports and registration other than the principal executive
1, S–4 and S–11, depending on a statements. We estimate that, on officer;
company’s particular circumstances, by: balance, the proposed changes that are • Reducing the required information
• Eliminating the requirement to specific to proxy or information in the Summary Compensation Table
include in proxy or information statements would not result in from three years to two years of data;
statements a compensation committee incremental burdens on proxy or • Eliminating tabular disclosure of
report on the repricing of options and information statement collections of grants of options and stock appreciation
stock appreciation rights and a table information. rights in the last fiscal year;
reporting on the repricing of options The proposals would increase existing • Eliminating tabular disclosure
and stock appreciation rights over the disclosure burdens for annual reports on regarding exercises of options and stock
past ten years, in favor of a narrative Form 10–KSB 329 and registration appreciation rights;
discussion of repricings, if any occurred statements on Forms 10–SB and SB–2 • Eliminating tabular disclosure
in the last fiscal year, which would be filed by small business issuers by regarding long term incentive plan
required to be included or incorporated requiring: awards in the last fiscal year; and
by reference in annual reports and • An expanded and reorganized • Eliminating a current disclosure
registration statements; and Summary Compensation Table, which requirement regarding specific director
• Eliminating or reducing the scope would require expanded disclosure of a relationships that could affect
of instructions that provide bright line ‘‘total compensation’’ amount, and independence.
tests for determining whether information necessary for computing the In addition, the proposals may
transactions with related persons are total amount of compensation, such as increase or decrease, or not affect,
required to be disclosed in particular the grant date fair value of stock-based existing disclosure burdens for annual
circumstances. and option-based awards computed in reports on Form 10–KSB or registration
Specifically with respect to proxy and accordance with FAS 123R and the statements on Form 10–SB and SB–2
information statements, the proposals aggregate increase in actuarial value of filed by small business issuers
would impose a new disclosure defined benefit and actuarial pension depending on the small business
requirement regarding the company’s plans; issuer’s particular circumstances, by:
processes and procedures for the • Disclosure at lower dollar • Eliminating the requirement to
consideration and determination of thresholds for information regarding include a compensation committee
executive and director compensation, perquisites and other personal benefits; report on the repricing of options and
and disclosure regarding the availability • Expanded disclosure regarding stock appreciation rights, in favor of a
of the compensation committee’s charter holdings of previously awarded stock, narrative discussion of repricings, if any
(if it has one), either as an appendix to options and similar instruments, which occurred in the last fiscal year;
the proxy or information statement at would include the value of stock and • Changing the dollar value threshold
least once every three fiscal years or on other similar incentive plan awards that used for determining if related person
the company’s Web site. These had not vested; transaction disclosure is required from
proposals would not require a • A new table for director $60,000 to the lesser of $120,000 or one
compensation committee to establish or compensation, to replace current percent of the average of the small
maintain a charter. The proposed narrative disclosure requirements; business issuer’s total assets for the last
disclosure that would be required • A narrative description of three completed fiscal years; and
regarding compensation committees is retirement plans; • Eliminating or reducing the scope
similar to what is currently required for • Disclosure regarding additional of instructions that provide bright line
audit committees and nominating related persons under the proposed tests for determining whether
committees. The proposals would related person transaction disclosure transactions with related persons are
decrease existing disclosure requirement; required to be disclosed in particular
requirements for proxy and information • New and reorganized disclosure circumstances.
statements by eliminating a current regarding corporate governance matters The proposals would decrease
disclosure requirement regarding the such as the independence of directors existing disclosure burdens for Forms
resignation of directors, as well as and members of the nominating, N–1A, N–2, and N–3 by increasing to
eliminating current requirements to compensation and audit committees of $120,000 the current $60,000 threshold
provide a Compensation Committee the board of directors; and in such forms for disclosure of certain
Report, Performance Graph and a • Additional disclosure regarding interests, transactions, and relationships
compensation committee report on the pledges of securities by officers and of disinterested directors, although as
repricing of options and stock directors, and director qualifying shares. discussed below we do not believe the
appreciation rights. However, the extent At the same time, the proposals increase in the disclosure threshold will
to which eliminating current would decrease existing disclosure significantly impact the hours of
requirements to provide a burdens for annual reports on Form 10– company personnel time and cost of
Compensation Committee Report, KSB and registration statements on outside professionals in responding to
Performance Graph and a compensation Form 10–SB and SB–2 filed by small these items. The proposals would
committee report on the repricing of business issuers by: increase the existing disclosure burdens
options and stock appreciation rights 329 The same analysis as discussed above with
for Form N–2 by requiring business
reduces burdens for proxy and regard to the relationship of Form 10–K to the
development companies to provide
information statements would be offset disclosure required in proxy or information additional disclosure regarding
to a substantial extent, as discussed statements is also applied to Form 10–KSB. compensation. However, the proposals
would decrease the existing disclosure K, we estimate that 75% of the burden an annual incremental disclosure
burden by no longer requiring of preparation is carried by the company burden.
compensation disclosure with respect to internally and that 25% of the burden These estimates were based on the
certain affiliated persons and the is carried by outside professionals following assumptions:
advisory board of business development retained by the issuer at an average cost • On an ongoing basis, the hours of
companies and by no longer requiring of $300 per hour.332 For Securities Act company personnel time and outside
business development companies to registration statements on Forms SB–2, professional time required to prepare
disclose certain compensation from the S–1, S–4, S–11, or N–2 and Exchange the disclosure under proposed Item 402
fund complex. Act registration statements on Form 10 of Regulation S–K (executive and
The proposals would decrease the or 10–SB, we estimate that 25% of the director compensation) would increase
Form 8–K disclosure burdens, by burden of preparation is carried by the in light of the expansion and
limiting both the existing requirement to company internally and that 75% of the reorganization of the proposed
disclose a company’s entry into a burden is carried by outside disclosure requirements relative to the
material definitive agreement outside of professionals retained by the issuer at current disclosure requirements on
the ordinary course of business or any an average cost of $300 per hour.333 The these topics, in particular the
material amendment to such an portion of the burden carried by outside requirements regarding Compensation
agreement and the requirement to professionals is reflected as a cost, while Discussion and Analysis.
collect information regarding directors, the portion of the burden carried by the • Companies filing annual reports on
executive officers other than named company internally is reflected in Form 10–K that would be required to
executive officers and officers covered hours. include Item 402 of Regulation S–K, as
by Item 5.02 of Form 8–K. By focusing we propose to amend it, and proposed
the Form 8–K disclosure requirement on 1. Securities Act Registration Item 407(e)(4) of Regulation S–K
more presumptively material Statements, Exchange Act Registration (regarding compensation committee
employment agreements, plans or Statements and Exchange Act Annual interlocks and insider participation),
arrangements of a narrower group of Reports would experience higher costs in
executive officers, the number of Form responding to these disclosure
8–Ks filed each year relating to For the purposes of the Paperwork requirements in the first year of
executive and director compensation Reduction Act, we estimate that, over a compliance with them, and, to a lesser
matters should be reduced. three year period,334 the annual extent, in the second year, as systems
We do not believe that our proposals incremental disclosure burden imposed are implemented to obtain the relevant
regarding exhibit filing requirements for by the proposed revisions would data and compliance efforts with respect
Form 20–F and our proposed treatment average 67 hours per Form 10–K; 35 to new or expanded disclosure
for foreign private issuers under the hours per Form 10–KSB; 60 hours per requirements, with lower incremental
revised rules would impose any Form 10; 30 hours per Forms 10–SB and costs expected in subsequent years.335
incremental increase or decrease in the SB–2; 60 hours per Forms S–1, S–4 and • On an ongoing basis, the hours of
disclosure burden for these issuers. S–11; and 1.675 hours per Form N–2. To company personnel time and outside
the extent that companies incorporate professional time required to prepare
C. Paperwork Reduction Act Burden information proposed to be required by the disclosure under proposed Item 404
Estimates reference to proxy or information (related person transactions), 407(a)
For purposes of the Paperwork statements, the proposed plain English (director independence) and paragraphs
Reduction Act, we estimate the annual requirements would apply to disclosure (e)(1) through (e)(3) of Item 407
incremental increase in the paperwork in those statements, however the (compensation committee functions) of
burden for companies to comply with incremental burden of preparing plain both Regulation S–K and Regulation S–
our proposed collection of information English disclosure is factored into the B would be approximately the same as
requirements to be approximately burden estimates for Forms 10–K and for compliance with the current related
537,792 hours of in-house company 10–KSB. We estimate that the proposed party transaction disclosure and
personnel time and to be approximately amendments to Item 22(b) of Schedule disclosure about the board of directors
$69,794,000 for the services of outside 14A and the proposal to increase to required by existing Item 404 of
professionals.330 These estimates $120,000 the current $60,000 threshold Regulations S–K and S–B and Item 7 of
include the time and the cost of in Forms N–1A, N–2, and N–3 for Schedule 14A.336 Other revisions
preparing and reviewing disclosure, disclosure of certain interests, proposed to be made by moving
filing documents and retaining records. transactions, and relationships of
Our methodologies for deriving the disinterested directors will not impose 335 For Form 10–K, we estimate that it would take
issuers 120 additional hours to prepare the

above estimates are discussed below. proposed disclosure in year one, and 55 hours in
Our estimates represent the average 332 In connection with other recent rulemakings,
year two and 25 hours in year three and thereafter,
burden for all issuers, both large and we have had discussions with several private law which results in an average of 67 hours over the
firms to estimate an hourly rate of $300 as the three year period. This estimate takes into account
small. As described below, we expect average cost of outside professionals that assist that the burden would be incurred by either
that the burdens and costs could be issuers in preparing disclosures and conducting including the proposed disclosure in the report
greater for larger issuers and lower for registered offerings. directly or incorporating by reference from a proxy
smaller issuers. For Exchange Act 333 As mentioned above, we do not believe that or information statement.
annual reports on Form 10–K or 10– the proposal to increase to $120,000 the current 336 Similarly, on an ongoing basis, the hours of
$60,000 threshold in Forms N–1A, N–2, and N–3 company personnel time and outside professional
KSB,331 or current reports on Form 8– for disclosure of certain interests, transactions, and time required to prepare the disclosure required by
relationships of disinterested directors will the proposed conforming revisions to Item 22(b)
330 For administative convenience, the significantly impact the hours of company relating to the independence of members of
presentation of the totals related to the paperwork personnel time and cost of outside professionals in nominating and audit committees of investment
burden hours have been rounded to the nearest responding to these items. companies would be approximately the same as for
whole number and the cost totals have been 334 We calculated an annual average over a three compliance with the current requirements regarding
rounded to the nearest thousand. year period because OMB approval of Paperwork disclosure of the independence of nominating and
331 We apply the same allocation of burden with Reduction Act submissions covers a three year audit committee members of investment companies
regard to proxy or information statements. period. required by existing Item 7 of Schedule 14A.
disclosure requirements relating to new or expanded disclosure of disinterested directors in Forms N–

corporate governance to Item 407 of requirements are implemented, with 1A, N–2, and N–3 and in proxy and
Regulations S–K and S–B would not lower incremental costs in subsequent information statements would neither
change the substance of existing years.338 increase nor decrease the annual
disclosure and would therefore not • Small business issuers filing paperwork burden, because these forms
increase burdens, particularly for proxy registration statements on Forms 10–SB are already required to disclose these
or information statements where much and SB–2 that are not already filing interests, transactions, and relationships
of the disclosure is currently required. periodic reports pursuant to Exchange in amounts exceeding $60,000, and we
• Companies filing registration Act Sections 13(a) or 15(d) would not do not believe the increase in the
statements on Forms 10, S–1, S–4 and have been required to comply with the disclosure threshold will significantly
S–11 that are not already filing periodic proposed disclosure requirements prior impact the hours of company personnel
reports pursuant to Exchange Act to filing such registration statements, time and cost of outside professionals in
Sections 13(a) or 15(d) would in many and would therefore take an estimated responding to these items.
cases not have been required to comply 30 additional hours to comply with the • Business development companies
with the proposed disclosure proposed changes in the disclosure filing Form N–2 would be required to
requirements prior to filing such requirements. The additional time include Item 402 of Regulation S–K, as
registration statements, and would required by these registrants to obtain we propose to amend it, and would
therefore take an estimated 60 hours to the relevant data and to compile the experience higher costs in responding to
comply with the proposed changes in required information is offset to some these disclosure requirements in the
the disclosure requirements. The extent by the fact that only one year of first year of complying with them, and,
additional time required by these compensation information would to a lesser extent, in the second year, as
registrants to obtain the relevant data generally be required for presentation in systems are implemented to obtain the
and to compile the required information the Summary Compensation Table, as relevant data and compliance efforts
is offset to some extent by the fact that compared to two years for small with respect to new or expanded
only one year of compensation business issuers already subject to disclosure requirements are
information would generally be required Exchange Act reporting requirements. implemented, with lower incremental
for presentation in the Summary • Based on our experience with the costs expected in subsequent years.339
Compensation Table, as compared to requirement we adopted in 1998 for Tables 1 and 2 below illustrate the
three years for issuers already subject to companies to write certain sections of incremental annual compliance burden
Exchange Act reporting requirements.337 prospectuses in plain English, drafting in the collection of information in hours
• Small business issuers filing annual documents in plain English would and cost for Exchange Act periodic
reports on Form 10–KSB would be result in an initial increase in time and reports for companies other than
subject to lower incremental costs than cost burdens in the first year of
registered investment companies,
other issuers as a result of the proposals, implementation, and to a lesser extent,
Securities Act registration statements
given the reduced disclosure required the second year, with those time or cost
and Exchange Act registration
by Item 402 of Regulation S–B relative burdens decreasing in the year
statements.
to Item 402 of Regulation S–K, as following implementation of the new
described above. As with companies rules. The plain English rule proposals 339 For Form N–2, we estimate that it would take
filing annual reports on Form 10–K, we would not affect the substance of the business development companies 100 additional
expect that small business issuers required disclosure, and companies that hours to prepare the proposed disclosure in year
would experience higher costs in have filed registration statements under one, 50 hours in year two and 25 hours in year three
responding to the proposed disclosure the Securities Act are already familiar and thereafter, which results in an average of 58
requirements in the first year of with the requirements. hours for each business development company to
compliance with them, as systems are • We estimate that the proposals to comply with the proposed compensation
increase to $120,000 the current $60,000 disclosures that would be required on Form N–2.
implemented to obtain the relevant data We estimate an average annual incremental
and compliance efforts with respect to threshold for disclosure of certain
disclosure burden of 1.675 hours per Form N–2,
interests, transactions, and relationships based on 58 hours per Form N–2 filing by business
337 Our estimates of the number of annual
development companies times 27 filings on Form
responses to the collections of information are 338 For Form 10–KSB, we estimate that it would
N–2 by business development companies
based on the number of filings made in the period take issuers 70 additional hours to prepare the (representing all Form N–2 and N–2/A filings by
from October 1, 2004 through September 30, 2005. proposed disclosure in year one, and 25 additional business development companies during the year
In order to factor in disclosure that may be hours in year two and 10 additional hours in year
ended December 31, 2005) (58 hours times 27 Form
incorporated by reference from other filings, we three and thereafter, which results in an average of
have estimated that 496 out of 619 registration 35 additional hours over the three year period. This N–2 filings (including amendments) = 1,566 hours),
statements on Form S–4 would include the required estimate assumes that the burden would be divided by 935 total annual filings on Form N–2
information contemplated by these rule proposals incurred by either including the proposed (representing all Form N–2 and N–2/A filings
through incorporation by reference to a Form 10– disclosure in the report directly or incorporating by during the year ended December 31, 2005) (1,566
K or Form 10–KSB. reference from a proxy or information statement. hours divided by 935 filings on Form N–2
(including amendments) = 1.675 hours per Form N–
2 (including amendments)).
TABLE 1.—CALCULATION OF INCREMENTAL PAPERWORK REDUCTION ACT BURDEN ESTIMATES FOR EXCHANGE ACT
PERIODIC REPORTS
Annual Incremental Incremental 25% Profes- $300 Profes-
Form 75% Issuer
responses hours/form burden sional sional cost
(A) (B) (C) = (A)*(B) (D) = ( C)*0.75 (E) = (C)*0.25 (F) = (E)*$300
10–K 340 .................................................... 8,602 67 576,334 432,250.5 144,083.5 $43,225,050

10–KSB .................................................... 3,504 35 122,640 91,980.0 30,660.0 9,198,000
Total .................................................. ........................ ........................ 698,974 524,230.5 ........................ 52,423,050
TABLE 2.—CALCULATION OF INCREMENTAL PAPERWORK REDUCTION ACT BURDEN ESTIMATES FOR SECURITIES ACT
REGISTRATION STATEMENTS AND EXCHANGE ACT REGISTRATION STATEMENTS
$300
Annual Incremental Incremental 75%
Form 75% Issuer Professional
responses hours/form burden Professional cost
(A) (B) (C) = (A)*(B) (D) = (C)*0.25 (E) = (C)*0.75 (F) = (E)*$300
10 ............................................................. 72 60 4,320 1,080.0 3,240.0 $972,000

10–SB ...................................................... 166 30 4,980 1,245.0 3,735.0 1,120,500
SB–2 ........................................................ 885 30 26,550 6,637.5 19,912.5 5,973,750
S–1 ........................................................... 528 60 31,680 7,920.0 23,760.0 7,128,000
S–4 ........................................................... 123 60 7,380 1,845.0 5,535.0 1,660,500
S–11 ......................................................... 60 60 3,600 900.0 2,700.0 810,000
N–2 ........................................................... 935 1.675 1,566 391.5 1,174.5 352,350
Total .................................................. ........................ ........................ 80,076 20,019.0 ........................ 18,017,100
2. Exchange Act Current Reports would be filed pursuant to Item 1.01 of of the information to be collected; and
Form 8–K. (d) evaluate whether there are ways to
For purposes of the Paperwork • Based on a review of Item 1.01 minimize the burden of the collections
Reduction Act, we estimate that the Form 8–K filings made in September of information on those who respond,
proposals affecting the collection of 2005, we estimate that 6,625 of the including through the use of automated
information requirements related to 22,083 current reports on Form 8–K collection techniques or other forms of
current reports on Form 8–K would filed under Item 1.01 would relate to information technology.343
reduce the annual paperwork burden by executive or director compensation Any member of the public may direct
approximately 6,458 hours of company matters. to us any comments concerning the
personnel time and by a cost of • Based on a review of Item 1.01 accuracy of these burden estimates and
approximately $645,750 for the services Form 8–K filings made in September any suggestions for reducing these
of outside professionals. This estimate 2005, we estimate that 1,722 fewer Form burdens. Persons who desire to submit
reflects the reduction in the number of 8–Ks would be filed because of more comments on the collection of
filings that could result from our focused current reporting of executive information requirements should direct
proposals. These estimates were based officer and director compensation their comments to the OMB, Attention:
on the following assumptions: transactions under proposed Item Desk Officer for the Securities and
5.02(e) of Form 8–K.342 Exchange Commission, Office of
• The number of annual responses for
D. Request for Comment Information and Regulatory Affairs,
Form 8–K is estimated to be 110,416.341 Washington, DC 20503, and should send
Based on a study of current reports on We request comment in order to: (a) a copy of the comments to Nancy M.
Form 8–K filed in September 2005, we Evaluate whether the collections of Morris, Secretary, Securities and
estimate that approximately 22,083 information are necessary for the proper Exchange Commission, 100 F Street,
current reports filed on Forms 8–K performance of our functions, including NE., Washington, DC 20549–9303, with
whether the information will have reference to File No. S7–03–06.
340 The burden estimates for Form 10–K and 10– practical utility; (b) evaluate the Requests for materials submitted to the
KSB assume that the proposed requirements are accuracy of our estimate of the burden
satisfied by either including information directly in
OMB by us with regard to this collection
of the collections of information; (c) of information should be in writing,
the annual reports or incorporating the information
by reference from the proxy statement or determine whether there are ways to refer to File No. S7–03–06, and be
information statement in Schedule 14A or Schedule enhance the quality, utility, and clarity submitted to the Securities and
14C, respectively. As described above, we estimate
that the proposed changes to executive
Exchange Commission, Office of Filings
342 For Form 8–K, the current burden estimate is
compensation disclosure and corporate governance and Information Services, Branch of
5 hours per filing. We estimate that 75% of the
Records Management, 6432 General
matters that would be included only in proxy or burden of preparation is carried by the company
information statements (and thus not in Securities internally and that 25% of the burden is carried by Green Way, Alexandria, VA 22312.
Act registration statements or Exchange Act reports outside professionals retained by the issuer at an
or registration statement) would not, on balance,
Because the OMB is required to make a
average cost of $300 per hour. The computation of
impose an incremental burden. the reduction in burden is thus based on 1,722
decision concerning the collections of
341 This is based on the number of responses fewer Form 8–Ks filed with a per filing burden of
made in the period from October 1, 2004 through 3.75 hours carried by the company and 1.25 hours 343 Comments are requested pursuant to 44 U.S.C.
September 30, 2005. at a cost of $300 per hour (or $375 per filing). 3506(c)(2)(B).
information between 30 and 60 days Compensation Table, and reorganize the • Require a new Director
after publication, your comments are compensation table to group together Compensation Table.
best assured of having their full effect if compensation elements that have Item 402 of Regulation S–B would not
the OMB receives them within 30 days similar functions so that the quantitative include the following disclosures that
of publication. disclosure is both more informative and would be required by proposed Item 402
more easily understood. This improved of Regulation S–K:
IX. Cost-Benefit Analysis • Compensation Discussion and
quantitative disclosure would be
A. Background complemented by enhanced narrative Analysis;
disclosure clearly and comprehensively • A third fiscal year of Summary
We are proposing revisions to our Compensation Table disclosure; and
rules governing disclosure of executive describing the context in which
compensation is paid and received. In • The supplementary Grants of
and director compensation, related Performance-Based Awards Table and
person transactions, director particular, the narrative disclosure
requirements would provide Grants of All Other Equity Awards
independence and other corporate Table, the Option Exercises and Stock
governance matters and security transparency regarding company
compensation policies and procedures, Vested Table, the Retirement Plan
ownership of officers and directors. The Potential Annual Payments and Benefits
proposed revisions to the executive and and be sufficiently flexible to operate
effectively as new forms of Table, and the Nonqualified Defined
director compensation disclosure rules Contribution and Other Deferred
are intended to provide investors with compensation continue to evolve.
Compensation Plans Table and the
a clearer and more complete picture of Under the proposals, the scope and
separate Potential Payments Upon
compensation to principal executive presentation of information in Item 402
Termination or Change-in-Control
officers, principal financial officers, the of Regulation S–B would differ in a
narrative section, while providing a
highest paid executive officers and number of significant ways from Item
general requirement to discuss the
directors. We also propose to revise our 402 of Regulation S–K. Item 402 of
material terms of retirement plans and
rules relating to current reports on Form Regulation S–B would:
the material terms of contracts
8–K to require real-time disclosure of • Limit the named executive officers
providing for payment upon a
only executive and director for whom disclosure would be required
termination or change in control.
compensation events that are to a smaller group, consisting of the The application of Item 1.01 of Form
unquestionably or presumptively principal executive officer and the two 8–K to compensatory arrangements has
material, thereby reducing the number other highest paid executive officers; 344 raised concerns that real-time disclosure
of filings for events relating to executive • Require a revised Summary may be required for executive
officers other than named executive Compensation Table to disclose compensation events that are not
officers and those officers specified in compensation information for the small unquestionably or presumptively
Item 5.02. We also propose to revise our business issuer’s two most recent fiscal material, and that are more
closely related rules requiring years, and to require that narrative appropriately disclosed, if at all, in the
disclosure regarding the extent to which disclosure accompany the Summary company’s proxy statement for its
executive officers, directors, significant Compensation Table; 345 annual meeting of shareholders. The
shareholders and other related persons • Provide a higher threshold for proposed amendments to Items 1.01 and
participate in financial transactions and separate identification of categories of 5.02 of Form 8–K would focus real-time
relationships with the issuer. We are ‘‘All Other Compensation’’ in the disclosure on compensation
proposing to amend our beneficial Summary Compensation Table; arrangements with executives and
ownership disclosure requirement to • Require a new Outstanding Equity directors that we believe are
require disclosure regarding pledges of Awards at Fiscal Year-End Table that unquestionably or presumptively
securities by management and directors’ would include expanded disclosure material, and eliminate the obligation to
qualifying shares. Finally, we are regarding holdings of previously file Form 8–K with respect to other
proposing that most of the disclosure awarded stock, options and similar compensatory arrangements.
that would be required under the instruments, which would include the Current Item 404 of Regulation S–K
proposed amendments be provided in value of stock and other similar was adopted to consolidate various
plain English, so that investors can more incentive plan awards that had not provisions previously adopted in a
easily understand this information vested; piecemeal fashion. The proposals would
when it is required to be included in • Require additional narrative revise Item 404 of Regulation S–K to
Exchange Act reports or it is disclosure addressing the material terms streamline and modernize it, while
incorporated by reference from proxy or of defined benefit and defined making it more principles-based.
information statements. contribution plans and other post- Indebtedness of related persons is
termination compensation limited by the Sarbanes-Oxley Act, and
B. Summary of Proposals arrangements; and the disclosure requirement regarding
In light of the complexity of, and indebtedness of related persons would
344 Current Item 402(a)(2) of Regulation S–B
variations in, compensation programs, be combined into the requirement
requires compensation disclosure for all individuals
the sometimes inflexible and highly serving as the small business issuer’s chief regarding other transactions with related
formatted nature of current Item 402 of executive officer and the small business issuer’s persons. This consolidated disclosure
Regulation S–K and S–B has resulted, in four other highest paid officers other than the chief requirement would apply to an
some cases, in disclosure that does not executive officer. expanded group of related persons.
345 Current Item 402(b)(1) of Regulation S–B
clearly inform investors as to all While the current principles for
requires disclosure of compensation of the named

elements of compensation. The executive officers for each of the last three fiscal disclosure would be retained, the
proposed changes to Item 402 would years, and narrative disclosure is not currently proposal would increase the $60,000
apply a broader approach that would required to accompany the Summary Compensation threshold for disclosure currently in
Table, however the proposed narrative disclosure
eliminate some tables, simplify or would address some elements of compensation
paragraphs (a) and (c) of Item 404 to
refocus other tables, reflect total current currently required in tables in current Item 402 of $120,000 and eliminate or reduce the
compensation in the Summary Regulation S–B. scope of certain instructions delineating
what transactions are reportable or the last fiscal year, unless the companies, filing proxy or information
excludable. Existing disclosure information is included in a Securities statements with respect to the election
requirements in Item 404 regarding Act or Exchange Act registration of directors. The proposed changes to
transactions with promoters would statement, where information as to the Items 402 and 404 of Regulation S–K
slightly expanded to apply when a last three fiscal years is required. and Regulation S–B would also affect
company had a promoter over the past We propose to adopt a new disclosure additional companies filing Securities
five years, as well as to require requirement in Item 407 of Regulations Act and Exchange Act registration
analogous disclosure regarding S–K and S–B that would consolidate statements. The proposed changes to
transactions with control persons of a disclosures required in several places Item 22(b) of Schedule 14A will affect
shell company. With respect to throughout our rules addressing director business development companies and
registered investment companies and independence, board committee registered investment companies filing
business development companies, functions and other related corporate proxy statements with respect to the
proposed amendments to Items 22(b)(7), governance matters. This proposed Item, election of directors. The proposed
22(b)(8), and 22(b)(9) of Schedule 14A which would require new disclosure changes to Form N–1A will affect open-
and to Forms N–1A, N–2, and N–3 regarding independence of members of end investment companies registering
would similarly increase to $120,000 the board of directors and board with the Commission on Form N–1A.
the current $60,000 threshold for committees, is intended to enhance The proposed changes to Form N–2 will
disclosure of certain interests, disclosures regarding independence affect closed-end investment companies
transactions, and relationships of each required by corporate governance listing (including business development
director (and, in the case of Items standards of the national securities companies) registering with the
22(b)(7), 22(b)(8), and 22(b)(9) of exchanges and the inter-dealer Commission on Form N–2. The
Schedule 14A, each nominee for quotation systems of a national proposed changes to Form N–3 will
election as director) who is not or would securities association.346 affect separate accounts, organized as
not be an ‘‘interested person’’ of the To the extent that shares beneficially management investment companies and
fund within the meaning of Section owned by named executive officers, offering variable annuities, registering
2(a)(19) of the Investment Company Act directors and director nominees are with the Commission on Form N–3.
(and their immediate family members). used as collateral for loans, these shares C. Benefits
In addition, Form N–2 would require are subject to risks or contingencies that
business development companies to do not apply to other shares beneficially As discussed, the overall goal of the
include the compensation disclosure owned by these persons. These executive and director compensation
required by Item 402 of Regulation S– circumstances have the potential to proposals would be to provide investors
K, as we propose to amend it. influence management’s performance with clearer, better organized and more
The proposals also would replace the and decisions. As a result, we believe complete disclosure regarding the mix,
disclosure requirement for certain that the existence of these securities size and incentive components of
business relationships currently in Item pledges could be material to executive and director compensation.
404(b) of Regulation S–K, which focuses shareholders and should be disclosed. This goal would be accomplished by
on relationships relevant to director eliminating some tables and other
We therefore propose to amend Item 403
independence, with requirements for disclosures that we believe may no
of Regulation S–K and Regulation S–B
director independence disclosure longer be useful to investors, revising
to require this disclosure as well as
discussed below. Under the proposals, other tables so that they are more
disclosure regarding directors’
the disclosure currently required by the informative, and requiring new tabular
beneficial ownership of qualifying
certain business relationship disclosure and new quantitative estimate
shares.
requirement may be required by the disclosure for retirement plans and
We propose to require that most of the
consolidated disclosure requirement similar benefits and director
information that is required by these
regarding transactions and relationships compensation. The proposals would
amendments be provided in plain
with related persons in Item 404(a) of require enhanced narrative disclosure,
English in Exchange Act reports or in
Regulation S–K. Proposed Item 404(b) of in the form of a Compensation
proxy or information statements
Regulation S–K would require Discussion and Analysis section and
incorporated by reference into those
disclosure regarding the company’s narrative disclosure accompanying the
reports. The plain English requirements
policies for the review, approval or tables, to explain the significant factors
would make these documents easier to underlying the compensation decisions
ratification of transactions with related understand.
persons. reflected in the tabular data. The
The proposed changes to Item 402 of
We propose similar amendments to proposals also would require companies
Regulation S–K, Items 402 and 404 of to report the total amount of
Item 404 of Regulation S–B, which
Regulation S–B, and Form 8–K would compensation for named executive
would result in a more detailed related
affect all companies reporting under officers and directors, and provide
person transaction disclosure
Sections 13(a) and 15(d) of the Exchange important context to the disclosure of
requirement than currently exists in
Item 404 of Regulation S–B. However, Act, other than registered investment total compensation.
unlike Item 404 of Regulation S–K, Item companies. The proposed changes to Improved disclosure under the
404 of Regulation S–B would not Item 404 of Regulation S–K would affect proposals of certain forms of
require disclosure regarding the all companies reporting under Sections compensation, such as stock-, option-
company’s policies for the review, 13(a) and 15(d) of the Exchange Act, and incentive plan-based compensation,
approval or ratification of transactions other than registered investment as well as retirement and other post-
with related persons. We propose to companies, and all companies, employment compensation, combined
retain the requirement that transactions including registered investment with the ability of investors to track the
occurring within the last two years must 346 We also propose conforming revisions to Item
elements of executive and director
be disclosed under Item 404 of 22(b) relating to the independence of members of
compensation and the relative weights
Regulation S–B, whereas Item 404 of nominating and audit committees of investment of those elements over time (and the
Regulation S–K requires disclosure for companies. reasons why companies allocate
compensation in the manner that they alter existing policies or practices in directors, including directors’ qualifying
do), would enable investors to make these areas. We emphasize that we are shares.
comparisons both within and across not seeking to foster any given Proposed changes to Items 22(b)(7),
companies. A presentation facilitating directional or other impacts. Our 22(b)(8) and 22(b)(9) of Schedule 14A
the comparability and different objective is to increase transparency to and to Forms N–1A, N–2, and N–3
elements of compensation in different enable decision-makers to make more would decrease the disclosure burden
companies should make it easier for informed decisions, which could result imposed on registered investment
investors to analyze both the manner of in different policies or practices or companies by increasing the threshold
compensation across companies and the increase investor confidence in existing for disclosure of certain interests,
quality of disclosure of compensation policies or practices. transactions, and relationships of each
across companies. Disclosure of total The proposed amendments to Form director (and, in the case of Items
compensation would benefit investors 8–K would facilitate shareholder and 22(b)(7), 22(b)(8), and 22(b)(9) of
by reducing the need to make individual investor access to real-time disclosure of Schedule 14A, each nominee for
computations in order to assess the size public companies significant personnel election as director) who is not or would
of current compensation. Further, and compensation decisions by focusing not be an ‘‘interested person’’ of the
improved executive and director this disclosure only on what we believe fund within the meaning of Section
compensation disclosure would are the most important compensatory 2(a)(19) of the Investment Company Act
enhance investors’ understanding of this arrangements with executive officers (and their immediate family members).
use of corporate resources and the and directors. This information would Finally, presentation in plain English
actions of boards of directors and be filed pursuant to Item 5.02(e) of Form would facilitate investor understanding
compensation committees in making 8–K. To find this information, of most of the matters contemplated by
decisions in this area.347 Particularly shareholders and investors no longer our proposals.
with respect to the proxy statement for would need to examine multiple Item The benefits of clearer, more useful
the annual meeting at which directors 1.01 disclosures relating to other disclosure are difficult to quantify.
are elected, this improved disclosure actions. Companies would also be D. Costs
would provide better information to relieved of obligations to quickly report
shareholders for purposes of evaluating arguably less important compensation In our view, the proposed revisions to
the actions of the board of directors in information on Form 8–K. the executive officer and director
fulfilling its responsibilities to the The proposed amendments to Item compensation disclosure requirements
company and its shareholders. 404 would provide investors with more would increase the costs of complying
We believe that the extent to which complete disclosure of related person with the Commission’s rules. The
increased transparency and transactions and director independence, proposed revisions to the related person
completeness in executive and director and new disclosure regarding a transaction, director independence and
compensation disclosure would result company’s policies and procedures for corporate governance disclosure
in broader benefits depends at least in the review, approval or ratification of requirements would generally not
part on the extent to which current relationships with related persons. increase costs. We further believe that
executive and director compensation These proposals would enhance the costs related to preparing required
practices are aligned with the interests investors understanding of how disclosure in plain English would be
of investors as reflected in their corporate resources are used in related short-term costs arising mainly in the
investment and voting decisions. Any person transactions, and provide first two years of implementation.348
changes to a company that might occur, improved information to shareholders Increased costs under the proposals
including changes in corporate for purposes of better evaluating the would largely impact companies
governance, changes in control, changes actions of the board of directors and required to comply with the proposals;
in the employment of particular executive officers in fulfilling their any net increase in costs would
executives or other changes could responsibilities to the company and its ultimately be borne by shareholders of
depend to some extent on the degree to shareholders. those companies. If our assumptions
which improved transparency in In addition, by combining similar regarding these costs and current
executive and director compensation provisions of current Item 404 into a practices are not correct or complete,
would affect investors’ decision-making single combined disclosure then costs may prove to be higher.
with respect to that company. requirement, the proposals would We believe that compliance with
Improved transparency in executive reduce confusion regarding the these proposals would, on balance, be
and director compensation under these disclosure required when more than one more costly for companies than
proposals could have other benefits in of the item’s current provisions applies compliance with the existing disclosure
terms of the allocative efficiency of to a relationship. Improved corporate requirements, with the highest
affected corporations with regard to the governance disclosure in proposed Item incremental annual costs occurring
use of resources for executive 407 would provide investors with better principally in the first two years as
compensation relative to other corporate organized and more complete companies and their advisors would
needs, as well as improvements in information regarding the independence determine how best to compile and
efficiency of managerial labor markets. of members of the board of directors. In report information in response to new or
Benefits such as these depend on the addition, companies would benefit from expanded disclosure requirements.
extent to which the proposals, including having one disclosure item to satisfy in The improved quantitative and
requirements to disclose a total amount making required corporate governance textual disclosure regarding executive
of compensation and more detail disclosures. The proposed amendments and director compensation that we are
regarding compensation policies, could to Item 403 of Regulation S–K and proposing would incrementally increase
Regulation S–B would provide investors
348 The proposed plain English requirements
347 For a discussion of the debate concerning
with disclosure of pledges of the
board of directors and managerial decision-making would require both the rewriting of existing
in the area of executive compensation, see, e.g.,
securities beneficially owned by disclosures in plain English, as well as drafting new
Steven M. Bainbridge, Executive Compensation: management and directors and full disclosures in plain English, such as Compensation
Who Decides?, 83 Tex. L. Rev. 1615 (2005). disclosure of beneficial ownership by Discussion and Analysis.
costs for companies in several ways as Companies may incur additional costs, companies, proposed amendments to
a result of the new or expanded however, in determining incremental Items 22(b)(7), 22(b)(8), and 22(b)(9) of
requirements. First, we propose that changes in the actuarial value of Schedule 14A and to Forms N–1A, N–
companies provide a Compensation retirement benefits for the purposes of 2, and N–3 would increase to $120,000
Discussion and Analysis involving a reporting such compensation in the the current $60,000 threshold for
discussion and analysis of material Summary Compensation Table. Costs disclosure of certain interests,
factors underlying compensation may also arise from the reporting of transactions, and relationships of each
decisions reflected in the tabular other compensation in the All Other director (and, in the case of Items
presentations.349 Second, we propose to Compensation Column of the Summary 22(b)(7), 22(b)(8), and 22(b)(9) of
require narrative disclosure to Compensation Table. We do not believe Schedule 14A, each nominee for
accompany tabular presentations so that that the addition of a ‘‘Total’’ column to election as director) who is not or would
the data included in the tables may be the Summary Compensation Table in not be an ‘‘interested person’’ of the
understood in context. Third, we and of itself would increase costs, fund within the meaning of Section
propose to expand disclosure regarding because existing disclosure 2(a)(19) of the Investment Company Act
compensation-related equity-based and requirements already mandate the (and their immediate family members).
other plan-based holdings, as well as disclosure of all compensation, and the Since these forms already require such
retirement and similar plans. Finally, mechanical process of adding up disclosure using the $60,000 threshold,
we propose a director compensation disclosure amounts would not be we do not believe the proposals would
table that would require more detailed significant. Additional costs may be impose additional costs.
information regarding director incurred in preparing and presenting Proposed Item 404(b) of Regulation S–
compensation than is specified in the required disclosures regarding up to K would introduce new costs by
current narrative disclosure three highly paid non-executive imposing new disclosure requirements
requirement.350 Each of these proposed employees, retirement benefits, deferred on companies regarding their policies
revisions would seek to elicit more compensation and post-termination or for review, approval or ratification of
complete and clearer information than change in control payments to the related person transactions. In order to
is currently required under existing extent that information regarding these comply with their policies for the
rules. matters is not currently collected in a review, approval or ratification of
While the Summary Compensation way that would facilitate disclosure related person transactions or the
Table as proposed to be revised would under the proposals. In addition, determination of executive and director
require reporting of the grant date fair because named executive officers would compensation we understand that
value of stock-based and option-based be based on total compensation rather companies would incur costs of
awards under the proposals, we do not than salary and bonus, some companies collecting the type of information that
believe that this change would increase may need to track more employees to would be required to be disclosed.
costs for companies, because the determine which are the most highly These costs would be higher to the
computation of the grant date fair values compensated. extent companies do not already collect
of stock, options and similar Under the proposals regarding Form this information either pursuant to their
instruments already is required for 8–K, disclosure regarding executive and corporate governance policies or
financial statement purposes as a result director arrangements and other plans through directors and officers’
of the implementation of FAS 123R. that would no longer be required to be questionnaires. The proposed rules
reported within four days under Item would not require companies to create
349 The Compensation Discussion and Analysis, 1.01 of Form 8–K would be required to new policies for review, approval or
unlike the current Compensation Committee Report be disclosed by way of the exhibit filing ratification of relationships with related
and the Performance Graph, but like all of the rest requirements on at least a quarterly persons or the determination of
of the current compensation disclosure, would be
considered filed and as such would be part of the
basis. To the extent that a reduction in executive and director compensation;
documents for which certifications apply. The timeliness of this information would however, to the extent that companies
release adopting our certification requirements reduce its value to investors, the do create new policies that require the
discussed the costs and benefits of the requirements proposals may impose costs on collection of different or additional
as follows:
investors. information, they may incur
The new certification requirement may lead to
some additional costs for issuers. The new rules
We believe that there would not be a incremental costs.
require an issuer’s principal executive and financial significant increase in the cost of The proposed disclosures regarding
officers to review the issuer’s periodic reports and complying with the related person director independence are similar to
to make the required certification. To the extent that transaction disclosure requirement. The existing disclosure requirements under
corporate officers would need to spend additional proposals may increase the cost of the proxy rules regarding the
time thinking critically about the overall context of
their company’s disclosure, issuers would incur complying with this disclosure independence of directors who are
costs (although investors would benefit from requirement by eliminating or reducing members of the company’s audit and
improved disclosure). The certification requirement the scope of certain instructions and by nominating committees. Thus, for
creates a new legal obligation for an issuer’s expanding the group of related persons companies that are subject to the proxy
principal executive and financial officers, but does
not change the standard of legal liability * * * covered to include additional rules, the task of complying with the
[T]he new rules are likely to provide significant ‘‘immediate family members’’ and also, proposed disclosure requirement
benefits by ensuring that information about an in the case of indebtedness transactions, regarding director independence could
issuer’s business and financial condition is significant shareholders.351 Similarly, be performed by the same person or
adequately reviewed by the issuer’s principal
executive and financial officers * * * Conversely, with respect to registered investment group of persons responsible for
companies and business development compliance under the current rules.
the new rule are likely to provide significant

benefits by ensuring that information about an Because the current rules already
issuer’s business and financial condition is 351 Significant shareholders are those identified require companies subject to the proxy
adequately reviewed by the issuer’s principal under proposed Instruction 1.b.(i) to Item 404 of
executive and financial officers.
rules to collect and disclose information
Regulation S–K, that is, any security holder who is
Certification Release, at Section VII. known to the registrant to own of record or
about the independence of directors
350 See current Item 402(f) of Regulation S–B and beneficially more than five percent of any class of who serve on the audit and nominating
Item 402(g) of Regulation S–K. the registrant’s voting securities. committees, this proposed disclosure
should not impose significant new costs shares. The company could inquire as to eliminating the Compensation
for the collection of information by this information in questionnaires it Committee Report and Performance
companies that are subject to the proxy already circulates to the company’s Graph; (2) expanding disclosure, in a
rules. The new disclosure requirement officers and directors. tabular format, of director
regarding director and committee For purposes of the Paperwork compensation; and (3) requiring the
member independence may require Reduction Act, we have estimated the more focused and in some cases
disclosure of additional relationships annual incremental increase in the expanded tabular presentation of
with related persons. Additional costs paperwork burden for companies to executive compensation. We also solicit
may be incurred in seeking this comply with our proposed collection of such data regarding the benefits and
information. However, such costs are information requirements to be costs of any other aspects of the
limited by the extent to which approximately 537,792 hours of in- executive compensation disclosure
companies already identify and track house company personnel time and to proposals.
the relationships that may be required to be approximately $69,794,000 for the • We solicit quantitative data to assist
be disclosed for the purposes of services of outside professionals. These our assessment of the benefits and costs
complying with existing disclosure costs are based on our estimates that the of revising the requirements for current
requirements or corporate governance annual incremental disclosure burden reporting of executive and director
listing standards. imposed by the revisions that we compensation arrangements on Form 8–
We believe that, overall, the costs propose today would average 67 hours K to focus on those arrangements which
noted above that are associated with the per Form 10–K; 35 hours per Form 10– are unquestionably material.
proposed disclosure requirements for KSB; 60 hours per Form 10; 30 hours • We solicit quantitative data to assist
related person transactions and director per Forms 10–SB and SB–2; 60 hours our assessment of the benefits and costs
independence will be offset by cost per Forms S–1, S–4 and S–11; and 1.675 of increased disclosure resulting from:
decreases associated with narrowing the hours per Form N–2. We estimate that (1) Expanding the group of related
scope of other disclosure requirements the proposed amendments to Item 22(b) persons covered by current Item 404(a)
under the proposal. In this regard, we of Schedule 14A and the proposal to to include additional ‘‘immediate family
believe that companies will generally be increase to $120,000 the current $60,000 members’’; (2) expanding the required
required to provide an amount of threshold for disclosure of certain relationship disclosure to include
information that is comparable to what interests, transactions, and relationships significant shareholders as related
is currently required by our rules, but of each director in Forms N–1A, N–2, persons who may have reportable
under the proposals the information and N–3 will not impose an annual indebtedness relationships; and (3)
regarding these matters would be incremental disclosure burden. These requiring disclosure of a registrant’s
presented in a manner that recognizes estimated costs include an estimated policies for approval of relationships
recent changes such as the imposition of reduction in costs attributable to current involving related persons and the
corporate governance listing standards reports on Form 8–K of approximately independence of directors. We also
at the major markets. 6,458 hours of company personnel time solicit such data regarding the benefits
Our plain English proposal would and by a cost of approximately $645,750 and costs of any other aspects of the
require that companies use a clear for the services of outside professionals, related person transactions disclosure
writing style to present the information based on an estimate that 1,722 fewer requirements.
about executive and director Form 8–Ks would be filed because of • Do companies currently have
compensation, related person more focused current reporting of policies and procedures regarding the
transactions, beneficial ownership and compensation transactions. Based on review, approval, authorization or
some corporate governance matters that these estimates for the purposes of the ratification of relationships with related
would be required to be disclosed in Paperwork Reduction Act and assuming persons? If not, what cost would a
Exchange Act reports such as annual that the cost of in-house company company incur to institute such
reports on Forms 10–K or 10–KSB. We personnel time is $175, the total policies?
believe the proposed rules, if adopted, estimated incremental costs of the • Are there any public companies
would result in a short-term increase in proposals would be approximately that currently provide information to
costs for companies as they rewrite the $163,908,000. We have not quantified the public regarding their policies and
information required to be included in other costs which might arise as a result procedures related to the review,
annual reports or incorporated by of implementation of the rules, approval, authorization or ratification of
reference from proxy or information especially to the extent that such costs relationships with related persons? If so,
statements, but few additional costs could arise as a result of changes in is there any information available as to
after the first year or two of policies, practices or other behavior whether investors find this information
implementation, as companies become attributable to the proposed disclosure to be useful?
familiar with the organizational, requirements. These costs could be • We solicit quantitative data to assist
language, and document structure more than those estimated for the our assessment of the benefits and costs
changes necessary to comply with these purposes of the Paperwork Reduction associated with increased disclosure
proposals. Additional costs, if any, Act. and the proposed application of plain
should be one-time or otherwise short- English principles to the disclosure
term. E. Request for Comment
resulting from most of the proposed
We believe that there would be little, • We solicit quantitative data to assist requirements.
if any, increase in the cost of complying our assessment of the benefits and costs • What are the direct and indirect
with the beneficial ownership rule of increased disclosure resulting from: costs associated with the proposals?
proposals. A company would be (1) Requiring narrative disclosure • What are the costs in the first year
required to disclose named executive regarding executive and director of compliance versus subsequent years?
officer, director and director nominee compensation in the form of • We solicit comments on the degree
pledges of securities, and directors’’ full Compensation Discussion and Analysis to which companies already collect the
beneficial ownership of equity and narrative disclosures accompanying information that the proposed rules
securities, including directors qualifying the tabular presentations, and would require to be disclosed.
X. Consideration of Burden on of directors and board committees. XI. Initial Regulatory Flexibility Act
Competition and Promotion of Proposed amendments to beneficial Analysis
Efficiency, Competition and Capital ownership reporting requiring This Initial Regulatory Flexibility Act
Formation disclosure of pledged securities and Analysis has been prepared in
Exchange Act Section 23(a)(2) 352 director qualifying shares are intended accordance with 5 U.S.C. 603. It relates
requires us, when adopting rules under to improve the disclosure regarding to proposed revisions to the rules and
the Exchange Act, to consider the security holdings of directors and forms under the Securities Act and
impact that any new rule would have on executive officers. Exchange Act that seek to improve the
competition. In addition, Section The proposal to require most of the clarity and completeness of companies’
23(a)(2) prohibits us from adopting any information required in these proposals disclosure of the compensation earned
rule that would impose a burden on to be written in plain English is by the principal executive officer,
competition not necessary or intended to make Exchange Act reports principal financial officer,356 other
appropriate in furtherance of the and proxy or information statements highly paid executive officers and all
purposes of the Exchange Act. incorporated by reference in those members of the board of directors, and
Furthermore, Securities Act Section reports easier to understand. of related person transactions. These
2(b),353 Exchange Act Section 3(f) 354 Thus, the proposed rules would proposed revisions include revising the
and Investment Company Act Section enhance existing reporting requirements executive and director compensation
2(c) 355 require us, when engaging in by providing more effective material disclosure requirements, modifying our
rulemaking where we are required to disclosure to investors in a timely rules so that only elements of
consider or determine whether an action compensation that are unquestionably
manner. We anticipate that these
is necessary or appropriate in the public or presumptively material to investors
proposals would improve investors’’
interest, to consider, in addition to the must be disclosed in current reports of
ability to make informed investment
protection of investors, whether the Form 8–K, streamlining and
and voting decisions and, therefore lead
action will promote efficiency, modernizing disclosure requirements
to increased efficiency and
competition, and capital formation. regarding related person transactions,
The proposed amendments to competitiveness of the U.S. capital
adding disclosure regarding pledges of
Regulations S–K and S–B, to Items 8 markets.
securities beneficially owned by
and 22(b) of Schedule 14A, and to Because only companies subject to the executive officers and directors and
Forms N–1A, N–2, and N–3 are reporting requirements of Sections 13 regarding directors’ qualifying shares,
intended to improve the completeness and 15 of the Exchange Act, and consolidating corporate governance
and clarity of executive compensation companies filing registration statements disclosure requirements and expanding
and related person transaction under the Securities Act, would be disclosure regarding the independence
disclosure available to investors and the required to make the proposed of the board of directors, as well as
financial markets. These proposals disclosures required by Items 402, 404 requiring that all disclosure required by
would enhance investors’ and 407, competitors not in those the proposed items to be provided in
understanding of how corporate categories could gain an informational plain English.
resources are used, and enable advantage. However, with respect to
shareholders to better evaluate the executive compensation, as under A. Reasons for the Proposed Action
actions of the board of directors and current Item 402, registrants would not Since the enactment of the Securities
executive officers in fulfilling their be required to disclose target levels with Act and the Exchange Act, the
responsibilities. respect to specific quantitative or Commission has on a number of
The proposed amendments to Form qualitative performance-related factors, occasions explored the best methods for
8–K are intended to facilitate the ability or any factors or criteria involving communicating clear, concise and
of investors and shareholders to access confidential commercial or business meaningful material information about
real-time disclosure of public information, the disclosure of which executive and director compensation
companies’ employee compensation would have an adverse effect on the and relationships with the issuer. With
events that are unquestionably or company. Notwithstanding this regard to compensation, at different
presumptively material by requiring this exception for competitively sensitive times, the Commission has adopted
disclosure only for the compensatory information, competitors could rules mandating narrative, tabular, and
agreements with specified executive potentially gain additional insight into combinations of narrative and tabular
officers. To find this information, the executive compensation policies of disclosure as the best method for
shareholders and investors no longer companies through disclosure required presenting compensation disclosure in a
would need to examine multiple Form in Compensation Discussion and manner that is concise and useful to
8–K disclosures relating to other Analysis and in other portions of the investors. From time to time, the
executive officers or other material non- required disclosure. Further, the Commission has reconsidered executive
ordinary course definitive agreements. availability of more broad-based and director compensation information
The proposals to expand and compensation disclosure may provide requirements in light of changing trends
consolidate into one item the director additional information to be used by in executive compensation, or due to
independence and related corporate competitors in recruiting executive concerns about the usefulness of
governance disclosure requirements in talent. disclosure elicited under then
proposed Item 407 of Regulation S–K applicable rules. Most recently, in 1992,
would improve shareholders’ and We request comment on whether the
the Commission proposed and adopted
proposals, if adopted, would promote
investors’ understanding of the amendments to the disclosure rules that

composition and functions of the board efficiency, competition, and capital
moved away from the mostly narrative
formation or have an impact or burden
disclosure approach adopted in 1983 to
352 15 U.S.C. 78w(a)(2). on competition. Commenters are
353 15 U.S.C. 77b(b). requested to provide empirical data and 356 The principal financial officer is not specified
354 15 U.S.C. 78c(f). other factual support for their views, if as a named executive officer in Item 402 of
355 15 U.S.C. 80a–2(c). possible. Regulation S–B.
formatted tables which sought to officers and directors. Further, this and most corporate governance matters
capture the various elements of disclosure provides material be provided in plain English.
compensation and promote information regarding the independence
B. Objectives
comparability from year to year and of directors. The current related party
from company to company. transaction disclosure requirements The overall goal of the rule proposals
While this tabular approach remains a were adopted piecemeal over the years is to provide investors with a clearer
sound basis for disclosure, its and were combined in one disclosure and more complete picture of executive
sometimes inflexible and formatted requirement beginning in 1982. In light and director compensation, related
nature has, especially in light of the of the many developments, including person transactions and corporate
complexity of and variations in the increasing focus on corporate governance matters. We believe that the
compensation programs, resulted in governance and director independence, proposals would:
some cases in disclosure that does not we believe it is necessary to revise the • Confirm our current requirement
clearly inform investors as to all rule. We propose to replace the current that all elements of compensation must
elements of compensation, requirement for disclosure about be disclosed;
notwithstanding the express relationships that can affect director • Retain the comparability of
requirement to do so in the rules. independence with a narrative executive and director compensation
Accordingly, the proposals under explanation of the independence status while also providing material
current consideration seek a broader- of directors under a company’s qualitative information about the
based approach to eliciting executive independence policies for the majority context in which compensation is
compensation disclosure while of the board and for the nominating, granted, awarded and earned;
retaining comparability. audit and compensation committees. • Reorganize and modify the type of
Form 8–K requires disclosure of the We also propose to consolidate this and compensation information that must be
entry into, amendment of and other requirements regarding director disclosed in current reports;
termination of material definitive independence, board committees and
agreements entered into outside the • Streamline and modernize the
other corporate governance matters in a related person transaction disclosure
ordinary course of business. Under our new disclosure Item. In addition, we are
current definitions in Regulation S–K, requirements, while making them more
also proposing corresponding changes principles-based;
many agreements regarding executive to items in our registration forms and
compensation are deemed to be material • Update the disclosure requirements
proxy and information statements filed regarding director independence to
agreements entered into outside the by registered investment companies and
ordinary course, and when for purposes reflect current listing standards and
business development companies that consolidate all such disclosure under a
of consistency we adopted those impose requirements to disclose certain
definitions for use in the expanded single disclosure item so that it is easier
interests, transactions, and relationships to locate; and
Form 8–K requirements, we
of each director or nominee for election • Facilitate more informed voting
incorporated all of these executive
as director who is not or would not be decisions in the face of complex
compensation agreements into the
an ‘‘interested person’’ of the fund information about directors, executive
current Form 8–K disclosure
within the meaning of Section 2(a)(19) officers and corporate governance, by
requirements. Therefore, many
of the Investment Company Act (and requiring that most of the information
agreements regarding executive
their immediate family members). required by these proposals be written
compensation are required to be
disclosed within four business days of To the extent that shares beneficially in plain English.
the applicable triggering event. Because owned by named executive officers,
directors and director nominees are C. Legal Basis
it was not our intent in adopting the
expanded Form 8–K requirements to pledged, these shares are subject to risks We are proposing the amendments
make all elements of compensation for and contingencies that do not apply to pursuant to Sections 3(b), 6, 7, 10 and
all executive officers potential items of other shares beneficially owned by these 19(a) of the Securities Act; Sections
real-time disclosure, but only to capture persons. These circumstances have the 10(b), 12, 13, 14(a), 15(d), and 23(a) of
in this area, as in others, events that are potential to influence management’s the Exchange Act; Sections 8, 20(a),
unquestionably or presumptively performance and decisions, and for this 24(a), 30, and 38 of the Investment
material to investors, we believe it is reason, it appears that the existence of Company Act; and Section 3(a) of the
appropriate to modify our rules so that these securities pledges could be Sarbanes-Oxley Act of 2002.
only those events must be disclosed on material to shareholders and should be
disclosed under proposed revisions to D. Small Entities Subject to the
Form 8–K. Proposed Amendments
We believe that disclosure of Item 403 of Regulations S–K and S–B.
executive and director compensation is An exclusion from the beneficial The proposals would affect small
closely related to disclosure regarding ownership disclosure requirement for entities, the securities of which are
financial transactions and relationships directors’’ qualifying shares is also registered under Section 12 of the
involving companies and their directors, proposed to be removed. Exchange Act or that are required to file
executive officers, significant In order for most of these amended reports under Section 15(d) of the
shareholders and respective immediate requirements to result in disclosure that Exchange Act. The proposals also would
family members. These disclosure is clear, concise and understandable for affect small entities that file, or have
requirements have historically been investors when responsive disclosure is filed, a registration statement that has
interconnected, given that relationships included in Exchange Act reports or not yet become effective under the
among these persons and the company incorporated by reference from proxy or Securities Act and that has not been
can include transactions that involve information statements, we propose to withdrawn. Securities Act Rule 157 357
compensation or analogous features. add Exchange Act rules to require that and Exchange Act Rule 0–10(a) 358
Such disclosure also represents material the disclosure regarding executive and
information in evaluating the overall director compensation, beneficial 357 17 CFR 230.157.
relationship with a company’s executive ownership, related person transactions 358 17 CFR 240.0–10(a).
define an issuer to be a ‘‘small business’’ Item 402 of Regulation S–B would not related person transaction disclosure is
or ‘‘small organization’’ for purposes of include the following disclosures that required.
the Regulatory Flexibility Act if it had would be required by proposed Item 402 Unlike the proposed amendments to
total assets of $5 million or less on the of Regulation S–K: Item 404 of Regulation S–K, the
last day of its most recent fiscal year. • Compensation Discussion and proposed amendments to Item 404 of
We believe that the proposals would Analysis; Regulations S–B would not impose an
affect small entities that are operating • Information regarding two additional disclosure requirement for
companies. We estimate that there are additional executives; small business issuers, including small
approximately 2,500 issuers, other than • The third fiscal year of Summary entities, regarding their policies and
investment companies, that may be Compensation Table disclosure; and procedures for the review, approval or
considered small entities. An • The supplementary Grants of ratification of relationships with related
investment company is considered to be Performance-Based Awards Table and persons. The proposed amendments to
a ‘‘small business’’ if it, together with Grants of All Other Equity Awards Item 404 of Regulation S–B and
other investment companies in the same Table, the Option Exercises and Stock proposed Item 407 of Regulation S–B
group of related investment companies, Vested Table, the Retirement Plan would require, depending upon the
has net assets of $50 million or less as Potential Annual Payments and Benefits particular circumstances of a company,
of the end of its most recent fiscal Table, and the Nonqualified Defined more or less disclosure by changing the
year.359 We believe that the proposals Contribution and Other Deferred disclosure requirement regarding
would affect small entities that are Compensation Plans Table and the director independence.361
investment companies. We estimate that Similar to proposed Item 404(a) of
separate Potential Payments Upon
there are approximately 240 investment Regulation S–K, proposed amendments
Termination or Change-in-Control
companies that may be considered small to Items 22(b)(7), 22(b)(8), and 22(b)(9)
narrative section, while providing a of Schedule 14A and to Forms N–1A,
entities. general requirement to discuss the N–2, and N–3 would decrease the scope
E. Reporting, Recordkeeping and Other material terms of retirement plans and of the requirement imposed on
Compliance Requirements the material terms of contracts registered investment companies and
providing for payment upon a business development companies to
The proposed amendments to Item termination or change in control.
402 of Regulation S–K would expand disclose certain interests, transactions,
As a result, the proposed amendments and relationships of each director (and,
some existing disclosure requirements, to Item 402 of Regulation S–B would not
and consolidate or eliminate others. The in the case of Items 22(b)(7), 22(b)(8),
result in the same level of incremental and 22(b)(9) of Schedule 14A, each
proposed amendments to Item 402 of increase in costs or burdens as would
Regulation S–B would require less nominee for election as director) who is
the requirements of proposed not or would not be an ‘‘interested
extensive disclosure for small business amendments to Item 402 of Regulation
issuers than would be required for person’’ of the fund within the meaning
S–K. of Section 2(a)(19) of the Investment
companies complying with Item 402 of The proposed amendments to Item
Regulation S–K. Under the proposals, Company Act (and their immediate
404 of Regulation S–K and S–B would family members) by increasing to
the scope and presentation of decrease the existing related person
information in Item 402 of Regulation $120,000 the current $60,000 threshold
transaction disclosure requirement that for disclosure of such interests,
S–B would differ in a number of companies, including small entities, transactions, and relationships.
significant ways from Item 402 of must comply with in some respects and The proposed amendments to Item
Regulation S–K. Item 402 of Regulation expand it in other respects. The 403 of Regulation S–K and S–B would
S–B would: proposed amendments to Item 404 of require footnote disclosure to the
• Limit the named executive officers Regulation S–B would potentially beneficial ownership table of the
for whom disclosure would be required decrease the scope of the related person number of shares pledged by named
to a smaller group, consisting of the transaction disclosure requirement by executive officers, directors and director
principal executive officer and the two changing the $60,000 threshold for nominees and disclosure of directors’’
other highest paid executive officers; disclosure of related person transactions qualifying shares. This would impose an
• Require that the Summary to the lesser of $120,000 or one percent additional disclosure requirement on
Compensation Table disclose the two of the average of the small business companies, including small entities.
most recent fiscal years and that issuers’ total assets for the last three The proposed plain English rules
narrative disclosure accompany the completed fiscal years.360 At the same applicable to Exchange Act reports and
Summary Compensation Table; time, the proposed amendments to Item proxy or information statements
• Provide a higher threshold for 404 of Regulation S–B would increase incorporated by reference into Exchange
separate identification of categories of the scope of the related person Act reports would not affect the
‘‘All Other Compensation’’ in the transaction disclosure requirement by substance of disclosures that companies
Summary Compensation Table; expanding the group of related persons must make. The proposed plain English
• Require the Outstanding Equity covered to include additional rules would also not impose any new
Awards at Fiscal Year-End Table; ‘‘immediate family members,’’ and in recordkeeping requirements or require
• Require additional narrative the case of indebtedness relationships, reporting of additional information.
disclosure addressing the material terms significant shareholders. In addition, the Other proposed changes to our rules
of defined benefit and defined proposals may decrease or increase the would decrease the scope of the
contribution plans and other post- scope of the related person transaction disclosure requirements for Form 8–K,
termination compensation disclosure requirement by eliminating

arrangements; and or reducing the scope of instructions 361 As is the case currently, proposed Item 407 of
• Require the Director Compensation that provide bright line tests for whether Regulation S–B would not require compensation
Table. committee interlocks disclosure as would proposed
Item 407 of Regulation S–K. This retains a current
360 Proposed Item 404(a) of Regulation S–K only difference between Item 402 of Regulation S–B and
359 17 CFR 270.0–10(a). includes $120,000 as the threshold. Item 402 of Regulation S–K.
and thereby result in a reduction in the to preparation of information in the rules for small entities both individually
number of current reports on Form 8– proxy or information statement that is and as a group.
K filed each year. then incorporated by reference into the We encourage written comments
Overall, the proposals are expected to Form 10–KSB. With regard to persons regarding this analysis. We solicit
result in increased costs to all subject other than small business issuers who comments as to whether the proposed
companies, large or small, as follows: would file a Form 10–K, we estimate for amendments could have an effect that
• Incremental increase in costs is purposes of the Paperwork Reduction we have not considered. We request that
expected with proposed changes to Act that it would take issuers 120 commenters describe the nature of any
executive and director compensation additional hours to prepare the impact on small entities and provide
disclosure requirements; proposed disclosure in year one, and 55 empirical data to support the extent of
• No incremental increase in costs is the impact.
hours in year two, and 25 hours in year
expected from the amendments to the
three and thereafter, which results in an F. Duplicative, Overlapping or
related person transaction rules and
corporate governance disclosures; and average of 67 hours over the three year Conflicting Federal Rules
• Decreased costs are expected as a period. If we assume that a small entity
We believe that there are no federal
result of the proposed revisions to Form complies with the disclosure provisions
rules that conflict with or completely
8–K. Because the current proxy rules of Regulation S–B rather than duplicate the proposed rules.
require a subject registrant to collect and Regulation S–K and 75% of the burden
disclose information about the would be performed by the company G. Significant Alternatives
independence of its directors who serve internally at a cost of $175 per hour and The Regulatory Flexibility Act directs
on the audit or nominating committee of 25% of the burden would be carried by us to consider significant alternatives
its board, the proposed disclosure outside professionals retained by the that would accomplish the stated
should not impose on companies company at a cost of $300 per hour, the objectives, while minimizing any
subject to the proxy rules significant average annual cost to comply with the significant adverse impact on small
new costs for the collection of proposed disclosure requirements in entities. In connection with the
information regarding the independence periodic reports and/or proxy or proposals, we considered the following
of directors. Thus, the task of complying information statements would be alternatives:
with the proposed expanded director approximately $7,219. The extent to 1. Establishing different compliance
independence disclosure in Item 407 of which an additional average compliance or reporting requirements which take
Regulation S–K or S–B could be cost of approximately $7,219 per small into account the resources available to
performed by the same person or group entity over a three year period would smaller entities;
of persons responsible for compliance constitute a significant economic impact 2. The clarification, consolidation or
under the current rules at a minimal for small entities would depend on the simplification of disclosure for small
incremental cost. relative revenues, costs and allocation of entities;
Our plain English proposal would resources toward compliance with the 3. Use of performance standards
require that companies use a clear Commission’s rules for small entities rather than design standards; and
writing style to present the information both individually and as a group. 4. Exempting smaller entities from
about executive and director coverage of the disclosure requirements,
compensation, related person For purposes of the Paperwork or any part thereof.
transactions, beneficial ownership and Reduction Act, we estimate that with With regard to Alternative 1, we have
some corporate governance matters that respect to Form N–2, it would take proposed some different compliance or
would be required to be disclosed in business development companies 100 reporting requirements for small entities
Exchange Act reports such as annual additional hours to prepare the and solicited comments on others. We
reports on Forms 10–K or 10–KSB. We proposed disclosure in year one, 50 nevertheless believe improving the
believe the proposed rules, if adopted, hours in year two and 25 hours in year clarity and completeness of disclosure
would result in a short-term increase in three and thereafter, which results in an regarding executive and director
costs for companies as they rewrite the average of 58 hours for each business compensation and related person
information required to be included in development company to comply with transactions requires a high degree of
annual reports or incorporated by the proposed compensation disclosures comparability between all issuers.
reference from proxy or information that would be required on Form N–2. If Regarding Alternative 2, the
statements, but few additional costs we assume that 25% of the burden amendments would clarify, consolidate
after the first year or two of would be borne internally at a cost of and simplify the requirements for all
implementation, as companies become $175 per hour and 75% of the burden public companies, and some especially
familiar with the organizational, would be carried by outside for small entities. Regarding Alternative
language, and document structure professionals retained by the company 3, we believe that design rather than
changes necessary to comply with these at a cost of $300 per hour, the average performance standards are appropriate,
proposals. Additional costs, if any, annual cost for business development because design standards for small
should be one-time or otherwise short- companies to comply with the proposed entities would be necessary to promote
term. disclosure requirements on Form N–2 the goal of relatively uniform
For purposes of the Paperwork would be approximately $15,588. The presentation of comparable information
Reduction Act, we estimate that with extent to which an additional average for the benefit of investors. Finally,
respect to Form 10–KSB, it would take compliance cost of approximately although we propose to exempt some
issuers 70 additional hours to prepare $15,588 per small entity over a three information required of larger issuers, a
the proposed disclosure in year one, 25 year period would constitute a wholesale exemption for small entities
additional hours in year two, and 10 significant economic impact for small would not be appropriate because the
additional hours in year three and entities would depend on the relative proposals are designed to make uniform
thereafter, which results in an average of assets, income, operating expenses and the application of the disclosure and
35 additional hours over the three year the allocation of resources toward other requirements that would be
period. The same estimates would apply compliance with the Commission’s amended.
We note that small business the most effective method of eliciting List of Subjects
issuers,362 which is a broader category the disclosure.
17 CFR Part 228
of issuers than small entities, in certain
circumstances may provide the H. Solicitation of Comment Reporting and recordkeeping
executive compensation and requirements, Securities, Small
We encourage the submission of
relationships with related persons and businesses.
comments with respect to any aspect of
promoters disclosure specified, 17 CFR Parts 229, 239, 240, 245 and 249
this Initial Regulatory Flexibility
respectively, in Items 402 and 404 of
Analysis. In particular, we request Reporting and recordkeeping
Regulation S–B, rather than the
corresponding disclosure specified in comments regarding: (i) The number of requirements, Securities.
Items 402 and 404 of Regulation S–K. small entity issuers that may be affected
by the proposed revisions; (ii) the 17 CFR Part 274
We have proposed disclosure
amendments that would require clear existence or nature of the potential Investment companies, Reporting and
and straightforward disclosure of impact of the proposed revisions on recordkeeping requirements, Securities.
executive compensation, and small entity issuers discussed in the For the reasons set forth above, we
relationships with related persons and analysis; and (iii) how to quantify the propose to amend Title 17, Chapter II of
promoters, respectively. We have impact of the proposed revisions. the Code of Federal Regulations as
proposed what we believe to be Commenters are asked to describe the follows:
appropriate revisions to the small nature of any impact and provide
business issuer reporting requirements empirical data supporting the extent of PART 228—INTEGRATED
under Regulation S–B, given that small the impact. Such comments will be DISCLOSURE SYSTEM FOR SMALL
business issuer compensation structures considered in the preparation of the BUSINESS ISSUERS
are likely to be less complex than those Final Regulatory Flexibility Analysis, if 1. The authority citation for part 228
of registrants that are not small business the proposed revisions are adopted, and continues to read in part as follows:
issuers. Separate disclosure will be placed in the same public file as
requirements for small entities that Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j,
comments on the proposed 77k, 77s, 77z–2, 77z–3, 77aa(25), 77aa(26),
would differ from the proposed amendments. 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn,
reporting requirements of Regulation S–
77sss, 78l, 78m, 78n, 78o, 78u–5, 78w, 78ll,
B would not yield the disclosure we XII. Small Business Regulatory 78mm, 80a–8, 80a–29, 80a–30, 80a–37, 80b–
believe to be necessary to achieve our Enforcement Fairness Act 11, and 7201 et seq.; and 18 U.S.C. 1350.
disclosure objectives. In particular, we
For purposes of the Small Business * * * * *
believe the changes that are reflected in
Regulatory Enforcement Fairness Act of 2. Amend § 228.201 by revising
the proposed amendments to Regulation
1996,363 a rule is ‘‘major’’ if it has Instruction 2 to paragraph (d) to read as
S–B would balance the informational
follows:
needs of investors in smaller companies resulted, or is likely to result in:
with the burdens imposed on such • An annual effect on the U.S. § 228.201 (Item 201) Market for Common
companies by the disclosure economy of $100 million or more; Equity and Related Stockholder Matters.
requirements. * * * * *
We have used design rather than • A major increase in costs or prices
Instructions to paragraph (d). 1. * * *
performance standards in connection for consumers or individual industries; 2. For purposes of this paragraph, an
with the proposals for two reasons. or ‘‘individual compensation arrangement’’
First, based on our past experience, we • Significant adverse effects on includes, but is not limited to, the following:
believe the proposed disclosure would competition, investment or innovation. A written compensation contract within the
be more useful to investors if there were meaning of ‘‘employee benefit plan’’ under
specific informational requirements. We request comment on whether our § 230.405 of this chapter and a plan (whether
The proposed mandated disclosures are proposals would be a ‘‘major rule’’ for or not set forth in any formal document)
purposes of the Small Business applicable to one person as provided under
intended to result in more focused and Item 402(a)(5)(ii) of Regulation S–B
comprehensive disclosure. Second, the Regulatory Enforcement Fairness Act. (§ 228.402(a)(5)(ii)).
specific disclosure requirements in the We solicit comment and empirical data
on: (a) the potential effect on the U.S. * * * * *
proposals would promote more
consistent disclosure among public economy on an annual basis; (b) any § 228.306 [Removed and Reserved]
companies because they would provide potential increase in costs or prices for 3. Remove and reserve § 228.306.
greater certainty as to the scope of consumers or individual industries; and
required disclosure. In addition, specific (c) any potential effect on competition, § 228.401 [Amended]
disclosure requirements would improve investment or innovation. 4. Amend § 228.401 by removing
the Commission’s ability to enforce the paragraphs (e), (f) and (g).
proposed rules. Therefore, amending the XIII. Statutory Authority and Text of 5. Revise § 228.402 to read as follows:
disclosure requirements of Items 402 the Proposed Amendments
and 404 of Regulations S–K and § 228.402 (Item 402) Executive
We are proposing new rules and compensation.
Regulation S–B and Exchange Act Form
amendments pursuant to Sections 3(b), (a) General. (1) All compensation
8–K, and adopting Item 407 of
6, 7, 10, and 19(a) of the Securities Act, covered. This Item requires clear,
Regulation S–K and S–B, appears to be
as amended, Sections 10(b), 12, 13, 14, concise and understandable disclosure
362 Item 10 of Regulation S–B (17 CFR 228.10) 15(d) and 23(a) of the Exchange Act, as of all plan and non-plan compensation
defines a small business issuer as a registrant that amended, and Sections 8, 20(a), 24(a), awarded to, earned by, or paid to the
has revenues of less than $25 million, is a U.S. or 30 and 38 of the Investment Company named executive officers designated
Canadian issuer, is not an investment company, and Act of 1940, as amended.
has a public float of less than $25 million. Also, if
under paragraph (a)(2) of this Item, and
it is a majority owned subsidiary, the parent directors covered by paragraph (f) of this
corporation also must be a small business issuer. 363 Pub. L. 104–121, Title II, 110 Stat. 857 (1996). Item, by any person for all services
rendered in all capacities to the small pursuant to paragraph (b)(2)(iii) of this Item), business issuer or a named executive
business issuer and its subsidiaries, provided, however, that no disclosure need officer.
unless otherwise specifically excluded be provided for any executive officer, other
than the PEO, whose total compensation does (ii) The term plan includes, but is not
from disclosure in this Item. All such not exceed $100,000. limited to, the following: Any plan,
compensation shall be reported 2. Inclusion of executive officer of contract, authorization or arrangement,
pursuant to this Item, even if also called subsidiary. It may be appropriate for a small whether or not set forth in any formal
for by another requirement, including business issuer to include as named document, pursuant to which cash,
transactions between the small business executive officers one or more executive securities, similar instruments or any
issuer and a third party where a purpose officers of subsidiaries in the disclosure other property may be received. A plan
of the transaction is to furnish required by this Item. See Rule 3b-7 under
the Exchange Act (17 CFR 240.3b-7).
may be applicable to one person. Small
compensation to any such named business issuers may omit information
3. Exclusion of executive officer due to
executive officer or director. No amount overseas compensation. It may be regarding group life, health,
reported as compensation for one fiscal appropriate in limited circumstances for a hospitalization, or medical
year need be reported in the same small business issuer not to include in the reimbursement plans that do not
manner as compensation for a disclosure required by this Item an discriminate in scope, terms or
subsequent fiscal year; amounts individual, other than its PEO, who is one of operation, in favor of executive officers
reported as compensation for one fiscal the small business issuer’s most highly or directors of the small business issuer
year may be required to be reported in compensated executive officers due to the
payment of amounts of cash compensation
and that are available generally to all
a different manner pursuant to this Item. salaried employees.
relating to overseas assignments attributed
(2) Persons covered. Disclosure shall predominantly to such assignments. (iii) The term incentive plan means
be provided pursuant to this Item for any plan providing compensation
each of the following (the ‘‘named (3) Information for full fiscal year. If
the PEO served in that capacity during intended to serve as incentive for
executive officers’’): performance to occur over a specified
(i) All individuals serving as the small any part of a fiscal year with respect to
which information is required, period, whether such performance is
business issuer’s principal executive measured by reference to financial
officer or acting in a similar capacity information should be provided as to all
of his or her compensation for the full performance of the small business issuer
during the last completed fiscal year or an affiliate, the small business
(‘‘PEO’’), regardless of compensation fiscal year. If a named executive officer
(other than the PEO) served as an issuer’s stock price, or any other
level; measure. A non-stock incentive plan is
(ii) The small business issuer’s two executive officer of the small business
issuer (whether or not in the same an incentive plan or portion of an
most highly compensated executive
position) during any part of the fiscal incentive plan where the relevant
officers other than the PEO who were
year with respect to which information performance measure is not based on
serving as executive officers at the end
is required, information shall be the price of the small business issuer’s
of the last completed fiscal year; and
provided as to all compensation of that equity securities or the award does not
(iii) Up to two additional individuals
individual for the full fiscal year. permit settlement by issuance of the
for whom disclosure would have been
(4) Omission of table or column. A small business issuer’s equity securities.
provided pursuant to paragraph (a)(2)(ii)
table or column may be omitted, if there The term incentive plan award means
of this Item but for the fact that the
has been no compensation awarded to, an award provided under an incentive
individual was not serving as an
earned by, or paid to any of the named plan.
executive officer of the small business
issuer at the end of the last completed executive officers required to be (b) Summary compensation table. (1)
fiscal year. reported in that table or column in any General. Provide the information
fiscal year covered by that table. specified in paragraph (b)(2) of this
Instructions to Item 402(a)(2). 1. Item, concerning the compensation of
Determination of most highly compensated
(5) Definitions. For purposes of this
executive officers. The determination as to Item: the named executive officers for each of
which executive officers are most highly (i) The term stock appreciation rights the small business issuer’s last two
compensated shall be made by reference to (‘‘SARs’’) refers to SARs payable in cash completed fiscal years, in a Summary
total compensation for the last completed or stock, including SARs payable in Compensation Table in the tabular
fiscal year (as required to be disclosed cash or stock at the election of the small format specified below.

Non-stock All other
Total Salary Bonus compensa-
Name and principal position Year awards awards plan com-
($) ($) ($) tion
($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
PEO ...................................... —
—
A ........................................... —
—
B ........................................... —
(2) The Table shall include: issuer applies for financial statement business issuer could not properly
(i) The name and principal position of reporting purposes, and all earnings on report in any other column of the
the named executive officer (column any outstanding awards (column (f)); Summary Compensation Table (column
(a)); (vii) For awards of stock options, with (i)). Each compensation item that is not
(ii) The fiscal year covered (column or without tandem SARs, freestanding properly reportable in columns (d)–(h)
(b)); SARs and other similar instruments must be reported in this column. Such
(iii) The dollar value of total with option-like features (including compensation must include, but is not
compensation for the covered fiscal year awards that subsequently have been limited to:
(column (c)). With respect to each transferred), the aggregate grant date fair (A) Perquisites and other personal
named executive officer, disclose the value computed in accordance with benefits, or property, unless the
sum of all amounts reported in columns FAS 123R applying the same valuation aggregate amount of such compensation
(d) through (i); model and assumptions as the small is less than $10,000;
(iv) The dollar value of base salary business issuer applies for financial (B) All earnings on compensation that
(cash and non-cash) earned by the statement reporting purposes, and all is deferred on a basis that is not tax-
named executive officer during the earnings on any outstanding awards qualified, including such earnings on
fiscal year covered (column (d)); (column (g)); non-qualified defined contribution
(v) The dollar value of bonus (cash plans;
and non-cash) earned by the named Instructions to Item 402(b)(2)(vi) and (vii).
1. For awards reported in columns (f) and (g), (C) All ‘‘gross-ups’’ or other amounts
executive officer during the fiscal year include a footnote disclosing all assumptions reimbursed during the fiscal year for the
covered (column (e)); made in the valuation, by reference to a payment of taxes;
Instructions to Item 402(b)(2)(iv) and (v). 1. discussion of those assumptions in the small (D) For any security of the small
If the amount of salary or bonus earned in a business issuer’s financial statements, business issuer or its subsidiaries
given fiscal year is not calculable through the footnotes to the financial statements, or purchased from the small business
latest practicable date, a footnote shall be discussion in the Management’s Discussion issuer or its subsidiaries (through
included disclosing that the amount of salary and Analysis. The sections so referenced are deferral of salary or bonus, or otherwise)
or bonus is not calculable through the latest deemed part of the disclosure provided
pursuant to this Item 402. at a discount from the market price of
practicable date and providing the date that
the amount of salary or bonus is expected to 2. If at any time during the last completed such security at the date of purchase,
be determined, and such amount must be fiscal year, the small business issuer has unless that discount is available
disclosed in a filing under Item 5.02(e) of adjusted or amended the exercise price of generally, either to all security holders
Form 8–K (17 CFR 249.308). stock options or SARs previously awarded to or to all salaried employees of the small
2. Small business issuers need not include a named executive officer, whether through business issuer, the compensation cost
in the salary column (column (d)) or bonus amendment, cancellation or replacement computed in accordance with FAS 123R
column (column (e)) any amount of salary or grants, or any other means (‘‘repriced’’), or applying the same valuation model and
bonus forgone at the election of a named otherwise has materially modified such
awards, the small business issuer shall
assumptions as the small business
executive officer pursuant to a small business
issuer’s program under which stock, stock- include, as awards required to be reported in issuer applies for financial statement
based or other forms of non-cash column (g), the total fair value of options or reporting purposes;
compensation may be received by a named SARs as so repriced or modified, measured (E) The amount paid or accrued to any
executive officer instead of a portion of as of the repricing or modification date. named executive officer pursuant to a
annual compensation earned in a covered 3. All earnings on outstanding awards must plan or arrangement in connection with:
fiscal year. However, the receipt of any such be identified and quantified in a footnote to (1) Any termination, including
form of non-cash compensation instead of column (f) or (g), as applicable, whether the without limitation through retirement,
salary or bonus earned for a covered fiscal earnings were paid during the fiscal year, resignation, severance or constructive
year must be disclosed in the appropriate payable during the period but deferred, or
payable by their terms at a later date.
termination (including a change in
column of the Table corresponding to that
responsibilities) of such executive
fiscal year (e.g., stock awards (column (f)); (viii) The dollar value of all earnings
option awards (column (g)); all other officer’s employment with the small
for services performed during the fiscal business issuer and its subsidiaries; or
compensation (column (i))); or if made
pursuant to a non-stock incentive plan and year pursuant to non-stock based (2) A change in control of the small
therefore not reportable at grant in the incentive plans as defined in paragraph business issuer;
Summary Compensation Table, a footnote (a)(5)(iii) of this Item, and all earnings (F) Small business issuer
must be added to the salary or bonus column on any outstanding non-stock incentive contributions or other allocations to
so disclosing and referring to the Narrative plan awards (column (h)); vested and unvested defined
Disclosure to the Summary Compensation contribution plans;
Instructions to Item 402(b)(2)(viii). 1. If the
Table (required by paragraph (c) of this Item) (G) The aggregate increase in actuarial
relevant performance measure is satisfied
where the material terms of the award are value to the named executive officer of
during the fiscal year (including for a single
reported.
year in a plan with a multi-year performance all defined benefit and actuarial pension
(vi) For awards of stock, including measure), the earnings are reportable for that plans (including supplemental plans)
restricted stock, restricted stock units, fiscal year, even if not payable until a later accrued during the small business
phantom stock, phantom stock units, date, and are not reportable again in the fiscal issuer’s covered fiscal year; and
common stock equivalent units and year when amounts are paid to the named
(H) The dollar value of any insurance
executive officer.
other similar instruments that do not 2. All earnings on non-stock incentive plan premiums paid by, or on behalf of, the
have option-like features, the aggregate compensation must be identified and small business issuer during the covered
grant date fair value computed in quantified in a footnote to column (h), fiscal year with respect to life insurance
accordance with Financial Accounting whether the earnings were paid during the for the benefit of a named executive
Standards Board Statement of Financial fiscal year, payable during the period but officer.
Accounting Standards No. 123 (revised deferred at the election of the named
executive officer, or payable by their terms at Instructions to Item 402(b)(2)(ix). 1.
2004), Share-Based Payment (‘‘FAS Incentive plan awards and earnings and
123R’’), as modified or supplemented, a later date.
earnings on restricted stock, options, SARs
applying the same valuation model and (ix) All other compensation for the and similar awards are required to be
assumptions as the small business covered fiscal year that the small reported elsewhere as provided herein. These
amounts and amounts received on exercise of and describe the rate and methodology used exercisability, any conditions to
options and SARs are not reportable as All to convert the payment amounts to dollars. exercisability, any tandem feature, any
Other Compensation in column (i). 3. If a named executive officer is also a reload feature, any tax-reimbursement
2. Benefits paid pursuant to defined benefit director who receives compensation for his feature, and any provision that could
and actuarial plans are reportable as All or her services as a director, reflect that
Other Compensation in column (i) if paid to compensation in the Summary Compensation
cause the exercise price to be lowered.
the named executive officer during the Table and provide a footnote identifying and (v) The material terms of any non-
period covered by the Table. Otherwise itemizing such compensation and amounts. option and non-SAR award made to a
information concerning these plans is Use the categories in the Director named executive officer during the last
reportable pursuant to paragraph (e)(1) of this Compensation Table required pursuant to completed fiscal year, including a
Item. paragraph (f) of this Item. general description of the formula or
3. Reimbursements of taxes owed with 4. Amounts deferred at the election of a
respect to perquisites or other personal criteria to be applied in determining the
named executive officer or at the direction of
benefits must be included in the columns as the small business issuer, whether pursuant
amounts payable and vesting schedule.
tax reimbursements (paragraph (b)(2)(ix)(C) to a plan established under Section 401(k) of (vi) The assumptions underlying any
of this Item) even if the associated perquisites the Internal Revenue Code (26 U.S.C. 401(k)), determination of an increase in the
or other personal benefits are not required to or otherwise, shall be included in the actuarial value of defined benefit and
be included because the aggregate amount of appropriate column for the fiscal year in actuarial plans and the method of
such compensation is less than $10,000. which earned. The amount so deferred must
4. Perquisites and other personal benefits
calculating earnings on deferred
be disclosed in a footnote to the applicable compensation plans including defined
shall be valued on the basis of the aggregate column.
incremental cost to the small business issuer contribution plans.
and its subsidiaries. (c) Narrative disclosure to summary (vii) An identification to the extent
5. Regarding paragraph (b)(2)(ix)(B) of this compensation table. (1) Provide a material of any item included under All
Item, if the applicable interest rates vary narrative description of any material Other Compensation (column (i)) in the
depending upon conditions such as a factors necessary to an understanding of Summary Compensation Table.
minimum period of continued service, the the information disclosed in the Table
reported amount should be calculated Identification of an item shall not be
required by paragraph (b) of this Item. considered material if it does not exceed
assuming satisfaction of all conditions to
Examples of such factors may include, the greater of $25,000 or 10% of all
receiving interest at the highest rate. Footnote
disclosure may be provided disclosing the in given cases, among other things: items included in the specified category
portion of any earnings that the registrant (i) The material terms of each named in question set forth in paragraphs
considers to be paid at an above-market rate, executive officer’s employment (b)(2)(ix) of this Item. All items of
provided that the footnote explains the small agreement or arrangement, whether compensation are required to be
business issuer’s criteria for determining the written or unwritten. included in the Summary Compensation
portion considered to be above-market. (ii) If at any time during the last fiscal
6. The disclosure required pursuant to Table without regard to whether such
year, any outstanding option, SAR or
paragraph (b)(2)(ix)(G) of this Item applies to items are required to be identified.
other equity-based award was repriced
each plan that provides for the payment of or otherwise materially modified (such (2) For up to three employees who
retirement benefits, or benefits that will be were not executive officers during the
paid primarily following retirement,
as by extension of exercise periods, the
change of vesting or forfeiture last completed fiscal year and whose
including but not limited to tax-qualified total compensation for the last
defined benefit plans and supplemental conditions, the change or elimination of
employee retirement plans, but excluding applicable performance criteria, or the completed fiscal year was greater than
tax-qualified defined contribution plans and change of the bases upon which returns that of any named executive officers,
nonqualified defined contribution plans. are determined), a description of each disclose each of such employee’s total
Instructions to Item 402(b). 1. Information such repricing or other material compensation for that year and describe
with respect to the fiscal year prior to the last modification. their job positions.
completed fiscal year will not be required if (d) Outstanding equity awards at
(iii) The waiver or modification of any
the small business issuer was not a reporting
company pursuant to Section 13(a) or 15(d) specified performance target, goal or fiscal year-end table. (1) Provide the
of the Exchange Act (15 U.S.C. 78m(a), condition to payout with respect to any information specified in paragraph
78o(d)) at any time during that year, except amount included in non-stock incentive (d)(2) of this Item, concerning the
that the small business issuer will be plan compensation or payouts reported number and value of unexercised
required to provide information for such year in column (h) to the Summary options, SARs and similar instruments
if that information previously was required to Compensation Table required by and nonvested stock (including
be provided in response to a Commission paragraph (b) of this Item, stating restricted stock, restricted stock units or
filing requirement. whether the waiver or modification other similar instruments) and incentive
2. All compensation values reported in the
Summary Compensation Table must be applied to one or more specified named plan awards for each named executive
reported in dollars. Where compensation was executive officers or to all compensation officer outstanding as of the end of the
paid to or received by a named executive subject to the target, goal or condition. small business issuer’s last completed
officer in a different currency, a footnote (iv) The material terms of each grant, fiscal year on an aggregated basis in the
must be provided to identify that currency including but not limited to date of following tabular format:

Incentive
Incentive
Number of Market plans: mar-
In-the-money Number of plans: num-
securities un- value of ket or pay-
amount of shares or ber of non-
derlying shares or out value of
unexercised units of vested
unexercised units of nonvested
Name option stock held shares,
options stock held shares,
(#) that have units or
(#) that have units or
exercisable/ not vested other rights
exercisable/ not vested other rights
unexercisable (#) held
unexercisable ($) held
(#) ($)
(a) (b) (c) (d) (e) (f) (g)
PEO .............................................................................
A ..................................................................................
B ..................................................................................
(2) The Table shall include: at the end of the fiscal year (column (f)); of the last completed fiscal year by the
(i) The name of the executive officer and number of restricted stock or incentive plan
(column (a)); (vii) The aggregate market or payout award holdings, respectively.
(ii) The total number of securities value of nonvested shares, units or other
(e) Additional narrative disclosure.
underlying unexercised options, SARs rights awarded under any incentive plan
Provide a narrative description of the
and similar instruments with option- held at the end of the fiscal year
following to the extent material:
like features held at the end of the last (column (g)).
completed fiscal year, including awards (1) The material terms of each plan
Instructions to Item 402(d)(2). 1. In the title
that have been transferred, separately that provides for the payment of
of the table, specify the applicable fiscal year
identifying the exercisable and of the small business issuer. retirement benefits, or benefits that will
unexercisable options, SARs and similar 2. Options, SARs or similar instruments are be paid primarily following retirement,
instruments (column (b)); in-the-money if the market price of the including but not limited to tax-
underlying securities exceeds the exercise or qualified defined benefit plans,
(iii) The aggregate in-the-money base price of the option, SAR or similar supplemental employee retirement
amount of unexercised options, SARs instrument. Compute the amounts in column plans, tax-qualified defined contribution
and similar instruments with option- (c) by determining the difference between the plans and nonqualified defined
like features held at the end of the fiscal market price at fiscal year-end of the
securities underlying the options, SARs or contribution plans.
year, including awards that have been
transferred, separately identifying the similar instruments and the exercise or base (2) The material terms of each
exercisable and unexercisable options, price of the options, SARs or similar contract, agreement, plan or
instruments. arrangement, whether written or
SARs and similar instruments (column 3. The expiration dates of options, SARs
(c)); unwritten, that provides for payment(s)
and similar instruments held at fiscal year-
(iv) The total number of nonvested end, separately identifying the exercisable
to a named executive officer at,
shares of stock (including restricted and unexercisable options, SARs and similar following, or in connection with the
stock, restricted stock units or similar instruments must be disclosed by footnote to resignation, retirement or other
instruments that do not have option-like column (b). If the expiration date of an termination of a named executive
features) held at the end of the fiscal option, SAR or similar instrument held at officer, or a change in control of the
fiscal year-end subsequently has occurred, small business issuer or a change in the
year (column (d));
state whether it was exercised or expired named executive officer’s
(v) The aggregate market value of unexercised. The vesting dates of restricted
nonvested shares of stock (including responsibilities following a change in
stock shares and similar instruments and
restricted stock, restricted stock units or incentive plan awards held at fiscal-year end control, with respect to each named
similar instruments that do not have must be disclosed by footnotes to columns executive officer.
option-like features) held at the end of (d) and (f), respectively. (f) Compensation of directors. (1)
the fiscal year (column (e)); 4. Compute the market values of stock Provide the information specified in
(vi) The total number of nonvested (including restricted stock, restricted stock paragraph (f)(2) of this Item, concerning
units or similar instruments) holdings
shares, units or other rights awarded reported in column (e) and equity-based the compensation of the directors for the
under any incentive plan, and, if incentive plan awards reported in column (g) small business issuer’s last completed
applicable the number of shares by multiplying the closing market price of fiscal year, in the following tabular
underlying any such unit or right, held the small business issuer’s stock at the end format:
Non-stock
Fees All other
Total earned or compensa-
Name awards awards plan com-
($) paid in cash tion
($) ($) pensation
($) ($)
($)
(a) (b) (c) (d) (e) (f) (g)
A .......................................................................................
B .......................................................................................
C .......................................................................................
DIRECTOR COMPENSATION—Continued
Non-stock
Fees All other
($) ($) pensation
($) ($)
($)
(a) (b) (c) (d) (e) (f) (g)
D .......................................................................................
E .......................................................................................
(2) The Table shall include: incentive plans as defined in paragraph (G) Small business issuer
(i) The name of each director, unless (a)(5)(iii) of this Item, and all earnings contributions or other allocations to
such director is also a named executive on any outstanding awards (column (f)); vested and unvested defined
officer under Item 402(a) and his or her and contribution plans;
compensation for service as a director is (vii) All other compensation for the (H) Consulting fees earned from, or
fully reflected in the Summary covered fiscal year that the small paid or payable by the small business
Compensation Table pursuant to Item business issuer could not properly issuer and/or its subsidiaries (including
402(b) and otherwise as required report in any other column of the joint ventures);
pursuant to Items 402(c) and (e) Director Compensation Table (column (I) The annual costs of payments and
(column (a)); (g)). Each compensation item for the last promises of payments pursuant to
(ii) The dollar value of total completed fiscal year that is not director legacy programs and similar
compensation for the covered fiscal year properly reportable in columns (c)–(f) charitable award programs; and
(column (b)). With respect to each must be reported in this column and (J) The dollar value of any insurance
director, disclose the sum of all amounts must be identified and quantified in a premiums paid by, or on behalf of, the
reported in columns (c) through (g); footnote if it is deemed material in small business issuer during the covered
(iii) The aggregate dollar amount of all accordance with paragraph (c)(6) of this fiscal year with respect to life insurance
fees earned or paid in cash for services Item. Such compensation must include, for the benefit of a director.
as a director, including annual retainer but is not limited to: Instruction to Item 402(f)(2)(vii). Programs
fees, committee and/or chairmanship (A) All perquisites and other personal in which small business issuers agree to
fees, and meeting fees (column (c)); benefits, or property, unless the make donations to one or more charitable
(iv) For awards of stock, including aggregate amount of such compensation institutions in a director’s name, payable by
restricted stock, restricted stock units, is less than $10,000; the small business issuer currently or upon
phantom stock, phantom stock units, (B) All earnings on compensation that a designated event, such as the retirement or
common stock equivalent units or other is deferred on a basis that is not tax- death of the director, are charitable awards
similar instruments that do not have qualified; programs or director legacy programs for
option-like features, the aggregate grant (C) All amounts reimbursed during purposes of the disclosure required by
date fair value computed in accordance paragraph (f)(2)(vii)(I) of this Item. Provide
the fiscal year for the payment of taxes; footnote disclosure of the total dollar amount
with FAS 123R, applying the same (D) For any security of the small and other material terms of each such
valuation model and assumptions as the business issuer or its subsidiaries program for which tabular disclosure is
small business issuer applies for purchased from the small business provided.
financial statement reporting purposes, issuer or its subsidiaries (through Instruction to Item 402(f)(2). Two or more
and all earnings on any outstanding deferral of salary or bonus, or otherwise) directors may be grouped in a single row in
awards (column (d)); at a discount from the market price of the table if all of their elements of
(v) For awards of stock options, with such security at the date of purchase, compensation are identical. The names of the
or without tandem SARs, freestanding unless that discount is available directors for whom disclosure is presented
SARs and other similar instruments generally, either to all security holders on a group basis should be clear from the
with option-like features (including table.
or to all salaried employees of the small
awards that subsequently have been business issuer, the compensation cost (3) Narrative to director compensation
transferred), the aggregate grant date fair computed in accordance with FAS 123R table. Provide a narrative description of
value computed in accordance with applying the same valuation model and any factors necessary to an
FAS 123R applying the same valuation assumptions as the small business understanding of the director
model and assumptions as the small issuer applies for financial statement compensation disclosed in this Table.
business issuer applies for financial reporting purposes; While material factors will vary
statement reporting purposes, and all (E) The amount paid or accrued to any depending upon the facts, examples of
earnings on any outstanding awards director pursuant to a plan or such factors may include, in given
(column (e)); arrangement in connection with: cases, among other things:
Instruction to Item 402(f)(2)(iv) and (v). (1) The resignation, retirement or any (i) A description of standard
Disclose, for each director, by footnote to the other termination of such director; or compensation arrangements (such as
appropriate column, the outstanding equity (2) A change in control of the small fees for retainer, committee service,
awards at fiscal year end as would be business issuer; service as chairman of the board or a
required if the tabular presentation for named (F) The aggregate increase in actuarial committee, and meeting attendance);
executive officers specified in paragraph (d) value to the director of all defined and
of this Item were required for directors. benefit and actuarial pension plans (ii) Whether any director has a
(vi) The dollar value of all earnings (including supplemental plans) accrued different compensation arrangement,
for services performed during the fiscal during the small business issuer’s identifying that director and describing
year pursuant to non-stock-based covered fiscal year; the terms of that arrangement.
Instruction to Item 402(f). In addition to 6. Amend § 228.403 by revising them, each of the named executive
the Instruction to paragraph (f)(2)(vii) of this paragraph (b) to read as follows: officers as defined in Item 402(a)(2)
Item, the following apply equally to
(§ 228.402(a)(2)), and directors and
paragraph (f) of this Item: Instructions 2 and § 228.403 (Item 403) Security Ownership of
3 to paragraph (b) of this Item; the Certain Beneficial Owners and executive officers of the small business
Instructions to paragraphs (b)(2)(iv) and (v) of Management. issuer as a group, without naming them.
this Item; the Instructions to paragraphs * * * * * Show in column (3) the total number of
(b)(2)(vi) and (vii) of this Item; the shares beneficially owned and in
Instructions to paragraph (b)(2)(viii) of this (b) Security ownership of column (4) the percent of the class so
Item; the Instructions to paragraph (b)(2)(ix) management. Furnish the following owned. Of the number of shares shown
of this Item; and paragraph (c)(6) of this Item. information, as of the most recent
These Instructions apply to the columns in in column (3), indicate, by footnote the
practicable date, in substantially the
the Director Compensation Table that are amount of shares that are pledged as
tabular form indicated, as to each class
analogous to the columns in the Summary security and the amount of shares with
Compensation Table to which they refer and
of equity securities of the small business
issuer or any of its parents or respect to which such persons have the
to disclosures under paragraph (f) of this Item right to acquire beneficial ownership as
that correspond to analogous disclosures subsidiaries, including directors’
qualifying shares, beneficially owned by specified in § 240.13d–3(d)(1) of this
provided for in paragraph (b) of this Item to
which they refer. all directors and nominees, naming chapter.
(3) Amount of shares and nature

(1) Title of class (2) Name of beneficial owner (4) Percent of class
of beneficial ownership
* * * * * amount of interest paid during the limited to, any financial transaction,
7. Revise § 228.404 to read as follows: period for which disclosure is provided, arrangement or relationship (including any
and the rate or amount of interest indebtedness or guarantee of indebtedness)
§ 228.404 (Item 404) Transactions with payable on the indebtedness. or any series of similar transactions,
related persons and promoters. arrangements or relationships.
(5) Any other information regarding
(a) Transactions with related persons. 3. The amount involved in the transaction
the transaction or the related person in shall be computed by determining the dollar
Describe any transaction during the last the context of the transaction that is value of the amount involved in the
two years, or any currently proposed material to investors in light of the transaction in question, which shall include:
transaction, in which the small business circumstances of the particular a. In the case of any lease or other
issuer was, or is to be, a participant and transaction. transaction providing for periodic payments
the amount involved exceeds the lesser or installments, the aggregate amount of all
Instructions to Item 404(a). 1. For the
of $120,000 or one percent of the periodic payments or installments due on or
purposes of paragraph (a) of this Item, the
average of the small business issuer’s after the beginning of the small business
term related person means:
total assets for the last three completed issuer’s last fiscal year, including any
a. Any person who was in any of the
required or optional payments due during or
fiscal years and in which any related following categories at any time during the
specified period for which disclosure under at the conclusion of the lease.
person had, or will have, a direct or b. In the case of indebtedness, the largest
indirect material interest. Disclose the paragraph (a) of this Item is required:
i. Any director or executive officer of the aggregate amount of all indebtedness
following information regarding the outstanding at any time since the beginning
small business issuer;
transaction: ii. Any nominee for director, when the of the small business issuer’s last fiscal year
(1) The name of the related person information called for by paragraph (a) of this and all amounts of interest payable on it
and the basis on which the person is a Item is being presented in a proxy or during the last fiscal year.
related person. information statement relating to the election 4. In the case of transactions involving
(2) The related person’s interest in the of that nominee for director; or indebtedness, the following items of
iii. Any immediate family member of any indebtedness may be excluded from the
transaction with the small business calculation of the amount of indebtedness
issuer, including the related person’s of the foregoing persons, which means any
child, stepchild, parent, stepparent, spouse, and need not be disclosed: amounts due from
position(s) or relationship(s) with, or the related person for purchases of goods and
sibling, mother-in-law, father-in-law, son-in-
ownership in, a firm, corporation, or law, daughter-in-law, brother-in-law, or services subject to usual trade terms, for
other entity that is a party to, or has an sister-in-law, and any person (other than a ordinary business travel and expense
interest in, the transaction. tenant or employee) sharing the household of payments and for other transactions in the
(3) The approximate dollar value of a related person identified in paragraph 1.a.i. ordinary course of business.
the amount involved in each transaction or 1.a.ii. of this instruction; and 5. Disclosure of an employment
b. Any person who was in any of the relationship or transaction involving an
and of the amount of the related
following categories when a transaction in executive officer and any related
person’s interest in each transaction compensation solely resulting from that
which such person had a direct or indirect
each of which shall be computed material interest occurred or existed: employment relationship or transaction need
without regard to the amount of profit i. A security holder covered by Item 403(a) not be provided pursuant to paragraph (a) of
or loss. (§ 228.403(a)); or this Item if:
(4) In the case of indebtedness, ii. Any immediate family member of any a. The compensation arising from the
disclosure of the amount involved in the such security holder, which means any child, relationship or transaction is reported
transaction shall include the largest stepchild, parent, stepparent, spouse, sibling, pursuant to Item 402 (§ 228.402); or
aggregate amount of principal mother-in-law, father-in-law, son-in-law, b. The executive officer is not an
daughter-in-law, brother-in-law, or sister-in- immediate family member of a related person
outstanding during the last two years, (as specified in Instruction 1. to paragraph (a)
law, of such security holder and any person
the amount thereof outstanding as of the (other than a tenant or employee) sharing the of this Item) and such compensation would
latest practicable date, the amount of household of such security holder. have been reported under Item 402
principal paid during the periods for 2. For purposes of paragraph (a) of this (§ 228.402) as compensation earned for
which disclosure is provided, the Item, a transaction includes, but is not services to the small business issuer if the
executive officer was a named executive percentage of voting securities owned or committee performing similar functions,
officer as that term is defined in Item other basis of control by its immediate the small business issuer must provide
402(a)(2) (§ 228.402(a)(2)), and such parent, if any. the disclosure of directors that are not
compensation had been approved as such by (c) Promoters. (1) Small business independent with respect to all
the compensation committee of the board of
issuers that had a promoter at any time members of the board of directors
directors (or group of independent directors
performing a similar function) of the small during the past five fiscal years shall: applying such committee independence
business issuer. (i) State the names of the promoter(s), standards.
6. Disclosure of compensation to a director the nature and amount of anything of (1) In determining whether or not the
need not be provided pursuant to paragraph value (including money, property, director or nominee for director is
(a) of this Item if the compensation is contracts, options or rights of any kind) independent for the purposes of
reportable pursuant to Item 402(f) received or to be received by each paragraph (a) of this Item, the small
(§ 228.402(f)). promoter, directly or indirectly, from business issuer shall use the applicable
7. In the case of a transaction involving the small business issuer and the nature
indebtedness, if the lender is a bank, savings
definition of independence, as follows:
and amount of any assets, services or (i) If the small business issuer is a
and loan association, or broker-dealer
other consideration therefor received or listed issuer whose securities are listed
extending credit under Federal Reserve
Regulation T (12 CFR part 220) and the loans to be received by the small business on a national securities exchange or in
are not disclosed as nonaccrual, past due, issuer; and an inter-dealer quotation system which
restructured or potential problems (see Item (ii) As to any assets acquired or to be has requirements that a majority of the
III.C.1. and 2. of Industry Guide 3, Statistical acquired by the small business issuer board of directors be independent, the
Disclosure by Bank Holding Companies (17 from a promoter, state the amount at small business issuer’s definition of
CFR 229.802(c))), disclosure under paragraph which the assets were acquired or are to independence that it uses for
(a) of this Item may consist of a statement, be acquired and the principle followed
if such is the case, that the loans to such determining if a majority of the board of
or to be followed in determining such directors is independent in compliance
persons: amount, and identify the persons
a. Were made in the ordinary course of with the listing standards applicable to
business;
making the determination and their the small business issuer. When
b. Were made on substantially the same relationship, if any, with the small determining whether the members of a
terms, including interest rates and collateral, business issuer or any promoter. If the committee of the board of directors are
as those prevailing at the time for comparable assets were acquired by the promoter independent, the small business issuer’s
loans with persons not related to the lender; within two years prior to their transfer definition of independence that it uses
and to the small business issuer, also state for determining if the members of that
c. Did not involve more than the normal the cost thereof to the promoter.
risk of collectibility or present other specific committee are independent in
(2) Small business issuers shall
unfavorable features. compliance with the independence
provide the disclosure required by
8. A person who has a position or standards applicable for the members of
paragraphs (c)(1)(i) and (c)(1)(ii) of this
relationship with a firm, corporation, or other the specific committee in the listing
Item as to any person who acquired
entity that engages in a transaction with the standards of the national securities
small business issuer shall not be deemed to control of a small business issuer that is
exchange or inter-dealer quotation
have an indirect ‘‘material’’ interest within a shell company, or any person that is
system that the small business issuer
the meaning of paragraph (a) of this Item part of a group, consisting of two or
uses for determining if a majority of the
where: more persons that agree to act together
board of directors are independent. If
a. The interest arises only: for the purpose of acquiring, holding,
i. From such person’s position as a director the small business issuer does not have
voting or disposing of equity securities
of another corporation or organization which independence standards for a
of a small business issuer, that acquired
is a party to the transaction; or committee, the independence standards
control of a small business issuer that is
ii. From the direct or indirect ownership by for that specific committee in the listing
a shell company.
such person and all other persons specified standards of the national securities
in Instruction 1 to paragraph (a) of this Item,
8. Add § 228.407 to read as follows:
exchange or inter-dealer quotation
in the aggregate, of less than a ten percent § 228.407 (Item 407) Corporate system that the small business issuer
equity interest in another person (other than governance. uses for determining if a majority of the
a partnership) which is a party to the
(a) Director independence. Identify board of directors are independent.
transaction; or
iii. From both such position and each director and, when the disclosure (ii) If the small business issuer is not
ownership; or called for by this paragraph is being a listed issuer, a definition of
b. The interest arises only from such presented in a proxy or information independence of a national securities
person’s position as a limited partner in a statement relating to the election of exchange or of a national securities
partnership in which the person and all other directors, each nominee for director, association which has requirements that
persons specified in Instruction 1 to that is independent under the a majority of the board of directors be
paragraph (a) of this Item, have an interest of independence standards applicable to independent, and state which definition
less than ten percent, and the person is not the small business issuer under is used. Whatever such definition the
a general partner of and does not hold
another position in the partnership.
paragraph (a)(1) of this Item. In small business issuer chooses, it must
9. Include information for any material addition, if such independence use the same definition with respect to
underwriting discounts and commissions standards contain independence all directors and nominees for director.
upon the sale of securities by the small requirements for committees of the When determining whether the
business issuer where any of the specified board of directors, identify each director members of a specific committee of the
persons was or is to be a principal that is a member of the compensation, board of directors are independent, if
underwriter or is a controlling person or nominating or audit committee that is the national securities exchange or
member of a firm that was or is to be a not independent under such committee national securities association whose
principal underwriter. independence standards. If the small standards are used has independence
(b) Parents. List all parents of the business issuer does not have a standards for the member of a specific
small business issuer showing the basis separately designated audit, nominating committee, use those committee specific
of control and as to each parent, the or compensation committee or standards.
(iii) If the information called for by determining that the director is who participates in the consideration of
paragraph (a) of this item is being independent. director nominees.
presented in a registration statement on Instruction to Item 407(a). No information (2) Provide the following information
Form S–1 (§ 239.11 of this chapter) or called for by paragraph (a) of this Item need regarding the small business issuer’s
Form SB–2 (§ 239.10 of this chapter) be given in a registration statement filed at director nomination process:
under the Securities Act or on a Form a time when the small business issuer is not (i) State whether or not the
10 or Form 10–SB (§ 249.210 or subject to the reporting requirements of nominating committee has a charter. If
§ 249.210b of this chapter) under the sections 13(a) or 15(d) of the Exchange Act the nominating committee has a charter,
Exchange Act where the small business (15 U.S.C. 78m(a), or 78o(d)) respecting any provide the disclosure required by
issuer has applied for listing with a director who is no longer a director at the
time of effectiveness of the registration
Instruction 2 to this Item regarding the
national securities exchange or in an nominating committee charter;
statement.
inter-dealer quotation system which has (ii) If the nominating committee has a
requirements that a majority of the (b) Board meetings and committees. policy with regard to the consideration
board of directors be independent, the (1) State the total number of meetings of of any director candidates
definition of independence that the the board of directors (including recommended by security holders,
small business issuer uses for regularly scheduled and special provide a description of the material
determining if a majority of the board of meetings) which were held during the elements of that policy, which shall
directors is independent, and the last full fiscal year. Name each include, but need not be limited to, a
definition of independence that the incumbent director who during the last statement as to whether the committee
small business issuer uses for full fiscal year attended fewer than 75 will consider director candidates
determining if members of the specific percent of the aggregate of: recommended by security holders;
committee of the board of directors are (i) The total number of meetings of the (iii) If the nominating committee does
independent, that is in compliance with board of directors (held during the not have a policy with regard to the
the independence listing standards of period for which he has been a director); consideration of any director candidates
the national securities exchange or and recommended by security holders, state
inter-dealer quotation system on which (ii) The total number of meetings held that fact and state the basis for the view
it has applied for listing, or if the small by all committees of the board on which of the board of directors that it is
business issuer has not adopted such he served (during the periods that he appropriate for the small business issuer
definitions, the independence standards served). not to have such a policy;
for determining if the majority of the (2) Describe the small business (iv) If the nominating committee will
board of directors is independent and if issuer’s policy, if any, with regard to consider candidates recommended by
members of the committee of the board board members’ attendance at annual security holders, describe the
of directors are independent of that meetings of security holders and state procedures to be followed by security
national securities exchange or inter- the number of board members who holders in submitting such
dealer quotation system. attended the prior year’s annual
(2) If the small business issuer uses its recommendations;
meeting. (v) Describe any specific minimum
own definitions for determining
whether its directors and nominees for Instruction to Item 407(b)(2). In lieu of qualifications that the nominating
director, and members of specific providing the information required by committee believes must be met by a
committees of the board of directors, are paragraph (b)(2) of this Item in the proxy nominating committee-recommended
statement, the small business issuer may nominee for a position on the small
independent, disclose whether these instead provide the small business issuer’s
definitions are available to security business issuer’s board of directors, and
Web site address where such information describe any specific qualities or skills
holders on the small business issuer’s appears.
Web site. If so, provide the small that the nominating committee believes
business issuer’s Web site address. If (3) State whether or not the small are necessary for one or more of the
not, include a copy of these policies in business issuer has standing audit, small business issuer’s directors to
an appendix to the small business nominating and compensation possess;
issuer’s proxy statement that is provided committees of the board of directors, or (vi) Describe the nominating
to security holders at least once every committees performing similar committee’s process for identifying and
three fiscal years or if the policies have functions. If the small business issuer evaluating nominees for director,
been materially amended since the has such committees, however including nominees recommended by
beginning of the small business issuer’s designated, identify each committee security holders, and any differences in
last fiscal year. If a current copy of the member, state the number of committee the manner in which the nominating
policies is not available to security meetings held by each such committee committee evaluates nominees for
holders on the small business issuer’s during the last fiscal year and describe director based on whether the nominee
Web site, and is not included as an briefly the functions performed by each is recommended by a security holder;
appendix to the small business issuer’s such committee. Such disclosure need (vii) With regard to each nominee
proxy statement, identify the most not be provided to the extent it is approved by the nominating committee
recent fiscal years in which the policies duplicative of disclosure provided in for inclusion on the small business
were so included in satisfaction of this accordance with paragraph (d)(4) of this issuer’s proxy card (other than
requirement. Item. nominees who are executive officers or
(3) For each director and nominee for (c) Nominating committee. (1) If the who are directors standing for re-
director that is identified as small business issuer does not have a election), state which one or more of the
independent, describe any transactions, standing nominating committee or following categories of persons or
relationships or arrangements not committee performing similar functions, entities recommended that nominee:
disclosed pursuant to Item 404(a) state the basis for the view of the board security holder, non-management
(§ 228.404(a)) that were considered by of directors that it is appropriate for the director, chief executive officer, other
the board of directors under the small business issuer not to have such executive officer, third-party search
applicable independence definitions in a committee and identify each director firm, or other specified source;
(viii) If the small business issuer pays a. A written statement from the ‘‘record’’ (2) If a listed issuer’s board of
a fee to any third party or parties to holder of the securities (usually a broker or directors determines, in accordance
identify or evaluate or assist in bank) verifying that, at the time the security with the listing standards applicable to
holder made the recommendation, he or she
identifying or evaluating potential the issuer, to appoint a director to the
had held the required securities for at least
nominees, disclose the function one year; or audit committee who is not
performed by each such third party; and b. If the security holder has filed a independent (apart from the
(ix) If the small business issuer’s Schedule 13D (§ 240.13d–101 of this requirements in § 240.10A–3 of this
nominating committee received, by a chapter), Schedule 13G (§ 240.13d–102 of chapter), including as a result of
date not later than the 120th calendar this chapter), Form 3 (§ 249.103 of this exceptional or limited or similar
day before the date of the small business chapter), Form 4 (§ 249.104 of this chapter), circumstances, disclose the nature of the
and/or Form 5 (§ 249.105 of this chapter), or relationship that makes that individual
issuer’s proxy statement released to amendments to those documents or updated
security holders in connection with the not independent and the reasons for the
forms, reflecting ownership of the securities
previous year’s annual meeting, a as of or before the date of the
board of directors’ determination.
recommended nominee from a security recommendation, a copy of the schedule and/
(3)(i) The audit committee must state
holder that beneficially owned more or form, and any subsequent amendments whether:
than 5% of the small business issuer’s reporting a change in ownership level, as (A) The audit committee has reviewed
voting common stock for at least one well as a written statement that the security and discussed the audited financial
year as of the date the recommendation holder continuously held the securities for statements with management;
the one-year period as of the date of the (B) The audit committee has
was made, or from a group of security
recommendation. discussed with the independent
holders that beneficially owned, in the 4. For purposes of the small business auditors the matters required to be
aggregate, more than 5% of the small issuer’s obligation to provide the disclosure discussed by the statement on Auditing
business issuer’s voting common stock, specified in paragraph (c)(2)(ix) of this Item, Standards No. 61, as amended (AICPA,
with each of the securities used to the security holder or group must have
Professional Standards, Vol. 1, AU
calculate that ownership held for at provided to the small business issuer, at the
time of the recommendation, the written section 380), as adopted by the Public
least one year as of the date the
consent of all parties to be identified and, Company Accounting Oversight Board
recommendation was made, identify the
where the security holder or group members in Rule 3200T;
candidate and the security holder or (C) The audit committee has received
are not registered holders, proof that the
security holder group that the written disclosures and the letter
security holder or group satisfied the
recommended the candidate and required ownership percentage and holding from the independent accountants
disclose whether the nominating period as of the date of the recommendation. required by Independence Standards
committee chose to nominate the Instruction to Item 407(c)(2). For purposes Board Standard No. 1 (Independence
candidate, provided, however, that no of paragraph (c)(2) of this Item, the term Standards Board Standard No. 1,
such identification or disclosure is ‘‘nominating committee’’ refers not only to
Independence Discussions with Audit
required without the written consent of nominating committees and committees
performing similar functions, but also to Committees), as adopted by the Public
both the security holder or security Company Accounting Oversight Board
holder group and the candidate to be so groups of directors fulfilling the role of a
nominating committee, including the entire in Rule 3600T, and has discussed with
identified. the independent accountant the
board of directors.
Instructions to Item 407(c)(2)(ix). 1. For independent accountant’s
purposes of paragraph (c)(2)(ix) of this Item,
(3) Describe any material changes to
the procedures by which security independence; and
the percentage of securities held by a (D) Based on the review and
nominating security holder may be holders may recommend nominees to
discussions referred to in paragraphs
determined using information set forth in the the small business issuer’s board of
(d)(3)(i)(A) through (d)(3)(i)(C) of this
small business issuer’s most recent quarterly directors, where those changes were
or annual report, and any current report Item, the audit committee recommended
implemented after the small business
subsequent thereto, filed with the to the board of directors that the audited
issuer last provided disclosure in
Commission pursuant to the Exchange Act, financial statements be included in the
response to the requirements of
unless the party relying on such report small business issuer’s Annual Report
paragraph (c)(2)(iv) of this Item, or
knows or has reason to believe that the on Form 10–K (17 CFR 249.310) for the
information contained therein is inaccurate.
paragraph (c)(3) of this Item.
last fiscal year for filing with the
2. For purposes of the small business Instructions to Item 407(c)(3). 1. The Commission.
issuer’s obligation to provide the disclosure disclosure required in paragraph (c)(3) of this (ii) The name of each member of the
specified in paragraph (c)(2)(ix) of this Item, Item need only be provided in a small company’s audit committee (or, in the
where the date of the annual meeting has business issuer’s quarterly or annual reports.
2. For purposes of paragraph (c)(3) of this
absence of an audit committee, the
been changed by more than 30 days from the
date of the previous year’s meeting, the Item, adoption of procedures by which board committee performing equivalent
obligation under that Item will arise where security holders may recommend nominees functions or the entire board of
the small business issuer receives the to the small business issuer’s board of directors) must appear below the
security holder recommendation a reasonable directors, where the small business issuer’s disclosure required by paragraph
time before the small business issuer begins most recent disclosure in response to the (d)(3)(i) of this Item.
to print and mail its proxy materials. requirements of paragraph (c)(2)(iv) of this (4)(i) If you meet the following
3. For purposes of paragraph (c)(2)(ix) of Item, or paragraph (c)(3) of this Item, requirements, provide the disclosure in
this Item, the percentage of securities held by indicated that the small business issuer did paragraph (d)(4)(ii) of this Item:
a recommending security holder, as well as not have in place such procedures, will (A) You are a listed issuer, as defined
the holding period of those securities, may be constitute a material change. in § 240.10A–3 of this chapter;
determined by the small business issuer if

(d) Audit committee. (1) State whether (B) You are filing either an annual
the security holder is the registered holder of
the securities. If the security holder is not the
or not the audit committee has a charter. report on Form 10–K or 10–KSB (17
registered owner of the securities, he or she If the audit committee has a charter, CFR 249.310 or 17 CFR 249.310b), or a
can submit one of the following to the small provide the disclosure required by proxy statement or information
business issuer to evidence the required Instruction 2 to this Item regarding the statement pursuant to the Exchange Act
ownership percentage and holding period: audit committee charter. (15 U.S.C. 78a et seq.) if action is to be
taken with respect to the election of (A) An understanding of generally is required only in a small business issuer’s
directors; and accepted accounting principles and annual report. The small business issuer
(C) You are neither: financial statements; need not provide the disclosure required by
(B) The ability to assess the general paragraph (d)(5) of this Item in a proxy or
(1) A subsidiary of another listed information statement unless that small
issuer that is relying on the exemption application of such principles in business issuer is electing to incorporate this
in § 240.10A–3(c)(2) of this chapter; nor connection with the accounting for information by reference from the proxy or
(2) Relying on any of the exemptions estimates, accruals and reserves; information statement into its annual report
in § 240.10A–3(c)(4) through (c)(7) of (C) Experience preparing, auditing, pursuant to General Instruction E(3) to Form
this chapter. analyzing or evaluating financial 10–KSB (17 CFR 249.310b).
statements that present a breadth and 2. If a person qualifies as an audit
(ii)(A) State whether or not the small committee financial expert by means of
business issuer has a separately- level of complexity of accounting issues
that are generally comparable to the having held a position described in
designated standing audit committee paragraph (d)(5)(iii)(D) of this Item, the small
established in accordance with section breadth and complexity of issues that business issuer shall provide a brief listing of
3(a)(58)(A) of the Exchange Act (15 can reasonably be expected to be raised that person’s relevant experience. Such
U.S.C. 78c(a)(58)(A)), or a committee by the small business issuer’s financial disclosure may be made by reference to
performing similar functions. If the statements, or experience actively disclosures required under Item 401(a)(4)
small business issuer has such a supervising one or more persons (§ 228.401(a)(4)).
engaged in such activities; 3. In the case of a foreign private issuer
committee, however designated, with a two-tier board of directors, for
identify each committee member. If the (D) An understanding of internal
control over financial reporting; and purposes of paragraph (d)(5) of this Item, the
entire board of directors is acting as the term board of directors means the
(E) An understanding of audit
small business issuer’s audit committee supervisory or non-management board. Also,
committee functions.
as specified in section 3(a)(58)(B) of the (iii) A person shall have acquired in the case of a foreign private issuer, the
Exchange Act (15 U.S.C. 78c(a)(58)(B)), term generally accepted accounting
such attributes through: principles in paragraph (d)(5)(ii)(A) of this
so state. (A) Education and experience as a Item means the body of generally accepted
(B) If applicable, provide the principal financial officer, principal accounting principles used by that issuer in
disclosure required by § 240.10A–3(d) of accounting officer, controller, public its primary financial statements filed with
this chapter regarding an exemption accountant or auditor or experience in the Commission.
from the listing standards for audit one or more positions that involve the 4. Following the effective date of the first
committees. performance of similar functions; registration statement filed under the
(5) Audit committee financial expert. (B) Experience actively supervising a Securities Act (15 U.S.C. 77a et seq.) or
(i)(A) Disclose that the small business principal financial officer, principal Exchange Act (15 U.S.C. 78a et seq.) by a
issuer’s board of directors has small business issuer, the small business
accounting officer, controller, public issuer or successor issuer need not make the
determined that the small business accountant, auditor or person disclosures required by this Item in its first
issuer either: performing similar functions; annual report filed pursuant to section 13(a)
(1) Has at least one audit committee (C) Experience overseeing or assessing or 15(d) (15 U.S.C. 78m(a) or 78o(d)) of the
financial expert serving on its audit the performance of companies or public Exchange Act after effectiveness.
committee; or accountants with respect to the Instructions to Item 407(d). 1. The
(2) Does not have an audit committee preparation, auditing or evaluation of information required by paragraphs (d)(1)–(3)
financial expert serving on its audit financial statements; or of this Item shall not be deemed to be
(D) Other relevant experience. ‘‘soliciting material,’’ or to be ‘‘filed’’ with
committee.
(iv) Safe harbor. the Commission or subject to Regulation 14A
(B) If the small business issuer or 14C (17 CFR 240.14a–1 through 240.14b–
provides the disclosure required by (A) A person who is determined to be
2 or 240.14c–1 through 240.14c–101), other
paragraph (d)(5)(i)(A)(1) of this Item, it an audit committee financial expert will than as provided in this Item, or to the
must disclose the name of the audit not be deemed an expert for any liabilities of section 18 of the Exchange Act
committee financial expert and whether purpose, including without limitation (15 U.S.C. 78r), except to the extent that the
that person is independent, as for purposes of section 11 of the small business issuer specifically requests
independence for audit committee Securities Act (15 U.S.C. 77k), as a that the information be treated as soliciting
result of being designated or identified material or specifically incorporates it by
members is defined in the listing reference into a document filed under the
standards applicable to the listed issuer. as an audit committee financial expert
pursuant to this Item 407. Securities Act or the Exchange Act. Such
(C) If the small business issuer information will not be deemed to be
provides the disclosure required by (B) The designation or identification
incorporated by reference into any filing
paragraph (d)(5)(i)(A)(2) of this Item, it of a person as an audit committee under the Securities Act or the Exchange Act,
must explain why it does not have an financial expert pursuant to this Item except to the extent that the small business
audit committee financial expert. does not impose on such person any issuer specifically incorporates it by
duties, obligations or liability that are reference.
Instruction to Item 407(d)(5)(i). If the small greater than the duties, obligations and 2. The disclosure required by paragraphs
business issuer’s board of directors has (d)(1)–(3) of this Item need only be provided
liability imposed on such person as a
determined that the small business issuer has one time during any fiscal year.
more than one audit committee financial member of the audit committee and
3. The disclosure required by paragraph
expert serving on its audit committee, the board of directors in the absence of such
(d)(3) of this Item need not be provided in
small business issuer may, but is not required designation or identification. any filings other than a small business
to, disclose the names of those additional (C) The designation or identification issuer’s proxy or information statement
persons. A small business issuer choosing to of a person as an audit committee relating to an annual meeting of security
identify such persons must indicate whether financial expert pursuant to this Item holders at which directors are to be elected
they are independent pursuant to paragraph does not affect the duties, obligations or (or special meeting or written consents in
(d)(5)(i)(B) of this Item. liability of any other member of the lieu of such meeting).
(ii) For purposes of this Item, an audit audit committee or board of directors. (e) Compensation committee. (1) If the
committee financial expert means a Instructions to Item 407(d)(5). 1. The small business issuer does not have a
person who has the following attributes: disclosure under paragraph (d)(5) of this Item standing compensation committee or
committee performing similar functions, communications to the board of the charter in an appendix to the small
state the basis for the view of the board directors: business issuer’s proxy statement that is
of directors that it is appropriate for the (i) Describe the manner in which provided to security holders at least once
every three fiscal years, or if the charter has
small business issuer not to have such security holders can send
been materially amended since the beginning
a committee and identify each director communications to the board and, if of the small business issuer’s last fiscal year.
who participates in the consideration of applicable, to specified individual If a current copy of the charter is not
executive officer and director directors; and available to security holders on the small
compensation. (ii) If all security holder business issuer’s Web site, and is not
(2) State whether or not the communications are not sent directly to included as an appendix to the small
compensation committee has a charter. board members, describe the small business issuer’s proxy statement, identify in
If the compensation committee has a business issuer’s process for which of the prior fiscal years the charter was
charter, provide the disclosure required so included in satisfaction of this
determining which communications
requirement.
by Instruction 2 to this Item regarding will be relayed to board members.
the compensation committee charter. Instructions to Item 407(f). 1. In lieu of PART 229—STANDARD
(3) Provide a narrative description of providing the information required by INSTRUCTIONS FOR FILING FORMS
the small business issuer’s processes paragraph (f)(2) of this Item in the proxy UNDER SECURITIES ACT OF 1933,
and procedures for the consideration statement, the small business issuer may SECURITIES EXCHANGE ACT OF 1934
and determination of executive and instead provide the small business issuer’s AND ENERGY POLICY AND
director compensation, including: Web site address where such information
(i)(A) The scope of authority of each appears.
CONSERVATION ACT OF 1975—
of the compensation committee (or 2. For purposes of the disclosure required REGULATION S–K
persons performing the equivalent by paragraph (f)(2)(ii) of this Item, a small 9. The authority citation for part 229
functions); and business issuer’s process for collecting and continues to read in part as follows:
(B) The extent to which the organizing security holder communications,
as well as similar or related activities, need Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j,
compensation committee (or persons 77k, 77s, 77z–2, 77z–3, 77aa(25), 77aa(26),
not be disclosed provided that the small
performing the equivalent functions) business issuer’s process is approved by a 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj,
may delegate any authority described in majority of the independent directors. 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n,
paragraph (e)(3)(i)(A) of this Item to 3. For purposes of this paragraph, 78o, 78u–5, 78w, 78ll, 78mm, 79e, 79j, 79n,
other persons, specifying what authority communications from an officer or director of 79t, 80a–8, 80a–9, 80a–20, 80a–29, 80a–30,
may be so delegated and to whom; the small business issuer will not be viewed 80a–31(c), 80a–37, 80a–38(a), 80a–39, 80b–
(ii) Any role of executive officers in as ‘‘security holder communications.’’ 11, and 7201 et seq.; and 18 U.S.C. 1350,
determining or recommending the Communications from an employee or agent unless otherwise noted.
amount or form of executive and of the small business issuer will be viewed 10. Amend § 229.201 by revising
director compensation; and as ‘‘security holder communications’’ for Instruction 2 to paragraph (d) to read as
(iii) Any role of compensation purposes of this paragraph only if those
follows:
communications are made solely in such
consultants in determining or employee’s or agent’s capacity as a security
recommending the amount or form of § 229.201 (Item 201) Market price of and
holder. dividends on the registrant’s common
executive and director compensation, 4. For purposes of this paragraph, security equity and related stockholder matters.
identifying such consultants, stating holder proposals submitted pursuant to
whether such consultants are engaged § 240.14a–8 of this chapter, and
* * * * *
Instructions to paragraph (d). 1. * * *
directly by the compensation committee communications made in connection with
2. For purposes of this paragraph, an
(or persons performing the equivalent such proposals, will not be viewed as
‘‘individual compensation arrangement’’
functions) or any other person, ‘‘security holder communications.’’
includes, but is not limited to, the following:
describing the nature and scope of their Instructions to Item 407. 1. For purposes of
a written compensation contract within the
this Item:
assignment, the material elements of the a. Listed issuer means a listed issuer as
meaning of ‘‘employee benefit plan’’ under
instructions or directions given to the § 230.405 of this chapter and a plan (whether
defined in § 240.10A–3 of this chapter;
consultants with respect to the or not set forth in any formal document)
b. National securities exchange means a applicable to one person as provided under
performance of their duties under the national securities exchange registered Item 402(a)(6)(ii) of Regulation S–K
engagement and identifying the pursuant to section 6(a) of the Exchange Act (§ 229.402(a)(6)(ii)).
executive officer within the small (15 U.S.C. 78f(a));
business issuer the consultants c. Inter-dealer quotation system means an * * * * *
contacted in carrying out their automated inter-dealer quotation system of a
§ 229.306 [Removed and reserved]
assignment. national securities association registered
pursuant to section 15A(a) of the Exchange 11. Remove and reserve § 229.306.
(f) Shareholder communications and 12. Amend § 229.401 by removing
Act (15 U.S.C. 78o–3(a)); and
annual meeting attendance. (1) State d. National securities association means a paragraphs (h), (i) and (j) and by
whether or not the small business national securities association registered revising paragraph (g)(1) to read as
issuer’s board of directors provides a pursuant to section 15A(a) of the Exchange follows:
process for security holders to send Act (15 U.S.C. 78o–3(a)) that has been
communications to the board of approved by the Commission (as that § 229.401 (Item 401) Directors, executive
directors and, if the small business definition may be modified or officers, promoters and control persons.
issuer does not have such a process for supplemented). * * * * *
security holders to send 2. With respect to paragraphs (c)(2)(i), (g) Promoters and control persons. (1)
communications to the board of (d)(1) and (e)(2) of this Item, disclose whether Registrants, which have not been subject
a current copy of the applicable committee to the reporting requirements of section

directors, state the basis for the view of charter is available to security holders on the
the board of directors that it is small business issuer’s Web site, and if so,
13(a) or 15(d) of the Exchange Act (15
appropriate for the small business issuer provide the small business issuer’s Web site U.S.C. 78m(a), 78o(d)) for the twelve
not to have such a process. address. If a current copy of the charter is not months immediately prior to the filing
(2) If the small business issuer has a available to security holders on the small of the registration statement, report, or
process for security holders to send business issuer’s Web site, include a copy of statement to which this Item is
applicable, and which had a promoter at than the PEO and PFO who were contract, authorization or arrangement,
any time during the past five fiscal serving as executive officers at the end whether or not set forth in any formal
years, shall describe with respect to any of the last completed fiscal year; and documents, pursuant to which cash,
promoter, any of the events enumerated (iv) Up to two additional individuals securities, similar instruments, or any
in paragraphs (f)(1) through (f)(6) of this for whom disclosure would have been other property may be received. A plan
Item that occurred during the past five provided pursuant to paragraph may be applicable to one person.
years and that are material to a voting (a)(3)(iii) of this Item but for the fact that Registrants may omit information
or investment decision. the individual was not serving as an regarding group life, health,
* * * * * executive officer of the registrant at the hospitalization, or medical
13. Revise § 229.402 to read as end of the last completed fiscal year. reimbursement plans that do not
follows: Instructions to Item 402(a)(3). 1. discriminate in scope, terms or
Determination of most highly compensated operation, in favor of executive officers
§ 229.402 (Item 402) Executive executive officers. The determination as to or directors of the registrant and that are
compensation. which executive officers are most highly available generally to all salaried
(a) General. (1) Treatment of foreign compensated shall be made by reference to employees.
private issuers. A foreign private issuer total compensation for the last completed (iii) The term incentive plan means
will be deemed to comply with this Item fiscal year (as required to be disclosed any plan providing compensation
if it provides the information required pursuant to paragraph (c)(2)(iii) of this Item),
provided, however, that no disclosure need
intended to serve as incentive for
by Items 6.B and 6.E.2 of Form 20–F (17 performance to occur over a specified
CFR 249.220f), with more detailed be provided for any executive officer, other
than the PEO and PFO, whose total period, whether such performance is
information provided if otherwise made compensation does not exceed $100,000. measured by reference to financial
publicly available or required to be 2. Inclusion of executive officer of performance of the registrant or an
disclosed by the issuer’s home subsidiary. It may be appropriate for a affiliate, the registrant’s stock price, or
jurisdiction or a market in which its registrant to include as named executive any other performance measure. A non-
securities are listed or traded. officers one or more executive officers of stock incentive plan is an incentive plan
(2) All compensation covered. This subsidiaries in the disclosure required by this
or portion of an incentive plan where
Item requires clear, concise and Item. See Rule 3b–7 under the Exchange Act
(17 CFR 240.3b–7). the relevant performance measure is not
understandable disclosure of all plan based on the price of the registrant’s
and non-plan compensation awarded to, 3. Exclusion of executive officer due to
overseas compensation. It may be equity securities or the award does not
earned by, or paid to the named permit settlement by issuance of
appropriate in limited circumstances for a
executive officers designated under registrant not to include in the disclosure registrant equity securities. The term
paragraph (a)(3) of this Item, and required by this Item an individual, other incentive plan award means an award
directors covered by paragraph (l) of this than its PEO or PFO, who is one of the provided under an incentive plan.
Item, by any person for all services registrant’s most highly compensated (b) Compensation discussion and
rendered in all capacities to the executive officers due to the payment of analysis. (1) Discuss the compensation
registrant and its subsidiaries, unless amounts of cash compensation relating to
awarded to, earned by, or paid to the
otherwise specifically excluded from overseas assignments attributed
predominantly to such assignments. named executive officers. The
disclosure in this Item. All such discussion shall explain all elements of
compensation shall be reported (4) Information for full fiscal year. If the registrant’s compensation of the
pursuant to this Item, even if also called the PEO or PFO served in that capacity named executive officers. The
for by another requirement, including during any part of a fiscal year with discussion shall describe the following:
transactions between the registrant and respect to which information is (i) The objectives of the registrant’s
a third party where a purpose of the required, information should be compensation programs;
transaction is to furnish compensation provided as to all of his or her (ii) What the compensation program is
to any such named executive officer or compensation for the full fiscal year. If designed to reward and not reward;
director. No amount reported as a named executive officer (other than (iii) Each element of compensation;
compensation for one fiscal year need the PEO or PFO) served as an executive (iv) Why the registrant chooses to pay
be reported in the same manner as officer of the registrant (whether or not each element;
compensation for a subsequent fiscal in the same position) during any part of (v) How the registrant determines the
year; amounts reported as compensation the fiscal year with respect to which amount (and, where applicable, the
for one fiscal year may be required to be information is required, information formula) for each element to pay; and
reported in a different manner pursuant shall be provided as to all compensation (vi) How each compensation element
to this Item. of that individual for the full fiscal year. and the registrant’s decisions regarding
(3) Persons covered. Disclosure shall (5) Omission of table or column. A that element fit into the registrant’s
be provided pursuant to this Item for table or column may be omitted, if there overall compensation objectives and
each of the following (the ‘‘named has been no compensation awarded to, affect decisions regarding other
executive officers’’): earned by, or paid to any of the named elements.
(i) All individuals serving as the executive officers required to be (2) While the material information to
registrant’s principal executive officer or reported in that table or column in any be disclosed under Compensation
acting in a similar capacity during the fiscal year covered by that table. Discussion and Analysis will vary
last completed fiscal year (‘‘PEO’’), (6) Definitions. For purposes of this depending upon the facts and
regardless of compensation level; Item: circumstances, examples of such
(ii) All individuals serving as the (i) The term stock appreciation rights information may include, in a given
registrant’s principal financial officer or (‘‘SARs’’) refers to SARs payable in cash case, among other things, the following:
acting in a similar capacity during the or stock, including SARs payable in (i) The policies for allocating between
last completed fiscal year (‘‘PFO’’), cash or stock at the election of the long-term and currently paid out
regardless of compensation level; registrant or a named executive officer. compensation;
(iii) The registrant’s three most highly (ii) The term plan includes, but is not (ii) The policies for allocating
compensated executive officers other limited to, the following: Any plan, between cash and non-cash
compensation, and among different of the relevant performance goal(s) or to Analysis is to provide to investors material
forms of non-cash compensation; reduce or increase the size of an award); information that is necessary to an
(viii) The factors considered in understanding of the registrant’s
(iii) For long-term compensation, the compensation policies and decisions
basis for allocating compensation to decisions to increase or decrease
regarding the named executive officers.
each different form of award (such as compensation materially; 2. The Compensation Discussion and
relationship of the award to the (ix) How compensation or amounts Analysis should be of the information
achievement of the registrant’s long- realizable from prior compensation (e.g., contained in the tables and otherwise
term goals, management’s exposure to gains from prior option or stock awards) disclosed pursuant to this Item.
downside equity performance risk, are considered in setting other elements 3. The Compensation Discussion and
correlation between cost to registrant of compensation (e.g., how gains from Analysis should focus on the material
prior option or stock awards are principles underlying the registrant’s
and expected benefits to the registrant);
considered in setting retirement executive compensation policies and
(iv) For equity-based compensation, decisions and the most important factors
benefits);
how the determination is made as to relevant to analysis of those policies and
(x) The impact of the accounting and decisions, and shall not use boilerplate
when awards are granted;
tax treatments of the particular form of language or repeat the more detailed
(v) What specific items of corporate compensation; information set forth in the tables and
performance are taken into account in (xi) The registrant’s equity or other narrative disclosures that follow.
setting compensation policies and security ownership requirements or 4. Registrants are not required to disclose
making compensation decisions; guidelines (specifying applicable target levels with respect to specific
(vi) How specific forms of amounts and forms of ownership), and quantitative or qualitative performance-
compensation are structured to reflect any registrant policies regarding related factors considered by the
the named executive officer’s individual hedging the economic risk of such compensation committee or the board of
directors, or any factors or criteria involving
performance and/or individual ownership; confidential commercial or business
contribution to these items of the (xii) Whether the registrant engaged in information, the disclosure of which would
registrant’s performance, describing the any benchmarking of total have an adverse effect on the registrant.
elements of individual performance compensation, or any material element (c) Summary compensation table. (1)
and/or contribution that are taken into of compensation, identifying the General. Provide the information
account; benchmark and, if applicable, its specified in paragraph (c)(2) of this
(vii) How specific forms of components (including component Item, concerning the compensation of
compensation are structured to reflect companies); and the named executive officers for each of
these items of the registrant’s (xiii) The role of executive officers in the registrant’s last three completed
performance, including whether determining executive compensation. fiscal years, in a Summary
discretion can be exercised (either to Instructions to Item 402(b). 1. The purpose Compensation Table in the tabular
award compensation absent attainment of the Compensation Discussion and format specified below.

Non-stock All other
Name and principal Total Salary Bonus compensa-
Year awards awards plan com-
position ($) ($) ($) tion
($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
PEO .................................. —
—
—
PFO .................................. —
—
—
A ....................................... —
—
—
B ....................................... —
—
—
C ....................................... —
—
—
(2) The Table shall include: named executive officer, disclose the executive officer during the fiscal year
(i) The name and principal position of sum of all amounts reported in columns covered (column (e));
the named executive officer (column (d) through (i);
Instructions to Item 402(c)(2)(iv) and (v). 1.

(a)); (iv) The dollar value of base salary If the amount of salary or bonus earned in a
(ii) The fiscal year covered (column (cash and non-cash) earned by the given fiscal year is not calculable through the
(b)); named executive officer during the latest practicable date, a footnote shall be
(iii) The dollar value of total fiscal year covered (column (d)); included disclosing that the amount of salary
compensation for the covered fiscal year (v) The dollar value of bonus (cash or bonus is not calculable through the latest
(column (c)). With respect to each and non-cash) earned by the named practicable date and providing the date that
the amount of salary or bonus is expected to or SARs previously awarded to a named (C) All ‘‘gross-ups’’ or other amounts
be determined, and such amount must be executive officer, whether through reimbursed during the fiscal year for the
disclosed in a filing under Item 5.02(e) of amendment, cancellation or replacement payment of taxes;
Form 8–K (17 CFR 249.308). grants, or any other means (‘‘repriced’’), or (D) For any security of the registrant
2. Registrants need not include in the otherwise has materially modified such
salary column (column (d)) or bonus column
or its subsidiaries purchased from the
awards, the registrant shall include, as
(column (e)) any amount of salary or bonus awards required to be reported in column (g), registrant or its subsidiaries (through
forgone at the election of a named executive the total fair value of options or SARs as so deferral of salary or bonus, or otherwise)
officer pursuant to a registrant’s program repriced or modified, measured as of the at a discount from the market price of
under which stock, stock-based or other repricing or modification date. such security at the date of purchase,
forms of non-cash compensation may be 3. All earnings on outstanding awards must unless that discount is available
received by a named executive officer instead be identified and quantified in a footnote to generally, either to all security holders
of a portion of annual compensation earned column (f) or (g), as applicable, whether the or to all salaried employees of the
in a covered fiscal year. However, the receipt earnings were paid during the fiscal year,
of any such form of non-cash compensation
registrant, the compensation cost
payable during the period but deferred, or
instead of salary or bonus earned for a computed in accordance with FAS 123R
payable by their terms at a later date.
covered fiscal year must be disclosed in the applying the same valuation model and
appropriate column of the Summary (viii) The dollar value of all earnings assumptions as the registrant applies for
Compensation Table corresponding to that for services performed during the fiscal financial statement reporting purposes;
fiscal year (e.g., stock awards (column (f)); year pursuant to awards under non- (E) The amount paid or accrued to any
option awards (column (g)); all other stock incentive plans as defined in named executive officer pursuant to a
compensation (column (i)); or if made plan or arrangement in connection with:
pursuant to a non-stock incentive plan and
paragraph (a)(6)(iii) of this Item, and all
earnings on any outstanding awards (1) Any termination, including
therefore not reportable at grant in the without limitation through retirement,
Summary Compensation Table, a footnote (column (h)); and
must be added to the salary or bonus column
resignation, severance or constructive
Instructions to Item 402(c)(2)(viii). 1. If the termination (including a change in
so disclosing and referring to the Grants of relevant performance measure is satisfied
Performance-Based Awards Table (required during the fiscal year (including for a single
responsibilities) of such executive
by paragraph (d) of this Item) where the year in a plan with a multi-year performance officer’s employment with the registrant
award is reported. measure), the earnings are reportable for that and its subsidiaries; or
(vi) For awards of stock, including fiscal year, even if not payable until a later (2) A change in control of the
restricted stock, restricted stock units, date, and are not reportable again in the fiscal registrant;
year when amounts are paid to the named (F) Registrant contributions or other
phantom stock, phantom stock units,
executive officer. allocations to vested and unvested
common stock equivalent units and 2. All earnings on non-stock incentive plan defined contribution plans;
other similar instruments that do not compensation must be identified and (G) The aggregate increase in actuarial
have option-like features, the aggregate quantified in a footnote to column (h), value to the named executive officer of
grant date fair value computed in whether the earnings were paid during the
all defined benefit and actuarial pension
accordance with Financial Accounting fiscal year, payable during the period but
deferred at the election of the named plans (including supplemental plans)
Standards Board Statement of Financial
executive officer, or payable by their terms at accrued during the registrant’s covered
Accounting Standards No. 123 (revised
a later date. fiscal year; and
2004), Share-Based Payment (‘‘FAS (H) The dollar value of any insurance
123R’’), as modified or supplemented, (ix) All other compensation for the premiums paid by, or on behalf of, the
applying the same valuation model and covered fiscal year that the registrant registrant during the covered fiscal year
assumptions as the registrant applies for could not properly report in any other with respect to life insurance for the
financial statement reporting purposes, column of the Summary Compensation benefit of a named executive officer.
and all earnings on any outstanding Table (column (i)). Each compensation
awards (column (f)); Instructions to Item 402(c)(2)(ix). 1.
item that is not properly reportable in Incentive plan awards and earnings; earnings
(vii) For awards of stock options, with
columns (d)–(h) must be reported in this on restricted stock, options, SARs and similar
or without tandem SARs, freestanding
column and must be identified and awards; and amounts received on exercise of
SARs and other similar instruments
quantified in a footnote if the amount of options and SARs are required to be reported
with option-like features (including elsewhere as provided in this Item and are
the item exceeds $10,000 (or in the case
awards that subsequently have been not reportable as All Other Compensation in
of any perquisite or personal benefit,
transferred), the aggregate grant date fair column (i).
must be identified unless the aggregate
value computed in accordance with 2. Benefits paid pursuant to defined benefit
value of perquisites and personal and actuarial plans are reportable as All
FAS 123R applying the same valuation
benefits is less than $10,000, and must Other Compensation in column (i) if paid to
model and assumptions as the registrant
be quantified if it is valued at the greater the named executive officer during the
applies for financial statement reporting
of $25,000 or 10% of total perquisites period covered by the Table. Otherwise
purposes, and all earnings on any
and other personal benefits as specified information concerning these plans is
outstanding awards (column (g));
in Instruction 3 to this paragraph). Such reportable pursuant to paragraph (i) of this
Instructions to Item 402(c)(2)(vi) and (vii). compensation must include, but is not Item.
1. For awards reported in columns (f) and (g), limited to: 3. Each perquisite or personal benefit must
include a footnote disclosing all assumptions be identified by type unless the aggregate
made in the valuation, by reference to a (A) Perquisites and other personal value of perquisites and personal benefits is
discussion of those assumptions in the benefits, or property, unless the less than $10,000 and each perquisite or
registrant’s financial statements, footnotes to aggregate amount of such compensation personal benefit that exceeds the greater of
the financial statements, or discussion in the is less than $10,000; $25,000 or 10% of the total amount of
Management’s Discussion and Analysis. The perquisites and personal benefits must be
sections so referenced are deemed part of the
(B) All earnings on compensation that quantified for a named executive officer
disclosure provided pursuant to this Item. is deferred on a basis that is not tax- pursuant to paragraph (c)(2)(ix)(A) of this
2. If at any time during the last completed qualified, including such earnings on Item, and each item reported for a named
fiscal year, the registrant has adjusted or non-qualified defined contribution executive officer pursuant to paragraph
amended the exercise price of stock options plans; (c)(2)(ix) of this Item that exceeds $10,000
must be identified by type and amount in a registrant’s criteria for determining the 3. If a named executive officer is also a
footnote to column (i). All items of portion considered to be above market. director who receives compensation for his
compensation are required to be included in 6. The disclosure required pursuant to or her services as a director, reflect that
the Summary Compensation Table without paragraph (c)(2)(ix)(G) of this Item applies to compensation in the Summary Compensation
regard to whether such items are required to each plan that provides for the payment of Table and provide a footnote identifying and
be so identified. Reimbursements of taxes retirement benefits, or benefits that will be itemizing such compensation and amounts.
owed with respect to perquisites or other paid primarily following retirement, Use the categories in the Director
personal benefits are subject to inclusion in including but not limited to tax-qualified Compensation Table required pursuant to
column (i) and to separate quantification and defined benefit plans and supplemental paragraph (l) of this Item.
identification as tax reimbursements employee retirement plans, but excluding 4. Amounts deferred at the election of a
(paragraph (c)(2)(ix)(C) of this Item) even if tax-qualified defined contribution plans and named executive officer or at the direction of
the associated perquisites or other personal nonqualified defined contribution plans. the registrant, whether pursuant to a plan
benefits are not required to be separately Instructions to Item 402(c). 1. Information established under section 401(k) of the
quantified or the perquisite or other personal with respect to fiscal years prior to the last Internal Revenue Code (26 U.S.C. 401(k)), or
benefit is not required to be included because completed fiscal year will not be required if otherwise, shall be included in the
the aggregate amount of such compensation the registrant was not a reporting company appropriate column for the fiscal year in
is less than $10,000. pursuant to section 13(a) or 15(d) of the which earned. The amount so deferred must
4. Perquisites and other personal benefits Exchange Act (15 U.S.C. 78m(a), 78o(d)) at be disclosed in a footnote to the applicable
shall be valued on the basis of the aggregate any time during that year, except that the column.
incremental cost to the registrant and its registrant will be required to provide
subsidiaries. information for any such year if that (d) Grants of performance-based
5. Regarding paragraph (c)(2)(ix)(B) of this information previously was required to be awards table. (1) Provide the
Item, if the applicable interest rates vary provided in response to a Commission filing information specified in paragraph
depending upon conditions such as a requirement. (d)(2) of this Item, concerning each grant
minimum period of continued service, the 2. All compensation values reported in the of an award made to a named executive
reported amount should be calculated Summary Compensation Table must be officer in the last completed fiscal year
assuming satisfaction of all conditions to reported in dollars. Where compensation was
receiving interest at the highest rate. Footnote paid to or received by a named executive
under any performance-based plan
disclosure may be provided disclosing the officer in a different currency, a footnote (including a performance-based portion
portion of any earnings that the registrant must be provided to identify that currency of any plan), including awards that
considers to be paid at an above-market rate, and describe the rate and methodology used subsequently have been transferred, in
provided that the footnote explains the to convert the payment amounts to dollars. the following tabular format:
GRANTS OF PERFORMANCE-BASED AWARDS

Perform- Estimated future payouts
ance-based Perform- Non-stock Perform-
stock and Dollar
ance-based incentive ance or
stock-based amount of
options: plan Grant date other period
incentive consider-
number of awards: for stock or until vesting Threshold Target Maximum
Name plans: num- ation paid
securities number of option or payout ($) ($) ($)
ber of for award, if
underlying units or awards and option or or or
shares, any
options other rights expiration (#) (#) (#)
units or ($)
(#) (#) date
other rights
(#)
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
PEO ..........
PFO ..........
A ...............
B ...............
C ...............
(2) The Table shall include: instruments with option-like features (viii) The dollar value of the estimated
(i) The name of the named executive (column (c)) granted under an award future payout or the number of shares to
officer (column (a)); under any such plan; be awarded in the future as the payout
(iv) The number of units or other on satisfaction of the conditions in
(ii) The number of shares of
rights granted under an award under question, or the applicable range of
performance-based stock, including
any non-stock incentive plan (column estimated payouts denominated in
restricted stock, restricted stock units,
(d)); dollars or number of shares under the
phantom stock, phantom stock units, (v) The dollar amount of
common stock equivalent units or award (threshold, target and maximum
consideration, if any, paid by the amount) (columns (h) through (j)).
similar instruments that do not have executive officer for the award (column
option-like features granted under an (e)); Instructions to Item 402(d). 1. Separate
award, and the number of shares, units disclosure shall be provided in the Table for
(vi) The grant date for stock, option or
or other rights granted under an award each grant of an award made to a named
similar awards reported in columns (b)
under any stock-based incentive plan executive officer, accompanied by the

and (c) (column (f)); information specified in Instruction 2 to this
(and if applicable, the number of shares (vii) The performance or other time paragraph. If grants of awards were made to
underlying any such unit or right) period until earning, payout or a named executive officer during the fiscal
(column (b)); maturation of the award, and the year under more than one plan, identify the
(iii) The number of performance- option/SAR expiration date (column particular plan under which each such grant
based options, SARs, and similar (g)); and was made.
2. For column (h), threshold refers to the 3. A tandem grant of two instruments, only (e) Grants of all other equity awards
minimum amount payable for a certain level one of which is performance-based, such as table. (1) Provide the information
of performance under the plan. For column an option granted in tandem with a
specified in paragraph (e)(2) of this
(i), target refers to the amount payable if the performance share, need be reported only in
specified performance target(s) are reached. the table applicable to the other instrument. Item, concerning each grant of an
For column (j), maximum refers to the For example, an option granted in tandem equity-based award that is not
maximum payout possible under the plan. If with a performance share would be reported performance-based (including awards
the award provides only for a single only as an option grant, with the tandem that subsequently have been transferred)
estimated payout, that amount should be feature noted. made during the last completed fiscal
reported as the target in column (i). In 4. Options, SARs and similar option-like
column (i), registrants must provide a instruments granted in connection with a
year to each of the named executive
representative amount based on the previous repricing transaction shall be reported in this officers in the following tabular format:
fiscal year’s performance if the target amount table. See Instruction 2 to paragraphs
is not determinable. (c)(2)(vi) and (vii) of this item.
GRANTS OF ALL OTHER EQUITY AWARDS

Number of Number of
securities shares of
Exercise or
underlying Expiration stock or
Name base price Vesting date Grant date
options date units grant-
($/Sh)
granted ed
(#) (#)
(a) (b) (c) (d) (e) (f) (g)
PEO ..................................................................................
PFO ..................................................................................
A .......................................................................................
B .......................................................................................
C .......................................................................................
(2) The Table shall include, with However, multiple option grants during a required by paragraphs (c), (d) and (e) of
respect to each grant: single fiscal year may be aggregated where this Item. Examples of such factors may
(i) The name of the executive officer each grant was made at the same exercise include, in given cases, among other
(column (a)); and/or base price and has the same
expiration date. A single grant consisting of
things:
(ii) The number of securities (i) The material terms of each named
options, SARs and/or similar option-like
underlying options, SARs and similar instruments shall be reported as separate executive officer’s employment
option-like instruments granted that are grants with respect to each tranche with a agreement or arrangement, whether
not performance-based (column (b)); different exercise and/or base price or written or unwritten.
(iii) The per-share exercise or base expiration date. (ii) If at any time during the last fiscal
price of the options, SARs and similar 3. Options, SARs and similar option-like year, any outstanding option, SAR or
option-like instruments granted (column instruments granted in connection with a other equity-based award was repriced
(c)). If such exercise or base price is less repricing transaction shall be reported in this
Table. See Instruction 2 to paragraphs
or otherwise materially modified (such
than the market price of the underlying as by extension of exercise periods, the
(c)(2)(vi) and (vii) of this Item.
security on the date of the grant, a 4. Any material term of the grant or award, change of vesting or forfeiture
separate, adjoining column shall be including but not limited to the date of conditions, the change or elimination of
added showing market price on the date exercisability, the number and nature of any applicable performance criteria, or the
of the grant; tandem instruments, a reload feature, or a change of the bases upon which returns
(iv) The expiration date of the tax-reimbursement feature, must be described are determined), a description of each
options, SARs and similar option-like in a footnote. such repricing or other material
instruments (column (d)); 5. If any provision of a grant or award
(other than an antidilution provision) could modification.
(v) The number of shares of stock, (iii) The material terms of any award
cause the exercise price to be lowered,
including restricted stock, units and registrants must disclose that provision and reported in response to paragraph (d) of
similar instruments that are not option- its potential consequences either by a this Item, including a general
like, granted that are not performance- footnote or accompanying textual narrative. description of the formula or criteria to
based (column (e)); 6. In determining if the exercise or base be applied in determining the amounts
(vi) The vesting date of the restricted price of the options, SARs and similar payable, and the vesting schedule. For
shares, units and similar instruments option-like instruments is less than the
market price of the underlying security on
example, state where applicable that
(column (f)); and dividends will be paid on stock
(vii) The grant date of any options, the date of the grant, the registrant may use
either the closing price per share of the (including restricted stock, restricted
stock or similar instruments reported in stock units or other similar
security on an established public trading
columns (b) and (e) (column (g)). market on the date of the grant, or if no such instruments), and if so, the applicable
Instructions to Item 402(e). 1. The awards market exists, any other formula prescribed dividend rate and whether that rate is
reportable in this Table are share-based for the security. preferential. Describe the performance-
awards that are not subject to a performance (f) Narrative disclosure to summary based conditions, and any other
condition or a market condition, as those
terms are defined in FAS 123R. compensation table and subsidiary material conditions, that are applicable
2. If more than one award was made to a tables. (1) Provide a narrative to the award. Registrants are not
named executive officer during the last description of any material factors required to disclose any factor, criteria
completed fiscal year, a separate line should necessary to an understanding of the or performance-related or other
be used to disclose each such award. information disclosed in the tables condition to payout or maturation of a
particular award that involves (v) The assumptions underlying any (2) For up to three employees who
confidential commercial or business determination of an increase in the were not executive officers during the
information, disclosure of which would actuarial value of defined benefit and last completed fiscal year and whose
adversely affect the registrant’s actuarial plans and the method of total compensation for the last
competitive position. For purposes of calculating earnings on deferred completed fiscal year was greater than
the Table required by paragraph (d) of compensation plans including defined that of any of the named executive
this Item and the narrative disclosure contribution plans. officers, disclose each of such
required by paragraph (f) of this Item, Instruction to Item 402(f)(1). 1. Include a employee’s total compensation for that
performance-based conditions include discussion of provisions regarding post- year and describe their job positions.
both performance conditions and termination compensation only to the extent
market conditions, as those terms are (g) Outstanding equity awards at
disclosure of such compensation is required
defined in FAS 123R. fiscal year-end table. (1) Provide the
in the Summary Compensation Table
(iv) The waiver or modification of any pursuant to paragraph (c)(2)(ix)(E) of this information specified in paragraph (g)(2)
specified performance target, goal or Item; otherwise disclose these provisions of this Item, concerning the number and
condition to payout with respect to any pursuant to paragraph (k) of this Item. value of unexercised options, SARs and
amount included in non-stock incentive 2. The disclosure required by paragraph similar instruments; nonvested stock
plan compensation reported in column (f)(2) of this Item would not apply to any (including restricted stock, restricted
(h) to the Summary Compensation Table repricing that occurs through a pre-existing stock units or other similar
formula or mechanism in the plan or award instruments); and incentive plan awards
required by paragraph (c) of this Item, that results in the periodic adjustment of the
stating whether the waiver or option or SAR exercise or base price, an
for each named executive officer
modification applied to one or more antidilution provision in a plan or award, or outstanding as of the end of the
specified named executive officers or to a recapitalization or similar transaction registrant’s last completed fiscal year on
all compensation subject to the target, equally affecting all holders of the class of an aggregated basis in the following
goal or condition. securities underlying the options or SARs. tabular format:

Incentive
Market Incentive
Number of plans: mar-
In-the-money Number of value of plans: num-
securities un- ket or pay-
amount of shares or nonvested ber of non-
derlying out value of
unexercised units of shares or vested
unexercised nonvested
Name options stock held units of shares,
options shares,
($) that have stock held units or
(#) units or
exercisable/ not vested that have other rights
exercisable/ other rights
unexercisable (#) not vested held
unexercisable held
($) (#) ($)
(a) (b) (c) (d) (e) (f) (g)
PEO .............................................................................
PFO .............................................................................
A ..................................................................................
B ..................................................................................
C ..................................................................................
(2) The Table shall include: instruments that do not have option-like securities exceeds the exercise or base price
(i) The name of the named executive features) held at the end of the fiscal of the option, SAR or similar instrument.
officer (column (a)); year (column (d)); Compute the amounts in column (c) by
determining the difference between the
(ii) The total number of securities (v) The aggregate market value of market price at fiscal year-end of the
underlying unexercised options, SARs nonvested shares of stock (including securities underlying the options, SARs or
and similar instruments with option- restricted stock, restricted stock units or similar instruments and the exercise or base
like features held at the end of the last similar instruments that do not have price of the options, SARs or similar
completed fiscal year, including awards option-like features) held at the end of instruments.
that have been transferred, separately the fiscal year (column (e)); 2. The expiration dates of options, SARs
identifying the exercisable and (vi) The total number of nonvested and similar instruments held at fiscal year-
unexercisable options, SARs and similar shares, units or other rights awarded end, separately identifying the exercisable
and unexercisable options, SARs and similar
instruments (column (b)); under any incentive plan, and, if instruments must be disclosed by footnote to
(iii) The aggregate in-the-money applicable the number of shares column (b). If the expiration date of an
amount of unexercised options, SARs underlying any such unit or right, held option, SAR or similar instrument held at
and similar instruments with option- at the end of the fiscal year (column (f)); fiscal year-end subsequently has occurred,
like features held at the end of the fiscal and state whether it was exercised or expired
year, including awards that have been (vii) The aggregate market or payout unexercised. The vesting dates of restricted
transferred, separately identifying the value of nonvested shares, units or other stock shares and similar instruments and
exercisable and unexercisable options, rights awarded under any incentive plan incentive plan awards held at fiscal-year end
must be disclosed by footnotes to columns
SARs and similar instruments (column held at the end of the fiscal year (d) and (f), respectively.
(c)); (column (g)).
(iv) The total number of nonvested Instructions to Item 402(g)(2). 1. Options, 3. Compute the market values of stock
shares of stock (including restricted SARs or similar instruments are in-the- (including restricted stock, restricted
stock, restricted stock units or similar money if the market price of the underlying stock units or similar instruments)
holdings reported in column (e) and restricted stock or incentive plan award and each vesting of stock, including
equity-based incentive plan awards holdings, respectively. restricted stock, restricted stock units
reported in column (g) by multiplying (h) Option exercises and stock vested and similar instruments, during the last
the closing market price of the table. (1) Provide the information completed fiscal year for each of the
registrant’s stock at the end of the last specified in paragraph (h)(2) of this named executive officers on an
completed fiscal year by the number of Item, concerning each exercise of stock aggregated basis in the following tabular
options, SARs and similar instruments, format:
OPTION EXERCISES AND STOCK VESTED

Grant date
Value real-
ized upon
Name of executive officer exercise or
exercise or summary
vesting
vesting compensa-
($)
(#) tion table
($)
(a) (b) (c) (d)
PEO—Options .........................................................................................................................................
Stock ........................................................................................................................................................
PFO—Options ..........................................................................................................................................
Stock ........................................................................................................................................................
A—Options ...............................................................................................................................................
Stock ........................................................................................................................................................
B—Options ...............................................................................................................................................
Stock ........................................................................................................................................................
C—Options ..............................................................................................................................................
Stock ........................................................................................................................................................
(2) The Table shall include: amount realized upon exercise by grant for the options, SARs and similar
(i) The name of the executive officer determining the difference between the instruments that were exercised by the
(column (a)); market price of the underlying securities at named executive officer during the last
(ii) The number of securities for exercise and the exercise or base price of the completed fiscal year. Report in column (d),
which the options, SARs and similar options, SARs or similar instruments. Do not line 2, the aggregate grant date fair value
instruments were exercised, and the include the value of any related payment or previously reported in the registrant’s
other consideration provided (or to be Summary Compensation Table for the fiscal
number of shares of stock, including provided) by the registrant to or on behalf of year of the grant for the shares of stock or
restricted stock, restricted stock units a named executive officer, whether in units, including restricted stock, restricted
and similar instruments that vested payment of the exercise price or related stock units and similar instruments held by
(column (b)); taxes. (Any such payment or other the named executive officer that vested
(iii) The aggregate dollar value consideration provided by the registration is during the last completed fiscal year. If the
realized upon exercise and vesting required to be disclosed in accordance with named executive officer was not previously
(column (c)); and paragraph (c)(2)(ix) of this item.) Report in a named executive officer during the fiscal
(iv) The grant date fair value column (c), line 2, the aggregate dollar year of the grant, report in column (d) the
previously reported in the Summary amount realized by the named executive grant date fair value of the award valued in
Compensation Table for the same officer upon the vesting of stock, including accordance with FAS 123R.
options, SARs, and similar instruments, restricted stock, restricted stock units and
similar instruments. Compute the aggregate (i) Retirement plan potential annual
and the same shares of stock, including
dollar amount realized upon vesting by payments and benefits. (1) Provide the
restricted stock, restricted stock units or multiplying the number of shares of stock or
similar instruments (column (d)). information specified in paragraph (i)(2)
units by the market value of the underlying
shares on the vesting date.
of this Item with respect to each plan
Instructions to Item 402(h)(2). 1. Report in
column (c), line 1, the aggregate dollar 2. Report in column (d), line 1, the that provides for payments or other
amount realized by the named executive aggregate grant date fair value previously benefits at, following, or in connection
officer upon exercise of the options, SARs reported in the registrant’s Summary with retirement, in the following tabular
and similar instruments. Compute the dollar Compensation Table for the fiscal year of the format:
RETIREMENT PLAN POTENTIAL ANNUAL PAYMENTS AND BENEFITS

Estimated normal Estimated early
Number of years Normal retirement retirement annual Early retirement age retirement annual
Name Plan name credited service age benefit (#) benefit
(#) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g)

PEO
PFO
A ......
B ......
C ......
(2) The Table shall include: or payments and benefits that will be upon the facts, examples of such factors
(i) The name of the executive officer provided primarily following retirement, may include, in given cases, among
(column (a)); including but not limited to tax-qualified other things:
(ii) The name of the plan (column (b)); defined benefit plans and supplemental
employee retirement plans, but excluding (i) The material terms and conditions
(iii) The number of years of service
tax-qualified defined contribution plans and of payments and benefits available
credited to the named executive officer
nonqualified defined contribution plans. under the plan, including the plan’s
under the plan (column (c)); Provide a separate row for each such plan in
(iv) The normal retirement age under normal retirement payment and benefit
which the named executive officer formula and eligibility standards, and (if
the plan (column (d)); participates.
(v) The estimated dollar amount of applicable) early retirement payment
2. If a named executive officer’s number of
annual payments and benefits that the years of credited service with respect to any
and benefit formula and eligibility
named executive officer would be plan is different from the named executive standards. If the plan permits a lump
entitled to receive upon attaining officer’s number of actual years of service sum distribution at the election of the
normal retirement age, or, if the named with the registrant, provide footnote executive or the registrant, quantify the
executive officer currently is eligible to disclosure quantifying the difference and any amount of such distribution that would
retire, the dollar amount of annual resulting benefit augmentation. be available on such election as of the
3. Normal retirement age means normal end of the registrant’s last fiscal year,
payments and benefits that the named retirement age as defined in the plan, or if
executive officer would be entitled to and disclose the valuation method and
not so defined, the earliest time at which a
receive, if he or she had retired at the all material assumptions applied in
participant may retire under the plan without
end of the registrant’s last completed any benefit reduction due to age. Early quantifying such amount;
fiscal year (column (e)); retirement age means early retirement age as (ii) The specific elements of
(vi) The early retirement age, if defined in the plan, or otherwise available to compensation (e.g., salary, bonus, etc.)
applicable, under the plan (column (f)); the executive. included in applying the payment and
and 4. Quantification of payments and benefits benefit formula, identifying each such
(vii) The estimated dollar amount of should reflect the form of benefit currently
elected by the executive, such as joint and
element;
annual payments and benefits that the (iii) With respect to named executive
survivor annuity or single life annuity,
named executive officer would be specifying that form in a footnote. Where the officers’’ participation in multiple plans,
entitled to receive upon attaining early named executive officer is not yet eligible to the reasons for each plan; and
retirement age, or, if the named retire, the dollar amount of annual payments
executive officer currently is eligible for and benefits that the named executive officer
(iv) Registrant policies with regard to
early retirement under the plan, the would be entitled to receive upon becoming such matters as granting extra years of
dollar amount of annual payments and eligible shall be computed assuming that the credited service.
benefits that the named executive officer named executive officer will continue to earn (j) Nonqualified defined contribution
would be entitled to receive if he or she the same amount of compensation as and other deferred compensation plans.
had so retired at the end of the reported for the registrant’s last fiscal year. (1) Provide the information specified in
registrant’s last completed fiscal year (3) Provide a succinct narrative paragraph (j)(2) of this Item with respect
(column (g)). description of any material factors to each defined contribution or other
Instructions to Item 402(i)(2). 1. The necessary to an understanding of each plan that provides for the deferral of
disclosure required pursuant to this Table plan covered by the tabular disclosure compensation on a basis that is not tax-
applies to each plan that provides for required by this paragraph. While qualified in the following tabular
specified retirement payments and benefits, material factors will vary depending format:
NONQUALIFIED DEFINED CONTRIBUTION AND OTHER DEFERRED COMPENSATION PLANS

Executive Registrant Aggregate Aggregate Aggregate
contribu- contribu- earnings in withdrawals/ balance at
Name tions in tions in last last FY distributions last FYE
last FY FY ($) ($) ($)
($) ($)
(a) (b) (c) (d) (e) (f)
PEO .............................................................................................................
PFO ..............................................................................................................
A ...................................................................................................................
B ...................................................................................................................
C ..................................................................................................................
(2) The Table shall include: during the registrant’s last fiscal year Instruction to Item 402(j)(2). Provide a
(i) The name of the executive officer (column (d)); footnote quantifying the extent to which
(column (a)); amounts reported in the contributions and
(v) The aggregate dollar amount of all
earnings columns are reported as
(ii) The dollar amount of aggregate withdrawals by and distributions to the compensation in the last completed fiscal
executive contributions during the executive during the registrant’s last year in the registrant’s Summary
registrant’s last fiscal year (column (b)); fiscal year (column (e)); and Compensation Table and amounts reported
(iii) The dollar amount of aggregate (vi) The dollar amount of total balance in the aggregate balance at last fiscal year end
registrant contributions during the of the executive’s account as of the end (column (f)) previously were reported as
registrant’s last fiscal year (column (c)); of the registrant’s last fiscal year compensation to the named executive officer
(iv) The dollar amount of aggregate (column (f)). in the registrant’s Summary Compensation
interest or other earnings accrued Table for previous years.
(3) Provide a succinct narrative following, or in connection with any agreements, including the duration of
description of any material factors termination, including without such agreements and provisions
necessary to an understanding of each limitation resignation, severance, regarding waiver of breach of such
plan covered by tabular disclosure retirement or a constructive termination agreements; and
required by this paragraph. While of a named executive officer, or a (5) Describe any other material factors
material factors will vary depending change in control of the registrant or a regarding each such contract,
upon the facts, examples of such factors change in the named executive officer’s agreement, plan or arrangement.
may include, in given cases, among responsibilities, with respect to each Instruction to Item 402(k). The registrant
other things: named executive officer: must provide quantitative disclosure under
(i) The type(s) of compensation (1) Describe and explain the specific these requirements even where uncertainties
permitted to be deferred, and any circumstances that would trigger exist as to amounts in given circumstances
limitations (by percentage of payment(s) or the provision of other payable under these plans and arrangements.
compensation or otherwise) on the benefits, including perquisites; In the event that uncertainties exist as to the
extent to which deferral is permitted; (2) Describe and quantify the provision of payments and benefits or the
(ii) The measures for calculating estimated annual payments and benefits amounts involved, the registrant is required
interest or other plan earnings that would be provided in each covered to make reasonable estimates and disclose
material assumptions underlying such
(including whether such measure(s) are circumstance, whether they would or estimates in its disclosure. In such event the
selected by the executive or the could be lump sum, or annual, disclosure would require forward-looking
registrant and the frequency and manner disclosing the duration, and by whom information as appropriate. Perquisites and
in which selections may be changed), they would be provided; other personal benefits or property may be
quantifying interest rates and other (3) Describe and explain the specific excluded only if the aggregate amount of
earnings measures applicable during the factors used to determine the such compensation will be less than $10,000.
registrant’s last fiscal year; and appropriate payment and benefit levels Individual perquisites and personal benefits
(iii) Material terms with respect to under the various circumstances that shall be identified and quantified as required
payouts, withdrawals and other trigger payments or provision of by Instruction 3 to paragraph (c)(2)(ix) of this
Item.
distributions. benefits;
(k) Potential payments upon (4) Describe and explain any material (l) Compensation of directors. (1)
termination or change-in-control. conditions or obligations applicable to Provide the information specified in
Regarding each contract, agreement, the receipt of payments or benefits, paragraph (l)(2) of this Item, concerning
plan or arrangement, whether written or including but not limited to non- the compensation of the directors for the
unwritten, that provides for payment(s) compete, non-solicitation, non- registrant’s last completed fiscal year, in
to a named executive officer at, disparagement or confidentiality the following tabular format:
Non-stock
Fees All other
($) ($) pensation
($) ($)
($)
(a) (b) (c) (d) (e) (f) (g)
A .......................................................................................
B .......................................................................................
C .......................................................................................
D .......................................................................................
E .......................................................................................
(2) The Table shall include: fees, committee and/or chairmanship value computed in accordance with
(i) The name of each director unless fees, and meeting fees (column (c)); FAS 123R applying the same valuation
such director is also a named executive (iv) For awards of stock, including model and assumptions as the registrant
officer under paragraph (a) of this Item restricted stock, restricted stock units, applies for financial statement reporting
and his or her compensation for service phantom stock, phantom stock units, purposes, and all earnings on any
as a director is fully reflected in the common stock equivalent units or other outstanding awards (column (e));
Summary Compensation Table pursuant similar instruments that do not have Instruction to Item 402(l)(2)(iv) and (v).
to paragraph (c) of this Item and option-like features, the aggregate grant Disclose, for each director, by footnote to the
otherwise as required pursuant to date fair value computed in accordance appropriate column, the outstanding equity
paragraphs 402(d)–(k) (column (a)) of with FAS 123R, applying the same awards at fiscal year end as would be
this Item; valuation model and assumptions as the required if the tabular presentation for named
registrant applies for financial statement executive officers specified in paragraph (g)
(ii) The dollar value of total reporting purposes, and all earnings on
compensation for the covered fiscal year of this Item were required for directors.
any outstanding awards (column (d));
(column (b)). With respect to each (v) For awards of stock options, with (vi) The dollar value of all earnings
director, disclose the sum of all amounts or without tandem SARs, freestanding for services performed during the fiscal
reported in columns (c) through (g); SARs and other similar instruments year pursuant to non-stock incentive
(iii) The aggregate dollar amount of all with option-like features (including plans as defined in paragraph (a)(6)(iii)
fees earned or paid in cash for services awards that subsequently have been of this Item, and all earnings on any
as a director, including annual retainer transferred), the aggregate grant date fair outstanding awards (column (f)); and
(vii) All other compensation for the during the registrant’s covered fiscal identifying that director and describing
covered fiscal year that the registrant year; the terms of that arrangement.
could not properly report in any other (G) Registrant contributions or other Instruction to Item 402(l). In addition to the
column of the Director Compensation allocations to vested and unvested Instruction to paragraph (l)(2)(vii) of this
Table (column (g)). Each compensation defined contribution plans; Item, the following apply equally to
item for the last completed fiscal year (H) Consulting fees earned from, or paragraph (l) of this Item: Instructions 2 and
that is not properly reportable in paid or payable by the registrant and/or 3 to paragraph (c) of this Item; Instructions
columns (c)–(f) must be reported in this its subsidiaries (including joint to paragraphs (c)(2)(iv) and (v) of this Item;
column and must be identified and ventures); Instructions to paragraphs (c)(2)(vi) and (vii)
quantified in a footnote if the amount of (I) The annual costs of payments and of this Item; Instructions to paragraph
promises of payments pursuant to (c)(2)(viii) of this Item and Instructions to
the item exceeds $10,000 (or in the case paragraph (c)(2)(ix). These Instructions apply
of any perquisites or personal benefits, director legacy programs and similar
to the columns in the Director Compensation
must be itemized unless the aggregate charitable award programs; and Table that are analogous to the columns in
value of perquisites and personal (J) The dollar value of any insurance the Summary Compensation Table to which
benefits is less than $10,000, and must premiums paid by, or on behalf of, the they refer and to disclosures under paragraph
be quantified if it is valued at the greater registrant during the covered fiscal year (l) of this Item that correspond to analogous
of $25,000 or 10% of total perquisites with respect to life insurance for the disclosures provided for in paragraph (c) of
and personal benefits of the director). benefit of a director. this Item to which they refer.
Such compensation must include, but is Instruction to Item 402. Specify the
Instruction to Item 402(l)(2)(vii). Programs
applicable fiscal year in the title to each table
not limited to: in which registrants agree to make donations
required under this Item which calls for
(A) All perquisites and other personal to one or more charitable institutions in a
disclosure as of or for a completed fiscal year.
benefits, or property, unless the director’s name, payable by the registrant
aggregate amount of such compensation currently or upon a designated event, such as
14. Amend § 229.403 by revising
is less than $10,000; the retirement or death of the director, are
charitable awards programs or director legacy paragraph (b) to read as follows:
(B) All earnings on compensation that
programs for purposes of the disclosure § 229.403 (Item 403) Security ownership of
is deferred on a basis that is not tax- required by paragraph (l)(2)(vii)(I) of this
qualified; certain beneficial owners and management.
Item. Provide footnote disclosure of the total
(C) All amounts reimbursed during dollar amount and other material terms of (a) * * *
the fiscal year for the payment of taxes; each such program for which tabular
(D) For any security of the registrant (b) Security ownership of
disclosure is provided.
or its subsidiaries purchased from the Instruction to Item 402(l)(2). Two or more management. Furnish the following
registrant or its subsidiaries (through directors may be grouped in a single row in information, as of the most recent
deferral of salary or bonus, or otherwise) the table if all of their elements of practicable date, in substantially the
at a discount from the market price of compensation are identical. The names of the tabular form indicated, as to each class
such security at the date of purchase, directors for whom disclosure is presented of equity securities of the registrant or
on a group basis should be clear from the any of its parents or subsidiaries,
unless that discount is available
Table. including directors’ qualifying shares,
generally, either to all security holders
or to all salaried employees of the (3) Narrative to director compensation beneficially owned by all directors and
registrant, the compensation cost table. Provide a narrative description of nominees, naming them, each of the
computed in accordance with FAS 123R any factors necessary to an named executive officers as defined in
applying the same valuation model and understanding of the director Item 402(a)(3) (§ 229.402(a)(3)), and
assumptions as the registrant applies for compensation disclosed in this Table. directors and executive officers of the
financial statement reporting purposes; While material factors will vary registrant as a group, without naming
(E) The amount paid or accrued to any depending upon the facts, examples of them. Show in column (3) the total
director pursuant to a plan or such factors may include, in given number of shares beneficially owned
arrangement in connection with: cases, among other things: and in column (4) the percent of class
(1) The resignation, retirement or any (i) A description of standard so owned. Of the number of shares
other termination of such director; or compensation arrangements (such as shown in column (3), indicate, by
(2) A change in control of the fees for retainer, committee service, footnote, the amount of shares that are
registrant; service as chairman of the board or a pledged as security and the amount of
(F) The aggregate increase in actuarial committee, and meeting attendance); shares with respect to which such
value to the director of all defined and persons have the right to acquire
benefit and actuarial pension plans (ii) Whether any director has a beneficial ownership as specified in
(including supplemental plans) accrued different compensation arrangement, § 240.13d–3(d)(1) of this chapter.
(3) Amount and nature of

(1) Title of class (2) Name of beneficial owner (4) Percent of class
beneficial ownership
* * * * * beginning of the registrant’s last fiscal interest. Disclose the following

15. Revise § 229.404 to read as year, or any currently proposed information regarding the transaction
follows: transaction, in which the registrant was (1) The name of the related person
or is to be a participant and the amount and the basis on which the person is a
§ 229.404 (Item 404) Transactions with involved exceeds $120,000, and in related person.
related persons and promoters. (2) The related person’s interest in the
which any related person had, or will
(a) Transactions with related persons. have, a direct or indirect material transaction with the registrant,
Describe any transaction, since the including the related person’s
position(s) or relationship(s) with, or indebtedness or guarantee of indebtedness) as those prevailing at the time for comparable
ownership in, a firm, corporation, or or any series of similar transactions, loans with persons not related to the lender;
other entity that is a party to, or has an arrangements or relationships. and
3. The amount involved in the transaction c. Did not involve more than the normal
interest in, the transaction. shall be computed by determining the dollar risk of collectibility or present other
(3) The approximate dollar value of value of the amount involved in the unfavorable features.
the amount involved in each transaction transaction in question, which shall include: 8. A person who has a position or
and of the amount of the related a. In the case of any lease or other relationship with a firm, corporation, or other
person’s interest in each transaction, transaction providing for periodic payments entity that engages in a transaction with the
each of which shall be computed or installments, the aggregate amount of all registrant shall not be deemed to have an
without regard to the amount of profit periodic payments or installments due on or indirect ‘‘material’’ interest within the
or loss. after the beginning of the registrant’s last meaning of paragraph (a) of this Item where:
fiscal year, including any required or a. The interest arises only:
(4) In the case of indebtedness, optional payments due during or at the i. From such person’s position as a director
disclosure of the amount involved in the conclusion of the lease. of another corporation or organization which
transaction shall include the largest b. In the case of indebtedness, the largest is a party to the transaction; or
aggregate amount of principal aggregate amount of all indebtedness ii. From the direct or indirect ownership by
outstanding during the period for which outstanding at any time since the beginning such person and all other persons specified
disclosure is provided, the amount of the registrant’s last fiscal year and all in Instruction 1 to paragraph (a) of this Item,
thereof outstanding as of the latest amounts of interest payable on it during the in the aggregate, of less than a ten percent
last fiscal year. equity interest in another person (other than
practicable date, the amount of
4. In the case of transactions involving a partnership) which is a party to the
principal paid during the periods for indebtedness, the following items of transaction; or
which disclosure is provided, the indebtedness may be excluded from the iii. From both such position and
amount of interest paid during the calculation of the amount of indebtedness ownership; or
period for which disclosure is provided, and need not be disclosed: amounts due from b. The interest arises only from such
and the rate or amount of interest the related person for purchases of goods and person’s position as a limited partner in a
payable on the indebtedness. services subject to usual trade terms, for partnership in which the person and all other
(5) Any other information regarding ordinary business travel and expense persons specified in Instruction 1 to
payments and for other transactions in the paragraph (a) of this Item, have an interest of
the transaction or the related person in ordinary course of business.
the context of the transaction that is less than ten percent, and the person is not
5. Disclosure of an employment a general partner of and does not hold
material to investors in light of the relationship or transaction involving an another position in the partnership.
circumstances of the particular executive officer and any related
transaction. compensation solely resulting from that (b) Review, approval or ratification of
employment relationship or transaction, need transactions with related persons. (1)
Instructions to Item 404(a). 1. For the
not be provided pursuant to paragraph (a) of Describe the registrant’s policies and
purposes of paragraph (a) of this Item, the this Item if:
term related person means: procedures for the review, approval, or
a. The compensation arising from the ratification of any transaction required
a. Any person who was in any of the relationship or transaction is reported
following categories at any time during the to be reported under paragraph (a) of
pursuant to Item 402 (§ 229.402); or
specified period for which disclosure under b. The executive officer is not an this Item. While the material features of
paragraph (a) of this Item is required: immediate family member of a related person such policies and procedures will vary
i. Any director or executive officer of the (as specified in Instruction 1. to paragraph (a) depending on the particular
registrant, of this Item) and such compensation would circumstances, examples of such
ii. Any nominee for director, when the have been reported under Item 402 features may include, in given cases,
information called for by paragraph (a) of this (§ 229.402) as compensation earned for
Item is being presented in a proxy or
among other things:
services to the registrant if the executive (i) The types of transactions that are
information statement relating to the election officer was a named executive officer as that
of that nominee for director; or covered by such policies and
term is defined in Item 402(a)(3)
iii. Any immediate family member of any procedures.
(§ 229.402(a)(3)), and such compensation had
of the foregoing persons, which means any been approved as such by the compensation
(ii) The standards to be applied
child, stepchild, parent, stepparent, spouse, committee of the board of directors (or group pursuant to such policies and
sibling, mother-in-law, father-in-law, son-in- of independent directors performing a similar procedures.
law, daughter-in-law, brother-in-law, or function) of the registrant. (iii) The persons or groups of persons
sister-in-law, and any person (other than a 6. Disclosure of compensation to a director on the board of directors or otherwise
tenant or employee) sharing the household of need not be provided pursuant to paragraph who are responsible for applying such
a related person identified in paragraph 1.a.i (a) of this Item if the compensation is policies and procedures.
or 1.a.ii. of this instruction; and reported pursuant to Item 402(l) (iv) A statement of whether such
b. Any person who was in any of the (§ 229.402(l)).
following categories when a transaction in
policies and procedures are in writing
7. In the case of a transaction involving and, if not, how such policies and
which such person had a direct or indirect indebtedness, if the lender is a bank, savings
material interest occurred or existed: and loan association, or broker-dealer procedures are evidenced.
i. A security holder covered by Item 403(a) extending credit under Federal Reserve (2) Identify any transaction required
(§ 229.403(a)); or Regulation T (12 CFR part 220) and the loans to be reported under paragraph (a) of
ii. Any immediate family member of any are not disclosed as nonaccrual, past due, this Item since the beginning of the
such security holder, which means any child, restructured or potential problems (see Item registrant’s last fiscal year where such
stepchild, parent, stepparent, spouse, sibling, III.C.1. and 2. of Industry Guide 3, Statistical policies and procedures did not require
mother-in-law, father-in-law, son-in-law, Disclosure by Bank Holding Companies (17 review, approval or ratification or where
daughter-in-law, brother-in-law, or sister-in- CFR 229.802(c))), disclosure under paragraph such policies and procedures were not
law, of such security holder and any person (a) of this Item may consist of a statement,
(other than a tenant or employee) sharing the
followed.
if such is the case, that the loans to such
household of such security holder. persons:
(c) Promoters. (1) Registrants that are
2. For purposes of paragraph (a) of this a. Were made in the ordinary course of filing a registration statement on Form
Item, a transaction includes, but is not business; S–1 or Form SB–2 under the Securities
limited to, any financial transaction, b. Were made on substantially the same Act (§ 239.11 or § 239.10 of this chapter)
arrangement or relationship (including any terms, including interest rates and collateral, or on Form 10 or Form 10–SB under the
Exchange Act (§ 249.210 or § 249.210b directors, each nominee for director, such definition the registrant chooses, it
of this chapter) and that had a promoter that is independent under the must use the same definition with
at any time during the past five fiscal independence standards applicable to respect to all directors and nominees for
years shall: the registrant under paragraph (a)(1) of director. When determining whether the
(i) State the names of the promoter(s), this Item. In addition, if such members of a specific committee of the
the nature and amount of anything of independence standards contain board of directors are independent, if
value (including money, property, independence requirements for the national securities exchange or
contracts, options or rights or any kind) committees of the board of directors, national securities association whose
received or to be received by each identify each director that is a member standards are used has independence
promoter, directly or indirectly, from of the compensation, nominating or standards for the member of a specific
the registrant and the nature and audit committee that is not independent committee, use those committee specific
amount of any assets, services or other under such committee independence standards.
consideration therefore received or to be standards. If the registrant does not have (iii) If the information called for by
received by the registrant; and a separately designated audit, paragraph (a) of this Item is being
(ii) As to any assets acquired or to be nominating or compensation committee presented in a registration statement on
acquired by the registrant from a or committee performing similar Form S–1 (§ 239.11 of this chapter) or
promoter, state the amount at which the functions, the registrant must provide Form SB–2 (§ 239.10 of this chapter)
assets were acquired or are to be the disclosure of directors that are not under the Securities Act or on a Form
acquired and the principle followed or independent with respect to all 10 or Form 10–SB (§ 249.210 or
to be followed in determining such members of the board of directors § 249.210b of this chapter) under the
amount, and identify the persons applying such committee independence Exchange Act where the registrant has
making the determination and their standards. applied for listing with a national
relationship, if any, with the registrant (1) In determining whether or not the securities exchange or in an inter-dealer
or any promoter. If the assets were director or nominee for director is quotation system which has
acquired by the promoter within two independent for the purposes of requirements that a majority of the
years prior to their transfer to the paragraph (a) of this Item, the registrant board of directors be independent, the
registrant, also state the cost thereof to shall use the applicable definition of definition of independence that the
the promoter. independence, as follows: registrant uses for determining if a
(2) Registrants shall provide the (i) If the registrant is a listed issuer majority of the board of directors is
disclosure required by paragraphs whose securities are listed on a national independent, and the definition of
(c)(1)(i) and (c)(1)(ii) of this Item as to securities exchange or in an inter-dealer independence that the registrant uses
any person who acquired control of an quotation system which has for determining if members of the
issuer that is a shell company, or any requirements that a majority of the specific committee of the board of
person that is part of a group, consisting board of directors be independent, the directors are independent, that is in
of two or more persons that agree to act registrant’s definition of independence compliance with the independence
together for the purpose of acquiring, that it uses for determining if a majority listing standards of the national
holding, voting or disposing of equity of the board of directors is independent securities exchange or inter-dealer
securities of an issuer, that acquired in compliance with the listing standards quotation system on which it has
control of an issuer that is a shell applicable to the registrant. When applied for listing, or if the registrant
company. determining whether the members of a has not adopted such definitions, the
committee of the board of directors are independence standards for determining
Instructions to Item 404. 1. If the independent, the registrant’s definition if the majority of the board of directors
information called for by this Item is being of independence that it uses for is independent and if members of the
presented in a registration statement filed
determining if the members of that committee of the board of directors are
pursuant to the Securities Act or the
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 exchange or inter-dealer quotation directors and nominees for director, and
Form S–4 (17 CFR 239.25), in which case, system that the registrant uses for members of specific committees of the
information shall be given for the periods determining if a majority of the board of board of directors, are independent,
specified in the Item. directors are independent. If the disclose whether these definitions are
2. A foreign private issuer will be deemed
registrant does not have independence available to security holders on the
to comply with this Item if it provides 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- appendix to the registrant’s proxy
by the issuer’s home jurisdiction or a market dealer quotation system that the statement that is provided to security
in which its securities are listed or traded. registrant uses for determining if a holders at least once every three fiscal
16. Add § 229.407 to read as follows: majority of the board of directors are years or if the policies have been
independent. materially amended since the beginning
§ 229.407 (Item 407) Corporate (ii) If the registrant is not a listed of the registrant’s last fiscal year. If a
governance. issuer, a definition of independence of current copy of the policies is not

(a) Director independence. Identify a national securities exchange or of a available to security holders on the
each director and, when the disclosure national securities association which registrant’s Web site, and is not
called for by this paragraph is being has requirements that a majority of the included as an appendix to the
presented in a proxy or information board of directors be independent, and registrant’s proxy statement, identify the
statement relating to the election of state which definition is used. Whatever most recent fiscal years in which the
policies were so included in satisfaction (c) Nominating committee. (1) If the of persons or entities recommended that
of this requirement. registrant does not have a standing nominee: security holder, non-
(3) For each director and nominee for nominating committee or committee management director, chief executive
director that is identified as performing similar functions, state the officer, other executive officer, third-
independent, describe any transactions, basis for the view of the board of party search firm, or other specified
relationships or arrangements not directors that it is appropriate for the source. With regard to each such
disclosed pursuant to Item 404(a) registrant not to have such a committee nominee approved by a nominating
(§ 229.404(a)), or for investment and identify each director who committee of an investment company,
companies, Item 22(b) of Schedule 14 participates in the consideration of state which one or more of the following
(§ 240.14a–101 of this chapter), that director nominees. additional categories of persons or
were considered by the board of (2) Provide the following information entities recommended that nominee:
directors under the applicable regarding the registrant’s director security holder, director, chief executive
independence definitions in nomination process: officer, other executive officer, or
determining that the director is (i) State whether or not the employee of the investment company’s
independent. nominating committee has a charter. If investment adviser, principal
the nominating committee has a charter, underwriter, or any affiliated person of
Instruction to Item 407(a). No information provide the disclosure required by
called for by paragraph (a) of this Item need the investment adviser or principal
be given in a registration statement filed at
Instruction 2 to this Item regarding the underwriter;
a time when the registrant is not subject to nominating committee charter;
(viii) If the registrant pays a fee to any
the reporting requirements of sections 13(a) (ii) If the nominating committee has a
third party or parties to identify or
or 15(d) of the Exchange Act (15 U.S.C. policy with regard to the consideration
evaluate or assist in identifying or
78m(a), 78o(d)) respecting any director who of any director candidates
evaluating potential nominees, disclose
is no longer a director at the time of recommended by security holders,
effectiveness of the registration statement. 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
include, but need not be limited to, a (ix) If the registrant’s nominating
(1) State the total number of meetings of committee received, by a date not later
the board of directors (including statement as to whether the committee
will consider director candidates than the 120th calendar day before the
regularly scheduled and special date of the registrant’s proxy statement
meetings) which were held during the recommended by security holders;
(iii) If the nominating committee does released to security holders in
last full fiscal year. Name each connection with the previous year’s
incumbent director who during the last not have a policy with regard to the
consideration of any director candidates annual meeting, a recommended
full fiscal year attended fewer than 75 nominee from a security holder that
percent of the aggregate of: recommended by security holders, state
that fact and state the basis for the view beneficially owned more than 5% of the
(i) The total number of meetings of the registrant’s voting common stock for at
board of directors (held during the of the board of directors that it is
appropriate for the registrant not to have least one year as of the date the
period for which he has been a director); recommendation was made, or from a
and such a policy;
(iv) If the nominating committee will group of security holders that
(ii) The total number of meetings held beneficially owned, in the aggregate,
consider candidates recommended by
by all committees of the board on which more than 5% of the registrant’s voting
security holders, describe the
he served (during the periods that he common stock, with each of the
procedures to be followed by security
served). securities used to calculate that
holders in submitting such
(2) Describe the registrant’s policy, if recommendations; ownership held for at least one year as
any, with regard to board members’ (v) Describe any specific minimum of the date the recommendation was
attendance at annual meetings of qualifications that the nominating made, identify the candidate and the
security holders and state the number of committee believes must be met by a security holder or security holder group
board members who attended the prior nominating committee-recommended that recommended the candidate and
year’s annual meeting. nominee for a position on the disclose whether the nominating
Instruction to Item 407(b)(2). In lieu of registrant’s board of directors, and committee chose to nominate the
providing the information required by describe any specific qualities or skills candidate, provided, however, that no
paragraph (b)(2) of this Item in the proxy that the nominating committee believes such identification or disclosure is
statement, the registrant may instead provide are necessary for one or more of the required without the written consent of
the registrant’s Web site address where such
registrant’s directors to possess; both the security holder or security
information appears.
(vi) Describe the nominating holder group and the candidate to be so
(3) State whether or not the registrant committee’s process for identifying and identified.
has standing audit, nominating and evaluating nominees for director, Instructions to Item 407(c)(2)(ix). 1. For
compensation committees of the board including nominees recommended by purposes of paragraph (c)(2)(ix) of this Item,
of directors, or committees performing security holders, and any differences in the percentage of securities held by a
similar functions. If the registrant has the manner in which the nominating nominating security holder may be
such committees, however designated, committee evaluates nominees for determined using information set forth in the
identify each committee member, state director based on whether the nominee registrant’s most recent quarterly or annual
the number of committee meetings held is recommended by a security holder; report, and any current report subsequent
by each such committee during the last (vii) With regard to each nominee thereto, filed with the Commission pursuant
fiscal year and describe briefly the approved by the nominating committee to the Exchange Act (or, in the case of a
registrant that is an investment company
functions performed by each such for inclusion on the registrant’s proxy registered under the Investment Company
committee. Such disclosure need not be card (other than nominees who are Act of 1940, the registrant’s most recent
provided to the extent it is duplicative executive officers or who are directors report on Form N–CSR (§§ 249.331 and
of disclosure provided in accordance standing for re-election), state which 274.128 of this chapter)), unless the party
with paragraph (d)(4) of this Item. one or more of the following categories relying on such report knows or has reason
to believe that the information contained Instructions to Item 407(c)(3). 1. The (15 U.S.C. 80a–1 et seq.), the annual
therein is inaccurate. disclosure required in paragraph (c)(3) of this report to shareholders required by
2. For purposes of the registrant’s Item need only be provided in a registrant’s section 30(e) of the Investment
obligation to provide the disclosure specified quarterly or annual reports.
2. For purposes of paragraph (c)(3) of this
Company Act of 1940 (15 U.S.C. 80a–
in paragraph (c)(2)(ix) of this Item, where the
date of the annual meeting has been changed Item, adoption of procedures by which 29(e)) and Rule 30d–1 (17 CFR 270.30d–
by more than 30 days from the date of the security holders may recommend nominees 1) thereunder) for the last fiscal year for
previous year’s meeting, the obligation under to the registrant’s board of directors, where filing with the Commission.
that Item will arise where the registrant the registrant’s most recent disclosure in (ii) The name of each member of the
receives the security holder recommendation response to the requirements of paragraph company’s audit committee (or, in the
a reasonable time before the registrant begins (c)(2)(iv) of this Item, or paragraph (c)(3) of absence of an audit committee, the
to print and mail its proxy materials. this Item, indicated that the registrant did not board committee performing equivalent
3. For purposes of paragraph (c)(2)(ix) of have in place such procedures, will
constitute a material change.
functions or the entire board of
this Item, the percentage of securities held by directors) must appear below the
a recommending security holder, as well as (d) Audit committee. (1) State whether disclosure required by paragraph
the holding period of those securities, may be or not the audit committee has a charter.
determined by the registrant if the security (d)(3)(i) of this Item.
If the audit committee has a charter, (4)(i) If you meet the following
holder is the registered holder of the
securities. If the security holder is not the
provide the disclosure required by requirements, provide the disclosure in
registered owner of the securities, he or she Instruction 2 to this Item regarding the paragraph (d)(4)(ii) of this Item:
can submit one of the following to the audit committee charter. (A) You are a listed issuer, as defined
registrant to evidence the required ownership (2) If a listed issuer’s board of in § 240.10A–3 of this chapter;
percentage and holding period: directors determines, in accordance (B) You are filing either an annual
a. A written statement from the ‘‘record’’ with the listing standards applicable to report on Form 10–K or 10–KSB (17
holder of the securities (usually a broker or the issuer, to appoint a director to the CFR 249.310 or 17 CFR 249.310b), or a
bank) verifying that, at the time the security audit committee who is not proxy statement or information
holder made the recommendation, he or she independent (apart from the statement pursuant to the Exchange Act
had held the required securities for at least requirements in § 240.10A–3 of this
one year; or (15 U.S.C. 78a et seq.) if action is to be
b. If the security holder has filed a
chapter), including as a result of taken with respect to the election of
Schedule 13D (§ 240.13d–101 of this exceptional or limited or similar directors; and
chapter), Schedule 13G (§ 240.13d–102 of circumstances, disclose the nature of the (C) You are neither:
this chapter), Form 3 (§ 249.103 of this relationship that makes that individual (1) A subsidiary of another listed
chapter), Form 4 (§ 249.104 of this chapter), not independent and the reasons for the issuer that is relying on the exemption
and/or Form 5 (§ 249.105 of this chapter), or board of directors’ determination. in § 240.10A–3(c)(2) of this chapter; nor
amendments to those documents or updated (3)(i) The audit committee must state (2) Relying on any of the exemptions
forms, reflecting ownership of the securities whether: in § 240.10A–3(c)(4) through (c)(7) of
as of or before the date of the (A) The audit committee has reviewed this chapter.
recommendation, a copy of the schedule and/ and discussed the audited financial (ii)(A) State whether or not the
or form, and any subsequent amendments
statements with management; registrant has a separately-designated
reporting a change in ownership level, as
well as a written statement that the security
(B) The audit committee has standing audit committee established in
holder continuously held the securities for discussed with the independent accordance with section 3(a)(58)(A) of
the one-year period as of the date of the auditors the matters required to be the Exchange Act (15 U.S.C.
recommendation. discussed by the statement on Auditing 78c(a)(58)(A)), or a committee
4. For purposes of the registrant’s Standards No. 61, as amended (AICPA, performing similar functions. If the
obligation to provide the disclosure specified Professional Standards, Vol. 1. AU registrant has such a committee,
in paragraph (c)(2)(ix) of this Item, the section 380), as adopted by the Public however designated, identify each
security holder or group must have provided Company Accounting Oversight Board committee member. If the entire board
to the registrant, at the time of the in Rule 3200T;
recommendation, the written consent of all
of directors is acting as the registrant’s
(C) The audit committee has received audit committee as specified in section
parties to be identified and, where the
security holder or group members are not
the written disclosures and the letter 3(a)(58)(B) of the Exchange Act (15
registered holders, proof that the security from the independent accountants U.S.C. 78c(a)(58)(B)), so state.
holder or group satisfied the required required by Independence Standards (B) If applicable, provide the
ownership percentage and holding period as Board Standard No. 1 (Independence disclosure required by § 240.10A–3(d) of
of the date of the recommendation. Standards Board Standard No. 1, this chapter regarding an exemption
Instruction to Item 407(c)(2). For purposes Independence Discussions with Audit from the listing standards for audit
of paragraph (c)(2) of this Item, the term Committees), as adopted by the Public committees.
nominating committee refers not only to Company Accounting Oversight Board (5) Audit committee financial expert.
nominating committees and committees in Rule 3600T, and has discussed with
performing similar functions, but also to
(i)(A) Disclose that the registrant’s board
groups of directors fulfilling the role of a
the independent accountant the of directors has determined that the
nominating committee, including the entire independent accountant’s registrant either:
board of directors. independence; and (1) Has at least one audit committee
(D) Based on the review and financial expert serving on its audit
(3) Describe any material changes to discussions referred to in paragraphs committee; or
the procedures by which security (d)(3)(i)(A) through (d)(3)(i)(C) of this (2) Does not have an audit committee
holders may recommend nominees to Item, the audit committee recommended financial expert serving on its audit
the registrant’s board of directors, where to the board of directors that the audited committee.
those changes were implemented after financial statements be included in the (B) If the registrant provides the
the registrant last provided disclosure in company’s Annual Report on Form 10– disclosure required by paragraph
response to the requirements of K (17 CFR 249.310) (or, for closed-end (d)(5)(i)(A)(1) of this Item, it must
paragraph (c)(2)(iv) of this Item, or investment companies registered under disclose the name of the audit
paragraph (c)(3) of this Item. the Investment Company Act of 1940 committee financial expert and whether
that person is independent, as U.S.C. 77k), as a result of being or specifically incorporates it by reference
independence for audit committee designated or identified as an audit into a document filed under the Securities
members is defined in the listing committee financial expert pursuant to Act or the Exchange Act. Such information
standards applicable to the listed issuer. will not be deemed to be incorporated by
this Item 407.
reference into any filing under the Securities
(C) If the registrant provides the (B) The designation or identification
Act or the Exchange Act, except to the extent
disclosure required by paragraph of a person as an audit committee that the registrant specifically incorporates it
(d)(5)(i)(A)(2) of this Item, it must financial expert pursuant to this Item by reference.
explain why it does not have an audit 407 does not impose on such person any 2. The disclosure required by paragraphs
committee financial expert. duties, obligations or liability that are (d)(1)–(3) of this Item need only be provided
Instruction to Item 407(d)(5)(i). If the greater than the duties, obligations and one time during any fiscal year.
registrant’s board of directors has determined liability imposed on such person as a 3. The disclosure required by paragraph
that the registrant has more than one audit member of the audit committee and (d)(3) of this Item need not be provided in
committee financial expert serving on its board of directors in the absence of such any filings other than a registrant’s proxy or
information statement relating to an annual
audit committee, the registrant may, but is designation or identification.
not required to, disclose the names of those meeting of security holders at which
(C) The designation or identification
additional persons. A registrant choosing to directors are to be elected (or special meeting
of a person as an audit committee or written consents in lieu of such meeting).
identify such persons must indicate whether financial expert pursuant to this Item
they are independent pursuant to paragraph does not affect the duties, obligations or (e) Compensation committee. (1) If the
(d)(5)(i)(B) of this Item. registrant does not have a standing
liability of any other member of the
(ii) For purposes of this Item, an audit audit committee or board of directors. compensation committee or committee
committee financial expert means a performing similar functions, state the
Instructions to Item 407(d)(5). 1. The
person who has the following attributes: basis for the view of the board of
disclosure under paragraph (d)(5) of this Item
(A) An understanding of generally is required only in a registrant’s annual directors that it is appropriate for the
accepted accounting principles and report. The registrant need not provide the registrant not to have such a committee
financial statements; disclosure required by paragraph (d)(5) of and identify each director who
(B) The ability to assess the general this Item in a proxy or information statement participates in the consideration of
application of such principles in unless that registrant is electing to executive officer and director
connection with the accounting for incorporate this information by reference 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, compensation committee has a charter.
Instruction G(3) to Form 10–K (17 CFR
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
that are generally comparable to the having held a position described in the compensation committee charter.
breadth and complexity of issues that paragraph (d)(5)(iii)(D) of this Item, the (3) Provide a narrative description of
can reasonably be expected to be raised registrant shall provide a brief listing of that the registrant’s processes and
by the registrant’s financial statements, person’s relevant experience. Such disclosure procedures for the consideration and
may be made by reference to disclosures determination of executive and director
or experience actively supervising one required under Item 401(e) (§ 229.401(e)).
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 each
(D) An understanding of internal purposes of paragraph (d)(5) of this Item, the of the compensation committee (or
control over financial reporting; and term board of directors means the persons performing the equivalent
(E) An understanding of audit supervisory or non-management board. In the functions); and
committee functions. case of a foreign private issuer meeting the (B) The extent to which the
(iii) A person shall have acquired requirements of § 240.10A–3(c)(3) of this compensation committee (or persons
such attributes through: chapter, for purposes of paragraph (d)(5) of performing the equivalent functions)
this Item, the term board of directors means may delegate any authority described in
(A) Education and experience as a
the issuer’s board of auditors (or similar
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
accountant or auditor or experience in the term generally accepted accounting may be so delegated and to whom;
one or more positions that involve the principles in paragraph (d)(5)(ii)(A) of this (ii) Any role of executive officers in
performance of similar functions; Item means the body of generally accepted determining or recommending the
(B) Experience actively supervising a accounting principles used by that issuer in amount or form of executive and
principal financial officer, principal its primary financial statements filed with director compensation; and
accounting officer, controller, public the Commission. (iii) Any role of compensation
4. A registrant that is an Asset-Backed consultants in determining or
accountant, auditor or person Issuer (as defined in § 229.1101) is not
performing similar functions; required to disclose the information required
recommending the amount or form of
(C) Experience overseeing or assessing by paragraph (d)(5) of this Item. executive and director compensation,
the performance of companies or public Instructions to Item 407(d). 1. The identifying such consultants, stating
accountants with respect to the information required by paragraphs (d)(1)–(3) whether such consultants are engaged
preparation, auditing or evaluation of of this Item shall not be deemed to be directly by the compensation committee
financial statements; or ‘‘soliciting material,’’ or to be ‘‘filed’’ with (or persons performing the equivalent
(D) Other relevant experience. the Commission or subject to Regulation 14A functions) or any other person,
(iv) Safe harbor. (A) A person who is or 14C (17 CFR 240.14a–1 through 240.14b– describing the nature and scope of their
2 or 240.14c–1through 240.14c–101), other
determined to be an audit committee than as provided in this Item, or to the
assignment, the material elements of the
financial expert will not be deemed an liabilities of section 18 of the Exchange Act instructions or directions given to the
expert for any purpose, including (15 U.S.C. 78r), except to the extent that the consultants with respect to the
without limitation for purposes of registrant specifically requests that the performance of their duties under the
section 11 of the Securities Act (15 information be treated as soliciting material engagement and identifying any
executive officer within the registrant (iv) Disclosure required under 4. For purposes of this paragraph, security
the consultants contacted in carrying paragraph (e)(4)(iii) of this Item holder proposals submitted pursuant to
out their assignment. regarding a compensation committee § 240.14a–8 of this chapter, and
(4) Under the caption ‘‘Compensation member or other director of the communications made in connection with
such proposals, will not be viewed as
Committee Interlocks and Insider registrant who also served as an ‘‘security holder communications.’’
Participation’’: executive officer of another entity shall Instructions to Item 407. 1. For purposes of
(i) The registrant shall identify each be accompanied by the disclosure called this Item:
person who served as a member of the for by Item 404 with respect to that a. Listed issuer means a listed issuer as
compensation committee of the person. defined in § 240.10A–3 of this chapter;
registrant’s board of directors (or board Instruction to Item 407(e)(4). For purposes b. National securities exchange means a
committee performing equivalent of paragraph (e)(4) of this Item, the term national securities exchange registered
functions) during the last completed entity shall not include an entity exempt pursuant to section 6(a) of the Exchange Act
fiscal year, indicating each committee from tax under section 501(c)(3) of the (15 U.S.C. 78f(a));
member who: Internal Revenue Code (26 U.S.C. 501(c)(3)). c. Inter-dealer quotation system means an
(A) Was, during the fiscal year, an automated inter-dealer quotation system of a
(f) Shareholder communications and national securities association registered
officer or employee of the registrant; annual meeting attendance. (1) State pursuant to section 15A(a) of the Exchange
(B) Was formerly an officer of the whether or not the registrant’s board of Act (15 U.S.C. 78o–3(a)); and
registrant; or directors provides a process for security d. National securities association means a
(C) Had any relationship requiring holders to send communications to the national securities association registered
disclosure by the registrant under any board of directors and, if the registrant pursuant to section 15A(a) of the Exchange
paragraph of Item 404 (§ 229.404). In does not have such a process for Act (15 U.S.C. 78o–3(a)) that has been
this event, the disclosure required by security holders to send approved by the Commission (as that
Item 404 (§ 229.404) shall accompany definition may be modified or
communications to the board of supplemented).
such identification. directors, state the basis for the view of
(ii) If the registrant has no 2. With respect to paragraphs (c)(2)(i),
the board of directors that it is (d)(1) and (e)(2) of this Item, disclose whether
compensation committee (or other board
appropriate for the registrant not to have a current copy of the applicable committee
committee performing equivalent
such a process. charter is available to security holders on the
functions), the registrant shall identify (2) If the registrant has a process for registrant’s Web site, and if so, provide the
each officer and employee of the security holders to send registrant’s Web site address. If a current
registrant, and any former officer of the communications to the board of copy of the charter is not available to security
registrant, who, during the last directors: holders on the registrant’s Web site, include
completed fiscal year, participated in (i) Describe the manner in which a copy of the charter in an appendix to the
deliberations of the registrant’s board of registrant’s proxy statement that is provided
security holders can send to security holders at least once every three
directors concerning executive officer communications to the board and, if
compensation. fiscal years, or if the charter has been
applicable, to specified individual materially amended since the beginning of
(iii) The registrant shall describe any directors; and the registrant’s last fiscal year. If a current
of the following relationships that (ii) If all security holder copy of the charter is not available to security
existed during the last completed fiscal communications are not sent directly to holders on the registrant’s Web site, and is
year: board members, describe the registrant’s not included as an appendix to the
(A) An executive officer of the process for determining which registrant’s proxy statement, identify in
registrant served as a member of the communications will be relayed to which of the prior fiscal years the charter was
compensation committee (or other board board members. so included in satisfaction of this
committee performing equivalent Instructions to Item 407(f). 1. In lieu of requirement.
functions or, in the absence of any such providing the information required by 17. Amend § 229.601 to revise
committee, the entire board of directors) paragraph (f)(2) of this Item in the proxy paragraph (b)(10)(iii)(C)(5) to read as
of another entity, one of whose statement, the registrant may instead provide follows:
executive officers served on the the registrant’s Web site address where such
compensation committee (or other board information appears. § 229.601 (Item 601) Exhibits.
committee performing equivalent 2. For purposes of the disclosure required
by paragraph (f)(2)(ii) of this Item, a * * * * *
functions or, in the absence of any such registrant’s process for collecting and (b) * * *
committee, the entire board of directors) organizing security holder communications, (10) * * *
of the registrant; as well as similar or related activities, need (iii) * * *
(B) An executive officer of the not be disclosed provided that the registrant’s (C) * * *
registrant served as a director of another process is approved by a majority of the (5) Any compensatory plan, contract
entity, one of whose executive officers independent directors or, in the case of a or arrangement if the registrant is a
served on the compensation committee registrant that is an investment company, a foreign private issuer that furnishes
(or other board committee performing majority of the directors who are not compensatory information under Item
‘‘interested persons’’ of the investment
equivalent functions or, in the absence company as defined in section 2(a)(19) of the 402(a)(1) (§ 229.402(a)(1)) and the public
of any such committee, the entire board Investment Company Act of 1940 (15 U.S.C. filing of the plan, contract or
of directors) of the registrant; and 80a–2(a)(19)). arrangement, or portion thereof, is not
(C) An executive officer of the 3. For purposes of this paragraph, required in the registrant’s home
registrant served as a member of the communications from an officer or director of country and is not otherwise publicly
compensation committee (or other board the registrant will not be viewed as ‘‘security disclosed by the registrant.
committee performing equivalent holder communications.’’ Communications

from an employee or agent of the registrant * * * * *
functions or, in the absence of any such 18. Amend § 229.1107 by revising
will be viewed as ‘‘security holder
committee, the entire board of directors) communications’’ for purposes of this paragraph (e) to read as follows:
of another entity, one of whose paragraph only if those communications are
executive officers served a director of made solely in such employee’s or agent’s § 229.1107 (Item 1107) Issuing Entities.
the registrant. capacity as a security holder. * * * * *
(e) If the issuing entity has executive 22. Amend Form S–3 (referenced compensation, and paragraph (e)(4) of
officers, a board of directors or persons § 239.13) by revising General Instruction Item 407 of Regulation S–K (§ 229.407 of
performing similar functions, provide I.A.3.(b) and the introductory text of this chapter), corporate governance;
the information required by Items 401, General Instruction I.B.4.(c) to read as (iii) Item 404 of Regulation S–K
402, 403 404 and 407(a), (c)(3), (d)(4), follows: (§ 229.404 of this chapter), transactions
(d)(5) and (e)(4) of Regulation S–K Note: The text of Form S–3 does not, and
with related persons and promoters, and
(§§ 229.401, 229.402, 229.403, 229.404 this amendment will not, appear in the Code Item 407(a) of Regulation S–K
and 229.407(a), (c)(3), (d)(4), (d)(5) and of Federal Regulations. (§ 229.407(a) of this chapter), corporate
(e)(4)) for the issuing entity. governance.
* * * * * Form S–3 Registration Statement * * * * *
Under the Securities Act of 1933 Item 19. Information if Proxies,
PART 239—FORMS PRESCRIBED Consents or Authorizations are not to be
* * * * *
UNDER THE SECURITIES ACT OF 1933 Solicited or in an Exchange Offer.
General Instructions (a) * * *
19. The authority citation for part 239
continues to read in part as follows: I. Eligibility Requirements for Use of (7) * * *
Form S–3 * * * (ii) Item 402 of Regulation S–K
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, A. Registrant Requirements. * * * (§ 229.402 of this chapter), executive
77z–2, 77z–3, 77sss, 78c, 78l, 78m, 78n, 3. * * * compensation, and paragraph (e)(4) of
78o(d), 78u–5, 78w(a), 78ll(d), 77mm, 79e, (b) has filed in a timely manner all
79f, 79g, 79j, 79l, 79m, 79n, 79q, 79t, 80a– Item 407 of Regulation S–K (§ 229.407 of
reports required to be filed during the this chapter), corporate governance;
2(a), 80a–3, 80a–8, 80a–9, 80a–10, 80a–13,
80a–24, 80a–26, 80a–29, 80a–30, and 80a–37, twelve calendar months and any portion (iii) Item 404 of Regulation S–K
unless otherwise noted. of a month immediately preceding the (§ 229.404), transactions with related
filing of the registration statement, other persons and promoters, and Item 407(a)
* * * * *
20. Amend Form SB–2 (referenced in than a report that is required solely of Regulation S–K (§ 229.407(a)),
§ 239.10) by revising Item 15 to read as pursuant to Items 1.01, 1.02, 2.03, 2.04, corporate governance.
follows: 2.05, 2.06, 4.02(a) or 5.02(e) of Form 8– * * * * *
K (§ 249.308 of this chapter). If the 24. Amend Form S–11 (referenced in
Note: The text of Form SB–2 does not, and registrant has used (during the twelve § 239.18) by revising Items 22 and 23 to
this amendment will not, appear in the Code calendar months and any portion of a
of Federal Regulations. read as follows:
month immediately preceding the filing
of the registration statement) Rule 12b– Note: The text of Form S–11 does not, and
Form SB–2 Registration Statement 25(b) (§ 240.12b–25(b) of this chapter) this amendment will not, appear in the Code
Under the Securities Act of 1933 under the Exchange Act with respect to of Federal Regulations.
* * * * * a report or a portion of a report, that
Item 15. Organization Within Last report or portion thereof has actually Form S–11 For Registration Under the
Five Years. been filed within the time period Securities Act of 1933 of Securities of
Furnish the information required by prescribed by that rule. Certain Real Estate Companies
Item 404 of Regulation S–B and Item * * * * * * * * * *
407(a) of Regulation S–B. B. Transaction Requirements. * * * Item 22. Executive Compensation.
* * * * * 4. * * * Furnish the information required by
21. Amend Form S–1 (referenced in (c) The issuer also must have Item 402 of Regulation S–K (§ 229.402 of
§ 239.11) by revising Item 11, provided, within the twelve calendar this chapter), and the information
paragraphs (l) and (n) to read as follows: months immediately before the Form S– required by paragraph (e)(4) of Item 407
3 registration statement is filed, the of Regulation S–K (§ 229.407 of this
Note: The text of Form S–1 does not, and information required by Items 401, 402, chapter).
this amendment will not, appear in the Code
403 and 407(c)(3), (d)(4), (d)(5) and Item 23. Certain Relationships and
of Federal Regulations.
(e)(4) of Regulation S–K (§ 229.401– Related Transactions.
Form S–1 Registration Statement § 229.403 and § 229.407(c)(3),(d)(4), Furnish the information required by
Under the Securites Act of 1933 (d)(5) and (e)(4) of this chapter) to: Items 404 and 407(a) of Regulation S–
* * * * * K (§§ 229.404 and 229.407(a) of this
* * * * * 23. Amend Form S–4 (referenced in chapter). If a transaction involves the
Item 11. Information with Respect to § 239.25) by revising Items 18(a)(7)(ii) purchase or sale of assets by or to the
the Registrant. and (iii) and 19(a)(7)(ii) and (iii) to read registrant, otherwise than in the
* * * * * as follows: ordinary course of business, state the
(l) Information required by Item 402 cost of the assets to the purchaser and,
of Regulation S–K (§ 229.402 of this Note: The text of Form S–4 does not, and
this amendment will not, appear in the Code if acquired by the seller within two
chapter), executive compensation, and of Federal Regulations. years prior to the transaction, the cost
information required by paragraph (e)(4) thereof to the seller. Furthermore, if the
of Item 407 of Regulation S–K (§ 229.407 Form S–4 Registration Statement assets have been acquired by the seller
of this chapter), corporate governance; Under the Securities Act of 1933 within five years prior to the
* * * * * transaction, disclose the aggregate
* * * * *
(n) Information required by Item 404 Item 18. Information if Proxies, depreciation claimed by the seller for
of Regulation S–K (§ 229.404 of this Consents or Authorizations are to be federal income tax purposes. Indicate
chapter), transactions with related Solicited. the principle followed in determining
persons and promoters, and Item 407(a) (a) * * * the registrant’s purchase or sale price
of Regulation S–K (§ 229.407(a) of this (7) * * * and the name of the person making such
chapter), corporate governance. (ii) Item 402 of Regulation S–K determination.
* * * * * (§ 229.402 of this chapter), executive * * * * *
PART 240—GENERAL RULES AND (10) In designing the presentation of Notes.

REGULATIONS, SECURITIES the information you may include * * * * *
EXCHANGE ACT OF 1934 pictures, logos, charts, graphs and other C. Except as otherwise specifically
design elements so long as the design is provided, where any item calls for
25. The authority citation for part 240 not misleading and the required information for a specified period with
continues to read in part as follows: information is clear. You are encouraged regard to directors, executive officers, officers
or other persons holding specified positions
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, to use tables, schedules, charts and or relationships, the information shall be
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, graphic illustrations that present given with regard to any person who held
77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, relevant data in an understandable any of the specified positions or relationship
78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p, manner, so long as such presentations at any time during the period. Information,
78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 79q,
79t, 80a–20, 80a–23, 80a–29, 80a–37, 80b–3,
are consistent with applicable other than information required by Item 404
disclosure requirements and consistent of Regulation S–B or Item 404 of Regulation
80b–4, 80b–11, and 7201 et seq.; and 18
with other information in the document. S–K, need not be included for any portion of
U.S.C. 1350, unless otherwise noted.
You must draw graphs and charts to the period during which such person did not
* * * * * hold any such position or relationship,
26. Amend § 240.13a–11 by revising scale. Any information you provide provided a statement to that effect is made.
paragraph (c) to read as follows: must not be misleading.
(b) [Reserved]. * * * * *
Item 7. Directors and executive officers.
§ 240.13a–11 Current reports on Form 8–K Note to § 240.13a–20. In drafting the * * *
(§ 249.308 of this chapter). disclosure to comply with this section, you
* * * * *
* * * * * should avoid the following:
(b) The information required by Items 401,
(c) No failure to file a report on Form 1. Legalistic or overly complex
404(a) and (b), 405 and 407(d)(4) and (d)(5)
8–K that is required solely pursuant to presentations that make the substance of the
of Regulation S–K (§ 229.401, § 229.404,
Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, disclosure difficult to understand;
§ 229.405 and § 229.407 of this chapter).
4.02(a), 5.02(e) or 6.03 of Form 8–K 2. Vague ‘‘boilerplate’’ explanations that
(c) The information required by Item 407(a)
are imprecise and readily subject to different
shall be deemed to be a violation of 15 interpretations;
of Regulation S–K (§ 229.407 of this chapter).
U.S.C. 78j(b) and § 240.10b–5. (d) The information required by Item
3. Complex information copied directly
27. Add § 240.13a–20 to read as 407(b), (c)(1), (c)(2), (d)(1), (d)(2), (d)(3),
from legal documents without any clear and
follows: (e)(1), (e)(2), (e)(3) and (f) of Regulation S–K
concise explanation of the provision(s); and
(§ 229.407 of this chapter).
4. Disclosure repeated in different sections
§ 240.13a–20 Plain English presentation of (e) In lieu of the information required by
of the document that increases the size of the
specified information. this Item 7, investment companies registered
document but does not enhance the quality
(a) Any information included or under the Investment Company Act of 1940
of the information.
(15 U.S.C. 80a) must furnish the information
incorporated by reference in a report 28. Amend § 240.14a–6 to revise required by Item 22(b) of this Schedule 14A.
filed under section 13(a) of the Act (15 paragraph (a)(4) to read as follows:
U.S.C. 78m(a)) that is required to be * * * * *
§ 240.14a–6 Filing requirements. Item 8. Compensation of directors and
disclosed pursuant to Item 402, 403, 404
executive officers. Furnish the information
or 407 of Regulation S–B (§§ 228.402, (a) * * *
required by Item 402 of Regulation S–K
228.403, 228.404 or 228.407 of this (4) The approval or ratification of a (§ 229.402 of this chapter) and paragraph
chapter) or Item 402, 403, 404 or 407 of plan as defined in paragraph (a)(6)(ii) of (e)(4) of Item 407 of Regulation S–K
Regulation S–K (§§ 229.402, 229.403, Item 402 of Regulation S–K (§ 229.407 of this chapter) if action is to be
229.404 or 229.407 of this chapter) must (§ 229.402(a)(6)(ii) of this chapter) or taken with regard to:
be presented in a clear, concise and amendments to such a plan; * * * * *
understandable manner. You must * * * * * (d) * * *
prepare the disclosure using the 29. Amend § 240.14a–101 by: However, if the solicitation is made on
following standards: a. Removing paragraphs (f), (g), and behalf of persons other than the registrant,
(1) Present information in clear, (h) of Item 7 and paragraph (b)(13)(iii) the information required need be furnished
concise sections, paragraphs and of Item 22; only as to nominees of the persons making
sentences; b. Revising ‘‘$60,000’’ to read the solicitation and associates of such
nominees. In the case of investment
(2) Use short sentences; ‘‘$120,000’’ in the introductory text of companies registered under the Investment
(3) Use definite, concrete, everyday Items 22(b)(7), (b)(8), and (b)(9); Company Act of 1940 (15 U.S.C. 80a), furnish
words; Instruction 2 to Item 22(b)(7); and the information required by Item 22(b)(13) of
(4) Use the active voice; Instruction 6 to Item 22(b)(9); this Schedule.
(5) Avoid multiple negatives; c. Revising Note C, Item 7(b), (c), (d), * * * * *
(6) Use descriptive headings and and (e), the introductory text of Item 8, Item 10. Compensation plans. * * *
subheadings; the undesignated paragraph following (b)(1) Additional information regarding
(7) Use a tabular presentation or bullet Item 8(d), Item 10(b)(1)(ii), the specified plans subject to security holder
lists for complex material, wherever Instruction to Item 10(b)(1)(ii), the action. * * *
possible; introductory text of Item 22(b), Item (ii) The estimated annual payment to be
(8) Avoid legal jargon and highly 22(b)(11), the Instruction to paragraph made with respect to current services. In the
technical business and other (b)(11) of Item 22, and the introductory case of a pension or retirement plan,
terminology; information called for by paragraph (a)(2) of
text of Item 22(b)(13); and this Item may be furnished in the format
(9) Avoid frequent reliance on d. Adding Items 22(b)(15), (b)(16), and
glossaries or defined terms as the specified by paragraph (i)(2) of Item 402 of
(b)(17). Regulation S–K (§ 229.402(i)(2) of this

primary means of explaining The revisions and additions read as chapter).
information. Define terms in a glossary follows: Instruction to paragraph (b)(1)(ii). In the
or other section of the document only if case of investment companies registered
the meaning is unclear from the context. § 240.14a–101 Schedule 14A. Information under the Investment Company Act of 1940
Use a glossary only if it facilitates required in proxy statement. (15 U.S.C. 80a), refer to Instruction 4 in Item
understanding of the disclosure; and * * * * * 22(b)(13)(i) of this Schedule in lieu of
paragraph (i)(2) of Item 402 of Regulation S– (16) In the case of a Fund that is a closed- disagreement and requesting that the matter
K (§ 229.402(i)(2) of this chapter). end investment company: be disclosed, the registrant shall state the
* * * * * (i) Provide the information (and in the date of resignation or declination to stand for
Item 22. Information required in format) required by Item 407(d)(1), (d)(2) and re-election and summarize the director’s
investment company proxy statement. (d)(3) of Regulation S–K (§ 229.407(d)(1), description of the disagreement. If the
(a) * * * (d)(2) and (d)(3) of this chapter); and registrant believes that the description
(b) Election of Directors. If action is to be (ii) Identify each director that is a member provided by the director is incorrect or
taken with respect to the election of directors of the Fund’s audit committee that is not incomplete, it may include a brief statement
of a Fund, furnish the following information independent under the independence presenting its view of the disagreement.
in the proxy statement in addition to, in the standards described in this paragraph. If the
case of business development companies, the Fund does not have a separately designated * * * * *
information (and in the format) required by audit committee, or committee performing 30. Amend § 240.15d–11 by revising
Item 7 and Item 8 of this Schedule 14A. similar functions, the Fund must provide the paragraph (c) to read as follows:
disclosure with respect to all members of its
* * * * * board of directors. § 240.15d–11 Current reports on Form 8–K
(11) Provide in tabular form, to the extent (§ 249.308 of this chapter).
(A) If the Fund is a listed issuer (as defined
practicable, the information required by
in § 240.10A–3 of this chapter) whose * * * * *
Items 401(f) and (g), 404(a), and 405 of
securities are listed on a national securities (c) No failure to file a report on Form
Regulation S–K (§§ 229.401(f) and (g),
exchange registered pursuant to section 6(a) 8–K that is required solely pursuant to
229.404(a), and 229.405 of this chapter).
of the Act (15 U.S.C. 78f(a)) or in an
Instruction to paragraph (b)(11).
automated inter-dealer quotation system of a
Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06,
Information provided under paragraph (b)(8) 4.02(a), 5.02(e) or 6.03 of Form 8–K
of this Item 22 is deemed to satisfy the national securities association registered
pursuant to section 15A of the Act (15 U.S.C. shall be deemed to be a violation of 15
requirements of Item 404(a) of Regulation S– U.S.C. 78j(b) and § 240.10b–5.
K for information about directors, nominees 78o–3(a)) that has independence
for election as directors, and Immediate requirements for audit committee members, 31. Add § 240.15d–20 to read as
Family Members of directors and nominees, in determining whether the audit committee follows:
and need not be provided under this members are independent, use the Fund’s
definition of independence that it uses for § 240.15d–20 Plain English presentation of
paragraph (b)(11).
determining if the members of the audit specified information.
* * * * * committee are independent in compliance (a) Any information included or
(13) In the case of a Fund that is an with the independence standards applicable
investment company registered under the incorporated by reference in a report
for the members of the audit committee in filed under section 15(d) of the Act (15
Investment Company Act of 1940 (15 U.S.C.
the listing standards applicable to the Fund. U.S.C. 78o(d)) that is required to be
80a), for all directors, and for each of the
If the Fund does not have independence
three highest-paid Officers that have disclosed pursuant to Items 402, 403,
standards for the audit committee, use the
aggregate compensation from the Fund for 404 or 407 of Regulation S–B
independence standards for the audit
the most recently completed fiscal year in (§§ 228.402, 228.403, 228.404 or 228.407
excess of $60,000 (‘‘Compensated Persons’’): committee in the listing standards applicable
to the Fund. of this chapter) or Items 402, 403, 404
* * * * * (B) If the Fund is not a listed issuer whose or 407 of Regulation S–K (§§ 229.402,
(15)(i) Provide the information (and in the securities are listed on a national securities 229.403, 229.404 or 229.407 of this
format) required by Item 407(b)(1), (b)(2) and exchange registered pursuant to section 6(a) chapter) must be presented in a clear,
(f) of Regulation S–K (§ 229.407(b)(1), (b)(2) of the Act (15 U.S.C. 78f(a)) or in an
and (f) of this chapter); and concise and understandable manner.
automated inter-dealer quotation system of a You must prepare the disclosure using
(ii) Provide the following regarding the national securities association registered
requirements for the director nomination the following standards:
pursuant to section 15A of the Act (15 U.S.C.
process: (1) Present information in clear,
78o–3(a)), in determining whether the audit
(A) The information (and in the format) committee members are independent, use a concise sections, paragraphs and
required by Item 407(c)(1) and (c)(2) of sentences;
definition of independence of a national
Regulation S–K (§ 229.407(c)(1) and (c)(2) of (2) Use short sentences;
securities exchange registered pursuant to
this chapter); and (3) Use definite, concrete, everyday
section 6(a) of the Act (15 U.S.C. 78f(a)) or
(B) If the Fund is a listed issuer (as defined words;
an automated inter-dealer quotation system
in § 240.10A–3 of this chapter) whose
securities are listed on a national securities of a national securities association registered (4) Use the active voice;
exchange registered pursuant to section 6(a) pursuant to section 15A of the Act (15 U.S.C. (5) Avoid multiple negatives;
of the Act (15 U.S.C. 78f(a)) or in an 78o–3(a)) which has requirements that a (6) Use descriptive headings and
automated inter-dealer quotation system of a majority of the board of directors be subheadings;
national securities association registered independent and that has been approved by (7) Use a tabular presentation or bullet
pursuant to section 15A of the Act (15 U.S.C. the Commission, and state which definition lists for complex material, wherever
78o–3(a)) that has independence is used. Whatever such definition the Fund possible;
requirements for nominating committee chooses, it must use the same definition with
(8) Avoid legal jargon and highly
members, identify each director that is a respect to all directors and nominees for
director. If the national securities exchange technical business and other
member of the nominating committee that is
or national securities association whose terminology;
not independent under the independence
standards described in this paragraph. In standards are used has independence (9) Avoid frequent reliance on
determining whether the nominating standards for the members of the audit glossaries or defined terms as the
committee members are independent, use the committee, use those specific standards. primary means of explaining
Fund’s definition of independence that it (17) In the case of a Fund that is an information. Define terms in a glossary
uses for determining if the members of the investment company registered under the or other section of the document only if
nominating committee are independent in Investment Company Act of 1940 (15 U.S.C. the meaning is unclear from the context.
compliance with the independence standards 80a), if a director has resigned or declined to Use a glossary only if it facilitates
applicable for the members of the nominating stand for re-election to the board of directors
since the date of the last annual meeting of
understanding of the disclosure; and
committee in the listing standards applicable
to the Fund. If the Fund does not have security holders because of a disagreement
(10) In designing the presentation of
independence standards for the nominating with the registrant on any matter relating to the information you may include
committee, use the independence standards the registrant’s operations, policies or pictures, logos, charts, graphs and other
for the nominating committee in the listing practices, and if the director has furnished design elements so long as the design is
standards applicable to the Fund. the registrant with a letter describing such not misleading and the required
information is clear. You are encouraged Form 10 39. Form 8–K (referenced in
to use tables, schedules, charts and General Form for Registration of § 249.308) is amended by:
graphic illustrations that present Securities Pursuant to Section 12(b) or a. Revising General Instruction D;
relevant data in an understandable (g) of the Securities Exchange Act of b. Revising the last sentence of
manner, so long as such presentations 1934 Instruction 1 to Item 1.01;
are consistent with applicable c. Revising the heading of Item 5.02;
disclosure requirements and consistent * * * * * d. Revising Item 5.02(b), the
with other information in the document. Item 6. Executive Compensation. introductory text of Item 5.02(c), Item
You must draw graphs and charts to Furnish the information required by 5.02(c)(2) and (c)(3);
scale. Any information you provide Item 402 of Regulation S–K (§ 229.402 of e. Adding Item 5.02(d)(5) and (e); and
must not be misleading. this chapter) and paragraph (e)(4) of f. Adding Instruction 3 to Item 5.02.
(b) [Reserved]. Item 407 of Regulation S–K (§ 229.407 of The revisions and addition read as
this chapter). follows:
Note to § 240.15d–20. In drafting the
disclosure to comply with this section, you
Item 7. Certain Relationships and
Related Transactions, and Director Note: The text of Form 8–K does not, and
should avoid the following: this amendment will not, appear in the Code
1. Legalistic or overly complex Independence.
presentations that make the substance of the Furnish the information required by
disclosure difficult to understand; Item 404 of Regulation S–K (§ 229.404 of Form 8–K Current Report Pursuant to
2. Vague ‘‘boilerplate’’ explanations that this chapter) and Item 407(a) of Section 13 or 15(d) of the Securities
are imprecise and readily subject to different Regulation S–K (§ 229.407(a) of this
interpretations; Exchange Act of 1934
chapter).
3. Complex information copied directly * * * * *
from legal documents without any clear and * * * * *
concise explanation of the provision(s); and 37. Amend Form 10–SB (referenced in General Instructions
4. Disclosure repeated in different sections § 249.210b), Information Required in
* * * * *
of the document that increases the size of the Registration Statement, by revising Item
D. Preparation of Report.
document but does not enhance the quality 7 to read as follows:
of the information. This form is not to be used as a blank
Note: The text of Form 10–SB does not, form to be filled in, but only as a guide
and this amendment will not, appear in the in the preparation of the report on paper
§ 240.16b–3 [Amended]
Code of Federal Regulations. meeting the requirements of Rule 12b–
32. Amend § 240.16b–3 by:
a. Adding ‘‘and’’ at the end of 12 (17 CFR 240.12b–12). The report
Form 10–SB General Form for shall contain the number and caption of
paragraph (b)(3)(i)(B); Registration of Securities of Small
b. Removing ‘‘; and’’ at the end of the applicable item, but the text of such
Business Issuers item may be omitted, provided the
paragraph (b)(3)(i)(C) and in its place
adding a period; and * * * * * answers thereto are prepared in the
c. Removing paragraph (b)(3)(i)(D). manner specified in Rule 12b–13 (17
Information Required in Registration CFR 240.12b–13). To the extent that
Statement Item 1.01 and one or more other items
PART 245—REGULATION BLACKOUT
TRADING RESTRICTION * * * * * of the form are applicable, registrants
(REGULATION BTR—BLACKOUT Item 7. Certain Relationships and need not provide the number and
TRADING RESTRICTION) Related Transactions, and Director caption of Item 1.01 so long as the
Independence. substantive disclosure required by Item
33. The authority citation for Part 245 Furnish the information required by 1.01 is disclosed in the report and the
continues to read in part as follows: Item 404 of Regulation S–B and Item number and caption of the other
Authority: 15 U.S.C. 78w(a), unless 407(a) of Regulation S–B. applicable item(s) are provided. All
otherwise noted. * * * * * items that are not required to be
* * * * * 38. Amend Form 20–F (referenced in answered in a particular report may be
§ 249.220f) by revising Instruction omitted and no reference thereto need
§ 245.100 [Amended] be made in the report. All instructions
4.(c)(v) to the Instructions as to Exhibits
34. Amend § 245.100, paragraph to read as follows: should also be omitted.
(a)(2), by revising the phrase ‘‘paragraph * * * * *
(a) or (b) of Item 404’’ to read Note: The text of Form 20–F does not, and
this amendment will not, appear in the Code Item 1.01 Entry into a Material
‘‘paragraph (a) of Item 404’’. Definitive Agreement.
PART 249—FORMS, SECURITIES * * * * *
EXCHANGE ACT OF 1934 Form 20–F Instructions. 1. * * * An agreement
* * * * * involving the subject matter identified
35. The authority citation for part 249 in Item 601(b)(10)(iii)(A) or (B) need not
continues to read in part as follows: Instructions as to Exhibits be disclosed under this item.
Authority: 15 U.S.C. 78a et seq. and 7201 * * * * * * * * * *
et seq.; and 18 U.S.C. 1350, unless otherwise 4.(a) * * * Item 5.02 Departure of Directors or
noted. (c) * * * Certain Officers; Election of Directors;
* * * * * (v) Public filing of the management Appointment of Certain Officers;
36. Amend Form 10 (referenced in contact or compensatory plan, contract Compensatory Arrangements of Certain
§ 249.210) by revising Items 6 and 7 to or arrangement, or portion thereof, is Officers.
read as follows: not required in the company’s home * * * * *
Note: The text of Form 10 does not, and country and is not otherwise publicly (b) If the registrant’s principal
this amendment will not, appear in the Code disclosed by the company. executive officer, president, principal
of Federal Regulations. * * * * * financial officer, principal accounting
officer, principal operating officer, or arrangement to any such person is made Form 10–QSB
any person performing similar or materially modified, then the * * * * *
functions, or any named executive registrant shall provide a brief
officer for the registrant’s most recent description of the terms and conditions Part II—Other Information
fiscal year (as defined by Item 402(a)(3) of the plan, contract or arrangement and * * * * *
of Regulation S-K (17 CFR the amounts payable to the officer Item 5. Other Information.
229.402(a)(3)), retires, resigns or is thereunder. (a) * * *
terminated from that position, or if a Instructions to paragraph (e). 1. Disclosure (b) Furnish the information required
director retires, resigns, is removed, or under this Item 5.02(e) shall be required by Item 407(c)(3) of Regulation S–B
refuses to stand for re-election (except whether or not the specified event is in (§ 228.407).
in circumstances described in paragraph connection with events otherwise triggering * * * * *
(a) of this Item 5.02), disclose the fact disclosure pursuant to this Item 5.02.
42. Amend Form 10–K (referenced in
that the event has occurred and the date 2. Grants or awards (or modifications
thereto) made pursuant to a plan, contract or § 249.310) by revising Item 10 before the
of the event. instruction and Items 11 and 13 in Part
(c) If the registrant appoints a new arrangement, that are materially consistent
with the original terms of such plan, contract III to read as follows:
principal executive officer, president, or arrangement, need not be disclosed under
principal financial officer, principal this Item 5.02(e), provided the registrant has Note: The text of Form 10–K does not, and
accounting officer, principal operating previously disclosed such original terms and this amendment will not, appear in the Code
officer, or person performing similar the grant, award or modification is disclosed of Federal Regulations.
functions, disclose the following when Item 402 of Regulation S–K (17 CFR
information with respect to the newly 229.402) requires such disclosure. Form 10–K
appointed officer: 3. If the salary and bonus of a named * * * * *
(1) * * * executive officer cannot be calculated as of
(2) the information required by Items the most recent practicable date and are Part III
omitted from the Summary Compensation
401(b), (d), (e) and Item 404(a) of * * * * *
Table as specified in Instruction 1 to Item
Regulation S–K (17 CFR 229.401(b), (d), 402(b)(2)(iv) and (v) of Regulation S–B or Item 10. Directors, Executive Officers
(e) and 229.404(a)), or, in the case of a Instruction 1 to Item 402(c)(2)(iv) and (v) of and Corporate Governance.
small business issuer, Items 401(a)(4), Regulation S–K, disclose the appropriate Furnish the information required by
(a)(5), (c), and Items 404(a) of Regulation information under this Item 5.02(e) when Items 401, 405, 406, and 407(c)(3), (d)(4)
S–B (17 CFR 228.401(a)(4), (a)(5), (c), there is a payment, grant, award, decision or and (d)(5) of Regulation S–K
and 228.404(a), respectively); and other occurrence as a result of which such (§§ 229.401, 229.405, 229.406, and
(3) a brief description of any material amounts become calculable in whole or part.
229.407(c)(3), (d)(4) and (d)(5) of this
plan, contract or arrangement (whether Disclosure is required even where Instruction
2 would permit such information not to be chapter).
or not written) to which a covered disclosed. * * * * *
officer is a party or in which he or she Instructions to Item 5.02. Item 11. Executive Compensation.
participates that is entered into or a Furnish the information required by
* * * * *
material amendment in connection with 3. The registrant need not provide Item 402 of Regulation S–K (§ 229.402 of
the triggering event or any grant or information with respect to plans, contracts, this chapter) and paragraph (e)(4) of
award to any such covered person or and arrangements to the extent they do not Item 407 of Regulation S–K (§ 229.407 of
modification thereto, under any such discriminate in scope, terms or operation, in this chapter).
plan, contract or arrangement in favor of executive officers or directors of the
registrant and that are available generally to * * * * *
connection with any such event. Item 13. Certain Relationships and
(d) * * * all salaried employees.
Related Transactions, and Director
(5) a brief description of any material * * * * * Independence.
plan, contract or arrangement (whether 40. Amend Form 10–Q (referenced in Furnish the information required by
or not written) to which the director is § 249.308a) by revising Item 5(b) in Part Item 404 of Regulation S–K (§ 229.404 of
a party or in which he or she II to read as follows: this chapter) and Item 407(a) of
participates that is entered into or Regulation S–K (§ 229.407(a) of this
material amendment in connection with Note: The text of Form 10–Q does not, and
this amendment will not, appear in the Code chapter).
the triggering event or any grant or
award to any such covered person or of Federal Regulations. * * * * *
43. Amend Form 10–KSB (referenced
modification thereto, under any such
Form 10–Q in § 249.310b) by revising Item 9 before
plan, contract or arrangement in
* * * * * the instruction and Item 12 in Part III to
connection with any such event.
(e) If the registrant enters into, adopts, read as follows:
Part II—Other Information
or otherwise commences a material Note: The text of Form 10–KSB does not,
compensatory plan, contract or * * * * * and this amendment will not, appear in the
arrangement (whether or not written), as Item 5. Other Information. Code of Federal Regulations.
to which the registrant’s principal (a) * * *
executive officer, principal financial (b) Furnish the information required Form 10–KSB
officer, or a named executive officer (as by Item 407(c)(3) of Regulation S–K
(§ 229.407). * * * * *
defined by Item 402(a)(3) of Regulation
S–K (17 CFR 229.402(a)(3)) for the * * * * * Part III
registrant’s most recent fiscal year 41. Amend Form 10–QSB (referenced Item 9. Directors, Executive Officers,
participates or is a party, or such in § 249.308b) by revising Item 5(b) in Promoters, Control Persons and
compensatory plan, contract or Part II to read as follows: Corporate Governance; Compliance
arrangement is materially amended or Note: The text of Form 10–QSB does not, With Section 16(a) of the Exchange Act.
modified, or a material grant or award and this amendment will not, appear in the Furnish the information required by
under any such plan, contract or Code of Federal Regulations. Items 401, 405, 406, and 407(c)(3), (d)(4)
and (d)(5) of Regulation S–B d. Revising ‘‘$60,000’’ to read b. Removing the word ‘‘relocation,’’ in
(§§ 228.401, 228.405, 228.406, and ‘‘$120,000’’ in the introductory text of Instruction 2 to Item 22(b).
228.407(c)(3), (d)(4) and (d)(5) of this paragraphs 9, 10, and 11 of Item 18;
Note: The text of Form N–3 does not, and
chapter). Instruction 2 to paragraph 9 of Item 18;
this amendment will not, appear in the Code
* * * * * and Instruction 5 to paragraph 11 of
Item 12. Certain Relationships and Item 18;
Related Transactions, and Director e. Revising the introductory text of 48. Amend Form N–CSR (referenced
Independence. paragraph 14 of Item 18; in §§ 249.331 and 274.128) by revising
f. Removing ‘‘relocation,’’ from Item 10 to read as follows:
Furnish the information required by
Instruction 2 to paragraph 2 of Item 21;
Item 404 of Regulation S–B (§ 228.404 of Note: The text of Form N–CSR does not,
and
this chapter) and Item 407(a) of g. Revising the cite ‘‘Item 18.16’’ to and this amendment will not, appear in the
Regulation S–B (§ 228.407(a) of this read ‘‘Item 18.17’’ in Instruction 8.a. to Code of Federal Regulations.
chapter). Item 24.
* * * * * The addition and revision read as Form N–CSR
follows: * * * * *
PART 239—FORMS PRESCRIBED
UNDER THE SECURITIES ACT OF 1933 Note: The text of Form N–2 does not, and Item 10. Submission of Matters to a
this amendment will not, appear in the Code Vote of Security Holders.
PART 274—FORMS PRESCRIBED Describe any material changes to the
UNDER THE INVESTMENT COMPANY Form N–2 procedures by which shareholders may
ACT OF 1940 recommend nominees to the registrant’s
* * * * *
44. The authority citation for Part 274 Item 18. Management. board of directors, where those changes
continues to read in part as follows: were implemented after the registrant
* * * * * last provided disclosure in response to
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 14. In the case of a Registrant that is
the requirements of Item 407(c)(2)(iv) of
78c(b), 78l, 78m, 78n, 78o(d), 80a–8, 80a–24, not a business development company,
80a–26, and 80a–29, unless otherwise noted.
Regulation S–K (17 CFR 229.407) (as
provide the following for all directors of
required by Item 22(b)(15) of Schedule
* * * * * the Registrant, all members of the
14A (17 CFR 240.14a–101)), or this Item.
45. Amend Form N–1A (referenced in advisory board of the Registrant, and for
§§ 239.15A and 274.11A) by: each of the three highest paid officers or Instruction. For purposes of this Item,
a. Revising ‘‘$60,000’’ to read any affiliated person of the Registrant adoption of procedures by which
‘‘$120,000’’ in the introductory text of with aggregate compensation from the shareholders may recommend nominees
Items 12(b)(6), (b)(7), and (b)(8); Registrant for the most recently to the registrant’s board of directors,
Instruction 2 to Item 12(b)(6); and completed fiscal year in excess of where the registrant’s most recent
Instruction 5 to Item 12(b)(8); and $60,000 (‘‘Compensated Persons’’). disclosure in response to the
b. Removing the word ‘‘relocation,’’ in * * * * * requirements of Item 407(c)(2)(iv) of
Instruction 2 to Item 15(b). 15. In the case of a Registrant that is Regulation S–K (17 CFR 229.407) (as
a business development company, required by Item 22(b)(15) of Schedule
Note: The text of Form N–1A does not, and provide the information required by 14A (17 CFR 240.14a–101)), or this Item,
this amendment will not, appear in the Code Item 402 of Regulation S–K (17 CFR indicated that the registrant did not
of Federal Regulations. have in place such procedures, will
229.402).
46. Amend Form N–2 (referenced in * * * * * constitute a material change.
§§ 239.14 and 274.11a–1) by: 47. Amend Form N–3 (referenced in * * * * *
a. Removing paragraph 14(c) of Item §§ 239.17a and 274.11b) by: Dated: January 27, 2006.
18; a. Revising ‘‘$60,000’’ to read
By the Commission.
b. Redesignating paragraphs 15 and 16 ‘‘$120,000’’ in the introductory text of
of Item 18 as paragraphs 16 and 17, paragraphs (h), (i), and (j) of Item 20; Nancy M. Morris,
respectively; Instruction 2 to paragraph (h) of Item 20; Secretary.
c. Adding new paragraph 15 of Item and Instruction 5 to paragraph (j) of Item [FR Doc. 06–946 Filed 2–7–06; 8:45 am]
18; 20; and BILLING CODE 8010–01–P

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

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

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SECURITIES AND EXCHANGE Paper Comments propose to amend Schedule 14A 20

methods: 6 17 CFR 229.404 and 17 CFR 228.404. 25 17 CFR 249.308b.

7 17 CFR 229.10 et seq. 26 17 CFR 249.310.

• Use the Commission’s Internet 9 17 CFR 229.601. 28 17 CFR 249.220f.

13 17 CFR 245.100 et seq. 32 17 CFR 239.25.

(http://www.regulations.gov). Follow the 18 17 CFR 240.16b–3. 37 15 U.S.C. 80a–1 et seq.

4. Exercises and Holdings of Previously C. Benefits Commission has on a number of

incorporates it by reference into a filing under the

years. Contribution and Other Deferred Compensation

SUMMARY COMPENSATION TABLE

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

78 A stock appreciation right usually gives the

bonus is expected to be determined. awarded. (vii).

entertainment’’ different company- the Commission rescinded those interpretive

115 See IRS Regulation § 1.61–21(g) [26 CFR 1.61–

not refer to amounts payable under post-

GRANTS OF PERFORMANCE-BASED AWARDS

GRANTS OF ALL OTHER EQUITY AWARDS

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

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

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

OPTION EXERCISES AND STOCK VESTED

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

OPTION EXERCISES AND STOCK VESTED—Continued

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

RETIREMENT PLAN POTENTIAL ANNUAL PAYMENTS AND BENEFITS

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

NONQUALIFIED DEFINED CONTRIBUTION AND OTHER DEFERRED COMPENSATION PLANS

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

158 Proposed Item 402(k), which would replace

Directors and Pearl Meyer & Partners, 2003–2004

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

material amendments or grants or awards or

CEO, contributed to WorldCom’s financial demise).

disclosure would not be required regarding person transactions. 3 to Item 404(a).

categories of people that should be Registrants would also be required to 3. Exceptions

267 Current Instruction 3 to Item 404(c), which

274 Current Item 404(b).

291 Proposed Item 22(b)(17) of Schedule 14A.

proposed Item 407(b). 2 to Item 404 of Regulation S–B, is proposed

require closed-end investment companies to Items 7(d)(3)(iv)(A)(1) and (B).

Periods, Release No. 34–47225 (Jan. 22, 2003) [68

only, if the company is not subject to the proxy

issuers 120 additional hours to prepare the

disclosure requirements relating to new or expanded disclosure of disinterested directors in Forms N–

10–K 340 .................................................... 8,602 67 576,334 432,250.5 144,083.5 $43,225,050

Total .................................................. ........................ ........................ 698,974 524,230.5 ........................ 52,423,050

10 ............................................................. 72 60 4,320 1,080.0 3,240.0 $972,000

Total .................................................. ........................ ........................ 80,076 20,019.0 ........................ 18,017,100

requires disclosure of compensation of the named

the new rule are likely to provide significant

investors’ understanding of the amendments to the disclosure rules that

termination compensation disclosure requirement by eliminating

SUMMARY COMPENSATION TABLE

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

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

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

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

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

(3) Amount of shares and nature

determined by the small business issuer if

a current copy of the applicable committee to the reporting requirements of section