[Federal Register Volume 71, Number 174 (Friday, September 8, 2006)]
[Rules and Regulations]
[Pages 53158-53266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-6968]



[[Page 53157]]

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Part II





Securities and Exchange Commission





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17 CFR Parts 228, 229 et al.



Executive Compensation and Related Person Disclosure; Final Rule and 
Proposed Rule

Federal Register / Vol. 71, No. 174 / Friday, September 8, 2006 / 
Rules and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 228, 229, 232, 239, 240, 245, 249 and 274

[Release Nos. 33-8732A; 34-54302A; IC-27444A; File No. S7-03-06]
RIN 3235-AI80


Executive Compensation and Related Person Disclosure

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission is adopting amendments 
to the disclosure requirements for executive and director compensation, 
related person transactions, director independence and other corporate 
governance matters and security ownership of officers and directors. 
These amendments apply to disclosure in proxy and information 
statements, periodic reports, current reports and other filings under 
the Securities Exchange Act of 1934 and to registration statements 
under the Exchange Act and the Securities Act of 1933. We are also 
adopting a requirement that disclosure under the amended items 
generally be provided in plain English. The amendments are intended to 
make proxy and information statements, reports and registration 
statements easier to understand. They are also intended to provide 
investors with a clearer and more complete picture of the compensation 
earned by a company's principal executive officer, principal financial 
officer and highest paid executive officers and members of its board of 
directors. In addition, they are intended to provide better information 
about key financial relationships among companies and their executive 
officers, directors, significant shareholders and their respective 
immediate family members. In Release No. 33-8735, published elsewhere 
in the proposed rules section of this issue of the Federal Register, we 
also request additional comments regarding the proposal to require 
compensation disclosure for three additional highly compensated 
employees.

DATES: Effective Date: November 7, 2006.
    Comment Date: Comments regarding the request for comment in Section 
II.C.3.b. of this document should be received on or before October 23, 
2006.
    Compliance Dates: Companies must comply with these disclosure 
requirements in Forms 8-K for triggering events that occur on or after 
November 7, 2006 and in Forms 10-K and 10-KSB for fiscal years ending 
on or after December 15, 2006. Companies other than registered 
investment companies must comply with these disclosure requirements in 
Securities Act registration statements and Exchange Act registration 
statements (including pre-effective and post-effective amendments), and 
in any proxy or information statements filed on or after December 15, 
2006 that are required to include Item 402 and 404 disclosure for 
fiscal years ending on or after December 15, 2006. Registered 
investment companies must comply with these disclosure requirements in 
initial registration statements and post-effective amendments that are 
annual updates to effective registration statements on Forms N-1A, N-2 
(except those filed by business development companies) and N-3, and in 
any new proxy or information statements, filed with the Commission on 
or after December 15, 2006.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/final.shtml): or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#b1c3c4ddd49cd2dedcdcd4dfc5c2f1c2d4d29fd6dec7"><span class="__cf_email__" data-cfemail="d5a7a0b9b0f8b6bab8b8b0bba1a695a6b0b6fbb2baa3">[email protected]</span></a>. Please include 
File Number S7-03-06 on the subject line; or
    <bullet> Use the Federal Rulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

    <bullet> Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington DC 20549-1090.

All submissions should refer to File Number S7-03-06. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/final/shtml). Comments are 
also available for public inspection and copying in the Commission's 
Public Reference Room, 100 F Street, NE., Washington, DC, 20549. All 
comments received will be posted without change; we do not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: Anne Krauskopf, Carolyn Sherman, or 
Daniel Greenspan, at (202) 551-3500, in the Division of Corporation 
Finance, U.S. Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-3010 or, with respect to questions regarding 
investment companies, Kieran Brown in the Division of Investment 
Management, at (202) 551-6784.

SUPPLEMENTARY INFORMATION: We are amending: Items 201,\1\ 306,\2\ 
401,\3\ 402,\4\ 403 \5\ and 404 \6\ of Regulations S-K \7\ and S-B,\8\ 
Item 601 \9\ of Regulation S-K, Item 1107 \10\ of Regulation AB,\11\ 
Item 304 \12\ of Regulation S-T,\13\ and Rule 100 \14\ of Regulation 
BTR.\15\ We are also adding new Item 407 to Regulations S-K and S-B. In 
addition, we are amending Rules 13a-11,\16\ 14a-3,\17\ 14a-6,\18\ 14c-
5,\19\ 15d-11 \20\ and 16b-3 \21\ under the Securities Exchange Act of 
1934.\22\ We are adding Rules 13a-20 and 15d-20 under the Exchange Act. 
We are further amending Schedule 14A \23\ under the Exchange Act, as 
well as Exchange Act Forms 8-K,\24\ 10,\25\ 10SB,\26\ 10-Q,\27\ 10-
QSB,\28\ 10-K,\29\ 10-KSB \30\ and 20-F.\31\ Finally, we are amending 
Forms SB-2,\32\ S-1,\33\ S-3,\34\ S-4 \35\ and S-11 \36\ under the 
Securities Act of 1933,\37\ Forms N-

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1A,\38\ N-2,\39\ and N-3 \40\ under the Securities Act and the 
Investment Company Act of 1940,\41\ and Form N-CSR \42\ under the 
Investment Company Act and the Exchange Act.
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    \1\ 17 CFR 229.201 and 17 CFR 228.201.
    \2\ 17 CFR 229.306 and 17 CFR 228.306.
    \3\ 17 CFR 229.401 and 17 CFR 228.401.
    \4\ 17 CFR 229.402 and 17 CFR 228.402.
    \5\ 17 CFR 229.403 and 17 CFR 228.403.
    \6\ 17 CFR 229.404 and 17 CFR 228.404.
    \7\ 17 CFR 229.10 et seq.
    \8\ 17 CFR 228.10 et seq.
    \9\ 17 CFR 229.601.
    \10\ 17 CFR 229.1107.
    \11\ 17 CFR 229.1100 et seq.
    \12\ 17 CFR 232.304.
    \13\ 17 CFR 232.10 et seq.
    \14\ 17 CFR 245.100.
    \15\ 17 CFR 245.100 et seq.
    \16\ 17 CFR 240.13a-11.
    \17\ 17 CFR 240.14a-3.
    \18\ 17 CFR 240.14a-6.
    \19\ 17 CFR 240.14c-5.
    \20\ 17 CFR 240.15d-11.
    \21\ 17 CFR 240.16b-3.
    \22\ 15 U.S.C. 78a et seq.
    \23\ 17 CFR 240.14a-101.
    \24\ 17 CFR 249.308.
    \25\ 17 CFR 249.210.
    \26\ 17 CFR 249.210b.
    \27\ 17 CFR 249.308a.
    \28\ 17 CFR 249.308b.
    \29\ 17 CFR 249.310.
    \30\ 17 CFR 249.310b.
    \31\ 17 CFR 249.220f.
    \32\ 17 CFR 239.10.
    \33\ 17 CFR 239.11.
    \34\ 17 CFR 239.13.
    \35\ 17 CFR 239.25.
    \36\ 17 CFR 239.18.
    \37\ 15 U.S.C. 77a et seq.
    \38\ 17 CFR 239.15A and 274.11A.
    \39\ 17 CFR 239.14 and 274.11a-1.
    \40\ 17 CFR 239.17a and 274.11b.
    \41\ 15 U.S.C. 80a-1 et seq.
    \42\ 17 CFR 249.331 and 274.128.
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Table of Contents

I. Background and Overview
II. Executive and Director Compensation Disclosure
    A. Options Disclosure
    1. Background
    2. Required Option Disclosures
    a. Tabular Disclosures
    b. Compensation Discussion and Analysis
    i. Timing of Option Grants
    ii. Determination of Exercise Price
    B. Compensation Discussion and Analysis
    1. Intent and Operation of the Compensation Discussion and 
Analysis
    2. Instructions to Compensation Discussion and Analysis
    3. ``Filed'' Status of Compensation Discussion and Analysis and 
the ``Furnished'' Compensation Committee Report
    4. Retention of the Performance Graph
    C. Compensation Tables
    1. Compensation to Named Executive Officers in the Last Three 
Completed Fiscal Years--The Summary Compensation Table and Related 
Disclosure
    a. Total Compensation Column
    b. Salary and Bonus Columns
    c. Plan-Based Awards
    i. Stock Awards and Option Awards Columns
    ii. Non-Equity Incentive Plan Compensation Column
    d. Change in Pension Value and Nonqualified Deferred 
Compensation Earnings Column
    i. Earnings on Deferred Compensation
    ii. Increase in Pension Value
    e. All Other Compensation Column
    i. Perquisites and Other Personal Benefits
    ii. Additional All Other Compensation Column Items
    f. Captions and Table Layout
    2. Supplemental Grants of Plan-Based Awards Table
    3. Narrative Disclosure to Summary Compensation Table and Grants 
of Plan-Based Awards Table
    a. Narrative Description of Additional Material Factors
    b. Request for Additional Comment on Compensation Disclosure for 
up to Three Additional Employees
    4. Exercises and Holdings of Previously Awarded Equity
    a. Outstanding Equity Awards at Fiscal Year-End Table
    b. Option Exercises and Stock Vested Table
    5. Post-Employment Compensation
    a. Pension Benefits Table
    b. Nonqualified Deferred Compensation Table
    c. Other Potential Post-Employment Payments
    6. Officers Covered
    a. Named Executive Officers
    b. Identification of Most Highly Compensated Executive Officers; 
Dollar Threshold for Disclosure
    7. Interplay of Items 402 and 404
    8. Other Changes
    9. Compensation of Directors
    D. Treatment of Specific Types of Issuers
    1. Small Business Issuers
    2. Foreign Private Issuers
    3. Business Development Companies
    E. Conforming Amendments
III. Revisions to Form 8-K and the Periodic Report Exhibit 
Requirements
    A. Items 1.01 and 5.02 of Form 8-K
    1. Item 1.01--Entry into a Material Definitive Agreement
    2. Item 5.02--Departure of Directors or Certain Officers; 
Election of Directors; Appointment of Certain Officers; Compensatory 
Arrangements of Certain Officers
    B. Extension of Limited Safe Harbor under Section 10(b) and Rule 
10b-5 to Item 5.02(e) of Form 8-K and Exclusion of Item 5.02(e) from 
Form S-3 Eligibility Requirements
    C. General Instruction D to Form 8-K
    D. Foreign Private Issuers
IV. Beneficial Ownership Disclosure
V. Certain Relationships and Related Transactions Disclosure
    A. Transactions with Related Persons
    1. Broad Principle for Disclosure
    a. Indebtedness
    b. Definitions
    2. Disclosure Requirements
    3. Exceptions
    B. Procedures for Approval of Related Person Transactions
    C. Promoters and Control Persons
    D. Corporate Governance Disclosure
    E. Treatment of Specific Types of Issuers
    1. Small Business Issuers
    2. Foreign Private Issuers
    3. Registered Investment Companies
    F. Conforming Amendments
    1. Regulation Blackout Trading Restriction
    2. Rule 16b-3 Non-Employee Director Definition
    3. Other Conforming Amendments
VI. Plain English Disclosure
VII. Transition
VIII. Paperwork Reduction Act
    A. Background
    B. Summary of Information Collections
    C. Summary of Comment Letters and Revisions to Proposals
    D. Revisions to Paperwork Reduction Act Burden Estimates
    1. Securities Act Registration Statements, Exchange Act 
Registration Statements, Exchange Act Annual Reports, Proxy 
Statements and Information Statements
    2. Exchange Act Current Reports
IX. Cost-Benefit Analysis
    A. Background
    B. Summary of Amendments
    C. Benefits
    D. Costs
X. Consideration of Burden on Competition and Promotion of 
Efficiency, Competition and Capital Formation
XI. Final Regulatory Flexibility Act Analysis
    A. Need for the Rules and Amendments
    B. Significant Issues Raised by Public Comment
    C. Small Entities Subject to the Rules and Amendments
    D. Reporting, Recordkeeping and Other Compliance Requirements
    E. Agency Action to Minimize Effect on Small Entities
XII. Statutory Authority and Text of the Amendments

I. Background and Overview

    On January 27, 2006, we proposed revisions to our rules governing 
disclosure of executive compensation, director compensation, related 
party transactions, director independence and other corporate 
governance matters, current reporting regarding compensation 
arrangements and beneficial ownership.\43\ We received over 20,000 
comment letters in response to our proposals. In general, commenters 
supported the proposals and their objectives. We are adopting the rules 
and amendments substantially as proposed, with certain modifications to 
address a number of points that commenters raised.
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    \43\ Executive Compensation and Related Party Disclosure, 
Release No. 33-8655 (Jan. 27, 2006) [71 FR 6542] (the ``Proposing 
Release'').
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    The amendments to the compensation disclosure rules are intended to 
provide investors with a clearer and more complete picture of 
compensation to principal executive officers, principal financial 
officers, the other highest paid executive officers and directors. 
Closely related to executive officer and director compensation is the 
participation by executive officers, directors, significant 
shareholders and other related persons in financial transactions and 
relationships with the company. We are also adopting revisions to our 
disclosure rules regarding related party transactions and director 
independence and board committee functions.
    Finally, some compensation arrangements must be disclosed under our 
rules relating to current reports on Form 8-K. Accordingly, we are 
reorganizing and more appropriately focusing our requirements on the 
type of compensation information that should be disclosed on a real-
time basis.
    Since the enactment of the Securities Act and the Exchange Act,\44\ 
the

[[Page 53160]]

Commission has on a number of occasions explored the best methods for 
communicating clear, concise and meaningful information about executive 
and director compensation and relationships with the company.\45\ The 
Commission also has had to reconsider executive and director 
compensation disclosure requirements in light of changing trends in 
executive compensation. Most recently, in 1992, the Commission adopted 
amendments to the disclosure rules that eschewed a mostly narrative 
disclosure approach adopted in 1983 in favor of formatted tables that 
captured all compensation, while categorizing the various elements of 
compensation and promoting comparability from year to year and from 
company to company.\46\
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    \44\ Initially, disclosure requirements regarding executive and 
director compensation were set forth in Schedule A to the Securities 
Act and Section 12(b) of the Exchange Act, which list the type of 
information to be included in Securities Act and Exchange Act 
registration statements. Item 14 of Schedule A called for disclosure 
of the ``remuneration, paid or estimated to be paid, by the issuer 
or its predecessor, directly or indirectly, during the past year and 
ensuing year to (a) the directors or persons performing similar 
functions, and (b) its officers and other persons, naming them 
wherever such remuneration exceeded $25,000 during any such year.'' 
Section 12(b) of the Exchange Act as enacted required disclosure of 
``(D) the directors, officers, and underwriters, and each security 
holder of record holding more than 10 per centum of any class of any 
equity security of the issuer (other than an exempted security), 
their remuneration and their interests in the securities of, and 
their material contracts with, the issuer and any person directly or 
indirectly controlling or controlled by, or under direct or indirect 
common control with, the issuer;'' and ``(E) remuneration to others 
than directors and officers exceeding $20,000 per annum.''
    \45\ In 1938, the Commission promulgated its first executive and 
director compensation disclosure rules for proxy statements. Release 
No. 34-1823 (Aug. 11, 1938) [3 FR 1991]. At different times 
thereafter, the Commission has adopted rules mandating narrative, 
tabular, or combinations of narrative and tabular disclosure as the 
best method for presenting compensation disclosure in a manner that 
is clear and useful to investors. See, e.g., Release No. 34-3347 
(Dec. 18, 1942) [7 FR 10653] (introducing first tabular disclosure); 
Release No. 34-4775 (Dec. 11, 1952) [17 FR 11431] (introducing 
separate table for pensions and deferred remuneration); Uniform and 
Integrated Reporting Requirements: Management Remuneration, Release 
No. 33-6003 (Dec. 4, 1978) [43 FR 58151] (the ``1978 Release'') 
(expanding tabular disclosure to cover all forms of compensation); 
and Disclosure of Executive Compensation, Release No. 33-6486 (Sept. 
23, 1983) [48 FR 44467] (the ``1983 Release'') (limiting tabular 
disclosure to cash remuneration).
    \46\ Executive Compensation Disclosure, Release No. 33-6962 
(Oct. 16, 1992) [57 FR 48126] (the ``1992 Release''); See also 
Executive Compensation Disclosure; Securityholder Lists and Mailing 
Requests, Release No. 33-7032 (Nov. 22, 1993) [58 FR 63010] (the 
``1993 Release''), at Section II.
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    We believe this tabular approach remains a sound basis for 
disclosure. However, especially in light of the complexity of and 
variations in compensation programs, the very formatted nature of those 
rules has resulted in too many cases in disclosure that does not inform 
investors adequately as to all elements of compensation. In those cases 
investors may lack material information that we believe they should 
receive.
    We are thus today adopting an approach that builds on the strengths 
of the requirements adopted in 1992 rather than discarding them. 
However, today's amendments do represent a thorough rethinking of the 
rules in place prior to these amendments, combining a broader-based 
tabular presentation with improved narrative disclosure supplementing 
the tables. This approach will promote clarity and completeness of 
numerical information through an improved tabular presentation, 
continue to provide the ability to make comparisons using tables, and 
call for material qualitative information regarding the manner and 
context in which compensation is awarded and earned.
    The amendments that we publish today require that all elements of 
compensation must be disclosed. We also have sought to structure the 
revised requirements sufficiently broadly so that they will continue to 
operate effectively as new forms of compensation are developed in the 
future.
    Under the amendments, compensation disclosure will now begin with a 
narrative providing a general overview. Much like the overview that we 
have encouraged companies to provide with their Management's Discussion 
and Analysis of Financial Condition and Results of Operations 
(MD&A),\47\ the new Compensation Discussion and Analysis calls for a 
discussion and analysis of the material factors underlying compensation 
policies and decisions reflected in the data presented in the tables. 
This overview addresses in one place these factors with respect to both 
the separate elements of executive compensation and executive 
compensation as a whole. We are adopting the overview substantially as 
proposed, but, in response to comments, we are requiring a separate 
report of the compensation committee similar to the report required of 
the audit committee,\48\ which will be considered furnished and not 
filed.\49\
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    \47\ Item 303 of Regulation S-K [17 CFR 229.303]. See also 
Commission Guidance Regarding Management's Discussion and Analysis 
of Financial Condition and Results of Operations, Release No. 33-
8350 (Dec. 19, 2003) [68 FR 75055], at Section III.A.
    \48\ The Audit Committee Report, required by Item 306 of 
Regulations S-B [17 CFR 228.306] and S-K [17 CFR 229.306] prior to 
these amendments, will now be required by Item 407(d) of Regulations 
S-B and S-K.
    \49\ The Compensation Committee Report that we adopt today is 
not deemed to be ``soliciting material'' or to be ``filed'' with the 
Commission or subject to Regulation 14A or 14C [17 CFR 240.14a-1 et 
seq. or 240.14c-1 et seq.], other than as specified, or to the 
liabilities of Section 18 of the Exchange Act [15 U.S.C. 78r], 
except to the extent a company specifically requests that the report 
be treated as filed or as soliciting material or specifically 
incorporates it by reference into a filing under the Securities Act 
or the Exchange Act, other than by incorporating by reference the 
report from a proxy or information statement into the Form 10-K. 
Instructions 1 and 2 to Item 407(e)(5).
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    Following the Compensation Discussion and Analysis, we have 
organized detailed disclosure of executive compensation into three 
broad categories:
    <bullet> Compensation with respect to the last fiscal year (and the 
two preceding fiscal years), as reflected in an amended Summary 
Compensation Table that presents compensation paid currently or 
deferred (including options, restricted stock and similar grants) and 
compensation consisting of current earnings or awards that are part of 
a plan, and as supplemented by a table providing back-up information 
for certain data in the Summary Compensation Table;
    <bullet> Holdings of equity-related interests that relate to 
compensation or are potential sources of future gains, with a focus on 
compensation-related equity interests that were awarded in prior years 
and are ``at risk,'' whether or not these interests are in-the-money, 
as well as recent realization on these interests, such as through 
vesting of restricted stock or the exercise of options and similar 
instruments; and
    <bullet> Retirement and other post-employment compensation, 
including retirement and deferred compensation plans, other retirement 
benefits and other post-employment benefits, such as those payable in 
the event of a change in control.
    We are requiring improved tabular disclosure for each of the above 
three categories and appropriate narrative disclosure that provides 
material information necessary to an understanding of the information 
presented in the individual tables.\50\ We have made some modifications 
from the proposal in response to comments.
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    \50\ This narrative disclosure, together with the Compensation 
Discussion and Analysis noted above, will replace the narrative 
discussion that was required in the Board Compensation Report on 
Executive Compensation prior to these amendments. The narrative 
disclosure, along with the rest of the amended executive officer and 
director compensation disclosure, other than the new Compensation 
Committee Report, will be company disclosure filed with the 
Commission.
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    In Release No. 33-8735, published elsewhere in the proposed rules 
section of this issue of the Federal Register and for which comments 
are due on or before October 23, 2006, we also solicit additional 
comments regarding the proposed disclosure requirement of the total 
compensation and job description of up to an additional three most 
highly compensated employees who are not

[[Page 53161]]

executive officers or directors but who earn more than the named 
executive officers. In particular, we have specific requests for 
comment as to whether the proposal should be modified to apply only to 
large accelerated filers who would disclose the total compensation for 
the most recent fiscal year and a description of the job position for 
each of their three most highly compensated employees whose total 
compensation is greater than any of the named executive officers, 
whether or not such persons are executive officers. Under this 
approach, employees who have no responsibility for significant policy 
decisions within either the company, a significant subsidiary or a 
principal business unit, division, or function, would be excluded from 
the determination of the three most highly compensated employees and no 
disclosure regarding them would be required.
    Finally, we are adopting a director compensation table that is 
similar to the amended Summary Compensation Table.\51\
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    \51\ We had proposed similar amendments, which we did not act 
on, regarding director compensation in 1995. Streamlining and 
Consolidation of Executive and Director Compensation Disclosure, 
Release No. 33-7184 (Aug. 6, 1995) [60 FR 35633] (the ``1995 
Release''), at Section I.B.
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    We also highlight in the release that the principles-based 
disclosure rules we are adopting today, including but not limited to 
the Compensation Discussion and Analysis section, may require 
disclosure of various aspects of a company's use of options in 
compensating its executives and directors, including any programs, 
plans or practices a company may have with regard to the timing or 
dating of option grants.
    We are also modifying, as proposed, some of the Form 8-K 
requirements regarding compensation. Form 8-K requires disclosure 
within four business days of the entry into, amendment of, and 
termination of, material definitive agreements that are entered into 
outside of the ordinary course of business. Under our definition of 
material contracts in Item 601 of Regulation S-K for the purposes of 
determining what exhibits are required to be filed, many agreements 
regarding executive compensation are deemed to be material agreements 
entered into outside the ordinary course. When, in 2004, for purposes 
of consistency, we looked to this definition for use in the Form 8-K 
requirements, we incorporated all of these executive compensation 
agreements into the Form 8-K disclosure requirements. Therefore, many 
agreements regarding executive compensation, including some not related 
to named executive officers, have been required to be disclosed on Form 
8-K within four business days of the applicable triggering event. 
Consistent with our intent that Form 8-K capture only events that are 
unquestionably or presumptively material to investors, we are today 
amending the Form 8-K requirements substantially as proposed.
    We believe that executive and director compensation is closely 
related to financial transactions and relationships involving companies 
and their directors, executive officers and significant shareholders 
and respective immediate family members. Disclosure requirements 
regarding these matters historically have been interconnected, given 
that relationships among these parties and the company can include 
transactions that involve compensation or analogous features. Such 
disclosure also represents material information in evaluating the 
overall relationship with a company's executive officers and directors. 
Further, this disclosure provides material information regarding the 
independence of directors. The related party transaction disclosure 
requirements were adopted piecemeal over the years and were combined 
into one disclosure requirement beginning in 1982.\52\ In light of many 
developments since then, including the increasing focus on corporate 
governance and director independence, we believe it is necessary to 
revise our requirements. Today's amendments update, clarify and 
somewhat expand the related party transaction disclosure requirements. 
The amendments fold into the disclosure requirements for related party 
transactions what had been a separate disclosure requirement regarding 
indebtedness of management and directors.\53\ Further, we are adopting 
a requirement that calls for a narrative explanation of the 
independence status of directors under a company's director 
independence policies. We intend this requirement to be consistent with 
recent significant changes to the listing standards of the nation's 
principal securities trading markets.\54\ We also are consolidating 
this and other corporate governance disclosure requirements regarding 
director independence and board committees, including new disclosure 
requirements about the compensation committee, into a single expanded 
disclosure item.\55\
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    \52\ Disclosure of Certain Relationships and Transactions 
Involving Management, Release No. 33-6441 (Dec. 2, 1982) [47 FR 
55661] (the ``1982 Release'').
    \53\ Prior to these amendments, related party transactions were 
disclosed under Item 404(a) of Regulations S-K and S-B, while 
indebtedness was separately required to be disclosed under Item 
404(c) of Regulation S-K.
    \54\ See, e.g., NASD and NYSE Rulemaking: Relating to Corporate 
Governance, Release No. 34-48745 (Nov. 4, 2003) [68 FR 64154] (the 
``NASD and NYSE Listing Standards Release''). This new requirement 
will replace the disclosure requirement about director relationships 
that could affect independence specified in Item 404(b) of 
Regulation S-K prior to these amendments.
    \55\ New Item 407 of Regulations S-K and S-B.
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    In order to ensure that these amended requirements result in 
disclosure that is clear, concise and understandable for investors, we 
are adding Rules 13a-20 and 15d-20 under the Exchange Act to require 
that most of the disclosure provided in response to the amended items 
be presented in plain English. This extends the plain English 
requirements currently applicable to portions of registration 
statements under the Securities Act to the disclosure required under 
the items that we have amended, which impose requirements for Exchange 
Act reports and proxy or information statements incorporated by 
reference into those reports.
    Finally, we are amending our beneficial ownership disclosure 
requirements as proposed to require disclosure of shares pledged by 
named executive officers, directors and director nominees, as well as 
directors' qualifying shares.\56\
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    \56\ Item 403(b) of Regulations S-K and S-B.
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II. Executive and Director Compensation Disclosure

    Executive and director compensation disclosure has been required 
since 1933, and the Commission has had disclosure rules in this area 
applicable to proxy statements since 1938. In 1992, the Commission 
proposed and adopted substantially revised rules that embody our 
current requirements.\57\ In doing so, the Commission moved away from 
narrative disclosure and back to using tables that permit comparability 
from year to year and from company to company. As we noted in the 
Proposing Release, although the reasoning behind this approach remains 
fundamentally sound, significant changes are appropriate. Much of the 
concern with the tables adopted in 1992 had also been their strength: 
they were highly formatted and rigid.\58\ Thus, information not 
specifically called for in the tables had sometimes not been provided. 
For example, the highly formatted and specific approach had led some to

[[Page 53162]]

suggest that items that did not fit squarely within a ``box'' specified 
by the rules need not have been disclosed.\59\ As another example, 
because the tables did not call for a single figure for total 
compensation, that information had generally not been provided prior to 
today's amendments, although there had been considerable commentary 
indicating that a single total figure is high on the list of 
information that some investors wish to have. To preserve the strengths 
of the former approach and build on them, we are taking several steps 
in adopting amendments to Item 402,\60\ substantially as we proposed:
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    \57\ 1992 Release.
    \58\ See, e.g., Council of Institutional Investors' Discussion 
Paper on Executive Pay Disclosure, Executive Compensation 
Disclosure: How it Works Now, How It Can Be Improved, at 11 
(available at www.cii.org/site_files/pdfs/CII%20pay%20primer%20edited.pdf).
    \59\ For examples, see, e.g., The Corporate Counsel (Sept.-Oct. 
2005) at 6-7; The Corporate Counsel (Sept.-Oct. 2004) at 7; but see 
Alan L. Beller, Director, Division of Corporation Finance, U.S. 
Securities and Exchange Commission, Remarks Before Conference of the 
NASPP, The Corporate Counsel and the Corporate Executive (Oct. 20, 
2004), available at www.sec.gov/news/speech/spch102004alb.htm.
    \60\ The discussion that follows focuses on amendments to Item 
402 of Regulation S-K, with Section II.D.1. explaining the different 
amendments to Item 402 of Regulation S-B. References throughout the 
following discussion are to Items of Regulation S-K, unless 
otherwise indicated.
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    <bullet> First, we are retaining the tabular approach to provide 
clarity and comparability while improving the tabular disclosure 
requirements;
    <bullet> Second, we are confirming that all elements of 
compensation must be included in the tables;
    <bullet> Third, we are providing a format for the amended Summary 
Compensation Table that requires disclosure of a single figure for 
total compensation; and
    <bullet> Finally, we are requiring narrative disclosure comprising 
both a general discussion and analysis of compensation and specific 
material information regarding tabular items where necessary to an 
understanding of the tabular disclosure.

A. Options Disclosure

1. Background
    Many companies use stock options to compensate their employees, 
including executives. In a simple stock option, a company may grant an 
employee the right to purchase a specified number of shares of the 
company's stock at a specific price, called the exercise price and 
usually set as the market price of the company's stock on the grant 
date. While some options require no future service from the employee, 
most include vesting provisions, such that the employee does not earn 
the option unless he remains employed by the company for a specified 
period of service. Often a company will grant a specific number of 
options that will then vest proportionately in staggered increments 
over a set time period. For example, if the grant vests at a rate of 
20% per year for five years, the option for the last 20% is earned by 
the employee's provision of five years of services. Most options become 
exercisable upon vesting and remain exercisable until their stated 
expiration. Generally, upon termination of the employment relationship, 
however, an employee loses unvested options, and has a limited term 
(e.g., 90 days) to exercise vested options.\61\
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    \61\ More complex stock options can include provisions that 
alter the terms of the instrument based on whether performance or 
other targets are met.
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    Options have most often been issued ``at-the-money''--i.e., with an 
exercise price equal to the market price of the underlying stock at the 
date of grant--but may also be issued either ``in-the-money''--i.e., 
with an exercise price below the market price of the underlying stock 
at the date of grant--or ``out-of-the-money''--i.e., with an exercise 
price above the market price of the underlying stock at the date of 
grant. An option holder benefits only when the company's stock price is 
above the exercise price when the employee exercises the option. Hence, 
setting a lower exercise price increases the value of the option.
    As some commentators have observed, using options for compensation 
purposes may have advantages. These commentators point out that, unlike 
salary and bonus compensation, stock option compensation does not 
require the payment of cash by the company, and therefore can be 
particularly attractive to companies for which cash is a scarce 
resource. Stock option compensation may also provide an incentive for 
employees to work to increase the company's stock price. Additionally, 
some companies may be able to use stock option compensation to help 
retain employees, because an employee with unvested in-the-money 
options forfeits their potential value if he leaves the company's 
employ.
    At the same time, other commentators stress that option 
compensation is not without costs and disadvantages. Options granted to 
employees, if ultimately exercised with the resulting issuance of the 
underlying stock, give rise to a dilution of the interests in the 
company held by existing stockholders. Options that are not in-the-
money may not provide a retention benefit, and some managers believe 
that options that fall out-of-the-money (or are ``underwater'') not 
only fail to motivate employees but, in fact, can result in poor 
employee morale and resultant turnover, especially at companies where 
option compensation is an important component of total compensation. In 
addition, options with shorter vesting periods or longer term options 
approaching their vesting dates may provide incentives to employees to 
focus on increasing the company's stock price in the short term rather 
than working toward achieving longer term business goals and objectives 
that would enable the company to achieve and sustain future success.
    The Commission does not seek to encourage or discourage the use of 
stock options or any other particular form of executive compensation. 
The federal securities laws, however, do require full and fair 
disclosure of compensation information to the extent material or 
required by Commission rule.
2. Required Option Disclosures
    The Commission acknowledged the importance to investors of proper 
disclosure of executives' option compensation throughout the Proposing 
Release. The existing body of rules regarding disclosure of executive 
stock option grants, however, has not previously contained a line-item 
requirement with respect to information regarding programs, plans or 
practices concerning the selection of stock option grant dates or 
exercise prices.\62\ The disclosure we proposed in January, along with 
related disclosure we also adopt today, should provide investors with 
more information about option compensation.\63\ We have summarized

[[Page 53163]]

below the various provisions of the rules that we adopt today that 
relate to options disclosure.\64\
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    \62\ Our existing rules for companies' disclosure do prohibit 
material misrepresentations of option grant dates, as well as any 
resulting material misstatements of affected financial statements. 
Companies are also required under our existing rules to disclose any 
material information that may be necessary to make their other 
disclosures, in the light of the circumstances under which they are 
made, not misleading. See, e.g., Rule 12b-20 under the Exchange Act 
[17 CFR 240.12b-20].
    \63\ We note that Exchange Act Rule 16a-3 [17 CFR 240.16a-3] 
setsforth the general reporting requirements under Exchange Act 
Section 16(a). Prior to August 2002, a number of transactions 
between an issuer and its officers or directors--such as the 
granting of options--were required to be disclosed following the end 
of the fiscal year in which the transaction took place although 
individuals could disclose those transactions earlier if they chose 
to. In implementing Section 403(a) of the Sarbanes-Oxley Act of 
2002, in August 2002, the Commission required immediate disclosure 
of these transactions for the first time. As a result, since August 
2002, grants, awards and other acquisitions of equity-based 
securities from the issuer, including those pursuant to employee 
benefit plans (which were previously reportable on an annual basis 
on Form 5) have been required to be reported by officers and 
directors on Form 4 within two business days. Ownership Reports and 
Trading by Officers, Directors and Principal Security Holders, 
Release No. 34-46421 (Aug. 27, 2002) [56 FR 56461] at Section II.B.
    \64\ We also note that under our rules regarding disclosure of 
director compensation, the concerns and considerations for 
disclosure of option timing or dating practices in the executive 
compensation realm would also apply when the recipients of the stock 
option grants are directors of the company.
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a. Tabular Disclosures
    The following disclosures are required in the tables we adopt 
today. These provisions are discussed in more detail later in the 
section relating to each particular table.
    <bullet> As proposed and adopted, grants of stock options will be 
disclosed in the Summary Compensation Table at their fair value on the 
date of grant, as determined under FAS 123R. By basing the executive 
compensation disclosure on the full grant date fair value computed in 
accordance with FAS 123R, companies will give shareholders an accurate 
picture of the value of options at the time they are actually granted 
to the highest-paid executive officers.\65\
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    \65\ Item 402(c)(2)(vi).
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    <bullet> A separate table including disclosure of equity awards, 
the Grants of Plan-Based Awards Table, requires disclosure of the grant 
date as determined pursuant to FAS 123R.\66\ The grant date is 
generally considered the day the decision is made to award the option 
as long as recipients of the award are notified promptly. Even if the 
option's exercise price is set based on trading prices as of an earlier 
date or dates, the grant date does not change.
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    \66\ Item 402(d)(2)(ii) and Item 402(a)(6)(iv).
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    <bullet> If the exercise price is less than the closing market 
price of the underlying security on the date of the grant, a separate, 
adjoining column would have to be added to this table showing that 
market price on the date of the grant.\67\
---------------------------------------------------------------------------

    \67\ Item 402(d)(2)(vii).
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    <bullet> If the grant date is different from the date the 
compensation committee or full board of directors takes action or is 
deemed to take action to grant an option, a separate, adjoining column 
would have to be added to this table showing the date the compensation 
committee or full board of directors took action or was deemed to take 
action to grant the option.\68\
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    \68\ Item 402(d)(2)(ii).
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    Further, if the exercise or base price of an option grant is not 
the closing market price per share on the grant date, we require a 
description of the methodology for determining the exercise or base 
price.\69\
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    \69\ Instruction 3 to Item 402(d).
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b. Compensation Discussion and Analysis
    Companies will also be required to address matters relating to 
executives' option compensation in the new Compensation Discussion and 
Analysis section, particularly as they relate to the timing and pricing 
of stock option grants. Without being an exhaustive list, several of 
the examples provided in Item 402(b)(2) illustrate how these types of 
issues and questions might be covered in a company's disclosure. For 
example, Item 402(b)(2)(iv) shows that how the determination is made as 
to when awards are granted could be required disclosure. This example 
was included in part to note that material information to be disclosed 
under Compensation Discussion and Analysis may include the reasons a 
company selects particular grant dates for awards, such as for stock 
options. Similarly, other examples we provide in Item 402(b)(2) 
illustrate how the material information to be disclosed under 
Compensation Discussion and Analysis might need to include the methods 
a company uses to select the terms of awards, such as the exercise 
prices of stock options.
i. Timing of Option Grants
    We understand that some companies grant options in coordination 
with the release of material non-public information. If the company had 
since the beginning of the last fiscal year, or intends to have during 
the current fiscal year, a program, plan or practice to select option 
grant dates for executive officers in coordination with the release of 
material non-public information, the company should disclose that in 
the Compensation Discussion and Analysis section. For example, a 
company may grant awards of stock options while it knows of material 
non-public information that is likely to result in an increase in its 
stock price, such as immediately prior to a significant positive 
earnings or product development announcement. Such timing could occur 
in at least two ways:
    <bullet> The company grants options just prior to the release of 
material non-public information that is likely to result in an increase 
in its stock price (whether the date of that release of material non-
public information is a regular date or otherwise pre-announced, or 
not); or
    <bullet> The company chooses to delay the release of material non-
public information that is likely to result in an increase in its stock 
price until after a stock option grant date.
    Although the facts would be slightly different, a company also may 
coordinate its grant of stock options with the release of negative 
material non-public information. Again, such timing could occur in at 
least two ways:
    <bullet> The company delays granting options until after the 
release of material non-public information that is likely to result in 
a decrease in its stock price; or
    <bullet> The company chooses to release material non-public 
information that is likely to result in a decrease in its stock price 
prior to an upcoming stock option grant.
    The Commission does not express a view as to whether or not a 
company may or may not have valid and sufficient reasons for such 
timing of option grants, consistent with a company's own business 
purposes. Some commentators have expressed the view that following 
these practices may enable a company to receive more benefit from the 
incentive or retention effect of options because recipients may value 
options granted in this manner more highly or because doing so provides 
an immediate incentive for employee retention because an employee who 
leaves the company forfeits the potential value of unvested, in-the-
money options. Other commentators believe that timing option grants in 
connection with the release of material non-public information may 
unfairly benefit executives and employees.
    Regardless of the reasons a company or its board may have, the 
Commission believes that in many circumstances the existence of a 
program, plan or practice to time the grant of stock options to 
executives in coordination with material non-public information would 
be material to investors and thus should be fully disclosed in keeping 
with the rules we adopt today. Consistent with principles-based 
disclosure, companies should consider their own facts and circumstances 
and include all relevant material information in their corresponding 
disclosures.\70\ If the company has such a program, plan or practice, 
the company should disclose that the board of directors or compensation 
committee may grant options at times when the board or committee is in 
possession of material non-public information. Companies might also 
need to consider disclosure about how the board or compensation 
committee takes such information into

[[Page 53164]]

account when determining whether and in what amount to make those 
grants.
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    \70\ Relevant material information might include disclosure in 
response to the examples in Item 402(b)(2) in the Compensation 
Discussion and Analysis section, discussed below.
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    Although it is not an exhaustive list, there are some elements and 
questions about option timing to which we believe a company should pay 
particular attention when drafting the appropriate corresponding 
disclosure.
    <bullet> Does a company have any program, plan or practice to time 
option grants to its executives in coordination with the release of 
material non-public information?
    <bullet> How does any program, plan or practice to time option 
grants to executives fit in the context of the company's program, plan 
or practice, if any, with regard to option grants to employees more 
generally?
    <bullet> What was the role of the compensation committee in 
approving and administering such a program, plan or practice? How did 
the board or compensation committee take such information into account 
when determining whether and in what amount to make those grants? Did 
the compensation committee delegate any aspect of the actual 
administration of a program, plan or practice to any other persons?
    <bullet> What was the role of executive officers in the company's 
program, plan or practice of option timing?
    <bullet> Does the company set the grant date of its stock option 
grants to new executives in coordination with the release of material 
non-public information?
    <bullet> Does a company plan to time, or has it timed, its release 
of material non-public information for the purpose of affecting the 
value of executive compensation?
    Disclosure would also be required where a company has not 
previously disclosed a program, plan or practice of timing option 
grants, but has adopted such a program, plan or practice or has made 
one or more decisions since the beginning of the past fiscal year to 
time option grants.
ii. Determination of Exercise Price
    Separate from these timing issues, some companies may have a 
program, plan or practice of awarding options and setting the exercise 
price based on the stock's price on a date other than the actual grant 
date. Such a program, plan or practice would also require disclosure, 
including, as appropriate, in the tables described in II.A.2.a above 
and in the Compensation Discussion and Analysis section. Again, as with 
the timing matters discussed above, companies should consider their own 
facts and circumstances and include all relevant material information 
in their corresponding disclosures.
    Similar to such a practice of setting the exercise price based on a 
date other than the actual grant date, some companies have provisions 
in their option plans or have followed practices for determining the 
exercise price by using formulas based on average prices (or lowest 
prices) of the company's stock in a period preceding, surrounding or 
following the grant date. In some cases these provisions may increase 
the likelihood that recipients will be granted in-the-money options. As 
these provisions or practices relate to a material term of a stock 
option grant, they should be discussed in the Compensation Discussion 
and Analysis section.

B. Compensation Discussion and Analysis

    We are adopting a new Compensation Discussion and Analysis 
section.\71\ As we proposed, this section will be an overview providing 
narrative disclosure that puts into context the compensation disclosure 
provided elsewhere.\72\ Commenters generally supported the new 
Compensation Discussion and Analysis section.\73\ This overview will 
explain material elements of the particular company's compensation for 
named executive officers by answering the following questions:
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    \71\ Item 402(b). In addition to the narrative Compensation 
Discussion and Analysis, we are amending the rules so that, to the 
extent material, additional narrative disclosure will be provided 
following certain tables to supplement the disclosure in the table. 
See, e.g., Section II.C.3.a., discussing the narrative disclosure to 
the Summary Compensation Table and the Grants of Plan-Based Awards 
Table. We are also requiring disclosure of compensation committee 
procedures and processes as well as information regarding 
compensation committee interlocks and insider participation in 
compensation decisions as part of new Item 407 of Regulation S-K. 
See Section V.D., below.
    \72\ See Jeffrey N. Gordon, Executive Compensation: What's the 
Problem, What's the Remedy? The Case for Compensation Discussion and 
Analysis, 30 J. Corp. L. 695 (2005) (arguing that the Commission 
should require proxy disclosure that includes a ``Compensation 
Discussion and Analysis'' section that collects and summarizes all 
the compensation elements for senior executives, providing a 
``bottom line assessment'' of the different compensation elements 
and an explanation as to why the board thinks such compensation is 
warranted).
    \73\ See, e.g., letters from British Columbia Investment 
Management Corporation (``BCIMC''); Leo J. Burns (``L. Burns''); CFA 
Centre for Financial Market Integrity, dated April 13, 2006 (``CFA 
Centre 1''); Chamber of Commerce of the United States of America 
(``Chamber of Commerce''); Board of Fire and Police Pension 
Commissioners of the City of Los Angeles (``F&P Pension Board''); 
F&C Asset Management; Foley & Lardner LLP (``Foley''); Hermes 
Investment Management Limited; Governance for Owners USA, Inc. 
(``Governance for Owners''); International Association of Machinists 
and Aerospace Workers (``IAM''); Board of Trustees of the 
International Brotherhood of Electrical Workers Pension Benefit Fund 
(``IBEW PBF''); International Brotherhood of Teamsters 
(``Teamsters''); Remuneration Committee of the International 
Corporate Governance Network; Investment Company Institute 
(``ICI''); Institutional Shareholder Services (``ISS''); jointly, 
California Public Employees' Retirement System, California State 
Teachers' Retirement System, Co-operative Insurance Society--UK, F&C 
Asset Management--UK, Illinois State Board of Investment, London 
Pensions Fund Authority--UK, New York State Common Retirement Fund, 
New York City Pension Funds, Ontario Teachers' Pension Plan, PGGM 
Investments--Netherlands, Public Sector and Commonwealth Super (PSS/
CSS)--Australia, RAILPEN Investments--UK, State Board of 
Administration (SBA) of Florida, Stichting Pensioenfonds ABP--
Netherlands, UniSuper Limited--Australia, and Universities 
Superannuation Scheme--UK (``Institutional Investors Group''); The 
Pension Boards--United Church of Christ (``PB-UCC''); State of 
Wisconsin Investment Board; and T. Rowe Price Associates, Inc.
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    <bullet> What are the objectives of the company's compensation 
programs?
    <bullet> What is the compensation program designed to reward?
    <bullet> What is each element of compensation?
    <bullet> Why does the company choose to pay each element?
    <bullet> How does the company determine the amount (and, where 
applicable, the formula) for each element?
    <bullet> How do each element and the company's decisions regarding 
that element fit into the company's overall compensation objectives and 
affect decisions regarding other elements?
    As proposed, the second question also asked what the compensation 
program is designed not to reward. Commenters stated that compensation 
committees often may not consider this objective in developing 
compensation programs, expressing concern that the question could 
generate potentially limitless disclosure that would not add meaning to 
disclosure of what the compensation program is designed to award.\74\ 
In response to this concern, we have not included this question in the 
rule as adopted.
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    \74\ See, e.g., letters from American Bar Association, Committee 
on Federal Regulation of Securities (``ABA''); Committee on 
Securities Regulation of the New York City Bar (``NYCBA''); and 
WorldatWork (``WorldatWork'').
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1. Intent and Operation of the Compensation Discussion and Analysis
    The purpose of the Compensation Discussion and Analysis disclosure 
is to provide material information about the compensation objectives 
and policies for named executive officers without resorting to 
boilerplate disclosure. The Compensation Discussion and Analysis is 
intended to put into perspective for investors the numbers and 
narrative that follow it.

[[Page 53165]]

    As described in the Proposing Release and as adopted, the 
Compensation Discussion and Analysis requirement is principles-based, 
in that it identifies the disclosure concept and provides several 
illustrative examples. Some commenters suggested that a principles-
based approach would be better served without examples, on the theory 
that ``laundry lists'' would lead to boilerplate.\75\ Other commenters 
expressed the opposite view--that more specific description of required 
disclosure topics would more effectively elicit meaningful 
disclosure.\76\
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    \75\ See, e.g., letter from Curt Kollar (``C. Kollar'').
    \76\ See, e.g., letters from CFA Centre 1 and Hewitt Associates 
LLC (``Hewitt'').
---------------------------------------------------------------------------

    As we explained in the Proposing Release, overall we designed the 
proposals to state the requirements sufficiently broadly to continue 
operating effectively as future forms of compensation develop, without 
suggesting that items that do not fit squarely within a ``box'' 
specified by the rules need not be disclosed. We believe that the 
adopted principles-based Compensation Discussion and Analysis, 
utilizing a disclosure concept along with illustrative examples, 
strikes an appropriate balance that will effectively elicit meaningful 
disclosure, even as new compensation vehicles develop over time.
    We wish to emphasize, however, that the application of a particular 
example must be tailored to the company and that the examples are non-
exclusive. We believe using illustrative examples helps to identify the 
types of disclosure that may be applicable. A company must assess the 
materiality to investors of the information that is identified by the 
example in light of the particular situation of the company. We also 
note that in some cases an example may not be material to a particular 
company, and therefore no disclosure would be required. Because the 
scope of the Compensation Discussion and Analysis is intended to be 
comprehensive, a company must address the compensation policies that it 
applies, even if not included among the examples. The Compensation 
Discussion and Analysis should reflect the individual circumstances of 
a company and should avoid boilerplate disclosure.
    We have adopted, substantially as proposed, the following examples 
of the issues that would potentially be appropriate for the company to 
address in given cases in the Compensation Discussion and Analysis:
    <bullet> Policies for allocating between long-term and currently 
paid out compensation;
    <bullet> Policies for allocating between cash and non-cash 
compensation, and among different forms of non-cash compensation;
    <bullet> For long-term compensation, the basis for allocating 
compensation to each different form of award;
    <bullet> How the determination is made as to when awards are 
granted, including awards of equity-based compensation such as options;
    <bullet> What specific items of corporate performance are taken 
into account in setting compensation policies and making compensation 
decisions;
    <bullet> How specific elements of compensation are structured and 
implemented to reflect these items of the company's performance and the 
executive's individual performance;
    <bullet> The factors considered in decisions to increase or 
decrease compensation materially;
    <bullet> How compensation or amounts realizable from prior 
compensation are considered in setting other elements of compensation 
(e.g., how gains from prior option or stock awards are considered in 
setting retirement benefits);
    <bullet> The impact of accounting and tax treatments of a 
particular form of compensation;
    <bullet> The company's equity or other security ownership 
requirements or guidelines and any company policies regarding hedging 
the economic risk of such ownership;
    <bullet> Whether the company engaged in any benchmarking of total 
compensation or any material element of compensation, identifying the 
benchmark and, if applicable, its components (including component 
companies); and
    <bullet> The role of executive officers in the compensation 
process.
    At the suggestion of a commenter,\77\ we have expanded the example 
addressing how specific forms of compensation are structured to reflect 
company performance to also address implementation. We have made a 
similar change with regard to the example regarding the executive's 
individual performance.\78\ As adopted, this example includes not only 
whether discretion can be exercised (either to award compensation 
absent attainment of the relevant performance goal(s) or to reduce or 
increase the size of any award or payout), as proposed, but also 
whether such discretion has been exercised. By doing this, we move to 
the Compensation Discussion and Analysis overview an example of a 
material factor that had been proposed for the narrative disclosure 
that follows the Summary Compensation Table,\79\ and expand its scope 
so that it is no longer limited to non-equity incentive plans. Because 
of the policy significance of decisions to waive or modify performance 
goals, we believe that they are more appropriately discussed in the 
Compensation Discussion and Analysis.
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    \77\ See letter from ABA.
    \78\ We have also reordered this example, so it is clearer that 
the items of company performance referenced are the ones noted in 
the immediately preceding example.
    \79\ This example had been proposed as Item 402(f)(1)(iv).
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    As discussed in Section II.A. above, a company's policies, programs 
and practices regarding the award of stock options and other equity-
based instruments to compensate executives may require disclosure and 
discussion in the Compensation Discussion and Analysis. As with all 
disclosure in the Compensation Discussion and Analysis, a company must 
evaluate the specific facts and circumstances of its grants of options 
and equity-based instruments and provide such disclosure if it supplies 
material information about the company's compensation objectives and 
policies for named executive officers.
    Further in response to comment,\80\ we have revised the example 
addressing how the determination is made as to when awards are granted 
so that it is not limited to equity-based compensation, as was 
proposed, but we clarify in the rule as adopted that it would include 
equity-based compensation, such as stock options.\81\ Regarding the 
example noting the impact of accounting and tax treatments of a 
particular form of compensation, some commenters urged that companies 
be required to continue to disclose their Internal Revenue Code Section 
162(m) policy.\82\ The adoption of this example should not be construed 
to eliminate this discussion. Rather, this example indicates more 
broadly that any tax or accounting treatment, including but not limited 
to Section 162(m), that is material to the company's compensation 
policy or decisions with respect to a named

[[Page 53166]]

executive officer is covered by Compensation Discussion and Analysis. 
Tax consequences to the named executive officers, as well as tax 
consequences to the company, may fall within this example.
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    \80\ See letter from ABA.
    \81\ This example is discussed in more detail above in Section 
II.A., the discussion of stock option disclosure.
    \82\ See, e.g., letters from Buck Consultants; Frederic W. Cook 
& Co., Inc., dated March 9, 2006 (``Frederic W. Cook & Co.''); 
Thomas Rogers; and WorldatWork. The Commission has construed the 
Board Compensation Committee Report on Executive Compensation (which 
had been required to be furnished by Item 402(k) prior to these 
amendments) to require discussion of this policy. 1993 Release at 
Section III.
---------------------------------------------------------------------------

    In addition, we have followed commenters' recommendations to add 
the following specific examples addressing additional factors:
    <bullet> Company policies and decisions regarding the adjustment or 
recovery of awards or payments if the relevant company performance 
measures upon which they are based are restated or otherwise adjusted 
in a manner that would reduce the size of an award or payment; \83\ and
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    \83\ See, e.g., letters from Amalgamated Bank Long-View Funds 
(``Amalgamated''); CFA Centre 1; and Council of Institutional 
Investors, dated March 29, 2006 (``CII''). Section 304 of the 
Sarbanes-Oxley Act of 2002 [codified at 15 U.S.C. 7243] provides 
that if a company is required to prepare an accounting restatement 
due to the material noncompliance of the issuer, as a result of 
misconduct, with any financial reporting requirement under the 
securities laws, the principal executive officer and principal 
financial officer of the company shall reimburse the company for any 
bonus or other incentive-based or equity-based compensation received 
by that person from the company during the 12-month period following 
the first public issuance or filing with the Commission (whichever 
first occurs) of the financial document embodying such financial 
reporting requirement, and any profits realized from the sale of 
securities of the company during that 12-month period. This example 
would not necessarily be limited to policies covering only 
situations contemplated by Section 304.
---------------------------------------------------------------------------

    <bullet> The basis for selecting particular events as triggering 
payment with respect to post-termination agreements (e.g., the 
rationale for providing a single trigger for payment in the event of a 
change-in-control).\84\
---------------------------------------------------------------------------

    \84\ See letter from Anonymous, dated April 10, 2006.
---------------------------------------------------------------------------

    Commenters also requested clarification as to whether Compensation 
Discussion and Analysis is limited to compensation for the last fiscal 
year, like the former Board Compensation Committee Report on Executive 
Compensation that was required prior to these amendments.\85\ While the 
Compensation Discussion and Analysis must cover this subject, the 
Compensation Discussion and Analysis may also require discussion of 
post-termination compensation arrangements, on-going compensation 
arrangements, and policies that the company will apply on a going-
forward basis.\86\ Compensation Discussion and Analysis should also 
cover actions regarding executive compensation that were taken after 
the last fiscal year's end. Actions that should be addressed might 
include, as examples only, the adoption or implementation of new or 
modified programs and policies or specific decisions that were made or 
steps that were taken that could affect a fair understanding of the 
named executive officer's compensation for the last fiscal year. 
Moreover, in some situations it may be necessary to discuss prior years 
in order to give context to the disclosure provided.
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    \85\ See, e.g., letters from Buck Consultants; Frederic W. Cook 
& Co.; and Mercer Human Resource Consulting, Inc., dated April 10, 
2006 (``Mercer'').
    \86\ Forward looking information in the Compensation Discussion 
and Analysis will fall within the safe harbors for disclosure of 
such information. See, e.g., Securities Act Section 27A [15 U.S.C. 
77z-2] and Exchange Act Section 21E [15 U.S.C. 78u-5].
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    The Compensation Discussion and Analysis should be sufficiently 
precise to identify material differences in compensation policies and 
decisions for individual named executive officers where appropriate. 
Where policies or decisions are materially similar, officers can be 
grouped together. Where, however, the policy or decisions for a named 
executive officer are materially different, for example in the case of 
a principal executive officer, his or her compensation should be 
discussed separately.
2. Instructions to Compensation Discussion and Analysis
    We are adopting instructions to make clear that the Compensation 
Discussion and Analysis should focus on the material principles 
underlying the company's executive compensation policies and decisions, 
and the most important factors relevant to analysis of those policies 
and decisions, without using boilerplate language or repeating the more 
detailed information set forth in the tables and related narrative 
disclosures that follow. The instructions also provide that the 
Compensation Discussion and Analysis should concern the information 
contained in the tables and otherwise disclosed.\87\ Because this 
section is intended to provide meaningful analysis, it may specifically 
refer to the tabular or other disclosures where helpful to make the 
discussion more robust. A commenter raised a concern that the 
instruction not to repeat information set forth in the other 
disclosures might somehow limit the disclosure made in Compensation 
Discussion and Analysis.\88\ We have revisited this instruction, which 
is intended to encourage analysis and to forestall mere repetition of 
the information in the tables, to provide that repetition and 
boilerplate language should be avoided. The instruction does not 
prohibit or discourage discussion of that specific information.
---------------------------------------------------------------------------

    \87\ Instruction 2 to Item 402(b).
    \88\ See letter from ABA.
---------------------------------------------------------------------------

    We are adopting an instruction to make clear that, as was the case 
with the Board Compensation Committee Report on Executive Compensation 
required prior to the adoption of these amendments, companies are not 
required to disclose target levels with respect to specific 
quantitative or qualitative performance-related factors considered by 
the compensation committee or the board of directors, or any other 
factors or criteria involving confidential trade secrets or 
confidential commercial or financial information, the disclosure of 
which would result in competitive harm to the company.\89\ Some 
commenters objected that this instruction would impair the quality of 
information disclosed by making it difficult to assess the link between 
pay and company performance, and suggested that competitive harm would 
be mitigated if disclosure were required on an after-the-fact basis, 
after the performance related to the award is measured.\90\ Different 
commenters stated that performance targets often are based on 
confidential, competitively sensitive business plans, and that 
requiring disclosure could encourage the use of more generic targets 
that could hinder a company's goal of pay-for-performance.\91\ Other 
commenters observed that companies rarely use a performance metric for 
a single year or plan cycle, but select measures because of their 
relevance to the company's business strategy over several years, so 
that even disclosure on an after-the-fact basis could reveal 
proprietary business information that would be useful to 
competitors.\92\ Having considered these comments, we remain persuaded 
that this disclosure, even on an after-the-fact basis could pose 
significant risk of competitive harm and we are therefore not requiring 
it in those cases in which the factors or criteria considered involve 
confidential trade secrets or confidential commercial or financial 
information, the disclosure of which would result in competitive harm 
to the company.
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    \89\ Instruction 4 to Item 402(b). Prior to these amendments, 
Instruction 2 to Item 402(k) had provided a similar exclusion for 
this type of information.
    \90\ See, e.g., letters from American Federation of Labor and 
Congress of Industrial Organizations, dated April 5, 2006 (``AFL-
CIO''); CII; Governance for Owners; IAM; and The Honorable Barney 
Frank, United States Representative (MA).
    \91\ See, e.g., letter from Sullivan & Cromwell LLP 
(``Sullivan'').
    \92\ See, e.g., letter from Mercer.
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    As noted in the Proposing Release, in applying this instruction, we 
intend the standard for companies to use in making a determination that 
this information

[[Page 53167]]

does not have to be disclosed to be the same one that would apply when 
companies request confidential treatment of confidential trade secrets 
or confidential commercial or financial information that otherwise is 
required to be disclosed in registration statements, periodic reports 
and other documents filed with us.\93\ Under this approach, to the 
extent a performance target has otherwise been disclosed publicly, non-
disclosure pursuant to this instruction would not be permitted. To make 
these standards clearer and respond to commenters' concerns that 
companies may exploit the instruction to exclude information in 
inappropriate circumstances, we are revising this instruction as 
adopted to clearly apply the same standard as for confidential 
treatment requests. Companies will not be required, however, to submit 
confidential treatment requests in order to rely on the 
instruction.\94\ To mitigate commenters' concerns that omission of 
specific performance targets would impair the quality of disclosure, 
the instruction requires additional disclosure regarding the 
significance of the undisclosed target. Specifically, if the company 
uses target levels for specific quantitative or qualitative 
performance-related factors, or other factors or criteria that it does 
not disclose in reliance on the instruction, the company must discuss 
how difficult it will be for the executive or how likely it will be for 
the company to achieve the undisclosed target levels or other factors. 
In addition, as discussed below, the Compensation Discussion and 
Analysis will be considered soliciting material and will be filed with 
the Commission. This disclosure will be subject to review by the 
Commission and its staff. Therefore, if a company uses target levels 
that otherwise would need to be disclosed but does not disclose them in 
reliance on the instruction, the company may be required to demonstrate 
to the Commission or its staff that the particular factors or criteria 
involve confidential trade secrets or confidential commercial or 
financial information and why disclosure would result in competitive 
harm. If the Commission or its staff ultimately determines that a 
company has not met these standards, then the company will be required 
to disclose publicly the factors or criteria used. In response to a 
commenter's concern,\95\ we have also added an instruction to clarify 
that disclosure of a target level that applies a non-GAAP financial 
measure will not be subject to the general rules regarding disclosure 
of non-GAAP financial measures but the company must disclose how the 
number is calculated from the audited financial statements.\96\
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    \93\ See Securities Act Rule 406 [17 CFR 230.406], Exchange Act 
Rule 24b-2 [17 CFR 240.24b-2], Exemption 4 of the Freedom of 
Information Act [5 U.S.C. 552(b)(4)], and Rule 80(b)(4) promulgated 
under the Freedom of Information Act [17 CFR 200.80(b)(4)].
    \94\ While the instruction adopted today, like the instruction 
that it replaces, does not require a company to seek confidential 
treatment under the procedures in Securities Act Rule 406 and 
Exchange Act Rule 24b-2 with regard to the exclusion of the 
information from the disclosure provided in response to this item, 
the standards specified in Securities Act Rule 406, Exchange Act 
Rule 24b-2, Exemption 4 of the Freedom of Information Act and Rule 
80(b)(4) promulgated under the Freedom of Information Act still 
apply and are subject to review and comment by the staff of the 
Commission.
    \95\ See letter from ABA.
    \96\ Instruction 5 to Item 402(b). The non-GAAP financial 
measure provisions are specified in Regulation G [17 CFR 244.100-
102], Item 10(e) of Regulation S-K [17 CFR 229.10] and Item 10(h) of 
Regulation S-B [17 CFR 228.10].
---------------------------------------------------------------------------

    One commenter stated that the Compensation Discussion and Analysis 
of a new public company should be permitted to be a prospective-only 
discussion.\97\ While we agree the most significant disclosure in that 
situation may be future plans, we do not believe a prospective-only 
discussion is appropriate. Instead, companies may emphasize the new 
plans or policies.
---------------------------------------------------------------------------

    \97\ See letter from ABA.
---------------------------------------------------------------------------

3. ``Filed'' Status of Compensation Discussion and Analysis and the 
``Furnished'' Compensation Committee Report
    We proposed that the Compensation Discussion and Analysis would be 
considered a part of the proxy statement and any other filing in which 
it was included. Unlike the Board Compensation Committee Report on 
Executive Compensation that was required prior to these amendments, we 
proposed that the Compensation Discussion and Analysis would be 
soliciting material and would be filed with the Commission. Therefore, 
it would be subject to Regulation 14A or 14C and to the liabilities of 
Section 18 of the Exchange Act.\98\ In addition, to the extent that the 
Compensation Discussion and Analysis and any of the other disclosure 
regarding executive officer and director compensation or other matters 
are included or incorporated by reference into a periodic report, the 
disclosure would be covered by the certifications that principal 
executive officers and principal financial officers are required to 
make under the Sarbanes-Oxley Act of 2002.\99\ Likewise, a company's 
disclosure controls and procedures \100\ apply to the preparation of 
the company's proxy statement and Form 10-K, including the Compensation 
Discussion and Analysis.
---------------------------------------------------------------------------

    \98\ 15 U.S.C. 78r.
    \99\ Exchange Act Rules 13a-14 [17 CFR 240.13a-14] and 15d-14 
[17 CFR 240.15d-14]. See also Certification of Disclosure in 
Companies' Quarterly and Annual Reports, Release No. 34-46427 (Aug. 
29, 2002) [67 FR 57275], at n. 35 (the ``Certification Release'') 
(stating that ``the certification in the annual report on Form 10-K 
or 10-KSB would be considered to cover the Part III information in a 
registrant's proxy or information statement as and when filed'').
    \100\ Exchange Act Rules 13a-15 [17 CFR 240.13a-15] and 15d-15 
[17 CFR 240.15d-15].
---------------------------------------------------------------------------

    We noted in the Proposing Release that in adopting the rules that 
have applied since 1992, the Commission took into account comments that 
the Board Compensation Committee Report on Executive Compensation 
should be furnished rather than filed to allow for more open and robust 
discussion in the reports.\101\ The Board Compensation Committee 
Reports on Executive Compensation that were provided prior to today's 
amendments in general did not suggest that this treatment resulted in 
such discussion, nor the more transparent disclosure that the comments 
suggested would result.\102\ Further, we noted that we believe that it 
is appropriate for companies to take responsibility for disclosure 
involving board matters as with other disclosure.
---------------------------------------------------------------------------

    \101\ 1992 Release, at Section II.H.
    \102\ See also Martin D. Mobley, Compensation Committee Reports 
Post-Sarbanes-Oxley: Unimproved Disclosure for Executive 
Compensation Policies and Practices, 2005 Colum. Bus. L. Rev. 111 
(2005).
---------------------------------------------------------------------------

    Some commenters supported the proposal to have the Compensation 
Discussion and Analysis filed, noting among other things that filing 
should lead to increased accuracy and better disclosure.\103\ Other 
commenters objected to this treatment, claiming that certification by 
principal executive officers and principal financial officers with 
regard to the disclosure included in the annual report on Form 10-K, 
including particularly the Compensation Discussion and Analysis, would 
inappropriately insert these officers into the compensation

[[Page 53168]]

committee's deliberative process, potentially calling into question the 
committee's independence.\104\ Further, many commenters expressed the 
view that the Compensation Discussion and Analysis should, in effect, 
be the report of the compensation committee, submitted under the names 
of its members, for which they should be accountable.\105\
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    \103\ See, e.g., letters from AFL-CIO; American Federation of 
State, County and Municipal Employees; California Public Employees' 
Retirement System (``CalPERS''); Paul Hodgson, Senior Research 
Associate, Executive and Board Compensation, the Corporate Library 
(``Corporate Library''); Connecticut Retirement Plans and Trust 
Funds, dated April 10, 2006 (``CRPTF''); Southwestern Pennsylvania 
and Western Maryland Area Teamsters and Employers Pension Fund 
(``Teamsters PA/MD''); Teamsters Local 671 Health Services and 
Insurance Plan (``Teamsters Local 671''); Walden Asset Management 
(``Walden''); and Western PA Teamsters & Employers Welfare Fund 
(``Western PA Teamsters Fund'').
    \104\ See, e.g., letters from The Corporate & Securities Law 
Committee and the Employment & Labor Law Committee of the 
Association of Corporate Counsel (``ACC''); Compass Bancshares, Inc. 
(``Compass Bancshares''); National Association of Manufacturers 
(``NAM''); Peabody Energy Corporation (``Peabody Energy''); and 
WorldatWork.
    \105\ See, e.g., letters from Jesse Brill, Chair of 
CompensationStandards.com and Chair of the National Association of 
Stock Plan Professionals, dated March 1, 2006 (``J. Brill 1''); CFA 
Centre 1; CRPTF; Frederic W. Cook & Co.; and Hewitt.
---------------------------------------------------------------------------

    Some of these objections may reflect a misconception of the purpose 
of the Compensation Discussion and Analysis. Although the Compensation 
Discussion and Analysis discusses company compensation policies and 
decisions, the Compensation Discussion and Analysis does not address 
the deliberations of the compensation committee, and is not a report of 
that committee. Consequently, in certifying the Compensation Discussion 
and Analysis, principal executive officers and principal financial 
officers will not need to certify as to the compensation committee 
deliberations.
    However, in response to concerns of commenters that compensation 
committees should continue to be focused on the executive compensation 
disclosure process, we are adopting a Compensation Committee Report 
similar to the Audit Committee Report.\106\ Drawing on commenters' 
suggestions for a new Compensation Committee Report,\107\ the rules we 
adopt today require the compensation committee to state whether:
---------------------------------------------------------------------------

    \106\ We are moving the audit committee report previously 
required by Item 306 of Regulations S-K and S-B to Item 407(d) under 
the amendments adopted today. See Section V.D., below.
    \107\ See, e.g., letters from J. Brill 1; California State 
Teachers' Retirement System (``CalSTRS''); CFA Centre 1; and 
Professor William J. Heisler.
---------------------------------------------------------------------------

    <bullet> The compensation committee has reviewed and discussed the 
Compensation Discussion and Analysis with management; and
    <bullet> Based on the review and discussions, the compensation 
committee recommended to the board of directors that the Compensation 
Discussion and Analysis be included in the company's annual report on 
Form 10-K and, as applicable, the company's proxy or information 
statement.
    Unlike the Audit Committee Report, the Compensation Committee 
Report will be required to be included or incorporated by reference 
into the company's annual report on Form 10-K, so that it is presented 
along with the Compensation Discussion and Analysis when that 
disclosure is provided in the Form 10-K or incorporated by reference 
from a proxy or information statement.\108\ Like the Audit Committee 
Report, the Compensation Committee Report will only be required one 
time during any fiscal year.\109\ The name of each member of the 
company's compensation committee (or, in the absence of a compensation 
committee, the persons performing equivalent functions or the entire 
board of directors) must appear below the disclosure.\110\ This report 
will be ``furnished'' rather than ``filed.'' The principal executive 
officer and principal financial officer will be able to look to the 
Compensation Committee Report in providing their certifications 
required under Exchange Act Rules 13a-14 and 15d-14.\111\
---------------------------------------------------------------------------

    \108\ The audit committee report is only required in a company 
proxy or information statement relating to an annual meeting of 
security holders at which directors are to be elected (or special 
meeting or written consents in lieu of such meeting). See 
Instruction 3 to Item 407(d).
    \109\ Instruction 3 to Item 407(e)(5). The audit committee 
instruction is specified in Instruction 2 to Item 407(d).
    \110\ Item 407(e)(5)(ii).
    \111\ We note that one commenter suggested that the Compensation 
Discussion and Analysis should not be required of companies that 
have only registered the offer and sale of debt securities. See 
letter from Financial Security Assurance Holdings Ltd. The 
Compensation Discussion and Analysis is intended to put into 
perspective for investors the numbers and narrative that follow it. 
This section will provide a broader discussion than just that of the 
relationship of compensation to the performance of the company as 
reflected by stock price. Therefore, we believe it is appropriate 
for all companies that are not small business issuers or foreign 
private issuers filing on forms specified for their use to include 
the information.
---------------------------------------------------------------------------

4. Retention of the Performance Graph
    In light of the Compensation Discussion and Analysis requirement, 
we proposed to eliminate both the Board Compensation Committee Report 
on Executive Compensation and the Performance Graph.\112\ The report 
and the graph were intended to be related and to show the relationship, 
if any, between compensation and corporate performance, as reflected by 
stock price. The rules we adopt today eliminate the Board Compensation 
Committee Report on Executive Compensation, as we proposed, in favor of 
the more comprehensive Compensation Discussion and Analysis and the new 
Compensation Committee Report, as described immediately above.\113\
---------------------------------------------------------------------------

    \112\ Prior to these amendments, the Board Compensation 
Committee Report on Executive Compensation had been required by Item 
402(k) and the Performance Graph had been required by Item 402(l).
    \113\ Section II.B.3.
---------------------------------------------------------------------------

    Given the widespread availability of stock performance information 
about companies, industries and indexes through business-related Web 
sites or similar sources, we proposed to eliminate the requirement for 
the Performance Graph in the belief that it was outdated, particularly 
since the disclosure in the Compensation Discussion and Analysis 
regarding the elements of corporate performance that a given company's 
policies might reach is intended to allow broader discussion than just 
that of the relationship of compensation to the performance of the 
company as reflected by stock price. Many commenters objected to 
eliminating the Performance Graph, however, stating that it provides an 
easily accessible visual comparison of a company's performance relative 
to its peers and the market, and provides a standardized source for 
this type of information.\114\ In light of the significance of this 
disclosure to a broad spectrum of commenters, we have decided to retain 
the Performance Graph in the amendments we adopt today.
---------------------------------------------------------------------------

    \114\ See, e.g., letters from CalSTRS; CFA Centre 1; CII; IUE-
CWA Pension Fund and 401(k) Plan (``IUE-CWA''); John W. Hamm; NYCBA; 
Standard Life Investments Limited (``Standard Life''); and Vivient 
Consulting LLC.
---------------------------------------------------------------------------

    However, we remain of the view that the Performance Graph should 
not be presented as part of executive compensation disclosure. In 
particular, as noted above, the disclosure in the Compensation 
Discussion and Analysis regarding the elements of corporate performance 
that a given company's policies consider is intended to encourage 
broader discussion than just that of the relationship of executive 
compensation to the performance of the company as reflected by stock 
price. Presenting the Performance Graph as compensation disclosure may 
weaken this objective. Accordingly, we have decided to retain the 
requirements for the Performance Graph, but have moved them to the 
disclosure item entitled ``Market Price of and Dividends on the 
Registrant's Common Equity and Related Stockholder Matters.'' \115\ As

[[Page 53169]]

retained, the Performance Graph will continue to be ``furnished'' 
rather than ``filed.'' The Performance Graph will be required only in 
the company's annual report to security holders that accompanies or 
precedes a proxy or information statement relating to an annual meeting 
of security holders at which directors are to be elected (or special 
meeting or written consents in lieu of such meeting), and will not be 
deemed to be soliciting material under the proxy rules or incorporated 
by reference into any filing except to the extent that the company 
specifically incorporates it.\116\
---------------------------------------------------------------------------

    \115\ New Item 201(e) of Regulation S-K [17 CFR 229.201(e)] will 
require the Performance Graph. Consistent with our belief that the 
Performance Graph should not be linked to the compensation 
disclosure, we have not retained the portion of the language that 
was included in Instruction 4 to Item 402(l) prior to these 
amendments, which conditioned that other performance measures in 
addition to total return may be included in the graph only so long 
as the compensation committee (or persons performing equivalent 
functions or the entire board if there is no such committee) 
provided a description of the link between the measure and the level 
of compensation in the Board Compensation Committee Report on 
Executive Compensation. As a result, companies may include other 
performance measures, such as return on average common shareholders' 
equity, so long as the meaning of any such measures is clear from 
the Performance Graph and any related legend or other disclosure.
    \116\ Instructions 7 and 8 to Item 201(e). A ``small business 
issuer'' as defined in Regulation S-B, is not required to provide 
the Performance Graph. Instruction 6 to Item 201(e). Because Nasdaq 
has registered as a national securities exchange under Section 6 of 
the Exchange Act [15 U.S.C. 78f], the former separate reference to 
``Nasdaq market'' is not retained. See Release No. 34-53128 (Jan. 
13, 2006) ordering that the application of The NASDAQ Stock Market 
LLC for registration as a national securities exchange be granted. 
We also adopt a conforming revision to Rules 304(d) and (e) of 
Regulation S-T [17 CFR 232.304(d) and (e)], and we make technical 
revisions to those rules to correctly reference Item 22(b)(7)(ii) of 
Form N-1A and to eliminate the references to ``prospectuses.''
---------------------------------------------------------------------------

C. Compensation Tables

    To enhance the benefits of the tabular approach to eliciting 
compensation disclosure,\117\ we proposed to reorganize and streamline 
the tables to provide a clearer and more logical picture of total 
compensation and its elements for named executive officers. We are 
adopting reorganized compensation tables and related narrative 
disclosure that cover three broad categories:
---------------------------------------------------------------------------

    \117\ The tabular disclosure and related narrative disclosure 
under amended Item 402 applies, as it did prior to today's 
amendments, to named executive officers, with amended Item 402(k) 
applying to directors, as described in Section II.C.9. below. As 
discussed below in Section II.C.6.a., we are adopting certain 
changes to the definition of named executive officer.
---------------------------------------------------------------------------

    1. Compensation with respect to the last fiscal year (and the two 
preceding fiscal years), as reflected in a revised Summary Compensation 
Table that presents compensation paid currently or deferred (including 
options, restricted stock and similar grants) and compensation 
consisting of current earnings or awards that are part of a plan, and 
as supplemented by one table providing back-up information for certain 
data in the Summary Compensation Table; \118\
    2. Holdings of equity-based interests that relate to compensation 
or are potential sources of future compensation, focusing on 
compensation-related equity-based interests that were awarded in prior 
years \119\ and are ``at risk,'' as well as recent realization on these 
interests, such as through vesting of restricted stock or the exercise 
of options and similar instruments; \120\ and
---------------------------------------------------------------------------

    \118\ The table supplementing the Summary Compensation Table is 
the Grants of Plan-Based Awards Table, discussed below in Section 
II.C.2., which combines into a single table the disclosure of the 
proposed Grants of Performance-Based Awards Table and the proposed 
Grants of All Other Equity Awards Table. The accompanying narrative 
disclosure requirement is discussed below in Section II.C.3.a.
    \119\ Under the disclosure rules as adopted, these interests 
will be disclosed as current compensation for those prior years.
    \120\ Information regarding holdings of such equity-based 
interests that relate to compensation will be disclosed in the 
Outstanding Equity Awards at Fiscal Year-End Table, discussed below 
in Section II.C.4.a. Information regarding realization on holdings 
of equity-based interests will be required in the Option Exercises 
and Stock Vested Table discussed below in Section II.C.4.b.
---------------------------------------------------------------------------

    3. Retirement and other post-employment compensation, including 
retirement and deferred compensation plans, other retirement benefits 
and other post-employment benefits, such as those payable in the event 
of a change in control.\121\
---------------------------------------------------------------------------

    \121\ Disclosure regarding retirement and post-employment 
compensation is required in the Pension Benefits Table, discussed 
below in Section II.C.5.a., the Nonqualified Deferred Compensation 
Table, discussed below in Section II.C.5.b., and the narrative 
disclosure requirement for other potential post-employment payments 
discussed below in Section II.C.5.c.
---------------------------------------------------------------------------

    Reorganizing the tables along these themes should help investors 
understand how compensation components relate to each other. At the 
same time, we are retaining the ability for investors to use the tables 
to compare compensation from year to year and from company to company.
    As we noted in the Proposing Release, by more clearly organizing 
the compensation tables to explain how the elements relate to each 
other, we may in some situations be requiring disclosure of both 
amounts earned (or potentially earned) and amounts subsequently paid 
out. This approach raises the possible perception of ``double 
counting'' some elements of compensation in multiple tables. However, a 
particular item of compensation only appears once in the Summary 
Compensation Table. In order to explain the item of compensation, it 
may also appear in one or more of the other tables. We believe the 
possible perception of double disclosure is outweighed by the clearer 
and more complete picture the disclosure in the additional tables will 
provide to investors. We strongly encourage companies to use the 
narrative following the tables (and where appropriate the Compensation 
Discussion and Analysis) to explain how disclosures relate to each 
other in their particular circumstances.
    Commenters stated their general support for the format and 
presentation of the proposed tables.\122\ We are adopting the tables 
substantially as proposed with some revisions, as noted below, in 
response to comments.
---------------------------------------------------------------------------

    \122\ See, e.g., letters from CFA Centre 1; jointly, Jennifer 
Clowes, Lindsey Erskine, Kendra Freeck and Kapri Malesich; F&P 
Pension Board; IAM; IBEW PBF; Plumbers & Pipefitters National 
Pension Fund; and Standard Life.
---------------------------------------------------------------------------

1. Compensation to Named Executive Officers in the Last Three Completed 
Fiscal Years--The Summary Compensation Table and Related Disclosure
    Under today's amendments, the Summary Compensation Table continues 
to serve as the principal disclosure vehicle regarding executive 
compensation. This table, as amended, shows the named executive 
officers' compensation for each of the last three years, whether or not 
actually paid out. Consistent with the requirements prior to today's 
amendments, the amended Summary Compensation Table continues to require 
disclosure of compensation for each of the company's last three 
completed fiscal years.\123\
---------------------------------------------------------------------------

    \123\ Prior to today's amendments, an instruction to Item 402(b) 
permitted the exclusion of information for fiscal years prior to the 
last completed fiscal year if the company was not a reporting 
company pursuant to Exchange Act Section 13(a) or 15(d) at any time 
during that year, unless the company previously was required to 
provide information for any such year in response to a Commission 
filing requirement. This instruction has been retained and 
redesignated as Instruction 1 to Item 402(c) in the amended rule.
---------------------------------------------------------------------------

    As we proposed, the amendments add disclosure of a figure 
representing total compensation, as reflected in other columns of the 
Summary Compensation Table, and simplify the presentation from that of 
the table prior to these amendments. As described in greater detail 
below, the amendments also provide for a supplemental table disclosing 
additional information about grants of plan-based awards. Narrative 
disclosure will follow the two tables, providing disclosure of material 
information necessary to an understanding of the information disclosed 
in the tables.

[[Page 53170]]



                                                               Summary Compensation Table
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                               Change in
                                                                                                             pension value
  Name and                                                                                     Non-equity         and         All other
 principal        Year         Salary  ($)     Bonus  ($)     Stock awards    Option awards  incentive plan   nonqualified   compensation    Total  ($)
  position                                                         ($)             ($)        compensation      deferred         ($)
                                                                                                   ($)        compensation
                                                                                                             earnings  ($)
(a)          (b)             (c)             (d)             (e)             (f)             (g)             (h)            (i)            (j)
--------------------------------------------------------------------------------------------------------------------------------------------------------
PEO \124\
 
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
PFO \125\
 
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
A
 
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
B
 
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
C
 
 
--------------------------------------------------------------------------------------------------------------------------------------------------------

a. Total Compensation Column
    We are modifying the Summary Compensation Table to provide a 
clearer picture of total compensation. As we proposed, we are requiring 
that all compensation be disclosed in dollars and that a total of all 
compensation be provided.\126\ The new ``Total'' column aggregates the 
total dollar value of each form of compensation quantified in the other 
columns (revised columns (c) through (i)). This column responds to 
concerns that investors, analysts and other users of Item 402 
disclosure have not been able to compute aggregate amounts of 
compensation using the disclosure in the table as specified prior to 
these amendments in a manner that was accurate or comparable across 
years or companies. Many commenters expressed their support for the 
proposal to include a Total column.\127\
---------------------------------------------------------------------------

    \124\ ``PEO'' refers to principal executive officer. See Section 
II.C.6.a. below for a description of the proposed named executive 
officers for whom compensation disclosure is required.
    \125\ ``PFO'' refers to principal financial officer.
    \126\ Instruction 2 to Item 402(c) (requiring all compensation 
values in the Summary Compensation Table to be reported in dollars 
and rounded to the nearest dollar). Prior to today's amendments, 
some stock-based compensation was disclosed in per share increments 
rather than in dollar amounts. Instruction 2 to Item 402(c) further 
requires, where compensation was paid or received in a different 
currency, footnote disclosure identifying that currency and 
describing the rate and methodology used for conversion to dollars.
    \127\ See, e.g., letters from CFA Centre 1; CII; Frederic W. 
Cook & Co.; ISS; Standard Life; and Walden. In addition, over 20,000 
form letters from individuals specifically supported this proposal. 
See Letter Type A, available at www.sec.gov/rules/proposed/s70306.shtml.
---------------------------------------------------------------------------

    Other commenters expressed concerns that, as proposed, the total 
number was an amalgam of dissimilar types of compensation.\128\ These 
concerns centered on the mix of compensation elements reported in the 
Summary Compensation Table being measured at different times and having 
different valuation methods, so that a Total column in effect would 
combine ``apples'' with ``oranges.'' \129\ To address this issue, some 
commenters suggested dividing the Total column into two separate 
columns reporting Total Earned Compensation and Total Contingent 
Compensation.\130\ Others recommended two separate Summary Compensation 
Tables--one for compensation that had been earned or realized and 
another for compensation that remained contingent or an 
opportunity.\131\
---------------------------------------------------------------------------

    \128\ See, e.g., letters from Fenwick & West LLP (``Fenwick''); 
Chamber of Commerce; and Hodak Value Advisors, LLC (``Hodak Value 
Advisors'').
    \129\ See, e.g., letters from Caterpillar Inc. and Corporate 
Library.
    \130\ See, e.g., letters from Business Roundtable (``BRT'') and 
Mercer.
    \131\ See, e.g., letters from Eli Lilly and Company (``Eli 
Lilly''); Hewitt; Society of Corporate Secretaries & Governance 
Professionals (``SCSGP''); Towers Perrin, dated April 10, 2006 
(``Towers Perrin''); and Watson Wyatt Worldwide (``Watson Wyatt'').
---------------------------------------------------------------------------

    As we noted in the Proposing Release, the Summary Compensation 
Table is designed to disclose all compensation. Each element of 
compensation is only disclosed once in the Summary Compensation Table, 
although it may also be disclosed in some of the other tables. We 
realize that the timing of when particular items of compensation are 
disclosed in the Summary Compensation Table varies depending on the 
form of the compensation.\132\ Given the various forms and complexities 
of compensation and the different periods they may be designed to 
relate to,\133\ it is unavoidable that the timing of disclosure may 
vary from element to element in this table.\134\
---------------------------------------------------------------------------

    \132\ Compensation is generally calculated in a manner that 
reflects the cost of the compensation to the company and its 
shareholders.
    \133\ See, e.g., letter from ABA (noting that option grants made 
early in the year may be viewed by the compensation committee 
primarily as an award for the prior year's performance or as an 
incentive for future performance).
    \134\ The approach as to the timing of disclosure that we 
proposed and that we adopt today is the same approach that has been 
used in the Summary Compensation Table since it was first proposed 
in 1992. See Executive Compensation Disclosure, Release No. 33-6940 
(June 23, 1992) [57 FR 29582] (noting that the Summary Compensation 
Table will ``provide shareholders a concise, comprehensive overview 
of compensation awarded, earned or paid in the reporting period'').

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[[Page 53171]]

    We note that some commenters were particularly concerned that non-
equity incentive plan awards are reported when earned, while equity 
incentive plan awards are reported based on grant date value when 
awarded.\135\ No single accepted standard for measuring non-equity 
incentive plan awards at grant date currently exists. Some commenters 
nonetheless suggested that we require grant date fair value estimates 
of non-equity incentive plan awards in the Summary Compensation 
Table.\136\ We do not believe it is appropriate at this time for us to 
develop such a standard expressly for compensation disclosure purposes. 
Nevertheless, we believe that the Summary Compensation Table that we 
adopt today, including a total of all of the various elements 
presented, provides meaningful disclosure to investors and allows for 
comparability between companies and within a company.
---------------------------------------------------------------------------

    \135\ See, e.g., letters from ACC; Amalgamated; BDO Seidman, LLP 
(``BDO Seidman''); CII; IUE-CWA; and Mercer.
    \136\ See, e.g., letters from CII; IUE-CWA; and CRPTF. 
Information about the amounts that could be earned under non-equity 
incentive plans is required to be disclosed in the Grants of Plan-
Based Awards Table when such awards are granted.
---------------------------------------------------------------------------

    However, in response to comments, we have created a separate column 
for the annual change in actuarial value of defined benefit plans and 
earnings on nonqualified deferred compensation.\137\ As proposed, these 
compensation elements would have been included in the aggregate amount 
reported in the All Other Compensation column. We believe that 
presenting these items in a separate column will permit investors and 
other users of the Summary Compensation Table to readily identify 
elements included in the Total column that may relate principally to 
longevity of service. These items will not be used to determine the 
officers included in the table.\138\
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    \137\ See Section II.C.1.d.i. below, which describes a 
modification of the proposed Summary Compensation Table disclosure 
of nonqualified deferred compensation earnings to present only the 
above-market or preferential portion in this table.
    \138\ See Section II.C.6.b. below describing how in response to 
commenters this column is excluded from total compensation for the 
purpose of identifying named executive officers.
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    We proposed that the new column disclosing total compensation would 
appear as the first column providing compensation information.\139\ 
Some commenters suggested moving this column to the right of the table, 
so that it would follow--rather than precede--the relevant component 
numbers.\140\ In response to these comments, we have moved the Total 
column to the final column in the table.
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    \139\ Columns (a) and (b) specify the executive officer and the 
year in question.
    \140\ See,e.g., letters from Buck Consultants; Frederic W. Cook 
& Co.; and SCSGP.
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b. Salary and Bonus Columns
    The first columns providing compensation information that we are 
requiring are the salary and bonus columns (columns (c) and (d), 
respectively), which are retained substantially in their previous form. 
However, we are adopting some changes, as proposed, that will give an 
investor a clearer picture of the total amount earned.
    As we proposed, compensation that is earned, but for which payment 
will be deferred, must be included in the salary, bonus or other 
column, as appropriate. A new instruction, applicable to the entire 
Summary Compensation Table, provides that if receipt of any amount of 
compensation is currently payable but has been deferred for any reason, 
the amount so deferred must be included in the appropriate column.\141\ 
This treatment is no longer limited to salary and bonus, as it was 
prior to these amendments, and under the amended rules this treatment 
applies regardless of the reason for the deferral.\142\
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    \141\ Instruction 4 to Item 402(c).
    \142\ Prior to the amendments, this requirement was triggered 
only if the officer elected the deferral. We are amending this 
requirement as we proposed to cover all deferrals, no matter who has 
initiated the deferrals.
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    We also proposed that the amount so deferred must be disclosed in a 
footnote to the applicable column. As described below, the amount 
deferred will also generally be reflected as a contribution in the 
deferred compensation presentation.\143\ The proposed footnote 
disclosure was intended to clarify the extent to which amounts 
disclosed in the Nonqualified Deferred Compensation Table described 
below represent compensation already reported, rather than additional 
compensation. Because commenters thought it could lead to potential 
double counting, we have not adopted this proposed footnote 
requirement.\144\
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    \143\ See Section II.C.5.b., describing the Nonqualified 
Deferred Compensation Table. Disclosure of these amounts as 
contributions will now be required for nonqualified deferred 
compensation plans. This disclosure will not be required for 
qualified plans. Nonqualified deferred compensation plans and 
arrangements provide for the deferral of compensation that does not 
satisfy the minimum coverage, nondiscrimination and other rules that 
``qualify'' broad-based plans for favorable tax treatment under the 
Internal Revenue Code.
    \144\ See, e.g., letter from WorldatWork. As described in 
Section II.C.5.b. below, however, we have adopted the corresponding 
footnote proposed for the Nonqualified Deferred Compensation Table.
---------------------------------------------------------------------------

    As proposed, we have eliminated the delay that existed under the 
former rules where salary or bonus for the most recent fiscal year is 
determined following compliance with Item 402 disclosure. Under our new 
rules, where salary or bonus cannot be calculated as of the most recent 
practicable date, a current report under Item 5.02 of Form 8-K will be 
triggered by a payment, decision or other occurrence as a result of 
which either of such amounts become calculable in whole or part.\145\ 
The Form 8-K will include disclosure of the salary or bonus amount and 
a new total compensation figure including that salary or bonus amount.
---------------------------------------------------------------------------

    \145\ New Item 5.02(f) of Form 8-K and Instruction 1 to Item 
402(c)(2)(iii) and (iv). Prior to these amendments, in the event 
that such amounts were not determinable at the most recent 
practicable date, they were generally reported in the annual report 
on Form 10-K or proxy statement for the following fiscal year. We 
believe providing the information more quickly is appropriate and 
are therefore adopting the use of a current report on Form 8-K. 
Instruction 1 to Item 402(c)(2) (iii) and (iv) requires that the 
company disclose in a footnote that the salary or bonus is not 
calculable through the latest practicable date and the date that the 
salary or bonus is expected to be determined. We proposed to include 
this requirement in an instruction to proposed paragraph (e) of Item 
5.02 of Form 8-K. We are adopting it as a separate paragraph of Item 
5.02 in order to make it clearer that it is a separate triggering 
event.
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c. Plan-Based Awards
    As we proposed, the next three columns--Stock Awards, Option Awards 
and Non-Equity Incentive Plan Compensation--cover plan-based awards.
i. Stock Awards and Option Awards Columns
    As proposed and adopted, the Stock Awards column (column (e)) 
discloses stock-related awards that derive their value from the 
company's equity securities or permit settlement by issuance of the 
company's equity securities and, as we have clarified, are thus within 
the scope of FAS 123R for financial reporting, such as restricted 
stock, restricted stock units, phantom stock, phantom stock units, 
common stock equivalent units or other similar instruments that do not 
have option-like features.\146\ Valuation is based on the

[[Page 53172]]

grant date fair value of the award determined pursuant to FAS 123R for 
financial reporting purposes. Stock awards granted pursuant to an 
equity incentive plan are also included in this column to ensure 
consistent reporting of stock awards and to ensure their inclusion in 
the revised Summary Compensation Table.\147\
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    \146\ Generally speaking, a restricted stock award is an award 
of stock subject to vesting conditions, such as performance-based 
conditions or conditions based on continued employment for a 
specified period of time. This type of award is referred to as 
``nonvested equity shares'' in FAS 123R. Phantom stock, phantom 
stock units, common stock equivalent units and other similar awards 
are typically awards where an executive obtains a right to receive 
payment in the future of an amount based on the value of a 
hypothetical, or notional, amount of shares of common equity (or in 
some cases stock based on that value). To the extent that the terms 
of phantom stock, phantom stock units, common stock equivalents or 
other similar awards include option-like features, the awards will 
be required to be included in the Option Awards column. Prior to 
these amendments, restricted stock awards were valued in the Summary 
Compensation Table by multiplying the closing market price of the 
company's unrestricted stock on the date of grant by the number of 
shares awarded.
    \147\ Prior to these amendments, these performance-based stock 
awards could be reported at the company's election as incentive plan 
awards under what was then specified in Instruction 1 to Item 
402(b)(2)(iv). Our amendments today eliminate this alternative.
---------------------------------------------------------------------------

    Awards of options, stock appreciation rights, and similar equity-
based compensation instruments that have option-like features that, as 
we have clarified, are within the scope of FAS 123R, must be disclosed 
in the Option Awards column (column (f)) in a manner similar to the 
treatment of stock and other equity-based awards under the 
amendments.\148\ Instead of the disclosure of the number of securities 
underlying the awards as was the case prior to today's amendments, this 
column requires disclosure of the grant date fair value of the award as 
determined pursuant to FAS 123R. In order to calculate a total dollar 
amount of compensation, the value rather than the number of securities 
underlying an award must be used. The FAS 123R valuation must be used 
whether the award itself is in the form of stock, options or similar 
instruments or the award is settled in cash but the amount of payment 
is tied to performance of the company's stock.\149\
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    \148\ A stock appreciation right usually gives the executive the 
right to receive the value of the increase in the price of a 
specified number of shares over a specified period of time. These 
awards may be settled in cash or in shares.
    \149\ As proposed, we are eliminating the requirement that had 
been specified in Options/SAR Grants in Last Fiscal Year Table under 
Item 402(c)(2)(vi) to report the potential realizable value of each 
option grant under 5% or 10% increases in value or the present value 
of each grant (computed under any option pricing model). These 
alternative disclosures are no longer necessary insofar as the grant 
date fair value of equity-based awards is included in the Summary 
Compensation Table.
---------------------------------------------------------------------------

    Under FAS 123R, the compensation cost is initially measured based 
on the grant date fair value of an award,\150\ and generally recognized 
for financial reporting purposes over the period in which the employee 
is required to provide service in exchange for the award (generally the 
vesting period). Some commenters suggested that rather than requiring 
disclosure of the grant date fair value of equity awards, we should 
require a company to disclose just the portion of the award expensed in 
the company's financial statements.\151\ These commenters expressed 
concerns that disclosing the full grant date fair value would be 
inconsistent with the company's financial statements, would overstate 
compensation earned related to service rendered for the year, and would 
be inconsistent with the presentation of non-equity incentive plan 
compensation. Other commenters expressed support for requiring 
companies to report the full grant date fair value in the year of the 
award because it would provide a more complete representation of 
compensation.\152\
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    \150\ Under FAS 123R, the classification of an award as an 
equity or liability award is an important aspect of the accounting 
because the classification will affect the measurement of 
compensation cost. Awards with cash-based settlement, repurchase 
features, or other features that do not result in an employee 
bearing the risks and rewards normally associated with share 
ownership for a specified period of time would be classified as 
liability awards under FAS 123R. For an award classified as an 
equity award under FAS 123R, the compensation cost recognized is 
fixed for a particular award, and absent modification, is not 
revised with subsequent changes in market prices or other 
assumptions used for purposes of the valuation. In contrast, 
liability awards are initially measured at fair value on the grant 
date, but for purposes of recognition in financial statement 
reporting are then re-measured at each reporting date through the 
settlement date under FAS 123R. These re-measurements would not be 
the basis for executive compensation disclosure under our amended 
rules, unless the award has been modified, as described later in 
this release.
    \151\ See, e.g., letters from the SEC Regulations Committee of 
the American Institute of Certified Public Accountants (``AICPA''); 
Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C.; Chamber of 
Commerce; Computer Sciences Corporation (``Computer Sciences''); 
Deloitte & Touche LLP; Ernst & Young LLP (``E&Y''); Fenwick; Foley; 
HR Policy Association (``HRPA''); American Bar Association, Joint 
Committee on Employee Benefits (``ABA-JCEB''); and KPMG LLP 
(``KPMG'').
    \152\ See, e.g., letters from CalPERS; CFA Centre 1; CRPTF; L. 
Burns; Governance for Owners; Laborers International Union of North 
America; Nancy Lucke Ludgus (``N. Ludgus''); Institutional Investors 
Group; State Board of Administration (SBA) of Florida (``SBAF''); 
Teamsters Local 671; Teamsters PA/MD; United Church Foundation, Inc. 
(``UCF''); Washington State Investment Board (``WSIB''); and Western 
PA Teamsters Fund.
---------------------------------------------------------------------------

    We are adopting these columns substantially as proposed.\153\ Under 
our amendments, the compensation cost calculated as the grant date fair 
value will be shown as compensation in the year in which the grant is 
made.\154\ As we stated in the Proposing Release, we believe that this 
approach is more consistent with the purpose of executive compensation 
disclosure. We are adopting an approach that subscribes to the 
measurement method of FAS 123R based on grant date fair value, but also 
provides for immediate disclosure of compensation. This timing of 
disclosure of option awards remains the same as it has been since 1992. 
The only change is that the awards are now disclosed in dollars rather 
than numbers of units or shares. Disclosing these awards as they are 
expensed for financial statement reporting purposes would not mirror 
the timing of disclosure of non-equity incentive plan compensation. 
While we have imported a financial statement reporting principle to 
enable disclosure of compensation costs, executive compensation 
disclosure must continue to inform investors of current actions 
regarding plan awards--a function that would not be fulfilled applying 
financial reporting recognition timing. If a company does not believe 
that the full grant date fair value reflects compensation earned, 
awarded or paid during a fiscal year, it can provide appropriate 
explanatory disclosure in the accompanying narrative section. 
Furthermore, disclosing grant date fair value will give investors a 
clearer picture of the value of any in-the-money awards. As we 
proposed, the number of shares underlying an award and other details 
regarding the award must be disclosed in a separate table covering 
grants of plan-based awards supplementing the Summary Compensation 
Table.\155\ This supplemental table, which combines the disclosure that 
would have been required by the proposed Grants of Performance-Based 
Awards Table and Grants of All Other Equity Awards Table, discloses 
equity awards granted pursuant to incentive plans separately from other 
equity awards.
---------------------------------------------------------------------------

    \153\ Item 402(c)(2)(v) and (vi).
    \154\ FAS 123R requires a company to aggregate individuals 
receiving awards into relatively homogenous groups with respect to 
exercise and post-vesting employment termination behaviors for the 
purpose of determining expected term, for example executives and 
non-executives. The rules we adopt today are not intended to change 
the method used to value employee stock options for purposes of FAS 
123R or to affect the judgments as to reasonable groupings for 
purposes of determining the expected term assumption required by FAS 
123R. Under the rules we adopt today, where a company uses more than 
one group, the measurement of grant date fair value for purposes of 
Item 402 would be derived using the expected term assumption for the 
group that includes the named executive officers (or the group that 
includes directors for purposes of Item 402(k)).
    \155\ See Section II.C.2., discussing the Grants of Plan-Based 
Awards Table required by Item 402(d).
---------------------------------------------------------------------------

    We are adopting as proposed an instruction that requires a footnote 
referencing the discussion of the relevant assumptions in the notes to 
the company's financial statements or the discussion of relevant 
assumptions in the MD&A.\156\ The same instruction also

[[Page 53173]]

provides that the referenced sections will be deemed to be part of the 
disclosure provided pursuant to Item 402. The referenced sections 
containing this disclosure are required in the company's annual report 
to shareholders that must precede or accompany the company's proxy 
statement.\157\ In the case of Internet disclosure of proxy materials, 
companies could provide hyperlinks from the proxy statement to the 
referenced sections contained in the annual report.\158\ While some 
commenters recommended requiring these valuation assumptions to be 
presented in the proxy statement,\159\ we believe that investors will 
be able to easily access this information without requiring it to be 
repeated from other documents.
---------------------------------------------------------------------------

    \156\ Instruction 1 to Item 402(c)(2)(v) and (vi).
    \157\ See Exchange Act Rule 14a-3 [17 CFR 240.14a-3].
    \158\ In addition, in December 2005, we proposed rules that 
would allow companies and other persons to use the Internet to 
satisfy proxy material delivery requirements. Internet Availability 
of Proxy Materials, Release No. 34-52926 (Dec. 8, 2005) [70 FR 
74597].
    \159\ See, e.g., letters from Buck Consultants; CII; Frederic W. 
Cook & Co.; and IUE-CWA.
---------------------------------------------------------------------------

    We proposed that previously awarded options or freestanding stock 
appreciation awards that the company repriced or otherwise materially 
modified during the last fiscal year be disclosed in the Summary 
Compensation Table based on the total fair value of the award as so 
modified. Under FAS 123R, only the incremental fair value, computed as 
of the repricing or modification date, is recognized for such an award. 
Several commenters recommended conforming Summary Compensation Table 
reporting to the incremental fair value recognition approach of FAS 
123R, objecting that the proposed total fair value approach would 
inappropriately double count the fair value of many modified 
awards.\160\ As adopted, the new rules reflect this 
recommendation.\161\ Grants of reload or restorative options, however, 
are reportable based on total grant date fair value because they are 
new awards that do not replace previously cancelled awards.\162\
---------------------------------------------------------------------------

    \160\ See, e.g., letters from AICPA; Cleary Gottlieb Steen & 
Hamilton LLP (``Cleary''); Compass Bancshares; Cravath, Swaine & 
Moore LLP (``Cravath''); Hewitt; KPMG; Leggett & Platt, Incorporated 
(``Leggett & Platt''); SCSGP; and Sullivan.
    \161\ Instruction 2 to Item 402(c)(2)(v) and (vi).
    \162\ Generally speaking, reload or restorative options are 
grants of new options that are granted automatically when an 
executive exercises the old option. Reload or restorative options 
are treated as new grants under FAS 123R.
---------------------------------------------------------------------------

    We proposed that all earnings, such as dividends, be included in 
the Stock Awards and Option Awards columns when paid. Several 
commenters noted that the value of the right to receive dividends is 
factored into the grant date fair value computed under FAS 123R.\163\ 
If the stock award or option award entitles the holder to receive 
dividends, then such ``dividend protection'' is included in the grant 
date fair value computed under FAS 123R. We are persuaded by the 
commenters that subsequent disclosure of the value of dividends in 
these circumstances, as they are received, would repeat in the same 
table compensation that was previously disclosed. Therefore, we have 
revised the requirement. However, we note that if the stock award or 
option award does not entitle the holder to receive dividends, then 
``dividend protection'' is not included in the grant date fair value 
computed under FAS 123R. Accordingly, the value of any dividends 
received would not have been previously disclosed in the Summary 
Compensation Table as part of the grant date fair value of the award. 
In order to appropriately capture the compensation in these latter 
circumstances, we are adopting a requirement to disclose any earnings 
on stock awards or option awards that are not included in the grant 
date fair value computation for those awards in the All Other 
Compensation column of the Summary Compensation Table when the 
dividends or other earnings are paid.\164\ In addition, the material 
terms of any equity award (including whether dividends will be paid, 
the applicable dividend rate and whether that rate is preferential) may 
be factors to be discussed in the related narrative section.\165\
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    \163\ See, e.g., letters from Cleary; Emerson Electric Co. 
(``Emerson''); Foley; Hewitt; SCSGP; and Towers Perrin.
    \164\ Item 402(c)(2)(ix)(G).
    \165\ Item 402(e)(1)(iii), discussed in Section II.C.3.a. below.
---------------------------------------------------------------------------

    We had proposed a definition of ``non-stock incentive plan'' that 
some commenters stated would result in confusing and potentially 
anomalous treatment of some awards.\166\ To clarify the reporting 
treatment of different types of awards, we have:
---------------------------------------------------------------------------

    \166\ See, e.g., letter from ABA.
---------------------------------------------------------------------------

    <bullet> Adopted a separate definition of ``equity incentive plan'' 
as ``an incentive plan or portion of an incentive plan under which 
awards are granted that fall within the scope of FAS 123R''; \167\ and
---------------------------------------------------------------------------

    \167\ Item 402(a)(6)(iii). An equity incentive plan includes 
plans that have a performance or market condition. As defined in 
Appendix E of FAS 123R, a performance condition is ``a condition 
affecting the vesting, exercisability, exercise price or other 
pertinent factors used in determining the fair value of an award 
that relates to both (a) an employee's rendering service for a 
specified (either explicitly or implicitly) period of time and (b) 
achieving a specified performance target that is defined solely by 
reference to the employer's own operations (or activities). 
Attaining a specified growth rate in return on assets, obtaining 
regulatory approval to market a specified product, selling shares in 
an initial public offering or other financing event, and a change in 
control are examples of performance conditions for purposes of this 
Statement. A performance target also may be defined by reference to 
the same performance measure of another entity or group of entities. 
For example, attaining a growth rate in earnings per share that 
exceeds the average growth rate in earnings per share of other 
entities in the same industry is a performance condition for 
purposes of this Statement. A performance target might pertain 
either to the performance of the enterprise as a whole or to some 
part of the enterprise, such as a division or an individual 
employee.'' An award also would be considered to have a performance 
condition if it is subject to a market condition, which is ``a 
condition affecting the exercise price, exercisability, or other 
pertinent factors used in determining the fair value of an award 
under a share-based payment arrangement that relates to the 
achievement of (a) a specified price of the issuer's shares or a 
specified amount of intrinsic value indexed solely to the issuer's 
shares or (b) a specified price of the issuer's shares in terms of a 
similar (or index of similar) equity security (securities).'' An 
award that vests on an accelerated basis upon the occurrence of a 
change in control is not considered an award under an equity 
incentive plan if (a) the award contains no other performance or 
market conditions and (b) the award would otherwise vest based on 
the completion of a specified employee service period.
---------------------------------------------------------------------------

    <bullet> Defined ``non-equity incentive plan'' as ``an incentive 
plan or portion of an incentive plan that is not an equity incentive 
plan.'' \168\
---------------------------------------------------------------------------

    \168\ Item 402(a)(6)(iii). See also discussion of the definition 
of ``incentive plan'' at Section II.C.1.f. below.
---------------------------------------------------------------------------

ii. Non-Equity Incentive Plan Compensation Column
    The Non-Equity Incentive Plan Compensation column (column (g)) will 
report, as proposed, the dollar value of all amounts earned during the 
fiscal year pursuant to non-equity incentive plans.\169\ This column 
includes all other incentive plan awards not included in the stock 
awards and option awards columns.\170\ Compensation awarded under an 
incentive plan that is not within the scope of FAS 123R will be 
disclosed in the Summary Compensation Table in the year when the 
relevant specified performance criteria under the plan are satisfied 
and the compensation earned, whether or

[[Page 53174]]

not payment is actually made to the named executive officer in that 
year.
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    \169\ Item 402(c)(2)(vii). An incentive plan generally provides 
for compensation intended to serve as an incentive for performance 
to occur over a specified period, whether such performance is 
measured by reference to financial performance of the company or an 
affiliate, the company's stock price, or any other performance 
measure. See Item 402(a)(6)(iii) for the definition of ``incentive 
plan.''
    \170\ Awards disclosed in this column, column (g), are not 
covered by FAS 123R for financial reporting purposes because they do 
not involve share-based payment arrangements. Awards that involve 
share-based payment arrangements should be disclosed in the Stock 
Awards or Option Awards columns, as appropriate.
---------------------------------------------------------------------------

    The grant of an award under a non-equity incentive plan will be 
disclosed in the supplemental Grants of Plan-Based Awards Table in the 
year of grant, which may be some year prior to the year in which 
compensation under the non-equity incentive plan is reported in the 
Summary Compensation Table.\171\ As noted above, several commenters 
recommended Summary Compensation Table reporting of non-equity 
incentive plan awards on a grant date fair value basis, consistent with 
the reporting of equity incentive plans.\172\ However, because there is 
not one clearly required or accepted standard for measuring the value 
at grant date of these non-equity incentive plan awards that reflects 
the applicable performance contingencies, as there is for equity-based 
awards with FAS 123R, we are not including such a value in the Summary 
Compensation Table. Instead, we continue the disclosure approach of 
reflecting these items of compensation when earned.\173\
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    \171\ See Section II.C.2., discussing the Grants of Plan-Based 
Awards Table.
    \172\ See, e.g., letters from Amalgamated; Anonymous 
Compensation Consultant; BDO Seidman; CII; CRPTF; Mercer; and 
Teamsters Local 671. See discussion at Section II.C.1.a. above.
    \173\ Prior to these amendments, Items 402(b)(2)(iv)(C) and 
402(e) required disclosure of long-term incentive plan payouts when 
earned.
---------------------------------------------------------------------------

    Once the disclosure has been provided in the Summary Compensation 
Table when the specified performance criteria have been satisfied and 
the compensation earned, and the grant of the award has been disclosed 
in the Grants of Plan-Based Awards Table, no further disclosure will be 
specifically required when payment is actually made to the named 
executive officer. Some commenters objected to Summary Compensation 
Table reporting of awards for which the relevant performance condition 
has been satisfied that remain subject to forfeiture conditions (such 
as conditions requiring continued service or conditions that provide 
for forfeiture based on future company performance).\174\ We continue 
to believe that satisfaction of the relevant performance condition 
(including an interim performance condition in a long term plan) is the 
event that is material to investors for Summary Compensation Table 
reporting purposes. We encourage companies to use the related narrative 
section to disclose material features that are not reflected in the 
tabular disclosure including, for example, subsequent forfeitures of 
amounts reported in the table with respect to previous fiscal 
years.\175\
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    \174\ See, e.g., letters from Mercer; Watson Wyatt; and Richard 
E. Wood.
    \175\ Commenters' issues concerning the scope of awards 
reportable in this column, in particular as compared to compensation 
reportable in the bonus column, are discussed in Section II.C.1.f. 
below.
---------------------------------------------------------------------------

    As proposed and adopted, earnings on outstanding non-equity 
incentive plan awards are also included in the Non-Equity Incentive 
Plan Compensation column and identified and quantified in a footnote to 
the table.\176\
---------------------------------------------------------------------------

    \176\ Item 402(c)(2)(vii). These earnings were reportable prior 
to today's amendments in the Other Annual Compensation or All Other 
Compensation columns of the Summary Compensation Table under Items 
402(b)(2)(iii)(C)(3) and 402(b)(2)(v)(C), respectively.
---------------------------------------------------------------------------

d. Change in Pension Value and Nonqualified Deferred Compensation 
Earnings Column
    As we proposed, we are expanding the Summary Compensation Table to 
include information regarding the aggregate increase in actuarial value 
to the named executive officer of all defined benefit and actuarial 
plans (including supplemental plans) accrued during the year and 
earnings on nonqualified deferred compensation. However, as mentioned 
above, we have decided to present this information in a separate column 
rather than include it in the All Other Compensation column as 
proposed.\177\ Footnote identification and quantification of the full 
amount of each element is required.\178\ Any amount attributable to the 
defined benefit and actuarial plans that is a negative number should be 
disclosed by footnote, but should not be reflected in the amount 
reported in the column.\179\
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    \177\ See the discussion of the Total column in Section 
II.C.1.a. above and the discussion of determination of named 
executive officers in Section II.C.6. below.
    \178\ Instruction 3 to Item 402(c)(2)(viii). In contrast, as 
proposed to be disclosed in the All Other Compensation Column, 
separate identification and quantification of each element would 
have been required only if the element exceeded $10,000, although 
the amounts would have been included in that column without regard 
to size.
    \179\ Instruction 3 to Item 402(c)(2)(viii).
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i. Earnings on Deferred Compensation
    We proposed to require disclosure of all earnings on compensation 
that is deferred on a basis that is not tax-qualified, including non-
tax qualified defined contribution retirement plans.\180\ Prior to our 
amendments, these earnings were required to be disclosed only to the 
extent of any portion that was ``above-market or preferential.'' This 
limitation generated criticism that the rule prior to today's 
amendments permitted companies to avoid disclosure of substantial 
compensation.
---------------------------------------------------------------------------

    \180\ Nonqualified defined contribution and other nonqualified 
deferred compensation plans are plans providing for deferral of 
compensation that do not satisfy the minimum coverage, 
nondiscrimination and other rules that ``qualify'' broad-based plans 
for favorable tax treatment under the Internal Revenue Code. A 
typical 401(k) plan, by contrast, is a qualified deferred 
compensation plan.
---------------------------------------------------------------------------

    Some commenters supported this proposal.\181\ However, many 
commenters asserted that the Summary Compensation Table should continue 
to require disclosure only of earnings at above-market or preferential 
rates.\182\ Commenters stated that differences in earnings on 
nonqualified deferred compensation among executives may result entirely 
from the executives' investment acumen and decisions as to amounts to 
defer. Commenters further claimed that deferred amounts invested at 
market rates are conceptually no different from amounts invested 
directly by an executive. Absent providing an above-market return, 
contributing additional amounts or guaranteeing investment returns, 
commenters asserted that the company has no role in the annual growth 
of the account.
---------------------------------------------------------------------------

    \181\ See, e.g., letters from CFA Centre 1 and jointly, Lucian 
A. Bebchuk, Jesse M. Fried and Robert J. Jackson, Jr. (``Professor 
Bebchuk, et al.'').
    \182\ See, e.g., letters from American Academy of Actuaries' 
Pension Committee (``Academy of Actuaries''); BRT; Frederic W. Cook 
& Co.; Computer Sciences; Kimball International, Inc.; NAM; and 
Sullivan.
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    We are persuaded that Summary Compensation Table disclosure of 
nonqualified deferred compensation earnings should continue to be 
limited to the above-market or preferential portion.\183\ As under the 
rule prior to these amendments, the above-market or preferential 
portion is determined for interest by reference to 120% of the 
applicable federal long-term rate and for dividends by reference to the 
dividend rate on the company's common stock.\184\ Footnote or narrative 
disclosure of the company's criteria for determining any portion 
considered to be above-market may be provided. The above-market or 
preferential earnings in this column would always be positive, as it 
would not be possible for above-market or preferential losses to occur.
---------------------------------------------------------------------------

    \183\ Item 402(c)(2)(viii)(B).
    \184\ Instruction 2 to Item 402(c)(2)(viii), which is based on 
the language which had appeared in Instructions 3 and 4 to Item 
402(b)(2)(iii)(C) prior to these amendments.
---------------------------------------------------------------------------

    However, we do not overlook the fact that the company is obligated 
to pay the executive the entire amount of the nonqualified deferred 
compensation account, which represents a claim on company assets and is 
part of a plan that provides the executive with tax

[[Page 53175]]

benefits.\185\ To reflect this obligation, we have decided to require 
disclosure of all earnings on nonqualified deferred compensation in the 
separate Nonqualified Deferred Compensation Table, as we proposed.\186\ 
The disclosure required by that table discloses the rate at which the 
company's obligation grows on an annual basis.
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    \185\ Nonqualified defined contribution and other nonqualified 
deferred compensation plans are generally unfunded, and their 
taxation is governed by Section 409A of the Internal Revenue Code 
[26 U.S.C. 409A].
    \186\ This separate table is discussed in Section II.C.5.b. 
below.
---------------------------------------------------------------------------

    Further, the method of calculating earnings on deferred 
compensation plans is an example of a factor that may be material and 
therefore described in the narrative disclosure to the Summary 
Compensation Table and the Grants of Plan-Based Awards Table.\187\
---------------------------------------------------------------------------

    \187\ See Section II.C.3.a. below.
---------------------------------------------------------------------------

ii. Increase in Pension Value
    We proposed to require Summary Compensation Table disclosure of the 
aggregate increase in actuarial value to the executive officer of 
defined benefit and actuarial plans (including supplemental plans) 
accrued during the year.
    In contrast to defined contribution plans, for which the Summary 
Compensation Table requires disclosure of company contributions, the 
rules prior to our amendments did not require disclosure of the annual 
change in value of defined benefit plans, such as pension plans, in 
which the named executive officers participated.\188\ The annual 
increase in actuarial value of these plans may be a significant element 
of compensation that is earned on an annual basis, thus we proposed to 
include it in the computation of total compensation.
---------------------------------------------------------------------------

    \188\ A typical defined contribution plan is a retirement plan 
in which the company and/or the executive makes contributions of a 
specified amount, and the amount that is paid out to the executive 
depends on the return on investments from the contributed amounts. A 
typical defined benefit plan is a retirement plan in which the 
company pays the executive specified amounts at retirement which are 
not tied to investment performance of the contributions that fund 
the plan.
---------------------------------------------------------------------------

    Such disclosure is necessary to permit the Summary Compensation 
Table to reflect total compensation for the year. Such disclosure also 
permits a full understanding of the company's compensation obligations 
to named executive officers, given that defined benefit plans guarantee 
what can be a lifetime stream of payments and allocate risk of 
investment performance to the company and its shareholders. In addition 
commentators have noted that the absence of such a disclosure 
requirement creates an incentive to shift compensation to pensions, 
results in the understatement of non-performance-based compensation, 
and distorts pay comparisons between executives and between companies.
    We are adopting the requirement substantially as proposed.\189\ As 
proposed and adopted, an instruction specifies that this disclosure 
applies to each plan that provides for the payment of retirement 
benefits, or benefits that will be paid primarily following retirement, 
including but not limited to tax-qualified defined benefit plans and 
supplemental executive retirement plans, but excluding defined 
contribution plans.\190\ The retirement section, discussed below, 
provides more information regarding these covered plans.\191\
---------------------------------------------------------------------------

    \189\ Item 402(c)(2)(viii)(A).
    \190\ Instruction 1 to Item 402(c)(2)(viii). Defined benefit 
plans include, for example, cash balance plans in which the 
retiree's benefit may be determined by the amount represented in an 
account rather than based on a formula referencing salary while 
still employed.
    \191\ See Section II.C.5.a., discussing the Pension Benefits 
Table.
---------------------------------------------------------------------------

    Some commenters raised issues regarding computation of the amount 
to be disclosed.\192\ In response to these comments, we have revised 
the language of the requirement as adopted to clarify that the 
disclosure applies to the change, from the pension plan measurement 
date used for the company's audited financial statements for the prior 
completed fiscal year to the pension plan measurement date used for the 
company's audited financial statements for the covered fiscal year, in 
the actuarial present value of the named executive officer's 
accumulated benefit under all defined benefit and actuarial pension 
plans (including supplemental plans). The disclosure therefore includes 
both:
---------------------------------------------------------------------------

    \192\ See, e.g., letters from Academy of Actuaries; Frederick W. 
Cook & Co.; ABA-JCEB; and Mercer.
---------------------------------------------------------------------------

    <bullet> The increase in value due to an additional year of 
service, compensation increases, and plan amendments (if any); and
    <bullet> The increase (or decrease) in value attributable to 
interest.
    As discussed below, this disclosure relates to the disclosure 
provided in the Pension Benefits Table \193\ and promotes company-to-
company comparability. In computing the amount to be disclosed, the 
company must use the assumptions it uses for financial reporting 
purposes under generally accepted accounting principles.\194\
---------------------------------------------------------------------------

    \193\ Item 402(h), discussed in Section III.C.5.a. below.
    \194\ Instruction 1 to Item 402(c)(2)(viii) and Instruction 2 to 
Item (h)(2). Regarding such key assumptions as itnerest rate, form 
of benefit, number of years of service, level of compensation used 
to determine the benefit and mortality tables, a company must use 
the same assumptions as it applies pursuant to Financial Accounting 
Standards Board Statement of Financial Accounting Standards No. 87, 
Employers' Accounting for Pensions (FAS 87) both for this Summary 
Compensation Table column and the separate Pension Benefits Table.
---------------------------------------------------------------------------

    Other commenters objected to this item's potential to ``distort'' 
the Total column and the determination of named executive 
officers.\195\ As described above, we continue to believe that 
inclusion of this element in the table is necessary to permit the 
Summary Compensation Table to reflect total compensation. However, we 
have addressed commenters' concerns by segregating this item and above-
market or preferential earnings on nonqualified deferred compensation 
from the All Other Compensation column, presenting their sum in a 
separate column so that it will be deducted from the total for purposes 
of determining the named executive officers.\196\
---------------------------------------------------------------------------

    \195\ See, e.g., letters from Eli Lilly and SCSGP.
    \196\ See Section II.C.6. below..
---------------------------------------------------------------------------

e. All Other Compensation Column
    The next column in the Summary Compensation Table discloses all 
other compensation not required to be included in any other 
column.\197\ This approach allows the capture of all compensation in 
the Summary Compensation Table and also allows a total compensation 
calculation. We confirm that disclosure of all compensation is clearly 
required under the rules.\198\
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    \197\ Item 402(c)(2)(ix).
    \198\ The only exception, as discussed below, is for perquisites 
and personal benefits if they aggregate less than $10,00 for a named 
executive officer. The 1992 Release, at Section II.A.4., also noted 
``the revised item includes an express statement that it requires 
disclosure of all compensation to the named executive officers and 
directors for services rendered in all capacities to the registrant 
and its subsidiaries.'' See also Item 402(a)(2) as stated prior to 
these amendments. Further, as described above, Summary Compensation 
Table disclosure of nonqualified deferred compensation earnings is 
limited to the above-market or preferential portion of earnings. As 
was previously the case before these amendments, companies may omit 
information regarding group life, health, hospitalization and 
medical reimbursement plans that do not discriminate in scope, terms 
or operation in favor of executive officers or directors of the 
company and that are available generally to all salaried employees. 
See Item 402(a)(6)(ii).
---------------------------------------------------------------------------

    As proposed, we are clarifying the disclosure required in the All 
Other Compensation column (revised column (i)) in two principal 
respects:
    <bullet> Consistent with the requirement that the Summary 
Compensation Table

[[Page 53176]]

disclose all compensation, we state explicitly that compensation not 
properly reportable in the other columns reporting specified forms of 
compensation must be reported in this column; and
    <bullet> To simplify the Summary Compensation Table and eliminate 
confusing distinctions between items currently reported as ``Annual'' 
and ``Long Term'' compensation, we have moved into this column all 
items formerly reportable as ``Other Annual Compensation.'' \199\
---------------------------------------------------------------------------

    \199\ Prior to today's amendments, Item 402(b)(2)(iii)(c) had 
required the separate column entitled ``Other Annual Compensation.''
---------------------------------------------------------------------------

    We also are requiring that each item of compensation included in 
the All Other Compensation column that exceeds $10,000 be separately 
identified and quantified in a footnote. We believe that the $10,000 
threshold balances our desire to avoid disclosure of clearly de minimis 
matters against the interests of investors in the nature of items 
comprising compensation. Each item of compensation less than that 
amount will be included in the column (other than aggregate perquisites 
and other personal benefits less than $10,000 as discussed below), but 
is not required to be identified by type and amount.\200\ Items to be 
disclosed in the All Other Compensation column include, but are not 
limited to, the items discussed below.
---------------------------------------------------------------------------

    \200\ See Section II.C.1.e.i. regarding separate standards for 
identification of perquisites and other personal benefits.
---------------------------------------------------------------------------

i. Perquisites and Other Personal Benefits
    Perquisites and other personal benefits are included in the All 
Other Compensation column. As we proposed, we are adopting changes to 
the disclosure of perquisites and other personal benefits to improve 
disclosure and facilitate computing a total amount of compensation. Our 
amendments require the disclosure of perquisites and other personal 
benefits unless the aggregate amount of such compensation is less than 
$10,000. Some commenters thought this threshold was too high; \201\ 
while other commenters thought it was too low.\202\ While we realize 
that this threshold may result in the total amount of compensation 
reportable in the Summary Compensation Table being slightly less than a 
complete total amount of compensation, we believe $10,000 is a 
reasonable balance between investors' need for disclosure of total 
compensation and the burden on a company to track every benefit, no 
matter how small. Prior to today's amendments, the rule permitted 
omission of perquisites and other personal benefits if the aggregate 
amount of such compensation was the lesser of either $50,000 or 10% of 
the total of annual salary and bonus, allowing omission of too much 
information that investors may consider material.
---------------------------------------------------------------------------

    \201\ See, e.g., letters from Association of BellTel Retirees 
(``ABTR''); AFL-CIO; Amalgamated; Association of US West Retirees 
(``AUSWR''); Corporate Library; ISS; UCF; and Walden.
    \202\ See e.g., letters from Buck Consultants; Chamber of 
Commerce; Compass Bancshares; Computer Sciences; Eli Lilly; Emerson; 
Hodak Value Advisors; C. Kollar; NAM; and SCSGP.
---------------------------------------------------------------------------

    The amendments we adopt today require, as proposed, footnote 
disclosure that identifies perquisites and other personal benefits. 
Prior to these amendments, the rule required identification and 
quantification only of perquisites and other personal benefits that 
were 25% of the total amount for each named executive officer.\203\ We 
have modified this requirement so that, unless the aggregate value of 
perquisites and personal benefits is less than $10,000, any perquisite 
or other personal benefit must be identified and, if it is valued at 
the greater of $25,000 or ten percent of total perquisites and other 
personal benefits, its value must be disclosed.\204\ Consistent with 
our objective to streamline the Summary Compensation Table, the revised 
threshold is intended to avoid requiring separate quantification of 
perquisites having de minimis value. Where perquisites are subject to 
identification, they must be described in a manner that identifies the 
particular nature of the benefit received. For example, it is not 
sufficient to characterize generally as ``travel and entertainment'' 
different company-financed benefits, such as clothing, jewelry, 
artwork, theater tickets and housekeeping services.
---------------------------------------------------------------------------

    \203\ The requirement had been set forth in Instruction 1 to 
Item 402(b)(2)(iii)(C) prior to these amendments.
    \204\ Instruction 4 to Item 402(c)(2)(ix).
---------------------------------------------------------------------------

    As was formerly the case, tax ``gross-ups'' or other reimbursement 
of taxes owed with respect to any compensation, including but not 
limited to perquisites and other personal benefits, must be separately 
quantified and identified in the tax reimbursement category described 
below, even if the associated perquisites or other personal benefits 
are eligible for exclusion or would not require identification or 
footnote quantification under the rule.
    In the Proposing Release, we provided interpretive guidance about 
factors to be considered in determining whether an item is a perquisite 
or other personal benefit. One commenter suggested that the Commission 
engage in a separate rulemaking to adopt a definition of perquisites in 
Regulation S-K.\205\ As we noted in the Proposing Release, for decades 
questions have arisen as to what is a perquisite or other personal 
benefit required to be disclosed. We continue to believe that it is not 
appropriate for Item 402 to define perquisites or personal benefits, 
given that different forms of these items continue to develop, and thus 
a definition would become outdated. As stated in the Proposing Release, 
we are concerned that sole reliance on a bright line definition in our 
rules might provide an incentive to characterize perquisites or 
personal benefits in ways that would attempt to circumvent the bright 
lines. Many commenters sought additional or modified interpretive 
guidance, including guidance with respect to an item that is integrally 
and directly related to the performance of the executive's duties but 
has a personal benefit aspect as well.\206\ Accordingly, we are 
providing additional explanation regarding how to apply this guidance. 
The amendments we adopt today require perquisites and personal benefits 
to be disclosed for both named executive officers and directors.\207\ 
Further, the disclosure requirements we adopt regarding potential 
payments upon termination or change-in-control include disclosure of 
perquisites.\208\ Accordingly, this discussion also applies in the 
context of each of these disclosure requirements.
---------------------------------------------------------------------------

    \205\ See letter from Chamber of Commerce.
    \206\ See, e.g., letter from SCSGP.
    \207\ For directors, the disclosure will be required in the 
Director Compensation Table discussed below in Section II.C.9.
    \208\ Item 402(j), discussed in Section II.C.5.c. below.
---------------------------------------------------------------------------

    Among the factors to be considered in determining whether an item 
is a perquisite or other personal benefit are the following:
    <bullet> An item is not a perquisite or personal benefit if it is 
integrally and directly related to the performance of the executive's 
duties.
    <bullet> Otherwise, an item is a perquisite or personal benefit if 
it confers a direct or indirect benefit that has a personal aspect, 
without regard to whether it may be provided for some business reason 
or for the convenience of the company, unless it is generally available 
on a non-discriminatory basis to all employees.
    We believe the way to approach this is by initially evaluating the 
first prong of the analysis. If an item is integrally and directly 
related to the performance of the executive's duties, that is the end 
of the analysis--the item is not a perquisite or personal benefit and 
no

[[Page 53177]]

compensation disclosure is required. Moreover, if an item is integrally 
and directly related to the performance of an executive's duties under 
this analysis, there is no requirement to disclose any incremental cost 
over a less expensive alternative. For example, with respect to 
business travel, it is not necessary to disclose the cost differential 
between renting a mid-sized car over a compact car.
    Because of the integral and direct connection to job performance, 
the elements of the second part of the analysis (e.g., whether there is 
also a personal benefit or whether the item is generally available to 
other employees) are irrelevant. An example of such an item could be a 
``Blackberry'' or a laptop computer if the company believes it is an 
integral part of the executive's duties to be accessible by e-mail to 
the executive's colleagues and clients when out of the office. Just as 
these devices represent advances over earlier technology (such as 
voicemail), we expect that as new technology facilitates the extent to 
which work is conducted outside the office, additional devices may be 
developed that will fall into this category.
    The concept of a benefit that is ``integrally and directly 
related'' to job performance is a narrow one. The analysis draws a 
critical distinction between an item that a company provides because 
the executive needs it to do the job, making it integrally and directly 
related to the performance of duties, and an item provided for some 
other reason, even where that other reason can involve both company 
benefit and personal benefit. Some commenters objected that 
``integrally and directly related'' is too narrow a standard, 
suggesting that other business reasons for providing an item should not 
be disregarded in determining whether an item is a perquisite.\209\ We 
do not adopt this suggested approach. As we stated in the Proposing 
Release, the fact that the company has determined that an expense is an 
``ordinary'' or ``necessary'' business expense for tax or other 
purposes or that an expense is for the benefit or convenience of the 
company is not responsive to the inquiry as to whether the expense 
provides a perquisite or other personal benefit for disclosure 
purposes. Whether the company should pay for an expense or it is 
deductible for tax purposes relates principally to questions of state 
law regarding use of corporate assets and of tax law; our disclosure 
requirements are triggered by different and broader concepts.
---------------------------------------------------------------------------

    \209\ See, e.g., letters from NACCO Industries, Inc. (``NACCO 
Industries'') and NAM.
---------------------------------------------------------------------------

    As we noted in the Proposing Release, business purpose or 
convenience does not affect the characterization of an item as a 
perquisite or personal benefit where it is not integrally and directly 
related to the performance by the executive of his or her job. 
Therefore, for example, a company's decision to provide an item of 
personal benefit for security purposes does not affect its 
characterization as a perquisite or personal benefit. A company policy 
that for security purposes an executive (or an executive and his or her 
family) must use company aircraft or other company means of travel for 
personal travel, or must use company or company-provided property for 
vacations, does not affect the conclusion that the item provided is a 
perquisite or personal benefit.
    If an item is not integrally and directly related to the 
performance of the executive's duties, the second step of the analysis 
comes into play. Does the item confer a direct or indirect benefit that 
has a personal aspect (without regard to whether it may be provided for 
some business reason or for the convenience of the company)? If so, is 
it generally available on a non-discriminatory basis to all employees? 
For example, a company's provision of helicopter service for an 
executive to commute to work from home is not integrally and directly 
related to job performance (although it would benefit the company by 
getting the executive to work faster), clearly bestows a benefit that 
has a personal aspect, and is not generally available to all employees 
on a non-discriminatory basis. As we have noted, business purpose or 
convenience does not affect the characterization of an item as a 
perquisite or personal benefit where it is not integrally and directly 
related to the performance by the executive of his or her job.
    A company may reasonably conclude that an item is generally 
available to all employees on a non-discriminatory basis if it is 
available to those employees to whom it lawfully may be provided. For 
this purpose, a company may recognize jurisdictionally based legal 
restrictions (such as for foreign employees) or the employees' 
``accredited investor'' \210\ status. In contrast, merely providing a 
benefit consistent with its availability to employees in the same job 
category or at the same pay scale does not establish that it is 
generally available on a non-discriminatory basis to all employees.
---------------------------------------------------------------------------

    \210\ ``Accredited investor'' is defined in Securities Act Rule 
501(a)[17 CFR 230.501(a)] for purposes of Regulation D [17 CFR 
230.501-508].
---------------------------------------------------------------------------

    Applying the concepts that we outline above, examples of items 
requiring disclosure as perquisites or personal benefits under Item 402 
include, but are not limited to: club memberships not used exclusively 
for business entertainment purposes, personal financial or tax advice, 
personal travel using vehicles owned or leased by the company, personal 
travel otherwise financed by the company, personal use of other 
property owned or leased by the company, housing and other living 
expenses (including but not limited to relocation assistance and 
payments for the executive or director to stay at his or her personal 
residence), security provided at a personal residence or during 
personal travel, commuting expenses (whether or not for the company's 
convenience or benefit), and discounts on the company's products or 
services not generally available to employees on a non-discriminatory 
basis.
    Beyond the examples provided, we assume that companies and their 
advisors, who are more familiar with the detailed facts of a particular 
situation and who are responsible for providing materially accurate and 
complete disclosure satisfying our requirements, can apply the two-step 
analysis to assess whether particular arrangements require disclosure 
as perquisites or personal benefits. In light of the importance of the 
subject to many investors, all participants should approach the subject 
of perquisites and personal benefits thoughtfully.\211\
---------------------------------------------------------------------------

    \211\ The Commission has taken action in circumstances where 
perquisites were not properly disclosed. See SEC v. Greg A. Gadel 
and Daniel J. Skrypek, Litigation Release No. 19720 (June 7, 2006) 
and In the Matter of Tyson Foods, Inc. and Donald Tyson, Litigation 
Release No. 19208 (Apr. 28, 2005).
---------------------------------------------------------------------------

    The amendments we adopt today, as proposed, call for aggregate 
incremental cost to the company as the proper measure of value of 
perquisites and other personal benefits.\212\ Some commenters instead 
recommended valuing perquisites based on current market values.\213\ 
Consistent with our

[[Page 53178]]

approach of disclosing a company's compensation costs, we remain of the 
view that perquisites should be valued based on aggregate incremental 
cost.
---------------------------------------------------------------------------

    \212\ Instruction 4 to Item 402(c)(2)(is).
    \213\ See e.g., letters from ABTR; AUSWR; CH; Computer Sciences; 
Pearl Meyer & Partners; and Institutional Investors Group. As we 
stated in the Proposing Release, the amount attributed to 
perquisites and other personal benefits for federal income tax 
purposes is not the incremental cost for purposes of our disclosure 
rules unless, independently of the tax characterization, it 
constitutes such incremental cost. Therefore, for example, the cost 
of aircraft travel attributed to an executive for federal income tax 
purposes is not generally the incremental cost of such a perquisite 
or personal benefit for purposes of our disclosure rules. See IRS 
Regulation Sec.  1.61-21(g) [26 CFR 1.61-21(g)] regarding Internal 
Revenue Service guidelines for imputing taxable personal income to 
an employee who travels for personal reasons on corporate aircraft. 
These complex regulations are known as the Standard Industry Fare 
Level or SIFL rules.
---------------------------------------------------------------------------

    Finally, commenters observed that investors cannot fully understand 
disclosed perquisite amounts without disclosure of the methodology used 
to compute them.\214\ We agree that this disclosure will improve 
investors' ability to compare the cost of perquisites from company to 
company. The rule as adopted requires footnote disclosure of the 
methodology for computing the aggregate incremental cost for the 
perquisites.\215\
---------------------------------------------------------------------------

    \214\ See, e.g., letter from Mercer.
    \215\ Instruction 4 to Item 402(c)(2)(ix).
---------------------------------------------------------------------------

ii. Additional All Other Compensation Column Items
    We are adopting as proposed a requirement that items to be 
disclosed in the All Other Compensation column include, but are not 
limited to, the following items: \216\
---------------------------------------------------------------------------

    \216\ All of these items were required to be disclosed either 
under All Other Compensation or under Other Annual Compensation 
proir to these amendments.
---------------------------------------------------------------------------

    <bullet> Amounts paid or accrued pursuant to a plan or arrangement 
in connection with any termination (or constructive termination) of 
employment or a change in control; \217\
---------------------------------------------------------------------------

    \217\ Unlike the text of Item 402(b)(2)(v)(A) prior to these 
amendments, Item 402(c)(2)(ix)(D) as amended does not refer to 
amounts payable under post-employment benefits. Instruction 5 to 
Item 402(c)(2)(ix) provides that an accrued amount is an amount for 
which payment has become due, such as a severance payment currently 
owed by the company to an executive officer. These items, as well as 
amounts that are payable in the future, are also the subject of 
disclosure as post-termination compenstaion, as described in Section 
II.C.5.c. below. For any compensation as a result of a business 
combination, other than pursuant to a plan or arrangement in 
connection with any termination of employment or change-in-control, 
such as a retention bonus, acceleration of option or stock vesting 
period, or performance-based compensation intended to serve as an 
incentive for named executive officers to acquire other companies or 
enter into a merger agreement, disclosure will now be requlired in 
the appropriate Summary Compensation Table column and in the other 
tables or narrative disclosure where the particular element of 
compensation is required to be disclosed.
---------------------------------------------------------------------------

    <bullet> Annual company contributions or other allocations to 
vested and unvested defined contribution plans; \218\
---------------------------------------------------------------------------

    \218\ Item 402(c)(2)(ix)(E).
---------------------------------------------------------------------------

    <bullet> The dollar value of any insurance premiums paid by the 
company with respect to life insurance for the benefit of a named 
executive officer; \219\
---------------------------------------------------------------------------

    \219\ Item 402(c)(2)(ix)(F). Because the amendments call for 
disclosure of the dollar value of any life insurance premiums, 
rather than only premiums with respect to term life insurance (as 
was required prior to these amendments), the requirement that had 
been previously specified in Item 402(b)(2)(v)(E)(1) and (2) to 
disclose the value of any remaining premiums with respect to 
circumstances where the named executive officer has an interest in 
the policy's cash surrender value is not retained in the amended 
rule.
---------------------------------------------------------------------------

    <bullet> ``Gross-ups'' or other amounts reimbursed during the 
fiscal year for the payment of taxes; \220\ and
---------------------------------------------------------------------------

    \220\ Item 402(c)(2)(ix)(B).
---------------------------------------------------------------------------

    <bullet> For any security of the company or its subsidiaries 
purchased from the company or its subsidiaries (through deferral of 
salary or bonus) at a discount from the market price of such security 
at the date of purchase, unless that discount is available generally 
either to all security holders or to all salaried employees of the 
company, the compensation cost, if any, computed in accordance with FAS 
123R.\221\
---------------------------------------------------------------------------

    \221\ Item 402(c)(2)(ix)(C). This requirement as adopted has 
been revised from the proposal to clarify that no amount of 
compensation is required to be disclosed if there is no compensation 
cost computed for the discounted securities purchase in accordance 
with FAS 123R. For example, under FAS 123R, if the discount is five 
percent or less, all qualified employees can participate in the 
offer and there are no option features, then there is no 
compensation cost to recognize for financial reporting purposes and 
thus no compensation is reported for this item in the All Other 
Compensation column.
---------------------------------------------------------------------------

    An additional requirement to include the dollar value of any 
dividends or other earnings paid on stock or option awards when the 
dividends or earnings were not factored into the grant date fair value 
has been adopted for this column as discussed above.\222\
---------------------------------------------------------------------------

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

    In response to commenters' concerns about double counting pension 
benefits,\223\ we have not retained the aspect of proposed Instruction 
2 to this column that would have required disclosure of pension 
benefits paid to the named executive officer during the period covered 
by the table.\224\ As adopted, an instruction provides that benefits 
paid pursuant to defined benefit and actuarial plans are not reportable 
as All Other Compensation unless accelerated pursuant to a change in 
control.\225\ Similarly, distributions of nonqualified deferred 
compensation are not reportable as All Other Compensation.
---------------------------------------------------------------------------

    \223\ See, e.g., letter from Cravath.
    \224\ We have moved this disclosure requirement to the Pension 
Benefits Table, described in Section II.C.5.a. below.
    \225\ Instruction 2 to Item 402(c)(2)(ix).
---------------------------------------------------------------------------

f. Captions and Table Layout
    Before today's amendments, a portion of the table was labeled as 
``annual compensation'' and another portion as ``long term 
compensation.'' These captions created distinctions that may have been 
confusing to both users and preparers of the Summary Compensation 
Table. As proposed, the amendments we adopt today do not separately 
identify some columns as ``annual'' and other columns as ``long term'' 
compensation. Consistent with this change, as described above, we are 
merging the current Other Annual Compensation column into the new All 
Other Compensation column, and include current earnings information 
regarding non-equity incentive plan compensation in the column for that 
form of award.
    In eliminating this distinction, we also revise the former 
definition of ``long term incentive plan'' to eliminate any distinction 
between a ``long term'' plan and one that may provide for periods 
shorter than one year. Like the captions, the former approach created 
distinctions that may have been confusing to users and preparers. As 
proposed and adopted, the amendments define an ``incentive plan'' as 
any plan providing compensation intended to serve as incentive for 
performance to occur over a specified period.\226\ The related 
definition of ``incentive plan award'' as an award provided under an 
incentive plan is also adopted as proposed.\227\
---------------------------------------------------------------------------

    \226\ Item 402(a)(6)(iii).
    \227\ Id.
---------------------------------------------------------------------------

    Noting that companies formerly reported as ``bonuses'' awards that 
would be short-term incentive plan awards under this definition, 
commenters requested guidance as to what distinguishes items reportable 
as non-equity incentive plan compensation from those reportable as 
bonuses under the amended rules.\228\ An award would be considered 
``intended to serve as an incentive for performance to occur over a 
specified period'' if the outcome with respect to the relevant 
performance target is substantially uncertain at the time the 
performance target is established and the target is communicated to the 
executive. Compensation pursuant to such a non-equity award would be 
reported in the Summary Compensation Table as non-equity incentive plan 
compensation and the grant of the award would be reported as a non-
equity incentive plan award in the Grants of Plan-Based Awards 
Table.\229\ In contrast, a cash

[[Page 53179]]

award based on satisfaction of a performance target that was not pre-
established and communicated, or the outcome of which is not 
substantially uncertain, would be reportable in the Summary 
Compensation Table as a bonus.
---------------------------------------------------------------------------

    \228\ See, e.g., letters from Hewitt; Mercer; NACCO Industries; 
and SCSGP.
    \229\ This table is described in Section II.C.2. immediately 
below. Further, no longer reporting compensation pursuant to these 
awards as ``bonus'' in the Summary Compensation Table does not 
affect the determination of named executive officers because, as 
described in Section II.C.6.b. below, that determination is not 
limited to consideration of salary and bonus.
---------------------------------------------------------------------------

2. Supplemental Grants of Plan-Based Awards Table
    Following the Summary Compensation Table, we proposed two 
supplemental tables to explain information in the Summary Compensation 
Table. The proposed tables were derived from two tables required under 
the rules prior to these amendments.
    The first table we proposed to supplement the Summary Compensation 
Table would have included information regarding non-stock grants of 
incentive plan awards, stock-based incentive plan awards and awards of 
options, restricted stock and similar instruments under plans that are 
performance-based (and thus provide the opportunity for future 
compensation if conditions are satisfied).\230\ The second table we 
proposed to supplement the Summary Compensation Table would have shown 
the equity-based compensation awards granted in the last fiscal year 
that are not performance-based, such as stock, options or similar 
instruments where the payout or future value is tied to the company's 
stock price, and not to other performance criteria.\231\
---------------------------------------------------------------------------

    \230\ Proposed Item 402(d).
    \231\ Proposed Item 402(e), containing much of the information 
that was required prior to these amendments by the Option/SAR Grants 
Table (formerly specified in Item 402(c)).
---------------------------------------------------------------------------

    Because much of the information for each proposed table is 
consistent, we have followed the recommendation of a commenter to 
simplify the disclosure format by combining the proposed disclosure in 
a single table.\232\
---------------------------------------------------------------------------

    \232\ See letter from Hewitt.

                                                               Grants of Plan-Based Awards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                           Estimated future payouts under non-equity    Estimated future payouts under equity     All other     All other
                                     incentive plan awards                      incentive plan awards               stock        option
                         --------------------------------------------------------------------------------------    awards:       awards:     Exercise or
                                                                                                                  Number of     Number of    base price
   Name      Grant date                                                                                           shares of    securities     of option
                            Threshold     Target  ($)   Maximum  ($)    Threshold      Target        Maximum      stock or     underlying    awards  ($/
                               ($)                                     (<greek-i>)   (<greek-i>)   (<greek-i>)      units        options         Sh)
                                                                                                                 (<greek-i>)   (<greek-i>)
(a)        (b)            (c)            (d)            (e)           (f)           (g)           (h)           (i)           (j)           (k)
--------------------------------------------------------------------------------------------------------------------------------------------------------
PEO
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
PFO
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
A
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
B
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
C
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Disclosure in this table complements Summary Compensation Table 
disclosure of grant date fair value of stock awards and option awards 
by disclosing the number of shares of stock or units comprising or 
underlying the award. This supplemental table shows the terms of grants 
made during the current year, including estimated future payouts for 
both equity incentive plans and non-equity incentive plans, with 
separate disclosure for each grant.\233\
---------------------------------------------------------------------------

    \233\ Instruction 1 to Item 402(d).
---------------------------------------------------------------------------

    To simplify the presentation further, we have eliminated some of 
the proposed columns. Because the narrative section identifies the 
material terms of an award reported in this table as an example of a 
material factor to be described,\234\ and thus will cover the same 
information, we have eliminated the proposed columns reporting vesting 
date, or performance or other period until vesting or payout. As a 
commenter noted, vesting information typically cannot be reported 
easily in a single line in a table.\235\ Similarly, because the 
modifications we are making to the Outstanding Equity Awards at Fiscal 
Year-End Table require that table to report the expiration dates of 
options and similar awards,\236\ we are eliminating the proposed 
expiration date column. Finally, the proposed column reporting the 
dollar amount of consideration paid for the award, if any, is not 
adopted, reflecting comments that this column would be used only 
rarely.\237\ Instead, in those rare instances where consideration is 
paid for an award, this disclosure will be provided in a footnote to 
the appropriate column.\238\
---------------------------------------------------------------------------

    \234\ Item 402(e)(1)(iii), described in Section II.C.3.a. 
immediately below.
    \235\ See letter from ABA.
    \236\ See Section II.C.4.a. below.
    \237\ Proposed Item 402(d)(2)(v). See, e.g., letters from 
Frederic W. Cook & Co. and SCSGP.
    \238\ Instruction 5 to Item 402(d).
---------------------------------------------------------------------------

    As proposed, the Grants of All Other Equity Awards Table would have 
permitted aggregation of option grants with the same exercise or base 
price. We have not adopted such an instruction for this table, based on 
our belief that grant-by-grant disclosure is the most appropriate 
approach, particularly given our particular disclosure concerns 
regarding option grants. For incentive plan awards, threshold, target 
and maximum payout information should be provided, but if the award 
provides only for a single estimated payout, that amount should be 
reported as the target.\239\ Where there is a tandem grant of two 
instruments, only one of which is granted under an incentive plan, only

[[Page 53180]]

the instrument that is not granted under an incentive plan is reported 
in the table, with the tandem feature noted.\240\ Because the rules as 
adopted require Summary Compensation Table disclosure of the 
incremental fair value, computed in accordance with FAS 123R, of 
options, stock appreciation rights and similar option-like instruments 
granted in connection with a repricing transaction, rather than the 
total fair value as we had proposed, grants of these instruments are 
not reported in this table.\241\ Disclosure should be provided in the 
Compensation Discussion and Analysis and the narrative disclosures for 
the Summary Compensation Table and Grants of Plan-Based Awards, as 
appropriate, regarding awards granted in connection with repricing 
transactions.
---------------------------------------------------------------------------

    \239\ Instruction 2 to Item 402(d).
    \240\ Instruction 4 to Item 402(d).
    \241\ See discussion at Section II.C.1.c.i. above.
---------------------------------------------------------------------------

    As proposed and adopted, if the per-share exercise or base price of 
options, stock appreciation rights and similar option-like instruments 
is less than the market price of the underlying security on the grant 
date, a separate column must be added showing market price on the grant 
date.\242\ Some commenters objected to our proposal to calculate grant 
date market price for this purpose using the closing price per share of 
the underlying security on that date. These commenters stated that 
plans requiring awards to be granted with an exercise price equal to 
the underlying security's grant date fair market value may define 
``fair market value'' based on a formula related to the average market 
price on the grant date or a range of days either before or after the 
grant date.\243\ Our proposed departure from the rule prior to these 
amendments, which permitted use of such formulas even for securities 
traded on an established market,\244\ was considered, and along with 
the requirement to disclose the grant date, reflects the significance 
of issues in awards of option grants.\245\ Moreover, commenters 
expressed concern regarding the manipulation of option grant dates to 
achieve below-market exercise prices.\246\ The rule as adopted uses the 
measure for grant date market price of the underlying security that we 
proposed, modified to specify that the grant date closing market price 
per share is the last sale price on the principal United States market 
for the security on the specified date.\247\ Moreover, if the exercise 
or base price is not the grant date closing market price per share, we 
require a description of the methodology for determining the exercise 
or base price either by footnote to the table or in the accompanying 
narrative section.\248\ Further reflecting the significance of grant 
date issues in awards of option grants and in response to 
comments,\249\ we are also providing that if the date on which the 
compensation committee (or a committee of the board of directors 
performing a similar function or the full board of directors) takes 
action or is deemed to take action to grant equity-based awards is 
different from the date of grant, a column must be added to disclose 
the date of action.\250\ For these purposes, the ``date of grant'' or 
``grant date'' is the grant date determined for financial statement 
reporting purposes pursuant to FAS 123R.\251\ Finally, in combining the 
proposed tables, we have adopted an instruction specifying that if a 
non-equity incentive plan award is denominated in units or other 
rights, then a separate, adjoining column would be required to disclose 
the units or other rights awarded.\252\
---------------------------------------------------------------------------

    \242\ Item 402(d)(2)(vii).
    \243\ See, e.g., letters from Cravath; Eli Lilly; and Sidley 
Austin LLP (``Sidley Austin'').
    \244\ This requirement had been set forth in Instruction 6 to 
Item 402(c) prior to today's amendments.
    \245\ See the discussion of options disclosure in Section II.A., 
above.
    \246\ See, e.g., letter from CFA Centre for Financial Market 
Integrity, dated May 30, 2006 (``CFA Centre 2'').
    \247\ Because the concept of closing market price is used in a 
number of provisions of Item 402, we are adopting a definition of 
the term closing market price in Item 402(a)(6)(v). A foreign 
company complying with this requirement may instead look to the 
principal foreign market in which the underlying securities trade.
    \248\ Instruction 3 to Item 402(d).
    \249\ See, e.g., letter from CFA Centre 2.
    \250\ Item 402(d)(2)(ii).
    \251\ Item 402(a)(6)(iv).
    \252\ Instruction 6 to Item 402(d).
---------------------------------------------------------------------------

3. Narrative Disclosure to Summary Compensation Table and Grants of 
Plan-Based Awards Table
a. Narrative Description of Additional Material Factors
    As we proposed, we are requiring narrative disclosure following the 
Summary Compensation Table and the Grants of Plan-Based Awards Table in 
order to give context to the tabular disclosure. A company will be 
required to provide a narrative description of any additional material 
factors necessary to an understanding of the information disclosed in 
the tables.\253\ Unlike the Compensation Discussion and Analysis, which 
focuses on broader topics regarding the objectives and implementation 
of executive compensation policies, the narrative disclosures following 
the Summary Compensation Table and other tables focus on and provide 
specific context to the quantitative disclosure in the tables. For 
example, narrative disclosure following a table might explain material 
aspects of a plan that are not evident from the quantitative tabular 
disclosure and are not addressed in the Compensation Discussion and 
Analysis.
---------------------------------------------------------------------------

    \253\ Item 402(e)(1). The standard of materiality that applies 
in Item 402(e) is that of Basic v. Levinson, 485 U.S. 224 (1988) and 
TSC Industries v. Northway, 426 U.S. 438 (1976).
---------------------------------------------------------------------------

    The material factors that require disclosure will vary depending on 
the facts and circumstances. As one example, such material factors 
might include descriptions of the material terms in the named executive 
officers' employment agreements as those descriptions might provide 
material information necessary to an understanding of the tabular 
disclosure. The narrative disclosure covers written or unwritten 
agreements or arrangements.\254\ Requiring this disclosure in proximity 
to the Summary Compensation Table is intended to make the tabular 
disclosure more meaningful. Mere filing of employment agreements (or 
summaries of oral agreements) may not be adequate to disclose material 
factors depending on the circumstances. As stated in the Proposing 
Release, provisions regarding post-termination compensation need to be 
addressed in the narrative section only to the extent disclosure of 
such compensation is required in the Summary Compensation Table; 
otherwise these provisions will be disclosable as post-termination 
compensation.\255\
---------------------------------------------------------------------------

    \254\ Item 402(e)(1)(i).
    \255\ Item 402(j), described in Section II.C.5.c.
---------------------------------------------------------------------------

    The factors that could be material include each repricing or other 
material modification of any outstanding option or other equity-based 
award during the last fiscal year. This disclosure addresses not only 
option repricings, but also other significant changes to the terms of 
equity-based awards.\256\ As proposed, we are eliminating the former 
ten-year option repricing table.\257\ In its place, the narrative 
disclosure following the Summary Compensation Table will describe, to 
the extent material and necessary to an understanding of the tabular 
disclosure, repricing, extension of exercise periods, change of vesting 
or forfeiture conditions, change or

[[Page 53181]]

elimination of applicable performance criteria, change of the bases 
upon which returns are determined, or any other material 
modification.\258\
---------------------------------------------------------------------------

    \256\ Item 402(e)(1)(ii).
    \257\ The ten-year option repricing table had been required by 
Item 402(i) prior to its elimination with these amendments. We 
believe that the narrative disclosure requirement will provide 
investors with material information regarding repricings and 
modifications and eliminate the arguably dated information contained 
in the former ten-year option repricing table.
    \258\ As described in Section II.C.1.c.i. above, the tabular 
disclosure will report the incremental fair value of the 
modification for financial reporting purposes. However, narrative 
disclosure will not apply to any repricing that occurs through a 
pre-existing formula or mechanism in the plan or award that results 
in the periodic adjustment of the option or stock appreciation right 
exercise or base price, an antidilution provision, or a 
recapitalization or similar transaction equally affecting all 
holders of the class of securities underlying the options or stock 
appreciation rights. Instruction 1 to Item 402(e).
---------------------------------------------------------------------------

    Narrative text accompanying the tables will also describe, to the 
extent material and necessary to an understanding of the tabular 
disclosure, award terms relating to disclosure provided in the Grants 
of Plan-Based Awards Table. This could include, for example, a general 
description of the formula or criteria to be applied in determining the 
amounts payable, the vesting schedule, a description of the 
performance-based conditions and any other material conditions 
applicable to the award, whether dividends or other amounts would be 
paid, the applicable rate and whether that rate is preferential.\259\ 
As noted above and consistent with current disclosure requirements, 
however, companies will not be required to disclose any factor, 
criteria, or performance-related or other condition to payout or 
vesting of a particular award that involves confidential trade secrets 
or confidential commercial or financial information, disclosure of 
which would result in competitive harm to the company.\260\
---------------------------------------------------------------------------

    \259\ Item 402(e)(1)(iii), which combines some information that 
had been required by Instruction 2 to Item 402(b)(2)(iv) with 
information that had been required by Instruction 1 to Item 402(e) 
as they were stated in the rule before these amendments.
    \260\ We have adopted Instruction 2 to Item 402(e)(1), which 
specifically applies to the narrative disclosure of Item 402(e)(1) 
the same standard applicable to Compensation Discussion and Analysis 
for determining whether disclosure would result in competitive harm 
for the company. See Section II.B.2., above, for a discussion of 
this standard.
---------------------------------------------------------------------------

    We proposed that this example also include material assumptions 
underlying the determination of the amount of increase in the actuarial 
value of defined benefit and actuarial plans. However, in light of the 
modifications we are adopting, we have concluded that the better place 
to discuss these assumptions is in the narrative section accompanying 
the Pension Benefits Table.\261\
---------------------------------------------------------------------------

    \261\ See Section II.C.5.a. below.
---------------------------------------------------------------------------

    Further, in response to commenters' concerns regarding the 
computation of total compensation and the expanded basis for 
determining the most highly compensated officers,\262\ we specify as an 
additional example an explanation of the level of salary and bonus in 
proportion to total compensation.\263\
---------------------------------------------------------------------------

    \262\ See Section II.C.1.a. above and Section II.C.6.b. below.
    \263\ Item 402(e)(1)(iv).
---------------------------------------------------------------------------

b. Request for Additional Comment on Compensation Disclosure for up to 
Three Additional Employees
    As part of this narrative disclosure requirement, we had proposed 
an additional item that would have required disclosure for up to three 
employees who were not executive officers during the last completed 
fiscal year and whose total compensation for the last completed fiscal 
year was greater than that of any of the named executive officers.\264\ 
We received extensive comment on this proposal. Some commenters 
supported the proposal or suggested that it should go further.\265\ 
Many commenters expressed concern that the benefits of this disclosure 
to investors would be negligible, yet compliance might require the 
outlay of considerable company resources.\266\ Some commenters 
expressed concern that the proposed disclosure would raise privacy 
issues or negatively impact competition for employees.\267\ While we 
continue to consider whether to adopt such a requirement as part of the 
executive compensation disclosure rules, in Release No. 33-8735 we are 
requesting additional comment as to whether potential modifications 
would address the concerns that commenters have raised.
---------------------------------------------------------------------------

    \264\ Proposed Item 402(f)(2).
    \265\ See, e.g., letters from Corporate Library; The Greenlining 
Institute; Institutional Investor Group; and SBAF.
    \266\ See, e.g., letters from ABA; Chamber of Commerce; Eli 
Lilly; Leggett & Platt; N. Ludgus; and Mercer.
    \267\ See, e.g., letters from ABA-JCEB; BRT; jointly, CBS 
Corporation, The Walt Disney Company, NBC Universal, News 
Corporation, and Viacom, Inc. (``Entertainment Industry Group''); 
Committee on Corporate Finance of Financial Executives International 
(``FEI''); Chamber of Commerce; Cleary; CNET Networks, Inc. (``CNET 
Networks''); Compass Bancshares; Compensia; Cravath; DreamWorks 
Animation SKG (``DreamWorks''); Eli Lilly; Emerson; Fenwick; The 
Financial Services Roundtable (``FSR''); Professor Joseph A. 
Grundfest, dated April 10, 2006 (``Grundfest''); ICI; Intel 
Corporation (``Intel''); Kellogg Company (``Kellogg''); Kennedy & 
Baris, LLP (``Kennedy''); Mercer; Peabody Energy; Pearl Meyer & 
Partners; Securities Industry Association (``SIA''); Sullivan; 
SCSGP; and WorldatWork.
---------------------------------------------------------------------------

    We note in particular that some commenters questioned the 
materiality of the information that would have been required by the 
proposal, given that the covered employees would not be in policy-
making positions as executive officers.\268\ After considering the 
issues raised by these commenters, we remain concerned about disclosure 
with respect to employees, particularly within very large companies, 
whether or not they are executive officers, whose total compensation 
for the last completed fiscal year was greater than that of one or more 
of the named executive officers. If any of these employees exert 
significant policy influence at the company, at a significant 
subsidiary of the company or at a principal business unit, division, or 
function of the company, then investors seeking a fuller understanding 
of a company's compensation program may believe that disclosure of 
these employees' total compensation is important information.\269\ 
Knowing the compensation, and job positions within the organization, of 
these highly compensated policy-makers whose total compensation for the 
last fiscal year was greater than that of a named executive officer, 
should assist in placing in context and permit a better understanding 
of the compensation structure of the named executive officers and 
directors.
---------------------------------------------------------------------------

    \268\ See, e.g., letters from CalSTRS; Cleary; CNET Networks; 
Compass Bancshares; DreamWorks; Entertainment Industry Group; Fried, 
Frank, Harris, Shriver & Jacobson LLP (``Fried Frank''); FSR; 
Hewitt; ICI; Intel; Kellogg; Kennedy; Leggett & Platt; Peabody 
Energy; Pearl Meyer & Partners; SCSGP; SIA; Stradling Yocca Carlson 
& Rauth (``Stradling Yocca''); Top Five Data Services, Inc. (``Top 
Five Data''); Towers Perrin; and Walden.
    \269\ The Commission expressed similar concerns in 1978, when it 
stated ``a key employee or director of a subsidiary might be the 
highest-paid person in the entire corporate structure and have 
managerial responsibility for major aspects of the registrant's 
overall operations.'' 1978 Release. See n. 327 for a discussion of 
the term ``executive officer.'' In light of some of the comments 
that we received, we have clarified that the definition of 
``executive officer'' includes all individuals in a registrant 
policy-making role. See, e.g., letters from SCSGP and Cravath.
---------------------------------------------------------------------------

    Our intention is to provide investors with information regarding 
the most highly compensated employees who exert significant policy 
influence by having responsibility for significant policy decisions. 
Responsibility for significant policy decisions could consist of, for 
example, the exercise of strategic, technical, editorial, creative, 
managerial, or similar responsibilities. Examples of employees who 
might not be executive officers but who might have responsibility for 
significant policy decisions could include the director of the news 
division of a major network; the principal creative leader of the 
entertainment function of a media conglomerate; or the head of a 
principal business unit developing a significant technological 
innovation. By contrast, we are convinced by commenters that a

[[Page 53182]]

salesperson, entertainment personality, actor, singer, or professional 
athlete who is highly compensated but who does not have responsibility 
for significant policy decisions would not be the type of employee 
about whom we would seek disclosure. Nor, as a general matter, would 
investment professionals (such as a trader, or a portfolio manager for 
an investment adviser who is responsible for one or more mutual funds 
or other clients) be deemed to have responsibility for significant 
policy decisions at the company, at a significant subsidiary or at a 
principal business unit, division or function simply as a result of 
performing the duties associated with those positions. On the other 
hand, an investment professional, such as a trader or portfolio 
manager, who does have broader duties within a firm (such as, for 
example, oversight of all equity funds for an investment adviser) may 
be considered to have responsibility for significant policy decisions.
    We continue to consider whether it is appropriate to require some 
level of narrative disclosure so that shareholders will have 
information about these most highly compensated employees. This 
consideration includes the appropriate level of information about these 
employees and their compensation in light of their roles.
    As to issues regarding privacy and competition for employees, to 
the extent that commenters objected that the disclosure could result in 
a competitor stealing a company's top ``talent,'' \270\ we have tried 
to address these concerns by focusing the disclosure on persons who 
exert significant policy influence within the company or significant 
parts of the company.
---------------------------------------------------------------------------

    \270\ See, e.g., letter from Entertainment Industry Group. In 
addition, we note our intention is not to suggest that these 
additional employees, whether or not they are executive officers, 
are individuals whose compensation is required to be reported under 
the Exchange Act ``by reason of such employee being among the 4 
highest compensated officers for the taxable year,'' as stated in 
Internal Revenue Code Section 162(m)(3)(B) [26 U.S.C. 162(m)(3)(B)]. 
See letter from Cleary (expressing concern that the additional 
individuals not fall within the purview of Section 162(m) of the 
Internal Revenue Code).
---------------------------------------------------------------------------

Request for Comment
    We request additional comment on the proposal to require 
compensation disclosure for up to three additional employees. In 
addition to general comment, we encourage commenters to address the 
following specific questions:
    <bullet> Would the rule more appropriately require disclosure of 
the employees described above if it were structured in the following or 
similar manner:
    For each of the company's three most highly compensated employees, 
whether or not they were executive officers during the last completed 
fiscal year, whose total compensation for the last completed fiscal 
year was greater than that of any of the named executive officers, 
disclose each such employee's total compensation for that year and 
describe the employee's job position, without naming the employee; 
provided, however, that employees with no responsibility for 
significant policy decisions within the company, a significant 
subsidiary of the company, or a principal business unit, division, or 
function of the company are not included when determining who are each 
of the three most highly compensated employees for the purposes of this 
requirement, and therefore no disclosure is required under this 
requirement for any employee with no responsibility for significant 
policy decisions within the company, a significant subsidiary of the 
company, or a principal business unit, division, or function of the 
company?
    <bullet> Would it be appropriate to determine the highest paid 
employees in the same manner that named executive officers are 
determined, by calculating total compensation but excluding pension 
plan benefits and above-market or preferential earnings on nonqualified 
deferred compensation plans, and by comparing that amount to the same 
amount earned by the named executive officers (excluding the amount 
required to be disclosed for those named executive officers pursuant to 
paragraph (c)(2)(viii) of Item 402)? If so, should the total amount 
disclosed include these amounts as it does for named executive 
officers? Should the pension benefit and above-market earnings be 
separately disclosed in a footnote so investors can calculate the 
amounts used in determining highest paid employees?
    <bullet> Would modifying the proposed rule to apply only to large 
accelerated filers\271\ properly focus this disclosure obligation on 
companies that are more likely to have these additional highly 
compensated employees? Would that modification address concerns that 
the proposed rule would impose disproportionate compliance burdens by 
limiting the disclosure obligation to companies that are presumptively 
better able to track the covered employees? Would a different 
limitation as to applicability be appropriate?
---------------------------------------------------------------------------

    \271\ The term large accelerated filer is defined in Exchange 
Act Rule 12b-2 [17 CFR 240.12b-2].
---------------------------------------------------------------------------

    <bullet> Is information regarding highly compensated employees, 
including those who are not executive officers, material to investors? 
In answering this question, commenters are encouraged to address the 
following additional questions:
    [cir] Would modifications limiting the disclosure to employees who 
make significant policy decisions within the company, a significant 
subsidiary of the company, or a principal business unit, division, or 
function of the company appropriately focus the disclosure on employees 
for whom compensation information is material to investors?
    [cir] Would the approach that we are considering provide investors 
with material information about how policy-making responsibilities are 
allocated within a company? Are the examples describing responsibility 
for significant policy decisions too broad or too narrow?
    [cir] Would the proposed rule, with the modifications described 
above, provide investors with material information necessary to 
understand the company's compensation policies and structure? How 
should we address those concerns?
    [cir] What is typically the role of the compensation committee in 
determining or approving the compensation of the additional employees 
if they are not executive officers? If the compensation committee does 
not oversee their compensation, is the additional employee compensation 
information material to investors? What types of decisions would 
investors make based on this information?
    <bullet> Would the proposed rule, with the modifications described 
above, raise privacy issues or negatively impact competition for 
employees in a manner that would outweigh the materiality of the 
disclosure to investors?
    <bullet> Should we require that the three additional employees be 
named? If not, what additional information should be required? Should 
more information be required regarding the employee's compensation or 
job position?
    <bullet> Should we define ``responsibility for significant policy 
decisions''? Should we use another test to describe those employees who 
exert a significant policy influence on the company? Do the examples 
provided above help identify and delimit the number of employees whose 
compensation would be subject to disclosure under this provision? What 
would help companies identify these employees?
    <bullet> What additional work and costs are involved in collecting 
the information necessary to identify the three additional employees? 
What are the types of costs, and in what amounts? In what way can the 
proposal be further modified to mitigate the costs?

[[Page 53183]]

    <bullet> In connection with the original proposal, we solicited 
comment on all aspects of the proposal, including this one. No 
commenter supplied cost estimates. We are now considering whether to 
limit this provision to only large accelerated filers. For some large 
accelerated filers, the number of employees potentially subject to this 
requirement may already be known or easy to identify. Other, more 
complex companies may need to establish systems to identify such 
employees. Every large accelerated filer would need to evaluate whether 
any employees exerted significant policy influence at the company, at a 
significant subsidiary or at a principal business unit, division or 
function and would have to track their compensation in order to comply 
with the proposed requirement. These monitoring costs may be new to 
some companies. We believe the cost of actually disclosing the 
compensation would be incremental and minimal. The monitoring and 
information collection costs are likely to be greatest in the first 
year and significantly less in later years. We also assume that costs 
would largely be borne internally, although some companies may seek the 
advice of outside counsel in determining which employees meet the 
standard for disclosure. In that event, for purposes of seeking 
comment, we estimate that 1,700 \272\ companies will on average retain 
outside counsel for 8 hours in the first year and 2 hours in each of 
two succeeding years, at $400 per hour, for a total estimated average 
annual cost of approximately $3 million. Assuming all large accelerated 
filers spend 60 hours in the first year and 10 hours in each of the two 
succeeding years, with an average internal cost of $175 per hour, the 
total average annual burden of collecting and monitoring employee 
compensation would be approximately 45,000 hours, or approximately $8 
million. The total average annual cost is therefore estimated to be $11 
million. We invite comment on this estimate and its assumptions.
---------------------------------------------------------------------------

    \272\ We estimate there are approximately 1,700 companies that 
are large accelerated filers. See Revisions to Accelerated Filer 
Definition and Accelerated Deadlines for Reporting Periodic Reports, 
Release No. 33-8644 (Dec. 21, 2005) [70 FR 76626], at Section V.A.2.
---------------------------------------------------------------------------

4. Exercises and Holdings of Previously Awarded Equity
    The next section of the revised executive compensation disclosure 
provides investors with an understanding of the compensation in the 
form of equity that has previously been awarded and remains 
outstanding, and is unexercised or unvested. As proposed, this section 
also discloses amounts realized on this type of compensation during the 
most recent fiscal year when, for example, a named executive officer 
exercises an option or his or her stock award vests. We are adopting 
substantially as proposed two tables: one table shows the amounts of 
awards outstanding at fiscal year-end, and the other shows the exercise 
or vesting of equity awards during the fiscal year.\273\ In response to 
comment, we are requiring additional information regarding out-of-the-
money awards.
a. Outstanding Equity Awards at Fiscal Year-End Table
---------------------------------------------------------------------------

    \273\ Some of this information had been required in the 
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-
End Option/SAR Value Table, which was required under Item 402(d) 
prior to adoption of these amendments.
---------------------------------------------------------------------------

    As we noted in the Proposing Release, outstanding awards that have 
been granted but the ultimate outcomes of which have not yet been 
realized in effect represent potential amounts that the named executive 
officer might or might not realize, depending on the outcome for the 
measure or measures (for example, stock price or performance 
benchmarks) to which the award relates. We are adopting a table that 
will disclose information regarding outstanding awards, for example, 
under stock option (or stock appreciation rights) plans, restricted 
stock plans, incentive plans and similar plans and disclose the market-
based values of the rights, shares or units in question as of the 
company's most recent fiscal year end.\274 \
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    \274\ Item 402(f). Under the rules prior to today's amendments, 
such disclosure was provided only for holdings of outstanding stock 
options and stock appreciation rights.

                                                      Outstanding Equity Awards at Fiscal Year-End
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Option awards                                                           Stock awards
           ---------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                Equity         Equity
                                                 Equity                                                                       incentive      incentive
               Number of       Number of     incentive plan                                                                  plan awards:   plan awards:
              securities       securities    awards: Number                                     Number of     Market value    Number of      Market or
   Name       underlying       underlying     of securities      Option          Option         shares or     of shares or     unearned     payout value
              unexercised     unexercised      underlying    exercise price    expiration    units of stock     units of    shares, units   of unearned
                options     options (<greek-   unexercised         ($)            date        that have not    stock that      or other    shares, units
              (<greek-i>)         i>)           unearned                                     vested (<greek-    have not     rights that      or other
              Exercisable    Unexercisable       options                                           i>)         vested ($)      have not     rights that
                                               (<greek-i>)                                                                      vested        have not
                                                                                                                             (<greek-i>)     vested ($)
(a)         (b)             (c)              (d)             (e)             (f)             (g)             (h)            (i)            (j)
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    As proposed, the table included a column reporting aggregate dollar 
amounts of in-the-money unexercised options.\275\ Some commenters 
believed that this table should not include information on out-of-the-
money options because they believed that these awards have no value to 
executives at the point they are out-of-the-money.\276\ Several other 
commenters recommended disclosure of the number and key terms of out-
of-the-money instruments, so investors can understand the potential 
compensation opportunity of these awards if the market price of the 
underlying shares increases.\277\ We proposed to require expiration 
date information in footnote disclosure. We note that some commenters 
expressed concern that disclosure of expiration and vesting dates of 
the instruments would be lengthy.\278\ However, because we agree with 
other commenters that information regarding out-of-the-money options is 
material to investors, we have revised the columns applicable to 
unexercised options, stock appreciation rights and similar instruments 
with option-like features to require disclosure of:
---------------------------------------------------------------------------

    \275\ Proposed Item 402(g)(2)(iii).
    \276\ See, e.g., letters from Frederic W. Cook & Co.; N. Ludgus; 
and SCSGP.
    \277\ See, e.g., letters from Amalgamated; Brian Foley & 
Company, Inc. (``Brian Foley & Co.''); Buck Consultants; CII; Hodak 
Value Advisors; IUE-CWA; and SBAF.
    \278\ See, e.g., letters from Leggett & Platt; SCSGP; and Sidley 
Austin.
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    <bullet> The number of securities underlying unexercised 
instruments that are exercisable;
    <bullet> The number of securities underlying unexercised 
instruments that are unexercisable;
    <bullet> The exercise or base price; and
    <bullet> The expiration date.
    After evaluating the comments received, we believe disclosure of 
individual exercise prices and expiration dates is required to provide 
a full understanding of the potential compensation opportunity. In 
particular, with respect to out-of-the-money awards, this allows 
investors to see the amount the stock price must rise and the amount of 
time remaining for it to happen. Consequently, this disclosure is 
required for each instrument, rather than on the aggregate basis that 
was proposed.\279 \
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    \279\ Multiple awards may be aggregated where the expiration 
date and the exercise and/or base price of the instruments is 
identical. A single award consisting of a combination of options, 
SARs and/or similar option-like instruments must be reported as 
separate awards with respect to each tranche with a different 
exercise and/or base price or expiration date. Instruction 4 to Item 
402(f)(2). We have not adopted the proposed requirements to disclose 
whether an option that expired after fiscal year-end had been 
exercised, in response to comment that this would unnecessarily 
deviate from the standard of reporting last fiscal year information. 
See letter from ABA.
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    As suggested by another commenter, we also modify the table to 
clarify that these columns apply to options and similar awards that 
have been transferred other than for value.\280\ The proposal reflected 
interpretations of the former rule that the transfer of an option or 
similar award by an executive does not negate the award's status as 
compensation that should be reported.\281\ Because an award that a 
named executive officer transferred for value is not an award for which 
the outcome remains to be realized, the rules adopted today instead 
require disclosure in the Option Exercises and Stock Vested Table of 
the amounts realized upon transfer for value.\282\
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    \280\ Instruction 1 to Item 402(f)(2). See letter from ABA.
    \281\ See Registration of Securities on Form S-8, Release No. 
33-7646 (Feb. 25, 1999) [64 FR 11103], at Section III.D.
    \282\ Item 402(g), described in Section II.C.4.b. immediately 
below.
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    In view of our approach in the Grants of Plan-Based Awards Table as 
adopted and the purposes of this table in showing all outstanding 
equity awards, we are adopting a column (column (d)) for reporting the 
number of securities underlying unexercised options awarded under 
equity incentive plans.\283\ We have also revised the format of the 
table to more clearly delineate between the information regarding 
option awards and the information regarding stock awards.
---------------------------------------------------------------------------

    \283\ Item 402(f)(2)(iv).
---------------------------------------------------------------------------

    The remaining disclosure, relating to numbers and market values of 
nonvested stock and equity incentive plan awards, is adopted on an 
aggregate basis, substantially as proposed. One commenter expressed the 
view that the table should not include unearned performance-based 
awards because it would be difficult to disclose a meaningful value 
before the performance conditions are satisfied.\284\ Another commenter 
requested clarification of valuation of awards that are performance-
based and nonvested, specifically whether value should be based on 
actual performance to date or

[[Page 53185]]

on achieving target performance goals.\285\ As adopted, an instruction 
provides that the number of shares reported in the appropriate columns 
for equity incentive plan awards (columns (d) and (i)) or the payout 
value reported in column (j) is based on achieving threshold 
performance goals, except that if the previous fiscal year's 
performance has exceeded the threshold, the disclosure shall be based 
on the next higher performance measure (target or maximum) that exceeds 
the previous fiscal year's performance. If the award provides only for 
a single estimated payout, that amount should be reported. If the 
target amount is not determinable, registrants must provide a 
representative amount based on the previous fiscal year's 
performance.\286\ We have also adopted an instruction clarifying that 
stock or options under equity incentive plans are reported in columns 
(d) or (i) and (j), as appropriate, until the relevant performance 
condition has been satisfied. Once the relevant performance condition 
has been satisfied, if stock remains unvested or the option 
unexercised, the stock or options are reported in columns (b) or (c), 
or (g) and (h), as appropriate.\287\
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    \284\ See letter from Sullivan.
    \285\ See, e.g., letter from Hewitt.
    \286\ Instruction 3 to Item 402(f).
    \287\ Instruction 5 to Item 402(f).
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b. Option Exercises and Stock Vested Table
    We are adopting substantially as proposed a table that will show 
the amounts received upon exercise of options or similar instruments or 
the vesting of stock or similar instruments during the most recent 
fiscal year. This table will allow investors to have a picture of the 
amounts that a named executive officer realizes on equity compensation 
through its final stage.\288\
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    \288\ This table is similar to a portion of the Aggregate 
Options/SAR Exercises in Last Fiscal Year and FY-End Options/SAR 
Values Table that was required prior to these amendments, except 
unlike that table it also includes the vesting of restricted stock 
and similar instruments. Commentators have noted a need for 
comparable disclosure of restricted stock vesting.

                                        Option Exercises and Stock Vested
----------------------------------------------------------------------------------------------------------------
                                       Option awards                                 Stock awards
                      ------------------------------------------------------------------------------------------
         Name             Number of shares                              Number of shares
                       acquired on  exercise    Value  realized on    acquired on vesting    Value  realized on
                             (<greek-i>)          exercise  ($)           (<greek-i>)           vesting  ($)
(a)                    (b)                    (c)                    (d)                    (e)
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    We proposed that this table include the grant date fair value of 
these instruments that would have been disclosed in the Summary 
Compensation Table for the year in which they were awarded. We proposed 
this column to eliminate the possible impact of double disclosure by 
showing amounts previously disclosed. We have adopted the table without 
the grant date fair value column in response to commenters' concerns 
that this column would confuse investors and increase the potential for 
double counting.\289\ As described in the preceding section, in 
response to comment that transfers of awards for value also are 
realization events, amounts realized upon such transfers must be 
included in columns (c) and (e) of this table.\290\ Finally, we have 
reformatted the columns to make the presentation of stock and option 
awards consistent with the presentation in other tables.
---------------------------------------------------------------------------

    \289\ See, e.g., letters from Foley; SCSGP; and Stradling Yocca.
    \290\ Item 402(g)(2)(iii) and (v).
---------------------------------------------------------------------------

5. Post-Employment Compensation
    As we proposed, we are making significant revisions to the 
disclosure requirements regarding post-employment compensation to 
provide a clearer picture of this potential future compensation. As we 
noted in the Proposing Release, executive retirement packages and other 
post-termination compensation may represent a significant commitment of 
corporate resources and a significant portion of overall compensation. 
First, we are replacing the former pension plan table, alternative plan 
disclosure and some of the other narrative descriptions with a table 
regarding defined benefit pension plans and enhanced narrative 
disclosure. We have revised the table from the table proposed. Second, 
we are adding a table and narrative disclosure that will disclose 
information regarding nonqualified defined contribution plans and other 
deferred compensation. We have adopted this table substantially as 
proposed. Finally, we are adopting revised requirements substantially 
as proposed regarding disclosure of compensation arrangements triggered 
upon termination and on changes in control.
a. Pension Benefits Table
    We proposed significant revisions to the rules disclosing 
retirement benefits to require disclosure of the estimate of retirement 
benefits to be payable at normal retirement age and, if available, 
early retirement. Disclosure under the rules prior to today's 
amendments frequently did not provide investors

[[Page 53186]]

useful information regarding specific potential pension benefits 
relating to a particular named executive officer.\291\ In particular, 
it may have been difficult to understand which amounts related to any 
particular named executive officer, obscuring the value of a 
significant component of compensation.
---------------------------------------------------------------------------

    \291\ The rules prior to today's amendments provided that, for 
defined benefit or actuarial plans, disclosure was required under 
Item 402(f) by way of a general table showing estimated annual 
benefits under the plan payable upon retirement (including amounts 
attributable to supplementary or excess pension award plans) for 
specified compensation levels and years of service. This table did 
not provide disclosure for any specific named executive officer. 
This requirement applied to plans under which benefits were 
determined primarily by final compensation (or average final 
compensation) and years of service, and included narrative 
disclosure. If named executive officers were subject to other plans 
under which benefits were not determined primarily by final 
compensation (or average final compensation), narrative disclosure 
had been required prior to these amendments of the benefit formula 
and estimated annual benefits payable to the officers upon 
retirement at normal retirement age.
---------------------------------------------------------------------------

    We therefore proposed a new table that would have required 
disclosure of the estimated retirement benefits payable at normal 
retirement age and, if available, early retirement, under defined 
benefit plans. Under the proposal, benefits would have been quantified 
based on the form of benefit currently elected by the named executive 
officer, such as joint and survivor annuity or single life annuity.
    Some commenters objected that the proposed revisions would result 
in disclosure that would not be comparable and could be 
manipulated.\292\ In particular, the calculation of benefits would 
depend on such factors as the form of benefit payment, the named 
executive officer's marital status, and the actuarial assumptions 
applied, which would vary from company to company and plan to plan. 
Explanations of the complicated methodologies involved could hinder 
transparency.
---------------------------------------------------------------------------

    \292\ See, e.g., letters from BRT; Chadbourne & Parke LLP 
(``Chadbourne''); Cleary; and ABA-JCEB.
---------------------------------------------------------------------------

    Some commenters suggested that the Commission prescribe standard 
assumptions for calculating annual benefits for disclosure purposes, 
such as a single life annuity and retirement at age 65, in order to 
facilitate comparability.\293\ Other commenters suggested disclosure of 
the present value of the current accrued benefit computed as of the end 
of the company's last completed fiscal year,\294\ achieving 
comparability by reporting the economic value of the benefit that the 
executive has accumulated through the plan.
---------------------------------------------------------------------------

    \293\ See, e.g., letters from ABA and NACCO Industries.
    \294\ See, e.g., letters from Buck Consultants; Frederic W. Cook 
& Co.; Professor Bebchuk, et al.; and SBAF.
---------------------------------------------------------------------------

    Because the latter approach achieves comparability and transparency 
by disclosing a benefit that already has accrued, we view it as 
preferable to an approach that would ``normalize'' disclosure based on 
hypothetical annual benefit assumptions prescribed by the Commission 
that might bear no relationship to the assumptions that the company 
actually applies with respect to the plan. Furthermore, this approach 
will make clearer the relationship of this table to the Summary 
Compensation Table disclosure of increase in pension value. This 
approach will also lessen the burden on companies, since they are 
required to calculate the present value for the Summary Compensation 
Table. Accordingly, the table we adopt today requires disclosure of the 
actuarial present value of the named executive officer's accumulated 
benefit under the plan and the number of years of service credited to 
the named executive officer under the plan reported in the table, each 
computed as of the same pension plan measurement date for financial 
statement reporting purposes with respect to the audited financial 
statements for the company's last completed fiscal year.\295\ This 
disclosure applies without regard to the particular form(s) of benefit 
payment available under the plan.
---------------------------------------------------------------------------

    \295\ Item 402(h)(2)(iv). If the number of years of credited 
service for a plan differs from the named executive officer's number 
of actual years of service with the company, footnote quantification 
of the difference and any resulting benefit augmentation is 
required. Instruction 4 to Item 402(h)(2).
---------------------------------------------------------------------------

    Whether or not the plan allows for a lump-sum payment, presentation 
of the present value of the accrued plan benefit provides investors an 
understanding of the cost of promised future benefits in present value 
terms.\296\ Companies must use the same assumptions, such as interest 
rate assumptions, that they use to derive the amounts disclosed in 
conformity with generally accepted accounting principles, but would 
assume that retirement age is normal retirement age as defined in the 
plan, or if not so defined, the earliest time at which a participant 
may retire under the plan without any benefit reduction due to 
age.\297\ The estimates are to be based on current compensation, and as 
such, future levels of compensation need not be estimated for purposes 
of the calculation. The valuation method and all material assumptions 
applied will be described in the narrative section accompanying this 
table.\298\ A separate row will be provided for each plan in which a 
named executive officer participates.\299\ For purposes of allocating 
the current accrued benefit between tax qualified defined benefit plans 
and related supplemental plans, a company will apply the applicable 
Internal Revenue Code limitations in effect as of the pension plan 
measurement date.\300\ At the suggestion of a commenter, we have 
simplified the name of the table.\301\
---------------------------------------------------------------------------

    \296\ Further, basing pension plan disclosure on the accumulated 
benefit is consistent with nonqualified deferred compensation plan 
disclosure, which, as described in Section II.C.5.b. immediately 
below, reports an aggregate account balance.
    \297\ Instruction 2 to Item 402(h)(2). Of course, the benefits 
included in the plan document or the executive's contract itself is 
not an assumption.
    \298\ Item 402(h)(3) and Instruction 2 to Item 402(h)(2). This 
requirement could be satisfied by reference to a discussion of those 
assumptions in the company's financial statements, footnotes to the 
financial statements, or Management's Discussion and Analysis. The 
sections so referenced would be deemed a part of the disclosure 
provided by this Item.
    \299\ Instruction 1 to Item 402(h)(2).
    \300\ Instruction 3 to Item 402(h).
    \301\ See letter from ABA.

                                                 Pension Benefits
----------------------------------------------------------------------------------------------------------------
                                                 Number of years        Present value of
         Name                Plan name           credited service     accumulated benefit   Payments during last
                                                   (<greek-i>)                ($)             fiscal year  ($)
(a)                    (b)                    (c)                    (d)                    (e)
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    We have moved the disclosure proposed to be included in the Summary 
Compensation Table of pension benefits paid to a named executive 
officer during the last completed fiscal year to the Pension Benefits 
Table so that pension benefits are disclosed only once in the Summary 
Compensation Table.\302\ We remain of the view that disclosure of these 
payments would be material to investors, particularly where the named 
executive officer receives them while still employed by the 
company.\303\
---------------------------------------------------------------------------

    \302\ Item 402(h)(2)(v). See also Instruction 1 to Item 
402(c)(2)(viii). We have included these amounts in this table rather 
than the Summary Compensation Table since the increase in the value 
of the pension benefit would have been previously disclosed in the 
Summary Compensation Table.
    \303\ Item 402(a)(5) as amended provides that a column may be 
omitted if there is no compensation required to be reported in that 
column in any fiscal year covered by that table.
---------------------------------------------------------------------------

    The table will be followed by a narrative description of material 
factors necessary to an understanding of each plan disclosed in the 
table. Examples of such factors may include, in given cases, among 
other things:
    <bullet> The material terms and conditions of benefits available 
under the plan, including the plan's retirement benefit formula and 
eligibility standards, and early retirement arrangements;\304\
---------------------------------------------------------------------------

    \304\ For this purpose, ``normal retirement age'' means the 
normal retirement age defined in the plan, or if not so defined, the 
earliest time at which a participant may retire under the plan 
without any benefit reduction due to age. ``Early retirement age'' 
means early retirement age as defined in the plan, or otherwise 
available to the executive under the plan. Item 402(h)(3)(i) and 
(ii).
---------------------------------------------------------------------------

    <bullet> The specific elements of compensation, such as salary and 
various forms of bonus, included in applying the benefit formula, 
identifying each such element;
    <bullet> Regarding participation in multiple plans, the different 
purposes for each plan; and
    <bullet> Company policies with regard to such matters as granting 
extra years of credited service.
b. Nonqualified Deferred Compensation Table
    In order to provide a more complete picture of potential post-
employment compensation, we are adopting substantially as proposed a 
new table to disclose contributions, earnings and balances under each 
defined contribution or other plan that provides for the deferral of 
compensation on a basis that is not tax-qualified. These plans may be a 
significant element of retirement and post-termination compensation. 
Prior to these amendments, the rules had elicited disclosure of the 
compensation when earned and only the above-market or preferential 
earnings on nonqualified deferred compensation.\305\ The full value of 
those earnings and the accounts on which they are payable was not 
subject to disclosure, nor were investors informed regarding the rate 
at which these amounts, and the corresponding cost to the company, 
grow.\306\
---------------------------------------------------------------------------

    \305\ See Section II.C.1.d.i. above.
    \306\ See Lucian A. Bebchuk and Jesse M. Fried, Stealth 
Compensation via Retirement Benefits, 1 Berkeley Bus. L.J. 291, 314-
316 (2004).
---------------------------------------------------------------------------

    As noted above, we are requiring disclosure in the Summary 
Compensation Table only of the above-market or preferential portion of 
earnings on compensation that is deferred on a basis that is not tax-
qualified. To provide investors with disclosure of the full amount of 
nonqualified deferred compensation accounts that the company is 
obligated to pay named executive officers, including the full amount of 
earnings for the last fiscal year, we are also requiring new tabular 
and narrative disclosure of nonqualified deferred compensation, as we 
proposed.\307\
---------------------------------------------------------------------------

    \307\ Item 402(i).

                                       Nonqualified Deferred Compensation
----------------------------------------------------------------------------------------------------------------
                                                                                Aggregate
                       Executive          Registrant         Aggregate         withdrawals/    Aggregate balance
       Name         contributions in   contributions in   earnings in last    distributions     at last FYE  ($)
                      last FY  ($)       last FY  ($)         FY  ($)              ($)
(a)                (b)                (c)                (d)                (e)                (f)
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    One commenter noted that the title proposed--Nonqualified Defined 
Contribution and Other Deferred Compensation Plans--suggested that tax 
qualified plans that provide for deferral of compensation, such as 
Section 401(k) plans, would be covered.\308\ We have adopted the 
commenter's recommendation to modify the title to clarify that the 
table covers only deferred compensation that is not tax-qualified, and 
we have also shortened the title consistent with our amendments 
regarding the Pension Benefits Table.
---------------------------------------------------------------------------

    \308\ See letter from Foley.
---------------------------------------------------------------------------

    As proposed and adopted, an instruction requires footnote 
quantification of the extent to which amounts in the contributions and 
earnings columns are reported as compensation in the year in question 
and other amounts reported in the table in the aggregate balance column 
were reported previously in the Summary Compensation Table for prior 
years.\309\ This footnote provides information so that investors can 
avoid ``double counting'' of deferred amounts by clarifying the extent 
to which amounts payable as deferred compensation represent 
compensation previously reported, rather than additional currently 
earned compensation.\310\
---------------------------------------------------------------------------

    \309\ Instruction to Item 402(i)(2).
    \310\ As described in Section II.C.1.b. above, the rules as 
adopted do not include the corresponding footnote that was proposed 
for the Summary Compensation Table.
---------------------------------------------------------------------------

    The table will be followed by a narrative description of material 
factors necessary to an understanding of the disclosure in the 
table.\311\ Examples of such factors may include, in given cases, among 
other things:
---------------------------------------------------------------------------

    \311\ Item 402(i)(3).
---------------------------------------------------------------------------

    <bullet> The type(s) of compensation permitted to be deferred, and 
any limitations (by percentage of compensation or otherwise) on the 
extent to which deferral is permitted;
    <bullet> The measures of calculating interest or other plan 
earnings (including whether such measure(s) are selected by the named 
executive officer or the company and the frequency and manner in which 
such selections may be changed), quantifying interest rates and other 
earnings measures applicable during the company's last fiscal year; and
    <bullet> material terms with respect to payouts, withdrawals and 
other distributions.
    Where plan earnings are calculated by reference to actual earnings 
of mutual funds or other securities, such as company stock, it is 
sufficient to identify the reference security and quantify its return. 
This disclosure may be aggregated to the extent the same measure 
applies to more than one named executive officer.
c. Other Potential Post-Employment Payments
    We are adopting the significant revisions that we proposed to our 
requirements to describe termination or change in control provisions. 
The Commission has long recognized that ``termination provisions are 
distinct from other plans in both intent and scope and, moreover, are 
of particular interest to shareholders.'' \312\ Prior to today's 
amendments, disclosure did not in many cases capture material 
information regarding these plans and potential payments under them. We 
therefore proposed and are adopting disclosure of specific aspects of 
written or unwritten arrangements that provide for payments at, 
following, or in connection with the resignation, severance, retirement 
or other termination (including constructive termination) of a named 
executive officer, a change in his or her responsibilities,\313\ or a 
change in control of the company.
---------------------------------------------------------------------------

    \312\ 1983 Release, at Section III.E.
    \313\ We confirm that this aspect of the disclosure requirement 
is not limited to a change in responsibilities in connection with a 
change in control.
---------------------------------------------------------------------------

    Our amendments call for narrative disclosure of the following 
information regarding termination and change in control provisions: 
\314\
---------------------------------------------------------------------------

    \314\ Item 402(j).
---------------------------------------------------------------------------

    <bullet> the specific circumstances that would trigger payment(s) 
or the provision of other benefits (references to benefits include 
perquisites and health care benefits);
    <bullet> the estimated payments and benefits that would be provided 
in each covered circumstance, and whether they would or could be lump 
sum or annual, disclosing the duration and by whom they would be 
provided; \315\
---------------------------------------------------------------------------

    \315\ We have eliminated the $100,000 disclosure threshold that 
was specified in the rule prior to today's amendments. For post-
termination perquisites, however, the same disclosure and 
itemization thresholds used for the amended Summary Compensation 
Table apply. See Section II.C.1.e.i. above. We have modified Item 
402(j)(2) from the proposal in response to comments to clarify that 
the required description covers both annual and lump sum payments. 
See letter from ABA.
---------------------------------------------------------------------------

    <bullet> how the appropriate payment and benefit levels are 
determined under the various circumstances that would trigger payments 
or provision of benefits; \316\
---------------------------------------------------------------------------

    \316\ We have modified Item 402(j)(3) from the proposal to 
clarify the scope of the required disclosure. The proposal would 
have required the company to describe and explain the specific 
factors used to determine the appropriate payment and benefit levels 
under the various triggering circumstances. A commenter suggested 
that the proposed language was overly broad and ambiguous and could 
result in mere repetition of the pension payout formula and 
actuarial assumptions. See letter from ABA.
---------------------------------------------------------------------------

    <bullet> any material conditions or obligations applicable to the 
receipt of payments or benefits, including but not limited to non-
compete, non-solicitation, non-disparagement or confidentiality 
covenants; and

[[Page 53189]]

    <bullet> any other material factors regarding each such contract, 
agreement, plan or arrangement.\317\
---------------------------------------------------------------------------

    \317\ This would include, for example, disclosure of whether an 
executive simultaneously receives both severance and retirement 
benefits, a practice commonly known as a ``double dip.'' See letter 
from WorldatWork.
---------------------------------------------------------------------------

    The item contemplates disclosure of the duration of non-compete and 
similar agreements, and provisions regarding waiver of breach of these 
agreements, and disclosure of tax gross-up payments.
    A company will be required to provide quantitative disclosure under 
these requirements even where uncertainties exist as to amounts payable 
under these plans and arrangements. We clarify that in the event 
uncertainties exist as to the provision of payments and benefits or the 
amounts involved, the company is required to make a reasonable estimate 
(or a reasonable estimated range of amounts), and disclose material 
assumptions underlying such estimates or estimated ranges in its 
disclosure. In such event, the disclosure will be considered forward-
looking information as appropriate that falls within the safe harbors 
for disclosure of such information.\318\
---------------------------------------------------------------------------

    \318\ See, e.g., Securities Act Section 27A and Exchange Act 
Section 21E.
---------------------------------------------------------------------------

    We have modified the requirement somewhat in response to comments 
that compliance with the proposal would involve multiple complex 
calculations and projections based on circumstantial and variable 
assumptions.\319\ We adopt commenters' suggestions that the 
quantitative disclosure required be calculated applying the assumptions 
that:
---------------------------------------------------------------------------

    \319\ See, e.g., letters from Cleary; Foley; HRPA; and Top Five 
Data.
---------------------------------------------------------------------------

    <bullet> the triggering event took place on the last business day 
of the company's last completed fiscal year; and
    <bullet> the price per share of the company's securities is the 
closing market price as of that date.\320\
---------------------------------------------------------------------------

    \320\ Instruction 1 to Item 402(j). See, e.g., letters from 
Emerson; Foley; and Frederic W. Cook & Co.
---------------------------------------------------------------------------

    We have also revised the rule to provide that if a triggering event 
has occurred for a named executive officer who was not serving as a 
named executive officer at the end of the last completed fiscal year, 
disclosure under this provision is required for that named executive 
officer only with respect to the actual triggering event that 
occurred.\321\ These modifications will both facilitate company 
compliance and provide investors with disclosure that is more 
meaningful. We further clarify that health care benefits are included 
in this requirement, and quantifiable based on the assumptions used for 
financial reporting purposes under generally accepted accounting 
principles.\322\
---------------------------------------------------------------------------

    \321\ Instruction 4 to Item 402(j). See letter from ABA.
    \322\ Item 402(j)(1) and Instruction 2 to Item 402(j). These 
would be the assumptions applied under Financial Accounting 
Standards Board Statement of Financial Accounting Standards No. 106, 
Employer's Accounting for Postretirement Benefits Other Than 
Pensions (FAS 106). See, e.g., letters from Peabody Energy and 
WorldatWork.
---------------------------------------------------------------------------

    We further clarify in response to comments that to the extent that 
the form and amount of any payment or benefit that would be provided in 
connection with any triggering event is fully disclosed in the Pension 
Benefits Table or the Nonqualified Deferred Compensation Table and the 
narrative disclosure related to those tables, reference may be made to 
that disclosure.\323\ However, to the extent that the form or amount of 
any such payment or benefit would be increased, or its vesting or other 
provisions accelerated upon any triggering event, such increase or 
acceleration must be specifically disclosed in this section.\324\ In 
addition, we have added an instruction that companies need not disclose 
payments or benefits under this requirement to the extent such payments 
or benefits do not discriminate in scope, terms or operation, in favor 
of a company's executive officers and are available generally to all 
salaried employees.\325\
---------------------------------------------------------------------------

    \323\ See letter from Academy of Actuaries.
    \324\ Instruction 3 to Item 402(j).
    \325\ Instruction 5 to Item 402(j).
---------------------------------------------------------------------------

6. Officers Covered
a. Named Executive Officers
    As proposed, we are amending the disclosure rules so that the 
principal executive officer, the principal financial officer \326\ and 
the three most highly compensated executive officers other than the 
principal executive officer and principal financial officer comprise 
the named executive officers.\327\ In addition, as was the case prior 
to these amendments, up to two additional individuals for whom 
disclosure would have been required but for the fact that they were no 
longer serving as executive officers at the end of the last completed 
fiscal year shall be included.
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    \326\ We are adopting the nomenclature used in Item 5.02 of Form 
8-K, which refers to ``principal executive officer'' and ``principal 
financial officer.''
    \327\ Item 402(a)(3). As defined in Securities Act Rule 405 [17 
CFR 230.405] and Exchange Act Rule 3b-7 [17 CFR 240.3b-7], ``the 
term 'executive officer,' when used with reference to a registrant, 
means its president, any vice president of the registrant in charge 
of a principal business unit, division or function (such as sales, 
administration or finance), any other officer who performs a policy-
making function or any other person who performs similar policy-
making functions for the registrant. Executive officers of 
subsidiaries may be deemed executive officers of the registrant if 
they perform such policy-making functions for the registrant.'' 
Therefore, as was formerly the case, a named executive officer may 
be an executive officer of a subsidiary or an employee of a 
subsidiary who performs such policy-making functions for the 
registrant. We have clarified this point in the provision describing 
the determination of named executive officer. Instruction 2 to Item 
402(a)(3).
---------------------------------------------------------------------------

    As we noted in the Proposing Release, we believe that compensation 
of the principal financial officer is important to shareholders 
because, along with the principal executive officer, the principal 
financial officer provides the certifications required with the 
company's periodic reports and has important responsibility for the 
fair presentation of the company's financial statements and other 
financial information.\328\ Like the principal executive officer, 
disclosure about the principal financial officer will be required even 
if he or she was no longer serving in that capacity at the end of the 
last completed fiscal year.\329\ As was the case for the chief 
executive officer prior to today's amendments, all persons who served 
as the company's principal executive officer or principal financial 
officer during the last completed fiscal year are named executive 
officers.
---------------------------------------------------------------------------

    \328\ Exchange Act Rules 13a-14 and 15d-14.
    \329\ Paragraphs (a)(3)(i) and (a)(3)(ii) of Item 402 provide 
that all individuals who served as a principal executive officer and 
principal financial officer or in similar capacities during the last 
completed fiscal year must be considered named executive officers. 
Item 402(a)(4) specifies that if the principal executive officer or 
principal financial officer served in that capacity for only part of 
a fiscal year, information must be provided as to all of the 
individual's compensation for the full fiscal year. Item 402(a)(4) 
also specifies that if a named executive officer (other than the 
principal executive officer or principal financial officer) served 
as an executive officer of the company (whether or not in the same 
position) during any part of the fiscal year, then information is 
required as to all compensation of that individual for the full 
fiscal year.
---------------------------------------------------------------------------

    We are not requiring compensation disclosure for all of the 
officers listed in Items 5.02(b) and (c) of Form 8-K.\330\ Those Form 
8-K Items were adopted to provide current disclosure in the event of an 
appointment, resignation, retirement or termination of the specified 
officers, based on the principle that changes in employment status of 
these particular officers are unquestionably or presumptively material. 
At the time when a decision is made regarding the employment status of 
a particular officer, it will not always be clear who will be the named 
executive officers for the current year.

[[Page 53190]]

Given these factors, it is reasonable for the two groups not to be 
identical.
---------------------------------------------------------------------------

    \330\ These are the registrant's principal executive officer, 
president, principal financial officer, principal accounting 
officer, principal operating officer or any person performing 
similar functions. As described in Section III.A. below, the rules 
we adopt today also amend Item 5.02 of Form 8-K.
---------------------------------------------------------------------------

b. Identification of Most Highly Compensated Executive Officers; Dollar 
Threshold for Disclosure
    In the rule prior to today's amendments, the determination of the 
most highly compensated executive officers was based solely on total 
annual salary and bonus for the last fiscal year, subject to a $100,000 
disclosure threshold. We proposed to revise the dollar threshold for 
disclosure of named executive officers other than the principal 
executive officer and the principal financial officer to $100,000 of 
total compensation for the last fiscal year. Given the proliferation of 
various forms of compensation other than salary and bonus, we believe 
that total compensation would more accurately identify those officers 
who are, in fact, the most highly compensated.
    Several commenters objected to using total compensation to identify 
named executive officers.\331\ In particular, commenters stated that 
this measure would minimize the importance of the compensation 
committee's compensation decisions for the most recent year and include 
significant elements beyond the committee's control, such as the 
increase in pension value and earnings on nonqualified deferred 
compensation. Some commenters recommended continuing to rely solely on 
salary and bonus, stating that these measures more accurately reflect 
the executives who are most highly valued in the company and permit 
greater year-to-year consistency.\332\ Other commenters expressed 
concern that including episodic option awards would result in more 
frequent changes to the named executive officer roster.\333\
---------------------------------------------------------------------------

    \331\ See, e.g., letters from ACC; Emerson; Leggett & Platt; 
SCSGP; and Unitrin.
    \332\ See, e.g., letters from Frederic W. Cook & Co. and Intel.
    \333\ See, e.g., letter from Intel.
---------------------------------------------------------------------------

    We are persuaded that it is appropriate to exclude from the named 
executive officer determination compensation elements that principally 
reflect executives' decisions to defer compensation and wealth 
accumulation in pension plans, or are unduly influenced by age or years 
of service. However, as we stated in the Proposing Release, basing 
identification of named executive officers solely on the compensation 
reportable in the salary and bonus categories may provide an incentive 
to re-characterize compensation. Further, limiting the determination to 
salary and bonus is not consistent with our decision to eliminate the 
distinction between ``annual'' and ``long-term'' compensation in the 
Summary Compensation Table.\334\ We realize that this may result in 
more frequent changes to the officers designated as named executive 
officers, but believe that it will provide a clearer picture of 
compensation at a company. Accordingly, we require the most highly 
compensated executive officers to be determined based on total 
compensation, reduced by the sum of the increase in pension values and 
nonqualified deferred compensation above-market or preferential 
earnings reported in column (h) of the Summary Compensation.\335\
---------------------------------------------------------------------------

    \334\ See Section II.C.1.f. above, discussing the effect of this 
change on compensation formerly reported as ``bonus.''
    \335\ Instruction 1 to Item 402(a)(3).
---------------------------------------------------------------------------

    Prior to these amendments, companies were permitted to exclude an 
executive officer (other than the chief executive officer) due to 
either an unusually large amount of cash compensation that was not part 
of a recurring arrangement and was unlikely to continue, or cash 
compensation relating to overseas assignments attributed predominantly 
to such assignments.\336\ Because payments attributed to overseas 
assignments have the potential to skew the application of Item 402 
disclosure away from executives whose compensation otherwise properly 
would be disclosed, we are retaining this basis for exclusion, as we 
proposed. However, we believe that other compensation that is ``not 
recurring and unlikely to continue'' should be considered compensation 
for disclosure purposes. There has been inconsistent interpretation of 
the ``not recurring and unlikely to continue'' standard, and it is 
susceptible to manipulation. We therefore are eliminating this basis 
for exclusion, as we proposed.\337\
---------------------------------------------------------------------------

    \336\ This exclusion had been set forth in Instruction 3 to Item 
402(a)(3) prior to these amendments.
    \337\ Instruction 3 to Item 402(a)(3).
---------------------------------------------------------------------------

7. Interplay of Items 402 and 404
    We are amending Item 402 so that it requires disclosure of all 
transactions between the company and a third party where the primary 
purpose of the transaction is to furnish compensation to a named 
executive officer as proposed. Also as proposed, amended Item 402 will 
no longer exclude from its disclosure requirements information about 
compensatory transaction that had been disclosed under the related 
person transaction disclosure requirements of Item 404.\338\ Further, 
instructions to amended Item 404 clarify what compensatory transactions 
with executive officers and directors need not be disclosed under Item 
404.\339\
---------------------------------------------------------------------------

    \338\ These relevant provisions were set forth in paragraphs 
(a)(2) and (a)(5) of Item 402 before today's amendments. Because 
paragraph (a)(5) of Item 402 as it had been stated prior to these 
amendments was otherwise redundant with paragraph (a)(2) of Item 402 
as that provision had been stated, we are eliminating the language 
that had been set forth in paragraph (a)(5) in its entirety and 
making a conforming amendment to paragraph (a)(2) of Item 402.
    \339\ See Instruction 5 to Item 404(a), discussed in Section 
V.A.3., below.
---------------------------------------------------------------------------

    As noted in the Proposing Release, the result of these amendments 
may be that in some cases compensation information will be required to 
be disclosed under Item 402, while the related person transaction 
giving rise to that compensation is also disclosed under Item 404. We 
believe that the possibility of additional disclosure in the context of 
each of these respective items is preferable to the possibility that 
compensation is not properly and fully disclosed under Item 402.
8. Other Changes
    Before today's amendments, a company was permitted to omit from 
Item 402 disclosure of ``information regarding group life, health, 
hospitalization, medical reimbursement or relocation plans that do not 
discriminate in scope, terms or operation, in favor of executive 
officers or directors of the registrant and that are available 
generally to all salaried employees.'' \340\ Because relocation plans, 
even when available generally to all salaried employees, are 
susceptible to operation in a discriminatory manner that favors 
executive officers, this exclusion may have deprived investors of 
disclosure of significant compensatory benefits. For this reason, we 
are deleting relocation plans from this exclusion, as we proposed. For 
the same reason, as we proposed, we are also deleting relocation plans 
from the exclusion from portfolio manager compensation in forms used by 
management investment companies to register under the Investment 
Company Act and offer securities under the Securities Act.\341\ We also 
are revising the definition of ``plan'' so that it is more principles-
based, as we proposed.\342\ Finally, in order to

[[Page 53191]]

simplify the language of the individual requirements, we have 
consolidated into one provision the definitions for the terms stock, 
option and equity as used in Item 402.\343\
---------------------------------------------------------------------------

    \340\ This language appeared in Item 402(a)(7)(ii) prior to 
today's amendments, which generally defined the term ``plan.''
    \341\ Amendment to Instruction 2 to Item 15(b) of Form N-1A; 
amendment to Instruction 2 to Item 21.2 of Form N-2; amendment to 
Instruction 2 to Item 22(b) of Form N-3.
    \342\ Item 402(a)(6)(ii).
    \343\ Item 402(a)(6)(i).
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9. Compensation of Directors
    Director compensation has continued to evolve from simple 
compensation packages mostly involving cash compensation and attendance 
fees to more complex packages, which can also include equity-based 
compensation, incentive plans and other forms of compensation.\344\ In 
light of this complexity, we proposed to require formatted tabular 
disclosure for director compensation, accompanied by narrative 
disclosure of additional material information. In doing so, we 
revisited an approach that the Commission proposed in 1995 but did not 
adopt at that time.\345\
---------------------------------------------------------------------------

    \344\ See, e.g., National Association of Corporate Directors and 
Pearl Meyer & Partners, 2003-2004 Director Compensation Survey 
(2004); National Association of Corporate Directors, Report of the 
NACD Blue Ribbon Commission On Director Compensation (2001); and 
Dennis C. Carey, et al, How Should Corporate Directors Be 
Compensated?, Investment Dealers' Digest Inc.--Special Issue: Boards 
and Directors (Jan. 1996).
    \345\ 1995 Release. The 1995 proposed amendment was coupled with 
a proposed amendment to permit companies to reduce the detailed 
executive compensation information provided in the proxy statement 
by instead furnishing that information in the Form 10-K. We did not 
act upon these proposed amendments.
---------------------------------------------------------------------------

    Director compensation has continued to evolve since 1995 so that we 
are today adopting a Director Compensation Table, which resembles the 
revised Summary Compensation Table, but presents information only with 
respect to the company's last completed fiscal year. Consistent with 
the modifications to the Summary Compensation Table, this table moves 
pension and nonqualified deferred compensation plan disclosure from All 
Other Compensation to a separate column.\346\ Because the same 
instructions as provided in the Summary Compensation Table govern 
analogous matters in the Director Compensation Table, our modifications 
to those instructions also apply to this table.
---------------------------------------------------------------------------

    \346\ As noted in n. 303 above, Item 402(a)(5) provides that a 
column may be omitted if there is no compensation required to be 
reported in that column.

                                                                  Director Compensation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 Change in pension
                                                                                                     value and
                      Fees earned or                                              Non-equity        nonqualified        All other
       Name          paid in cash ($)    Stock awards ($)  Option awards ($)    incentive plan        deferred       compensation ($)      Total ($)
                                                                               compensation ($)     compensation
                                                                                                      earnings
(a)                 (b)                 (c)                (d)                (e)                (f)                (g)                (h)
--------------------------------------------------------------------------------------------------------------------------------------------------------
A
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
B
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
C
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
D
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
E
 
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As proposed and adopted, director fees earned or paid in cash would 
be reported separately from fees paid in stock. The All Other 
Compensation column of the Director Compensation Table includes, but is 
not limited to:
    <bullet> All perquisites and other personal benefits if the total 
is $10,000 or greater;
    <bullet> All tax reimbursements;
    <bullet> For any security of the company or its subsidiaries 
purchased from the company or its subsidiaries (through deferral of 
fees or otherwise) at a discount from the market price of such security 
at the date of purchase, unless the discount is generally available to 
all security holders or to all salaried employees of the company, the 
compensation cost, if any, computed in accordance with FAS 123R;
    <bullet> Amounts paid or accrued to any director pursuant to a plan 
or arrangement in connection with the resignation, retirement or any 
other termination of such director or a change in control of the 
company;
    <bullet> Annual company contributions to vested and unvested 
defined contribution plans;
    <bullet> All consulting fees;
    <bullet> Awards under director legacy or charitable awards 
programs; \347\ and
---------------------------------------------------------------------------

    \347\ Under director legacy programs, also known as charitable 
award programs, registrants typically agree to make a future 
donation to one or more charitable institutions in the director's 
name, payable by the company upon a designated event such as death 
or retirement. The amount to be disclosed in the table shall be the 
annual cost of such promises and payments, with footnote disclosure 
of the total dollar amount and other material terms of each such 
program. Instruction 1 to Item 402(k)(2)(vii).
---------------------------------------------------------------------------

    <bullet> The dollar value of any insurance premiums paid by, or on 
behalf of, the company for life insurance for the director's benefit.
    An additional requirement to include the dollar value of any 
dividends or other earnings paid in stock or option awards when the 
dividend or earnings were not factored into the grant date fair value 
has been adopted for this column as discussed above.
    In addition to the disclosure specified in the columns of the 
table, we proposed to require, by footnote to the appropriate column, 
disclosure for each director of the outstanding equity awards at fiscal 
year end as would be required if the Outstanding Equity Awards at 
Fiscal Year-End table for named executive officers were required for 
directors. In response to a comment that this disclosure would be 
provided

[[Page 53192]]

in the narrative accompanying the table, we have simplified the 
relevant instruction to require footnote disclosure only of the 
aggregate numbers of stock awards and option awards outstanding at 
fiscal year end.\348\ As with the Summary Compensation Table, the new 
rules make clear that all compensation must be included in the 
table.\349\ As is the case with the current director disclosure 
requirement, companies will not be required to include in the director 
disclosure any amounts of compensation paid to a named executive 
officer and disclosed in the Summary Compensation Table with footnote 
disclosure indicating what amounts reflected in that table are 
compensation for services as a director.\350\ An instruction to the 
Director Compensation Table permits the grouping of multiple directors 
in a single row of the table if all of their elements and amounts of 
compensation are identical.\351\
---------------------------------------------------------------------------

    \348\ Instruction to Item 402(k)(2)(iii) and (iv). See letter 
from ABA.
    \349\ The only exception is if all perquisites received by the 
director total less than $10,000, they do not need to be disclosed. 
Further, as described above for the Summary Compensation Table, 
disclosure of nonqualified deferred compensation earnings is limited 
to the above-market or preferential portion.
    \350\ Instruction 3 to Item 402(c).
    \351\ Instruction to Item 402(k)(2).
---------------------------------------------------------------------------

    Following the table, narrative disclosure will describe any 
material factors necessary to an understanding of the table. Such 
factors may include, for example, a breakdown of types of fees.\352\ In 
addition, as noted in Section II.A., disclosure regarding option timing 
or dating practices may be necessary under this narrative disclosure 
requirement when the recipients of the stock option grants are 
directors of the company. As we proposed, we are not requiring a 
supplemental Grants of Plan-Based Awards Table for directors.
---------------------------------------------------------------------------

    \352\ Item 402(k)(3).
---------------------------------------------------------------------------

D. Treatment of Specific Types of Issuers

1. Small Business Issuers
    The Item 402 amendments continue to differentiate between small 
business issuers and other issuers, as we proposed. In adopting the 
amendments, we recognize that the executive compensation arrangements 
of small business issuers typically are less complex than those of 
other public companies.\353\ We also recognize that satisfying 
disclosure requirements designed to capture more complicated 
compensation arrangements may impose new, unwarranted burdens on small 
business issuers.\354\
---------------------------------------------------------------------------

    \353\ These amendments apply only to small business issuers, as 
defined by Item 10(a)(1) of Regulation S-B. The Commission's 
Advisory Committee on Smaller Public Companies has recommended that 
the Commission incorporate the scaled disclosure accommodations 
currently available to small business issuers under Regulation S-B 
into Regulation S-K and make them available to all microcap 
companies. Final Report of the Advisory Committee on Smaller Public 
Companies to the United States Securities and Exchange Commission 
(Apr. 23, 2006). Any future consideration of this recommendation 
would be the subject of a separate rulemaking.
    \354\ Prior to today's amendments, under both Item 402 of 
Regulation S7-B and Item 402 of Regulation S-K, a small business 
issuer was not required to provide the Compensation Committee 
Report, the Performance Graph, the Compensation Committee Interlocks 
disclosure, the Ten-Year Option/SAR Repricings Table, and the Option 
Grant Table columns disclosing potential realizable value or grant 
date value. The rules prior to today's amendments also permitted 
small business issuers to exclude the Pension Plan Table.
---------------------------------------------------------------------------

    Some commenters addressing the proposed amendments to Item 402 of 
Regulation S-B expressed the view that all companies whose shares are 
publicly traded should have to meet the same reporting and disclosure 
standards, regardless of their size, or urged that exemptions for 
smaller public companies be limited,\355\ suggesting that they be 
required to file some form of a basic Compensation Discussion and 
Analysis.\356\ We are not following these recommendations, because the 
executive compensation arrangements of small business issuers generally 
are so much less complex than those of other public companies that they 
do not warrant the more extensive disclosure requirements imposed on 
companies that are not small business issuers and related regulatory 
burdens that could be disproportionate for small business issuers.
---------------------------------------------------------------------------

    \355\ See, e.g., letters from CII; CRPTF; IUE-CWA; SBAF; and 
WSIB.
    \356\ See, e.g., letters from ISS and Institutional Investors 
Group.
---------------------------------------------------------------------------

    Other commenters who supported the Commission's proposal to require 
less extensive disclosure for companies subject to Regulation S-B 
suggested that the Commission amend the definition of small business 
issuer to encompass a larger group of smaller public companies, such as 
by adopting the definition of ``smaller public company'' recommended by 
the Advisory Committee on Smaller Public Companies, and scale back the 
disclosure thresholds for all such smaller companies.\357\ We are not 
following this recommendation at this time, but would instead defer 
consideration until we can fully consider all recommendations of the 
Advisory Committee.
---------------------------------------------------------------------------

    \357\ See letters from America's Community Bankers (``ACB''); 
Independent Community Bankers of America (``ICBA''); and SCSGP.
---------------------------------------------------------------------------

    As proposed and adopted, small business issuers will be required to 
provide, along with related narrative disclosure:
    <bullet> The Summary Compensation Table; \358\
---------------------------------------------------------------------------

    \358\ Items 402(b) and 402(c) of Regulation S-B. Consistent with 
the instructions to the narrative disclosure required by Item 402(e) 
of Regulation S-K, we have added an instruction to Item 402(c) of 
Regulation S-B so that disclosure is not required regarding any 
repricing that occurs through specified provisions. Instruction to 
Item 402(c) of Regulation S-B.
---------------------------------------------------------------------------

    <bullet> The Outstanding Equity Awards at Fiscal Year-End Table; 
\359\ and
---------------------------------------------------------------------------

    \359\ Item 402(d) of Regulation S-B.
---------------------------------------------------------------------------

    <bullet> The Director Compensation Table.\360\
---------------------------------------------------------------------------

    \360\ Item 402(f) of Regulation S-B.
---------------------------------------------------------------------------

    Small business issuers will be required to provide information in 
the Summary Compensation Table only for the last two fiscal years. In 
addition, small business issuers will be required to provide 
information for fewer named executive officers, namely the principal 
executive officer and the two most highly compensated officers other 
than the principal executive officer.\361\ In light of our decision to 
link the Summary Compensation Table pension plan disclosure to the 
disclosure in the Pension Benefits Table, which is not required for 
small business issuers, and in response to comment,\362\ we have 
decided not to require that small business issuers include pension plan 
disclosure in the Summary Compensation Table. Narrative discussion of a 
number of items to the extent material replaces tabular or footnote 
disclosure, for example identification of other items in the All Other 
Compensation column and a description of post-employment payments and 
other benefits.\363\ In light of our request in Release No. 33-8735 for 
further comment on the proposed additional narrative disclosure 
requirement regarding up to three highly compensated employees so that 
it might apply only to large accelerated filers, we have not adopted 
this proposal for Item 402 of Regulation S-B. Small business issuers 
are not required to provide a Compensation

[[Page 53193]]

Discussion and Analysis or the related Compensation Committee 
Report.\364\
---------------------------------------------------------------------------

    \361\ Item 402(a) of Regulation S-B. Item 402(c)(7) of 
Regulation S-B requires an identification to the extent material of 
any item included under All Other Compensation in the Summary 
Compensation Table. However, identification of an item will not be 
considered material if it does not exceed the greater of $25,000 or 
10% of all items included in the specified category. All items of 
compensation are required to be included in the Summary Compensation 
Table without regard to whether such items are required to be 
identified.
    \362\ See letter from ABA.
    \363\ Items 402(c) and 402(e) of Regulation S-B.
    \364\ We are also eliminating a provision of Item 402 of 
Regulation S-K that allows small business issuers using forms that 
call for Regulation S-K disclosure to exclude the disclosure 
required by certain paragraphs of that Item. This provision had been 
set forth in Item 402(a)(1)(i) of Regulation S-K prior to today's 
amendments.
---------------------------------------------------------------------------

2. Foreign Private Issuers
    Prior to today's amendments, a foreign private issuer was deemed to 
comply with Item 402 of Regulation S-K if it provided the information 
required by Items 6.B. and 6.E.2. of Form 20-F, with more detailed 
information provided if otherwise made publicly available. We proposed 
to continue this treatment of these issuers and clarify that the 
treatment of foreign private issuers under Item 402 parallels that 
under Form 20-F. Commenters supported this approach, stating that it 
showed appropriate deference to a foreign private issuer's home country 
requirements.\365\ We are adopting these requirements as proposed.\366\
---------------------------------------------------------------------------

    \365\ See, e.g., letters from Federation of German Industries; 
DaimlerChrysler AG; and jointly, Allianz AG, Deutsche Bank AG and 
Siemens AG.
    \366\ Item 402(a)(1).
---------------------------------------------------------------------------

3. Business Development Companies
    As proposed, we are applying the same executive compensation 
disclosure requirements to business development companies that we are 
adopting for operating companies.\367\ We received no comments on this 
proposal. Our amendments eliminate the inconsistency between Form 10-K, 
on the one hand, which requires business development companies to 
furnish all of the information required by Item 402 of Regulation S-K, 
and the proxy rules and Form N-2, on the other, which require business 
development companies to provide some of the information from Item 402 
and other information that applies to registered investment companies.
---------------------------------------------------------------------------

    \367\ Business development companies are a category of closed-
end investment companies that are not required to register under the 
Investment Company Act [15 U.S.C. 80a-2(a)(48)].
---------------------------------------------------------------------------

    Under the amendments, the registration statements of business 
development companies will be required to include all of the 
disclosures required by Item 402 of Regulation S-K for all of the 
persons covered by Item 402.\368\ This disclosure will also be required 
in the proxy and information statements of business development 
companies if action is to be taken with respect to the election of 
directors or with respect to the compensation arrangements and other 
matters enumerated in Items 8(b) through (d) of Schedule 14A.\369\ 
Business development companies will also be required to make these 
disclosures in their annual reports on Form 10-K.\370\
---------------------------------------------------------------------------

    \368\ New Item 18.14 of Form N-2. Under the amendments, business 
development companies will no longer be required to respond to Item 
18.13 of Form N-2, and Item 18.13(c) of Form N-2 is being deleted. 
Items 18.14 and 18.15 of Form N-2 are being redesignated as Items 
18.15 and 18.16, respectively. As a result of the redesignation of 
Item 18.15 of Form N-2, a change to the cross reference to this Item 
in Instruction 8(a) of Item 24 of the form is also being made.
    \369\ Amendment to Item 8 of Schedule 14A. Under the amendments, 
business development companies will no longer be required to respond 
to Item 22(b)(13) of Schedule 14A, and Item 22(b)(13)(iii) of 
Schedule 14A is being deleted. Amendments to Item 22(b)(13) of 
Schedule 14A.
    \370\ Item 11 of Form 10-K.
---------------------------------------------------------------------------

    As a result of these amendments, the persons covered by the 
compensation disclosure requirements will be changed. The compensation 
disclosure in the proxy and information statements and registration 
statements of business development companies will be required to cover 
the same officers as for operating companies, including the principal 
executive officer and principal financial officer, as well as the three 
most highly compensated executive officers that have total compensation 
exceeding $100,000,\371\ instead of each of the three highest paid 
officers of the company that have aggregate compensation from the 
company for the most recently completed fiscal year in excess of 
$60,000. In addition, the registration statements of business 
development companies will no longer be required to disclose 
compensation of members of the advisory board or certain affiliated 
persons of the company.
---------------------------------------------------------------------------

    \371\ See Section II.C.6., above.
---------------------------------------------------------------------------

    Finally, under the amendments, the proxy and information statements 
and registration statements of business development companies will not 
be required to include compensation from the ``fund complex.'' 
Previously, this information was required in some circumstances.\372\
---------------------------------------------------------------------------

    \372\ See instructions 4 and 6 to Item 22(b)(13)(i) of Schedule 
14A; and instructions 4 and 6 to Item 18.13(a) of Form N-2 (prior to 
today's amendments requiring certain entries in the compensation 
table in the proxy and information statements and registration 
statements of business development companies to include compensation 
from the fund complex).
---------------------------------------------------------------------------

E. Conforming Amendments

    The Item 402 amendments necessitate conforming amendments to the 
Items of Regulations S-K and S-B and the proxy rules that cross 
reference amended paragraphs of Item 402. On this basis, we are 
amending:
    <bullet> the Item 201(d) of Regulations S-K and S-B and proxy rule 
references to the Item 402 definition of ``plan;'' \373\
    <bullet> the Item 601(b)(10) of Regulation S-K reference to the 
Item 402 treatment of foreign private issuers; \374\ and
---------------------------------------------------------------------------

    \373\ Amendments to: Instruction 2 to paragraph (d) of Item 201 
of Regulation S-B; Instruction 2 to paragraph (d) of Item 201 of 
Regulation S-K; Exchange Act Rules 14a-6(a)(4) and 14c-5(a)(4); and 
Instruction 1 to Item 10 of Schedule 14A.
    \374\ Amendment to Item 601(b)(10)(iii)(C)(5).
---------------------------------------------------------------------------

    <bullet> the proxy rule references to Item 402 retirement plan 
disclosure.\375\

III. Revisions to Form 8-K and the Periodic Report Exhibit Requirements

    As part of our broader effort to revise our executive and director 
compensation disclosure requirements, we proposed revisions to Item 
1.01 of Form 8-K. This item requires real-time disclosure about an 
Exchange Act reporting company's entry into a material definitive 
agreement outside of the ordinary course of the company's business, as 
well as any material amendment to such an agreement. Our staff's 
experience since Item 1.01 became effective in 2004 suggests that this 
item has elicited executive compensation disclosure regarding types of 
matters that do not appear always to be unquestionably or presumptively 
material, which is the standard we set for the expanded Form 8-K 
disclosure events.\376\ We therefore proposed to revise Items 1.01 and 
5.02 of Form 8-K to require real-time disclosure of employee 
compensation events that more clearly satisfy this standard. We are 
adopting the revisions substantially as proposed.
---------------------------------------------------------------------------

    \375\ Amendments to Item 10(b)(1)(ii) and Instruction to Item 
10(b)(1)(ii) of Schedule 14A.
    \376\ We stated in Section I of Additional Form 8-K Disclosure 
Requirements and Acceleration of Filing Date, Release No 33-8400 
(Mar. 16, 2004) [69 FR 15594] (the ``Form 8-K Adopting Release''): 
``The revisions that we adopt today will benefit markets by 
increasing the number of unquestionably or presumptively material 
events that must be disclosed currently.''
---------------------------------------------------------------------------

    In addition to the amendments to Items 1.01 and 5.02 of Form 8-K, 
we proposed to revise General Instruction D of Form 8-K to permit 
companies in most cases to omit the Item 1.01 heading if multiple items 
including Item 1.01 are applicable, so long as all of the substantive 
disclosure required by Item 1.01 is included. We are adopting this 
provision as proposed.

A. Items 1.01 and 5.02 of Form 8-K

    Item 1.01 of Form 8-K requires an Exchange Act reporting company to 
disclose, within four business days, the company's entry into a 
material definitive agreement outside of its ordinary course of 
business, or any

[[Page 53194]]

amendment of such agreement that is material to the company. When we 
initially proposed this item, several commenters stated that it would 
be difficult to determine, within the shortened Form 8-K filing period, 
whether a particular definitive agreement met the materiality threshold 
of Item 1.01, and whether the agreement was outside of the ordinary 
course of business.\377\ Some of these commenters suggested that we 
apply to Item 1.01 the standards used in pre-existing Item 601(b)(10) 
of Regulation S-K, which governs the filing as exhibits to Commission 
reports of material contracts entered into outside the ordinary course, 
because these standards had been in place for many years and were 
familiar to reporting companies.\378\
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    \377\ See, e.g., letters on Additional Form 8-K Disclosure 
Requirements and Acceleration of Filing Date, Release No. 33-8106 
(June 17, 2002) [67 FR 42914] in File No. S7-22-02 from the 
Committee on Federal Regulation of Securities, Section of Business 
Law of the American Bar Association, dated September 12, 2002; 
Cleary, Gottlieb, Steen & Hamilton, dated August 26, 2002; Intel 
Corporation, dated August 26, 2002; Professor Joseph A. Grundfest, 
et al. dated October 3, 2002; Perkins Coie LLP, dated August 26, 
2002; Shearman & Sterling, dated August 30, 2002; and Sullivan & 
Cromwell, dated August 26, 2002.
    \378\ See, e.g., letter in File No. S7-22-02 from the Section of 
Business Law of the American Bar Association.
---------------------------------------------------------------------------

    In response to the concerns raised by these comments, we adopted 
Item 1.01 of Form 8-K so that it uses the standards of Item 601(b)(10) 
to determine the types of agreements that are material to a company and 
not in the ordinary course of business. Item 601(b)(10) of Regulation 
S-K requires a company to file, as an exhibit to Securities Act and 
Exchange Act filings, material contracts that are not made in the 
ordinary course of business and are to be performed in whole or part at 
or after the filing of the registration statement or report, or were 
entered into not more than two years before the filing. Item 
601(b)(10)(iii) refers specifically to employment compensation 
arrangements and established a company's obligation to file the 
following as exhibits:
    <bullet> any management contract or any compensatory plan, contract 
or arrangement, including but not limited to plans relating to options, 
warrants or rights, pension, retirement or deferred compensation or 
bonus, incentive or profit sharing (or if not set forth in any formal 
document, a written description thereof) in which any director or any 
named executive officer (as defined by Item 402(a)(3) of Regulation S-
K) participates;
    <bullet> any other management contract or any other compensatory 
plan, contract, or arrangement in which any other executive officer of 
the company participates, unless immaterial in amount or significance; 
and
    <bullet> any compensation plan, contract or arrangement adopted 
without the approval of security holders pursuant to which equity may 
be awarded, including, but not limited to, options, warrants or rights 
in which any employee (whether or not an executive officer of the 
company) participates unless immaterial in amount or significance.\379\
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    \379\ Item 601(b)(10)(iii) of Regulation S-K. We note the 
provision in Item 601(b)(10)(iii)(A) that carves out any plan, 
contract or arrangement in which named executive officers and 
directors do not participate that is ``immaterial in amount or 
significance.'' In 1980, the Commission adopted amendments to 
Regulation S-K that consolidated all of the exhibit requirements of 
various disclosure forms into a single item in Regulation S-K. 
Amendments Regarding Exhibit Requirements, Release No. 33-6230 (Aug. 
27, 1980) [45 FR 58822], at Section II.B. This item was a forerunner 
of the current Item 601. As part of that 1980 adopting release, the 
definition of material contract contained in the new item was also 
revised in an effort to reduce the number of remunerative plans or 
arrangements that must be filed. Not long after, though, the staff 
discovered that rather than reduce the number of exhibits filed, the 
provision actually had the opposite effect. The staff found that the 
revised definition of material contract ``has resulted in 
registrants filing a large volume of varied remunerative contracts 
involving directors and executive officers, contracts which are not 
material and which would not have been filed under the previously 
existing `material in amount or significance' standard.'' Technical 
Amendment Regarding Exhibit Requirement, Release No. 33-6287 (Feb. 
6, 1981) [46 FR 11952], at Section I. Therefore, in February 1981, 
the Commission added ``unless immaterial in amount or significance'' 
to the definition of ``material contracts'' as applied to 
remunerative plans, contracts or arrangements participated in by 
executives who are not named executive officers. Id. We reiterate 
that this phrase was intended to indicate that whether plans, 
contracts or arrangements in which executive officers other than 
named executive officers participate are required to be disclosed 
under Item 601(b)(10) must be determined on the basis of 
materiality.
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    Therefore, entry into these types of contracts triggered the filing 
of a Form 8-K within four business days. Importantly, the requirement 
for directors and named executive officers does not include an 
exception for those that are ``immaterial in amount or significance.'' 
The incorporation of the Item 601(b)(10) standards into Item 1.01 of 
Form 8-K has therefore significantly affected executive compensation 
disclosure practices. Prior to the Form 8-K amendments in 2004, it was 
customary for a company's annual proxy statement to be the primary 
vehicle for disclosure of executive and director compensation 
information. However, Item 1.01 of Form 8-K as originally adopted has 
resulted in executive compensation disclosures that are much more 
frequent and accelerated than those included in a company's proxy 
statement. In addition, particularly because of the terms of Item 
601(b)(10), Item 1.01 of Form 8-K triggered compensation disclosure of 
the types of matters that, in some cases, appear to have fallen short 
of the ``unquestionably or presumptively material'' standard associated 
with the expanded Form 8-K disclosure items. Companies and their 
counsel have raised concerns that the expanded Form 8-K requirements 
have resulted in real-time disclosure of compensation events that 
should be disclosed, if at all, in a company's proxy statement for its 
annual meeting or as an exhibit to the company's next periodic report, 
such as the Form 10-Q or Form 10-K.
    As we stated in the Proposing Release, we believe that much of the 
disclosure regarding employment compensation matters required in real-
time under the Form 8-K requirements is viewed by investors as 
material. However, we also believe it is appropriate to restore a more 
balanced approach to this aspect of Form 8-K, an approach which is 
designed to elicit unquestionably or presumptively material information 
on a real-time basis, but seeks to limit Form 8-K required disclosure 
of information below that threshold.
    Accordingly, we are adopting amendments to Form 8-K that will 
uncouple Item 601(b)(10)(iii) of Regulation S-K from the current 
disclosure requirements of Form 8-K. As proposed, we are eliminating 
employment compensation arrangements from the scope of Item 1.01 
altogether and expanding Item 5.02 of Form 8-K to cover only those 
compensatory arrangements with executive officers and directors that we 
believe are unquestionably or presumptively material. Commenters 
generally supported these proposed amendments.\380\ We are adopting 
these amendments substantially as proposed.
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    \380\ See, e.g., letters from ABA; Chamber of Commerce; N. 
Ludgus; Committee on Securities Regulation of the Business Law 
Section of the New York State Bar Association; SCSGP; and Sullivan.
---------------------------------------------------------------------------

1. Item 1.01--Entry Into a Material Definitive Agreement
    Specifically, we are deleting the last sentence of former 
Instruction 1 to Item 1.01 of Form 8-K, which references the portions 
of Item 601(b)(10) of Regulation S-K that specifically relate to 
management compensation and compensatory plans. In place of the deleted 
sentence, we are adding a sentence specifying that agreements

[[Page 53195]]

involving the subject matter identified in Item 601(b)(10)(iii)(A) and 
(B) of Regulation S-K need not be disclosed under amended Item 1.01 of 
Form 8-K. This change also will apply to the disclosure of terminations 
of material definitive agreements under Item 1.02 of Form 8-K, which 
references the definition of ``material definitive agreement'' in Item 
1.01 of Form 8-K.\381\ Instead of being required to be disclosed based 
on the general requirements with regard to material definitive 
agreements in Item 1.01 and Item 1.02 of Form 8-K, employment 
compensation arrangements will now be covered under Item 5.02 of Form 
8-K, as amended.
---------------------------------------------------------------------------

    \381\ Item 1.02(b) states: ``For purposes of this Item 1.02, the 
term material definitive agreement shall have the same meaning as 
set forth in Item 1.01(b).''
---------------------------------------------------------------------------

2. Item 5.02--Departure of Directors or Certain Officers; Election of 
Directors; Appointment of Certain Officers; Compensatory Arrangements 
of Certain Officers
    Item 5.02 generally requires disclosure within four business days 
of the appointment or departure of directors and specified officers. In 
particular, Item 5.02(b) has required disclosure if a company's 
principal executive officer, president, principal financial officer, 
principal accounting officer, principal operating officer, or any 
person performing similar functions, retires, resigns or is terminated 
from that position and Item 5.02(c) has required disclosure if a 
company appoints a new principal executive officer, president, 
principal financial officer, principal accounting officer, principal 
operating officer, or any person performing similar functions. Item 
5.02 has also required disclosure if a director retires, resigns, is 
removed, or declines to stand for re-election.\382\ Before adopting 
today's amendments, the required disclosure under Item 5.02 included a 
brief description of the material terms of any employment agreement 
between the company and the officer and a description of disagreements, 
if any.
---------------------------------------------------------------------------

    \382\ Items 5.02(a) and (b) of Form 8-K.
---------------------------------------------------------------------------

    As proposed, we are modifying Item 5.02 to capture generally the 
information already required under that item, as well as additional 
information regarding material employment compensation arrangements 
involving named executive officers that, prior to today's amendments, 
would be called for under Item 1.01.
    With respect to the additional disclosure that we are requiring for 
named executive officers under amended Item 5.02, one commenter noted 
that because the definition of ``named executive officer'' is 
determined with reference to a company's last completed fiscal year, 
greater clarity is needed to determine how the standard should be 
applied for current Form 8-K reporting throughout the year.\383\ The 
commenter suggested that companies might find it difficult to identify 
their named executive officers for purposes of real-time disclosure 
under Item 5.02 during the period following the completion of their 
last fiscal year but prior to preparing their proxy statements or Forms 
10-K in the new fiscal year. Accordingly, we are including a new 
Instruction to Item 5.02 that will clarify that for purposes of this 
Item the named executive officers are the persons for whom disclosure 
was required in the most recent filing with the Commission that 
required disclosure under Item 402(c) of Regulation S-K or Item 402(b) 
of Regulation S-B, as applicable.\384\
---------------------------------------------------------------------------

    \383\ See letter from ABA.
    \384\ Instruction 4 to Item 5.02.
---------------------------------------------------------------------------

    In general, our revisions to Form 8-K will both modify the overall 
requirements for disclosure of employment compensation arrangements on 
Form 8-K and locate all such disclosure under a single item. We are 
accomplishing this by taking the following steps:
    <bullet> Expanding the information regarding retirement, 
resignation or termination to include all persons falling within the 
definition of named executive officers for the company's previous 
fiscal year, whether or not included in the list specified in Item 5.02 
prior to these amendments; \385\
---------------------------------------------------------------------------

    \385\ Item 5.02(b) of Form 8-K will continue to cover the 
officers currently specified therein, whether or not named executive 
officers for the previous or current years, and all directors.
---------------------------------------------------------------------------

    <bullet> Expanding the disclosure items covered under Item 5.02 
beyond employment agreements to require a brief description of any 
material plan, contract or arrangement to which a covered officer or 
director is a party or in which he or she participates that is entered 
into or materially amended in connection with any of the triggering 
events specified in Item 5.02(c) and (d), or any grant or award to any 
such covered person, or modification thereto, under any such plan, 
contract or arrangement in connection with any such event; \386\
---------------------------------------------------------------------------

    \386\ Items 5.02(c)(3) and (d)(5). Plans, contracts or 
arrangements (but not material amendments or grants or awards or 
modifications thereto) may be denoted by reference to the 
description in the company's most recent annual report on Form 10-K 
or proxy statement.
---------------------------------------------------------------------------

    <bullet> With respect to the principal executive officer, the 
principal financial officer, or persons falling within the definition 
of named executive officer for the company's previous fiscal year, 
expanding the disclosure items to include a brief description of any 
material new compensatory plan, contract or arrangement, or new grant 
or award thereunder (whether or not written), and any material 
amendment to any compensatory plan, contract or arrangement (or any 
modification to a grant or award thereunder), whether or not such 
occurrence is in connection with a triggering event specified in Item 
5.02. Grants or awards or modifications thereto will not be required to 
be disclosed if they are consistent with the terms of previously 
disclosed plans or arrangements and they are disclosed the next time 
the company is required to provide new disclosure under Item 402 of 
Regulation S-K; \387\ and
---------------------------------------------------------------------------

    \387\ Item 5.02(e) and Instruction 2 to Item 5.02(e).
---------------------------------------------------------------------------

    <bullet> Adding a requirement for disclosure of salary or bonus for 
the most recent fiscal year that was not available at the latest 
practicable date in connection with disclosure under Item 402 of 
Regulation S-K.\388\ This disclosure will also require a new total 
compensation recalculation to reflect the new salary or bonus 
information.
---------------------------------------------------------------------------

    \388\ Item 5.02(f). See Section II.C.1.b. above for a discussion 
of the reporting delay that exists under the current disclosure 
rules when bonus and salary are not determinable at the most recent 
practicable date.
---------------------------------------------------------------------------

    In the case of each of these disclosure items for amended Item 
5.02, we emphasize that we are requiring that a brief description of 
the specified matter be included. We have observed that in response to 
the requirements to disclose the entry into material definitive 
agreements under Item 1.01, some companies have included disclosure 
that resembles an updating of the disclosure required under former Item 
402 of Regulation S-K. In the context of current disclosure under Form 
8-K, we are seeking disclosure that informs investors of specified 
material events and developments. However, the information we are 
seeking does not require the information necessary to comply with Item 
402.
    In response to comments received,\389\ we have revised Instruction 
2 to new Item 5.02(e) from the text we proposed and created a new Item 
5.02(f), as described above. The revised Instruction 2 to Item 5.02(e) 
that we are adopting: (i) Changes or eliminates prior references to 
``original terms'' and uses instead the phrase ``previously disclosed 
terms,'' in order to minimize

[[Page 53196]]

ambiguity; and (ii) clarifies that, for purposes of the Instruction, no 
distinction should be made between awards granted under cash or equity-
based plans. New Item 5.02(f) responds to comments we received that our 
proposed Instruction 3 to 5.02(e) should be codified as a separate item 
because it called for disclosure (determining salary or bonus amounts 
for a completed fiscal year) that otherwise may not be required under 
Item 5.02(e).\390\
---------------------------------------------------------------------------

    \389\ See letter from ABA.
    \390\ See letter from ABA.
---------------------------------------------------------------------------

B. Extension of Limited Safe Harbor Under Section 10(b) and Rule 10b-5 
to Item 5.02(e) of Form 8-K and Exclusion of Item 5.02(e) From Form S-3 
Eligibility Requirements

    We are extending the safe harbors regarding Section 10(b) and Rule 
10b-5 and Form S-3 eligibility in the event that a company fails to 
timely file reports required by Item 5.02(e) of Form 8-K.
    In March 2004, we adopted a limited safe harbor from liability 
under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder for 
failure to timely file reports required by Form 8-K Items 1.01, 1.02, 
2.03, 2.04, 2.05, 2.06, 4.02(a) and 6.03. Because we believed that 
these items may require management to make rapid materiality and 
similar judgments within the condensed timeframe required for filing of 
a Form 8-K, we established a safe harbor that applies until the filing 
due date of the company's quarterly or annual report for the period in 
question. We concluded that the risk of liability under these 
provisions for the failure to timely file was disproportionate to the 
benefit of real-time disclosure and therefore justified the need for a 
limited safe harbor of a fixed duration. For the same reasons, we 
believe that the safe harbor should also extend to Item 5.02(e) of Form 
8-K. We therefore are amending Exchange Act Rules 13a-11(c) and 15d-
11(c) accordingly.
    In addition, a company forfeits its eligibility to use Form S-3 if 
it fails to timely file all reports required under Exchange Act Section 
13(a) or 15(d) during the 12 month period prior to filing of the 
registration statement.\391\ For the same reasons, when adopting the 
expanded Form 8-K rules in 2004, we revised the Form S-3 eligibility 
requirements so that a company would not lose its eligibility to use 
Form S-3 registration statements if it failed to timely file reports 
required by the Form 8-K items to which the Section 10(b) and Rule 10b-
5 safe harbor applies.\392\ In particular, the burden resulting from a 
company's sudden loss of eligibility to use Form S-3 could be a 
disproportionately large negative consequence of an untimely Form 8-K 
filing under one of the specified items.\393\ We believe that this safe 
harbor should be extended to Item 5.02(e) of Form 8-K and, therefore, 
we are amending General Instruction I.A.3.(b) of Form S-3, which 
pertains to the eligibility requirements for use of Form S-3 to reflect 
this position.
---------------------------------------------------------------------------

    \391\ General Instruction I.A.3 to Form S-3.
    \392\ Form 8-K Adopting Release, at Section II.E.
    \393\ Id.
---------------------------------------------------------------------------

C. General Instruction D to Form 8-K

    We are adopting the revision to General Instruction D as proposed. 
Frequently, an event may trigger a Form 8-K filing under multiple 
items, particularly under both Item 1.01 and another item. General 
Instruction D to Form 8-K permits a company to file a single Form 8-K 
to satisfy one or more disclosure items, provided that the company 
identifies by item number and caption all applicable items being 
satisfied and provides all of the substantive disclosure required by 
each of the items. In order to promote prompt filings on Form 8-K and 
avoid potential non-compliance with Form 8-K due to inadvertent 
exclusions of captions, we are amending General Instruction D to permit 
companies to omit the Item 1.01 heading in a Form 8-K that also 
discloses any other item, so long as the substantive disclosure 
required by Item 1.01 is included in the Form 8-K. This would not 
extend to allowing a company to omit any other caption if the Item 1.01 
caption is included.

D. Foreign Private Issuers

    We are amending the exhibit instructions to Form 20-F so that 
foreign private issuers will be required to file an employment or 
compensatory plan with management or directors (or portion of such 
plan) only when the foreign private issuer either is required to 
publicly file the plan (or portion of it) in its home country or if the 
foreign private issuer has otherwise publicly disclosed the plan.\394\
---------------------------------------------------------------------------

    \394\ We are also making a similar revision to Item 
601(b)(10)(iii)(C)(5) of Regulation S-K.
---------------------------------------------------------------------------

    Under Item 6.B.1 of Form 20-F, a foreign private issuer must 
disclose the compensation of directors and management on an aggregate 
basis and, additionally, on an individual basis, unless individual 
disclosure is not required in the issuer's home country and is not 
otherwise publicly disclosed by the foreign private issuer. Under the 
exhibit instructions to Form 20-F prior to our amendments, management 
contracts or compensatory plans in which directors or members of 
management participate generally were required to be filed as exhibits, 
unless the foreign private issuer provided compensation information on 
an aggregate basis and not on an individual basis. Under those pre-
amendment provisions, an issuer that provided any individualized 
compensation disclosure was required to file as an exhibit to Form 20-F 
management employment agreements that potentially relate to matters 
that have not otherwise been disclosed.
    Our amendment of the exhibit instructions to Form 20-F \395\ is 
intended to be consistent with the existing disclosure requirements 
under Form 20-F relating to executive compensation matters for foreign 
private issuers. In the same way that executive compensation disclosure 
under Form 20-F largely mirrors the disclosure that a foreign private 
issuer makes under home country requirements or voluntarily, so too the 
public filing of management employment agreements as an exhibit to Form 
20-F under our amendments will mirror the public availability of such 
agreements under home country requirements or otherwise. In addition, 
we believe that the amendments may encourage foreign private issuers to 
provide more compensation disclosure in their filings with the 
Commission by eliminating privacy concerns associated with filing an 
individual's employment agreement when such agreement is not required 
to be made public by a home country exchange or securities regulator. 
As foreign disclosure related to executive remuneration varies in 
different countries but continues to improve,\396\ the revisions 
recognize that trend and provide for greater harmonization of 
international disclosure standards with respect to executive 
compensation in a manner consistent with other requirements of Form 20-
F.
---------------------------------------------------------------------------

    \395\ New Instruction 4(c)(v) to Exhibits to Form 20-F.
    \396\ Many jurisdictions now require or encourage disclosure of 
executive compensation information. For example, enhanced disclosure 
of executive remuneration is included as part of the European 
Commission's 2003 Company Law Action Plan. See Guido Ferrarini and 
Niamh Moloney, Executive Remuneration in the EU: The Context for 
Reform, European Corporate Governance Institute, Law Working Paper 
N. 32/2005 (April 2005).
---------------------------------------------------------------------------

IV. Beneficial Ownership Disclosure

    Item 403 requires disclosure of company voting securities 
beneficially owned by more than five percent holders,\397\ and company 
equity securities beneficially owned by

[[Page 53197]]

directors, director nominees and named executive officers.\398\ These 
disclosure requirements provide investors with information regarding 
concentrated holdings of voting securities and management's equity 
stake in the company, including securities for which these holders have 
the right to acquire beneficial ownership within 60 days.\399\ Item 403 
also requires disclosure of arrangements known to the company that may 
result in a change in control of the company.\400\
---------------------------------------------------------------------------

    \397\ Item 403(a).
    \398\ Item 403(b).
    \399\ As specified in Exchange Act Rule 13d-3(d)(1) [17 CFR 
240.13d-3(d)(1)].
    \400\ Item 403(c).
---------------------------------------------------------------------------

    As proposed, we are amending Item 403(b) \401\ by adding a 
requirement for footnote disclosure of the number of shares pledged as 
security by named executive officers, directors and director 
nominees.\402\ To the extent that shares beneficially owned by named 
executive officers, directors and director nominees are used as 
collateral, these shares may be subject to material risk or 
contingencies that do not apply to other shares beneficially owned by 
these persons. These circumstances have the potential to influence 
management's performance and decisions.\403\ As a result, we believe 
that the existence of these securities pledges could be material to 
shareholders. Because significant shareholders who are not members of 
management are in a different relationship with other shareholders and 
have different obligations to them, the amendments do not require 
disclosure of their pledges pursuant to Item 403(a), other than pledges 
that may result in a change of control currently required to be 
disclosed.\404\ The amendments also specifically require disclosure of 
beneficial ownership of directors' qualifying shares, which was not 
required prior to these amendments, because we believe the beneficial 
ownership disclosure should include a complete tally of the securities 
beneficially owned by directors.
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    \401\ Item 403(b) of Regulation S-K and Item 403(b) of 
Regulation S-B are both amended in the same manner.
    \402\ This was similar to a proposal the Commission made in 
2002. See Form 8-K Disclosure of Certain Management Transactions, 
Release No. 33-8090 (Apr. 12, 2002) [67 FR 19914].
    \403\ See, e.g., Marianne M. Jennings, The Disconnect Between 
and Among Legal Ethics, Business Ethics, Law, and Virtue: Learning 
Not to Make Ethics So Complex, 1 U. St. Thomas L.J. 995, 1010 
(Spring 2004) (arguing that the extension of loans to the CEO of 
WorldCom, which were collateralized by WorldCom shares owned by the 
CEO, contributed to WorldCom's financial demise). Regarding 
commenters' views, contrast letters from Frederic W. Cook & Co.; PB-
UCC; and SBAF with letters from FSR; NACCO Industries; Unitrin; and 
Compass Bancshares.
    \404\ Item 403(c) of Regulation S-K. See also Items 6 and 7(3) 
of Schedule 13D [17 CFR 240.13d-101].
---------------------------------------------------------------------------

    One commenter recommended that we expand this section to also 
require disclosure of hedging arrangements whereby the executive has 
altered his or her economic interest in the securities that he or she 
beneficially owns.\405\ These transactions frequently involve the 
purchase or sale of a derivative security that the named executive 
officer would be required to report within two business days under 
Section 16(a) of the Exchange Act.\406\ Because information concerning 
these transactions frequently would be available on a prompt basis in 
the Section 16(a) filings and companies would disclose their policies 
regarding these transactions in Compensation Discussion and 
Analysis,\407\ we have not followed the commenter's recommendation.
---------------------------------------------------------------------------

    \405\ See letter from ABA.
    \406\ 15 U.S.C. 78p(a).
    \407\ See Item 402(b)(2)(xiii) of Regulation S-K, discussed in 
Section II.B.1., above.
---------------------------------------------------------------------------

V. Certain Relationships and Related Transactions Disclosure

    As we explained in the Proposing Release, we believe that, in 
addition to disclosure regarding executive compensation, a materially 
complete picture of financial relationships with a company involves 
disclosure regarding related party transactions. Therefore, we are also 
adopting significant revisions to Item 404 of Regulation S-K, 
previously titled ``Certain Relationships and Related Transactions.'' 
In 1982, various provisions that had been adopted in a piecemeal 
fashion and had been subject to frequent amendment were consolidated 
into Item 404 of Regulation S-K.\408\ Today we are amending Item 404 of 
Regulation S-K and S-B to streamline and modernize this disclosure 
requirement, while making it more principles-based. Although the 
amendments significantly modify this disclosure requirement, its 
purpose--to elicit disclosure regarding transactions and relationships, 
including indebtedness, involving the company and related persons and 
the independence of directors and nominees for director and the 
interests of management--remains unchanged.
---------------------------------------------------------------------------

    \408\ See the 1982 Release. For a discussion of these 
provisions, see also Disclosure of Certain Relationships and 
Transactions Involving Management, Release No. 33-6416 (July 9, 
1982) [47 FR 31394], at Section II.
---------------------------------------------------------------------------

    As discussed in greater detail below, the amendments have four 
parts: \409\
---------------------------------------------------------------------------

    \409\ The discussion that follows focuses on changes to 
Regulation S-K, with Section V.E.1. explaining the modifications to 
Regulation S-B. References throughout the following discussion are 
to Items of Regulation S-K, unless otherwise indicated.
---------------------------------------------------------------------------

    <bullet> Item 404(a) contains a general disclosure requirement for 
related person transactions, including those involving indebtedness.
    <bullet> Item 404(b) requires disclosure regarding the company's 
policies and procedures for the review, approval or ratification of 
related person transactions.
    <bullet> Item 404(c) requires disclosure regarding promoters and 
certain control persons of a company.\410\
---------------------------------------------------------------------------

    \410\ Prior to adoption of these amendments, disclosure 
regarding promoters was required under Item 404(d).
---------------------------------------------------------------------------

    <bullet> Item 407 consolidates corporate governance disclosure 
requirements.\411\ Also, Item 407(a) requires disclosure regarding the 
independence of directors, including whether each director and nominee 
for director of the company is independent, as well as a description by 
specific category or type of any transactions, relationships or 
arrangements not disclosed under paragraph (a) of Item 404 that were 
considered when determining whether each director and nominee for 
director is independent.
---------------------------------------------------------------------------

    \411\ These matters previously were required to be disclosed 
pursuant to various provisions, including Item 7 of Schedule 14A and 
Items 306, 401(h), (i) and (j), 402(j) and 404(b). We are 
eliminating as proposed the requirement for disclosure regarding 
specific director and director nominee relationships that had been 
set forth in Item 404(b) prior to today's amendments, in favor of 
the disclosures regarding director independence required by Item 
407(a).
---------------------------------------------------------------------------

A. Transactions With Related Persons

    We are adopting amendments to Item 404 to make the certain 
relationships and related transactions disclosure requirements clearer 
and easier to follow. The revisions retain the principles for 
disclosure of related person transactions that were previously 
specified in Item 404(a), but no longer include all of the instructions 
that served to delineate what transactions are reportable or excludable 
from disclosure based on bright lines that can depart from a more 
appropriate materiality analysis. Instead, Item 404(a) as amended 
consists of a general statement of the principle for disclosure, 
followed by specific disclosure requirements and instructions. The 
instructions to Item 404(a) explain the related persons covered by the 
Item, the scope of transactions covered by the Item, the method for 
computation of the amount involved in the transaction, special 
requirements regarding indebtedness, the interaction with Item 402, the 
materiality of certain interests, and the circumstances in which 
disclosure need not be provided.

[[Page 53198]]

    Item 404(a) as adopted extends to disclosure of indebtedness, by 
consolidating the disclosure formerly required under Item 404(a) 
regarding transactions involving the company and related persons with 
the disclosure regarding indebtedness which had been separately 
required by Item 404(c) prior to these amendments. We have consolidated 
these two provisions substantially as proposed in order to eliminate 
confusion regarding the circumstances in which each item applied and to 
streamline duplicative portions of Item 404.
1. Broad Principle for Disclosure
    Item 404(a) as proposed and adopted articulates a broad principle 
for disclosure; it states that a company must provide disclosure 
regarding:
    <bullet> Any transaction since the beginning of the company's last 
fiscal year, or any currently proposed transaction;
    <bullet> In which the company was or is to be a participant;
    <bullet> In which the amount involved exceeds $120,000; and
    <bullet> In which any related person had or will have a direct or 
indirect material interest.
    As proposed, amended Item 404(a) no longer includes an instruction 
that is repetitive of the general materiality standard applicable to 
the Item.\412\ By omitting this instruction, we do not intend to change 
the materiality standard applicable to Item 404(a). The materiality 
standard for disclosure embodied in Item 404(a) prior to these 
amendments is retained; a company must disclose based on whether the 
related person had or will have a direct or indirect material interest 
in the transaction. The materiality of any interest will continue to be 
determined on the basis of the significance of the information to 
investors in light of all the circumstances.\413\ As was the case 
before adoption of amended Item 404(a), the relationship of the related 
persons to the transaction, and with each other, the importance of the 
interest to the person having the interest and the amount involved in 
the transaction are among the factors to be considered in determining 
the materiality of the information to investors.
---------------------------------------------------------------------------

    \412\ Prior to today's amendments, Instruction 1 to Item 404(a) 
had stated that ``[t]he materiality of any interest is to be 
determined on the basis of the significance of the information to 
investors in light of all the circumstances of the particular case. 
The importance of the interest to the person having the interest, 
the relationship of the parties to the transaction with each other 
and the amount involved in the transactions are among the factors to 
be considered in determining the significance of the information to 
investors.''
    \413\ See Basic v. Levinson and TSC Industries v. Northway.
---------------------------------------------------------------------------

    We are also eliminating as proposed an instruction to Item 404(a) 
which had indicated that the dollar threshold is not a bright line 
materiality standard.\414\ It remains true, however, that when the 
amount involved in a transaction exceeds the prescribed threshold 
($120,000 under the amended rule we adopt today), a company should 
evaluate whether the related person has a direct or indirect material 
interest in the transaction to determine if disclosure is required. We 
eliminated the instruction because it was repetitive of the general 
materiality standard applicable to the Item. We believe that 
application of the materiality principles under the Item are more 
consistent with a principles-based approach and will lead to more 
appropriate disclosure outcomes than application of the instruction 
that was eliminated. By deleting this instruction, we do not intend to 
change the materiality standard applicable to Item 404(a). As was the 
case with Item 404(a) prior to adoption of these amendments, there may 
be situations where, although the instructions to Item 404(a) do not 
expressly provide that disclosure is not required, the interest of a 
related person in a particular transaction is not a direct or indirect 
material interest. In that case, information regarding such interest 
and transaction is not required to be disclosed under Item 404(a).
---------------------------------------------------------------------------

    \414\ Prior to today's amendments, Instruction 9 to Item 404(a) 
had stated that ``There may be situations where, although these 
instructions do not expressly authorize nondisclosure, the interest 
of a person specified in paragraphs (a)(1) through (4) in a 
particular transaction or series of transactions is not a direct or 
indirect material interest. In that case, information regarding such 
interest and transaction is not required to be disclosed in response 
to this paragraph.''
---------------------------------------------------------------------------

    In addition, as proposed the amendments:
    <bullet> Call for disclosure if a company is a ``participant'' in a 
transaction, rather than if it is ``a party'' to the transaction, as 
``participant'' more accurately connotes the company's involvement;
    <bullet> Modify the $60,000 threshold for disclosure to $120,000 to 
adjust for inflation;
    <bullet> Include a defined term for ``transaction'' to provide that 
it includes a series of similar transactions and to make clear its 
broad scope; and
    <bullet> Include a defined term for ``related persons.'' \415\
---------------------------------------------------------------------------

    \415\ The ``related persons'' covered by the amended Item are 
discussed below in Section V.A.1.b.
---------------------------------------------------------------------------

    As was the case before these amendments, disclosure is required for 
three years in registration statements filed pursuant to the Securities 
Act or the Exchange Act.\416\
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    \416\ However, if the disclosure is being incorporated by 
reference into a registration statement on Form S-4, the additional 
two years of disclosure will not be required, as specified in 
Instruction 1 to Item 404.
---------------------------------------------------------------------------

    One commenter questioned whether changing the test of company 
involvement from being a ``party'' to a transaction to being a 
``participant'' in a transaction is intended to be a substantive 
change.\417\ The purpose of this change is to more accurately connote 
the company's involvement in a transaction by clarifying that being a 
``participant'' encompasses situations where the company benefits from 
a transaction but is not technically a contractual ``party'' to the 
transaction.\418\
---------------------------------------------------------------------------

    \417\ See letter from Sullivan. See also letter from SCSGP.
    \418\ For example, disclosure would be required if a company 
benefits from a transaction with a related person that the company 
has arranged and in which it participates, notwithstanding the fact 
that it is not a party to a contract.
---------------------------------------------------------------------------

    Commenters expressed diverse views on the appropriate disclosure 
threshold. While some commenters supported increasing the threshold for 
disclosure from $60,000 to $120,000,\419\ others recommended retaining 
the $60,000 threshold,\420\ using a minimal dollar threshold,\421\ not 
including any de minimis dollar threshold,\422\ or increasing the 
threshold even further through use of a sliding scale.\423\ We believe 
that a fixed dollar amount for the disclosure threshold will provide 
the most certainty as to the size of transactions that must be tracked 
for disclosure purposes under Item 404,\424\ and that increasing the 
dollar amount of the threshold based on inflation is appropriate given 
the amount of time that has elapsed since it was last set nearly 
twenty-five years ago.
---------------------------------------------------------------------------

    \419\ See, e.g., letters from BRT and Sullivan.
    \420\ See, e.g., letters from Amalgamated and CalSTRS.
    \421\ See letter from Teamsters (recommending a $250 disclosure 
threshold).
    \422\ See, e.g., letters from CII and ISS.
    \423\ See letter from SCSGP recommending a disclosure threshold 
for companies that are not small business issuers of the greater of 
$120,000 or a percentage (which it believes could be as low as two 
percent) of consolidated gross revenues of the recipient for certain 
types of transactions.
    \424\ The disclosure threshold in amended Item 404(a) of 
Regulation S-B is the lesser of $120,000 or one percent of the 
average of the small business issuer's total assets at year-end for 
the last three completed fiscal years because we believe that 
transactions that are below $120,000 can be significant for small 
business issuers given their relative size.
---------------------------------------------------------------------------

    Finally, the rule changes include as proposed a technical 
modification. Prior to today's amendments, Item 404(a) stated that 
disclosure was required

[[Page 53199]]

regarding situations involving ``the registrant or any of its 
subsidiaries.'' Because companies must include subsidiaries in making 
materiality determinations in all circumstances, the reference to 
``subsidiaries'' is superfluous, and we have therefore eliminated it. 
This modification does not change the scope of disclosure required 
under the Item.\425\
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    \425\ For the same reason, we have eliminated as proposed the 
references to ``subsidiaries'' in the ``compensation committee 
interlocks and insider participation in compensation decisions'' 
disclosure requirement adopted in Item 407(e)(4). This revision does 
not change the scope of disclosure required under the rule.
---------------------------------------------------------------------------

a. Indebtedness
    Section 402 of the Sarbanes-Oxley Act prohibits most personal loans 
by a company to its officers and directors.\426\ This development 
raises the issue of whether disclosure of indebtedness of the sort 
required under our rules prior to the amendments should be maintained. 
We believe that the approach to disclosure of indebtedness involving 
related persons that we adopt today is appropriate because of the scope 
of the direct and indirect interests covered by our disclosure 
requirements, because related persons include persons not covered by 
the prohibitions, and because there are certain exceptions to the 
prohibitions. We have, however, eliminated the distinction between 
indebtedness and other types of related person transactions.
---------------------------------------------------------------------------

    \426\ Codified in Section 13(k) of the Exchange Act [15 U.S.C. 
78m(k)].
---------------------------------------------------------------------------

    As a result of integrating what had been required to be disclosed 
under paragraph (c) of Item 404 into paragraph (a) of Item 404, the 
rule proposals would have changed the situations in which indebtedness 
disclosure is necessary by requiring disclosure of indebtedness 
transactions with regard to all related persons covered by the related 
person transaction disclosure requirement, including significant 
shareholders.\427\ Some commenters questioned whether disclosure of 
indebtedness of significant shareholders would be useful to investors 
and whether companies would have access to the information necessary to 
provide this disclosure.\428\ In response to these comments, the 
amendments do not require disclosure of indebtedness transactions of 
significant shareholders (or their immediate family members).\429\ 
Another result of integrating the disclosure requirements that had been 
specified in paragraph (c) of Item 404 into paragraph (a) of Item 404, 
is that the rule changes set a $120,000 threshold and require 
disclosure if there is a direct or indirect material interest in an 
indebtedness transaction, while prior to these amendments Item 404(c) 
required disclosure of all indebtedness exceeding $60,000.\430\ For 
example, under amended Item 404(a) disclosure is required if an 
executive officer had a material indirect interest in an indebtedness 
transaction (exceeding $120,000) between the company and another entity 
due to that executive officer's ownership interest in the other entity. 
Disclosure of material indirect interests of related persons in 
transactions involving the company will be required by Item 404(a) as 
amended, just as it was prior to adoption of these amendments. We 
believe that disclosure requirements for indebtedness and for other 
related person transactions should be congruent. In particular, we 
believe that loans by companies other than financial institutions 
should be treated like any other related person transactions; however, 
as discussed below,\431\ we address certain ordinary course loans by 
financial institutions in an instruction to Item 404(a).
---------------------------------------------------------------------------

    \427\ Prior to today's amendments, the related person 
transaction disclosure requirement in Item 404(a) covered 
significant shareholders, while the indebtedness disclosure 
requirement in Item 404(c) did not. The significant shareholders 
covered by Item 404(a) as adopted will continue to be any security 
holder who is known to the company to beneficially own more than 
five percent of any class of the company's voting securities. See 
Instruction 1.b.i. to Item 404(a).
    \428\ See, e.g., letter from Sullivan. See also, letter from 
SCSGP.
    \429\ See Instruction 4.b. to Item 404(a). Disclosure would be 
required, however, if the significant shareholder (or such 
shareholder's immediate family member) was also a related person 
specified in Instruction 1.a. to Item 404(a), for example, if the 
significant shareholder was also an executive officer.
    \430\ Prior to these amendments, Item 404(c) also had required 
disclosure of some specific indirect interests of directors, 
nominees for director, and executive officers of the company in 
indebtedness through corporations, organizations, trusts, and 
estates. Disclosure of these specific interests had been required by 
subparagraphs (c)(4) and (c)(5) of Item 404. Under the amendments, 
these subparagraphs have been eliminated as duplicative and the need 
for disclosure in these situations will be determined using a 
materiality analysis under the principle for disclosure in Item 
404(a).
    \431\ See Section V.A.3. below.
---------------------------------------------------------------------------

b. Definitions
    We have defined the terms ``transaction,'' ``related person'' and 
``amount involved'' substantially as proposed in order to streamline 
Item 404(a) and to clarify the broad scope of financial transactions 
and relationships covered by the rule.
    The term ``transaction'' has a broad scope in Item 404(a).\432\ 
This term is not to be interpreted narrowly, but rather broadly 
includes, but is not limited to, any financial transaction, arrangement 
or relationship or any series of similar transactions, arrangements or 
relationships. The definition of ``transaction'' also specifically 
notes that the term includes indebtedness and guarantees of 
indebtedness.
---------------------------------------------------------------------------

    \432\ Instruction 2 to Item 404(a).
---------------------------------------------------------------------------

    The definition of ``related person'' identifies the persons 
covered, and clarifies the time periods during which they are covered. 
The term ``related person'' \433\ means any person who was in any of 
the following categories at any time during the specified period for 
which disclosure under paragraph (a) of Item 404 is required:
---------------------------------------------------------------------------

    \433\ Instruction 1 to Item 404(a).
---------------------------------------------------------------------------

    <bullet> Any director or executive officer of the company and his 
or her immediate family members; and
    <bullet> If disclosure were provided in a proxy or information 
statement relating to the election of directors, any nominee for 
director and the immediate family members of any nominee for director.
    In addition, a security holder known to the company to beneficially 
own more than five percent of any class of the company's voting 
securities or any immediate family member of any such person, when a 
transaction in which such security holder or family member had a direct 
or indirect material interest occurred or existed, is also a related 
person.
    The definition of ``related person'' that we have adopted will 
require disclosure of related person transactions involving the company 
and a person (other than a significant shareholder or immediate family 
member of such shareholder) that occurred during the last fiscal year, 
if the person was a ``related person'' during any part of that 
year.\434\ A person who had a position or relationship giving rise to 
the person being a ``related person'' during only part of the last 
fiscal year may have had a material interest in a transaction with the 
company during that year. While prior to these amendments Item 404(a) 
did not indicate whether disclosure was required for the transaction in 
this situation, the history of Item 404 suggests that disclosure was 
required if the requisite relationship existed at the time of the 
transaction, even if the person was no longer a related person at the 
end of the year.\435\ We believe

[[Page 53200]]

that, because of the potential for abuse and the close proximity in 
time between the transaction and the person's status as a ``related 
person,'' it is appropriate to require disclosure for transactions in 
which the person had a material interest occurring at any time during 
the fiscal year. For example, it is possible that a material interest 
of a person in a transaction during this timeframe could influence the 
person's performance of his or her duties.
---------------------------------------------------------------------------

    \434\ As proposed, the principle for disclosure that we have 
adopted only applies to nominees for director if disclosure is being 
provided in a proxy or information statement involving the election 
of directors. Also, as proposed, ongoing disclosure is not required 
regarding nominees for director who were not elected (unless a 
nominee has been nominated again for director).
    \435\ This position, which had been included in the proxy rule 
provisions that were the precursor to Item 404, was deleted from 
those provisions in 1967 as duplicative of a note that applied to 
all of the disclosure required in Schedule 14A (including the 
related party disclosure requirement in Schedule 14A). Adoption of 
Amendments to Proxy Rules and Information Rules, Release No. 34-8206 
(Dec. 14, 1967) [32 FR 20960], at ``Schedule 14A--Item7(f).'' Before 
today's amendments, Note C to Schedule 14A provided that 
``[i]nformation need not be included for any portion of the period 
during which such person did not hold any such position or 
relationship, provided a statement to that effect is made.'' We have 
amended Note C to Schedule 14A as proposed so that it will no longer 
apply to disclosure of related person transactions.
---------------------------------------------------------------------------

    We believe that transactions with persons who have been or who will 
become significant shareholders (or their immediate family members), 
but are not at the time of the transaction, raise different 
considerations and are harder to track, and thus we are excluding them 
as proposed. Disclosure will be required, however, regarding a 
transaction that begins before a significant shareholder becomes a 
significant shareholder, and continues (for example, through the on-
going receipt of payments) on or after the time that the person becomes 
a significant shareholder.
    We are adopting the definition of ``immediate family member'' as 
proposed. Under Item 404(a), the term ``immediate family member'' means 
any child, stepchild, parent, stepparent, spouse, sibling, mother-in-
law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or 
sister-in-law, and any person (other than a tenant or employee) sharing 
the household of any director, nominee for director, executive officer, 
or significant shareholder of the company. The amended definition 
differs from the former definition in that it includes stepchildren, 
stepparents, and any person (other than a tenant or employee) sharing 
the household of a director, nominee for director, executive officer, 
or significant shareholder of the company.\436\
---------------------------------------------------------------------------

    \436\ The persons included in these additions to the definition 
are also included in the definition of ``family member'' in General 
Instruction A.1.(a)(5) to Securities Act Form S-8.
---------------------------------------------------------------------------

    The amended definition of ``amount involved'' is adopted as 
proposed.\437\ The definition incorporates two concepts that were 
included in Item 404 prior to these amendments regarding how to 
determine the ``amount involved'' in transactions, and clarifies that 
the amounts reported must be in dollars even if the amount was set or 
expensed in a different currency. As adopted, the term ``amount 
involved'' means the dollar value of the transaction, or series of 
similar transactions, and includes:
---------------------------------------------------------------------------

    \437\ Instruction 3 to Item 404(a).
---------------------------------------------------------------------------

    <bullet> In the case of any lease or other transaction providing 
for periodic payments or installments, the aggregate amount of all 
periodic payments or installments due on or after the beginning of the 
company's last fiscal year, including any required or optional payments 
due during or at the conclusion of the lease or other transaction 
providing for periodic payments or installments; \438\ and
---------------------------------------------------------------------------

    \438\ Prior to today's amendments, Instruction 3 to Item 404(a) 
had provided guidance regarding computing the amount involved in 
lease or other agreements providing for periodic payments or 
installments.
---------------------------------------------------------------------------

    <bullet> In the case of indebtedness, the largest aggregate amount 
of all indebtedness outstanding at any time since the beginning of the 
company's last fiscal year and all amounts of interest payable on it 
during the last fiscal year.\439\
---------------------------------------------------------------------------

    \439\ Prior to today's amendments, the basis for determining the 
amount involved in indebtedness transactions had been set forth in 
Item 404(c).
---------------------------------------------------------------------------

2. Disclosure Requirements
    Subparagraphs of Item 404(a) as adopted provide the disclosure 
requirements for related person transactions. The company will be 
required to describe the transaction, including:
    <bullet> The person's name and relationship to the company;
    <bullet> The person's interest in the transaction with the company, 
including the related person's position or relationship with, or 
ownership in, a firm, corporation, or other entity that is a party to 
or has an interest in the transaction; and
    <bullet> The approximate dollar value of the amount involved in the 
transaction and of the related person's interest in the 
transaction.\440\
---------------------------------------------------------------------------

    \440\ Because of the manner in which the amount involved in the 
transaction is calculated for indebtedness, as discussed above, 
disclosure with respect to indebtedness will include the largest 
aggregate amount of principal outstanding during the period for 
which disclosure is provided, as well as the amount of principal and 
interest paid during the period for which disclosure is provided, 
the aggregate amount of principal outstanding as of the latest 
practicable date, and the rate or amount of interest payable on the 
indebtedness. Item 404(a)(5).
---------------------------------------------------------------------------

    Companies will also be required to disclose any other information 
regarding the transaction or the related person in the context of the 
transaction that is material to investors in light of the circumstances 
of the particular transaction.
    As was the case prior to adoption of these amendments, the dollar 
value of the related person's interest in the transaction will be 
computed without regard to the amount of the profit or loss involved in 
the transaction.\441\ One commenter pointed out that the proposals 
expanded the application of this provision to also cover the 
computation of the ``amount involved'' when the provision was moved 
from an instruction into the body of Item 404(a).\442\ In streamlining 
Item 404(a), we did not intend to change the scope of the prior 
instruction. Therefore, the final rule clarifies the context in which 
profit or loss is not to be considered.
---------------------------------------------------------------------------

    \441\ Item 404(a)(4).
    \442\ See letter from Sullivan.
---------------------------------------------------------------------------

    Consistent with the principles-based approach that we are applying 
to related person transaction disclosure, we are eliminating an 
instruction that, in the case of a related person transaction involving 
a purchase or sale of assets by or to the company otherwise than in the 
ordinary course of business, called for specific disclosure of the cost 
of the assets to the purchaser, and if acquired within two years of the 
transaction, the cost of the assets to the seller and related 
information about the price of the assets. We note, however, that if 
such information is material under the revised standards of Item 
404(a), because, for example, the recent purchase price to the related 
person is materially less than the sale price to the company, or the 
sale price to the related person is materially more than the recent 
purchase price to the company, disclosure of such prior purchase price 
and related information about the prices could be required.
    Prior to adoption of today's amendments, disclosure was required 
under Item 404(c) regarding amounts possibly owed to the company under 
Section 16(b) of the Exchange Act.\443\ We believe that the purpose of 
related person transaction disclosure differs from the purpose of 
Section 16(b), and one commenter expressed support for eliminating this 
requirement.\444\ Accordingly, the rule amendments eliminate this 
former Section 16(b)-related disclosure requirement.
---------------------------------------------------------------------------

    \443\ This requirement had been set forth in Instruction 4 to 
Item 404(c) prior to these amendments.
    \444\ See letter from SCSGP.
---------------------------------------------------------------------------

3. Exceptions
    Some categories of transactions do not fall within the principle 
for disclosure

[[Page 53201]]

and therefore Item 404(a) as amended includes disclosure exceptions 
that we believe are consistent with our principles-based approach.\445\ 
The first category of transactions involves compensation. Disclosure of 
compensation to an executive officer will not be required if:
---------------------------------------------------------------------------

    \445\ Instructions 4, 5, 6 and 7 to Item 404(a).
---------------------------------------------------------------------------

    <bullet> The compensation is reported pursuant to Item 402 of 
Regulation S-K; or
    <bullet> The executive officer is not an immediate family member 
and such compensation would have been reported under Item 402 as 
compensation earned for services to the company if the executive 
officer was a named executive officer, and such compensation had been 
approved, or recommended to the board of directors of the company for 
approval, by the compensation committee of the board of directors (or 
group of independent directors performing a similar function) of the 
company.\446\
---------------------------------------------------------------------------

    \446\ Instruction 5.a. to Item 404(a).
---------------------------------------------------------------------------

    As proposed, this disclosure exception would have required 
compensation committee approval of an executive officer's compensation 
if that executive officer's compensation was not reported under Item 
402. However, one commenter noted that in accordance with listing 
standards, compensation committees may only need to recommend to the 
board of directors, rather than approve, the compensation of executive 
officers (other than the chief executive officer).\447\ We believe that 
it is appropriate for this disclosure exception to apply a standard 
that is consistent with the listing standards and we have thus modified 
this exception from the proposal accordingly. Finally, as proposed 
disclosure of compensation to a director will not be required if the 
compensation is reported pursuant to the director compensation 
disclosure requirement in Item 402(k).\448\
---------------------------------------------------------------------------

    \447\ See letter from NYCBA.
    \448\ Instruction 5.b. to Item 404(a).
---------------------------------------------------------------------------

    As we explained in the Proposing Release, since the disclosure 
either would be reported under Item 402, or would not be required under 
Item 402, we do not believe that these particular compensation 
transactions fall within our Item 404 disclosure principle, or they 
will have already been disclosed. Transactions involving compensation 
that do not fall within these exceptions, such as compensation of 
immediate family members, are within the scope of the principle for 
disclosure in amended Item 404(a).\449\ These exceptions thus clarify 
the limited situations in which disclosure of compensation to related 
persons is not required under Item 404.
---------------------------------------------------------------------------

    \449\ One commenter believed that the proposals would have 
eliminated disclosure of related person transactions involving the 
employment of immediate family members. See letter from CRPTF. Item 
404(a), as amended, continues to require disclosure of these types 
of related person transactions when the threshold for disclosure has 
been met and the immediate family member has or will have a direct 
or indirect material interest.
---------------------------------------------------------------------------

    The second category of transactions involves three types of 
situations that we believe do not raise the potential issues underlying 
our principle for disclosure. First, in the case of transactions 
involving indebtedness, as proposed we have adopted amendments so that 
the following items of indebtedness may be excluded from the 
calculation of the amount of indebtedness and need not be disclosed 
because they do not have the potential to impact the parties as do the 
transactions for which disclosure is required: Amounts due from the 
related person for purchases of goods and services subject to usual 
trade terms, for ordinary business travel and expense payments and for 
other transactions in the ordinary course of business.\450\ Also, in 
the case of a transaction involving indebtedness, the amendments 
provide, as proposed, that if the lender is a bank, savings and loan 
association, or broker-dealer extending credit under Federal Reserve 
Regulation T \451\ and the loans are not disclosed as nonaccrual, past 
due, restructured or potential problems,\452\ disclosure under 
paragraph (a) of Item 404 may consist of a statement, if correct, that 
the loans to such persons satisfied the following conditions:
---------------------------------------------------------------------------

    \450\ Instruction 4.a. to Item 404(a), which is based on 
Instruction 2 to Item 404(c) as it was stated prior to today's 
amendments.
    \451\ 12 CFR part 220.
    \452\ See Item III.C.1. and 2. of Industry Guide 3, Statistical 
Disclosure by Bank Holding Companies [17 CFR 229.802(c)].
---------------------------------------------------------------------------

    <bullet> They were made in the ordinary course of business;
    <bullet> They were made on substantially the same terms, including 
interest rates and collateral, as those prevailing at the time for 
comparable loans with persons not related to the lender; and
    <bullet> They did not involve more than the normal risk of 
collectibility or present other unfavorable features.\453\
---------------------------------------------------------------------------

    \453\ Instruction 4.c. to Item 404(a).
---------------------------------------------------------------------------

    This exception is based on the exception that was included in 
Instruction 3 to Item 404(c) prior to these amendments, and has been 
modified as proposed to be more consistent with the prohibition of the 
Sarbanes-Oxley Act on personal loans to officers and directors.\454 \
---------------------------------------------------------------------------

    \454\ Specifically, the language that was in Instruction 3 to 
paragraph (c) of Item 404 prior to these amendments has been 
modified to replace the reference ``comparable transactions with 
other persons'' with the phrase ``comparable loans with persons not 
related to the lender.''
---------------------------------------------------------------------------

    Second, we are adopting as proposed an instruction indicating that 
a person who has a position or relationship with a firm, corporation, 
or other entity that engages in a transaction with the company shall 
not be deemed to have an indirect material interest within the meaning 
of paragraph (a) of Item 404 if:
    <bullet> The interest arises only: (i) From the person's position 
as a director of another corporation or organization that is a party to 
the transaction; or (ii) from the direct or indirect ownership by such 
person and all other related persons, in the aggregate, of less than a 
ten percent equity interest in another person (other than a 
partnership) which is a party to the transaction; or (iii) from both 
such position and ownership; or
    <bullet> The interest arises only from the person's position as a 
limited partner in a partnership in which the person and all other 
related persons, have an interest of less than ten percent, and the 
person is not a general partner of and does not have another position 
in the partnership.\455 \
---------------------------------------------------------------------------

    \455\ Instruction 6 to Item 404(a). This amendment is based on 
the language that was in parts A and B of Instruction 8 to Item 
404(a) prior to these amendments. This amendment omits the portion 
of that instruction (Instruction 8.C.) regarding interests arising 
solely from holding an equity or a creditor interest in a person 
other than the company that is a party to the transaction, when the 
transaction is not material to the other person. This exception may 
have resulted in inappropriate non-disclosure of transactions 
without regard to whether they were material to the company. In 
addition, we are eliminating the language that had been set forth in 
Instruction 6 to Item 404(a) prior to these amendments, which had 
covered a subset of transactions now covered by Instruction 6, as 
amended, and therefore was duplicative.
---------------------------------------------------------------------------

    Finally, disclosure will not be required under paragraph (a) of 
Item 404 in three other types of circumstances. First, disclosure will 
not be required under paragraph (a) of Item 404 as to any transaction 
where the rates or charges involved in the transaction are determined 
by competitive bids, or the transaction involves the rendering of 
services as a common or contract carrier, or public utility, at rates 
or charges fixed in conformity with law or governmental authority.\456\ 
We had proposed to eliminate this exception because we considered such 
bright-line presumptions as inconsistent with our principles-based 
approach to the rule. We are persuaded, however, by a commenter who 
indicated that the prior

[[Page 53202]]

exception embodied a conclusion that the terms of these types of 
transactions would likely not be influenced by the related persons and 
therefore should be excluded as not material.\457\ As a result, the 
instruction is retained in the rule as adopted.
---------------------------------------------------------------------------

    \456\ Instruction 7.a. to Item 404(a).
    \457\ Letter from SCSGP.
---------------------------------------------------------------------------

    Second, disclosure need not be provided under paragraph (a) of Item 
404 if the transaction involves services as a bank depositary of funds, 
transfer agent, registrar, trustee under a trust indenture, or similar 
services.\458\ We had proposed to eliminate this exception. We are 
persuaded by commenters' concerns that eliminating this exception may 
be detrimental to financial institutions and may not result in 
additional meaningful disclosure.\459\ Accordingly, we are retaining 
this exception.
---------------------------------------------------------------------------

    \458\ Instruction 7.b. to Item 404(a).
    \459\ See, e.g., letters from American Bankers Association 
(``American Bankers''); Compass Bancshares; and Whitney Holding 
Corporation (``Whitney Holding'').
---------------------------------------------------------------------------

    Third, we are adopting an exception indicating that disclosure need 
not be provided pursuant to paragraph (a) of Item 404 if the interest 
of the related person arises solely from the ownership of a class of 
equity securities of the company and all holders of that class of 
equity securities of the company received the same benefit on a pro 
rata basis.\460\ Commenters expressed concern that our proposal to 
eliminate the former exception \461\ would require disclosure if a 
related person receives over $120,000 in dividends on company stock in 
a year, even though those dividends are paid on the same terms as for 
all other stockholders.\462\ We are persuaded by the commenters that 
related person transaction disclosure is not necessary for transactions 
where a related person receives pro rata dividends or returns on the 
ownership of equity securities, and therefore we have adopted an 
instruction to provide an exception from disclosure in these limited 
circumstances.\463\
---------------------------------------------------------------------------

    \460\ Instruction 7.c. to Item 404(a).
    \461\ Before the adoption of these amendments, Instruction 7.C. 
to Item 404(a) provided that no information was required under Item 
404(a) for transactions where the interest of the related person 
arose solely from the ownership of securities of the company and 
such person received no extra or special benefit not shared on a pro 
rata basis.
    \462\ See, e.g., letters from SCSGP and Sullivan.
    \463\ The instruction as adopted differs from the language of 
Instruction 7.C. prior to these amendments in that it is limited to 
ownership of a class of equity securities rather than securities 
generally and focuses on benefits being provided pro rata to the 
holders of that class rather than the absence of certain extra or 
special benefits.
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    Some commenters requested that we create a new exception for 
transactions undertaken in the ordinary course of business of the 
company and conducted on the same terms that the company offers 
generally in transactions with persons who are not related 
persons.\464\ Former Item 404(a) did not include such an ``ordinary 
course of business'' disclosure exception, and we are not persuaded 
that it should be expanded to include one. In this regard, we note that 
transactions which should properly be disclosed under Item 404(a) might 
be excluded under an ordinary course of business exception, such as 
employment of immediate family members of officers and directors. 
However, we note that whether a transaction which was not material to 
the company or the other entity involved and which was undertaken in 
the ordinary course of business of the company and on the same terms 
that the company offers generally in transactions with persons who are 
not related persons, are factors that could be taken into consideration 
when performing the materiality analysis for determining whether 
disclosure is required under the principle for disclosure.
---------------------------------------------------------------------------

    \464\ See, e.g., letters from SCSGP and Sullivan.
---------------------------------------------------------------------------

B. Procedures for Approval of Related Person Transactions

    We are adopting a new requirement for disclosure of the policies 
and procedures established by the company and its board of directors 
regarding related person transactions substantially as proposed. State 
corporate law and increasingly robust corporate governance practices 
support or provide for such procedures in connection with transactions 
involving conflicts of interest.\465\ We believe that this type of 
information may be material to investors, and our amendments therefore 
require disclosure of policies and procedures regarding related person 
transactions under paragraph (b) of Item 404, as amended.
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    \465\ Del. Code Ann. tit. 8, Sec.  144 (2004). See also NYSE, 
Inc. Listed Company Manual Section 307.00 and NASD Manual, 
Marketplace Rules 4350(h) and 4360(i).
---------------------------------------------------------------------------

    Specifically, the amendments require a description of the company's 
policies and procedures for the review, approval or ratification of 
transactions with related persons that are reportable under paragraph 
(a) of Item 404. The description must include the material features of 
these policies and procedures that are necessary to understand them. 
While the material features of such policies and procedures will vary 
depending on the particular circumstances, examples of such features 
may include, in given cases, among other things:
    <bullet> The types of transactions that are covered by such 
policies and procedures, and the standards to be applied pursuant to 
such policies and procedures;
    <bullet> The persons or groups of persons on the board of directors 
or otherwise who are responsible for applying such policies and 
procedures; and
    <bullet> Whether such policies and procedures are in writing and, 
if not, how such policies and procedures are evidenced.
    Item 404(b) requires identification of any transactions required to 
be reported under paragraph (a) of Item 404 where the company's 
policies and procedures do not require review, approval or ratification 
or where such policies and procedures have not been followed.
    One commenter expressed concern that it is not reasonable or 
customary for a company's related person transaction policy to extend 
to transactions occurring before an individual becomes affiliated with 
a company.\466\ In response, we have added an instruction indicating 
that disclosure need not be provided pursuant to paragraph (b) of Item 
404 regarding any transaction that occurred at a time before the 
related person had the relationship that would trigger disclosure under 
Item 404(a), if the transaction did not continue after the related 
person had that relationship.\467\
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    \466\ See letter from NYCBA.
    \467\ See Instruction to Item 404(b). For example, disclosure 
would not be required under Item 404(b) in a company's Form 10-K for 
the fiscal year ended December 31, 2005 of a transaction that 
occurred in March 2005 between the company and an immediate family 
member of a person who later became a director of the company in 
August 2005. However, disclosure would be required under Item 404(a) 
in this circumstance. This Instruction to Item 404(b) does not apply 
to transactions of significant shareholders of the company, because 
Item 404(a) does not require disclosure of transactions with 
significant shareholders that are completed before they become 
significant shareholders.
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C. Promoters and Control Persons

    As proposed and adopted, the amendments require a company to 
provide disclosure regarding the identity of promoters and its 
transactions with those promoters if the company had a promoter at any 
time during the last five fiscal years.\468\ The disclosure will be 
required in Securities Act registration statements on Form S-1 or on 
Form SB-2 and Exchange Act Form 10 or Form 10-SB. The disclosure 
includes:
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    \468\ Item 404(c).
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    <bullet> The names of the promoters;
    <bullet> The nature and amount of anything of value received by 
each promoter from the company and the nature and amount

[[Page 53203]]

of any consideration received by the company; and
    <bullet> Additional information regarding any assets acquired by 
the company from a promoter.
    The amendments are consistent with the previous disclosure 
requirements regarding promoters. However, prior to these amendments 
this disclosure was not required if the company had been organized more 
than five years ago, even if the company otherwise had a promoter 
within the last five years. Our staff's experience in reviewing 
registration statements, especially of smaller companies, suggests that 
the more appropriate five-year test for which the disclosure should be 
provided relates to the period of time during which the company had a 
promoter, as our revision provides, rather than the date of 
organization of the company.\469\ We are also requiring the same 
disclosure that is required for promoters for any person who acquired 
control, or is part of a group that acquired control, of an issuer that 
is a shell company.\470\ We are revising the title of this item to 
include the term control persons in order to clarify the scope of the 
disclosure requirement.
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    \469\ We also adopt as proposed similar revisions to the 
disclosure requirement referencing promoters in Item 401(g)(1) of 
Regulation S-K. In addition, as proposed our revisions add Form SB-2 
to the list of registration statement forms in Item 404 for which 
promoter disclosure is required. While this revision updates the 
registration statement forms listed in Item 404, it does not change 
the promoter disclosure requirement of Form SB-2.
    \470\ Item 404(c)(2). The term ``group'' has the same meaning as 
in Exchange Act Rule 13d-5(b)(1) [17 CFR 240.13d-5(b)(1)], that is, 
any two or more persons that agree to act together for the purpose 
of acquiring, holding, voting or disposing of equity securities of 
an issuer. The term ``shell company'' is defined in Securities Act 
Rule 405 and Exchange Act Rule 12b-2.
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D. Corporate Governance Disclosure

    We are consolidating our disclosure requirements regarding director 
independence and related corporate governance disclosure requirements 
under a single disclosure item and updating such disclosure 
requirements regarding director independence to reflect our current 
requirements and current listing standards.\471\ Prior to these 
amendments, Item 404(b) had required disclosure of specific business 
relationships between a director or nominee for director and the 
company that could bear on the ability of directors and nominees for 
director to exercise independent judgment in the performance of their 
duties. We proposed to eliminate the disclosure requirement that was 
stated under paragraph (b) of Item 404 in favor of more direct 
disclosure about the determination of the independence of directors and 
nominees for director, including information supplementing the amended 
related person transaction disclosure that would permit qualitative 
assessment of those independence determinations. While one commenter 
suggested that we retain a revised version of paragraph (b) to Item 404 
as it was stated prior to these amendments,\472\ we continue to believe 
that disclosure focused on the determinations made regarding director 
independence is the appropriate approach. The comprehensive director 
independence disclosure requirement that we are adopting today 
recognizes the significant development of independence requirements 
since the disclosure requirements in former paragraph (b) of Item 404 
were originally adopted. As directed by the Sarbanes-Oxley Act of 2002, 
we adopted a rule requiring national securities exchanges and national 
securities associations to adopt listing standards requiring 
independent audit committees meeting the standards of our rule.\473\ 
Further, in 2003 and 2004, we approved amendments to additional listing 
standards, including those of the New York Stock Exchange and 
Nasdaq,\474\ that imposed specific additional independence standards 
for boards of directors, and the compensation and nominating committees 
or persons performing similar functions. Each listed company (unless 
exempt) determines whether its directors and committee members are 
independent based on definitions that it adopts which, at a minimum, 
are required to comply with the listing standards applicable to the 
company.
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    \471\ Item 407 of Regulations S-K and S-B. As adopted, Item 407 
consolidates corporate governance disclosure requirements located in 
several places under our rules and the principal markets' listing 
standards, including in particular requirements that had been 
specified in Items 306, 401(h), (i) and (j), 402(j) and 404(b) of 
Regulation S-K and Item 7 of Schedule 14A under the Exchange Act 
prior to these amendments. We are not making any changes to the 
substance of the requirements under Item 306, Item 401(h), (i) or 
(j), or Item 402(j) as part of this consolidation. However, as 
proposed, Item 407 reorders some provisions that were specified in 
Item 306 and reflects the relevant Public Company Accounting 
Oversight Board rules. See PCAOB Rulemaking: Public Company 
Accounting Oversight Board; Order Approving Proposed Technical 
Amendments to Interim Standards Rules, Release No. 34-49624 (Apr. 
28, 2004) [69 FR 24199]; and Order Regarding Section 101(d) of the 
Sarbanes-Oxley Act of 2002, Release No. 33-8223 (Apr. 25, 2003) [68 
FR 2336].
    \472\ Letter from Fenwick.
    \473\ See Section 10A(m) of the Exchange Act [15 U.S.C. 78j-
1(m)]; Exchange Act Rule 10A-3 [17 CFR 240.10A-3]; and Standards 
Relating to Listed Company Audit Committees, Release No. 33-8220 
(Apr. 9, 2003) (the ``Audit Committee Release'') [68 FR 18788].
    \474\ NASD and NYSE Listing Standards Release. The other 
exchanges have also adopted corporate governance listing standards. 
See Order Granting Approval of Proposed Rule Change by the American 
Stock Exchange LLC and Notice of Filing and Order Granting 
Accelerated Approval of Amendment No. 2 Relating to Enhanced 
Corporate Governance Requirements Applicable to Listed Companies, 
Release No. 34-48863 (Dec. 1, 2003) [68 FR 68432]; Notice of Filing 
and Order Granting Accelerated Approval of Proposed Rule Change and 
Amendment Nos. 1 and 2 Thereto by the Philadelphia Stock Exchange, 
Inc. Relating to Corporate Governance, Release No. 34-49881 (June 
17, 2004) [69 FR 35408]; Order Approving Proposed Rule Change and 
Notice of Filing and Order Granting Accelerated Approval to 
Amendment Nos. 2 and 3 to the Proposed Rule Change by the Chicago 
Stock Exchange, Inc. Relating to Governance of Issuers on the 
Exchange, Release No. 34-49911 (June 24, 2004) [69 FR 39989]; Notice 
of Filing and Order Granting Accelerated Approval of Proposed Rule 
Change by the Boston Stock Exchange, Inc. to Amend Chapter XXVII, 
Section 10 of the Rules of the Board of Governors by Adding 
Requirements Concerning Corporate Governance Standards of Exchange-
Listed Companies, Release No. 34-49955 (July 1, 2004) [69 FR 41555]; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change and Amendment Nos. 1 and 2 Thereto by the Chicago Board 
Options Exchange, Incorporated, Relating to Enhanced Corporate 
Governance Requirements for Listed Companies, Release No. 34-49995 
(July 9, 2004) [69 FR 42476]; Notice of Filing and Order Granting 
Accelerated Approval of Proposed Rule Change and Amendment Nos. 1 
and 2 Thereto by National Stock Exchange Relating to Corporate 
Governance, Release No. 34-49998 (July 9, 2004) [69 FR 42788]; and 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
by the Pacific Exchange, Inc. to Amend the Corporate Governance 
Requirements for PCX Listed Companies, Release No. 34-50677 (Nov. 
16, 2004) [69 FR 68205].
    The Commission has previously received a rulemaking petition 
submitted by the AFL/CIO, which requested the Commission to amend 
Items 401 and 404 of Regulation S-K to require disclosure about 
transactions with non-profit organizations (letter dated Dec. 12, 
2001 from Richard Trumka, Secretary-Treasurer, AFL/CIO, File No. 4-
499, available at www.sec.gov/rules/petitions/petn4-499.pdf) and a 
rulemaking petition submitted by the Council of Institutional 
Investors, which requested amendments to Item 401 of Regulation S-K 
to require disclosure of certain transactions between directors, 
executive officers and nominees (letter dated Oct. 1, 1997, as 
amended Oct. 19, 1998, from Sarah A.B. Teslik, Executive Director, 
Council of Institutional Investors, File No. 4-404). We believe 
these requests have in large part been addressed by revised listing 
standards instituted by the exchanges, so that we are not now taking 
additional action under these petitions.
---------------------------------------------------------------------------

    The amendments we are adopting today, substantially as proposed, 
include a disclosure requirement to identify the independent directors 
of the company (and, in the case of disclosure in proxy or information 
statements relating to the election of directors, nominees for 
director) under the definition for determining board independence 
applicable to it.\475\ The amendments also require disclosure of any 
members of the compensation, nominating and audit committees that the 
company has not identified as independent under the definition of

[[Page 53204]]

independence for that board committee applicable to it.\476\
---------------------------------------------------------------------------

    \475\ Item 407(a).
    \476\ Id. If the company does not have a separately designated 
compensation, nominating or audit committee or committee performing 
similar functions, it must provide this disclosure regarding 
independence under committee independence standards with respect to 
all members of the board of directors.
---------------------------------------------------------------------------

    More specifically, if the company is an issuer \477\ with 
securities listed, or for which it has applied for listing, on a 
national securities exchange \478\ or in an automated inter-dealer 
quotation system of a national securities association \479\ which has 
requirements that a majority of the board of directors be independent, 
Item 407(a) requires disclosure of those directors and director 
nominees that the company identifies as independent (and committee 
members not identified as independent), using the definition for 
independence for directors (and for committee members) that it uses for 
determining compliance with the applicable listing standards. If the 
company is not a listed issuer, we are requiring disclosure of those 
directors and director nominees that the company identifies as 
independent (and committee members not identified as independent) using 
the definition for independence for directors (and for committee 
members) of a national securities exchange or a national securities 
association, specified by the company. The company will be required to 
apply the same definition consistently to all directors and also to use 
the independence standards of the same national securities exchange or 
national securities association for purposes of determining the 
independence of members of the compensation, nominating and audit 
committees.\480\
---------------------------------------------------------------------------

    \477\ Under the amendments, ``listed issuer'' has the same 
meaning as in Exchange Act Rule 10A-3.
    \478\ Under the amendments, ``national securities exchange'' 
means a national securities exchange registered pursuant to Section 
6(a) of Exchange Act [15 U.S.C. 78f(a)].
    \479\ Under the amendments, ``inter-dealer quotation system'' 
means an automated inter-dealer quotation system of a national 
securities association registered pursuant to Section 15A(a) of the 
Exchange Act [15 U.S.C. 78o-3(a)], and a ``national securities 
association'' means a national securities association registered 
pursuant to Section 15A(a) of the Exchange Act [15 U.S.C. 78o-3(a)] 
that has been approved by the Commission (as that definition may be 
modified or supplemented). Inter-dealer quotation systems such as 
the OTC Bulletin Board, the Pink Sheets and the Yellow Sheets, which 
do not maintain or impose listing standards and do not have listing 
agreements or arrangements with the issuers whose securities are 
quoted through them, are not within this definition. See Section 
II.F.1. in the Audit Committee Release.
    \480\ Similar disclosure had been required pursuant to Item 
7(d)(2)(ii) and Item 7(d)(3)(iv) of Schedule 14A prior to these 
amendments. As part of our consolidation of these provisions into 
new Item 407, we adopt revised language for these provisions that 
reflects the general approach discussed above with regard to 
disclosure of director independence for board and committee 
purposes.
---------------------------------------------------------------------------

    One commenter pointed out the rule proposals did not make clear 
what disclosure would be required for listed issuers that relied upon 
an exemption from independence requirements, most notably a 
``controlled company'' exemption.\481\ To clarify the disclosure 
required in this situation, we added a requirement to the amendments 
that if the company is a listed issuer whose securities are listed on a 
national securities exchange or in an inter-dealer quotation system 
which has requirements that a majority of the board of directors be 
independent, and also has exemptions to those requirements (for board 
or committee member independence) upon which the company relied, the 
company must disclose the exemption relied upon and explain the basis 
for its conclusion that such exemption is applicable.\482\ Similar 
disclosure is required for those companies that are not listed issuers 
but would qualify for an exemption under the listing standards 
selected. In addition, this instruction clarifies that small business 
issuers listed on exchanges where at least half of the members of the 
board of directors, rather than a majority, are required to be 
independent must comply with the disclosure requirements specified in 
Item 407(a).\483\
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    \481\ Letter from NYCBA.
    \482\ Instruction 1 to Item 407(a).
    \483\ See Section 121.B.(2)(c) of the American Stock Exchange 
Company Guide; paragraph (g) of Chapter XXVII, Listed Securities, 
Section 10, Corporate Governance, of the Rules of the Board of 
Governors of the Boston Stock Exchange; and Rule 19(a)(1) of Article 
XXVIII, Listed Securities, of the Chicago Stock Exchange Rules.
---------------------------------------------------------------------------

    The amendments require as proposed that an issuer which has adopted 
definitions of independence for directors and committee members must 
disclose whether those definitions are posted on the company's Web 
site, and if they are not include the definitions as an appendix to the 
company's proxy or information statement at least once every three 
years or if the policies have been materially amended since the 
beginning of the company's last fiscal year.\484\ Further, if the 
policies are not on the company's Web site, or included as an appendix 
to the company's proxy or information statement, the company must 
disclose in which of the prior fiscal years the policies were included 
in the company's proxy or information statement.
---------------------------------------------------------------------------

    \484\ Item 407(a)(2).
---------------------------------------------------------------------------

    In addition, the amendments require, for each director or director 
nominee identified as independent, a description, by specific category 
or type, of any transactions, relationships or arrangements not 
disclosed pursuant to paragraph (a) of Item 404 that were considered by 
the board of directors of the company in determining that the 
applicable independence standards were met. Under our proposals, 
disclosure of the specific details of each such transaction, 
relationship or arrangement would have been required. Several 
commenters objected to providing this disclosure, given the potential 
for extensive detail about these types of transactions, relationships 
or arrangements, and some suggested instead providing disclosure by 
category or type of transaction.\485\ In response to the commenters, we 
have revised the disclosure requirement to permit transactions, 
relationships or arrangements of each director or director nominee to 
be described by the specific category or type. Consistent with the rule 
proposals, the amended rule requires that the disclosure be made on a 
director by director basis, with separate disclosure of categories or 
types of transactions, relationships or arrangements for each director 
and director nominee. We have also adopted an instruction indicating 
that the description of the category or type must be sufficiently 
detailed so that the nature of the transactions, relationships or 
arrangements is readily apparent.\486\
---------------------------------------------------------------------------

    \485\ See, e.g., letters from Chamber of Commerce; FSR; and 
Sidley Austin.
    \486\ Instruction 3 to Item 407(a).
---------------------------------------------------------------------------

    As proposed, this independence disclosure is required for any 
person who served as a director of the company during any part of the 
year for which disclosure must be provided,\487\ even if the person no 
longer serves as director at the time of filing the registration 
statement or report or, if the information is in a proxy statement, if 
the director's term of office as a director will not continue after the 
meeting. In this regard, we believe that the independence status of a 
director is material while the person is serving as director, and not 
just as a matter of reelection.\488\
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    \487\ Instruction 2 to Item 407(a) has been revised to clarify 
this requirement. As proposed, disclosure under these amendments 
will not be required for persons no longer serving as a director in 
registration statements under the Securities Act or the Exchange Act 
filed at a time when the company is not subject to the reporting 
requirements of Exchange Act Section 13(a) or 15(d). As proposed, 
disclosure will not be required of anyone who was a director only 
during the time period before the company made its initial public 
offering if he or she was no longer a director at the time of the 
offering.
    \488\ For this reason, we are not incorporating the concept 
previously found in Instruction 4 to Item 404(b) into Item 407(a) as 
adopted.

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[[Page 53205]]

    We also amend the disclosure requirements regarding the audit 
committee and nominating committee applicable prior to these amendments 
in order to eliminate duplicative committee member independence 
disclosure and to update the required audit committee charter 
disclosure requirements for consistency with the more recently adopted 
nominating committee charter disclosure requirements.\489\ As a result, 
as proposed the audit committee charter will no longer be required to 
be delivered to security holders if it is posted on the company's Web 
site.\490\ We also are moving the disclosure required by Section 407 of 
the Sarbanes-Oxley Act regarding audit committee financial experts to 
Item 407, although as proposed we are not making any substantive 
changes to that requirement.\491\
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    \489\ However, we are not revising the provision that the Audit 
Committee Report is furnished and not filed.
    \490\ Item 407(d)(1) and Instruction 2 to Item 407.
    \491\ Item 407(d)(5).
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    The amendments require new disclosures regarding the compensation 
committee that are similar to the disclosures required regarding audit 
and nominating committees of the board of directors.\492\ The company 
must state whether the compensation committee has a charter, and if it 
does make the charter available through its Web site or proxy materials 
in one of the ways that the audit and nominating committee charters may 
be made available. As proposed, the company will be required to 
describe its processes and procedures for the consideration and 
determination of executive and director compensation including:
---------------------------------------------------------------------------

    \492\ These compensation committee disclosure requirements are 
included in Item 407(e).
---------------------------------------------------------------------------

    <bullet> The scope of authority of the compensation committee (or 
persons performing the equivalent functions);
    <bullet> The extent to which the compensation committee (or persons 
performing the equivalent functions) may delegate any authority to 
other persons, specifying what authority may be so delegated and to 
whom;
    <bullet> Any role of executive officers in determining or 
recommending the amount or form of executive and director compensation; 
and
    <bullet> Any role of compensation consultants in determining or 
recommending the amount or form of executive and director compensation, 
identifying such consultants, stating whether such consultants are 
engaged directly by the compensation committee (or persons performing 
the equivalent functions) or any other person, describing the nature 
and scope of their assignment, and the material elements of the 
instructions or directions given to the consultants with respect to the 
performance of their duties under the engagement.
    Several commenters viewed this item as redundant with the 
Compensation Discussion and Analysis required under Item 402, and 
suggested that they be combined.\493\ While this item and the 
Compensation Discussion and Analysis both involve the determination of 
executive officer compensation, they have different focuses. Item 
407(e) focuses on the company's corporate governance structure that is 
in place for considering and determining executive and director 
compensation--such as the scope of authority of the compensation 
committee and others in making these determinations, as well as the 
resources utilized by the committee. In contrast, the Compensation 
Discussion and Analysis focuses on material information about the 
compensation policies and objectives of the company and seeks to put 
the quantitative disclosure about named executive officer compensation 
into perspective. We believe it is appropriate to discuss each of these 
matters separately and, accordingly, we have not combined them.
---------------------------------------------------------------------------

    \493\ See, e.g., letters from J. Brill 1; Hewitt; Mercer; Pearl 
Meyer & Partners; and SCSGP.
---------------------------------------------------------------------------

    As for the required disclosure regarding compensation consultants, 
some commenters objected to the proposed requirements,\494\ while other 
commenters suggested expanding the requirement to include, among other 
things, a discussion of the work performed by the compensation 
consultant for the company or others.\495\ In addition, some commenters 
suggested deleting the requirement in proposed Item 407(e) that 
companies identify any executive officer of the company that the 
compensation consultants contacted in carrying out their 
assignment.\496\ We continue to believe that the involvement of 
compensation consultants and their interaction with the compensation 
committee is material information that should be required. However, we 
are persuaded that disclosure regarding any executive officers of the 
company that the compensation consultants contacted in carrying out 
their assignment is not necessary. Therefore, we are adopting the 
compensation consultant disclosure requirement in Item 407(e) as 
proposed, except for the required disclosure regarding contacts with 
executive officers, which has not been adopted.\497\
---------------------------------------------------------------------------

    \494\ See, e.g., letters from Buck Consultants; Chamber of 
Commerce; Hewitt; Pearl Meyer & Partners; Mercer; and Steven Hall & 
Partners.
    \495\ See, e.g., letters from Brian Foley & Co.; 3C-Compensation 
Consulting Consortium; BCIMC; CFA Centre 1; Governance for Owners; 
Michelle Leder; James McFadden; Institutional Investor Group; SBAF; 
and Theodore Schlissel.
    \496\ See, e.g., letters from Compensia; FedEx Corporation; 
Hewitt; and Mercer.
    \497\ Under the rules as adopted, disclosure would also not be 
required under this Item if an employee of a consulting firm met 
with company management to work on matters not involving 
compensation. See letter from Hewitt.
---------------------------------------------------------------------------

    Further, the amendments consolidate into this compensation 
committee disclosure requirement the disclosure requirements regarding 
compensation committee interlocks and insider participation in 
compensation decisions, as proposed.\498\
---------------------------------------------------------------------------

    \498\ Prior to these amendments, disclosure regarding 
compensation committee interlocks and insider participation in 
compensation decisions was required by Item 402(j).
---------------------------------------------------------------------------

    Finally, for registrants other than registered investment 
companies, the amendments eliminate an existing proxy disclosure 
requirement regarding directors who have resigned or declined to stand 
for re-election \499\ which is no longer necessary since it has been 
superseded by a disclosure requirement in Form 8-K.\500\ For registered 
investment companies, which do not file current reports on Form 8-K, 
the requirement has been moved to Item 22(b) of Schedule 14A.\501\ Also 
as proposed, the amendments combine various proxy disclosure 
requirements regarding board meetings and committees into one 
location.\502\ In addition, we are adopting as proposed two 
instructions to Item 407 to combine repetitive provisions, one relating 
to independence disclosure, and the other relating to board committee 
charters.\503\
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    \499\ Prior to these amendments, this disclosure was required by 
Item 7(g) of Schedule 14A.
    \500\ Item 5.02(a) of Form 8-K.
    \501\ Item 22(b)(17) of Schedule 14A.
    \502\ Item 407(b) includes disclosure requirements previously 
specified in paragraphs (d)(1), (f), and (h)(3) of Item 7 of 
Schedule 14A.
    \503\ Instructions 1 and 2 to Item 407. Instruction 2 also 
includes as proposed a requirement that the charter be provided if 
it is materially amended.
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E. Treatment of Specific Types of Issuers

1. Small Business Issuers
    We are adopting amendments to Item 404 of Regulation S-B 
substantially as proposed. Amended Item 404 of Regulation S-B is 
substantially similar to amended Item 404 of Regulation S-K, except for 
the following two matters:
    <bullet> Paragraph (b) of Item 404 of Regulation S-K relating to 
policies and procedures for reviewing related person transactions is 
not included in Regulation S-B, and
    <bullet> Regulation S-B provides for a disclosure threshold of the 
lesser of

[[Page 53206]]

$120,000 or one percent of the average of the small business issuer's 
total assets at year-end for the last three completed fiscal 
years,\504\ to require disclosure for small business issuers that may 
have material related person transactions even though smaller than the 
absolute dollar amount of $120,000.
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    \504\ We are revising Item 404(a) of Regulation S-B from the 
proposal to clarify that the determination of a small business 
issuer's total assets for purposes of this Item shall be made as of 
the issuer's fiscal year-end for its last three completed fiscal 
years.
---------------------------------------------------------------------------

    Both amended items consist of disclosure requirements regarding 
related person transactions and promoters. These provisions of Item 404 
of Regulation S-B are substantially identical to those of Item 404 of 
Regulation S-K, except for certain changes conforming amended Item 404 
of Regulation S-B to former Item 404 of Regulation S-B. These changes 
consist of the following:
    <bullet> Retaining in amended Item 404 of Regulation S-B an 
instruction in former Item 404 of Regulation S-B regarding underwriting 
discounts and commissions;\505\ and
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    \505\ Instruction 8 to Item 404(a) of Regulation S-B.
---------------------------------------------------------------------------

    <bullet> Not including an instruction in amended Item 404 of 
Regulation S-B regarding the treatment of foreign private issuers that 
is included in amended Item 404 of Regulation S-K.\506\
---------------------------------------------------------------------------

    \506\ This is consistent with the requirements of Regulation S-B 
prior to these amendments.
---------------------------------------------------------------------------

    The two year time period for disclosure embodied in Item 404 of 
Regulation S-B prior to these amendments was retained in the principle 
for disclosure in proposed Item 404(a) of Regulation S-B. Amended Item 
404(a) of Regulation S-B continues to require two years of disclosure, 
but does so by including an instruction to Item 404(a) of Regulation S-
B \507\ requiring a second year of disclosure, rather than by including 
the two year time period in the principle for disclosure in Item 404(a) 
of Regulation S-B as was proposed. This change from the proposal 
clarifies that for purposes of applying the definition of ``related 
person'' to determine whether disclosure is required of a transaction 
that occurred prior to a person having the relationship that resulted 
in the person becoming a related person, a one year time period should 
be used rather than a two year time period.\508\ This change from the 
proposal also results in the structure of Item 404(a) of Regulation S-B 
more closely resembling the structure of Item 404(a) of Regulation S-K, 
particularly in situations where Item 404(a) of Regulation S-K applies 
to time periods longer than one year.
---------------------------------------------------------------------------

    \507\ Instruction 9 to Item 404(a) of Regulation S-B.
    \508\ For example, if an employee had a material interest in a 
transaction with the small business issuer which occurred in 
February 2005 and then became an executive officer in July 2005, 
disclosure would be required in the small business issuer's Form 10-
KSB for the fiscal year ended December 31, 2005. However, if the 
transaction had occurred in February 2004, disclosure would not be 
required in the small business issuer's 2005 Form 10-KSB.
---------------------------------------------------------------------------

    In addition, amended Item 404 of Regulation S-B retains a paragraph 
requiring disclosure of a list of all parents of the small business 
issuer showing the basis of control and as to each parent, the 
percentage of voting securities owned or other basis of control by the 
small business issuer's immediate parent, if any.\509\
---------------------------------------------------------------------------

    \509\ Item 404(b) of Regulation S-B.
---------------------------------------------------------------------------

    One conforming change that we are not making to Regulation S-B, 
however, concerns the calculation of a related person's interest in a 
given transaction. Prior to today's amendments, Item 404(a) of 
Regulation S-B differed from Item 404(a) of Regulation S-K with respect 
to, among other things, the calculation of the dollar value of a 
person's interest in a related person transaction. Prior to these 
amendments, Instruction 4 to Item 404(a) of Regulation S-K had 
specifically provided that the amount of such interest was to be 
computed without regard to the amount of profit or loss involved in the 
transaction. In contrast, Item 404(a) of Regulation S-B contained no 
such instruction prior to these amendments. We are adopting amendments 
as proposed so that the method of calculation of a related person's 
interest in a transaction will be the same for both Regulation S-B and 
Regulation S-K. We believe that differences, if any, between the types 
of transactions that small business issuers may engage in with related 
persons as compared to transactions of larger issuers would not warrant 
a different approach for calculating a related person's interest in a 
transaction.
    As proposed, new Item 407 of Regulation S-K is substantially 
identical to new Item 407 of Regulation S-B,\510\ except that it would 
not require disclosure regarding compensation committee interlocks and 
insider participation in compensation decisions or the Compensation 
Committee Report, since Regulation S-B did not require disclosure of 
this information prior to adoption of these amendments.
---------------------------------------------------------------------------

    \510\ The requirements that were specified in paragraphs (e), 
(f), and (g) of Item 401 of Regulation S-B prior to these amendments 
are now specified in paragraphs (d)(5), (d)(4) and (c)(3), 
respectively, of Item 407 of Regulation S-B.
---------------------------------------------------------------------------

2. Foreign Private Issuers
    Before today's amendments, a foreign private issuer would be deemed 
to comply with Item 404 of Regulation S-K if it provided the 
information required by Item 7.B. of Form 20-F. The amendments retain 
this approach, but require that if more detailed information is 
otherwise made publicly available or required to be disclosed by the 
issuer's home jurisdiction or a market in which its securities are 
listed or traded, that same information must also be disclosed pursuant 
to Item 404.\511\
---------------------------------------------------------------------------

    \511\ Instruction 2 to Item 404 of Regulation S-K.
---------------------------------------------------------------------------

3. Registered Investment Companies
    We are revising Items 7 and 22(b) of Schedule 14A, substantially as 
proposed, to reflect the reorganization that we have undertaken with 
respect to operating companies. Under the amendments, information that 
was required to be provided by registered investment companies under 
Item 7 prior to the amendments is instead required by Item 22(b).\512\ 
The requirements of Item 7 that prior to the amendments applied to 
registered investment companies regarding the nominating and audit 
committees, board meetings, the nominating process, and shareholder 
communications generally will be included in Item 22(b) by cross-
references to the appropriate paragraphs of new Item 407 of Regulation 
S-K.\513\ The substance of these requirements has not been altered. In 
addition, the revisions to Item 22(b) directly incorporate disclosures 
relating to the independence of members of

[[Page 53207]]

nominating and audit committees that are similar to those contained in 
new Item 407(a) of Regulation S-K and contained in Item 7 prior to the 
amendments.\514\ We are also adding instructions that are similar to 
new Instruction 1 to Item 407(a).\515\
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    \512\ Amendments to Item 7(e) of Schedule 14A. Business 
development companies will furnish the information required by Item 
7 of Schedule 14A, in addition to the information required by Items 
8 and 22(b) of Schedule 14A. See amendments to Items 7, 8, and 22(b) 
of Schedule 14A.
    \513\ Amendments to Items 22(b)(15)(i) and (ii)(A) and 
22(b)(16)(i) of Schedule 14A. Amended Item 22(b)(15)(i) requires the 
information required by new Items 407(b)(1) and (2) and (f), 
corresponding to the information that registered investment 
companies have been required to provide pursuant to Items 7(f) and 
7(h) prior to today's amendments. Amended Item 22(b)(15)(ii)(A) 
requires the information required by new Items 407(c)(1) and (2), 
corresponding to the information that registered investment 
companies have been required to provide pursuant to Items 7(d)(2)(i) 
and 7(d)(2)(ii) (other than the nominating committee independence 
disclosures required prior to today's amendments by Item 
7(d)(2)(ii)(C)). Amended Item 22(b)(16)(i) requires closed-end 
investment companies to provide the information required by new 
Items 407(d)(1) through (3), corresponding to the information that 
closed-end investment companies have been required to provide prior 
to today's amendments pursuant to Item 7(d)(3) (other than the audit 
committee independence disclosures required prior to today's 
amendments by Items 7(d)(3)(iv)(A)(1) and (B)).
    \514\ Amendments to Items 22(b)(15)(ii)(B) and (16)(ii) of 
Schedule 14A. Amended Item 22(b)(15)(ii)(B) requires disclosure 
about the independence of nominating committee members that is 
similar to those required by Item 7(d)(2)(ii)(C) prior to today's 
amendments and amended Item 22(b)(16)(ii) requires disclosure about 
the independence of audit committee members that is similar to those 
required by Items 7(d)(3)(iv)(A)(1) and (B) prior to today's 
amendments.
    \515\ Instruction to Item 22(b)(15)(ii)(B) of Schedule 14A; 
Instruction to Item 22(b)(16)(ii) of Schedule 14A.
---------------------------------------------------------------------------

    As proposed, we are also raising from $60,000 to $120,000 the 
threshold for disclosure of certain interests, transactions, and 
relationships of each director or nominee for election as director who 
is not or would not be an ``interested person'' of an investment 
company within the meaning of Section 2(a)(19) of the Investment 
Company Act.\516\ This disclosure is required in investment company 
proxy and information statements and registration statements. The 
increase in the disclosure threshold corresponds to the increase in the 
disclosure threshold for amended Item 404 from $60,000 to $120,000.
---------------------------------------------------------------------------

    \516\ Amendments to Items 22(b)(7), 22(b)(8), and 22(b)(9) of 
Schedule 14A; amendments to Items 12(b)(6), 12(b)(7), and 12(b)(8) 
of Form N-1A; amendments to Items 18.9, 18.10, and 18.11 of Form N-
2; amendments to Items 20(h), 20(i), and 20(j) of Form N-3.
---------------------------------------------------------------------------

F. Conforming Amendments

    The changes to Item 404 necessitate conforming amendments to other 
rules that refer specifically to Item 404.
1. Regulation Blackout Trading Restriction
    We are adopting, as proposed, conforming changes to Regulation 
Blackout Trading Restriction,\517\ also known as Regulation BTR, which 
we originally adopted to clarify the scope and operation of Section 
306(a) \518\ of the Sarbanes-Oxley Act of 2002 and to prevent evasion 
of the statutory trading restriction.\519\ Rule 100 of Regulation BTR 
defines terms used in Section 306(a) and Regulation BTR, including the 
term ``acquired in connection with service or employment as a director 
or executive officer.'' \520\ Under this definition as originally 
adopted, one of the specified methods by which a director or executive 
officer directly or indirectly acquires equity securities in connection 
with such service is an acquisition ``at a time when he or she was a 
director or executive officer, as a result of any transaction or 
business relationship described in paragraph (a) or (b) of Item 404 of 
Regulation S-K.'' \521\ To conform this provision of Regulation BTR to 
the Item 404 amendments, we are amending Rule 100(a)(2) so that it 
references only transactions described in paragraph (a) of Item 404, as 
we proposed.
---------------------------------------------------------------------------

    \517\ 17 CFR 245.100-104.
    \518\ 15 U.S.C. 7244(a), entitled ``Prohibition of Insider 
Trading During Pension Fund Blackout Periods.''
    \519\ Insider Trades During Pension Fund Blackout Periods, 
Release No. 34-47225 (Jan. 22, 2003) [68 FR 4337]. Section 306(a) 
makes it unlawful for any director or executive officer of an issuer 
of any equity security (other than an exempted security), directly 
or indirectly, to purchase, sell, or otherwise acquire or transfer 
any equity security of the issuer (other than an exempted security) 
during any pension plan blackout period with respect to such equity 
security, if the director or executive officer acquires the equity 
security in connection with his or her service or employment as a 
director or executive officer. This provision equalizes the 
treatment of corporate executives and rank-and-file employees with 
respect to their ability to engage in transactions involving issuer 
equity securities during a pension plan blackout period if the 
securities were acquired in connection with their service to, or 
employment with, the issuer.
    \520\ This term is defined in Rule 100(a) of Regulation BTR.
    \521\ Rule 100(a)(2) of Regulation BTR.
---------------------------------------------------------------------------

2. Rule 16b-3 Non-Employee Director Definition
    We also are adopting conforming amendments to the definition of 
Non-Employee Director in Exchange Act Rule 16b-3.\522\ Section 16(b) 
provides an issuer (or shareholders suing on its behalf) the right to 
recover from an officer, director, or ten percent shareholder profits 
realized from a purchase and sale of issuer equity securities within a 
period of less than six months. However, Rule 16b-3 exempts 
transactions between issuers of securities and their officers and 
directors if specified conditions are met. In particular, acquisitions 
from and dispositions to the issuer are exempt if the transaction is 
approved in advance by the issuer's board of directors, or board 
committee composed solely of two or more Non-Employee Directors.\523\
---------------------------------------------------------------------------

    \522\ Exchange Act Rule 16b-3(b)(3)(ii), which defines a Non-
Employee Director of a closed-end investment company as ``a director 
who is not an `interested person' of the issuer, as that term is 
defined in Section 2(a)(19) of the Investment Company Act of 1940,'' 
is not amended.
    \523\ Exchange Act Rules 16b-3(d)(1) and 16b-3(e).
---------------------------------------------------------------------------

    Before adoption of these amendments, the definition of ``Non-
Employee Director,'' among other things, limited these directors to 
those who:
    <bullet> Do not directly or indirectly receive compensation from 
the issuer, its parent or subsidiary for consulting or other non-
director services, except for an amount that does not exceed the Item 
404(a) dollar disclosure threshold;
    <bullet> Do not possess an interest in any other transaction for 
which Item 404(a) disclosure would be required; and
    <bullet> Are not engaged in a business relationship required to be 
disclosed under Item 404(b).
    As described above, the Item 404 amendments substantially revise or 
rescind the Item 404 provisions on which the Non-Employee Director 
definition was based. To minimize potential disruptions and because no 
problems were brought to our attention regarding any aspect of the 
definition as it was stated before adoption of these amendments, we 
proposed a conforming amendment that would delete the provision 
referring to business relationships subject to disclosure under Item 
404(b) as it was stated prior to today's amendments, without otherwise 
revising the text of the rule.
    In the interest of providing certainty regarding Non-Employee 
Director status and to recognize corporate governance changes since the 
definition was adopted, one commenter suggested basing the definition 
instead on whether a director meets the independence standards under 
the rules of the principal national securities exchange where the 
company's securities are traded.\524\ If the company has no securities 
traded on an exchange, the commenter suggested relying on the 
director's eligibility to serve on the issuer's audit committee under 
Exchange Act Section 10A(m) and Exchange Act Rule 10A-3.\525\ We are 
not following the suggested approach. As we stated in the Proposing 
Release, the standards for an exemption from Section 16(b) liability 
should be readily determinable by reference to the exemptive rule, and 
not variable depending upon where the issuer's securities are 
listed.\526\ Further, basing the Non-Employee Director definition on 
eligibility to serve on the issuer's audit committee could burden the 
audit committee with a compensation committee function.
---------------------------------------------------------------------------

    \524\ See letter from Sullivan.
    \525\ 15 U.S.C. 78j-1(m) and 17 CFR 240.10A-3.
    \526\ Proposing Release at n. 309.
---------------------------------------------------------------------------

    As proposed and adopted, the Non-Employee Director definition 
continues to permit consulting and similar arrangements subject to 
limits measured by reference to the revised Item 404(a) disclosure 
requirements. Because the disclosure threshold of Item 404(a) is raised 
from $60,000 to $120,000, however, the effect in some cases may be to 
permit previously ineligible

[[Page 53208]]

directors to be Non-Employee Directors. In other cases, where revised 
Item 404(a) may require disclosure of director indebtedness and 
disclosure of business relationships not subject to disclosure under 
former Item 404(b), some formerly eligible directors may become 
ineligible.
    In response to concerns of commenters about the potential 
difficulty of making a determination,\527\ we have revised the rule as 
it was proposed to include an additional note to Rule 16b-3.\528\ The 
Non-Employee Director definition contemplates that the director must 
satisfy the definition's tests at the time he or she votes to approve a 
transaction. For purposes of determining a director's status under 
those tests that are based on Item 404(a), a company may rely on the 
disclosure provided under Item 404 of Regulation S-K for the issuer's 
most recent fiscal year contained in the most recent filing in which 
Item 404 disclosure is presented.\529\ Where a transaction disclosed in 
that filing was terminated before the director's proposed service as a 
Non-Employee Director, that transaction will not bar such service. The 
issuer must believe in good faith that any current or contemplated 
transaction in which the director participates will not require Item 
404(a) disclosure, based on information readily available to the issuer 
and the director at the time such director proposes to act as a Non-
Employee Director. At such time as the issuer believes in good faith, 
based on readily available information, that a current (or 
contemplated) transaction with a director will require Item 404(a) 
disclosure in a future filing, the director no longer is eligible to 
serve as a Non-Employee Director. However, this determination does not 
result in retroactive loss of a Rule 16b-3 exemption for a transaction 
previously approved by the director while serving as a Non-Employee 
director consistent with the note. In making determinations under the 
note, an issuer may rely on information it obtains from the director, 
for example pursuant to a response to an inquiry.
---------------------------------------------------------------------------

    \527\ See, e.g., letter from SCSGP.
    \528\ Note 4 to Rule 16b-3.
    \529\ As under Rule 16b-3 prior to these amendments, each test 
referring to Item 404 is measured by reference to Regulation S-K, 
even if the disclosure requirements applicable to the company are 
governed by Regulation S-B.
---------------------------------------------------------------------------

3. Other Conforming Amendments
    The changes to Item 404, along with the consolidation of provisions 
into Item 407, necessitate conforming amendments to various forms and 
schedules under the Securities Act and the Exchange Act. The amendments 
modify:
    <bullet> Forms that prior to these amendments required disclosure 
of the information required by Item 404 to instead require disclosure 
of the information required by amended Item 404 and new Item 407(a); 
\530\
---------------------------------------------------------------------------

    \530\ See amendments to Item 15 of Form SB-2, Item 11(n) of Form 
S-1, Item 18(a)(7)(iii) and Item 19(a)(7)(iii) of Form S-4, Item 23 
of Form S-11, Item 7 of Form 10, Item 13 of Form 10-K, Item 7 of 
Form 10-SB and Item 12 of Form 10-KSB. The amendments to Forms SB-2, 
10-SB and 10-KSB require disclosure of the information required by 
amended Item 404 and new Item 407(a) of Regulation S-B.
---------------------------------------------------------------------------

    <bullet> Some forms that prior to these amendments required 
disclosure of the information required by Item 404(a) or by Items 
404(a) and (c), to instead require disclosure of the information 
required by Items 404(a) and (b) as amended, or amended Item 404(a), as 
appropriate; \531\
---------------------------------------------------------------------------

    \531\ See amendment to Item 7(b) of Schedule 14A, which refers 
to amended Items 404(a) and (b), and Item 22(b)(11) and the 
Instruction to Item 22(b)(11) of Schedule 14A, and Item 5.02(c)(2) 
of Form 8-K, which refer to amended Item 404(a). The amendments to 
Form 8-K that reference Regulation S-B require disclosure of the 
information required by amended Item 404(a) of Regulation S-B.
---------------------------------------------------------------------------

    <bullet> A form that prior to these amendments cross-referenced an 
instruction in Item 404 which we are eliminating to instead include the 
text of this instruction; \532\
---------------------------------------------------------------------------

    \532\ See amendments to Item 23 of Form S-11.
---------------------------------------------------------------------------

    <bullet> Item 7 of Schedule 14A, to require disclosure of the 
information required by new Item 407(a) rather than the disclosure that 
was required prior to these amendments by Item 404(b), to eliminate 
paragraphs (d)-(h) of Item 7 that were duplicative of new Item 407 and 
replace them with a requirement to disclose information specified by 
corresponding paragraphs of new Item 407;
    <bullet> Forms that prior to these amendments required disclosure 
of the information required by Item 402 to instead require disclosure 
of the information required by amended Item 402 and new Item 407(e)(4), 
and, in the case of proxy statements and annual reports on Form 10-K, 
new Item 407(e)(5); \533\
---------------------------------------------------------------------------

    \533\ See amendments to Item 8 of Schedule 14A, Item 11(l) of 
Form S-1, General Instruction I.B.4.(c) of Form S-3, Items 
18(a)(7)(ii) and 19(a)(7)(ii) of Form S-4, Item 22 of Form S-11, 
Item 6 of Form 10 and Item 11 of Form 10-K.
---------------------------------------------------------------------------

    <bullet> Some forms that prior to these amendments required 
disclosure of the information required by Item 401 to instead require 
disclosure of the information required by Item 401 as amended and 
paragraphs (c)(3), (d)(4) and/or (d)(5) of new Item 407, as 
appropriate; \534\
---------------------------------------------------------------------------

    \534\ See amendments to General Instruction I.B.4.(c) of Form S-
3, and Item 10 of Form 10-K, which refer to Item 401 and paragraphs 
(c)(3), (d)(4) and (d)(5) of new Item 407, and Item 7(b) of Schedule 
14A, which refers to Item 401 and paragraphs (d)(4) and (d)(5) of 
new Item 407. The amendments to Form 10-KSB require disclosure of 
the information required by amended Item 401 and new Item 407(c)(3), 
(d)(4) and (d)(5) of Regulation S-B. We are not making any changes 
to the reference to Item 401 in Note G to Form 10-K, however, 
because the portion of Item 401 applicable in Note G (certain 
disclosure regarding executive officers) does not include the part 
of Item 401 that we are combining into new Item 407.
---------------------------------------------------------------------------

    <bullet> Forms that prior to these amendments required disclosure 
of the information required by Item 401(j), to instead require 
disclosure of the information required by new Item 407(c)(3); \535\ and
---------------------------------------------------------------------------

    \535\ See amendments to Item 5 in Part II of Form 10-Q, and Item 
5 in Part II of Form 10-QSB. The amendments to Item 5 in Part II of 
Form 10-QSB require disclosure of the information required by new 
Item 407(c)(3) of Regulation S-B.
---------------------------------------------------------------------------

    <bullet> Item 10 of Form N-CSR to include a cross reference to new 
Item 407(c)(2)(iv) of Regulation S-K and new Item 22(b)(15) of Schedule 
14A, in lieu of the former reference to Item 7(d)(2)(ii)(G) of Schedule 
14A.
    In addition, conforming amendments have been made to a provision in 
Regulation AB, which prior to these amendments required disclosure of 
the information required by Items 401, 402 and 404, so that instead it 
will require disclosure of the information required by amended Items 
401, 402, 404 and paragraphs (a), (c)(3), (d)(4), (d)(5) and (e)(4) of 
new Item 407.\536\
---------------------------------------------------------------------------

    \536\ See amendments to Item 1107(e) of Regulation AB.
---------------------------------------------------------------------------

VI. Plain English Disclosure

    We are adopting as proposed a requirement that most of the 
disclosure called for by amended Items 402, 403, 404 and 407 be 
provided in plain English. This plain English requirement will apply 
when information responding to these items is included (whether 
directly or through incorporation by reference) in reports required to 
be filed under Exchange Act Sections 13(a) or 15(d). Commenters were 
generally supportive of the plain English requirement,\537\ and some 
commenters suggested extending the plain English requirements to the 
proxy statement as a whole and to other Commission filings.\538\
---------------------------------------------------------------------------

    \537\ See, e.g., letters from SCSGP; jointly, Angela Chappa, 
Annie Gabel and Michelle Prater; SBAF; and Standard Life.
    \538\ See, e.g., letters from SCSGP; Foley; and Mercer.
---------------------------------------------------------------------------

    In 1998, we adopted rule changes requiring issuers preparing 
prospectuses to write the cover page, summary and

[[Page 53209]]

risk factors section of prospectuses in plain English and apply plain 
English principles to other portions of the prospectus.\539\ These 
rules transformed the landscape of public offering disclosure and made 
prospectuses more accessible to investors. We believe that plain 
English principles should apply to the disclosure requirements that we 
are adopting, so disclosure provided in response to those requirements 
is easier to read and understand. Clearer, more concise presentation of 
executive and director compensation, related person transactions, 
beneficial ownership and corporate governance matters can facilitate 
more informed investing and voting decisions in the face of complex 
information about these important areas.
---------------------------------------------------------------------------

    \539\ Plain English Disclosure, Release No. 33-7497 (Jan. 28, 
1998) [63 FR 6369] (adopting revisions to Securities Act Rule 421 
[17 CFR 230.421]). We have also required that risk factor disclosure 
included in annual reports and Summary Term Sheets in business 
combination filings be in plain English. See Item 1A. to Form 10-K 
and Item 1001 of Regulation M-A [17 CFR 229.1001], respectively.
---------------------------------------------------------------------------

    We are adding Exchange Act Rules 13a-20 and 15d-20 to require that 
companies prepare their executive and director compensation, related 
person transaction, beneficial ownership and corporate governance 
disclosures included in Exchange Act reports using plain English, 
including the following principles:
    <bullet> Present information in clear, concise sections, paragraphs 
and sentences;
    <bullet> Use short sentences;
    <bullet> Use definite, concrete, everyday words;
    <bullet> Use the active voice;
    <bullet> Avoid multiple negatives;
    <bullet> Uuse descriptive headings and subheadings;
    <bullet> Use a tabular presentation or bullet lists for complex 
material, wherever possible;
    <bullet> Avoid legal jargon and highly technical business and other 
terminology;
    <bullet> Avoid frequent reliance on glossaries or defined terms as 
the primary means of explaining information;
    <bullet> Define terms in the glossary or other section of the 
document only if the meaning is unclear from the context;
    <bullet> Use a glossary only if it facilitates understanding of the 
disclosure; and
    <bullet> In designing the presentation of the information, include 
pictures, logos, charts, graphs, schedules, tables or other design 
elements so long as the design is not misleading and the required 
information is clear, understandable, consistent with applicable 
disclosure requirements and any other included information, drawn to 
scale and not misleading.
    The new rule also provides additional guidance on drafting the 
disclosure that would comply with plain English principles, including 
guidance as to the following practices that companies should avoid:
    <bullet> Legalistic or overly complex presentations that make the 
substance of the disclosure difficult to understand;
    <bullet> vague ``boilerplate'' explanations that are overly 
generic;
    <bullet> complex information copied directly from legal documents 
without any clear and concise explanation of the provision(s); and
    <bullet> disclosure repeated in different sections of the document 
that increases the size of the document but does not enhance the 
quality of the information.
    Under the new rules, if disclosures about executive compensation, 
beneficial ownership, related person transaction or corporate 
governance matters are incorporated by reference into an Exchange Act 
report from a company's proxy or information statement, the disclosure 
is required to be in plain English in the proxy or information 
statement.\540\ The plain English rules are part of the disclosure 
rules applicable to filings required under Sections 13(a) and 15(d) of 
the Exchange Act. We believe that these plain English requirements are 
best administered by the Commission under these rules, and therefore we 
are not at this time extending plain English requirements to the entire 
proxy statement or to other Commission filings.
---------------------------------------------------------------------------

    \540\ See, e.g., General Instruction G(3) to Form 10-K and 
General Instruction E.3. to Form 10-KSB (specifying information that 
may be incorporated by reference from a proxy or information 
statement in an annual report on Form 10-K or 10-KSB).
---------------------------------------------------------------------------

    We believe that several areas where commenters requested that 
information be required in a specific format, such as tables, are best 
addressed by application of our plain English principles. The plain 
English rules adopted today specifically provide that, in designing the 
presentation of the information, companies may include tables or other 
design elements, so long as the design is not misleading and the 
required information is clear, understandable, consistent with 
applicable disclosure requirements, consistent with any other included 
information, and not misleading.\541\ In response to our request for 
comment, several commenters recommended using a separate supplemental 
table, rather than footnotes, to identify the components of All Other 
Compensation, including individual perquisites, reported in the Summary 
Compensation Table.\542\ While we have not mandated such a separate 
table, we encourage companies to use additional tables wherever tabular 
presentation facilitates clearer, more concise disclosure. Several 
commenters also requested that we specifically permit tabular 
disclosure of the required potential post-employment payments 
disclosure.\543\ Because of the difficulty of prescribing a single 
format that would cover all circumstances, the rule as proposed and 
adopted does not mandate tabular disclosure. However, consistent with 
the plain English principles that we adopt today, we encourage 
companies to develop their own tables to report post-termination 
compensation if such tabular presentation facilitates clearer, more 
concise disclosure. Similarly, while we do not require tabular 
presentation of the narrative disclosure following the director 
compensation table, such as a breakdown of director fees, consistent 
with the plain English rules we adopt today, we encourage tabular 
presentation where it facilitates an understanding of the disclosure. 
Companies should also consider ways in which design elements such as 
tables can facilitate the presentation of the related person 
transaction disclosure and corporate governance disclosures.
---------------------------------------------------------------------------

    \541\ Of course, the tables required under the rules we adopt 
today must be included and cannot be modified except as specifically 
allowed for in the rules. See Item 402(a)(5) of Regulation S-K and 
Item 402(a)(4) of Regulation S-B.
    \542\ See, e.g., letters from Amalgamated; CFA Centre 1; CII; 
IUE-CWA; Mercer; and SBAF.
    \543\ See, e.g., letters from Buck Consultants; Frederic W. Cook 
& Co.; HRPA; ISS; Mercer; and The Value Alliance and Corporate 
Governance Alliance.
---------------------------------------------------------------------------

VII. Transition

    A number of commenters recommended that we adopt the rules by 
September or October 2006 in order for companies to have sufficient 
time to implement them for the 2007 proxy season.\544\ One commenter 
expressed concern on how the transition would apply to Securities Act 
registration statements.\545\ In keeping with these comments, we 
believe we have adopted the new rules and amendments in sufficient time 
for compliance in the 2007 proxy season. Therefore, the compliance 
dates are as follows:
---------------------------------------------------------------------------

    \544\ See, e.g., letters from ABA; ACC; Brian Foley & Co.; Jesse 
Brill, Chair of CompensationStandards.com and Chair of the National 
Association of Stock Plan Professionals, dated April 28, 2006; Buck 
Consultants; Foley; Frederic W. Cook & Co.; Fried Frank; Mercer; and 
Sullivan.
    \545\ See letter from BDO Seidman.

---------------------------------------------------------------------------

[[Page 53210]]

    <bullet> For Forms 8-K, compliance is required for triggering 
events that occur 60 days or more after publication in the Federal 
Register;
    <bullet> For Forms 10-K and 10-KSB, compliance is required for 
fiscal years ending on or after December 15, 2006;
    <bullet> For proxy and information statements covering registrants 
other than registered investment companies, compliance is required for 
any proxy or information statements filed on or after December 15, 2006 
that are required to include Item 402 and 404 disclosure for fiscal 
years ending on or after December 15, 2006;
    <bullet> For Securities Act registration statements covering 
registrants other than registered investment companies and Exchange Act 
registration statements (including pre-effective and post-effective 
amendments, as applicable), compliance is required for registration 
statements that are filed with the Commission on or after December 15, 
2006 that are required to include Item 402 and 404 disclosure for 
fiscal years ending on or after December 15, 2006;
    <bullet> For initial registration statements and post-effective 
amendments that are annual updates to effective registration statements 
that are filed on Forms N-1A, N-2 and N-3 (except those filed by 
business development companies), compliance is required for 
registration statements and post-effective amendments that are filed 
with the Commission on or after December 15, 2006; and
    <bullet> For proxy and information statements covering registered 
investment companies, compliance is required for any new proxy or 
information statement filed on or after December 15, 2006.\546\
---------------------------------------------------------------------------

    \546\ The amendments to the cross-references in Item 10 of Form 
N-CSR will appear in the Form concurrent with the effective date of 
the amendments to our proxy rules, and will be effective for a 
particular registrant's Forms N-CSR that are filed after the filing 
of any proxy statement that includes a response to new Item 
407(c)(2)(iv) of Regulation S-K (as required by new Item 22(b)(15) 
of Schedule 14A). The substance of the information required by the 
Item has not been changed.
---------------------------------------------------------------------------

    Commenters expressed some confusion concerning the periods for 
which disclosure under the new rules and amendments will be required 
during the transition from the former rules. As we noted in the 
Proposing Release, companies will not be required to ``restate'' 
compensation or related person transaction disclosure for fiscal years 
for which they previously were required to apply our rules prior to the 
effective date of today's amendments. This means, for example, that 
only the most recent fiscal year will be required to be reflected in 
the revised Summary Compensation Table when the new rules and 
amendments applicable to the Summary Compensation Table become 
effective, and therefore the information for years prior to the most 
recent fiscal year will not have to be presented at all. For the 
subsequent year's Summary Compensation Table, companies will be 
required to present only the most recent two fiscal years in the 
Summary Compensation Table, and for the next and all subsequent years 
will be required to present all three fiscal years in the Summary 
Compensation Table.\547\ As another example, if a calendar year-end 
company files its initial public offering on Form S-1 in November, the 
initial filing will contain compensation disclosure regarding 2005 
following the prior rules. If the registration statement does not 
become effective until after the Item 402 disclosure must be updated, 
then an amendment will have to be filed that includes the 2006 
compensation information that complies with the rules we adopt today. 
The Summary Compensation Table, however, will only contain the 
information for 2006 and will not need to contain the information 
restated from 2005.
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    \547\ The other amended executive and director compensation 
disclosure requirements which relate to the last completed fiscal 
year will not be affected by this transition approach. The Summary 
Compensation Table will be treated differently because, as amended, 
it requires disclosure of compensation to the named executive 
officers for the last three fiscal years.
---------------------------------------------------------------------------

    This transition approach will result in phased-in implementation of 
the amended Summary Compensation Table and amended Item 404(a) 
disclosure over a three-year period for Regulation S-K companies, and a 
two-year period for Regulation S-B companies. During this phase-in 
period, companies will not be required to present prior years' 
compensation disclosure or Item 404(a) disclosure under the former 
rules.

VIII. Paperwork Reduction Act

A. Background

    The new rules and amendments contain ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 
1995.\548\ We published a notice requesting comment on the collection 
of information requirements in the Proposing Release, and we submitted 
these requirements to the Office of Management and Budget for review in 
accordance with the Paperwork Reduction Act.\549\ The titles for the 
collection of information are: \550\
---------------------------------------------------------------------------

    \548\ 44 U.S.C. 3501 et seq.
    \549\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
    \550\ The paperwork burden from Regulations S-K and S-B is 
imposed through the forms that are subject to the requirements in 
those Regulations and is reflected in the analysis of those forms. 
To avoid a Paperwork Reduction Act inventory reflecting duplicative 
burdens, for administrative convenience we estimate the burdens 
imposed by each of Regulations S-K and S-B to be a total of one 
hour.
---------------------------------------------------------------------------

    (1) ``Regulation S-B'' (OMB Control No. 3235-0417);
    (2) ``Regulation S-K'' (OMB Control No. 3235-0071);
    (3) ``Form SB-2'' (OMB Control No. 3235-0418);
    (4) ``Form S-1'' (OMB Control No. 3235-0065);
    (5) ``Form S-4'' (OMB Control Number 3235-0324);
    (6) ``Form S-11'' (OMB Control Number 3235-0067);
    (7) ``Regulation 14A and Schedule 14A'' (OMB Control Number 3235-
0059);
    (8) ``Regulation 14C and Schedule 14C'' (OMB Control Number 3235-
0057);
    (9) ``Form 10'' (OMB Control No. 3235-0064);
    (10) ``Form 10-SB'' (OMB Control No. 3235-0419);
    (11) ``Form 10-K'' (OMB Control No. 3235-0063);
    (12) ``Form 10-KSB'' (OMB Control No. 3235-0420);
    (13) ``Form 8-K'' (OMB Control No. 3235-0060); and
    (14) ``Form N-2'' (OMB Control No. 3235-0026).
    We adopted all of the existing regulations and forms pursuant to 
the Securities Act and the Exchange Act. In addition, we adopted Form 
N-2 pursuant to the Investment Company Act. These regulations and forms 
set forth the disclosure requirements for annual \551\ and current 
reports, registration statements, proxy statements and information 
statements that are prepared by issuers to provide investors with the 
information they need to make informed investment decisions in 
registered offerings and in secondary market transactions, as well as 
informed voting decisions in the case of proxy statements.
---------------------------------------------------------------------------

    \551\ The pertinent annual reports are those on Form 10-K or 10-
KSB.
---------------------------------------------------------------------------

    Our amendments to the forms and regulations are intended to:
    <bullet> Provide investors with a clearer and more complete picture 
of compensation awarded to, earned by or paid to principal executive 
officers, principal financial officers, the highest paid executive 
officers other than the principal executive officer and principal 
financial officer, and directors;

[[Page 53211]]

    <bullet> Provide investors with better information about key 
financial relationships among companies and their executive officers, 
directors, significant shareholders and their respective immediate 
family members;
    <bullet> Include more complete information about independence 
regarding members of the board of directors and board committees;
    <bullet> Reorganize and modify the type of executive and director 
compensation information that must be disclosed in current reports; and
    <bullet> Require most of the disclosure required under these 
amendments to be provided in plain English.
    The hours and costs associated with preparing disclosure, filing 
forms, and retaining records constitute reporting and cost burdens 
imposed by the collection of information. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid control number.
    The information collection requirements related to annual and 
current reports, registration statements, proxy statements and 
information statements are mandatory. However, the information 
collection requirements relating exclusively to proxy and information 
statements will only apply to issuers subject to the proxy rules. There 
is no mandatory retention period for the information disclosed, and the 
information disclosed will be made publicly available on the EDGAR 
filing system.

B. Summary of Information Collections

    The amendments will increase existing disclosure burdens for annual 
reports on Form 10-K \552\ and registration statements on Forms 10, S-
1, S-4 and S-11 by requiring:
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    \552\ The amended disclosure requirements regarding executive 
and director compensation, beneficial ownership, related person 
transactions and parts of the amended corporate governance 
disclosure requirements are in Form 10-K, Schedule 14A and Schedule 
14C. Form 10-K permits the incorporation by reference of information 
in Schedule 14A or 14C to satisfy the disclosure requirements of 
Form 10-K. The analysis that follows assumes that companies would 
either provide the required disclosure in a Form 10-K only, if the 
company is not subject to the proxy rules, or would incorporate the 
required disclosure into the Form 10-K by reference to the proxy or 
information statement if the company is subject to the proxy rules. 
This approach takes into account the burden from the amended 
disclosure requirements that are included in both the Form 10-K and 
in Schedule 14A or Schedule 14C.
---------------------------------------------------------------------------

    <bullet> An expanded and reorganized Summary Compensation Table, 
which will require expanded disclosure of a ``total compensation'' 
amount, and information necessary for computing the total amount of 
compensation, such as the grant date fair value of equity-based awards 
computed in accordance with FAS 123R, and the aggregate annual change 
in the actuarial present value of the named executive officers' 
accumulated benefit under defined benefit and actuarial pension plans;
    <bullet> Disclosure at lower thresholds of information regarding 
perquisites and other personal benefits;
    <bullet> A more focused presentation of compensation plan awards in 
a Grants of Plan-Based Awards Table, which builds upon former tabular 
disclosures regarding long term incentive plans and awards of option 
and stock appreciation rights to supplement the information required to 
be included in the amended Summary Compensation Table;
    <bullet> Expanded disclosure regarding holdings and exercises by 
named executive officers of previously awarded stock, options and 
similar instruments (with disclosure regarding outstanding option 
awards required on an award-by-award basis), including disclosure of 
option exercise prices and expiration dates, as well as the amounts 
(both the number of shares and the value) realized upon the exercise of 
options and the vesting of stock;
    <bullet> Improved narrative disclosure accompanying data presented 
in the executive compensation tables and a new Compensation Discussion 
and Analysis section to explain material elements of compensation of 
named executive officers;
    <bullet> With regard to Form 10-K, a short Compensation Committee 
Report regarding the compensation committee's review and discussion 
with management of the Compensation Discussion and Analysis, and the 
compensation committee's recommendation to the board of directors 
concerning the disclosure of the Compensation Discussion and Analysis 
in the Form 10-K or proxy or information statement;
    <bullet> New tables and narrative disclosure regarding retirement 
plans and nonqualified defined contribution and other deferred 
compensation plans;
    <bullet> Expanded disclosure regarding post-employment payments 
other than pursuant to retirement and deferred compensation plans;
    <bullet> A new table and improved narrative disclosure for director 
compensation to replace the more general disclosure requirements in 
place prior to these amendments;
    <bullet> Disclosure regarding additional related persons by 
expanding the definition of ``immediate family member'' under an 
amended related person transaction disclosure requirement;
    <bullet> New disclosure regarding a company's policies and 
procedures for the review, approval or ratification of transactions 
with related persons;
    <bullet> New disclosure regarding corporate governance matters such 
as the independence of directors; and
    <bullet> Additional disclosure regarding pledges of securities by 
officers and directors and directors' qualifying shares.
    At the same time, the amendments will decrease existing disclosure 
burdens for annual reports on Form 10-K and registration statements on 
Forms 10, S-1, S-4 and S-11 by:
    <bullet> Eliminating tabular presentation regarding projected stock 
option values under alternative stock appreciation scenarios;
    <bullet> Eliminating a generalized tabular presentation regarding 
defined benefit plans, which will offset in part the increased burdens 
regarding pension plan disclosure; and
    <bullet> Eliminating a disclosure requirement regarding specific 
director relationships that could affect independence.
    In addition, the amendments may increase or decrease existing 
disclosure burdens, or not affect them at all, for annual reports on 
Form 10-K and registration statements on Forms 10, S-1, S-4 and S-11, 
depending on a company's particular circumstances, by:
    <bullet> Eliminating the requirement to include in proxy or 
information statements a compensation committee report on the repricing 
of options and stock appreciation rights and a table reporting on the 
repricing of options and stock appreciation rights over the past ten 
years, in favor of a narrative discussion of repricings, if any 
occurred in the last fiscal year, which will be required to be included 
or incorporated by reference (as applicable) in annual reports and 
registration statements;
    <bullet> Increasing the dollar value threshold for determining if 
related person transaction disclosure is required from $60,000 to 
$120,000;
    <bullet> Narrowing the scope of an instruction that provides bright 
line tests for determining whether transactions with related persons 
are required to be disclosed in particular circumstances; and
    <bullet> Requiring disclosure about reliance on an exemption from 
requirements for director independence when such an exemption is 
available.
    Specifically with respect to proxy and information statements, the 
amendments will impose a new disclosure requirement regarding the

[[Page 53212]]

company's processes and procedures for the consideration and 
determination of executive and director compensation with respect to 
the compensation committee or persons performing the equivalent 
functions, and disclosure regarding the availability of the 
compensation committee's charter (if it has one), either as an appendix 
to the proxy or information statement at least once every three fiscal 
years or on the company's Web site. These amendments will not require a 
compensation committee to establish or maintain a charter. The amended 
disclosure that will be required regarding compensation committees is 
similar to what is currently required for audit committees and 
nominating committees. The amendments will decrease disclosure 
requirements for proxy and information statements by eliminating a 
disclosure requirement regarding the resignation of directors and a 
compensation committee report on the repricing of options and stock 
appreciation rights. The amendments require the Compensation Discussion 
and Analysis disclosure in the annual report on Form 10-K and in proxy 
or information statements to be accompanied by a short Compensation 
Committee Report regarding the compensation committee's review and 
discussion with management of the Compensation Discussion and Analysis, 
and the compensation committee's recommendation to the board of 
directors with regard to the disclosure of the Compensation Discussion 
and Analysis. This new Compensation Committee Report, along with the 
Compensation Discussion and Analysis, is required instead of the Board 
Compensation Committee Report on Executive Compensation that was 
previously required to be furnished with proxy and information 
statements prior to these amendments. The extent to which eliminating 
the former requirements to provide the Board Compensation Committee 
Report on Executive Compensation and a compensation committee report on 
the repricing of options and stock appreciation rights reduces burdens 
for proxy and information statements will be offset to a substantial 
extent, as discussed above, by the periodic reporting and proxy or 
information statement requirements for Compensation Discussion and 
Analysis, the new Compensation Committee Report and a narrative 
disclosure requirement regarding repricings and other modifications of 
outstanding awards. The Compensation Discussion and Analysis and 
narrative disclosure requirement regarding repricings and other 
modifications will be required to be included or incorporated by 
reference in annual reports and registration statements, while the 
Compensation Committee Report will only be required to be included or 
incorporated by reference from the proxy or information statement in 
the annual report on Form 10-K. We estimate that, on balance, the 
changes that are specific to proxy or information statements will 
result in some incremental burdens on proxy or information statement 
collections of information, as described in more detail below.
    The amendments will increase existing disclosure burdens for annual 
reports on Form 10-KSB \553\ and registration statements on Forms 10-SB 
and SB-2 filed by small business issuers by requiring:
---------------------------------------------------------------------------

    \553\ The same analysis as discussed above with regard to the 
relationship of Form 10-K to the disclosure required in proxy or 
information statements is also applied to Form 10-KSB.
---------------------------------------------------------------------------

    <bullet> An expanded and reorganized Summary Compensation Table, 
which will require expanded disclosure of a ``total compensation'' 
amount, and information necessary for computing the total amount of 
compensation, such as the grant date fair value of equity-based awards 
computed in accordance with FAS 123R;
    <bullet> Disclosure at lower dollar thresholds for information 
regarding perquisites and other personal benefits;
    <bullet> Expanded disclosure regarding holdings by named executive 
officers of previously awarded stock, options and similar instruments 
(with disclosure regarding outstanding option awards required on an 
award-by-award basis), including disclosure of option exercise prices 
and expiration dates.
    <bullet> A new table for director compensation, to replace 
narrative disclosure requirements that existed prior to these 
amendments;
    <bullet> A narrative description of retirement plans;
    <bullet> Disclosure regarding additional related persons under the 
amended related person transaction disclosure requirement;
    <bullet> New and reorganized disclosure regarding corporate 
governance matters such as the independence of directors and members of 
the nominating, compensation and audit committees of the board of 
directors; and
    <bullet> Additional disclosure regarding pledges of securities by 
officers and directors, and director qualifying shares.
    At the same time, the amendments will decrease existing disclosure 
burdens for annual reports on Form 10-KSB and registration statements 
on Forms 10-SB and SB-2 filed by small business issuers by:
    <bullet> Reducing by two the number of named executive officers for 
the purposes of executive compensation disclosure, to include only the 
principal executive officer and the two most highly compensated 
executive officers other than the principal executive officer;
    <bullet> Reducing the required information in the Summary 
Compensation Table from three years to two years of data;
    <bullet> Eliminating tabular disclosure of grants of options and 
stock appreciation rights in the last fiscal year;
    <bullet> Eliminating tabular disclosure regarding exercises of 
options and stock appreciation rights; and
    <bullet> Eliminating tabular disclosure regarding long-term 
incentive plan awards in the last fiscal year.
    In addition, the amendments may increase or decrease, or not 
affect, existing disclosure burdens for annual reports on Form 10-KSB 
or registration statements on Forms 10-SB and SB-2 filed by small 
business issuers depending on the small business issuer's particular 
circumstances, by:
    <bullet> Eliminating the requirement to include a compensation 
committee report on the repricing of options and stock appreciation 
rights, in favor of a narrative discussion of repricings, if any 
occurred in the last fiscal year, which will be required to be included 
or incorporated by reference (as applicable) in annual reports and 
registration statements;
    <bullet> Changing the dollar value threshold used for determining 
if related person transaction disclosure is required from $60,000 to 
the lesser of $120,000 or one percent of the average of the small 
business issuer's total assets at year-end for the last three completed 
fiscal years; and
    <bullet> Narrowing the scope of an instruction that provides bright 
line tests for determining whether transactions with related persons 
are required to be disclosed in particular circumstances.
    The amendments may increase or decrease existing disclosure 
burdens, or not affect them at all, depending on the particular 
circumstances, for Forms N-1A, N-2, and N-3 by increasing to $120,000 
the former $60,000 threshold in such forms for disclosure of certain 
interests, transactions, and relationships of disinterested directors, 
although as discussed below we do not believe the increase in the 
disclosure threshold will significantly impact the hours of company 
personnel time and cost of outside professionals in responding to

[[Page 53213]]

these items. The amendments will increase the existing disclosure 
burdens for Form N-2 by requiring business development companies to 
provide additional disclosure regarding compensation. However, the 
amendments will decrease the existing disclosure burden by no longer 
requiring compensation disclosure with respect to certain affiliated 
persons and the advisory board of business development companies and by 
no longer requiring business development companies to disclose certain 
compensation from the fund complex.
    The amendments will decrease the Form 8-K disclosure burdens, by 
focusing the Form 8-K disclosure requirement on more presumptively 
material employment agreements, plans or arrangements of the narrower 
group of named executive officers, which should reduce the number of 
current reports on Form 8-K filed each year relating to executive and 
director compensation matters.
    We do not believe that our amendments regarding exhibit filing 
requirements for Form 20-F and our treatment of foreign private issuers 
under the revised rules will impose any incremental increase or 
decrease in the disclosure burden for these issuers.

C. Summary of Comment Letters and Revisions to Proposals

    We requested comment on the Paperwork Reduction Act analysis 
contained in the Proposing Release. We did not receive comments on our 
Paperwork Reduction Act estimates; \554\ however, a number of 
commenters expressed concerns that costs associated with the proposals 
were understated. Commenters also raised concerns with costs and 
burdens associated with particular aspects of the proposals.
---------------------------------------------------------------------------

    \554\ One commenter noted our aggregate burden estimates in 
commenting that the ``administrative costs'' noted in the Proposing 
Release did not account for the need to overcome compliance risks 
``where concern for satisfying new rules is multiplied by the 
potential legal risks associated with sufficiency and completeness 
under a regime of CEO and CFO certification.'' Letter from Hodak 
Value Advisors.
---------------------------------------------------------------------------

    One commenter indicated that the Commission needs to take into 
consideration that the disclosure is more detailed and lengthy, and 
realistically will require more preparation time by more people; 
historically, the individuals involved in the process outside a company 
have been attorneys and accountants who are preparing or reviewing the 
documents, but compensation consultants and their advisors and special 
counsel to the directors would be introduced into the process; and the 
cost analysis does not reflect additional director time that will be 
required to read the lengthy new disclosure.\555\ The commenter also 
expressed the view that smaller to mid-size issuers will be negatively 
affected disproportionately more than larger public companies, as 
disclosure requirements increase and greater reliance on external 
support is thus necessitated.
---------------------------------------------------------------------------

    \555\ See letter from Chamber of Commerce.
---------------------------------------------------------------------------

    Other commenters stated their belief that the Commission 
underestimated the cost of the proposed disclosure requirements.\556\ 
One of these commenters cited the limited availability of information 
from existing information systems and requested that the Commission 
afford an adequate transition period to accommodate the proposed 
changes,\557\ while another commenter suggested that the proposal would 
notably impose a reporting and administrative burden that would add to 
the already substantial reporting obligations imposed by the Sarbanes-
Oxley Act of 2002 and related rules.\558\ Another commenter noted that 
companies will likely incur considerable costs in preparing the first 
proxy statement under the revised rules, even if, as was proposed, they 
do not have to ``restate'' compensation for prior years.\559\
---------------------------------------------------------------------------

    \556\ See, e.g., letters from Computer Sciences; HRPA; N. 
Ludgus; and Kathy B. Wheby.
    \557\ See letter from Computer Sciences.
    \558\ See letter from HRPA.
    \559\ See letter from Sullivan.
---------------------------------------------------------------------------

    Other commenters noted that specific aspects of the proposals would 
result in significant costs or burdens, including:
    <bullet> Compensation Discussion and Analysis generally, as well as 
the status of this disclosure as filed rather than furnished; \560\
---------------------------------------------------------------------------

    \560\ See, e.g., letters from Hodak Value Advisors and Chamber 
of Commerce.
---------------------------------------------------------------------------

    <bullet> Disclosure of the increase in actuarial value of pension 
plans in the Summary Compensation Table and its inclusion in the 
determination of named executive officer status; \561\
---------------------------------------------------------------------------

    \561\ See, e.g., letters from E&Y and KPMG.
---------------------------------------------------------------------------

    <bullet> Lowering the disclosure threshold for perquisites and 
other personal benefits to $10,000, and changing the threshold for 
separate identification and quantification; \562\
---------------------------------------------------------------------------

    \562\ See, e.g., letters from Hodak Value Advisors; ACC; Eli 
Lilly; and NACCO Industries.
---------------------------------------------------------------------------

    <bullet> Footnote disclosure to the Outstanding Equity Awards at 
Year-End Table regarding expiration and vesting dates; \563\
---------------------------------------------------------------------------

    \563\ See, e.g., letters from ABA; Leggett & Platt; SCSGP; and 
Sidley Austin.
---------------------------------------------------------------------------

    <bullet> Plan-by-plan disclosure of pension benefits; \564\
---------------------------------------------------------------------------

    \564\ See, e.g., letters from ABA; Hewitt; HRPA; and Towers 
Perrin.
---------------------------------------------------------------------------

    <bullet> Numerical estimates of termination or change in control 
payments; \565\
---------------------------------------------------------------------------

    \565\ See, e.g., letters from Sullivan; Kellogg; SCSGP; and 
Chamber of Commerce.
---------------------------------------------------------------------------

    <bullet> Amendments to the related person transaction disclosure 
requirement; \566\
---------------------------------------------------------------------------

    \566\ See, e.g., letters from American Bankers; Whitney Holding; 
SCSGP; and FSR.
---------------------------------------------------------------------------

    <bullet> Disclosure of director relationships (other than those 
disclosed under the related person transaction disclosure requirement) 
considered by the board of directors when making independence 
determinations; \567\ and
---------------------------------------------------------------------------

    \567\ See, e.g., letters from BRT; Chadbourne; Chamber of 
Commerce; FSR; Intel; SCSGP; Sidley Austin; and Sullivan.
---------------------------------------------------------------------------

    <bullet> Disclosure regarding the use of compensation consultants 
by the compensation committee \568\ as well as the contacts between 
compensation consultants and executive officers of the company.\569\
---------------------------------------------------------------------------

    \568\ See, e.g., letters from Chamber of Commerce and Compensia.
    \569\ See, e.g., letters from Mercer and Compensia.
---------------------------------------------------------------------------

    Some commenters also noted their belief that costs and burdens 
arising from the proposals would disproportionately affect small 
business issuers and smaller public companies.\570\
---------------------------------------------------------------------------

    \570\ See, e.g., letters from ABA; ACB; ICBA; and SCSGP.
---------------------------------------------------------------------------

    We have made substantive modifications to the proposals that 
address, in part, the concerns expressed by commenters about costs. 
Some of the changes in the final rules include:
    <bullet> Treating Compensation Discussion and Analysis as filed 
(and not furnished), but requiring a separate Compensation Committee 
Report over the names of compensation committee members as a means of 
emphasizing the committee's involvement in the disclosure and providing 
additional information to which the principal executive officer and 
principal financial officer may look to in completing their 
certifications;
    <bullet> Requiring disclosure of the actuarial present value of the 
named executive officers' accumulated benefits under defined benefit 
and actuarial pension plans in the Pension Benefits Table, which under 
the final rules will include the actuarial present value of accumulated 
benefits computed by utilizing assumptions used for financial reporting 
purposes under generally accepted accounting principles (rather than 
requiring disclosure of an estimate of the annual benefit payable upon 
retirement as proposed), and requiring in the Summary Compensation 
Table

[[Page 53214]]

the aggregate annual change in that value, so that the Summary 
Compensation Table data will directly relate to the data presented in 
the Pension Benefits Table;
    <bullet> Specifying that companies compute estimates of 
compensation under post-termination arrangements applying the 
assumptions that the triggering event occurred on the last day of the 
company's last completed fiscal year and the price per share of the 
company's securities is the closing market price on that day;
    <bullet> Specifying that companies must exclude the amounts for the 
aggregate annual change in the actuarial present value of accumulated 
benefits under defined benefit and actuarial pension plans and the 
above-market or preferential earnings on nonqualified deferred 
compensation when determining which executive officers are named 
executive officers for the purposes of disclosure in the compensation 
tables;
    <bullet> Including some instructions to the related person 
disclosure requirement that were proposed to be eliminated, so that 
some bright line standards for non-disclosure, as modified, continue to 
apply with respect to specific transactions;
    <bullet> Requiring disclosure of director relationships (other than 
any transactions, relationships or arrangements disclosed under the 
related person transaction disclosure requirement) considered by the 
board of directors when making independence determinations by specific 
category or type, rather than by individual transactions, relationships 
or arrangements as proposed; and
    <bullet> Not requiring that companies identify the executive 
officers that compensation consultants have contacted as proposed.
    Further, the final rules applicable to small business issuers are 
adopted substantially as proposed, providing for significantly less 
detailed disclosure regarding executive compensation for these 
companies as compared to the disclosure required for larger issuers.
    We made other modifications to the proposals in response to issues 
raised by commenters that could, depending on the particular 
circumstances, increase costs relative to the costs estimated for the 
proposals. In this regard, the final rules:
    <bullet> Require expanded disclosure about option grants and 
outstanding options, including disclosure of the date the compensation 
committee or full board took action or was deemed to take action to 
grant an award if that date is different from the grant date, a 
description of the methodology for determining the exercise price of 
options if the exercise price is not determined based on the closing 
market price on the date of grant, and the amount of securities 
underlying unexercised options, the exercise prices and the option 
expiration dates for each outstanding option (rather than on an 
aggregate basis as proposed);
    <bullet> Require disclosure of the Performance Graph (which would 
have been eliminated under the proposals) in annual reports to security 
holders that precede or accompany a proxy or information statement 
relating to an annual meeting at which directors are to be elected; and
    <bullet> Require disclosure about reliance on an exemption from 
requirements for director independence when such an exemption is 
available.

D. Revisions to Paperwork Reduction Act Burden Estimates

    As discussed above, in consideration of commenters' concerns that 
the costs associated with the disclosure requirements were understated 
in the Proposing Release, we are revising our Paperwork Reduction Act 
burden estimates that were originally submitted to the Office of 
Management and Budget. In revising our estimates, we have considered 
the comments identifying increased costs and burdens in the proposals, 
as well as the revisions that we have made in the final rules as 
compared to the proposals in response to some of the commenters' 
concerns.
    The discussion that follows focuses on the incremental change in 
burden estimates resulting from the amendments adopted today. The pre-
existing burden estimates to which these incremental changes will be 
added reflect the current aggregate burden assigned to each information 
collection, which already include the estimated burden of complying 
with the executive compensation, related person transaction and 
corporate governance disclosure requirements in place before adoption 
of these amendments. The burden estimates (expressed as total burden 
hours per form) prior to adding the additional burdens imposed by the 
amended executive compensation, related person transaction and 
corporate governance rules are as follows: 2,202 hours for Form 10-K; 
1,646 hours for Form 10-KSB; 156 hours for Form 10; 133 hours for Form 
10-SB; 593 hours for Form SB-2; 1,102 hours for Form S-1; 4,048 hours 
for Form S-4; 1,892 hours for Form S-11; 271.4 hours for Form N-2; 
\571\ 5 hours for Form 8-K; 84.5 hours for Schedule 14A; and 84 hours 
for Schedule 14C. The estimated incremental burden arising from today's 
amendments for each of these forms has been estimated with reference to 
each of these pre-existing burden estimates.
---------------------------------------------------------------------------

    \571\ The pre-existing estimate for Form N-2 represents the 
internal hour burden per response. In addition there is a pre-
existing external cost estimate for Form N-2 of $12,766 per 
response.
---------------------------------------------------------------------------

    For purposes of the Paperwork Reduction Act, we now estimate that 
the annual incremental increase in the paperwork burden for companies 
to comply with our collection of information requirements to be 
approximately 783,284 hours of in-house company personnel time and to 
be approximately $133,883,300 for the services of outside 
professionals.\572\ These estimates include the additional time and the 
cost of collecting information, preparing and reviewing disclosure, 
filing documents and retaining records over our existing burden 
estimate for preparing executive compensation, related person 
transaction and corporate governance disclosures. Our methodologies for 
deriving these revised estimates are discussed below.
---------------------------------------------------------------------------

    \572\ For administrative convenience, the presentation of the 
totals related to the paperwork burden hours have been rounded to 
the nearest whole number and the cost totals have been rounded to 
the nearest hundred.
---------------------------------------------------------------------------

    Our revised estimates represent the average burden for all issuers, 
both large and small.\573\ As described below, we expect that the 
burdens and costs could be greater for larger issuers and lower for 
smaller issuers under the rules as adopted. For Exchange Act annual 
reports on Forms 10-K or 10-KSB, current reports on Form 8-K, proxy 
statements and information statements, we estimate that 75% of the 
burden of preparation is carried by the company internally and that 25% 
of the burden is carried by outside professionals retained by the 
issuer at an average cost of $400 per hour.\574\ For Securities Act 
registration statements on Forms SB-2, S-1, S-4, S-11, or N-2 and 
Exchange Act registration statements on Forms 10

[[Page 53215]]

or 10-SB, we estimate that 25% of the burden of preparation is carried 
by the company internally and that 75% of the burden is carried by 
outside professionals retained by the issuer at an average cost of $400 
per hour.\575\ The portion of the burden carried by outside 
professionals is reflected as a cost, while the portion of the burden 
carried by the company internally is reflected in hours.
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    \573\ Our estimates are based on annual responses on Form 10-K 
of 8,602 and annual responses on Form 10-KSB of 3,504. Our estimates 
of the number of annual responses to the collections of information 
are based on the number of filings made in the period from October 
1, 2004 through September 30, 2005.
    \574\ At the proposing stage, we used an estimated hourly rate 
of $300.00 to determine the estimated cost to public companies of 
executive compensation and related disclosure prepared or reviewed 
by outside counsel. We recently have increased this hourly rate 
estimate to $400.00 per hour after consulting with several private 
law firms. The cost estimates in this release are based on the 
$400.00 hourly rate.
    \575\ As mentioned above, we do not believe that the amendments 
increasing to $120,000 the current $60,000 threshold in Forms N-1A, 
N-2, and N-3 for disclosure of certain interests, transactions, and 
relationships of disinterested directors will significantly impact 
the hours of company personnel time and cost of outside 
professionals in responding to these items.
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1. Securities Act Registration Statements, Exchange Act Registration 
Statements, Exchange Act Annual Reports, Proxy Statements and 
Information Statements
    For the purposes of the Paperwork Reduction Act, we estimate that, 
over a three year period,\576\ the annual incremental disclosure burden 
imposed by the amendments will average 95 hours per Form 10-K; 50 hours 
per Form 10-KSB; 85 hours per Form 10; 45 hours per Forms 10-SB and SB-
2; 74 hours per Form S-1; 17 hours per Form S-4; 85 hours per Form S-
11; 3 hours per Schedules 14A and 14C; and 5 hours per Form N-2.\577\ 
While the amendments to Item 22(b) of Schedule 14A and increasing to 
$120,000 the former $60,000 threshold in Forms N-1A, N-2, and N-3 for 
disclosure of certain interests, transactions, and relationships of 
disinterested directors may increase or decrease existing disclosure 
burdens, or not affect them at all, depending on the particular 
circumstances, we estimate that, as discussed below, the amendments 
will not impose an annual incremental disclosure burden.
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    \576\ We calculated an annual average over a three year period 
because OMB approval of Paperwork Reduction Act submissions covers a 
three year period. Embedded in the three year period is the 
recognition that the costs in the initial year of compliance are 
likely to be higher than in later years.
    \577\ In the Proposing Release, we estimated that the proposed 
revisions would average 67 hours per Form 10-K; 35 hours per Form 
10-KSB; 60 hours per Form 10; 30 hours per Forms 10-SB and SB-2; 60 
hours per Forms S-1, S-4 and S-11; and 1.675 hours per Form N-2.
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    These estimates were based on the following assumptions:
    <bullet> The hours of company personnel time and outside 
professional time required to prepare the disclosure regarding 
executive and director compensation under amended Item 402 of 
Regulation S-K will be greater in light of the expansion and 
reorganization of the amended disclosure requirements relative to the 
disclosure requirements on these topics in place prior to adoption of 
these amendments, in particular the requirements regarding Compensation 
Discussion and Analysis, expanded disclosures concerning options and 
other equity-based awards and new disclosure requirements regarding 
pension benefits, non-qualified deferred compensation, other potential 
post-employment payments and director compensation.
    <bullet> Companies filing annual reports on Form 10-K that will be 
required to include disclosure under Item 402 of Regulation S-K, as we 
are amending it, and Item 407(e)(4) of Regulation S-K (regarding 
compensation committee interlocks and insider participation), will 
experience greater costs in responding to these disclosure requirements 
in the first year of compliance with them, and, to a lesser extent, in 
the second and third years, as systems and processes are implemented to 
obtain the relevant data and disclosure controls and procedures with 
respect to new or expanded disclosure requirements are implemented, 
with lower incremental costs expected in subsequent years.
    <bullet> The hours of company personnel time and outside 
professional time required to prepare the disclosure regarding related 
person transactions under amended Item 404, director independence under 
new Item 407(a) and compensation committee functions under paragraphs 
(e)(1) through (e)(3) of Item 407 of both Regulation S-K and Regulation 
S-B, will be greater as compared to the burden that was imposed in 
complying with the related party transaction disclosure requirements 
and disclosure about the board of directors required by Item 404 of 
Regulations S-K and S-B and Item 7 of Schedule 14A prior to these 
amendments. The new Compensation Committee Report that is required in 
the Form 10-K (and is not required for small business issuers, because 
they are not required to include Compensation Discussion and Analysis) 
will increase the burdens. Other amendments to be made by moving 
disclosure requirements relating to corporate governance to new Item 
407 of Regulations S-K and S-B will not change the substance of the 
disclosure requirements and will therefore not increase burdens, 
particularly for proxy or information statements where much of the 
disclosure about these topics is currently required.
    <bullet> For Form 10-K, we estimate that it would take issuers 170 
additional hours to prepare the amended disclosure in year one, 80 
hours in year two and 35 hours in year three and thereafter, which 
results in an average of 95 hours over the three year period to comply 
with the amended disclosure requirements. This estimate takes into 
account that the burden will be incurred by either including the 
required disclosure in the report directly or incorporating by 
reference from a proxy or information statement. This estimated 
incremental burden is based on a consideration of the extent to which 
the amendments will increase, decrease or not affect the burden imposed 
by the requirements in place prior to these amendments, as described in 
Section VIII.B., above. The incremental burden represents the estimate 
of the average burden across the range of companies that file annual 
reports on Form 10-K, recognizing that larger companies with more 
complex executive and director compensation arrangements, more related 
person transactions and more involved corporate governance structures 
may require more time to comply with the amended disclosure 
requirements, while smaller issuers with potentially less complex 
circumstances are likely to require less time to comply with the 
amended requirements.
    <bullet> For proxy statements on Schedule 14A and information 
statements on Schedule 14C, we estimate that it would take companies 6 
additional hours to prepare the additional corporate governance and 
other compensation committee disclosures required only in the proxy or 
information statement in year one, and 2 hours in year two and 2 hours 
in year three and thereafter, which results in an average of 
approximately 3 hours over the three year period.\578\ As with the 
estimates for Form 10-K, this estimated incremental burden is based on 
a consideration of the extent to which the amendments will increase, 
decrease or not affect the burden imposed by the requirements in place 
prior to these amendments, as described in Section VIII.B., above. The 
incremental burden represents the estimate of the average burden across 
the range of companies that file proxy statements on Schedule 14A and

[[Page 53216]]

information statements on Schedule 14C, taking into account that larger 
companies may require more time to comply with the amended disclosure 
requirements, while smaller companies (including small business 
issuers) with potentially less complex circumstances may require less 
additional time to comply with the amended requirements.
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    \578\ Similarly, the hours of company personnel time and outside 
professional time required to prepare the disclosure required by the 
amended conforming revisions to Item 22(b) relating to the 
independence of members of nominating and audit committees of 
investment companies will be approximately the same as for 
compliance with the requirements regarding disclosure of the 
independence of nominating and audit committee members of investment 
companies that were required by Item 7 of Schedule 14A prior to 
today's amendments.
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    <bullet> Companies filing registration statements on Forms 10, S-1, 
S-4 and S-11 that are not already filing periodic reports pursuant to 
Exchange Act Sections 13(a) or 15(d) will in many cases not have been 
required to comply with the amended disclosure requirements prior to 
filing such registration statements, and will therefore take an 
estimated 85 additional hours on average to comply with the changes in 
the disclosure requirements. For Forms S-1 and S-4, which permit 
incorporation of information by reference to disclosure provided in 
Exchange Act reports, we have estimated a lower average incremental 
number of burden hours in order to recognize that the incremental 
burden arising from the amendments is already factored into the 
estimated average incremental burden for Forms 10-K and 10-KSB.\579\ 
These estimated incremental burdens are based on a consideration of the 
extent to which the amendments will increase, decrease or not affect 
the burden imposed by the requirements in place prior to these 
amendments, as described in Section VIII.B., above. The additional time 
required by these companies to obtain the relevant data and to compile 
the required executive compensation information is offset to some 
extent by the fact that only one year of executive compensation 
information will generally be required for presentation in the Summary 
Compensation Table, as compared to three years for issuers already 
subject to Exchange Act reporting requirements. By contrast, 
information regarding related person transactions, as was the case 
prior to the amendments, is generally required for three years in 
Securities Act and Exchange Act registration statements, so that any 
additional burden associated with obtaining data and compiling the 
related person transaction disclosure under the amended requirements 
would be with respect to this three year period.
---------------------------------------------------------------------------

    \579\ For Form S-1, we estimate an average incremental burden of 
74 hours, based on an estimate that 459 out of the 528 registration 
statements that we estimate will be filed on Form S-1 will not 
include the disclosure contemplated by these rule changes through 
incorporation by reference to a Form 10-K or Form 10-KSB (459 
filings times 85 hours = 39,015 hours, which when divided by the 528 
total annual filings results in approximately 74 hours per Form S-
1). For Form S-4, we estimate an average incremental burden of 17 
hours, based on an estimate that 123 out of the 619 registration 
statements that we estimate will be filed on Form S-4 will not 
include the disclosure contemplated by these rule changes through 
incorporation by reference to a Form 10-K or Form 10-KSB (123 
filings times 85 hours = 10,455 hours, which when divided by the 619 
total annual filings results in approximately 17 hours per Form S-
4).
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    <bullet> Small business issuers filing annual reports on Form 10-
KSB will be subject to lower incremental costs than other issuers as a 
result of the amendments, given the reduced disclosure required by Item 
402 of Regulation S-B relative to Item 402 of Regulation S-K, as 
described above. As with companies filing annual reports on Form 10-K, 
we expect that small business issuers will experience greater costs in 
responding to the amended disclosure requirements in the first year of 
compliance with them, as systems are implemented to obtain the relevant 
data and disclosure controls and procedures with respect to new or 
expanded disclosure requirements are implemented, with lower 
incremental costs in subsequent years.
    <bullet> For Form 10-KSB, we estimate that it would take issuers an 
estimated 100 additional hours on average to prepare their disclosure 
under the amended requirements in year one, 35 additional hours in year 
two and 15 additional hours in year three and thereafter, which results 
in an average of 50 additional hours over the three year period. This 
estimate assumes that the burden would be incurred by either including 
the amended disclosure in the report directly or incorporating by 
reference from a proxy or information statement. This estimated 
incremental burden is based on a consideration of the extent to which 
the amendments will increase, decrease or not affect the burden imposed 
by the requirements in place prior to these amendments, as described in 
Section VIII.B., above. The incremental burden represents the estimate 
of the average burden across the range of companies that file annual 
reports on Form 10-KSB, recognizing that small business issuers with 
more complex executive and director compensation arrangements, more 
related person transactions and more involved corporate governance 
structures may require more time to comply with the amended disclosure 
requirements, while other small business issuers with potentially less 
complex circumstances, particularly the smallest companies in this 
group, are likely to require less time to comply with the amended 
requirements.
    <bullet> Small business issuers filing registration statements on 
Forms 10-SB and SB-2, including those small business issuers that are 
not already filing periodic reports pursuant to Exchange Act Sections 
13(a) or 15(d) and thus will not have been required to comply with the 
amended disclosure requirements prior to filing such registration 
statements, will take an estimated 45 additional hours on average to 
comply with the changes in the disclosure requirements. The additional 
time required by these registrants to obtain the relevant data and to 
compile the required information is offset to some extent by the fact 
that only one year of compensation information will generally be 
required for presentation in the Summary Compensation Table, as 
compared to two years for small business issuers already subject to 
Exchange Act reporting requirements.
    <bullet> Based on our experience with the requirement we adopted in 
1998 for issuers to write certain sections of prospectuses in plain 
English, drafting documents in plain English will result in an initial 
increase in time and cost burdens in the first year of implementation, 
and to a lesser extent, the second year, with those time or cost 
burdens decreasing in the year following implementation of the new 
rules. To the extent that companies incorporate required information by 
reference to proxy or information statements, the amended plain English 
requirements would apply to disclosure in those filings; however, the 
incremental burden of preparing plain English disclosure is factored 
into the burden estimates for Forms 10-K and 10-KSB. The plain English 
rule amendments will not affect the substance of the required 
disclosure, and companies that have filed registration statements under 
the Securities Act are already familiar with the requirements.
    <bullet> The amendments to increase to $120,000 the former $60,000 
threshold for disclosure of certain interests, transactions, and 
relationships of disinterested directors in Forms N-1A, N-2, and N-3 
and in proxy and information statements may increase or decrease 
existing disclosure burdens, or not affect them at all, depending on 
the particular circumstances. Because these forms are already required 
to disclose these interests, transactions, and relationships in amounts 
exceeding $60,000, we do not believe the increase in the disclosure 
threshold will significantly impact the hours of company personnel time 
and cost of outside professionals in responding to these items, and we 
estimate these amendments will neither increase nor decrease the annual 
paperwork burden.

[[Page 53217]]

    <bullet> Business development companies filing Form N-2 will be 
required to include Item 402 of Regulation S-K, as we are amending it, 
and will experience higher costs in responding to these disclosure 
requirements in the first year of complying with them, and, to a lesser 
extent, in the second year, as systems are implemented to obtain the 
relevant data and compliance efforts with respect to new or expanded 
disclosure requirements are implemented, with lower incremental costs 
expected in subsequent years.\580\
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    \580\ For Form N-2, we estimate that it will take business 
development companies 150 additional hours to prepare the amended 
disclosure in year one, 75 hours in year two and 30 hours in year 
three and thereafter, which results in an average of 85 hours for 
each business development company to comply with the amended 
compensation disclosures that would be required on Form N-2. We 
estimate an average annual incremental disclosure burden of 5 hours 
per Form N-2, based on 85 hours per Form N-2 filing by business 
development companies times 27 filings on Form N-2 by business 
development companies (representing all Form N-2 and N-2/A filings 
by business development companies during the year ended December 31, 
2005) (85 hours times 27 Form N-2 filings (including amendments) = 
2,295 hours), divided by 462 total annual filings on Form N-2 
(representing all Form N-2 and N-2/A filings during the year ended 
December 31, 2005) (2,295 hours divided by 462 filings on Form N-2 
(including amendments) = approximately 5 hours per Form N-2 
(including amendments)).
    We note that in the Proposing Release, we estimated 935 total 
annual filings on Form N-2 and N-2/A, but this higher number double 
counted certain filings that were made under both the Securities Act 
and the Investment Company Act. Our revised estimate is 462 annual 
filings.
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    Tables 1 and 2 below illustrate the incremental annual compliance 
burden in the collection of information in hours and cost for Exchange 
Act periodic reports for companies other than registered investment 
companies, proxy statements, information statements, Securities Act 
registration statements and Exchange Act registration statements.

    Table 1.--Calculation of Incremental Paperwork Reduction Act Burden Estimates for Exchange Act Periodic Reports, Proxy Statements and Information
                                                                       Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               $400
                          Form                                Annual        Incremental     Incremental     75% Issuer          25%        Professional
                                                             responses      hours/form        burden                       Professional        cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     (A)             (B)     (C)=(A)*(B)    (D)=(C)*0.75    (E)=(C)*0.25    (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
10-K \581\..............................................           8,602              95         817,190      612,892.50      204,297.50     $81,719,000
10-KSB..................................................           3,504              50         175,200      131,400.00       43,800.00      17,520,000
DEF 14A.................................................           7,250               3          21,750       16,312.50        5,437.50       2,175,000
DEF 14C.................................................             681               3           2,043        1,532.25          510.75         204,300
                                                                         -------------------------------------------------------------------------------
    Total...............................................  ..............  ..............       1,016,183      762,137.25      254,045.75     101,618,300
--------------------------------------------------------------------------------------------------------------------------------------------------------


 Table 2.--Calculation of Incremental Paperwork Reduction Act Burden Estimates for Securities Act Registration Statements and Exchange Act Registration
                                                                       Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               $400
                          Form                                Annual        Incremental     Incremental     75% Issuer          25%        Professional
                                                             responses      hours/form        burden                       Professional        cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     (A)             (B)     (C)=(A)*(B)    (D)=(C)*0.25    (E)=(C)*0.75    (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
10......................................................              72              85           6,120        1,530.00        4,590.00      $1,836,000
10-SB...................................................             166              45           7,470        1,867.50        5,602.50       2,241,000
SB-2....................................................             885              45          39,825        9,956.25       29,868.75      11,947,500
S-1.....................................................             528              74          39,072        9,768.00       29,304.00      11,721,600
S-4.....................................................             619              17          10,523        2,630.75        7,892.25       3,156,900
S-11....................................................              60              85           5,100        1,275.00        3,825.00       1,530,000
N-2.....................................................             462               5           2,310          577.50        1,732.50         693,000
                                                                         -------------------------------------------------------------------------------
    Total...............................................  ..............  ..............         110,420       27,605.00       82,815.00      33,126,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Exchange Act Current Reports
    For purposes of the Paperwork Reduction Act, we estimate that the 
amendments affecting the collection of information requirements related 
to current reports on Form 8-K will reduce the annual paperwork burden 
by approximately 6,458 hours of company personnel time and by a cost of 
approximately $861,000 for the services of outside professionals. This 
estimate reflects the reduction in the number of filings that could 
result from our amendments.\582\ These estimates were based on the 
following assumptions:
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    \581\ The burden estimates for Form 10-K and 10-KSB assume that 
the amended requirements are satisfied by either including 
information directly in the annual reports or incorporating the 
information by reference from the proxy statement or information 
statement in Schedule 14A or Schedule 14C, respectively. As 
described above, we now estimate that the changes to executive 
compensation and corporate governance disclosure requirements 
applicable only in proxy or information statements (and thus not in 
Securities Act registration statements or Exchange Act reports or 
registration statements) will impose an incremental burden.
    \582\ The amendments do not change the exhibit filing 
requirements under Item 601(b)(10) of Regulations S-K and S-B, 
therefore companies may be required to file compensatory plans, 
contracts or arrangements as exhibits to filings even if current 
reporting on Form 8-K is no longer required for the entry into or 
amendment of those plans, contracts or arrangements.
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    <bullet> The number of annual responses for Form 8-K is estimated 
to be 110,416.\583\ Based on a study of current reports on Form 8-K 
filed in September 2005, we estimate that approximately 22,083 current 
reports filed on Forms 8-K would be filed annually pursuant to Item 
1.01 of Form 8-K;
---------------------------------------------------------------------------

    \583\ This is based on the number of responses made in the 
period from October 1, 2004 through September 30, 2005.
---------------------------------------------------------------------------

    <bullet> Based on a review of Item 1.01 of Form 8-K filings made in 
September 2005, we estimate that 6,625 of the 22,083 current reports on 
Form 8-K that would be filed annually under Item 1.01

[[Page 53218]]

would relate to executive or director compensation matters; and
    <bullet> Based on a review of Item 1.01 of Form 8-K filings made in 
September 2005, we estimate that 1,722 fewer current reports on Form 8-
K would be filed annually as a result of more focused current reporting 
of executive officer and director compensation transactions under new 
Item 5.02(e) of Form 8-K.\584\
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    \584\ For Form 8-K, the current burden estimate is 5 hours per 
filing. We estimate that 75% of the burden of preparation is carried 
by the company internally and that 25% of the burden is carried by 
outside professionals retained by the issuer at an average cost of 
$400 per hour. The computation of the reduction in burden is thus 
based on 1,722 fewer current reports on Form 8-K filed with a per 
filing burden of 3.75 hours carried by the company and 1.25 hours at 
a cost of $400 per hour (or $500 per filing).
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IX. Cost-Benefit Analysis

A. Background

    We are adopting amendments to our rules governing disclosure of 
executive and director compensation, related person transactions, 
director independence and other corporate governance matters and 
security ownership of officers and directors. The revisions to the 
executive and director compensation disclosure rules are intended to 
provide investors with a clearer and more complete picture of 
compensation to principal executive officers, principal financial 
officers, the highest paid executive officers and directors. We are 
also amending our rules relating to current reports on Form 8-K to 
require real-time disclosure of only executive and director 
compensation events that are unquestionably or presumptively material, 
thereby reducing the number of filings for events relating to executive 
officers other than named executive officers and those officers 
specified in Item 5.02. We are amending our closely related rules 
requiring disclosure regarding the extent to which executive officers, 
directors, significant shareholders and other related persons 
participate in financial transactions and relationships with the 
issuer. We are amending our beneficial ownership disclosure requirement 
to require disclosure regarding pledges of securities by management and 
directors' qualifying shares. Finally, we are requiring that most of 
the disclosure that will be called for by the amendments be provided in 
plain English, so that investors can more easily understand this 
information when it is required to be included in Exchange Act reports 
or is incorporated by reference from proxy or information statements. 
While we believe that these amendments will result in significant 
benefits, we also recognize that the amendments to the disclosure 
requirements will impose additional costs. We have considered the costs 
and benefits in adopting these amendments.

B. Summary of Amendments

    In light of the complexity of, and variations in, compensation 
programs, the sometimes inflexible and highly formatted nature of 
former Item 402 of Regulations S-K and S-B has resulted, in some cases, 
in disclosure that does not clearly inform investors as to all elements 
of compensation. The changes to Item 402 apply a broader approach that 
eliminates some tables, simplifies or refocuses other tables, reflects 
total compensation in the Summary Compensation Table, and reorganizes 
the compensation tables to group together compensation elements that 
have similar functions so that the quantitative disclosure is both more 
informative and more easily understood. This improved quantitative 
disclosure will be complemented by enhanced narrative disclosure 
clearly and comprehensively describing the context in which 
compensation is paid and received. In particular, the narrative 
disclosure requirements will provide transparency regarding company 
compensation policies and procedures, and is designed to be 
sufficiently flexible to operate effectively as new forms of 
compensation continue to evolve.
    We have also taken into account the relative burden of providing 
disclosure by smaller companies that file information pursuant to 
Regulation S-B (as opposed to Regulation S-K). Under the amendments, 
the scope and presentation of information in Item 402 of Regulation S-B 
will differ in a number of significant ways from Item 402 of Regulation 
S-K. Item 402 of Regulation S-B will:
    <bullet> Limit the named executive officers for whom disclosure is 
required to a smaller group, consisting of the principal executive 
officer and the two other highest paid executive officers; \585\
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    \585\ Prior to these amendments, Item 402(a)(2) of Regulation S-
B required compensation disclosure for all individuals serving as 
the small business issuer's chief executive officer and the small 
business issuer's four highest paid executive officers other than 
the chief executive officer.
---------------------------------------------------------------------------

    <bullet> Require a revised Summary Compensation Table to disclose 
compensation information for the small business issuer's two most 
recent fiscal years, and to require that narrative disclosure accompany 
the Summary Compensation Table; \586\
---------------------------------------------------------------------------

    \586\ Prior to these amendments, Item 402(b)(1) of Regulation S-
B required disclosure in the Summary Compensation Table of 
compensation of the named executive officers for each of the last 
three fiscal years, and narrative disclosure was not required to 
accompany the Summary Compensation Table. Under the amendments 
adopted today, new narrative disclosure will address some elements 
of compensation previously required to be disclosed in tables.
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    <bullet> Provide a higher threshold for separate identification of 
categories of ``All Other Compensation'' in the Summary Compensation 
Table;
    <bullet> Require a new Outstanding Equity Awards at Fiscal Year-End 
Table that includes expanded disclosure regarding holdings of 
previously awarded stock, options and similar instruments, which 
includes the value of stock and other similar incentive plan awards 
that have not vested, as well as information regarding options on an 
award-by-award basis;
    <bullet> Require additional narrative disclosure addressing the 
material terms of defined benefit and defined contribution plans and 
other post-termination compensation arrangements; and
    <bullet> Require a new Director Compensation Table.
    Item 402 of Regulation S-B will not include the following 
disclosures that will be required by amended Item 402 of Regulation S-
K:
    <bullet> Compensation Discussion and Analysis or a Compensation 
Committee Report;
    <bullet> Information regarding two additional executive officers;
    <bullet> A third fiscal year of Summary Compensation Table 
disclosure;
    <bullet> The supplementary Grants of Plan-Based Awards Table, the 
Option Exercises and Stock Vested Table, the Pension Benefits Table, 
the Nonqualified Deferred Compensation Table, and the separate 
Potential Payments Upon Termination or Change-in-Control narrative 
section, while providing a general requirement to discuss the material 
terms of retirement plans and the material terms of contracts providing 
for payment upon a termination or change in control.

    In addition, the application of Item 1.01 of Form 8-K to 
compensatory arrangements has raised concerns that real-time disclosure 
may be required for executive compensation events that are not 
unquestionably or presumptively material, and that are more 
appropriately disclosed, if at all, in the company's proxy statement 
for its annual meeting of shareholders. The amendments to Items 1.01 
and 5.02 of

[[Page 53219]]

Form 8-K focus real-time disclosure on compensation arrangements with 
executives and directors that we believe are unquestionably or 
presumptively material, and eliminate the obligation to file Form 8-K 
with respect to other compensatory arrangements.
    Further, the amendments streamline and modernize Item 404 of 
Regulation S-K, while making it more principles-based. For example, 
indebtedness of related persons is limited by the Sarbanes-Oxley Act, 
and the disclosure requirement regarding indebtedness of related 
persons has been combined into the requirement regarding other 
transactions with related persons. This consolidated disclosure 
requirement applies to an expanded group of related persons through 
amendments to the definition of the term ``immediate family member.'' 
While the pre-existing principles for disclosure have been retained, 
the amendments increase the threshold for disclosure from $60,000 to 
$120,000 and eliminate or narrow the scope of certain instructions 
delineating what transactions are reportable or excludable. The 
disclosure requirements in Item 404 regarding transactions with 
promoters have been slightly expanded in the amendments to apply when a 
company had a promoter over the past five years, as well as to require 
analogous disclosure regarding transactions with control persons of a 
shell company.
    With respect to registered investment companies and business 
development companies, amendments to Items 22(b)(7), 22(b)(8), and 
22(b)(9) of Schedule 14A and to Forms N-1A, N-2, and N-3 similarly 
increase to $120,000 the former $60,000 threshold for disclosure of 
certain interests, transactions, and relationships of each director 
(and, in the case of Items 22(b)(7), 22(b)(8), and 22(b)(9) of Schedule 
14A, each nominee for election as director) who is not or would not be 
an ``interested person'' of the fund within the meaning of Section 
2(a)(19) of the Investment Company Act (and their immediate family 
members). In addition, amended Form N-2 requires business development 
companies to include the compensation disclosure required by Item 402 
of Regulation S-K, as amended.
    The amendments also replace the disclosure requirement for certain 
business relationships of directors that had been required by Item 
404(b) of Regulation S-K prior to these amendments, which focused on 
relationships relevant to director independence, with requirements for 
director independence disclosure in new Item 407 discussed below. Under 
the amendments, some of the disclosure that had been required under the 
certain business relationship disclosure requirement may be required by 
the consolidated disclosure requirement regarding transactions and 
relationships with related persons in Item 404(a) of Regulation S-K. 
Item 404(b) of Regulation S-K as amended requires disclosure regarding 
the company's policies for the review, approval or ratification of 
transactions with related persons.
    We are adopting similar amendments to Item 404 of Regulation S-B, 
which will result in a more detailed related person transaction 
disclosure requirement than had existed in Item 404 of Regulation S-B 
prior to these amendments. However, unlike Item 404 of Regulation S-K, 
Item 404 of Regulation S-B as amended does not require disclosure 
regarding the company's policies for the review, approval or 
ratification of transactions with related persons. We are retaining the 
requirement that transactions occurring within the last two years must 
be disclosed under Item 404 of Regulation S-B, whereas Item 404 of 
Regulation S-K requires disclosure for the last fiscal year, unless the 
information is included in a Securities Act or Exchange Act 
registration statement, where information as to the last three fiscal 
years is required.
    We are adopting a new disclosure requirement in Item 407 of 
Regulations S-K and S-B that consolidates disclosures previously 
required in several places throughout our rules addressing director 
independence, board committee functions and other related corporate 
governance matters. This new Item, which requires new disclosure 
regarding independence of members of the board of directors and board 
committees, is intended to enhance disclosures regarding independence 
required by corporate governance listing standards of national 
securities exchanges and automated inter-dealer quotation systems of a 
national securities association.\587\ Item 407 of Regulations S-K and 
S-B also includes a new disclosure requirement regarding the 
compensation committee's processes and procedures for the consideration 
and determination of executive and director compensation, and 
disclosure regarding the availability of the compensation committee's 
charter (if it has one), either as an appendix to the proxy or 
information statement at least once every three fiscal years or on the 
company's Web site. The amendments to Item 407 of Regulation S-K 
require a short Compensation Committee Report regarding the 
compensation committee's review and discussion with management of the 
Compensation Discussion and Analysis, and the compensation committee's 
recommendation to the Board with regard to the disclosure of the 
Compensation Discussion and Analysis. This new Compensation Committee 
Report, along with the Compensation Discussion and Analysis, is 
required instead of the Board Compensation Committee Report on 
Executive Compensation that was previously required by Item 402 of 
Regulation S-K prior to today's amendments.
---------------------------------------------------------------------------

    \587\ We are also adopting conforming revisions to Item 22(b) 
relating to the independence of members of nominating and audit 
committees of investment companies.
---------------------------------------------------------------------------

    To the extent that shares beneficially owned by named executive 
officers, directors and director nominees are used as collateral for 
loans, these shares are subject to risks or contingencies that do not 
apply to other shares beneficially owned by these persons. These 
circumstances have the potential to influence management's performance 
and decisions. As a result, we believe that the existence of these 
securities pledges could be material to shareholders and should be 
disclosed. We therefore are amending Item 403 of Regulations S-K and S-
B to require this disclosure as well as disclosure regarding directors' 
beneficial ownership of qualifying shares.
    We are requiring that most of the information that is required by 
these amendments be provided in plain English in Exchange Act reports 
or in proxy or information statements incorporated by reference into 
those reports. The plain English requirements will make these documents 
easier to understand.
    The amendments to Item 402 of Regulation S-K, Items 402 and 404 of 
Regulation S-B, and Form 8-K will affect all companies reporting under 
Sections 13(a) and 15(d) of the Exchange Act, other than registered 
investment companies. The amendments to Item 404 of Regulation S-K will 
affect all companies reporting under Sections 13(a) and 15(d) of the 
Exchange Act, other than registered investment companies, and all 
companies, including registered investment companies, filing proxy or 
information statements with respect to the election of directors. The 
changes to Items 402 and 404 of Regulation S-K and Regulation S-B will 
also affect additional companies filing Securities Act and Exchange Act 
registration statements. The changes to Item 22(b) of Schedule 14A will 
affect business

[[Page 53220]]

development companies and registered investment companies filing proxy 
statements with respect to the election of directors. The changes to 
Form N-1A will affect open-end investment companies registering with 
the Commission on Form N-1A. The changes to Form N-2 will affect 
closed-end investment companies (including business development 
companies) registering with the Commission on Form N-2. The changes to 
Form N-3 will affect separate accounts, organized as management 
investment companies and offering variable annuities, registering with 
the Commission on Form N-3.

C. Benefits

    As discussed, the overall goal of the executive and director 
compensation amendments is to provide investors with clearer, better 
organized and more complete disclosure regarding the mix, size and 
incentive components of executive and director compensation. This goal 
is accomplished by eliminating some tables and other disclosures that 
we believe may no longer be useful to investors, revising other tables 
so that they are more informative, and requiring new disclosure for 
retirement plans and similar benefits, nonqualified deferred 
compensation, post-termination benefits and director compensation. The 
amendments require enhanced narrative disclosure, in the form of a 
Compensation Discussion and Analysis section and narrative disclosure 
accompanying the tables, to explain the significant factors underlying 
the compensation decisions reflected in the tabular data. The 
amendments also require companies to report the total amount of 
compensation for named executive officers and directors, and provide 
important context to the disclosure of total compensation.
    Improved disclosure under the amendments of executive and director 
compensation, such as equity-based compensation, non-equity incentive 
plan compensation, and retirement and other post-employment 
compensation, combined with the ability of investors to track the 
elements of compensation and the relative weights of those elements 
over time (and the reasons why companies allocate compensation in the 
manner that they do), will better enable investors to make comparisons 
both within and across companies. A presentation facilitating the 
comparability of different elements of compensation in different 
companies should make it easier for investors to analyze both the 
manner of compensation across companies and the quality of compensation 
disclosure across companies. Disclosure of total compensation will 
benefit investors by reducing the need to make individual computations 
in order to assess the size of current compensation. Further, improved 
executive and director compensation disclosure will enhance investors' 
understanding of this use of corporate resources and the actions of 
boards of directors and compensation committees in making decisions in 
this area.\588\ Particularly with respect to the proxy statement for 
the annual meeting at which directors are elected, this improved 
disclosure will provide better information to shareholders for purposes 
of evaluating the actions of the board of directors in fulfilling its 
responsibilities to the company and its shareholders.
---------------------------------------------------------------------------

    \588\ For a discussion of the debate concerning board of 
directors and managerial decision-making in the area of executive 
compensation, see, e.g., Steven M. Bainbridge, Executive 
Compensation: Who Decides?, 83 Tex. L. Rev. 1615 (2005).
---------------------------------------------------------------------------

    With respect to the new Compensation Committee Report regarding the 
compensation committee's review and discussion with management of the 
Compensation Discussion and Analysis, and the compensation committee's 
recommendation to the board of directors with regard to disclosure of 
the Compensation Discussion and Analysis, we believe that benefits will 
be derived from the attention of the compensation committee to the 
disclosure provided in Compensation Discussion and Analysis. Further, 
the principal executive officer and principal financial officer can 
look to the Compensation Committee Report when providing their 
certifications. Finally, the Board Compensation Committee Report on 
Executive Compensation has been eliminated in favor of company 
disclosure in the form of the Compensation Discussion and Analysis, 
which will provide investors with enhanced disclosure about the 
objectives and implementation of executive compensation programs.
    We believe that the extent to which increased transparency and 
completeness in executive and director compensation disclosure will 
result in broader benefits depends at least in part on the extent to 
which current executive and director compensation practices are aligned 
with the interests of investors as reflected in their investment and 
voting decisions. Any changes to a company that might occur, including 
changes in corporate governance, changes in control, changes in the 
employment of particular executives or other changes could depend to 
some extent on the degree to which improved transparency in executive 
and director compensation will affect investors' decision-making with 
respect to that company.
    Disclosure under these new regulations will provide substantial 
benefit to investors in terms of the accuracy, transparency, 
completeness and accessibility of executive compensation and related 
person transaction disclosure. Improved transparency in executive and 
director compensation under these amendments could have other benefits 
in terms of the allocative efficiency of affected corporations with 
regard to the use of resources for executive compensation relative to 
other corporate needs, as well as improvements in efficiency of 
managerial labor markets. Benefits such as these depend on the extent 
to which the amendments, including requirements to disclose a total 
amount of compensation and more detail regarding compensation policies, 
alter existing and future policies or practices in these areas. We 
emphasize that we are not seeking to foster any particular policy or 
practice. Our objective is to increase transparency to enable decision-
makers to make more informed decisions, which could result in different 
policies or practices or an increase in investor confidence in existing 
policies or practices.
    Enhanced disclosure of outstanding option awards on an award-by-
award basis, and additional disclosure regarding other equity-based 
awards, will further benefit investors by making it easier to evaluate 
the components of equity compensation for each named executive officer 
and the valuations of those equity awards provided by companies in the 
Summary Compensation Table.
    The amendments to Form 8-K will facilitate shareholder and investor 
access to real-time disclosure of public companies' significant 
personnel and compensation decisions by focusing this disclosure only 
on what we believe are the most important compensatory arrangements 
with executive officers and directors. This information will be filed 
pursuant to Item 5.02 of Form 8-K. To find this information, 
shareholders and investors no longer will need to examine multiple Item 
1.01 disclosures relating to other actions. Companies will also be 
relieved of obligations to quickly report arguably less important 
compensation information on Form 8-K.
    The amendments to Item 404 will provide investors with more 
complete disclosure of related person transactions and director 
independence, and new disclosure regarding a company's policies and 
procedures for the review,

[[Page 53221]]

approval or ratification of relationships with related persons. These 
amendments will enhance investors' understanding of how corporate 
resources are used in related person transactions, and provide improved 
information to shareholders for purposes of better evaluating the 
actions of the board of directors and executive officers in fulfilling 
their responsibilities to the company and its shareholders.
    In addition, by combining similar provisions of former Item 404 
into a single combined disclosure requirement, the amendments will 
reduce confusion that may have occurred regarding the disclosure 
required when more than one of the provisions of Item 404 applied to a 
particular transaction or relationship before these amendments. 
Improved corporate governance disclosure in new Item 407 will provide 
investors with better organized and more complete information regarding 
the independence of members of the board of directors.
    The amendments to Item 403 of Regulation S-K and Regulation S-B 
will provide investors with disclosure of pledges of the securities 
beneficially owned by management and directors and full disclosure of 
beneficial ownership by directors, including directors' qualifying 
shares. This information will contribute to investor understanding of 
the economic incentives for executives and directors of public 
companies.
    Changes to Items 22(b)(7), 22(b)(8) and 22(b)(9) of Schedule 14A 
and to Forms N-1A, N-2, and N-3 may increase or decrease existing 
disclosure burdens imposed on investment companies, or not affect them 
at all, depending on the particular circumstances, by increasing the 
threshold for disclosure of certain interests, transactions, and 
relationships of each director (and, in the case of Items 22(b)(7), 
22(b)(8), and 22(b)(9) of Schedule 14A, each nominee for election as 
director) who is not or would not be an ``interested person'' of the 
fund within the meaning of Section 2(a)(19) of the Investment Company 
Act (and their immediate family members).
    The amendments to the executive and director compensation, related 
person transaction, beneficial ownership and corporate governance 
disclosure requirements will in many respects make these requirements 
clearer for companies and their advisors, which could have the benefit 
of improving overall compliance with these provisions, including those 
provisions where disclosure requirements have not changed 
substantively.
    Finally, presentation in plain English will facilitate investor 
understanding of most of the matters contemplated by our amendments.

D. Costs

    In our view, the amendments to the executive officer and director 
compensation, related person transaction and corporate governance 
disclosure requirements will increase the costs of complying with the 
Commission's rules. We further believe that the costs related to 
preparing required disclosure in plain English will be short-term costs 
arising mainly in the first two years of implementation.\589\
---------------------------------------------------------------------------

    \589\ The new plain English requirements will require both the 
rewriting of existing disclosures in plain English, as well as 
drafting new disclosures in plain English, such as Compensation 
Discussion and Analysis.
---------------------------------------------------------------------------

    We believe that compliance with these amendments will, on balance, 
be more costly for companies than compliance with the former disclosure 
requirements, with the highest incremental annual costs occurring 
principally in the first two years as companies and their advisors 
determine how best to compile and report information in response to new 
or expanded disclosure requirements.
    The improved quantitative and textual disclosure regarding 
executive and director compensation that we are adopting will 
incrementally increase costs for companies in several ways as a result 
of the following new or expanded requirements. First, we are requiring 
that companies provide a Compensation Discussion and Analysis involving 
a discussion and analysis of material factors underlying compensation 
decisions reflected in the tabular presentations.\590\ To respond to 
commenters' concerns that it is appropriate for the compensation 
committee to continue to focus on the executive compensation disclosure 
process as well as concerns with certifications, we are adopting a new 
Compensation Committee Report regarding the compensation committee's 
review and discussion with management of the Compensation Discussion 
and Analysis, and the compensation committee's recommendation to the 
board of directors with regard to the disclosure of the Compensation 
Discussion and Analysis. To the extent that members of the compensation 
committee would need to spend additional time and resources reviewing 
the executive and director compensation disclosures and potentially 
retaining experts and advisors to assist them in that review,\591\ this 
requirement will result in additional costs to issuers.
---------------------------------------------------------------------------

    \590\ The Compensation Discussion and Analysis, unlike the Board 
Compensation Committee Report on Executive Compensation that was 
required prior to the adoption of these amendments, but like all of 
the rest of the current compensation disclosure, is considered filed 
and as such will be part of the documents for which certifications 
apply. The new Compensation Committee Report will be furnished 
rather than filed. The release adopting our certification 
requirements discussed the costs and benefits of the requirements as 
follows:
    The new certification requirement may lead to some additional 
costs for issuers. The new rules require an issuer's principal 
executive and financial officers to review the issuer's periodic 
reports and to make the required certification. To the extent that 
corporate officers would need to spend additional time thinking 
critically about the overall context of their company's disclosure, 
issuers would incur costs (although investors would benefit from 
improved disclosure). The certification requirement creates a new 
legal obligation for an issuer's principal executive and financial 
officers, but does not change the standard of legal liability. * * * 
Conversely, the new rules are likely to provide significant benefits 
by ensuring that information about an issuer's business and 
financial condition is adequately reviewed by the issuer's principal 
executive and financial officers. Certification Release, at Section 
VII.
    \591\ While our rules do not require the retention of 
consultants or other advisers, to the extent that companies do 
retain compensation consultants or other professionals we understand 
that they would generally charge per-hour rates comparable to those 
rates charged by outside counsel, which we have estimated for the 
purposes of our Paperwork Reduction Act analysis are approximately 
$400 per hour.
---------------------------------------------------------------------------

    In addition to the Compensation Discussion and Analysis section, we 
are requiring narrative disclosure to accompany tabular presentations 
so that the data included in the tables may be understood in context. 
We are also expanding disclosure regarding compensation-related equity-
based and other plan-based holdings, as well as retirement and similar 
plans. Finally, we are adopting a Director Compensation Table that will 
require more detailed information regarding director compensation than 
was specified in the narrative disclosure requirement that existed 
prior to today's amendments. Each of these revisions seeks to elicit 
clearer and more complete information than was required under the 
requirements in place before adoption of these amendments. We have also 
decided to retain the Performance Graph in light of commenters' 
overwhelming support for this disclosure requirement, but we are moving 
it to new paragraph (e) of Item 201 of Regulation S-K and requiring 
that it will be furnished in the annual report to security holders 
rather than the proxy or information statement. Since we originally 
proposed to delete the Performance Graph altogether, its retention 
requires us to consider the costs incurred by issuers to continue to 
comply with this requirement; however,

[[Page 53222]]

the substance of what is required with regard to the Performance Graph 
will not change substantially from what was required prior to the 
adoption of these amendments.
    While the Summary Compensation Table as amended will require 
reporting of the grant date fair value of equity-based awards, we do 
not believe that this change will increase costs for companies, because 
the computation of the grant date fair values of stock, options and 
similar instruments already is required for financial statement 
purposes as a result of the implementation of FAS 123R. Companies may 
incur additional costs, however, in determining the year to year 
incremental changes in the actuarial present value of the named 
executive officers' accumulated benefit under defined benefit and 
actuarial pension plans for the purposes of reporting such compensation 
in the Summary Compensation Table. In an effort to reduce costs in 
response to commenters' suggestions, we have revised the requirement to 
specify that in computing the amount to be disclosed under the 
amendments, companies must use the same assumptions (other than the 
normal retirement age) that they use for financial reporting purposes 
under generally accepted accounting principles. Another change which 
may help to make the calculation less costly is our revision to the 
proposal that the incremental change in the actuarial present value of 
the named executive officers' accumulated benefit under defined benefit 
and actuarial pension plans required in the Summary Compensation Table 
directly correspond to the disclosure required in the Pension Benefits 
Table. Therefore, a second and different calculation of pension 
benefits is not being adopted as proposed. Costs may also arise from 
the reporting of other compensation in the All Other Compensation 
Column of the Summary Compensation Table. We do not believe that the 
addition of a ``Total'' column to the Summary Compensation Table in and 
of itself will increase costs, because former disclosure requirements 
already mandated the disclosure of all compensation, and the mechanical 
process of adding up disclosure amounts should not be significant.
    Companies will incur additional costs associated with disclosing 
the number and key terms of out-of-the-money instruments in the 
Outstanding Equity Awards at Fiscal Year-End Table. As adopted, this 
table will require companies to disclose, on an award-by-award basis, 
the number of underlying securities, the exercise or base price and the 
expiration date with respect to each award of unexercised options, 
stock appreciation rights and similar instruments with option-like 
features. Given the detailed information required, the disclosure 
generated may be lengthy, but commenters indicated that this 
information is meaningful to them.\592\ Instead of disclosure on an 
aggregate basis, as was proposed and as was required for some 
outstanding option awards before adoption of these amendments, the 
disclosure of individual awards will enable investors to understand the 
extent and magnitude to which an executive's previously awarded options 
provide the potential to generate upside growth in the value of these 
holdings.\593\ We have attempted to minimize the cost of this rule as 
amended by requiring that companies list only the key terms of the 
securities, as opposed to computing the weighted average of exercise 
prices or some other calculation necessary for the purposes of 
aggregation.
---------------------------------------------------------------------------

    \592\ Several commenters recommended expanded disclosure of the 
number and key terms of out-of-the-money instruments. See n. 277. 
Other commenters suggested award-by-award disclosure for options. 
See letters from Hodak Value Advisors and The Rock Center for 
Corporate Governance.
    \593\ See, e.g., letters from Brian Foley & Co.; Buck 
Consultants; and Grundfest.
---------------------------------------------------------------------------

    Additional costs may also be incurred in preparing and presenting 
required disclosures regarding retirement benefits, deferred 
compensation and post-termination or change in control payments, to the 
extent that information regarding these matters is not currently 
collected in a way that would facilitate disclosure under the 
amendments. However, these costs will likely be mitigated to some 
extent for the following reasons:
    <bullet> As noted above, the calculation of the actuarial value of 
pension benefits required in the Pension Benefits Table and the Summary 
Compensation Table will be standardized to a significant extent by 
requiring companies to use many of the same assumptions for purposes of 
these calculations as they use for financial reporting purposes under 
generally accepted accounting principles;
    <bullet> The Pension Benefits Table will not require different 
calculations from those called for in the Summary Compensation Table 
and will not require the disclosure of estimated retirement benefits 
payable upon early retirement, as proposed; and
    <bullet> We have adopted commenters' suggestions that the 
quantitative disclosure required for post-termination agreements in new 
Item 402(j) of Regulation S-K be calculated by applying standard 
assumptions as to the share price of the company's securities and the 
date of the event triggering termination.
    In addition, because the determination of named executive officers 
will be based on total compensation rather than salary and bonus, some 
companies will incur higher costs tracking the compensation paid to all 
executive officers in order to determine which are the most highly 
compensated. At the same time, however, companies will not be required 
to track the incremental change in the value of pension benefits or the 
amount of above-market or preferential earnings on nonqualified 
deferred compensation for purposes of identifying named executive 
officers, as they would have under the proposed requirements.
    Under the amendments regarding Form 8-K, disclosure regarding 
executive and director arrangements and other plans that are no longer 
required to be reported within four days under Item 1.01 of Form 8-K 
will be required to be disclosed by way of the exhibit filing 
requirements on at least a quarterly basis. To the extent that a 
reduction in timeliness of this information will reduce its value to 
investors, the amendments may impose costs on investors other than 
those associated with transitioning to the new threshold.
    We believe that there will be some increase in the cost of 
complying with the related person transaction disclosure requirement 
and corporate governance disclosures. The amendments may increase the 
cost of complying with the related person transaction disclosure 
requirement by eliminating or reducing the scope of certain 
instructions and by expanding the group of related persons covered to 
include additional ``immediate family members.'' We did not adopt, as 
proposed, a requirement for disclosure of indebtedness transactions 
with significant shareholders. Similarly, with respect to registered 
investment companies and business development companies, amendments to 
Items 22(b)(7), 22(b)(8), and 22(b)(9) of Schedule 14A and to Forms N-
1A, N-2, and N-3 will increase to $120,000 the former $60,000 threshold 
for disclosure of certain interests, transactions, and relationships of 
each director (and, in the case of Items 22(b)(7), 22(b)(8), and 
22(b)(9) of Schedule 14A, each nominee for election as director) who is 
not or would not be an ``interested person'' of the fund within the 
meaning of Section 2(a)(19) of the Investment Company Act (and their 
immediate family members).

[[Page 53223]]

Since these forms already require such disclosure using the $60,000 
threshold, we do not believe the amendments would impose additional 
costs.
    Amended Item 404(b) of Regulation S-K introduces new costs by 
imposing new disclosure requirements on companies regarding their 
policies for review, approval or ratification of related person 
transactions. In order to comply with disclosure requirements regarding 
policies for the review, approval or ratification of related person 
transactions, we understand that companies will incur costs of 
collecting the type of information that will be required to be 
disclosed. These costs will be higher to the extent companies do not 
already collect this information, either pursuant to their corporate 
governance policies or through directors' and officers' questionnaires. 
The new rules do not require companies to create new policies or 
processes for review, approval or ratification of relationships with 
related persons. However, to the extent that companies do create new 
policies or processes that require the collection of different or 
additional information, they may incur incremental costs.
    The amended disclosures regarding director independence are similar 
to disclosure requirements under the proxy rules regarding the 
independence of directors who are members of the company's audit and 
nominating committees. Thus, for companies that are subject to the 
proxy rules, the task of complying with the disclosure requirement 
regarding director independence can be performed by the same person or 
group of persons already responsible for compliance with the rules 
requiring disclosure about the independence of nominating and audit 
committee members. Because the rules prior to these amendments already 
required companies subject to the proxy rules to collect and disclose 
information about the independence of directors who serve on the audit 
and nominating committees, this amended disclosure should not impose 
significant new costs for the collection of information by companies 
that are subject to the proxy rules. The new disclosure requirement 
regarding director and committee member independence may require 
disclosure of additional categories or types of director relationships. 
Additional costs may be incurred in seeking this information. However, 
such costs are limited by the extent to which companies already 
identify and track the relationships that may be required to be 
disclosed for the purposes of complying with pre-existing disclosure 
requirements or corporate governance listing standards. Finally, 
additional costs may be incurred by companies complying with Item 
407(a) when companies rely on an exemption from independence standards, 
as we are requiring disclosure regarding reliance on any such 
exemption, including the basis for the conclusion that the exemption is 
available.
    We believe that, overall, the costs noted above which are 
associated with the amended disclosure requirements for related person 
transactions and director independence will be offset to some extent by 
cost decreases associated with narrowing the scope of other disclosure 
requirements under the amendments, such as the disclosure that was 
required about director relationships under Item 404(b) of Regulation 
S-K before today's amendments. In this regard, we believe that 
companies will generally be required to provide an amount of 
information that is comparable to what had been required by our rules 
before the amendments. However, under the amendments the information 
regarding these matters will be presented in a manner that recognizes 
recent changes, such as the imposition of corporate governance listing 
standards at the major markets.
    Moreover, our amendments to the related person transaction and 
director independence disclosure requirements differ in certain 
respects from the proposals, which may lessen the expected compliance 
costs. In response to commenters' concerns, we are retaining certain 
exceptions to the related person transaction disclosure requirements 
that existed under the rules prior to these amendments, and we are not 
requiring disclosure of indebtedness transactions with significant 
shareholders (or their immediate family members). For the amended 
disclosures under new Item 407(a), any additional compliance costs 
associated with requiring companies to disclose the transactions, 
relationships and arrangements considered by the board of directors in 
determining the independence of directors or director nominees is 
mitigated to some extent because the amendments require only the 
disclosure of the specific type or category of transactions considered 
by the board of directors that are not otherwise disclosed under the 
related person transaction disclosure requirement of Item 404(a). In 
contrast, under the rule proposals, disclosure of the specific details 
of each such transaction, relationship or arrangement would have been 
required. Furthermore, in response to several commenters, we have 
eliminated the proposed requirement under new Item 407(e) to identify 
any executive officer within the company that a compensation consultant 
contacted in carrying out its assignment. The overall effect of these 
modifications to Items 404(a) and 407 as they were proposed will be to 
reduce the number and type of transactions or contacts for which 
disclosure will be required under the new rules and lessen the 
aggregate burden imposed on companies to comply with the new rules. We 
recognize, as suggested by commenters, that additional costs may be 
incurred in preparing the additional disclosures required regarding the 
compensation committee process, including disclosure regarding the use 
of compensation consultants, as well as in the compensation committee's 
involvement with the Compensation Discussion and Analysis through the 
Compensation Committee Report.
    Our plain English amendments require that companies use a clear 
writing style to present the information about executive and director 
compensation, related person transactions, beneficial ownership and 
some corporate governance matters that are required to be disclosed in 
Exchange Act reports such as annual reports on Forms 10-K or 10-KSB. We 
believe the amended rules will result in a short-term increase in costs 
for companies as they rewrite the information required to be included 
in annual reports or incorporated by reference from proxy or 
information statements, but few additional costs after the first year 
or two of implementation, as companies become familiar with the 
organizational, language, and document structure changes necessary to 
comply with these amendments. Additional costs, if any, should be one-
time or otherwise short-term.
    We believe that there would be little, if any, increase in the cost 
of complying with the beneficial ownership rule amendments. A company 
will be required to disclose named executive officer, director and 
director nominee pledges of securities, and directors' full beneficial 
ownership of equity securities, including directors' qualifying shares. 
The company can inquire as to this information in questionnaires it 
already circulates to the company's officers and directors.
    For purposes of the Paperwork Reduction Act, we have estimated the 
annual incremental increase in the paperwork burden for companies to 
comply with our collection of information requirements to be 
approximately 783,284 hours of in-house company personnel time and to 
be approximately $133,883,300 for the

[[Page 53224]]

services of outside professionals. As noted in the Paperwork Reduction 
Act section, we have revised these estimates both in response to 
comments about the proposed estimates and in light of the changes we 
have made from the proposal.\594\ These costs are based on our 
estimates that the annual incremental disclosure burden imposed by the 
revisions that we adopt today will average 95 hours per Form 10-K; 50 
hours per Form 10-KSB; 3 hours per Schedule 14A and Schedule 14C; 85 
hours per Form 10; 45 hours per Forms 10-SB and SB-2; 74 hours per Form 
S-1; 17 hours per Form S-4; 85 hours per Form S-11; and 5 hours per 
Form N-2. We estimate that the amendments to Item 22(b) of Schedule 14A 
and increasing to $120,000 the former $60,000 threshold for disclosure 
of certain interests, transactions, and relationships of each director 
in Forms N-1A, N-2, and N-3 will not impose an annual incremental 
disclosure burden. These estimated costs include an estimated reduction 
in costs attributable to current reports on Form 8-K of approximately 
6,458 hours of company personnel time and by a cost of approximately 
$861,000 for the services of outside professionals, based on an 
estimate that 1,722 fewer current reports on Form 8-K will be filed 
because of more focused current reporting of compensation transactions. 
Based on these estimates solely computed for the purposes of the 
Paperwork Reduction Act and assuming that the cost of in-house company 
personnel time is $175, the total estimated incremental costs of the 
amendments is approximately $270,958,000. These estimates of 
incremental costs, which were prepared for the purposes of the 
Paperwork Reduction Act, are limited to hours and costs associated with 
collecting information, preparing disclosure, filing forms, and 
retaining records imposed by the applicable forms, and were based in 
part with reference to the pre-existing burden estimates for each of 
the forms.
---------------------------------------------------------------------------

    \594\ See Section VIII. above.
---------------------------------------------------------------------------

X. Consideration of Burden on Competition and Promotion of Efficiency, 
Competition and Capital Formation

    Exchange Act Section 23(a)(2) \595\ requires us, when adopting 
rules under the Exchange Act, to consider the impact that any new rule 
would have on competition. In addition, Section 23(a)(2) prohibits us 
from adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. Furthermore, Securities Act Section 2(b),\596\ Exchange Act 
Section 3(f) \597\ and Investment Company Act Section 2(c) \598\ 
require us, when engaging in rulemaking where we are required to 
consider or determine whether an action is necessary or appropriate in 
the public interest, to consider, in addition to the protection of 
investors, whether the action will promote efficiency, competition, and 
capital formation.
---------------------------------------------------------------------------

    \595\ 15 U.S.C. 78w(a)(2).
    \596\ 15 U.S.C. 77b(b).
    \597\ 15 U.S.C. 78c(f).
    \598\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------

    We have also discussed other impacts of the amendments in our Cost-
Benefit, Paperwork Reduction Act and Final Regulatory Flexibility Act 
Analyses. The amendments to Regulations S-K and S-B, to Items 8 and 
22(b) of Schedule 14A, and to Forms N-1A, N-2, and N-3 are intended to 
improve the completeness and clarity of executive compensation and 
related person transactions disclosure available to investors and the 
financial markets. These amendments will enhance investors' 
understanding of how corporate resources are used, and enable 
shareholders to better evaluate the actions of the board of directors 
in fulfilling their responsibilities, as well as the incentives for 
executive officers.
    The amendments to Form 8-K are intended to facilitate the ability 
of investors and shareholders to access real-time disclosure of public 
companies' executive compensation events that are unquestionably or 
presumptively material by requiring this disclosure only for 
compensatory agreements with specified executive officers. To find this 
information, shareholders and investors no longer need to examine 
multiple Form 8-K disclosures relating to other executive officers or 
other material non-ordinary course definitive agreements.
    The amendments to expand and consolidate into one item the director 
independence and related corporate governance disclosure requirements 
in new Item 407 of Regulation S-K will improve the understanding of 
shareholders and investors about the composition and functions of the 
board of directors and board committees. Amendments to beneficial 
ownership reporting requiring disclosure of pledged securities and 
director qualifying shares are intended to improve the disclosure 
regarding security holdings of directors and executive officers.
    The requirement that most of the information called for in these 
amendments be written in plain English is intended to make Exchange Act 
reports and proxy or information statements incorporated by reference 
in those reports easier to understand. Thus, the amended rules will 
enhance the reporting requirements in place before adoption of these 
amendments by providing more effective material disclosure to investors 
in a timely manner. We anticipate that these amendments will improve 
investors' ability to make informed investment and voting decisions 
and, therefore, may lead to increased efficiency and competitiveness of 
the U.S. capital markets. As discussed more fully in our Cost-Benefit 
Analysis, improved transparency in disclosure under these amendments 
could have other benefits in terms of the allocative efficiency of 
affected corporations with regard to the use of resources for executive 
compensation relative to other corporate needs, as well as improvements 
in efficiency of managerial labor markets.
    Some commenters were concerned as to whether including examples in 
the principles-based Compensation Discussion and Analysis disclosure 
item would in some way cause companies and compensation committees to 
feel obligated to conform their compensation decision-making processes 
to those examples. As we discussed in Section II.B.1., we emphasize 
that application of a particular example must be tailored to the 
company. We believe using a disclosure concept along with illustrative 
examples strikes an appropriate balance to effectively elicit 
meaningful disclosure applicable to the company. Companies must assess 
the materiality to investors of the information that is identified by 
the examples in light of the particular situation of the company.
    We recognize that increased time and resources will need to be 
devoted by companies and their officers, directors and advisors to 
prepare the revised disclosures required by these amendments. As 
discussed in more detail above, we have made substantive modifications 
to the proposals to address, in part, cost and burden concerns raised 
by some commenters.\599 \ We have also revisited and increased our 
burden estimates for Paperwork Reduction Act purposes. Ultimately, the 
impact of additional

[[Page 53225]]

resources being used by companies to prepare the new disclosures will 
be borne by the companies' shareholders. Based on the extensive comment 
we received from investors supporting our proposals, strong evidence 
suggests that shareholders are willing to bear these costs.\600\
---------------------------------------------------------------------------

    \599\ For example, we have attempted to reduce the burden on 
quantifying post-employment compensation. See Section II.C.5. In 
addition, several of our other modifications to the proposals were 
made to address some commenter concerns over the possible perception 
of ``double-counting'' of compensation elements, which should also 
help to improve the utility of the compensation disclosures to 
investors.
    \600\ See, e.g., letters from CalPERS; CalSTRS; D. Cayot; CII; 
CRPTF; C. Green; ICI; Institutional Investors Group; M. McPherson; 
A. Silverstein; and M. von Euler.
---------------------------------------------------------------------------

    Because only companies subject to the reporting requirements of 
Sections 13 and 15 of the Exchange Act, and companies filing 
registration statements under the Securities Act and Exchange Act, will 
be required to make the amended disclosures required by Items 402, 404 
and 407, competitors not in those categories could gain an 
informational advantage. However, with respect to executive 
compensation, as under Item 402 before adoption of these amendments, a 
company will not be required to disclose target levels with respect to 
specific quantitative or qualitative performance-related factors, or 
any other factors or criteria involving confidential trade secrets and 
commercial or financial information, the disclosure of which would 
result in competitive harm to the company. Notwithstanding this 
exception for competitively sensitive information, competitors could 
potentially gain additional insight into the executive compensation 
policies of companies through disclosure required in Compensation 
Discussion and Analysis and in other portions of the required 
disclosure. Further, the availability of more broad-based compensation 
disclosure may provide additional information to be used by competitors 
in recruiting executive talent, although much of this information is 
already available from compensation consultants and other sources.
    We have considered any impact the amendments may have on smaller as 
opposed to larger public companies, including the ability of smaller 
companies to absorb the costs of the amendments and whether any 
resulting disproportionate impact might affect the competitiveness of 
smaller issuers or their capital formation decisions. Further, as 
discussed in our Final Regulatory Flexibility Act Analysis, we have 
considered alternatives to minimize any significant adverse impact on 
smaller companies, including adopting different and less restrictive 
reporting requirements for small business issuers under Regulation S-B, 
particularly given that small business issuer compensation structures 
are likely to be less complex than those of larger issuers. We believe 
the changes that are reflected in the amendments to Regulation S-B will 
balance the information needs of investors in smaller companies with 
the burdens imposed on such companies by the disclosure requirements.
    We do not expect that the incremental effect of the amendments 
overall will have a material effect on competition. We expect that the 
amended reporting requirements will enhance the efficiency of capital 
formation. Investors have stated that they believe that the improved 
transparency and completeness of executive compensation information 
resulting from these amendments will help them make more informed 
investment and voting decisions.\601\ Investors are likely to be more 
confident allocating capital to firms in which compensation practices 
are well-aligned with the investors' interests when investors possess 
more information regarding executive compensation. Improved 
transparency thus may encourage investors to commit their capital and 
thereby facilitate issuers' access to capital.
---------------------------------------------------------------------------

    \601\ See, e.g., letters from CII; CFA Centre 1; ICI; and ISS.
---------------------------------------------------------------------------

XI. Final Regulatory Flexibility Act Analysis

    This Final Regulatory Flexibility Act Analysis has been prepared in 
accordance with 5 U.S.C. 603. It relates to revisions to the rules and 
forms under the Securities Act and Exchange Act that seek to improve 
the clarity and completeness of companies' disclosure of the 
compensation earned by the principal executive officer, principal 
financial officer,\602\ other highly paid executive officers and all 
members of the board of directors, and of related person transactions. 
These changes include amending the executive and director compensation 
disclosure requirements, modifying our rules so that only elements of 
compensation that are unquestionably or presumptively material to 
investors must be disclosed in current reports on Form 8-K, 
streamlining and modernizing disclosure requirements regarding related 
person transactions, adding disclosure regarding pledges of securities 
beneficially owned by executive officers and directors and regarding 
directors' qualifying shares, consolidating corporate governance 
disclosure requirements and expanding disclosure regarding the 
independence of the board of directors, as well as requiring that most 
of the disclosure required by the amended rules be provided in plain 
English.
---------------------------------------------------------------------------

    \602\ The principal financial officer is not specified as a 
named executive officer in Item 402 of Regulation S-B.
---------------------------------------------------------------------------

A. Need for the Rules and Amendments

    On January 27, 2006, we issued proposals to change the rules 
requiring disclosure of executive and director compensation, related 
person transactions, director independence and other corporate 
governance matters, and security ownership of officers and directors.
    We are adopting amendments that establish a broader-based approach 
to eliciting executive and director compensation disclosure, while 
retaining comparability. In addition, we are adopting amendments to 
Form 8-K in order to focus current disclosure on compensation-related 
events that are unquestionably or presumptively material to investors. 
Given the close relationship between executive and director 
compensation and other financial transactions and relationships 
involving companies and their directors, executive officers, 
significant shareholders and respective immediate family members, we 
are also adopting amendments to streamline and modernize the related 
person transaction disclosure requirements, while also making the 
requirements more principles-based and expanding the requirements to 
elicit disclosure about policies and procedures for the review, 
approval or ratification of related person transactions.\603\ With 
respect to disclosure about director independence, we are replacing 
requirements for disclosure about specific relationships that can 
affect director independence with a narrative explanation of the 
independence status of directors under a company's independence 
policies for the majority of the board and for the nominating, audit 
and compensation committees. We are also consolidating these and other 
requirements regarding director independence, board committees and 
other corporate governance matters in a new disclosure item. In 
addition, we are adopting corresponding changes to items in our 
registration forms and proxy and information statements filed by 
registered investment companies and business development companies that 
impose requirements to disclose certain interests, transactions, and 
relationships of each director or nominee for election as director who 
is not or would not be

[[Page 53226]]

an ``interested person'' of the fund within the meaning of Section 
2(a)(19) of the Investment Company Act (and their immediate family 
members). Further, we are adopting amendments to require disclosure of 
the number of shares pledged by named executive officers, directors and 
director nominees, given that these shares are subject to risks and 
contingencies that do not apply to other shares beneficially owned by 
these persons. Finally, in order to emphasize that most of these 
amended requirements must be presented in a manner that is clear, 
concise and understandable for investors, we are adopting rules 
requiring that the disclosure regarding executive and director 
compensation, beneficial ownership, related person transactions and 
most corporate governance matters be provided in plain English when 
included in Exchange Act reports.
---------------------------------------------------------------------------

    \603\ Item 404 of Regulation S-B as adopted does not require 
disclosure about policies and procedures for the review, approval or 
ratification of related person transactions.
---------------------------------------------------------------------------

B. Significant Issues Raised by Public Comment

    In the Proposing Release, we requested comment on any aspect of the 
Initial Regulatory Flexibility Act Analysis, including the number of 
small entities that would be affected by the proposals, and both the 
qualitative and quantitative nature of the impact. Several commenters 
noted that costs and burdens arising from the proposals would have 
disproportionately affected small business issuers and smaller public 
companies that are not small business issuers but did not provide any 
specific comments on the Initial Regulatory Flexibility Act 
Analysis.\604\ As summarized in Section XI.D. below and discussed in 
greater detail in previous sections, we have taken these comments into 
account in adopting different requirements for small business issuers.
---------------------------------------------------------------------------

    \604\ See, e.g., letters from ABA; ACB; ICBA; and SCSGP.
---------------------------------------------------------------------------

C. Small Entities Subject to the Rules and Amendments

    The amendments will affect small entities, the securities of which 
are registered under Section 12 of the Exchange Act or that are 
required to file reports under Section 15(d) of the Exchange Act. The 
amendments also will affect small entities that file, or have filed, a 
registration statement that has not yet become effective under the 
Securities Act or the Exchange Act and that has not been withdrawn. 
Securities Act Rule 157 \605\ and Exchange Act Rule 0-10(a) \606\ 
define an issuer to be a ``small business'' or ``small organization'' 
for purposes of the Regulatory Flexibility Act if it had total assets 
of $5 million or less on the last day of its most recent fiscal year. 
These are the types of entities that we refer to as small entities in 
this section. We believe that the amendments will affect small entities 
that are operating companies. We estimate that there are approximately 
2,500 issuers, other than investment companies, that may be considered 
small entities. An investment company is considered to be a ``small 
business'' if it, together with other investment companies in the same 
group of related investment companies, has net assets of $50 million or 
less as of the end of its most recent fiscal year.\607\ We believe that 
the amendments will affect small entities that are investment 
companies. We estimate that there are approximately 240 investment 
companies that may be considered small entities.
---------------------------------------------------------------------------

    \605\ 17 CFR 230.157.
    \606\ 17 CFR 240.0-10(a).
    \607\ 17 CFR 270.0-10(a).
---------------------------------------------------------------------------

D. Reporting, Recordkeeping and Other Compliance Requirements

    We note that small business issuers,\608\ which is a broader 
category of issuers than small entities, in certain circumstances may 
provide the executive and director compensation, relationships with 
related persons and promoters, beneficial ownership and corporate 
governance disclosure specified, respectively, in Items 402, 403, 404 
and 407 of Regulation S-B, rather than the corresponding disclosure 
specified in Items 402, 403, 404 and 407 of Regulation S-K.
---------------------------------------------------------------------------

    \608\ Item 10 of Regulation S-B (17 CFR 228.10) defines a small 
business issuer as a registrant that has revenues of less than $25 
million, is a U.S. or Canadian issuer, is not an investment company, 
and has a public float of less than $25 million. Also, if it is a 
majority owned subsidiary, the parent corporation also must be a 
small business issuer.
---------------------------------------------------------------------------

    The amendments to Item 402 of Regulation S-K expand some former 
disclosure requirements, and consolidate or eliminate others. The 
amendments to Item 402 of Regulation S-B will require less extensive 
disclosure for small business issuers than will be required for 
companies complying with Item 402 of Regulation S-K as amended. Under 
the amendments, the scope and presentation of information in Item 402 
of Regulation S-B will differ in a number of significant ways from Item 
402 of Regulation S-K. Item 402 of Regulation S-B will:
    <bullet> Limit the named executive officers for whom disclosure 
will be required to a smaller group, consisting of the principal 
executive officer and the two other highest paid executive officers;
    <bullet> Require that the Summary Compensation Table disclose the 
two most recent fiscal years and that narrative disclosure accompany 
the Summary Compensation Table;
    <bullet> Provide a higher threshold for separate identification of 
categories of ``All Other Compensation'' in the Summary Compensation 
Table;
    <bullet> Require the Outstanding Equity Awards at Fiscal Year-End 
Table;
    <bullet> Require additional narrative disclosure addressing the 
material terms of defined benefit and defined contribution plans and 
other post-termination compensation arrangements; and
    <bullet> Require the Director Compensation Table.
    New Item 402 of Regulation S-B does not include the following 
disclosures that are required by new Item 402 of Regulation S-K:
    <bullet> Compensation Discussion and Analysis or a Compensation 
Committee Report;
    <bullet> Information regarding two additional executive officers;
    <bullet> The third fiscal year of Summary Compensation Table 
disclosure; and
    <bullet> The supplementary Grants of Plan-Based Awards Table, the 
Option Exercises and Stock Vested Table, the Pension Benefits Table, 
and the Nonqualified Deferred Compensation Table and the separate 
Potential Payments Upon Termination or Change-in-Control narrative 
section, while providing a general requirement to discuss the material 
terms of retirement plans and the material terms of contracts providing 
for payment upon a termination or change in control.
    As a result, the amendments to Item 402 of Regulation S-B will not 
result in the same level of incremental increase in costs or burdens as 
will the requirements of amendments to Item 402 of Regulation S-K.
    The amendments to Item 404 of Regulations S-K and S-B will decrease 
the related person transaction disclosure requirement that companies, 
including small entities, must comply with in some respects and expand 
it in other respects. The amendments to Item 404 of Regulation S-B will 
potentially decrease the scope of the related person transaction 
disclosure requirement by changing the $60,000 threshold for disclosure 
of related person transactions to the lesser of $120,000 or one percent 
of the average of the small business issuers' total assets at year-end 
for the last three completed fiscal years.\609\ At

[[Page 53227]]

the same time, the amendments to Item 404 of Regulation S-B will 
increase the scope of the related person transaction disclosure 
requirement by expanding the group of related persons covered to 
include additional ``immediate family members.'' In addition, the 
amendments may decrease or increase the scope of the related person 
transaction disclosure requirement by eliminating or reducing the scope 
of instructions that provide bright line tests for whether related 
person transaction disclosure is required.
---------------------------------------------------------------------------

    \609\ Amended Item 404(a) of Regulation S-K only includes 
$120,000 as the threshold.
---------------------------------------------------------------------------

    Unlike the amendments to Item 404 of Regulation S-K, the amendments 
to Item 404 of Regulation S-B will not impose an additional disclosure 
requirement for small business issuers, including small entities, 
regarding their policies and procedures for the review, approval or 
ratification of relationships with related persons. The amendments to 
Item 404 of Regulation S-B and new Item 407 of Regulation S-B require, 
depending upon the particular circumstances of a company, more or less 
disclosure by changing the disclosure requirement regarding director 
independence.\610\ Unlike the amendments to Item 407 of Regulation S-K, 
the amendments to Item 407 of Regulation S-B do not require a 
Compensation Committee Report regarding the compensation committee's 
review and discussion with management of the Compensation Discussion 
and Analysis, and the compensation committee's recommendation to the 
board of directors with regard to the disclosure of the Compensation 
Discussion and Analysis, because Item 402 of Regulation S-B does not 
require Compensation Discussion and Analysis disclosure.
---------------------------------------------------------------------------

    \610\ As was the case prior to these amendments, compensation 
committee interlocks disclosure is required by Regulation S-K but is 
not required under Regulation S-B.
---------------------------------------------------------------------------

    Similar to amended Item 404(a) of Regulation S-K, amendments to 
Items 22(b)(7), 22(b)(8), and 22(b)(9) of Schedule 14A and to Forms N-
1A, N-2, and N-3 decrease the scope of the requirement imposed on 
registered investment companies and business development companies to 
disclose certain interests, transactions, and relationships of each 
director (and, in the case of Items 22(b)(7), 22(b)(8), and 22(b)(9) of 
Schedule 14A, each nominee for election as director) who is not or 
would not be an ``interested person'' of the fund within the meaning of 
Section 2(a)(19) of the Investment Company Act (and their immediate 
family members) by increasing to $120,000 the former $60,000 threshold 
for disclosure of such interests, transactions, and relationships.
    The amendments to Item 403 of Regulations S-K and S-B require 
footnote disclosure to the beneficial ownership table of the number of 
shares pledged by named executive officers, directors and director 
nominees and disclosure of directors' qualifying shares. This imposes 
an additional disclosure requirement on companies, including small 
entities.
    The new plain English rules applicable to Exchange Act reports and 
proxy or information statements incorporated by reference into Exchange 
Act reports will not affect the substance of disclosures that companies 
must make. The new plain English rules will also not impose any new 
recordkeeping requirements or require reporting of additional 
information. Other changes to our rules will decrease the scope of the 
disclosure requirements for Form 8-K, and thereby result in a reduction 
in the number of current reports on Form 8-K filed each year.
    Overall, the amendments are expected to result in increased costs 
to all subject companies, large or small, as follows:
    <bullet> Incremental increase in costs is expected with changes to 
executive and director compensation disclosure requirements;
    <bullet> Incremental increase in costs is expected from the 
amendments to the related person transaction rules and corporate 
governance disclosures; and
    <bullet> Decreased costs are expected as a result of the revisions 
to Form 8-K.
    Because the current proxy rules require a subject registrant to 
collect and disclose information about the independence of its 
directors who serve on the audit or nominating committee of its board, 
the amended disclosure should not impose on companies subject to the 
proxy rules significant new costs for the collection of information 
regarding the independence of directors. Thus, the task of complying 
with the expanded director independence disclosure in new Item 407 of 
Regulations S-K and S-B could be performed by the same person or group 
of persons responsible for compliance under the former rules at a 
minimal incremental cost. Additional costs will likely be incurred to 
provide additional disclosure regarding compensation committee 
processes.
    Our plain English amendments require that companies use a clear 
writing style to present the information about executive and director 
compensation, related person transactions, beneficial ownership and 
some corporate governance matters that are required to be disclosed in 
Exchange Act reports such as annual reports on Forms 10-K or 10-KSB. We 
believe the new rules will result in a short-term increase in costs for 
companies as they rewrite the information required to be included in 
annual reports or incorporated by reference from proxy or information 
statements, but few additional costs after the first year or two of 
implementation, as companies become familiar with the organizational, 
language, and document structure changes necessary to comply with these 
amendments. Additional costs, if any, should be one-time or otherwise 
short-term.
    For purposes of the Paperwork Reduction Act, we estimate that with 
respect to Form 10-KSB, it will take issuers 100 additional hours to 
prepare the revised disclosure in year one, 35 additional hours in year 
two, and 15 additional hours in year three and thereafter, which 
results in an average of 50 additional hours over the three year 
period. The same estimates apply to preparation of information in the 
proxy or information statement that is then incorporated by reference 
into the Form 10-KSB. With regard to persons other than small business 
issuers who will file a Form 10-K, we estimate for purposes of the 
Paperwork Reduction Act that it will take issuers 170 additional hours 
to prepare the revised disclosure in year one, 80 additional hours in 
year two, and 35 additional hours in year three and thereafter, which 
results in an average of 95 hours over the three year period. If we 
assume that a small entity complies with the disclosure provisions of 
Regulation S-B rather than Regulation S-K and 75% of the burden will be 
performed by the company internally at a cost of $175 per hour and 25% 
of the burden will be carried by outside professionals retained by the 
company at a cost of $400 per hour, the average annual cost to comply 
with the amended disclosure requirements in periodic reports and/or 
proxy or information statements will be approximately $11,563. The 
extent to which an additional average compliance cost of approximately 
$11,563 per small entity over a three year period constitutes a 
significant economic impact for small entities will depend on the 
relative revenues, costs and allocation of resources toward compliance 
with the Commission's rules for small entities both individually and as 
a group.
    For purposes of the Paperwork Reduction Act, we estimate that with 
respect to Form N-2, it will take business development companies 150 
additional hours to prepare the revised

[[Page 53228]]

disclosure in year one, 75 hours in year two and 30 hours in year three 
and thereafter, which results in an average of 85 hours for each 
business development company to comply with the revised compensation 
disclosures that will be required on Form N-2. If we assume that 25% of 
the burden will be borne internally at a cost of $175 per hour and 75% 
of the burden will be carried by outside professionals retained by the 
company at a cost of $400 per hour, the average annual cost for 
business development companies to comply with the revised disclosure 
requirements on Form N-2 will be approximately $29,219. The extent to 
which an additional average compliance cost of approximately $29,219 
per small entity over a three year period constitutes a significant 
economic impact for small entities will depend on the relative assets, 
income, operating expenses and the allocation of resources toward 
compliance with the Commission's rules for small entities both 
individually and as a group.

E. Agency Action To Minimize Effect on Small Entities

    The Regulatory Flexibility Act directs us to consider significant 
alternatives that would accomplish the stated objectives, while 
minimizing any significant adverse impact on small entities. In 
connection with the amendments, we considered the following 
alternatives:
    1. Establishing different compliance or reporting requirements 
which take into account the resources available to smaller entities;
    2. The clarification, consolidation or simplification of disclosure 
for small entities;
    3. Use of performance standards rather than design standards; and
    4. Exempting smaller entities from coverage of the disclosure 
requirements, or any part thereof.

    With regard to Alternative 1, we have adopted different compliance 
or reporting requirements for small entities. We nevertheless believe 
improving the clarity and completeness of disclosure regarding 
executive and director compensation and related person transactions 
requires a high degree of comparability between all issuers. Regarding 
Alternative 2, the amendments clarify, consolidate and simplify the 
requirements for all public companies, and some especially for small 
entities. Regarding Alternative 3, we believe that design rather than 
performance standards are appropriate, because design standards for 
small entities are necessary to promote the goal of relatively uniform 
presentation of comparable information for the benefit of investors. 
Finally, although we are exempting some information required of larger 
issuers, a wholesale exemption for small entities is not appropriate 
because the amendments are designed to make uniform the application of 
the disclosure and other requirements that we are adopting.
    We have used design rather than performance standards in connection 
with the amendments for two reasons. First, based on our past 
experience, we believe the disclosure provided in response to the 
amended requirements will be more useful to investors if there are 
specific informational requirements. The mandated disclosures we are 
adopting are intended to result in more focused and comprehensive 
disclosure. Second, the specific disclosure requirements in the 
amendments will promote more consistent disclosure among public 
companies, because they provide greater certainty as to the scope of 
required disclosure.

XII. Statutory Authority and Text of the Amendments

    We are adopting new rules and amendments pursuant to Sections 3(b), 
6, 7, 10, and 19(a) of the Securities Act, as amended, Sections 10(b), 
12, 13, 14, 15(d), 16 and 23(a) of the Exchange Act, as amended, 
Sections 8, 20(a), 24(a), 30 and 38 of the Investment Company Act of 
1940, as amended, and Sections 3(a) and 306(a) of the Sarbanes-Oxley 
Act of 2002.

List of Subjects

17 CFR Part 228

    Reporting and recordkeeping requirements, Securities, Small 
businesses.

17 CFR Parts 229, 232, 239, 240, 245 and 249

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 274

    Investment companies, Reporting and recordkeeping requirements, 
Securities.


0
For the reasons set out in the preamble, Title 17, Chapter II of the 
Code of Federal Regulations, is amended as follows:

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

0
1. The authority citation for part 228 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 
77sss, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-29, 
80a-30, 80a-37, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350.
* * * * *

0
2. Amend Sec.  228.201 by revising Instruction 2 to paragraph (d) to 
read as follows:


Sec.  228.201  (Item 201) Market for common equity and related 
stockholder matters.

* * * * *
    Instructions to paragraph (d).
    1. * * *
    2. For purposes of this paragraph, an ``individual compensation 
arrangement'' includes, but is not limited to, the following: a 
written compensation contract within the meaning of ``employee 
benefit plan'' under Sec.  230.405 of this chapter and a plan 
(whether or not set forth in any formal document) applicable to one 
person as provided under Item 402(a)(5)(ii) of Regulation S-B (Sec.  
228.402(a)(5)(ii)).
* * * * *


Sec.  228.306  [Removed and reserved]

0
3. Remove and reserve Sec.  228.306.


Sec.  228.401  [Amended]

0
4. Amend Sec.  228.401 by removing paragraphs (e), (f) and (g).

0
5. Revise Sec.  228.402 to read as follows:


Sec.  228.402 (Item 402)  Executive compensation.

    (a) General--(1) All compensation covered. This Item requires 
clear, concise and understandable disclosure of all plan and non-plan 
compensation awarded to, earned by, or paid to the named executive 
officers designated under paragraph (a)(2) of this Item, and directors 
covered by paragraph (f) of this Item, by any person for all services 
rendered in all capacities to the small business issuer and its 
subsidiaries, unless otherwise specifically excluded from disclosure in 
this Item. All such compensation shall be reported pursuant to this 
Item, even if also called for by another requirement, including 
transactions between the small business issuer and a third party where 
a purpose of the transaction is to furnish compensation to any such 
named executive officer or director. No amount reported as compensation 
for one fiscal year need be reported in the same manner as compensation 
for a subsequent fiscal year; amounts reported as compensation for one 
fiscal year may be required to be reported in a different manner 
pursuant to this Item.
    (2) Persons covered. Disclosure shall be provided pursuant to this 
Item for each of the following (the ``named executive officers''):
    (i) All individuals serving as the small business issuer's 
principal executive officer or acting in a similar capacity during the 
last completed fiscal year (``PEO''), regardless of compensation level;
    (ii) The small business issuer's two most highly compensated 
executive

[[Page 53229]]

officers other than the PEO who were serving as executive officers at 
the end of the last completed fiscal year; and
    (iii) Up to two additional individuals for whom disclosure would 
have been provided pursuant to paragraph (a)(2)(ii) of this Item but 
for the fact that the individual was not serving as an executive 
officer of the small business issuer at the end of the last completed 
fiscal year.

    Instructions to Item 402(a)(2).
    1. Determination of most highly compensated executive officers. 
The determination as to which executive officers are most highly 
compensated shall be made by reference to total compensation for the 
last completed fiscal year (as required to be disclosed pursuant to 
paragraph (b)(2)(x) of this Item) reduced by the amount required to 
be disclosed pursuant to paragraph (b)(2)(viii) of this Item, 
provided, however, that no disclosure need be provided for any 
executive officer, other than the PEO, whose total compensation, as 
so reduced, does not exceed $100,000.
    2. Inclusion of executive officer of subsidiary. It may be 
appropriate for a small business issuer to include as named 
executive officers one or more executive officers or other employees 
of subsidiaries in the disclosure required by this Item. See Rule 
3b-7 under the Exchange Act (17 CFR 240.3b-7).
    3. Exclusion of executive officer due to overseas compensation. 
It may be appropriate in limited circumstances for a small business 
issuer not to include in the disclosure required by this Item an 
individual, other than its PEO, who is one of the small business 
issuer's most highly compensated executive officers due to the 
payment of amounts of cash compensation relating to overseas 
assignments attributed predominantly to such assignments.

    (3) Information for full fiscal year. If the PEO served in that 
capacity during any part of a fiscal year with respect to which 
information is required, information should be provided as to all of 
his or her compensation for the full fiscal year. If a named executive 
officer (other than the PEO) served as an executive officer of the 
small business issuer (whether or not in the same position) during any 
part of the fiscal year with respect to which information is required, 
information shall be provided as to all compensation of that individual 
for the full fiscal year.
    (4) Omission of table or column. A table or column may be omitted 
if there has been no compensation awarded to, earned by, or paid to any 
of the named executive officers or directors required to be reported in 
that table or column in any fiscal year covered by that table.
    (5) Definitions. For purposes of this Item:
    (i) The term stock means instruments such as common stock, 
restricted stock, restricted stock units, phantom stock, phantom stock 
units, common stock equivalent units or any similar instruments that do 
not have option-like features, and the term option means instruments 
such as stock options, stock appreciation rights and similar 
instruments with option-like features. The term stock appreciation 
rights (``SARs'') refers to SARs payable in cash or stock, including 
SARs payable in cash or stock at the election of the small business 
issuer or a named executive officer. The term equity is used to refer 
generally to stock and/or options.
    (ii) The term plan includes, but is not limited to, the following: 
Any plan, contract, authorization or arrangement, whether or not set 
forth in any formal document, pursuant to which cash, securities, 
similar instruments, or any other property may be received. A plan may 
be applicable to one person. Small business issuers may omit 
information regarding group life, health, hospitalization, or medical 
reimbursement plans that do not discriminate in scope, terms or 
operation, in favor of executive officers or directors of the small 
business issuer and that are available generally to all salaried 
employees.
    (iii) The term incentive plan means any plan providing compensation 
intended to serve as incentive for performance to occur over a 
specified period, whether such performance is measured by reference to 
financial performance of the small business issuer or an affiliate, the 
small business issuer's stock price, or any other performance measure. 
An equity incentive plan is an incentive plan or portion of an 
incentive plan under which awards are granted that fall within the 
scope of Financial Accounting Standards Board Statement of Financial 
Accounting Standards No. 123 (revised 2004), Share-Based Payment, as 
modified or supplemented (``FAS 123R''). A non-equity incentive plan is 
an incentive plan or portion of an incentive plan that is not an equity 
incentive plan. The term incentive plan award means an award provided 
under an incentive plan.
    (iv) The terms date of grant or grant date refer to the grant date 
determined for financial statement reporting purposes pursuant to FAS 
123R.
    (v) Closing market price is defined as the price at which the small 
business issuer's security was last sold in the principal United States 
market for such security as of the date for which the closing market 
price is determined.
    (b) Summary compensation table--(1) General. Provide the 
information specified in paragraph (b)(2) of this Item, concerning the 
compensation of the named executive officers for each of the small 
business issuer's last two completed fiscal years, in a Summary 
Compensation Table in the tabular format specified below.

                                                                                   Summary Compensation Table
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                Nonequity       Nonqualified
                                                                                          Stock awards      Option awards    incentive plan       deferred         All other
   Name and principal position          Year           Salary  ($)       Bonus  ($)            ($)               ($)          compensation      compensation      compensation      Total  ($)
                                                                                                                                   ($)          earnings  ($)         ($)
(a)                               (b)               (c)               (d)               (e)               (f)               (g)               (h)               (i)              (j)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  ................  ................  ................  ................  ................  ................  ................  ...............  ...............
PEO.............................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
A...............................  ................  ................  ................  ................  ................  ................  ................  ...............  ...............
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
B...............................  ................  ................  ................  ................  ................  ................  ................  ...............  ...............
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 53230]]

    (2) The Table shall include:
    (i) The name and principal position of the named executive officer 
(column (a));
    (ii) The fiscal year covered (column (b));
    (iii) The dollar value of base salary (cash and non-cash) earned by 
the named executive officer during the fiscal year covered (column 
(c));
    (iv) The dollar value of bonus (cash and non-cash) earned by the 
named executive officer during the fiscal year covered (column (d));

    Instructions to Item 402(b)(2)(iii) and (iv).
    1. If the amount of salary or bonus earned in a given fiscal 
year is not calculable through the latest practicable date, a 
footnote shall be included disclosing that the amount of salary or 
bonus is not calculable through the latest practicable date and 
providing the date that the amount of salary or bonus is expected to 
be determined, and such amount must then be disclosed in a filing 
under Item 5.02(f) of Form 8-K (17 CFR 249.308).
    2. Small business issuers need not include in the salary column 
(column (c)) or bonus column (column (d)) any amount of salary or 
bonus forgone at the election of a named executive officer pursuant 
to a small business issuer's program under which stock, equity-based 
or other forms of non-cash compensation may be received by a named 
executive officer instead of a portion of annual compensation earned 
in a covered fiscal year. However, the receipt of any such form of 
non-cash compensation instead of salary or bonus earned for a 
covered fiscal year must be disclosed in the appropriate column of 
the Summary Compensation Table corresponding to that fiscal year 
(e.g., stock awards (column (e)); option awards (column (f)); all 
other compensation (column (i))), or, if made pursuant to a non-
equity incentive plan and therefore not reportable in the Summary 
Compensation Table when granted, a footnote must be added to the 
salary or bonus column so disclosing and referring to the narrative 
disclosure to the Summary Compensation Table (required by paragraph 
(c) of this Item) where the material terms of the award are 
reported.

    (v) For awards of stock, the aggregate grant date fair value 
computed in accordance with FAS 123R (column (e));
    (vi) For awards of options, with or without tandem SARs (including 
awards that subsequently have been transferred), the aggregate grant 
date fair value computed in accordance with FAS 123R (column (f));

    Instructions to Item 402(b)(2)(v) and (vi).
    1. For awards reported in columns (e) and (f), include a 
footnote disclosing all assumptions made in the valuation by 
reference to a discussion of those assumptions in the small business 
issuer's financial statements, footnotes to the financial 
statements, or discussion in the Management's Discussion and 
Analysis. The sections so referenced are deemed part of the 
disclosure provided pursuant to this Item.
    2. If at any time during the last completed fiscal year, the 
small business issuer has adjusted or amended the exercise price of 
options or SARs previously awarded to a named executive officer, 
whether through amendment, cancellation or replacement grants, or 
any other means (``repriced''), or otherwise has materially modified 
such awards, the small business issuer shall include, as awards 
required to be reported in column (f), the incremental fair value, 
computed as of the repricing or modification date in accordance with 
FAS 123R, with respect to that repriced or modified award.

    (vii) The dollar value of all earnings for services performed 
during the fiscal year pursuant to awards under non-equity incentive 
plans as defined in paragraph (a)(5)(iii) of this Item, and all 
earnings on any outstanding awards (column (g));

    Instructions to Item 402(b)(2)(vii).
    1. If the relevant performance measure is satisfied during the 
fiscal year (including for a single year in a plan with a multi-year 
performance measure), the earnings are reportable for that fiscal 
year, even if not payable until a later date, and are not reportable 
again in the fiscal year when amounts are paid to the named 
executive officer.
    2. All earnings on non-equity incentive plan compensation must 
be identified and quantified in a footnote to column (g), whether 
the earnings were paid during the fiscal year, payable during the 
period but deferred at the election of the named executive officer, 
or payable by their terms at a later date.

    (viii) Above-market or preferential earnings on compensation that 
is deferred on a basis that is not tax-qualified, including such 
earnings on nonqualified defined contribution plans (column (h));

    Instruction to Item 402(b)(2)(viii).
    Interest on deferred compensation is above-market only if the 
rate of interest exceeds 120% of the applicable federal long-term 
rate, with compounding (as prescribed under section 1274(d) of the 
Internal Revenue Code, (26 U.S.C. 1274(d))) at the rate that 
corresponds most closely to the rate under the small business 
issuer's plan at the time the interest rate or formula is set. In 
the event of a discretionary reset of the interest rate, the 
requisite calculation must be made on the basis of the interest rate 
at the time of such reset, rather than when originally established. 
Only the above-market portion of the interest must be included. If 
the applicable interest rates vary depending upon conditions such as 
a minimum period of continued service, the reported amount should be 
calculated assuming satisfaction of all conditions to receiving 
interest at the highest rate. Dividends (and dividend equivalents) 
on deferred compensation denominated in the small business issuer's 
stock (``deferred stock'') are preferential only if earned at a rate 
higher than dividends on the small business issuer's common stock. 
Only the preferential portion of the dividends or equivalents must 
be included. Footnote or narrative disclosure may be provided 
explaining the small business issuer's criteria for determining any 
portion considered to be above-market.

    (ix) All other compensation for the covered fiscal year that the 
small business issuer could not properly report in any other column of 
the Summary Compensation Table (column (i)). Each compensation item 
that is not properly reportable in columns (c)-(h), regardless of the 
amount of the compensation item, must be included in column (i). Such 
compensation must include, but is not limited to:
    (A) Perquisites and other personal benefits, or property, unless 
the aggregate amount of such compensation is less than $10,000;
    (B) All ``gross-ups'' or other amounts reimbursed during the fiscal 
year for the payment of taxes;
    (C) For any security of the small business issuer or its 
subsidiaries purchased from the small business issuer or its 
subsidiaries (through deferral of salary or bonus, or otherwise) at a 
discount from the market price of such security at the date of 
purchase, unless that discount is available generally, either to all 
security holders or to all salaried employees of the small business 
issuer, the compensation cost, if any, computed in accordance with FAS 
123R;
    (D) The amount paid or accrued to any named executive officer 
pursuant to a plan or arrangement in connection with:
    (1) Any termination, including without limitation through 
retirement, resignation, severance or constructive termination 
(including a change in responsibilities) of such executive officer's 
employment with the small business issuer and its subsidiaries; or
    (2) A change in control of the small business issuer;
    (E) Small business issuer contributions or other allocations to 
vested and unvested defined contribution plans;
    (F) The dollar value of any insurance premiums paid by, or on 
behalf of, the small business issuer during the covered fiscal year 
with respect to life insurance for the benefit of a named executive 
officer; and
    (G) The dollar value of any dividends or other earnings paid on 
stock or option awards, when those amounts were not factored into the 
grant date fair value required to be reported for the stock or option 
award in columns (e) or (f); and

    Instructions to Item 402(b)(2)(ix).
    1. Non-equity incentive plan awards and earnings and earnings on 
stock or options,

[[Page 53231]]

except as specified in paragraph (b)(2)(ix)(G) of this Item, are 
required to be reported elsewhere as provided in this Item and are 
not reportable as All Other Compensation in column (i).
    2. Benefits paid pursuant to defined benefit and actuarial plans 
are not reportable as All Other Compensation in column (i) unless 
accelerated pursuant to a change in control; information concerning 
these plans is reportable pursuant to paragraph (e)(1) of this Item.
    3. Reimbursements of taxes owed with respect to perquisites or 
other personal benefits must be included in the columns as tax 
reimbursements (paragraph (b)(2)(ix)(B) of this Item) even if the 
associated perquisites or other personal benefits are not required 
to be included because the aggregate amount of such compensation is 
less than $10,000.
    4. Perquisites and other personal benefits shall be valued on 
the basis of the aggregate incremental cost to the small business 
issuer.
    5. For purposes of paragraph (b)(2)(ix)(D) of this Item, an 
accrued amount is an amount for which payment has become due.

    (x) The dollar value of total compensation for the covered fiscal 
year (column (j)). With respect to each named executive officer, 
disclose the sum of all amounts reported in columns (c) through (i).

    Instructions to Item 402(b).
    1. Information with respect to the fiscal year prior to the last 
completed fiscal year will not be required if the small business 
issuer was not a reporting company pursuant to section 13(a) or 
15(d) of the Exchange Act (15 U.S.C. 78m(a) or 78o(d)) at any time 
during that year, except that the small business issuer will be 
required to provide information for any such year if that 
information previously was required to be provided in response to a 
Commission filing requirement.
    2. All compensation values reported in the Summary Compensation 
Table must be reported in dollars and rounded to the nearest dollar. 
Reported compensation values must be reported numerically, providing 
a single numerical value for each grid in the table. Where 
compensation was paid to or received by a named executive officer in 
a different currency, a footnote must be provided to identify that 
currency and describe the rate and methodology used to convert the 
payment amounts to dollars.
    3. If a named executive officer is also a director who receives 
compensation for his or her services as a director, reflect that 
compensation in the Summary Compensation Table and provide a 
footnote identifying and itemizing such compensation and amounts. 
Use the categories in the Director Compensation Table required 
pursuant to paragraph (f) of this Item.
    4. Any amounts deferred, whether pursuant to a plan established 
under section 401(k) of the Internal Revenue Code (26 U.S.C. 
401(k)), or otherwise, shall be included in the appropriate column 
for the fiscal year in which earned.

    (c) Narrative disclosure to summary compensation table. Provide a 
narrative description of any material factors necessary to an 
understanding of the information disclosed in the Table required by 
paragraph (b) of this Item. Examples of such factors may include, in 
given cases, among other things:
    (1) The material terms of each named executive officer's employment 
agreement or arrangement, whether written or unwritten;
    (2) If at any time during the last fiscal year, any outstanding 
option or other equity-based award was repriced or otherwise materially 
modified (such as by extension of exercise periods, the change of 
vesting or forfeiture conditions, the change or elimination of 
applicable performance criteria, or the change of the bases upon which 
returns are determined), a description of each such repricing or other 
material modification;
    (3) The waiver or modification of any specified performance target, 
goal or condition to payout with respect to any amount included in non-
stock incentive plan compensation or payouts reported in column (g) to 
the Summary Compensation Table required by paragraph (b) of this Item, 
stating whether the waiver or modification applied to one or more 
specified named executive officers or to all compensation subject to 
the target, goal or condition;
    (4) The material terms of each grant, including but not limited to 
the date of exercisability, any conditions to exercisability, any 
tandem feature, any reload feature, any tax-reimbursement feature, and 
any provision that could cause the exercise price to be lowered;
    (5) The material terms of any non-equity incentive plan award made 
to a named executive officer during the last completed fiscal year, 
including a general description of the formula or criteria to be 
applied in determining the amounts payable and vesting schedule;
    (6) The method of calculating earnings on nonqualified deferred 
compensation plans including nonqualified defined contribution plans; 
and
    (7) An identification to the extent material of any item included 
under All Other Compensation (column (i)) in the Summary Compensation 
Table. Identification of an item shall not be considered material if it 
does not exceed the greater of $25,000 or 10% of all items included in 
the specified category in question set forth in paragraph (b)(2)(ix) of 
this Item. All items of compensation are required to be included in the 
Summary Compensation Table without regard to whether such items are 
required to be identified.

    Instruction to Item 402(c).
    The disclosure required by paragraph (c)(2) of this Item would 
not apply to any repricing that occurs through a pre-existing 
formula or mechanism in the plan or award that results in the 
periodic adjustment of the option or SAR exercise or base price, an 
antidilution provision in a plan or award, or a recapitalization or 
similar transaction equally affecting all holders of the class of 
securities underlying the options or SARs.

    (d) Outstanding equity awards at fiscal year-end table. (1) Provide 
the information specified in paragraph (d)(2) of this Item, concerning 
unexercised options; stock that has not vested; and equity incentive 
plan awards for each named executive officer outstanding as of the end 
of the small business issuer's last completed fiscal year in the 
following tabular format:

[[Page 53232]]



                                                      Outstanding Equity Awards at Fiscal Year-End
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Option awards                                                           Stock awards
           ---------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                Equity         Equity
                                                 Equity                                                                       incentive      incentive
               Number of       Number of        incentive                                                                   plan  awards:  plan  awards:
              securities       securities     plan  awards:                                     Number of     Market value    Number of      Market or
   Name       underlying       underlying       Number of        Option          Option         shares or     of shares of     unearned     payout value
              unexercised     unexercised      securities    exercise price    expiration    units of stock     units of    shares, units   of unearned
                options         options        underlying          ($)            date        that have not    stock that      or other    shares, units
              (<greek-i>)     (<greek-i>)      unexercised                                       vested         have not     rights that     or others
              exercisable    unexercisable      unearned                                       (<greek-i>)    vested  ($)      have not     rights that
                                                 options                                                                        vested        have not
                                               (<greek-i>)                                                                   (<greek-i>)    vested  ($)
(a)         (b)             (c)              (d)             (e)             (f)             (g)             (h)            (i)            (j)
--------------------------------------------------------------------------------------------------------------------------------------------------------
PEO
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
A
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
B
 
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    (2) The Table shall include:
    (i) The name of the named executive officer (column (a));
    (ii) On an award-by-award basis, the number of securities 
underlying unexercised options, including awards that have been 
transferred other than for value, that are exercisable and that are not 
reported in column (d) (column (b));
    (iii) On an award-by-award basis, the number of securities 
underlying unexercised options, including awards that have been 
transferred other than for value, that are unexercisable and that are 
not reported in column (d) (column (c));
    (iv) On an award-by-award basis, the total number of shares 
underlying unexercised options awarded under any equity incentive plan 
that have not been earned (column (d));
    (v) For each instrument reported in columns (b), (c) and (d), as 
applicable, the exercise or base price (column (e));
    (vi) For each instrument reported in columns (b), (c) and (d), as 
applicable, the expiration date (column (f));
    (vii) The total number of shares of stock that have not vested and 
that are not reported in column (i) (column (g));
    (viii) The aggregate market value of shares of stock that have not 
vested and that are not reported in column (j) (column (h));
    (ix) The total number of shares of stock, units or other rights 
awarded under any equity incentive plan that have not vested and that 
have not been earned, and, if applicable the number of shares 
underlying any such unit or right (column (i)); and
    (x) The aggregate market or payout value of shares of stock, units 
or other rights awarded under any equity incentive plan that have not 
vested and that have not been earned (column (j)).

    Instructions to Item 402(d)(2).
    1. Identify by footnote any award that has been transferred 
other than for value, disclosing the nature of the transfer.
    2. The vesting dates of options, shares of stock and equity 
incentive plan awards held at fiscal-year end must be disclosed by 
footnote to the applicable column where the outstanding award is 
reported.
    3. Compute the market value of stock reported in column (h) and 
equity incentive plan awards of stock reported in column (j) by 
multiplying the closing market price of the small business issuer's 
stock at the end of the last completed fiscal year by the number of 
shares or units of stock or the amount of equity incentive plan 
awards, respectively. The number of shares or units reported in 
column (d) or (i), and the payout value reported in column (j), 
shall be based on achieving threshold performance goals, except that 
if the previous fiscal year's performance has exceeded the 
threshold, the disclosure shall be based on the next higher 
performance measure (target or maximum) that exceeds the previous 
fiscal year's performance. If the award provides only for a single 
estimated payout, that amount should be reported. If the target 
amount is not determinable, small business issuers must provide a 
representative amount based on the previous fiscal year's 
performance.
    4. Multiple awards may be aggregated where the expiration date 
and the exercise and/or base price of the instruments is identical. 
A single award consisting of a combination of options, SARs and/or 
similar option-like instruments shall be reported as separate awards 
with respect to each tranche with a different exercise and/or base 
price or expiration date.
    5. Options or stock awarded under an equity incentive plan are 
reported in columns (d) or (i) and (j), respectively, until the 
relevant performance condition has been satisfied. Once the relevant 
performance condition has been satisfied, even if the option or 
stock award is subject to forfeiture conditions, options are 
reported in column (b) or (c), as appropriate, until they are 
exercised or expire, or stock is reported in columns (g) and (h) 
until it vests.

    (e) Additional narrative disclosure. Provide a narrative 
description of the following to the extent material:
    (1) The material terms of each plan that provides for the payment 
of retirement benefits, or benefits that will be paid primarily 
following retirement, including but not limited to tax-qualified 
defined benefit plans, supplemental executive retirement plans, tax-
qualified defined contribution plans and nonqualified defined 
contribution plans.
    (2) The material terms of each contract, agreement, plan or 
arrangement, whether written or unwritten, that provides for payment(s) 
to a named executive officer at, following, or in connection with the 
resignation, retirement or other termination of a named executive 
officer, or a change in control of the small business issuer or a 
change in the named executive officer's responsibilities following a 
change in control, with respect to each named executive officer.
    (f) Compensation of directors. (1) Provide the information 
specified in

[[Page 53233]]

paragraph (f)(2) of this Item, concerning the compensation of the 
directors for the small business issuer's last completed fiscal year, 
in the following tabular format:

                                                                  Director Compensation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                         Non-equity      Nonqualified
                                   Fees earned or     Stock awards    Option awards    incentive plan      deferred        All other
              Name                  paid in cash          ($)              ($)          compensation     compensation     compensation      Total  ($)
                                         ($)                                                ($)         earnings  ($)         ($)
(a)                               (b)               (c)              (d)              (e)              (f)              (g)              (h)
--------------------------------------------------------------------------------------------------------------------------------------------------------
A
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
B
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
C
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
D
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
E
 
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    (2) The Table shall include:
    (i) The name of each director unless such director is also a named 
executive officer under paragraph (a) of this Item and his or her 
compensation for service as a director is fully reflected in the 
Summary Compensation Table pursuant to paragraph (b) of this Item and 
otherwise as required pursuant to paragraphs (c) through (e) of this 
Item (column (a));
    (ii) The aggregate dollar amount of all fees earned or paid in cash 
for services as a director, including annual retainer fees, committee 
and/or chairmanship fees, and meeting fees (column (b));
    (iii) For awards of stock, the aggregate grant date fair value 
computed in accordance with FAS 123R (column (c));
    (iv) For awards of options, with or without tandem SARs (including 
awards that subsequently have been transferred), the aggregate grant 
date fair value computed in accordance with FAS 123R (column (d));

    Instruction to Item 402(f)(2)(iii) and (iv).
    For each director, disclose by footnote to the appropriate 
column, the aggregate number of stock awards and the aggregate 
number of option awards outstanding at fiscal year end.

    (v) The dollar value of all earnings for services performed during 
the fiscal year pursuant to non-equity incentive plans as defined in 
paragraph (a)(5)(iii) of this Item, and all earnings on any outstanding 
awards (column (e));
    (vi) Above-market or preferential earnings on compensation that is 
deferred on a basis that is not tax-qualified, including such earnings 
on nonqualified defined contribution plans (column (f));
    (vii) All other compensation for the covered fiscal year that the 
small business issuer could not properly report in any other column of 
the Director Compensation Table (column (g)). Each compensation item 
that is not properly reportable in columns (b)-(f), regardless of the 
amount of the compensation item, must be included in column (g) and 
must be identified and quantified in a footnote if it is deemed 
material in accordance with paragraph (c)(7) of this Item. Such 
compensation must include, but is not limited to:
    (A) Perquisites and other personal benefits, or property, unless 
the aggregate amount of such compensation is less than $10,000;
    (B) All ``gross-ups'' or other amounts reimbursed during the fiscal 
year for the payment of taxes;
    (C) For any security of the small business issuer or its 
subsidiaries purchased from the small business issuer or its 
subsidiaries (through deferral of salary or bonus, or otherwise) at a 
discount from the market price of such security at the date of 
purchase, unless that discount is available generally, either to all 
security holders or to all salaried employees of the small business 
issuer, the compensation cost, if any, computed in accordance with FAS 
123R;
    (D) The amount paid or accrued to any director pursuant to a plan 
or arrangement in connection with:
    (1) The resignation, retirement or any other termination of such 
director; or
    (2) A change in control of the small business issuer;
    (E) Small business issuer contributions or other allocations to 
vested and unvested defined contribution plans;
    (F) Consulting fees earned from, or paid or payable by the small 
business issuer and/or its subsidiaries (including joint ventures);
    (G) The annual costs of payments and promises of payments pursuant 
to director legacy programs and similar charitable award programs;
    (H) The dollar value of any insurance premiums paid by, or on 
behalf of, the small business issuer during the covered fiscal year 
with respect to life insurance for the benefit of a director; and
    (I) The dollar value of any dividends or other earnings paid on 
stock or option awards, when those amounts were not factored into the 
grant date fair value required to be reported for the stock or option 
award in column (c) or (d); and

    Instruction to Item 402(f)(2)(vii).
    Programs in which small business issuers agree to make donations 
to one or more charitable institutions in a director's name, payable 
by the small business issuer currently or upon a designated event, 
such as the retirement or death of the director, are charitable 
awards programs or director legacy programs for purposes of the 
disclosure required by paragraph (f)(2)(vii)(G) of this Item. 
Provide footnote disclosure of the total dollar amount payable under 
the program and other material terms of each such

[[Page 53234]]

program for which tabular disclosure is provided.

    (viii) The dollar value of total compensation for the covered 
fiscal year (column (h)). With respect to each director, disclose the 
sum of all amounts reported in columns (b) through (g).

    Instruction to Item 402(f)(2).
    Two or more directors may be grouped in a single row in the 
Table if all elements of their compensation are identical. The names 
of the directors for whom disclosure is presented on a group basis 
should be clear from the Table.

    (3) Narrative to director compensation table. Provide a narrative 
description of any material factors necessary to an understanding of 
the director compensation disclosed in this Table. While material 
factors will vary depending upon the facts, examples of such factors 
may include, in given cases, among other things:
    (i) A description of standard compensation arrangements (such as 
fees for retainer, committee service, service as chairman of the board 
or a committee, and meeting attendance); and
    (ii) Whether any director has a different compensation arrangement, 
identifying that director and describing the terms of that arrangement.

    Instruction to Item 402(f).
    In addition to the Instruction to paragraph (f)(2)(vii) of this 
Item, the following apply equally to paragraph (f) of this Item: 
Instructions 2 and 4 to paragraph (b) of this Item; the Instructions 
to paragraphs (b)(2)(iii) and (iv) of this Item; the Instructions to 
paragraphs (b)(2)(v) and (vi) of this Item; the Instructions to 
paragraph (b)(2)(vii) of this Item; the Instruction to paragraph 
(b)(2)(viii) of this Item; the Instructions to paragraph (b)(2)(ix) 
of this Item; and paragraph (c)(7) of this Item. These Instructions 
apply to the columns in the Director Compensation Table that are 
analogous to the columns in the Summary Compensation Table to which 
they refer and to disclosures under paragraph (f) of this Item that 
correspond to analogous disclosures provided for in paragraph (b) of 
this Item to which they refer.


0
6. Amend Sec.  228.403 by revising paragraph (b) to read as follows:


Sec.  228.403  (Item 403) Security ownership of certain beneficial 
owners and management.

* * * * *
    (b) Security ownership of management. Furnish the following 
information, as of the most recent practicable date, in substantially 
the tabular form indicated, as to each class of equity securities of 
the small business issuer or any of its parents or subsidiaries, 
including directors' qualifying shares, beneficially owned by all 
directors and nominees, naming them, each of the named executive 
officers as defined in Item 402(a)(2) (Sec.  228.402(a)(2)), and 
directors and executive officers of the small business issuer as a 
group, without naming them. Show in column (3) the total number of 
shares beneficially owned and in column (4) the percent of the class so 
owned. Of the number of shares shown in column (3), indicate, by 
footnote or otherwise, the amount of shares that are pledged as 
security and the amount of shares with respect to which such persons 
have the right to acquire beneficial ownership as specified in Sec.  
240.13d-3(d)(1) of this chapter.

----------------------------------------------------------------------------------------------------------------
                                                                 (3) Amount and nature
          (1) Title of class            (2) Name of beneficial       of  beneficial        (4) Percent of class
                                                owner                  ownership
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------

* * * * *

0
7. Revise Sec.  228.404 to read as follows:


Sec.  228.404  (Item 404) Transactions with related persons, promoters 
and certain control persons.

    (a) Transactions with related persons. Describe any transaction, 
since the beginning of the small business issuer's last fiscal year, or 
any currently proposed transaction, in which the small business issuer 
was or is to be a participant and the amount involved exceeds the 
lesser of $120,000 or one percent of the average of the small business 
issuer's total assets at year-end for the last three completed fiscal 
years, and in which any related person had or will have a direct or 
indirect material interest. Disclose the following information 
regarding the transaction:
    (1) The name of the related person and the basis on which the 
person is a related person.
    (2) The related person's interest in the transaction with the small 
business issuer, including the related person's position(s) or 
relationship(s) with, or ownership in, a firm, corporation, or other 
entity that is a party to, or has an interest in, the transaction.
    (3) The approximate dollar value of the amount involved in the 
transaction.
    (4) The approximate dollar value of the amount of the related 
person's interest in the transaction, which shall be computed without 
regard to the amount of profit or loss.
    (5) In the case of indebtedness, disclosure of the amount involved 
in the transaction shall include the largest aggregate amount of 
principal outstanding during the period for which disclosure is 
provided, the amount thereof outstanding as of the latest practicable 
date, the amount of principal paid during the periods for which 
disclosure is provided, the amount of interest paid during the period 
for which disclosure is provided, and the rate or amount of interest 
payable on the indebtedness.
    (6) Any other information regarding the transaction or the related 
person in the context of the transaction that is material to investors 
in light of the circumstances of the particular transaction.

    Instructions to Item 404(a).
    1. For the purposes of paragraph (a) of this Item, the term 
related person means:
    a. Any person who was in any of the following categories at any 
time during the specified period for which disclosure under 
paragraph (a) of this Item is required:
    i. Any director or executive officer of the small business 
issuer;
    ii. Any nominee for director, when the information called for by 
paragraph (a) of this Item is being presented in a proxy or 
information statement relating to the election of that nominee for 
director; or
    iii. Any immediate family member of a director or executive 
officer of the small business issuer, or of any nominee for director 
when the information called for by paragraph (a) of this Item is 
being presented in a proxy or information statement relating to the 
election of that nominee for director, which means any child, 
stepchild, parent, stepparent, spouse, sibling, mother-in-law, 
father-in-law, son-in-law, daughter-in-law, brother-in-law, or 
sister-in-law of such director, executive officer or nominee for 
director, and any person (other than a tenant or employee) sharing 
the household of such director, executive officer or nominee for 
director; and
    b. Any person who was in any of the following categories when a 
transaction in which such person had a direct or indirect material 
interest occurred or existed:
    i. A security holder covered by Item 403(a) (Sec.  228.403(a)); 
or
    ii. Any immediate family member of any such security holder, 
which means any child, stepchild, parent, stepparent, spouse, 
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, 
brother-in-law, or sister-in-law of such security holder, and any 
person (other than a tenant or employee) sharing the household of 
such security holder.

[[Page 53235]]

    2. For purposes of paragraph (a) of this Item, a transaction 
includes, but is not limited to, any financial transaction, 
arrangement or relationship (including any indebtedness or guarantee 
of indebtedness) or any series of similar transactions, arrangements 
or relationships.
    3. The amount involved in the transaction shall be computed by 
determining the dollar value of the amount involved in the 
transaction in question, which shall include:
    a. In the case of any lease or other transaction providing for 
periodic payments or installments, the aggregate amount of all 
periodic payments or installments due on or after the beginning of 
the small business issuer's last fiscal year, including any required 
or optional payments due during or at the conclusion of the lease or 
other transaction providing for periodic payments or installments; 
and
    b. In the case of indebtedness, the largest aggregate amount of 
all indebtedness outstanding at any time since the beginning of the 
small business issuer's last fiscal year and all amounts of interest 
payable on it during the last fiscal year.
    4. In the case of a transaction involving indebtedness:
    a. The following items of indebtedness may be excluded from the 
calculation of the amount of indebtedness and need not be disclosed: 
amounts due from the related person for purchases of goods and 
services subject to usual trade terms, for ordinary business travel 
and expense payments and for other transactions in the ordinary 
course of business;
    b. Disclosure need not be provided of any indebtedness 
transaction for the related persons specified in Instruction 1.b. to 
paragraph (a) of this Item; and
    c. If the lender is a bank, savings and loan association, or 
broker-dealer extending credit under Federal Reserve Regulation T 
(12 CFR part 220) and the loans are not disclosed as nonaccrual, 
past due, restructured or potential problems (see Item III.C.1. and 
2. of Industry Guide 3, Statistical Disclosure by Bank Holding 
Companies (17 CFR 229.802(c))), disclosure under paragraph (a) of 
this Item may consist of a statement, if such is the case, that the 
loans to such persons:
    i. Were made in the ordinary course of business;
    ii. Were made on substantially the same terms, including 
interest rates and collateral, as those prevailing at the time for 
comparable loans with persons not related to the lender; and
    iii. Did not involve more than the normal risk of collectibility 
or present other unfavorable features.
    5.a. Disclosure of an employment relationship or transaction 
involving an executive officer and any related compensation solely 
resulting from that employment relationship or transaction need not 
be provided pursuant to paragraph (a) of this Item if:
    i. The compensation arising from the relationship or transaction 
is reported pursuant to Item 402 (Sec.  228.402); or
    ii. The executive officer is not an immediate family member (as 
specified in Instruction 1 to paragraph (a) of this Item) and such 
compensation would have been reported under Item 402 (Sec.  228.402) 
as compensation earned for services to the small business issuer if 
the executive officer was a named executive officer as that term is 
defined in Item 402(a)(2) (Sec.  228.402(a)(2)), and such 
compensation had been approved, or recommended to the board of 
directors of the small business issuer for approval, by the 
compensation committee of the board of directors (or group of 
independent directors performing a similar function) of the small 
business issuer.
    b. Disclosure of compensation to a director need not be provided 
pursuant to paragraph (a) of this Item if the compensation is 
reported pursuant to Item 402(f) (Sec.  228.402(f)).
    6. A person who has a position or relationship with a firm, 
corporation, or other entity that engages in a transaction with the 
small business issuer shall not be deemed to have an indirect 
material interest within the meaning of paragraph (a) of this Item 
where:
    a. The interest arises only:
    i. From such person's position as a director of another 
corporation or organization that is a party to the transaction; or
    ii. From the direct or indirect ownership by such person and all 
other persons specified in Instruction 1 to paragraph (a) of this 
Item, in the aggregate, of less than a ten percent equity interest 
in another person (other than a partnership) which is a party to the 
transaction; or
    iii. From both such position and ownership; or
    b. The interest arises only from such person's position as a 
limited partner in a partnership in which the person and all other 
persons specified in Instruction 1 to paragraph (a) of this Item, 
have an interest of less than ten percent, and the person is not a 
general partner of and does not hold another position in the 
partnership.
    7. Disclosure need not be provided pursuant to paragraph (a) of 
this Item if:
    a. The transaction is one where the rates or charges involved in 
the transaction are determined by competitive bids, or the 
transaction involves the rendering of services as a common or 
contract carrier, or public utility, at rates or charges fixed in 
conformity with law or governmental authority;
    b. The transaction involves services as a bank depositary of 
funds, transfer agent, registrar, trustee under a trust indenture, 
or similar services; or
    c. The interest of the related person arises solely from the 
ownership of a class of equity securities of the small business 
issuer and all holders of that class of equity securities of the 
small business issuer received the same benefit on a pro rata basis.
    8. Include information for any material underwriting discounts 
and commissions upon the sale of securities by the small business 
issuer where any of the specified persons was or is to be a 
principal underwriter or is a controlling person or member of a firm 
that was or is to be a principal underwriter.
    9. Information shall be given for the period specified in 
paragraph (a) of this Item and, in addition, for the fiscal year 
preceding the small business issuer's last fiscal year.

    (b) Parents. List all parents of the small business issuer showing 
the basis of control and as to each parent, the percentage of voting 
securities owned or other basis of control by its immediate parent, if 
any.
    (c) Promoters and control persons. (1) Small business issuers that 
had a promoter at any time during the past five fiscal years shall:
    (i) State the names of the promoter(s), the nature and amount of 
anything of value (including money, property, contracts, options or 
rights of any kind) received or to be received by each promoter, 
directly or indirectly, from the small business issuer and the nature 
and amount of any assets, services or other consideration therefore 
received or to be received by the small business issuer; and
    (ii) As to any assets acquired or to be acquired by the small 
business issuer from a promoter, state the amount at which the assets 
were acquired or are to be acquired and the principle followed or to be 
followed in determining such amount, and identify the persons making 
the determination and their relationship, if any, with the small 
business issuer or any promoter. If the assets were acquired by the 
promoter within two years prior to their transfer to the small business 
issuer, also state the cost thereof to the promoter.
    (2) Small business issuers shall provide the disclosure required by 
paragraphs (c)(1)(i) and (c)(1)(ii) of this Item as to any person who 
acquired control of a small business issuer that is a shell company, or 
any person that is part of a group, consisting of two or more persons 
that agree to act together for the purpose of acquiring, holding, 
voting or disposing of equity securities of a small business issuer, 
that acquired control of a small business issuer that is a shell 
company. For purposes of this Item, shell company has the same meaning 
as in Rule 405 under the Securities Act (17 CFR 230.405) and Rule 12b-2 
under the Exchange Act (17 CFR 240.12b-2). s

0
8. Add Sec.  228.407 to read as follows:


Sec.  228.407  (Item 407) Corporate governance.

    (a) Director independence. Identify each director and, when the 
disclosure called for by this paragraph is being presented in a proxy 
or information statement relating to the election of directors, each 
nominee for director, that is independent under the independence 
standards applicable to the small business issuer under paragraph 
(a)(1) of this Item. In addition, if such independence standards 
contain independence

[[Page 53236]]

requirements for committees of the board of directors, identify each 
director that is a member of the compensation, nominating or audit 
committee that is not independent under such committee independence 
standards. If the small business issuer does not have a separately 
designated audit, nominating or compensation committee or committee 
performing similar functions, the small business issuer must provide 
the disclosure of directors that are not independent with respect to 
all members of the board of directors applying such committee 
independence standards.
    (1) In determining whether or not the director or nominee for 
director is independent for the purposes of paragraph (a) of this Item, 
the small business issuer shall use the applicable definition of 
independence, as follows:
    (i) If the small business issuer is a listed issuer whose 
securities are listed on a national securities exchange or in an inter-
dealer quotation system which has requirements that a majority of the 
board of directors be independent, the small business issuer's 
definition of independence that it uses for determining if a majority 
of the board of directors is independent in compliance with the listing 
standards applicable to the small business issuer. When determining 
whether the members of a committee of the board of directors are 
independent, the small business issuer's definition of independence 
that it uses for determining if the members of that specific committee 
are independent in compliance with the independence standards 
applicable for the members of the specific committee in the listing 
standards of the national securities exchange or inter-dealer quotation 
system that the small business issuer uses for determining if a 
majority of the board of directors are independent. If the small 
business issuer does not have independence standards for a committee, 
the independence standards for that specific committee in the listing 
standards of the national securities exchange or inter-dealer quotation 
system that the small business issuer uses for determining if a 
majority of the board of directors are independent.
    (ii) If the small business issuer is not a listed issuer, a 
definition of independence of a national securities exchange or of an 
inter-dealer quotation system which has requirements that a majority of 
the board of directors be independent, and state which definition is 
used. Whatever such definition the small business issuer chooses, it 
must use the same definition with respect to all directors and nominees 
for director. When determining whether the members of a specific 
committee of the board of directors are independent, if the national 
securities exchange or national securities association whose standards 
are used has independence standards for the members of a specific 
committee, use those committee specific standards.
    (iii) If the information called for by paragraph (a) of this Item 
is being presented in a registration statement on Form S-1 (Sec.  
239.11 of this chapter) or Form SB-2 (Sec.  239.10 of this chapter) 
under the Securities Act or on a Form 10 (Sec.  249.210 of this 
chapter) or Form 10-SB (Sec.  249.210b of this chapter) under the 
Exchange Act where the small business issuer has applied for listing 
with a national securities exchange or in an inter-dealer quotation 
system which has requirements that a majority of the board of directors 
be independent, the definition of independence that the small business 
issuer uses for determining if a majority of the board of directors is 
independent, and the definition of independence that the small business 
issuer uses for determining if members of the specific committee of the 
board of directors are independent, that is in compliance with the 
independence listing standards of the national securities exchange or 
inter-dealer quotation system on which it has applied for listing, or 
if the small business issuer has not adopted such definitions, the 
independence standards for determining if the majority of the board of 
directors is independent and if members of the committee of the board 
of directors are independent of that national securities exchange or 
inter-dealer quotation system.
    (2) If the small business issuer uses its own definitions for 
determining whether its directors and nominees for director, and 
members of specific committees of the board of directors, are 
independent, disclose whether these definitions are available to 
security holders on the small business issuer's Web site. If so, 
provide the small business issuer's Web site address. If not, include a 
copy of these policies in an appendix to the small business issuer's 
proxy statement or information statement that is provided to security 
holders at least once every three fiscal years or if the policies have 
been materially amended since the beginning of the small business 
issuer's last fiscal year. If a current copy of the policies is not 
available to security holders on the small business issuer's Web site, 
and is not included as an appendix to the small business issuer's proxy 
statement or information statement, identify the most recent fiscal 
year in which the policies were so included in satisfaction of this 
requirement.
    (3) For each director and nominee for director that is identified 
as independent, describe, by specific category or type, any 
transactions, relationships or arrangements not disclosed pursuant to 
Item 404(a) (Sec.  228.404(a)) that were considered by the board of 
directors under the applicable independence definitions in determining 
that the director is independent.

    Instructions to Item 407(a).
    1. If the small business issuer is a listed issuer whose 
securities are listed on a national securities exchange or in an 
inter-dealer quotation system which has requirements that a majority 
of the board of directors be independent, and also has exemptions to 
those requirements (for independence of a majority of the board of 
directors or committee member independence) upon which the small 
business issuer relied, disclose the exemption relied upon and 
explain the basis for the small business issuer's conclusion that 
such exemption is applicable. The same disclosure should be provided 
if the small business issuer is not a listed issuer and the national 
securities exchange or inter-dealer quotation system selected by the 
small business issuer has exemptions that are applicable to the 
small business issuer. Any national securities exchange or inter-
dealer quotation system which has requirements that at least 50 
percent of the members of a small business issuer's board of 
directors must be independent shall be considered a national 
securities exchange or inter-dealer quotation system which has 
requirements that a majority of the board of directors be 
independent for the purposes of the disclosure required by paragraph 
(a) of this Item.
    2. Small business issuers shall provide the disclosure required 
by paragraph (a) of this Item for any person who served as a 
director during any part of the last completed fiscal year, except 
that no information called for by paragraph (a) of this Item need be 
given in a registration statement filed at a time when the small 
business issuer is not subject to the reporting requirements of 
section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78m(a), or 
78o(d)) respecting any director who is no longer a director at the 
time of effectiveness of the registration statement.
    3. The description of the specific categories or types of 
transactions, relationships or arrangements required by paragraph 
(a)(3) of this Item must be provided in such detail as is necessary 
to fully describe the nature of the transactions, relationships or 
arrangements.

    (b) Board meetings and committees; annual meeting attendance. (1) 
State the total number of meetings of the board of directors (including 
regularly scheduled and special meetings) which were held during the 
last full fiscal year. Name each incumbent director who during the

[[Page 53237]]

last full fiscal year attended fewer than 75 percent of the aggregate 
of:
    (i) The total number of meetings of the board of directors (held 
during the period for which he has been a director); and
    (ii) The total number of meetings held by all committees of the 
board on which he served (during the periods that he served).
    (2) Describe the small business issuer's policy, if any, with 
regard to board members' attendance at annual meetings of security 
holders and state the number of board members who attended the prior 
year's annual meeting.

    Instruction to Item 407(b)(2).
    In lieu of providing the information required by paragraph 
(b)(2) of this Item in the proxy statement, the small business 
issuer may instead provide the small business issuer's Web site 
address where such information appears.

    (3) State whether or not the small business issuer has standing 
audit, nominating and compensation committees of the board of 
directors, or committees performing similar functions. If the small 
business issuer has such committees, however designated, identify each 
committee member, state the number of committee meetings held by each 
such committee during the last fiscal year and describe briefly the 
functions performed by each such committee. Such disclosure need not be 
provided to the extent it is duplicative of disclosure provided in 
accordance with paragraph (c), (d) or (e) of this Item.
    (c) Nominating committee. (1) If the small business issuer does not 
have a standing nominating committee or committee performing similar 
functions, state the basis for the view of the board of directors that 
it is appropriate for the small business issuer not to have such a 
committee and identify each director who participates in the 
consideration of director nominees.
    (2) Provide the following information regarding the small business 
issuer's director nomination process:
    (i) State whether or not the nominating committee has a charter. If 
the nominating committee has a charter, provide the disclosure required 
by Instruction 2 to this Item regarding the nominating committee 
charter;
    (ii) If the nominating committee has a policy with regard to the 
consideration of any director candidates recommended by security 
holders, provide a description of the material elements of that policy, 
which shall include, but need not be limited to, a statement as to 
whether the committee will consider director candidates recommended by 
security holders;
    (iii) If the nominating committee does not have a policy with 
regard to the consideration of any director candidates recommended by 
security holders, state that fact and state the basis for the view of 
the board of directors that it is appropriate for the small business 
issuer not to have such a policy;
    (iv) If the nominating committee will consider candidates 
recommended by security holders, describe the procedures to be followed 
by security holders in submitting such recommendations;
    (v) Describe any specific minimum qualifications that the 
nominating committee believes must be met by a nominating committee-
recommended nominee for a position on the small business issuer's board 
of directors, and describe any specific qualities or skills that the 
nominating committee believes are necessary for one or more of the 
small business issuer's directors to possess;
    (vi) Describe the nominating committee's process for identifying 
and evaluating nominees for director, including nominees recommended by 
security holders, and any differences in the manner in which the 
nominating committee evaluates nominees for director based on whether 
the nominee is recommended by a security holder;
    (vii) With regard to each nominee approved by the nominating 
committee for inclusion on the small business issuer's proxy card 
(other than nominees who are executive officers or who are directors 
standing for re-election), state which one or more of the following 
categories of persons or entities recommended that nominee: Security 
holder, non-management director, chief executive officer, other 
executive officer, third-party search firm, or other specified source;
    (viii) If the small business issuer pays a fee to any third party 
or parties to identify or evaluate or assist in identifying or 
evaluating potential nominees, disclose the function performed by each 
such third party; and
    (ix) If the small business issuer's nominating committee received, 
by a date not later than the 120th calendar day before the date of the 
small business issuer's proxy statement released to security holders in 
connection with the previous year's annual meeting, a recommended 
nominee from a security holder that beneficially owned more than 5% of 
the small business issuer's voting common stock for at least one year 
as of the date the recommendation was made, or from a group of security 
holders that beneficially owned, in the aggregate, more than 5% of the 
small business issuer's voting common stock, with each of the 
securities used to calculate that ownership held for at least one year 
as of the date the recommendation was made, identify the candidate and 
the security holder or security holder group that recommended the 
candidate and disclose whether the nominating committee chose to 
nominate the candidate, provided, however, that no such identification 
or disclosure is required without the written consent of both the 
security holder or security holder group and the candidate to be so 
identified.

    Instructions to Item 407(c)(2)(ix).
    1. For purposes of paragraph (c)(2)(ix) of this Item, the 
percentage of securities held by a nominating security holder may be 
determined using information set forth in the small business 
issuer's most recent quarterly or annual report, and any current 
report subsequent thereto, filed with the Commission pursuant to the 
Exchange Act, unless the party relying on such report knows or has 
reason to believe that the information contained therein is 
inaccurate.
    2. For purposes of the small business issuer's obligation to 
provide the disclosure specified in paragraph (c)(2)(ix) of this 
Item, where the date of the annual meeting has been changed by more 
than 30 days from the date of the previous year's meeting, the 
obligation under that Item will arise where the small business 
issuer receives the security holder recommendation a reasonable time 
before the small business issuer begins to print and mail its proxy 
materials.
    3. For purposes of paragraph (c)(2)(ix) of this Item, the 
percentage of securities held by a recommending security holder, as 
well as the holding period of those securities, may be determined by 
the small business issuer if the security holder is the registered 
holder of the securities. If the security holder is not the 
registered owner of the securities, he or she can submit one of the 
following to the small business issuer to evidence the required 
ownership percentage and holding period:
    a. A written statement from the ``record'' holder of the 
securities (usually a broker or bank) verifying that, at the time 
the security holder made the recommendation, he or she had held the 
required securities for at least one year; or
    b. If the security holder has filed a Schedule 13D (Sec.  
240.13d-101 of this chapter), Schedule 13G (Sec.  240.13d-102 of 
this chapter), Form 3 (Sec.  249.103 of this chapter), Form 4 (Sec.  
249.104 of this chapter), and/or Form 5 (Sec.  249.105 of this 
chapter), or amendments to those documents or updated forms, 
reflecting ownership of the securities as of or before the date of 
the recommendation, a copy of the schedule and/or form, and any 
subsequent amendments reporting a change in ownership level, as well 
as a written statement that the security holder continuously held 
the securities for the one-year period as of the date of the 
recommendation.

[[Page 53238]]

    4. For purposes of the small business issuer's obligation to 
provide the disclosure specified in paragraph (c)(2)(ix) of this 
Item, the security holder or group must have provided to the small 
business issuer, at the time of the recommendation, the written 
consent of all parties to be identified and, where the security 
holder or group members are not registered holders, proof that the 
security holder or group satisfied the required ownership percentage 
and holding period as of the date of the recommendation.

    Instruction to Item 407(c)(2).
    For purposes of paragraph (c)(2) of this Item, the term 
nominating committee refers not only to nominating committees and 
committees performing similar functions, but also to groups of 
directors fulfilling the role of a nominating committee, including 
the entire board of directors.

    (3) Describe any material changes to the procedures by which 
security holders may recommend nominees to the small business issuer's 
board of directors, where those changes were implemented after the 
small business issuer last provided disclosure in response to the 
requirements of paragraph (c)(2)(iv) of this Item, or paragraph (c)(3) 
of this Item.

    Instructions to Item 407(c)(3).
    1. The disclosure required in paragraph (c)(3) of this Item need 
only be provided in a small business issuer's quarterly or annual 
reports.
    2. For purposes of paragraph (c)(3) of this Item, adoption of 
procedures by which security holders may recommend nominees to the 
small business issuer's board of directors, where the small business 
issuer's most recent disclosure in response to the requirements of 
paragraph (c)(2)(iv) of this Item, or paragraph (c)(3) of this Item, 
indicated that the small business issuer did not have in place such 
procedures, will constitute a material change.

    (d) Audit committee. (1) State whether or not the audit committee 
has a charter. If the audit committee has a charter, provide the 
disclosure required by Instruction 2 to this Item regarding the audit 
committee charter.
    (2) If a listed issuer's board of directors determines, in 
accordance with the listing standards applicable to the issuer, to 
appoint a director to the audit committee who is not independent (apart 
from the requirements in Sec.  240.10A-3 of this chapter), including as 
a result of exceptional or limited or similar circumstances, disclose 
the nature of the relationship that makes that individual not 
independent and the reasons for the board of directors' determination.
    (3)(i) The audit committee must state whether:
    (A) The audit committee has reviewed and discussed the audited 
financial statements with management;
    (B) The audit committee has discussed with the independent auditors 
the matters required to be discussed by the statement on Auditing 
Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU 
section 380),\1\ as adopted by the Public Company Accounting Oversight 
Board in Rule 3200T;
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    (C) The audit committee has received the written disclosures and 
the letter from the independent accountants required by Independence 
Standards Board Standard No. 1 (Independence Standards Board Standard 
No. 1, Independence Discussions with Audit Committees),\2\ as adopted 
by the Public Company Accounting Oversight Board in Rule 3600T, and has 
discussed with the independent accountant the independent accountant's 
independence; and
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    \2\ Available at http://www.pcaobus.org/Standards/Interim_Standards/Independence_Standards/ISB1.pdf.
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    (D) Based on the review and discussions referred to in paragraphs 
(d)(3)(i)(A) through (d)(3)(i)(C) of this Item, the audit committee 
recommended to the board of directors that the audited financial 
statements be included in the company's annual report on Form 10-KSB 
(17 CFR 249.310b) for the last fiscal year for filing with the 
Commission.
    (ii) The name of each member of the company's audit committee (or, 
in the absence of an audit committee, the board committee performing 
equivalent functions or the entire board of directors) must appear 
below the disclosure required by paragraph (d)(3)(i) of this Item.
    (4)(i) If the small business issuer meets the following 
requirements, provide the disclosure in paragraph (d)(4)(ii) of this 
Item:
    (A) The small business issuer is a listed issuer, as defined in 
Sec.  240.10A-3 of this chapter;
    (B) The small business issuer is filing either an annual report on 
Form 10-KSB (17 CFR 249.310b), or a proxy statement or information 
statement pursuant to the Exchange Act (15 U.S.C. 78a et seq.) if 
action is to be taken with respect to the election of directors; and
    (C) The small business issuer is neither:
    (1) A subsidiary of another listed issuer that is relying on the 
exemption in Sec.  240.10A-3(c)(2) of this chapter; nor
    (2) Relying on any of the exemptions in Sec.  240.10A-3(c)(4) 
through (c)(7) of this chapter.
    (ii)(A) State whether or not the small business issuer has a 
separately-designated standing audit committee established in 
accordance with section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 
78c(a)(58)(A)), or a committee performing similar functions. If the 
small business issuer has such a committee, however designated, 
identify each committee member. If the entire board of directors is 
acting as the small business issuer's audit committee as specified in 
section 3(a)(58)(B) of the Exchange Act (15 U.S.C. 78c(a)(58)(B)), so 
state.
    (B) If applicable, provide the disclosure required by Sec.  
240.10A-3(d) of this chapter regarding an exemption from the listing 
standards for audit committees.
    (5) Audit committee financial expert.
    (i)(A) Disclose that the small business issuer's board of directors 
has determined that the small business issuer either:
    (1) Has at least one audit committee financial expert serving on 
its audit committee; or
    (2) Does not have an audit committee financial expert serving on 
its audit committee.
    (B) If the small business issuer provides the disclosure required 
by paragraph (d)(5)(i)(A)(1) of this Item, it must disclose the name of 
the audit committee financial expert and whether that person is 
independent, as independence for audit committee members is defined in 
the listing standards applicable to the listed issuer.
    (C) If the small business issuer provides the disclosure required 
by paragraph (d)(5)(i)(A)(2) of this Item, it must explain why it does 
not have an audit committee financial expert.

    Instruction to Item 407(d)(5)(i).
    If the small business issuer's board of directors has determined 
that the small business issuer has more than one audit committee 
financial expert serving on its audit committee, the small business 
issuer may, but is not required to, disclose the names of those 
additional persons. A small business issuer choosing to identify 
such persons must indicate whether they are independent pursuant to 
paragraph (d)(5)(i)(B) of this Item.

    (ii) For purposes of this Item, an audit committee financial expert 
means a person who has the following attributes:
    (A) An understanding of generally accepted accounting principles 
and financial statements;
    (B) The ability to assess the general application of such 
principles in connection with the accounting for estimates, accruals 
and reserves;
    (C) Experience preparing, auditing, analyzing or evaluating 
financial statements that present a breadth and level of complexity of 
accounting issues

[[Page 53239]]

that are generally comparable to the breadth and complexity of issues 
that can reasonably be expected to be raised by the small business 
issuer's financial statements, or experience actively supervising one 
or more persons engaged in such activities;
    (D) An understanding of internal control over financial reporting; 
and
    (E) An understanding of audit committee functions.
    (iii) A person shall have acquired such attributes through:
    (A) Education and experience as a principal financial officer, 
principal accounting officer, controller, public accountant or auditor 
or experience in one or more positions that involve the performance of 
similar functions;
    (B) Experience actively supervising a principal financial officer, 
principal accounting officer, controller, public accountant, auditor or 
person performing similar functions;
    (C) Experience overseeing or assessing the performance of companies 
or public accountants with respect to the preparation, auditing or 
evaluation of financial statements; or
    (D) Other relevant experience.
    (iv) Safe harbor. (A) A person who is determined to be an audit 
committee financial expert will not be deemed an expert for any 
purpose, including without limitation for purposes of section 11 of the 
Securities Act (15 U.S.C. 77k), as a result of being designated or 
identified as an audit committee financial expert pursuant to this Item 
407.
    (B) The designation or identification of a person as an audit 
committee financial expert pursuant to this Item 407 does not impose on 
such person any duties, obligations or liability that are greater than 
the duties, obligations and liability imposed on such person as a 
member of the audit committee and board of directors in the absence of 
such designation or identification.
    (C) The designation or identification of a person as an audit 
committee financial expert pursuant to this Item does not affect the 
duties, obligations or liability of any other member of the audit 
committee or board of directors.

    Instructions to Item 407(d)(5).
    1. The disclosure under paragraph (d)(5) of this Item is 
required only in a small business issuer's annual report. The small 
business issuer need not provide the disclosure required by 
paragraph (d)(5) of this Item in a proxy or information statement 
unless that small business issuer is electing to incorporate this 
information by reference from the proxy or information statement 
into its annual report pursuant to General Instruction E(3) to Form 
10-KSB (17 CFR 249.310b).
    2. If a person qualifies as an audit committee financial expert 
by means of having held a position described in paragraph 
(d)(5)(iii)(D) of this Item, the small business issuer shall provide 
a brief listing of that person's relevant experience. Such 
disclosure may be made by reference to disclosures required under 
Item 401(a)(4) (Sec.  228.401(a)(4)).
    3. In the case of a foreign private issuer with a two-tier board 
of directors, for purposes of paragraph (d)(5) of this Item, the 
term board of directors means the supervisory or non-management 
board. Also, in the case of a foreign private issuer, the term 
generally accepted accounting principles in paragraph (d)(5)(ii)(A) 
of this Item means the body of generally accepted accounting 
principles used by that issuer in its primary financial statements 
filed with the Commission.
    4. Following the effective date of the first registration 
statement filed under the Securities Act (15 U.S.C. 77a et seq.) or 
Exchange Act (15 U.S.C. 78a et seq.) by a small business issuer, the 
small business issuer or successor issuer need not make the 
disclosures required by this Item in its first annual report filed 
pursuant to section 13(a) or 15(d) (15 U.S.C. 78m(a) or 78o(d)) of 
the Exchange Act after effectiveness.

    Instructions to Item 407(d).
    1. The information required by paragraphs (d)(1)-(3) of this 
Item shall not be deemed to be ``soliciting material,'' or to be 
``filed'' with the Commission or subject to Regulation 14A or 14C 
(17 CFR 240.14a-1 through 240.14b-2 or 240.14c-1 through 240.14c-
101), other than as provided in this Item, or to the liabilities of 
section 18 of the Exchange Act (15 U.S.C. 78r), except to the extent 
that the small business issuer specifically requests that the 
information be treated as soliciting material or specifically 
incorporates it by reference into a document filed under the 
Securities Act or the Exchange Act. Such information will not be 
deemed to be incorporated by reference into any filing under the 
Securities Act or the Exchange Act, except to the extent that the 
small business issuer specifically incorporates it by reference.
    2. The disclosure required by paragraphs (d)(1)-(3) of this Item 
need only be provided one time during any fiscal year.
    3. The disclosure required by paragraph (d)(3) of this Item need 
not be provided in any filings other than a small business issuer's 
proxy or information statement relating to an annual meeting of 
security holders at which directors are to be elected (or special 
meeting or written consents in lieu of such meeting).

    (e) Compensation committee. (1) If the small business issuer does 
not have a standing compensation committee or committee performing 
similar functions, state the basis for the view of the board of 
directors that it is appropriate for the small business issuer not to 
have such a committee and identify each director who participates in 
the consideration of executive officer and director compensation.
    (2) State whether or not the compensation committee has a charter. 
If the compensation committee has a charter, provide the disclosure 
required by Instruction 2 to this Item regarding the compensation 
committee charter.
    (3) Provide a narrative description of the small business issuer's 
processes and procedures for the consideration and determination of 
executive and director compensation, including:
    (i) (A) The scope of authority of the compensation committee (or 
persons performing the equivalent functions); and
    (B) The extent to which the compensation committee (or persons 
performing the equivalent functions) may delegate any authority 
described in paragraph (e)(3)(i)(A) of this Item to other persons, 
specifying what authority may be so delegated and to whom;
    (ii) Any role of executive officers in determining or recommending 
the amount or form of executive and director compensation; and
    (iii) Any role of compensation consultants in determining or 
recommending the amount or form of executive and director compensation, 
identifying such consultants, stating whether such consultants are 
engaged directly by the compensation committee (or persons performing 
the equivalent functions) or any other person, describing the nature 
and scope of their assignment, and the material elements of the 
instructions or directions given to the consultants with respect to the 
performance of their duties under the engagement.
    (f) Shareholder communications. (1) State whether or not the small 
business issuer's board of directors provides a process for security 
holders to send communications to the board of directors and, if the 
small business issuer does not have such a process for security holders 
to send communications to the board of directors, state the basis for 
the view of the board of directors that it is appropriate for the small 
business issuer not to have such a process.
    (2) If the small business issuer has a process for security holders 
to send communications to the board of directors:
    (i) Describe the manner in which security holders can send 
communications to the board and, if applicable, to specified individual 
directors; and
    (ii) If all security holder communications are not sent directly to 
board members, describe the small business issuer's process for 
determining which communications will be relayed to board members.


[[Page 53240]]


    Instructions to Item 407(f).
    1. In lieu of providing the information required by paragraph 
(f)(2) of this Item in the proxy statement, the small business 
issuer may instead provide the small business issuer's Web site 
address where such information appears.
    2. For purposes of the disclosure required by paragraph 
(f)(2)(ii) of this Item, a small business issuer's process for 
collecting and organizing security holder communications, as well as 
similar or related activities, need not be disclosed provided that 
the small business issuer's process is approved by a majority of the 
independent directors.
    3. For purposes of this paragraph, communications from an 
officer or director of the small business issuer will not be viewed 
as ``security holder communications.'' Communications from an 
employee or agent of the small business issuer will be viewed as 
``security holder communications'' for purposes of this paragraph 
only if those communications are made solely in such employee's or 
agent's capacity as a security holder.
    4. For purposes of this paragraph, security holder proposals 
submitted pursuant to Sec.  240.14a-8 of this chapter, and 
communications made in connection with such proposals, will not be 
viewed as ``security holder communications.''

    Instructions to Item 407.
    1. For purposes of this Item:
    a. Listed issuer means a listed issuer as defined in Sec.  
240.10A-3 of this chapter;
    b. National securities exchange means a national securities 
exchange registered pursuant to section 6(a) of the Exchange Act (15 
U.S.C. 78f(a));
    c. Inter-dealer quotation system means an automated inter-dealer 
quotation system of a national securities association registered 
pursuant to section 15A(a) of the Exchange Act (15 U.S.C. 78o-3(a)); 
and
    d. National securities association means a national securities 
association registered pursuant to section 15A(a) of the Exchange 
Act (15 U.S.C. 78o-3(a)) that has been approved by the Commission 
(as that definition may be modified or supplemented).
    2. With respect to paragraphs (c)(2)(i), (d)(1) and (e)(2) of 
this Item, disclose whether a current copy of the applicable 
committee charter is available to security holders on the small 
business issuer's Web site, and if so, provide the small business 
issuer's Web site address. If a current copy of the charter is not 
available to security holders on the small business issuer's Web 
site, include a copy of the charter in an appendix to the small 
business issuer's proxy or information statement that is provided to 
security holders at least once every three fiscal years, or if the 
charter has been materially amended since the beginning of the small 
business issuer's last fiscal year. If a current copy of the charter 
is not available to security holders on the small business issuer's 
Web site, and is not included as an appendix to the small business 
issuer's proxy or information statement, identify in which of the 
prior fiscal years the charter was so included in satisfaction of 
this requirement.

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

0
9. The authority citation for part 229 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 
78mm, 79e, 79j, 79n, 79t, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-
31(c), 80a-37, 80a-38(a), 80a-39, 80b-11, and 7201 et seq.; and 18 
U.S.C. 1350, unless otherwise noted.
* * * * *

0
10. Amend Sec.  229.201 by revising Instruction 2 to paragraph (d) and 
adding paragraph (e) before the Instructions to Item 201 to read as 
follows:


Sec.  229.201   (Item 201) Market price of and dividends on the 
registrant's common equity and related stockholder matters.

* * * * *
    Instructions to paragraph (d).
    1. * * *
    2. For purposes of this paragraph, an ``individual compensation 
arrangement'' includes, but is not limited to, the following: a 
written compensation contract within the meaning of ``employee 
benefit plan'' under Sec.  230.405 of this chapter and a plan 
(whether or not set forth in any formal document) applicable to one 
person as provided under Item 402(a)(6)(ii) of Regulation S-K (Sec.  
229.402(a)(6)(ii)).
* * * * *
    (e) Performance graph. (1) Provide a line graph comparing the 
yearly percentage change in the registrant's cumulative total 
shareholder return on a class of common stock registered under section 
12 of the Exchange Act (as measured by dividing the sum of the 
cumulative amount of dividends for the measurement period, assuming 
dividend reinvestment, and the difference between the registrant's 
share price at the end and the beginning of the measurement period; by 
the share price at the beginning of the measurement period) with:
    (i) The cumulative total return of a broad equity market index 
assuming reinvestment of dividends, that includes companies whose 
equity securities are traded on the same exchange or are of comparable 
market capitalization; provided, however, that if the registrant is a 
company within the Standard & Poor's 500 Stock Index, the registrant 
must use that index; and
    (ii) The cumulative total return, assuming reinvestment of 
dividends, of:
    (A) A published industry or line-of-business index;
    (B) Peer issuer(s) selected in good faith. If the registrant does 
not select its peer issuer(s) on an industry or line-of-business basis, 
the registrant shall disclose the basis for its selection; or
    (C) Issuer(s) with similar market capitalization(s), but only if 
the registrant does not use a published industry or line-of-business 
index and does not believe it can reasonably identify a peer group. If 
the registrant uses this alternative, the graph shall be accompanied by 
a statement of the reasons for this selection.
    (2) For purposes of paragraph (e)(1) of this Item, the term 
``measurement period'' shall be the period beginning at the 
``measurement point'' established by the market close on the last 
trading day before the beginning of the registrant's fifth preceding 
fiscal year, through and including the end of the registrant's last 
completed fiscal year. If the class of securities has been registered 
under section 12 of the Exchange Act (15 U.S.C. 78l) for a shorter 
period of time, the period covered by the comparison may correspond to 
that time period.
    (3) For purposes of paragraph (e)(1)(ii)(A) of this Item, the term 
``published industry or line-of-business index'' means any index that 
is prepared by a party other than the registrant or an affiliate and is 
accessible to the registrant's security holders; provided, however, 
that registrants may use an index prepared by the registrant or 
affiliate if such index is widely recognized and used.
    (4) If the registrant selects a different index from an index used 
for the immediately preceding fiscal year, explain the reason(s) for 
this change and also compare the registrant's total return with that of 
both the newly selected index and the index used in the immediately 
preceding fiscal year.

    Instructions to Item 201(e):
    1. In preparing the required graphic comparisons, the registrant 
should:
    a. Use, to the extent feasible, comparable methods of 
presentation and assumptions for the total return calculations 
required by paragraph (e)(1) of this Item; provided, however, that 
if the registrant constructs its own peer group index under 
paragraph (e)(1)(ii)(B), the same methodology must be used in 
calculating both the registrant's total return and that on the peer 
group index; and
    b. Assume the reinvestment of dividends into additional shares 
of the same class of equity securities at the frequency with which 
dividends are paid on such securities during the applicable fiscal 
year.
    2. In constructing the graph:
    a. The closing price at the measurement point must be converted 
into a fixed investment, stated in dollars, in the

[[Page 53241]]

registrant's stock (or in the stocks represented by a given index) 
with cumulative returns for each subsequent fiscal year measured as 
a change from that investment; and
    b. Each fiscal year should be plotted with points showing the 
cumulative total return as of that point. The value of the 
investment as of each point plotted on a given return line is the 
number of shares held at that point multiplied by the then-
prevailing share price.
    3. The registrant is required to present information for the 
registrant's last five fiscal years, and may choose to graph a 
longer period; but the measurement point, however, shall remain the 
same.
    4. Registrants may include comparisons using performance 
measures in addition to total return, such as return on average 
common shareholders' equity.
    5. If the registrant uses a peer issuer(s) comparison or 
comparison with issuer(s) with similar market capitalizations, the 
identity of those issuers must be disclosed and the returns of each 
component issuer of the group must be weighted according to the 
respective issuer's stock market capitalization at the beginning of 
each period for which a return is indicated.
    6. A registrant that qualifies as a ``small business issuer,'' 
as defined by Item 10(a)(1) of Regulation S-B (17 CFR 228.10(a)(1)) 
is not required to provide the information required by paragraph (e) 
of this Item.
    7. The information required by paragraph (e) of this Item need 
not be provided in any filings other than an annual report to 
security holders required by Exchange Act Rule 14a-3 (17 CFR 
240.14a-3) or Exchange Act Rule 14c-3 (17 CFR 240.14c-3) that 
precedes or accompanies a registrant's proxy or information 
statement relating to an annual meeting of security holders at which 
directors are to be elected (or special meeting or written consents 
in lieu of such meeting). Such information will not be deemed to be 
incorporated by reference into any filing under the Securities Act 
or the Exchange Act, except to the extent that the registrant 
specifically incorporates it by reference.
    8. The information required by paragraph (e) of this Item shall 
not be deemed to be ``soliciting material'' or to be ``filed'' with 
the Commission or subject to Regulation 14A or 14C (17 CFR 240.14a-
1-240.14a-104 or 240.14c-1-240.14c-101), other than as provided in 
this item, or to the liabilities of section 18 of the Exchange Act 
(15 U.S.C. 78r), except to the extent that the registrant 
specifically requests that such information be treated as soliciting 
material or specifically incorporates it by reference into a filing 
under the Securities Act or the Exchange Act.
* * * * *


Sec.  229.306  [Removed and Reserved]

0
11. Remove and reserve Sec.  229.306.

0
12. Amend Sec.  229.401 by removing paragraphs (h), (i) and (j) and by 
revising paragraph (g)(1) to read as follows:


Sec.  229.401   (Item 401) Directors, executive officers, promoters and 
control persons.

* * * * *
    (g) Promoters and control persons. (1) Registrants, which have not 
been subject to the reporting requirements of section 13(a) or 15(d) of 
the Exchange Act (15 U.S.C. 78m(a) or 78o(d)) for the twelve months 
immediately prior to the filing of the registration statement, report, 
or statement to which this Item is applicable, and which had a promoter 
at any time during the past five fiscal years, shall describe with 
respect to any promoter, any of the events enumerated in paragraphs 
(f)(1) through (f)(6) of this Item that occurred during the past five 
years and that are material to a voting or investment decision.
* * * * *

0
13. Revise Sec.  229.402 to read as follows:


Sec.  229.402   (Item 402) Executive compensation.

    (a) General--(1) Treatment of foreign private issuers. A foreign 
private issuer will be deemed to comply with this Item if it provides 
the information required by Items 6.B and 6.E.2 of Form 20-F (17 CFR 
249.220f), with more detailed information provided if otherwise made 
publicly available or required to be disclosed by the issuer's home 
jurisdiction or a market in which its securities are listed or traded.
    (2) All compensation covered. This Item requires clear, concise and 
understandable disclosure of all plan and non-plan compensation awarded 
to, earned by, or paid to the named executive officers designated under 
paragraph (a)(3) of this Item, and directors covered by paragraph (k) 
of this Item, by any person for all services rendered in all capacities 
to the registrant and its subsidiaries, unless otherwise specifically 
excluded from disclosure in this Item. All such compensation shall be 
reported pursuant to this Item, even if also called for by another 
requirement, including transactions between the registrant and a third 
party where a purpose of the transaction is to furnish compensation to 
any such named executive officer or director. No amount reported as 
compensation for one fiscal year need be reported in the same manner as 
compensation for a subsequent fiscal year; amounts reported as 
compensation for one fiscal year may be required to be reported in a 
different manner pursuant to this Item.
    (3) Persons covered. Disclosure shall be provided pursuant to this 
Item for each of the following (the ``named executive officers''):
    (i) All individuals serving as the registrant's principal executive 
officer or acting in a similar capacity during the last completed 
fiscal year (``PEO''), regardless of compensation level;
    (ii) All individuals serving as the registrant's principal 
financial officer or acting in a similar capacity during the last 
completed fiscal year (``PFO''), regardless of compensation level;
    (iii) The registrant's three most highly compensated executive 
officers other than the PEO and PFO who were serving as executive 
officers at the end of the last completed fiscal year; and
    (iv) Up to two additional individuals for whom disclosure would 
have been provided pursuant to paragraph (a)(3)(iii) of this Item but 
for the fact that the individual was not serving as an executive 
officer of the registrant at the end of the last completed fiscal year.

    Instructions to Item 402(a)(3).
    1. Determination of most highly compensated executive officers. 
The determination as to which executive officers are most highly 
compensated shall be made by reference to total compensation for the 
last completed fiscal year (as required to be disclosed pursuant to 
paragraph (c)(2)(x) of this Item) reduced by the amount required to 
be disclosed pursuant to paragraph (c)(2)(viii) of this Item, 
provided, however, that no disclosure need be provided for any 
executive officer, other than the PEO and PFO, whose total 
compensation, as so reduced, does not exceed $100,000.
    2. Inclusion of executive officer of subsidiary. It may be 
appropriate for a registrant to include as named executive officers 
one or more executive officers or other employees of subsidiaries in 
the disclosure required by this Item. See Rule 3b-7 under the 
Exchange Act (17 CFR 240.3b-7).
    3. Exclusion of executive officer due to overseas compensation. 
It may be appropriate in limited circumstances for a registrant not 
to include in the disclosure required by this Item an individual, 
other than its PEO or PFO, who is one of the registrant's most 
highly compensated executive officers due to the payment of amounts 
of cash compensation relating to overseas assignments attributed 
predominantly to such assignments.
    (4) Information for full fiscal year. If the PEO or PFO served 
in that capacity during any part of a fiscal year with respect to 
which information is required, information should be provided as to 
all of his or her compensation for the full fiscal year. If a named 
executive officer (other than the PEO or PFO) served as an executive 
officer of the registrant (whether or not in the same position) 
during any part of the fiscal year with respect to which information 
is required, information shall be provided as to all compensation of 
that individual for the full fiscal year.
    (5) Omission of table or column. A table or column may be 
omitted if there has been no compensation awarded to, earned by, or 
paid to any of the named executive officers or directors required to 
be reported in that table or column in any fiscal year covered by 
that table.

[[Page 53242]]

    (6) Definitions. For purposes of this Item:
    (i) The term stock means instruments such as common stock, 
restricted stock, restricted stock units, phantom stock, phantom 
stock units, common stock equivalent units or any similar 
instruments that do not have option-like features, and the term 
option means instruments such as stock options, stock appreciation 
rights and similar instruments with option-like features. The term 
stock appreciation rights (``SARs'') refers to SARs payable in cash 
or stock, including SARs payable in cash or stock at the election of 
the registrant or a named executive officer. The term equity is used 
to refer generally to stock and/or options.
    (ii) The term plan includes, but is not limited to, the 
following: Any plan, contract, authorization or arrangement, whether 
or not set forth in any formal document, pursuant to which cash, 
securities, similar instruments, or any other property may be 
received. A plan may be applicable to one person. Registrants may 
omit information regarding group life, health, hospitalization, or 
medical reimbursement plans that do not discriminate in scope, terms 
or operation, in favor of executive officers or directors of the 
registrant and that are available generally to all salaried 
employees.
    (iii) The term incentive plan means any plan providing 
compensation intended to serve as incentive for performance to occur 
over a specified period, whether such performance is measured by 
reference to financial performance of the registrant or an 
affiliate, the registrant's stock price, or any other performance 
measure. An equity incentive plan is an incentive plan or portion of 
an incentive plan under which awards are granted that fall within 
the scope of Financial Accounting Standards Board Statement of 
Financial Accounting Standards No. 123 (revised 2004), Share-Based 
Payment, as modified or supplemented (``FAS 123R''). A non-equity 
incentive plan is an incentive plan or portion of an incentive plan 
that is not an equity incentive plan. The term incentive plan award 
means an award provided under an incentive plan.
    (iv) The terms date of grant or grant date refer to the grant 
date determined for financial statement reporting purposes pursuant 
to FAS 123R.
    (v) Closing market price is defined as the price at which the 
registrant's security was last sold in the principal United States 
market for such security as of the date for which the closing market 
price is determined.
    (b) Compensation discussion and analysis. (1) Discuss the 
compensation awarded to, earned by, or paid to the named executive 
officers. The discussion shall explain all material elements of the 
registrant's compensation of the named executive officers. The 
discussion shall describe the following:
    (i) The objectives of the registrant's compensation programs;
    (ii) What the compensation program is designed to reward;
    (iii) Each element of compensation;
    (iv) Why the registrant chooses to pay each element;
    (v) How the registrant determines the amount (and, where 
applicable, the formula) for each element to pay; and
    (vi) How each compensation element and the registrant's 
decisions regarding that element fit into the registrant's overall 
compensation objectives and affect decisions regarding other 
elements.
    (2) While the material information to be disclosed under 
Compensation Discussion and Analysis will vary depending upon the 
facts and circumstances, examples of such information may include, 
in a given case, among other things, the following:
    (i) The policies for allocating between long-term and currently 
paid out compensation;
    (ii) The policies for allocating between cash and non-cash 
compensation, and among different forms of non-cash compensation;
    (iii) For long-term compensation, the basis for allocating 
compensation to each different form of award (such as relationship 
of the award to the achievement of the registrant's long-term goals, 
management's exposure to downside equity performance risk, 
correlation between cost to registrant and expected benefits to the 
registrant);
    (iv) How the determination is made as to when awards are 
granted, including awards of equity-based compensation such as 
options;
    (v) What specific items of corporate performance are taken into 
account in setting compensation policies and making compensation 
decisions;
    (vi) How specific forms of compensation are structured and 
implemented to reflect these items of the registrant's performance, 
including whether discretion can be or has been exercised (either to 
award compensation absent attainment of the relevant performance 
goal(s) or to reduce or increase the size of any award or payout), 
identifying any particular exercise of discretion, and stating 
whether it applied to one or more specified named executive officers 
or to all compensation subject to the relevant performance goal(s);
    (vii) How specific forms of compensation are structured and 
implemented to reflect the named executive officer's individual 
performance and/or individual contribution to these items of the 
registrant's performance, describing the elements of individual 
performance and/or contribution that are taken into account;
    (viii) Registrant policies and decisions regarding the 
adjustment or recovery of awards or payments if the relevant 
registrant performance measures upon which they are based are 
restated or otherwise adjusted in a manner that would reduce the 
size of an award or payment;
    (ix) The factors considered in decisions to increase or decrease 
compensation materially;
    (x) How compensation or amounts realizable from prior 
compensation are considered in setting other elements of 
compensation (e.g., how gains from prior option or stock awards are 
considered in setting retirement benefits);
    (xi) With respect to any contract, agreement, plan or 
arrangement, whether written or unwritten, that provides for 
payment(s) at, following, or in connection with any termination or 
change-in-control, the basis for selecting particular events as 
triggering payment (e.g., the rationale for providing a single 
trigger for payment in the event of a change-in-control);
    (xii) The impact of the accounting and tax treatments of the 
particular form of compensation;
    (xiii) The registrant's equity or other security ownership 
requirements or guidelines (specifying applicable amounts and forms 
of ownership), and any registrant policies regarding hedging the 
economic risk of such ownership;
    (xiv) Whether the registrant engaged in any benchmarking of 
total compensation, or any material element of compensation, 
identifying the benchmark and, if applicable, its components 
(including component companies); and
    (xv) The role of executive officers in determining executive 
compensation.

    Instructions to Item 402(b).
    1. The purpose of the Compensation Discussion and Analysis is to 
provide to investors material information that is necessary to an 
understanding of the registrant's compensation policies and 
decisions regarding the named executive officers.
    2. The Compensation Discussion and Analysis should be of the 
information contained in the tables and otherwise disclosed pursuant 
to this Item. The Compensation Discussion and Analysis should also 
cover actions regarding executive compensation that were taken after 
the registrant's last fiscal year's end. Actions that should be 
addressed might include, as examples only, the adoption or 
implementation of new or modified programs and policies or specific 
decisions that were made or steps that were taken that could affect 
a fair understanding of the named executive officer's compensation 
for the last fiscal year. Moreover, in some situations it may be 
necessary to discuss prior years in order to give context to the 
disclosure provided.
    3. The Compensation Discussion and Analysis should focus on the 
material principles underlying the registrant's executive 
compensation policies and decisions and the most important factors 
relevant to analysis of those policies and decisions. The 
Compensation Discussion and Analysis shall reflect the individual 
circumstances of the registrant and shall avoid boilerplate language 
and repetition of the more detailed information set forth in the 
tables and narrative disclosures that follow.
    4. Registrants are not required to disclose target levels with 
respect to specific quantitative or qualitative performance-related 
factors considered by the compensation committee or the board of 
directors, or any other factors or criteria involving confidential 
trade secrets or confidential commercial or financial information, 
the disclosure of which would result in competitive harm for the 
registrant. The standard to use when determining whether disclosure 
would cause competitive harm for the registrant is the same standard 
that would apply when a registrant requests confidential treatment 
of confidential trade

[[Page 53243]]

secrets or confidential commercial or financial information pursuant 
to Securities Act Rule 406 (17 CFR 230.406) and Exchange Act Rule 
24b-2 (17 CFR 240.24b-2), each of which incorporates the criteria 
for non-disclosure when relying upon Exemption 4 of the Freedom of 
Information Act (5 U.S.C. 552(b)(4)) and Rule 80(b)(4) (17 CFR 
200.80(b)(4)) thereunder. A registrant is not required to seek 
confidential treatment under the procedures in Securities Act Rule 
406 and Exchange Act Rule 24b-2 if it determines that the disclosure 
would cause competitive harm in reliance on this instruction; 
however, in that case, the registrant must discuss how difficult it 
will be for the executive or how likely it will be for the 
registrant to achieve the undisclosed target levels or other 
factors.
    5. Disclosure of target levels that are non-GAAP financial 
measures will not be subject to Regulation G (17 CFR 244.100--102) 
and Item 10(e) (Sec.  229.10(e)); however, disclosure must be 
provided as to how the number is calculated from the registrant's 
audited financial statements.

    (c) Summary compensation table--(1) General. Provide the 
information specified in paragraph (c)(2) of this Item, concerning the 
compensation of the named executive officers for each of the 
registrant's last three completed fiscal years, in a Summary 
Compensation Table in the tabular format specified below.

                                                                                   Summary Compensation Table
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                  Change in
                                                                                                                                                pension value
                                                                                                            Option awards      Non-equity     and nonqualified     All other
   Name and principal position          Year           Salary ($)         Bonus ($)     Stock awards ($)         ($)         incentive plan       deferred        compensation      Total ($)
                                                                                                                            compensation ($)    compensation          ($)
                                                                                                                                                earnings ($)
(a)                               (b)               (c)               (d)               (e)               (f)               (g)               (h)               (i)              (j)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PEO.............................
 
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PFO.............................
 
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
A...............................
 
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
B...............................
 
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
C...............................
 
 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    (2) The Table shall include:
    (i) The name and principal position of the named executive officer 
(column (a));
    (ii) The fiscal year covered (column (b));
    (iii) The dollar value of base salary (cash and non-cash) earned by 
the named executive officer during the fiscal year covered (column 
(c));
    (iv) The dollar value of bonus (cash and non-cash) earned by the 
named executive officer during the fiscal year covered (column (d));

    Instructions to Item 402(c)(2)(iii) and (iv).
    1. If the amount of salary or bonus earned in a given fiscal 
year is not calculable through the latest practicable date, a 
footnote shall be included disclosing that the amount of salary or 
bonus is not calculable through the latest practicable date and 
providing the date that the amount of salary or bonus is expected to 
be determined, and such amount must then be disclosed in a filing 
under Item 5.02(f) of Form 8-K (17 CFR 249.308).
    2. Registrants need not include in the salary column (column 
(c)) or bonus column (column (d)) any amount of salary or bonus 
forgone at the election of a named executive officer pursuant to a 
registrant's program under which stock, equity-based or other forms 
of non-cash compensation may be received by a named executive 
officer instead of a portion of annual compensation earned in a 
covered fiscal year. However, the receipt of any such form of non-
cash compensation instead of salary or bonus earned for a covered 
fiscal year must be disclosed in the appropriate column of the 
Summary Compensation Table corresponding to that fiscal year (e.g., 
stock awards (column (e)); option awards (column (f)); all other 
compensation (column (i))), or, if made pursuant to a non-equity 
incentive plan and therefore not reportable in the Summary 
Compensation Table when granted, a footnote must be added to the 
salary or bonus column so disclosing and referring to the Grants of 
Plan-Based Awards Table (required by paragraph (d) of this Item) 
where the award is reported.

    (v) For awards of stock, the aggregate grant date fair value 
computed in accordance with FAS 123R (column (e));
    (vi) For awards of options, with or without tandem SARs (including 
awards that subsequently have been transferred), the aggregate grant 
date fair value computed in accordance with FAS 123R (column (f));

    Instructions to Item 402(c)(2)(v) and (vi).
    1. For awards reported in columns (e) and (f), include a 
footnote disclosing all assumptions made in the valuation by 
reference to a discussion of those assumptions in the registrant's 
financial statements, footnotes to the financial statements, or 
discussion in the Management's Discussion and Analysis. The sections 
so referenced are deemed part of the disclosure provided pursuant to 
this Item.
    2. If at any time during the last completed fiscal year, the 
registrant has adjusted or amended the exercise price of options or 
SARs previously awarded to a named executive officer, whether 
through amendment, cancellation or replacement

[[Page 53244]]

grants, or any other means (``repriced''), or otherwise has 
materially modified such awards, the registrant shall include, as 
awards required to be reported in column (f), the incremental fair 
value, computed as of the repricing or modification date in 
accordance with FAS 123R, with respect to that repriced or modified 
award.

    (vii) The dollar value of all earnings for services performed 
during the fiscal year pursuant to awards under non-equity incentive 
plans as defined in paragraph (a)(6)(iii) of this Item, and all 
earnings on any outstanding awards (column (g));

    Instructions to Item 402(c)(2)(vii).
    1. If the relevant performance measure is satisfied during the 
fiscal year (including for a single year in a plan with a multi-year 
performance measure), the earnings are reportable for that fiscal 
year, even if not payable until a later date, and are not reportable 
again in the fiscal year when amounts are paid to the named 
executive officer.
    2. All earnings on non-equity incentive plan compensation must 
be identified and quantified in a footnote to column (g), whether 
the earnings were paid during the fiscal year, payable during the 
period but deferred at the election of the named executive officer, 
or payable by their terms at a later date.

    (viii) The sum of the amounts specified in paragraphs 
(c)(2)(viii)(A) and (B) of this Item (column (h)) as follows:
    (A) The aggregate change in the actuarial present value of the 
named executive officer's accumulated benefit under all defined benefit 
and actuarial pension plans (including supplemental plans) from the 
pension plan measurement date used for financial statement reporting 
purposes with respect to the registrant's audited financial statements 
for the prior completed fiscal year to the pension plan measurement 
date used for financial statement reporting purposes with respect to 
the registrant's audited financial statements for the covered fiscal 
year; and
    (B) Above-market or preferential earnings on compensation that is 
deferred on a basis that is not tax-qualified, including such earnings 
on nonqualified defined contribution plans;

    Instructions to Item 402(c)(2)(viii).
    1. The disclosure required pursuant to paragraph (c)(2)(viii)(A) 
of this Item applies to each plan that provides for the payment of 
retirement benefits, or benefits that will be paid primarily 
following retirement, including but not limited to tax-qualified 
defined benefit plans and supplemental executive retirement plans, 
but excluding tax-qualified defined contribution plans and 
nonqualified defined contribution plans. For purposes of this 
disclosure, the registrant should use the same amounts required to 
be disclosed pursuant to paragraph (h)(2)(iv) of this Item for the 
covered fiscal year and the amounts that were or would have been 
required to be reported for the executive officer pursuant to 
paragraph (h)(2)(iv) of this Item for the prior completed fiscal 
year.
    2. Regarding paragraph (c)(2)(viii)(B) of this Item, interest on 
deferred compensation is above-market only if the rate of interest 
exceeds 120% of the applicable federal long-term rate, with 
compounding (as prescribed under section 1274(d) of the Internal 
Revenue Code, (26 U.S.C. 1274(d))) at the rate that corresponds most 
closely to the rate under the registrant's plan at the time the 
interest rate or formula is set. In the event of a discretionary 
reset of the interest rate, the requisite calculation must be made 
on the basis of the interest rate at the time of such reset, rather 
than when originally established. Only the above-market portion of 
the interest must be included. If the applicable interest rates vary 
depending upon conditions such as a minimum period of continued 
service, the reported amount should be calculated assuming 
satisfaction of all conditions to receiving interest at the highest 
rate. Dividends (and dividend equivalents) on deferred compensation 
denominated in the registrant's stock (``deferred stock'') are 
preferential only if earned at a rate higher than dividends on the 
registrant's common stock. Only the preferential portion of the 
dividends or equivalents must be included. Footnote or narrative 
disclosure may be provided explaining the registrant's criteria for 
determining any portion considered to be above-market.
    3. The registrant shall identify and quantify by footnote the 
separate amounts attributable to each of paragraphs (c)(2)(viii)(A) 
and (B) of this Item. Where such amount pursuant to paragraph 
(c)(2)(viii)(A) is negative, it should be disclosed by footnote but 
should not be reflected in the sum reported in column (h).

    (ix) All other compensation for the covered fiscal year that the 
registrant could not properly report in any other column of the Summary 
Compensation Table (column (i)). Each compensation item that is not 
properly reportable in columns (c)-(h), regardless of the amount of the 
compensation item, must be included in column (i). Such compensation 
must include, but is not limited to:
    (A) Perquisites and other personal benefits, or property, unless 
the aggregate amount of such compensation is less than $10,000;
    (B) All ``gross-ups'' or other amounts reimbursed during the fiscal 
year for the payment of taxes;
    (C) For any security of the registrant or its subsidiaries 
purchased from the registrant or its subsidiaries (through deferral of 
salary or bonus, or otherwise) at a discount from the market price of 
such security at the date of purchase, unless that discount is 
available generally, either to all security holders or to all salaried 
employees of the registrant, the compensation cost, if any, computed in 
accordance with FAS 123R;
    (D) The amount paid or accrued to any named executive officer 
pursuant to a plan or arrangement in connection with:
    (1) Any termination, including without limitation through 
retirement, resignation, severance or constructive termination 
(including a change in responsibilities) of such executive officer's 
employment with the registrant and its subsidiaries; or
    (2) A change in control of the registrant;
    (E) Registrant contributions or other allocations to vested and 
unvested defined contribution plans;
    (F) The dollar value of any insurance premiums paid by, or on 
behalf of, the registrant during the covered fiscal year with respect 
to life insurance for the benefit of a named executive officer; and
    (G) The dollar value of any dividends or other earnings paid on 
stock or option awards, when those amounts were not factored into the 
grant date fair value required to be reported for the stock or option 
award in columns (e) or (f); and

    Instructions to Item 402(c)(2)(ix).
    1. Non-equity incentive plan awards and earnings and earnings on 
stock and options, except as specified in paragraph (c)(2)(ix)(G) of 
this Item, are required to be reported elsewhere as provided in this 
Item and are not reportable as All Other Compensation in column (i).
    2. Benefits paid pursuant to defined benefit and actuarial plans 
are not reportable as All Other Compensation in column (i) unless 
accelerated pursuant to a change in control; information concerning 
these plans is reportable pursuant to paragraphs (c)(2)(viii)(A) and 
(h) of this Item.
    3. Any item reported for a named executive officer pursuant to 
paragraph (c)(2)(ix) of this Item that is not a perquisite or 
personal benefit and whose value exceeds $10,000 must be identified 
and quantified in a footnote to column (i). This requirement applies 
only to compensation for the last fiscal year. All items of 
compensation are required to be included in the Summary Compensation 
Table without regard to whether such items are required to be 
identified other than as specifically noted in this Item.
    4. Perquisites and personal benefits may be excluded as long as 
the total value of all perquisites and personal benefits for a named 
executive officer is less than $10,000. If the total value of all 
perquisites and personal benefits is $10,000 or more for any named 
executive officer, then each perquisite or personal benefit, 
regardless of its amount, must be identified by type. If perquisites 
and personal benefits are required to be reported for a named 
executive officer pursuant to this rule, then each perquisite or 
personal benefit

[[Page 53245]]

that exceeds the greater of $25,000 or 10% of the total amount of 
perquisites and personal benefits for that officer must be 
quantified and disclosed in a footnote. The requirements for 
identification and quantification apply only to compensation for the 
last fiscal year. Perquisites and other personal benefits shall be 
valued on the basis of the aggregate incremental cost to the 
registrant. With respect to the perquisite or other personal benefit 
for which footnote quantification is required, the registrant shall 
describe in the footnote its methodology for computing the aggregate 
incremental cost. Reimbursements of taxes owed with respect to 
perquisites or other personal benefits must be included in column 
(i) and are subject to separate quantification and identification as 
tax reimbursements (paragraph (c)(2)(ix)(B) of this Item) even if 
the associated perquisites or other personal benefits are not 
required to be included because the total amount of all perquisites 
or personal benefits for an individual named executive officer is 
less than $10,000 or are required to be identified but are not 
required to be separately quantified.
    5. For purposes of paragraph (c)(2)(ix)(D) of this Item, an 
accrued amount is an amount for which payment has become due.

    (x) The dollar value of total compensation for the covered fiscal 
year (column (j)). With respect to each named executive officer, 
disclose the sum of all amounts reported in columns (c) through (i).

    Instructions to Item 402(c).
    1. Information with respect to fiscal years prior to the last 
completed fiscal year will not be required if the registrant was not 
a reporting company pursuant to section 13(a) or 15(d) of the 
Exchange Act (15 U.S.C. 78m(a) or 78o(d)) at any time during that 
year, except that the registrant will be required to provide 
information for any such year if that information previously was 
required to be provided in response to a Commission filing 
requirement.
    2. All compensation values reported in the Summary Compensation 
Table must be reported in dollars and rounded to the nearest dollar. 
Reported compensation values must be reported numerically, providing 
a single numerical value for each grid in the table. Where 
compensation was paid to or received by a named executive officer in 
a different currency, a footnote must be provided to identify that 
currency and describe the rate and methodology used to convert the 
payment amounts to dollars.
    3. If a named executive officer is also a director who receives 
compensation for his or her services as a director, reflect that 
compensation in the Summary Compensation Table and provide a 
footnote identifying and itemizing such compensation and amounts. 
Use the categories in the Director Compensation Table required 
pursuant to paragraph (k) of this Item.
    4. Any amounts deferred, whether pursuant to a plan established 
under section 401(k) of the Internal Revenue Code (26 U.S.C. 
401(k)), or otherwise, shall be included in the appropriate column 
for the fiscal year in which earned.

    (d) Grants of plan-based awards table. (1) Provide the information 
specified in paragraph (d)(2) of this Item, concerning each grant of an 
award made to a named executive officer in the last completed fiscal 
year under any plan, including awards that subsequently have been 
transferred, in the following tabular format:

                                                               Grants of Plan-Based Awards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                           Estimated future payouts under Non-equity    Estimated future payouts under equity     All other     All other
                                     incentive plan awards                      incentive plan awards               stock        option
                         --------------------------------------------------------------------------------------    awards:       awards:     Exercise or
                                                                                                                  number of     number of    base price
   Name      Grant date                                                                                           shares of    securities     of option
                            Thresh-old     Target ($)    Maximum ($)   Thresh-old      Target        Maximum      stock or     under-lying   awards ($/
                               ($)                                     (<greek-i>)   (<greek-i>)   (<greek-i>)      units        options         Sh)
                                                                                                                 (<greek-i>)   (<greek-i>)
(a)        (b)            (c)            (d)            (e)           (f)           (g)           (h)           (i)           (j)           (k)
--------------------------------------------------------------------------------------------------------------------------------------------------------
PEO
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
PFO
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
A
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
B
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
C
 
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (2) The Table shall include:
    (i) The name of the named executive officer (column (a));
    (ii) The grant date for equity-based awards reported in the table 
(column (b)). If such grant date is different than the date on which 
the compensation committee (or a committee of the board of directors 
performing a similar function or the full board of directors) takes 
action or is deemed to take action to grant such awards, a separate, 
adjoining column shall be added between columns (b) and (c) showing 
such date;
    (iii) The dollar value of the estimated future payout upon 
satisfaction of the conditions in question under non-equity incentive 
plan awards granted in the fiscal year, or the applicable range of 
estimated payouts denominated in dollars (threshold, target and maximum 
amount) (columns (c) through (e)).
    (iv) The number of shares of stock, or the number of shares 
underlying options to be paid out or vested upon satisfaction of the 
conditions in question under equity incentive plan awards granted in 
the fiscal year, or the applicable range of estimated payouts 
denominated in the number of shares of stock, or the number of shares 
underlying options under the award (threshold, target and maximum 
amount) (columns (f) through (h)).
    (v) The number of shares of stock granted in the fiscal year that 
are not required to be disclosed in columns (f) through (h) (column 
(i));
    (vi) The number of securities underlying options granted in the 
fiscal

[[Page 53246]]

year that are not required to be disclosed in columns (f) through (h) 
(column (j)); and
    (vii) The per-share exercise or base price of the options granted 
in the fiscal year (column (k)). If such exercise or base price is less 
than the closing market price of the underlying security on the date of 
the grant, a separate, adjoining column showing the closing market 
price on the date of the grant shall be added after column (k).

    Instructions to Item 402(d).
    1. Disclosure on a separate line shall be provided in the Table 
for each grant of an award made to a named executive officer during 
the fiscal year. If grants of awards were made to a named executive 
officer during the fiscal year under more than one plan, identify 
the particular plan under which each such grant was made.
    2. For grants of incentive plan awards, provide the information 
called for by columns (c), (d) and (e), or (f), (g) and (h), as 
applicable. For columns (c) and (f), threshold refers to the minimum 
amount payable for a certain level of performance under the plan. 
For columns (d) and (g), target refers to the amount payable if the 
specified performance target(s) are reached. For columns (e) and 
(h), maximum refers to the maximum payout possible under the plan. 
If the award provides only for a single estimated payout, that 
amount must be reported as the target in columns (d) and (g). In 
columns (d) and (g), registrants must provide a representative 
amount based on the previous fiscal year's performance if the target 
amount is not determinable.
    3. In determining if the exercise or base price of an option is 
less than the closing market price of the underlying security on the 
date of the grant, the registrant may use either the closing market 
price as specified in paragraph (a)(6)(v) of this Item, or if no 
market exists, any other formula prescribed for the security. 
Whenever the exercise or base price reported in column (k) is not 
the closing market price, describe the methodology for determining 
the exercise or base price either by a footnote or accompanying 
textual narrative.
    4. A tandem grant of two instruments, only one of which is 
granted under an incentive plan, such as an option granted in tandem 
with a performance share, need be reported only in column (i) or 
(j), as applicable. For example, an option granted in tandem with a 
performance share would be reported only as an option grant in 
column (j), with the tandem feature noted either by a footnote or 
accompanying textual narrative.
    5. Disclose the dollar amount of consideration, if any, paid by 
the executive officer for the award in a footnote to the appropriate 
column.
    6. If non-equity incentive plan awards are denominated in units 
or other rights, a separate, adjoining column between columns (b) 
and (c) shall be added quantifying the units or other rights 
awarded.

    (e) Narrative disclosure to summary compensation table and grants 
of plan-based awards table. (1) Provide a narrative description of any 
material factors necessary to an understanding of the information 
disclosed in the tables required by paragraphs (c) and (d) of this 
Item. Examples of such factors may include, in given cases, among other 
things:
    (i) The material terms of each named executive officer's employment 
agreement or arrangement, whether written or unwritten;
    (ii) If at any time during the last fiscal year, any outstanding 
option or other equity-based award was repriced or otherwise materially 
modified (such as by extension of exercise periods, the change of 
vesting or forfeiture conditions, the change or elimination of 
applicable performance criteria, or the change of the bases upon which 
returns are determined), a description of each such repricing or other 
material modification;
    (iii) The material terms of any award reported in response to 
paragraph (d) of this Item, including a general description of the 
formula or criteria to be applied in determining the amounts payable, 
and the vesting schedule. For example, state where applicable that 
dividends will be paid on stock, and if so, the applicable dividend 
rate and whether that rate is preferential. Describe any performance-
based conditions, and any other material conditions, that are 
applicable to the award. For purposes of the Table required by 
paragraph (d) of this Item and the narrative disclosure required by 
paragraph (e) of this Item, performance-based conditions include both 
performance conditions and market conditions, as those terms are 
defined in FAS 123R; and
    (iv) An explanation of the amount of salary and bonus in proportion 
to total compensation.

    Instructions to Item 402(e)(1).
    1. The disclosure required by paragraph (e)(1)(ii) of this Item 
would not apply to any repricing that occurs through a pre-existing 
formula or mechanism in the plan or award that results in the 
periodic adjustment of the option or SAR exercise or base price, an 
antidilution provision in a plan or award, or a recapitalization or 
similar transaction equally affecting all holders of the class of 
securities underlying the options or SARs.
    2. Instructions 4 and 5 to Item 402(b) apply regarding 
disclosure pursuant to paragraph (e)(1) of this Item of target 
levels with respect to specific quantitative or qualitative 
performance-related factors considered by the compensation committee 
or the board of directors, or any other factors or criteria 
involving confidential trade secrets or confidential commercial or 
financial information, the disclosure of which would result in 
competitive harm for the registrant.

    (2) [Reserved]
    (f) Outstanding equity awards at fiscal year-end table. (1) Provide 
the information specified in paragraph (f)(2) of this Item, concerning 
unexercised options; stock that has not vested; and equity incentive 
plan awards for each named executive officer outstanding as of the end 
of the registrant's last completed fiscal year in the following tabular 
format:

[[Page 53247]]



                                                      Outstanding Equity Awards at Fiscal Year-End
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Option awards                                                           Stock awards
           ---------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                Equity         Equity
                                                 Equity                                                                       incentive      incentive
               Number of       Number of     incentive plan                                                   Market value   plan awards:   plan awards:
              securities       securities    awards: number                                     Number of     of shares or    number of      market or
   Name       underlying       underlying     of securities      Option          Option         shares or       units of       unearned     payout value
              unexercised     unexercised      underlying    exercise price    expiration    units of stock    stock that   shares, units   of unearned
                options         options        unexercised         ($)            date        that have not     have not       or other    shares, units
              (<greek-i>)     (<greek-i>)       unearned                                         vested          vested      rights that      or other
              exercisable    unexercisable       options                                       (<greek-i>)    (<greek-i>)      have not     rights that
                                               (<greek-i>)                                                                      vested        have not
                                                                                                                             (<greek-i>)    vested  ($)
(a)         (b)             (c)              (d)             (e)             (f)             (g)             (h)            (i)            (j)
--------------------------------------------------------------------------------------------------------------------------------------------------------
PEO
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
PFO
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
A
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
B
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
C
 
--------------------------------------------------------------------------------------------------------------------------------------------------------

    (2) The Table shall include:
    (i) The name of the named executive officer (column (a));
    (ii) On an award-by-award basis, the number of securities 
underlying unexercised options, including awards that have been 
transferred other than for value, that are exercisable and that are not 
reported in column (d) (column (b));
    (iii) On an award-by-award basis, the number of securities 
underlying unexercised options, including awards that have been 
transferred other than for value, that are unexercisable and that are 
not reported in column (d) (column (c));
    (iv) On an award-by-award basis, the total number of shares 
underlying unexercised options awarded under any equity incentive plan 
that have not been earned (column (d));
    (v) For each instrument reported in columns (b), (c) and (d), as 
applicable, the exercise or base price (column (e));
    (vi) For each instrument reported in columns (b), (c) and (d), as 
applicable, the expiration date (column (f));
    (vii) The total number of shares of stock that have not vested and 
that are not reported in column (i) (column (g));
    (viii) The aggregate market value of shares of stock that have not 
vested and that are not reported in column (j) (column (h));
    (ix) The total number of shares of stock, units or other rights 
awarded under any equity incentive plan that have not vested and that 
have not been earned, and, if applicable the number of shares 
underlying any such unit or right (column (i)); and
    (x) The aggregate market or payout value of shares of stock, units 
or other rights awarded under any equity incentive plan that have not 
vested and that have not been earned (column (j)).

    Instructions to Item 402(f)(2).
    1. Identify by footnote any award that has been transferred 
other than for value, disclosing the nature of the transfer.
    2. The vesting dates of options, shares of stock and equity 
incentive plan awards held at fiscal-year end must be disclosed by 
footnote to the applicable column where the outstanding award is 
reported.
    3. Compute the market value of stock reported in column (h) and 
equity incentive plan awards of stock reported in column (j) by 
multiplying the closing market price of the registrant's stock at 
the end of the last completed fiscal year by the number of shares or 
units of stock or the amount of equity incentive plan awards, 
respectively. The number of shares or units reported in columns (d) 
or (i), and the payout value reported in column (j), shall be based 
on achieving threshold performance goals, except that if the 
previous fiscal year's performance has exceeded the threshold, the 
disclosure shall be based on the next higher performance measure 
(target or maximum) that exceeds the previous fiscal year's 
performance. If the award provides only for a single estimated 
payout, that amount should be reported. If the target amount is not 
determinable, registrants must provide a representative amount based 
on the previous fiscal year's performance.
    4. Multiple awards may be aggregated where the expiration date 
and the exercise and/or base price of the instruments is identical. 
A single award consisting of a combination of options, SARs and/or 
similar option-like instruments shall be reported as separate awards 
with respect to each tranche with a different exercise and/or base 
price or expiration date.
    5. Options or stock awarded under an equity incentive plan are 
reported in columns (d) or (i) and (j), respectively, until the 
relevant performance condition has been satisfied. Once the relevant 
performance condition has been satisfied, even if the option or 
stock award is subject to forfeiture conditions, options are 
reported in column (b) or (c), as appropriate, until they are 
exercised or expire, or stock is reported in columns (g) and (h) 
until it vests.

    (g) Option exercises and stock vested table. (1) Provide the 
information specified in paragraph (g)(2) of this Item, concerning each 
exercise of stock options, SARs and similar instruments, and each 
vesting of stock, including restricted stock, restricted stock units 
and similar instruments, during the last completed fiscal year for each 
of the named executive officers on an aggregated basis in the following 
tabular format:

[[Page 53248]]



                                        Option Exercises and Stock Vested
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                                       Option awards                                 Stock awards
                      ------------------------------------------------------------------------------------------
         Name             Number of shares                              Number of shares
                       acquired on  exercise    Value  realized on    acquired on vesting    Value  realized on
                             (<greek-i>)          exercise  ($)           (<greek-i>)           vesting  ($)
(a)                    (b)                    (c)                    (d)                    (e)
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    (2) The Table shall include:
    (i) The name of the executive officer (column (a));
    (ii) The number of securities for which the options were exercised 
(column (b));
    (iii) The aggregate dollar value realized upon exercise of options, 
or upon the transfer of an award for value (column (c));
    (iv) The number of shares of stock that have vested (column (d)); 
and
    (v) The aggregate dollar value realized upon vesting of stock, or 
upon the transfer of an award for value (column (e)).

    Instruction to Item 402(g)(2).
    Report in column (c) the aggregate dollar amount realized by the 
named executive officer upon exercise of the options or upon the 
transfer of such instruments for value. Compute the dollar amount 
realized upon exercise by determining the difference between the 
market price of the underlying securities at exercise and the 
exercise or base price of the options. Do not include the value of 
any related payment or other consideration provided (or to be 
provided) by the registrant to or on behalf of a named executive 
officer, whether in payment of the exercise price or related taxes. 
(Any such payment or other consideration provided by the registrant 
is required to be disclosed in accordance with paragraph (c)(2)(ix) 
of this Item.) Report in column (e) the aggregate dollar amount 
realized by the named executive officer upon the vesting of stock or 
the transfer of such instruments for value. Compute the aggregate 
dollar amount realized upon vesting by multiplying the number of 
shares of stock or units by the market value of the underlying 
shares on the vesting date. For any amount realized upon exercise or 
vesting for which receipt has been deferred, provide a footnote 
quantifying the amount and disclosing the terms of the deferral.

    (h) Pension benefits. (1) Provide the information specified in 
paragraph (h)(2) of this Item with respect to each plan that provides 
for payments or other benefits at, following, or in connection with 
retirement, in the following tabular format:

                                                Pension Benefits
----------------------------------------------------------------------------------------------------------------
                                                 Number of years        Present value of
         Name                Plan name           credited service     accumulated benefit   Payments during last
                                                   (<greek-i>)                ($)             fiscal year  ($)
(a)                    (b)                    (c)                    (d)                    (e)
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    (2) The Table shall include:
    (i) The name of the executive officer (column (a));
    (ii) The name of the plan (column (b));

[[Page 53249]]

    (iii) The number of years of service credited to the named 
executive officer under the plan, computed as of the same pension plan 
measurement date used for financial statement reporting purposes with 
respect to the registrant's audited financial statements for the last 
completed fiscal year (column (c));
    (iv) The actuarial present value of the named executive officer's 
accumulated benefit under the plan, computed as of the same pension 
plan measurement date used for financial statement reporting purposes 
with respect to the registrant's audited financial statements for the 
last completed fiscal year (column (d)); and
    (v) The dollar amount of any payments and benefits paid to the 
named executive officer during the registrant's last completed fiscal 
year (column (e)).

    Instructions to Item 402(h)(2).
    1. The disclosure required pursuant to this Table applies to 
each plan that provides for specified retirement payments and 
benefits, or payments and benefits that will be provided primarily 
following retirement, including but not limited to tax-qualified 
defined benefit plans and supplemental executive retirement plans, 
but excluding tax-qualified defined contribution plans and 
nonqualified defined contribution plans. Provide a separate row for 
each such plan in which the named executive officer participates.
    2. For purposes of the amount(s) reported in column (d), the 
registrant must use the same assumptions used for financial 
reporting purposes under generally accepted accounting principles, 
except that retirement age shall be assumed to be the normal 
retirement age as defined in the plan, or if not so defined, the 
earliest time at which a participant may retire under the plan 
without any benefit reduction due to age. The registrant must 
disclose in the accompanying textual narrative the valuation method 
and all material assumptions applied in quantifying the present 
value of the current accrued benefit. A benefit specified in the 
plan document or the executive's contract itself is not an 
assumption. Registrants may satisfy all or part of this disclosure 
by reference to a discussion of those assumptions in the 
registrant's financial statements, footnotes to the financial 
statements, or discussion in the Management's Discussion and 
Analysis. The sections so referenced are deemed part of the 
disclosure provided pursuant to this Item.
    3. For purposes of allocating the current accrued benefit 
between tax qualified defined benefit plans and related supplemental 
plans, apply the limitations applicable to tax qualified defined 
benefit plans established by the Internal Revenue Code and the 
regulations thereunder that applied as of the pension plan 
measurement date.
    4. If a named executive officer's number of years of credited 
service with respect to any plan is different from the named 
executive officer's number of actual years of service with the 
registrant, provide footnote disclosure quantifying the difference 
and any resulting benefit augmentation.

    (3) Provide a succinct narrative description of any material 
factors necessary to an understanding of each plan covered by the 
tabular disclosure required by this paragraph. While material factors 
will vary depending upon the facts, examples of such factors may 
include, in given cases, among other things:
    (i) The material terms and conditions of payments and benefits 
available under the plan, including the plan's normal retirement 
payment and benefit formula and eligibility standards, and the effect 
of the form of benefit elected on the amount of annual benefits. For 
this purpose, normal retirement means retirement at the normal 
retirement age as defined in the plan, or if not so defined, the 
earliest time at which a participant may retire under the plan without 
any benefit reduction due to age;
    (ii) If any named executive officer is currently eligible for early 
retirement under any plan, identify that named executive officer and 
the plan, and describe the plan's early retirement payment and benefit 
formula and eligibility standards. For this purpose, early retirement 
means retirement at the early retirement age as defined in the plan, or 
otherwise available to the executive under the plan;
    (iii) The specific elements of compensation (e.g., salary, bonus, 
etc.) included in applying the payment and benefit formula, identifying 
each such element;
    (iv) With respect to named executive officers' participation in 
multiple plans, the different purposes for each plan; and
    (v) Registrant policies with regard to such matters as granting 
extra years of credited service.
    (i) Nonqualified defined contribution and other nonqualified 
deferred compensation plans. (1) Provide the information specified in 
paragraph (i)(2) of this Item with respect to each defined contribution 
or other plan that provides for the deferral of compensation on a basis 
that is not tax-qualified in the following tabular format:

                                       Nonqualified Deferred Compensation
----------------------------------------------------------------------------------------------------------------
                       Executive          Registrant         Aggregate          Aggregate
       Name         contributions in   contributions in   earnings in last     withdrawals/    Aggregate balance
                      last FY ($)         ast FY ($)           FY ($)       distributions ($)   at last FYE ($)
(a)                (b)                (c)                (d)                (e)                (f)
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    (2) The Table shall include:
    (i) The name of the executive officer (column (a));
    (ii) The dollar amount of aggregate executive contributions during 
the registrant's last fiscal year (column (b));
    (iii) The dollar amount of aggregate registrant contributions 
during the registrant's last fiscal year (column (c));

[[Page 53250]]

    (iv) The dollar amount of aggregate interest or other earnings 
accrued during the registrant's last fiscal year (column (d));
    (v) The aggregate dollar amount of all withdrawals by and 
distributions to the executive during the registrant's last fiscal year 
(column (e)); and
    (vi) The dollar amount of total balance of the executive's account 
as of the end of the registrant's last fiscal year (column (f)).

    Instruction to Item 402(i)(2).
    Provide a footnote quantifying the extent to which amounts 
reported in the contributions and earnings columns are reported as 
compensation in the last completed fiscal year in the registrant's 
Summary Compensation Table and amounts reported in the aggregate 
balance at last fiscal year end (column (f)) previously were 
reported as compensation to the named executive officer in the 
registrant's Summary Compensation Table for previous years.

    (3) Provide a succinct narrative description of any material 
factors necessary to an understanding of each plan covered by tabular 
disclosure required by this paragraph. While material factors will vary 
depending upon the facts, examples of such factors may include, in 
given cases, among other things:
    (i) The type(s) of compensation permitted to be deferred, and any 
limitations (by percentage of compensation or otherwise) on the extent 
to which deferral is permitted;
    (ii) The measures for calculating interest or other plan earnings 
(including whether such measure(s) are selected by the executive or the 
registrant and the frequency and manner in which selections may be 
changed), quantifying interest rates and other earnings measures 
applicable during the registrant's last fiscal year; and
    (iii) Material terms with respect to payouts, withdrawals and other 
distributions.
    (j) Potential payments upon termination or change-in-control. 
Regarding each contract, agreement, plan or arrangement, whether 
written or unwritten, that provides for payment(s) to a named executive 
officer at, following, or in connection with any termination, including 
without limitation resignation, severance, retirement or a constructive 
termination of a named executive officer, or a change in control of the 
registrant or a change in the named executive officer's 
responsibilities, with respect to each named executive officer:
    (1) Describe and explain the specific circumstances that would 
trigger payment(s) or the provision of other benefits, including 
perquisites and health care benefits;
    (2) Describe and quantify the estimated payments and benefits that 
would be provided in each covered circumstance, whether they would or 
could be lump sum, or annual, disclosing the duration, and by whom they 
would be provided;
    (3) Describe and explain how the appropriate payment and benefit 
levels are determined under the various circumstances that trigger 
payments or provision of benefits;
    (4) Describe and explain any material conditions or obligations 
applicable to the receipt of payments or benefits, including but not 
limited to non-compete, non-solicitation, non-disparagement or 
confidentiality agreements, including the duration of such agreements 
and provisions regarding waiver of breach of such agreements; and
    (5) Describe any other material factors regarding each such 
contract, agreement, plan or arrangement.

    Instructions to Item 402(j).
    1. The registrant must provide quantitative disclosure under 
these requirements, applying the assumptions that the triggering 
event took place on the last business day of the registrant's last 
completed fiscal year, and the price per share of the registrant's 
securities is the closing market price as of that date. In the event 
that uncertainties exist as to the provision of payments and 
benefits or the amounts involved, the registrant is required to make 
a reasonable estimate (or a reasonable estimated range of amounts) 
applicable to the payment or benefit and disclose material 
assumptions underlying such estimates or estimated ranges in its 
disclosure. In such event, the disclosure would require forward-
looking information as appropriate.
    2. Perquisites and other personal benefits or property may be 
excluded only if the aggregate amount of such compensation will be 
less than $10,000. Individual perquisites and personal benefits 
shall be identified and quantified as required by Instruction 4 to 
paragraph (c)(2)(ix) of this Item. For purposes of quantifying 
health care benefits, the registrant must use the assumptions used 
for financial reporting purposes under generally accepted accounting 
principles.
    3. To the extent that the form and amount of any payment or 
benefit that would be provided in connection with any triggering 
event is fully disclosed pursuant to paragraph (h) or (i) of this 
Item, reference may be made to that disclosure. However, to the 
extent that the form or amount of any such payment or benefit would 
be enhanced or its vesting or other provisions accelerated in 
connection with any triggering event, such enhancement or 
acceleration must be disclosed pursuant to this paragraph.
    4. Where a triggering event has actually occurred for a named 
executive officer and that individual was not serving as a named 
executive officer of the registrant at the end of the last completed 
fiscal year, the disclosure required by this paragraph for that 
named executive officer shall apply only to that triggering event.
    5. The registrant need not provide information with respect to 
contracts, agreements, plans or arrangements to the extent they do 
not discriminate in scope, terms or operation, in favor of executive 
officers of the registrant and that are available generally to all 
salaried employees.

    (k) Compensation of directors. (1) Provide the information 
specified in paragraph (k)(2) of this Item, concerning the compensation 
of the directors for the registrant's last completed fiscal year, in 
the following tabular format:

                                                                  Director Compensation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                               Change in pension
                                                                                                   value and
             Fees earned or paid                                              Non-equity         nonqualified          All other
    Name         in cash ($)       Stock awards ($)    Option awards ($)    incentive plan         deferred        compensation ($)        Total ($)
                                                                           compensation ($)      compensation
                                                                                                   earnings
(a)          (b)                  (c)                 (d)                 (e)                 (f)                 (g)                 (h)
--------------------------------------------------------------------------------------------------------------------------------------------------------
A
 
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B

[[Page 53251]]

 
C
 
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D
 
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E
 
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    (2) The Table shall include:
    (i) The name of each director unless such director is also a named 
executive officer under paragraph (a) of this Item and his or her 
compensation for service as a director is fully reflected in the 
Summary Compensation Table pursuant to paragraph (c) of this Item and 
otherwise as required pursuant to paragraphs (d) through (j) of this 
Item (column (a));
    (ii) The aggregate dollar amount of all fees earned or paid in cash 
for services as a director, including annual retainer fees, committee 
and/or chairmanship fees, and meeting fees (column (b));
    (iii) For awards of stock, the aggregate grant date fair value 
computed in accordance with FAS 123R (column (c));
    (iv) For awards of stock options, with or without tandem SARs 
(including awards that subsequently have been transferred), the 
aggregate grant date fair value computed in accordance with FAS 123R 
(column (d));

    Instruction to Item 402(k)(2)(iii) and (iv).
    For each director, disclose by footnote to the appropriate 
column, the aggregate number of stock awards and the aggregate 
number of option awards outstanding at fiscal year end.
    (v) The dollar value of all earnings for services performed 
during the fiscal year pursuant to non-equity incentive plans as 
defined in paragraph (a)(6)(iii) of this Item, and all earnings on 
any outstanding awards (column (e));
    (vi) The sum of the amounts specified in paragraphs 
(k)(2)(vi)(A) and (B) of this Item (column (f)) as follows:
    (A) The aggregate change in the actuarial present value of the 
director's accumulated benefit under all defined benefit and 
actuarial pension plans (including supplemental plans) from the 
pension plan measurement date used for financial statement reporting 
purposes with respect to the registrant's audited financial 
statements for the prior completed fiscal year to the pension plan 
measurement date used for financial statement reporting purposes 
with respect to the registrant's audited financial statements for 
the covered fiscal year; and
    (B) Above-market or preferential earnings on compensation that 
is deferred on a basis that is not tax-qualified, including such 
earnings on nonqualified defined contribution plans;
    (vii) All other compensation for the covered fiscal year that 
the registrant could not properly report in any other column of the 
Director Compensation Table (column (g)). Each compensation item 
that is not properly reportable in columns (b)-(f), regardless of 
the amount of the compensation item, must be included in column (g). 
Such compensation must include, but is not limited to:
    (A) Perquisites and other personal benefits, or property, unless 
the aggregate amount of such compensation is less than $10,000;
    (B) All ``gross-ups'' or other amounts reimbursed during the 
fiscal year for the payment of taxes;
    (C) For any security of the registrant or its subsidiaries 
purchased from the registrant or its subsidiaries (through deferral 
of salary or bonus, or otherwise) at a discount from the market 
price of such security at the date of purchase, unless that discount 
is available generally, either to all security holders or to all 
salaried employees of the registrant, the compensation cost, if any, 
computed in accordance with FAS 123R;
    (D) The amount paid or accrued to any director pursuant to a 
plan or arrangement in connection with:
    (1) The resignation, retirement or any other termination of such 
director; or
    (2) A change in control of the registrant;
    (E) Registrant contributions or other allocations to vested and 
unvested defined contribution plans;
    (F) Consulting fees earned from, or paid or payable by the 
registrant and/or its subsidiaries (including joint ventures);
    (G) The annual costs of payments and promises of payments 
pursuant to director legacy programs and similar charitable award 
programs;
    (H) The dollar value of any insurance premiums paid by, or on 
behalf of, the registrant during the covered fiscal year with 
respect to life insurance for the benefit of a director; and
    (I) The dollar value of any dividends or other earnings paid on 
stock or option awards, when those amounts were not factored into 
the grant date fair value required to be reported for the stock or 
option award in column (c) or (d); and

    Instructions to Item 402(k)(2)(vii).
    1. Programs in which registrants agree to make donations to one 
or more charitable institutions in a director's name, payable by the 
registrant currently or upon a designated event, such as the 
retirement or death of the director, are charitable awards programs 
or director legacy programs for purposes of the disclosure required 
by paragraph (k)(2)(vii)(G) of this Item. Provide footnote 
disclosure of the total dollar amount payable under the program and 
other material terms of each such program for which tabular 
disclosure is provided.
    2. Any item reported for a director pursuant to paragraph 
(k)(2)(vii) of this Item that is not a perquisite or personal 
benefit and whose value exceeds $10,000 must be identified and 
quantified in a footnote to column (g). All items of compensation 
are required to be included in the Director Compensation Table 
without regard to whether such items are required to be identified 
other than as specifically noted in this Item.
    3. Perquisites and personal benefits may be excluded as long as 
the total value of all perquisites and personal benefits for a 
director is less than $10,000. If the total value of all perquisites 
and personal benefits is $10,000 or more for any director, then each 
perquisite or personal benefit, regardless of its amount, must be 
identified by type. If perquisites and personal benefits are 
required to be reported for a director pursuant to this rule, then 
each perquisite or personal benefit that exceeds the greater of 
$25,000 or 10% of the total amount of perquisites and personal 
benefits for that director must be quantified and disclosed in a 
footnote. Perquisites and other personal benefits shall be valued on 
the basis of the aggregate incremental cost to the registrant. With 
respect to the perquisite or other personal benefit for which 
footnote quantification is required, the registrant shall describe 
in the footnote its methodology for computing the aggregate 
incremental cost. Reimbursements of taxes owed with respect to 
perquisites or other personal benefits must

[[Page 53252]]

be included in column (g) and are subject to separate quantification 
and identification as tax reimbursements (paragraph (k)(2)(vii)(B) 
of this Item) even if the associated perquisites or other personal 
benefits are not required to be included because the total amount of 
all perquisites or personal benefits for an individual director is 
less than $10,000 or are required to be identified but are not 
required to be separately quantified.

    (viii) The dollar value of total compensation for the covered 
fiscal year (column (h)). With respect to each director, disclose the 
sum of all amounts reported in columns (b) through (g).

    Instruction to Item 402(k)(2).
    Two or more directors may be grouped in a single row in the 
Table if all elements of their compensation are identical. The names 
of the directors for whom disclosure is presented on a group basis 
should be clear from the Table.

    (3) Narrative to director compensation table. Provide a narrative 
description of any material factors necessary to an understanding of 
the director compensation disclosed in this Table. While material 
factors will vary depending upon the facts, examples of such factors 
may include, in given cases, among other things:
    (i) A description of standard compensation arrangements (such as 
fees for retainer, committee service, service as chairman of the board 
or a committee, and meeting attendance); and
    (ii) Whether any director has a different compensation arrangement, 
identifying that director and describing the terms of that arrangement.

    Instruction to Item 402(k).
    In addition to the Instructions to paragraph (k)(2)(vii) of this 
Item, the following apply equally to paragraph (k) of this Item: 
Instructions 2 and 4 to paragraph (c) of this Item; Instructions to 
paragraphs (c)(2)(iii) and (iv) of this Item; Instructions to 
paragraphs (c)(2)(v) and (vi) of this Item; Instructions to 
paragraph (c)(2)(vii) of this Item; and Instructions to paragraph 
(c)(2)(viii) of this Item. These Instructions apply to the columns 
in the Director Compensation Table that are analogous to the columns 
in the Summary Compensation Table to which they refer and to 
disclosures under paragraph (k) of this Item that correspond to 
analogous disclosures provided for in paragraph (c) of this Item to 
which they refer.

    Instruction to Item 402. Specify the applicable fiscal year in 
the title to each table required under this Item which calls for 
disclosure as of or for a completed fiscal year.


0
14. Amend Sec.  229.403 by revising paragraph (b) to read as follows:


Sec.  229.403  (Item 403) Security ownership of certain beneficial 
owners and management.

* * * * *
    (b) Security ownership of management. Furnish the following 
information, as of the most recent practicable date, in substantially 
the tabular form indicated, as to each class of equity securities of 
the registrant or any of its parents or subsidiaries, including 
directors' qualifying shares, beneficially owned by all directors and 
nominees, naming them, each of the named executive officers as defined 
in Item 402(a)(3) (Sec.  229.402(a)(3)), and directors and executive 
officers of the registrant as a group, without naming them. Show in 
column (3) the total number of shares beneficially owned and in column 
(4) the percent of the class so owned. Of the number of shares shown in 
column (3), indicate, by footnote or otherwise, the amount of shares 
that are pledged as security and the amount of shares with respect to 
which such persons have the right to acquire beneficial ownership as 
specified in Sec.  240.13d-3(d)(1) of this chapter.

----------------------------------------------------------------------------------------------------------------
                                       (2)  Name of beneficial   (3) Amount and nature
         (1)  Title of class                    owner           of beneficial ownership   (4)  Percent of class
----------------------------------------------------------------------------------------------------------------
 
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* * * * *

0
15. Revise Sec.  229.404 to read as follows:


Sec.  229.404  (Item 404) Transactions with related persons, promoters 
and certain control persons.

    (a) Transactions with related persons. Describe any transaction, 
since the beginning of the registrant's last fiscal year, or any 
currently proposed transaction, in which the registrant was or is to be 
a participant and the amount involved exceeds $120,000, and in which 
any related person had or will have a direct or indirect material 
interest. Disclose the following information regarding the tranaction:
    (1) The name of the related person and the basis on which the 
person is a related person.
    (2) The related person's interest in the transaction with the 
registrant, including the related person's position(s) or 
relationship(s) with, or ownership in, a firm, corporation, or other 
entity that is a party to, or has an interest in, the transaction.
    (3) The approximate dollar value of the amount involved in the 
transaction.
    (4) The approximate dollar value of the amount of the related 
person's interest in the transaction, which shall be computed without 
regard to the amount of profit or loss.
    (5) In the case of indebtedness, disclosure of the amount involved 
in the transaction shall include the largest aggregate amount of 
principal outstanding during the period for which disclosure is 
provided, the amount thereof outstanding as of the latest practicable 
date, the amount of principal paid during the periods for which 
disclosure is provided, the amount of interest paid during the period 
for which disclosure is provided, and the rate or amount of interest 
payable on the indebtedness.
    (6) Any other information regarding the transaction or the related 
person in the context of the transaction that is material to investors 
in light of the circumstances of the particular transaction.

    Instructions to Item 404(a).
    1. For the purposes of paragraph (a) of this Item, the term 
related person means:
    a. Any person who was in any of the following categories at any 
time during the specified period for which disclosure under 
paragraph (a) of this Item is required:
    i. Any director or executive officer of the registrant;
    ii. Any nominee for director, when the information called for by 
paragraph (a) of this Item is being presented in a proxy or 
information statement relating to the election of that nominee for 
director; or
    iii. Any immediate family member of a director or executive 
officer of the registrant, or of any nominee for director when the 
information called for by paragraph (a) of this Item is being 
presented in a proxy or information statement relating to the 
election of that nominee for director, which means any child, 
stepchild, parent, stepparent, spouse, sibling, mother-in-law, 
father-in-law, son-in-law, daughter-in-law, brother-in-law, or 
sister-in-law of such director, executive officer or nominee for 
director, and any person (other than a tenant or employee) sharing 
the household of such director, executive officer or nominee for 
director; and
    b. Any person who was in any of the following categories when a 
transaction in which such person had a direct or indirect material 
interest occurred or existed:
    i. A security holder covered by Item 403(a) (Sec.  229.403(a)); 
or
    ii. Any immediate family member of any such security holder, 
which means any child, stepchild, parent, stepparent, spouse, 
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, 
brother-in-law, or sister-in-law of such security holder, and any 
person (other than a tenant or employee) sharing the household of 
such security holder.
    2. For purposes of paragraph (a) of this Item, a transaction 
includes, but is not limited to, any financial transaction, 
arrangement or relationship (including any indebtedness or guarantee 
of indebtedness) or any series of similar transactions, arrangements 
or relationships.
    3. The amount involved in the transaction shall be computed by 
determining the dollar value of the amount involved in the 
transaction in question, which shall include:

[[Page 53253]]

    a. In the case of any lease or other transaction providing for 
periodic payments or installments, the aggregate amount of all 
periodic payments or installments due on or after the beginning of 
the registrant's last fiscal year, including any required or 
optional payments due during or at the conclusion of the lease or 
other transaction providing for periodic payments or installments; 
and
    b. In the case of indebtedness, the largest aggregate amount of 
all indebtedness outstanding at any time since the beginning of the 
registrant's last fiscal year and all amounts of interest payable on 
it during the last fiscal year.
    4. In the case of a transaction involving indebtedness:
    a. The following items of indebtedness may be excluded from the 
calculation of the amount of indebtedness and need not be disclosed: 
Amounts due from the related person for purchases of goods and 
services subject to usual trade terms, for ordinary business travel 
and expense payments and for other transactions in the ordinary 
course of business;
    b. Disclosure need not be provided of any indebtedness 
transaction for the related persons specified in Instruction 1.b. to 
paragraph (a) of this Item; and
    c. If the lender is a bank, savings and loan association, or 
broker-dealer extending credit under Federal Reserve Regulation T 
(12 CFR part 220) and the loans are not disclosed as nonaccrual, 
past due, restructured or potential problems (see Item III.C.1. and 
2. of Industry Guide 3, Statistical Disclosure by Bank Holding 
Companies (17 CFR 229.802(c))), disclosure under paragraph (a) of 
this Item may consist of a statement, if such is the case, that the 
loans to such persons:
    i. Were made in the ordinary course of business;
    ii. Were made on substantially the same terms, including 
interest rates and collateral, as those prevailing at the time for 
comparable loans with persons not related to the lender; and
    iii. Did not involve more than the normal risk of collectibility 
or present other unfavorable features.
    5.a. Disclosure of an employment relationship or transaction 
involving an executive officer and any related compensation solely 
resulting from that employment relationship or transaction need not 
be provided pursuant to paragraph (a) of this Item if:
    i. The compensation arising from the relationship or transaction 
is reported pursuant to Item 402 (Sec.  229.402); or
    ii. The executive officer is not an immediate family member (as 
specified in Instruction 1 to paragraph (a) of this Item) and such 
compensation would have been reported under Item 402 (Sec.  229.402) 
as compensation earned for services to the registrant if the 
executive officer was a named executive officer as that term is 
defined in Item 402(a)(3) (Sec.  229.402(a)(3)), and such 
compensation had been approved, or recommended to the board of 
directors of the registrant for approval, by the compensation 
committee of the board of directors (or group of independent 
directors performing a similar function) of the registrant.
    b. Disclosure of compensation to a director need not be provided 
pursuant to paragraph (a) of this Item if the compensation is 
reported pursuant to Item 402(k) (Sec.  229.402(k)).
    6. A person who has a position or relationship with a firm, 
corporation, or other entity that engages in a transaction with the 
registrant shall not be deemed to have an indirect material interest 
within the meaning of paragraph (a) of this Item where:
    a. The interest arises only:
    i. From such person's position as a director of another 
corporation or organization that is a party to the transaction; or
    ii. From the direct or indirect ownership by such person and all 
other persons specified in Instruction 1 to paragraph (a) of this 
Item, in the aggregate, of less than a ten percent equity interest 
in another person (other than a partnership) which is a party to the 
transaction; or
    iii. From both such position and ownership; or
    b. The interest arises only from such person's position as a 
limited partner in a partnership in which the person and all other 
persons specified in Instruction 1 to paragraph (a) of this Item, 
have an interest of less than ten percent, and the person is not a 
general partner of and does not hold another position in the 
partnership.
    7. Disclosure need not be provided pursuant to paragraph (a) of 
this Item if:
    a. The transaction is one where the rates or charges involved in 
the transaction are determined by competitive bids, or the 
transaction involves the rendering of services as a common or 
contract carrier, or public utility, at rates or charges fixed in 
conformity with law or governmental authority;
    b. The transaction involves services as a bank depositary of 
funds, transfer agent, registrar, trustee under a trust indenture, 
or similar services; or
    c. The interest of the related person arises solely from the 
ownership of a class of equity securities of the registrant and all 
holders of that class of equity securities of the registrant 
received the same benefit on a pro rata basis.

    (b) Review, approval or ratification of transactions with related 
persons. (1) Describe the registrant's policies and procedures for the 
review, approval, or ratification of any transaction required to be 
reported under paragraph (a) of this Item. While the material features 
of such policies and procedures will vary depending on the particular 
circumstances, examples of such features may include, in given cases, 
among other things:
    (i) The types of transactions that are covered by such policies and 
procedures;
    (ii) The standards to be applied pursuant to such policies and 
procedures;
    (iii) The persons or groups of persons on the board of directors or 
otherwise who are responsible for applying such policies and 
procedures; and
    (iv) A statement of whether such policies and procedures are in 
writing and, if not, how such policies and procedures are evidenced.
    (2) Identify any transaction required to be reported under 
paragraph (a) of this Item since the beginning of the registrant's last 
fiscal year where such policies and procedures did not require review, 
approval or ratification or where such policies and procedures were not 
followed.

    Instruction to Item 404(b).
    Disclosure need not be provided pursuant to this paragraph 
regarding any transaction that occurred at a time before the related 
person became one of the enumerated persons in Instruction 1.a.i., 
ii., or iii. to Item 404(a) if such transaction did not continue 
after the related person became one of the enumerated persons in 
Instruction 1.a.i., ii., or iii. to Item 404(a).

    (c) Promoters and certain control persons. (1) Registrants that are 
filing a registration statement on Form S-1 or Form SB-2 under the 
Securities Act (Sec.  239.11 or Sec.  239.10 of this chapter) or on 
Form 10 or Form 10-SB under the Exchange Act (Sec.  249.210 or Sec.  
249.210b of this chapter) and that had a promoter at any time during 
the past five fiscal years shall:
    (i) State the names of the promoter(s), the nature and amount of 
anything of value (including money, property, contracts, options or 
rights of any kind) received or to be received by each promoter, 
directly or indirectly, from the registrant and the nature and amount 
of any assets, services or other consideration therefore received or to 
be received by the registrant; and
    (ii) As to any assets acquired or to be acquired by the registrant 
from a promoter, state the amount at which the assets were acquired or 
are to be acquired and the principle followed or to be followed in 
determining such amount, and identify the persons making the 
determination and their relationship, if any, with the registrant or 
any promoter. If the assets were acquired by the promoter within two 
years prior to their transfer to the registrant, also state the cost 
thereof to the promoter.
    (2) Registrants shall provide the disclosure required by paragraphs 
(c)(1)(i) and (c)(1)(ii) of this Item as to any person who acquired 
control of a registrant that is a shell company, or any person that is 
part of a group, consisting of two or more persons that agree to act 
together for the purpose of acquiring, holding, voting or disposing of 
equity securities of a registrant, that acquired control of a 
registrant that is a shell

[[Page 53254]]

company. For purposes of this Item, shell company has the same meaning 
as in Rule 405 under the Securities Act (17 CFR 230.405) and Rule 12b-2 
under the Exchange Act (17 CFR 240.12b-2).

    Instructions to Item 404.
    1. If the information called for by this Item is being presented 
in a registration statement filed pursuant to the Securities Act or 
the Exchange Act, information shall be given for the periods 
specified in the Item and, in addition, for the two fiscal years 
preceding the registrant's last fiscal year, unless the information 
is being incorporated by reference into a registration statement on 
Form S-4 (17 CFR 239.25), in which case, information shall be given 
for the periods specified in the Item.
    2. A foreign private issuer will be deemed to comply with this 
Item if it provides the information required by Item 7.B. of Form 
20-F (17 CFR 249.220f) with more detailed information provided if 
otherwise made publicly available or required to be disclosed by the 
issuer's home jurisdiction or a market in which its securities are 
listed or traded.


0
16. Add Sec.  229.407 to read as follows:


Sec.  229.407  (Item 407) Corporate governance.

    (a) Director independence. Identify each director and, when the 
disclosure called for by this paragraph is being presented in a proxy 
or information statement relating to the election of directors, each 
nominee for director, that is independent under the independence 
standards applicable to the registrant under paragraph (a)(1) of this 
Item. In addition, if such independence standards contain independence 
requirements for committees of the board of directors, identify each 
director that is a member of the compensation, nominating or audit 
committee that is not independent under such committee independence 
standards. If the registrant does not have a separately designated 
audit, nominating or compensation committee or committee performing 
similar functions, the registrant must provide the disclosure of 
directors that are not independent with respect to all members of the 
board of directors applying such committee independence standards.
    (1) In determining whether or not the director or nominee for 
director is independent for the purposes of paragraph (a) of this Item, 
the registrant shall use the applicable definition of independence, as 
follows:
    (i) If the registrant is a listed issuer whose securities are 
listed on a national securities exchange or in an inter-dealer 
quotation system which has requirements that a majority of the board of 
directors be independent, the registrant's definition of independence 
that it uses for determining if a majority of the board of directors is 
independent in compliance with the listing standards applicable to the 
registrant. When determining whether the members of a committee of the 
board of directors are independent, the registrant's definition of 
independence that it uses for determining if the members of that 
specific committee are independent in compliance with the independence 
standards applicable for the members of the specific committee in the 
listing standards of the national securities exchange or inter-dealer 
quotation system that the registrant uses for determining if a majority 
of the board of directors are independent. If the registrant does not 
have independence standards for a committee, the independence standards 
for that specific committee in the listing standards of the national 
securities exchange or inter-dealer quotation system that the 
registrant uses for determining if a majority of the board of directors 
are independent.
    (ii) If the registrant is not a listed issuer, a definition of 
independence of a national securities exchange or of an inter-dealer 
quotation system which has requirements that a majority of the board of 
directors be independent, and state which definition is used. Whatever 
such definition the registrant chooses, it must use the same definition 
with respect to all directors and nominees for director. When 
determining whether the members of a specific committee of the board of 
directors are independent, if the national securities exchange or 
national securities association whose standards are used has 
independence standards for the members of a specific committee, use 
those committee specific standards.
    (iii) If the information called for by paragraph (a) of this Item 
is being presented in a registration statement on Form S-1 (Sec.  
239.11 of this chapter) or Form SB-2 (Sec.  239.10 of this chapter) 
under the Securities Act or on a Form 10 (Sec.  249.210 of this 
chapter) or Form 10-SB (Sec.  249.210b of this chapter) under the 
Exchange Act where the registrant has applied for listing with a 
national securities exchange or in an inter-dealer quotation system 
which has requirements that a majority of the board of directors be 
independent, the definition of independence that the registrant uses 
for determining if a majority of the board of directors is independent, 
and the definition of independence that the registrant uses for 
determining if members of the specific committee of the board of 
directors are independent, that is in compliance with the independence 
listing standards of the national securities exchange or inter-dealer 
quotation system on which it has applied for listing, or if the 
registrant has not adopted such definitions, the independence standards 
for determining if the majority of the board of directors is 
independent and if members of the committee of the board of directors 
are independent of that national securities exchange or inter-dealer 
quotation system.
    (2) If the registrant uses its own definitions for determining 
whether its directors and nominees for director, and members of 
specific committees of the board of directors, are independent, 
disclose whether these definitions are available to security holders on 
the registrant's Web site. If so, provide the registrant's Web site 
address. If not, include a copy of these policies in an appendix to the 
registrant's proxy statement or information statement that is provided 
to security holders at least once every three fiscal years or if the 
policies have been materially amended since the beginning of the 
registrant's last fiscal year. If a current copy of the policies is not 
available to security holders on the registrant's Web site, and is not 
included as an appendix to the registrant's proxy statement or 
information statement, identify the most recent fiscal year in which 
the policies were so included in satisfaction of this requirement.
    (3) For each director and nominee for director that is identified 
as independent, describe, by specific category or type, any 
transactions, relationships or arrangements not disclosed pursuant to 
Item 404(a) (Sec.  229.404(a)), or for investment companies, Item 22(b) 
of Schedule 14A (Sec.  240.14a-101 of this chapter), that were 
considered by the board of directors under the applicable independence 
definitions in determining that the director is independent.

    Instructions to Item 407(a).
    1. If the registrant is a listed issuer whose securities are 
listed on a national securities exchange or in an inter-dealer 
quotation system which has requirements that a majority of the board 
of directors be independent, and also has exemptions to those 
requirements (for independence of a majority of the board of 
directors or committee member independence) upon which the 
registrant relied, disclose the exemption relied upon and explain 
the basis for the registrant's conclusion that such exemption is 
applicable. The same disclosure should be provided if the registrant 
is not a listed issuer and the national securities exchange or 
inter-dealer quotation system selected by the registrant has 
exemptions that are applicable to the registrant. Any national

[[Page 53255]]

securities exchange or inter-dealer quotation system which has 
requirements that at least 50 percent of the members of a small 
business issuer's board of directors must be independent shall be 
considered a national securities exchange or inter-dealer quotation 
system which has requirements that a majority of the board of 
directors be independent for the purposes of the disclosure required 
by paragraph (a) of this Item.
    2. Registrants shall provide the disclosure required by 
paragraph (a) of this Item for any person who served as a director 
during any part of the last completed fiscal year, except that no 
information called for by paragraph (a) of this Item need be given 
in a registration statement filed at a time when the registrant is 
not subject to the reporting requirements of section 13(a) or 15(d) 
of the Exchange Act (15 U.S.C. 78m(a) or 78o(d)) respecting any 
director who is no longer a director at the time of effectiveness of 
the registration statement.
    3. The description of the specific categories or types of 
transactions, relationships or arrangements required by paragraph 
(a)(3) of this Item must be provided in such detail as is necessary 
to fully describe the nature of the transactions, relationships or 
arrangements.

    (b) Board meetings and committees; annual meeting attendance. (1) 
State the total number of meetings of the board of directors (including 
regularly scheduled and special meetings) which were held during the 
last full fiscal year. Name each incumbent director who during the last 
full fiscal year attended fewer than 75 percent of the aggregate of:
    (i) The total number of meetings of the board of directors (held 
during the period for which he has been a director); and
    (ii) The total number of meetings held by all committees of the 
board on which he served (during the periods that he served).
    (2) Describe the registrant's policy, if any, with regard to board 
members' attendance at annual meetings of security holders and state 
the number of board members who attended the prior year's annual 
meeting.

    Instruction to Item 407(b)(2).
    In lieu of providing the information required by paragraph 
(b)(2) of this Item in the proxy statement, the registrant may 
instead provide the registrant's Web site address where such 
information appears.

    (3) State whether or not the registrant has standing audit, 
nominating and compensation committees of the board of directors, or 
committees performing similar functions. If the registrant has such 
committees, however designated, identify each committee member, state 
the number of committee meetings held by each such committee during the 
last fiscal year and describe briefly the functions performed by each 
such committee. Such disclosure need not be provided to the extent it 
is duplicative of disclosure provided in accordance with paragraph (c), 
(d) or (e) of this Item.
    (c) Nominating committee. (1) If the registrant does not have a 
standing nominating committee or committee performing similar 
functions, state the basis for the view of the board of directors that 
it is appropriate for the registrant not to have such a committee and 
identify each director who participates in the consideration of 
director nominees.
    (2) Provide the following information regarding the registrant's 
director nomination process:
    (i) State whether or not the nominating committee has a charter. If 
the nominating committee has a charter, provide the disclosure required 
by Instruction 2 to this Item regarding the nominating committee 
charter;
    (ii) If the nominating committee has a policy with regard to the 
consideration of any director candidates recommended by security 
holders, provide a description of the material elements of that policy, 
which shall include, but need not be limited to, a statement as to 
whether the committee will consider director candidates recommended by 
security holders;
    (iii) If the nominating committee does not have a policy with 
regard to the consideration of any director candidates recommended by 
security holders, state that fact and state the basis for the view of 
the board of directors that it is appropriate for the registrant not to 
have such a policy;
    (iv) If the nominating committee will consider candidates 
recommended by security holders, describe the procedures to be followed 
by security holders in submitting such recommendations;
    (v) Describe any specific minimum qualifications that the 
nominating committee believes must be met by a nominating committee-
recommended nominee for a position on the registrant's board of 
directors, and describe any specific qualities or skills that the 
nominating committee believes are necessary for one or more of the 
registrant's directors to possess;
    (vi) Describe the nominating committee's process for identifying 
and evaluating nominees for director, including nominees recommended by 
security holders, and any differences in the manner in which the 
nominating committee evaluates nominees for director based on whether 
the nominee is recommended by a security holder;
    (vii) With regard to each nominee approved by the nominating 
committee for inclusion on the registrant's proxy card (other than 
nominees who are executive officers or who are directors standing for 
re-election), state which one or more of the following categories of 
persons or entities recommended that nominee: Security holder, non-
management director, chief executive officer, other executive officer, 
third-party search firm, or other specified source. With regard to each 
such nominee approved by a nominating committee of an investment 
company, state which one or more of the following additional categories 
of persons or entities recommended that nominee: Security holder, 
director, chief executive officer, other executive officer, or employee 
of the investment company's investment adviser, principal underwriter, 
or any affiliated person of the investment adviser or principal 
underwriter;
    (viii) If the registrant pays a fee to any third party or parties 
to identify or evaluate or assist in identifying or evaluating 
potential nominees, disclose the function performed by each such third 
party; and
    (ix) If the registrant's nominating committee received, by a date 
not later than the 120th calendar day before the date of the 
registrant's proxy statement released to security holders in connection 
with the previous year's annual meeting, a recommended nominee from a 
security holder that beneficially owned more than 5% of the 
registrant's voting common stock for at least one year as of the date 
the recommendation was made, or from a group of security holders that 
beneficially owned, in the aggregate, more than 5% of the registrant's 
voting common stock, with each of the securities used to calculate that 
ownership held for at least one year as of the date the recommendation 
was made, identify the candidate and the security holder or security 
holder group that recommended the candidate and disclose whether the 
nominating committee chose to nominate the candidate, provided, 
however, that no such identification or disclosure is required without 
the written consent of both the security holder or security holder 
group and the candidate to be so identified.

    Instructions to Item 407(c)(2)(ix).
    1. For purposes of paragraph (c)(2)(ix) of this Item, the 
percentage of securities held by a nominating security holder may be 
determined using information set forth in the registrant's most 
recent quarterly or annual report, and any current report subsequent 
thereto, filed with the Commission pursuant to the Exchange Act (or, 
in the case of a registrant that is an investment company

[[Page 53256]]

registered under the Investment Company Act of 1940, the 
registrant's most recent report on Form N-CSR (Sec. Sec.  249.331 
and 274.128 of this chapter)), unless the party relying on such 
report knows or has reason to believe that the information contained 
therein is inaccurate.
    2. For purposes of the registrant's obligation to provide the 
disclosure specified in paragraph (c)(2)(ix) of this Item, where the 
date of the annual meeting has been changed by more than 30 days 
from the date of the previous year's meeting, the obligation under 
that Item will arise where the registrant receives the security 
holder recommendation a reasonable time before the registrant begins 
to print and mail its proxy materials.
    3. For purposes of paragraph (c)(2)(ix) of this Item, the 
percentage of securities held by a recommending security holder, as 
well as the holding period of those securities, may be determined by 
the registrant if the security holder is the registered holder of 
the securities. If the security holder is not the registered owner 
of the securities, he or she can submit one of the following to the 
registrant to evidence the required ownership percentage and holding 
period:
    a. A written statement from the ``record'' holder of the 
securities (usually a broker or bank) verifying that, at the time 
the security holder made the recommendation, he or she had held the 
required securities for at least one year; or
    b. If the security holder has filed a Schedule 13D (Sec.  
240.13d-101 of this chapter), Schedule 13G (Sec.  240.13d-102 of 
this chapter), Form 3 (Sec.  249.103 of this chapter), Form 4 (Sec.  
249.104 of this chapter), and/or Form 5 (Sec.  249.105 of this 
chapter), or amendments to those documents or updated forms, 
reflecting ownership of the securities as of or before the date of 
the recommendation, a copy of the schedule and/or form, and any 
subsequent amendments reporting a change in ownership level, as well 
as a written statement that the security holder continuously held 
the securities for the one-year period as of the date of the 
recommendation.
    4. For purposes of the registrant's obligation to provide the 
disclosure specified in paragraph (c)(2)(ix) of this Item, the 
security holder or group must have provided to the registrant, at 
the time of the recommendation, the written consent of all parties 
to be identified and, where the security holder or group members are 
not registered holders, proof that the security holder or group 
satisfied the required ownership percentage and holding period as of 
the date of the recommendation.
    Instruction to Item 407(c)(2).
    For purposes of paragraph (c)(2) of this Item, the term 
nominating committee refers not only to nominating committees and 
committees performing similar functions, but also to groups of 
directors fulfilling the role of a nominating committee, including 
the entire board of directors.

    (3) Describe any material changes to the procedures by which 
security holders may recommend nominees to the registrant's board of 
directors, where those changes were implemented after the registrant 
last provided disclosure in response to the requirements of paragraph 
(c)(2)(iv) of this Item, or paragraph (c)(3) of this Item.

    Instructions to Item 407(c)(3).
    1. The disclosure required in paragraph (c)(3) of this Item need 
only be provided in a registrant's quarterly or annual reports.
    2. For purposes of paragraph (c)(3) of this Item, adoption of 
procedures by which security holders may recommend nominees to the 
registrant's board of directors, where the registrant's most recent 
disclosure in response to the requirements of paragraph (c)(2)(iv) 
of this Item, or paragraph (c)(3) of this Item, indicated that the 
registrant did not have in place such procedures, will constitute a 
material change.

    (d) Audit committee. (1) State whether or not the audit committee 
has a charter. If the audit committee has a charter, provide the 
disclosure required by Instruction 2 to this Item regarding the audit 
committee charter.
    (2) If a listed issuer's board of directors determines, in 
accordance with the listing standards applicable to the issuer, to 
appoint a director to the audit committee who is not independent (apart 
from the requirements in Sec.  240.10A-3 of this chapter), including as 
a result of exceptional or limited or similar circumstances, disclose 
the nature of the relationship that makes that individual not 
independent and the reasons for the board of directors' determination.
    (3)(i) The audit committee must state whether:
    (A) The audit committee has reviewed and discussed the audited 
financial statements with management;
    (B) The audit committee has discussed with the independent auditors 
the matters required to be discussed by the statement on Auditing 
Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU 
section 380),\1\ as adopted by the Public Company Accounting Oversight 
Board in Rule 3200T;
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    (C) The audit committee has received the written disclosures and 
the letter from the independent accountants required by Independence 
Standards Board Standard No. 1 (Independence Standards Board Standard 
No. 1, Independence Discussions with Audit Committees),\2\ as adopted 
by the Public Company Accounting Oversight Board in Rule 3600T, and has 
discussed with the independent accountant the independent accountant's 
independence; and
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    (D) Based on the review and discussions referred to in paragraphs 
(d)(3)(i)(A) through (d)(3)(i)(C) of this Item, the audit committee 
recommended to the board of directors that the audited financial 
statements be included in the company's annual report on Form 10-K (17 
CFR 249.310) (or, for closed-end investment companies registered under 
the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.), the 
annual report to shareholders required by section 30(e) of the 
Investment Company Act of 1940 (15 U.S.C. 80a-29(e)) and Rule 30d-1 (17 
CFR 270.30d-1) thereunder) for the last fiscal year for filing with the 
Commission.
    (ii) The name of each member of the company's audit committee (or, 
in the absence of an audit committee, the board committee performing 
equivalent functions or the entire board of directors) must appear 
below the disclosure required by paragraph (d)(3)(i) of this Item.
    (4)(i) If the registrant meets the following requirements, provide 
the disclosure in paragraph (d)(4)(ii) of this Item:
    (A) The registrant is a listed issuer, as defined in Sec.  240.10A-
3 of this chapter;
    (B) The registrant is filing either an annual report on Form 10-K 
or 10-KSB (17 CFR 249.310 or 17 CFR 249.310b), or a proxy statement or 
information statement pursuant to the Exchange Act (15 U.S.C. 78a et 
seq.) if action is to be taken with respect to the election of 
directors; and
    (C) The registrant is neither:
    (1) A subsidiary of another listed issuer that is relying on the 
exemption in Sec.  240.10A-3(c)(2) of this chapter; nor
    (2) Relying on any of the exemptions in Sec.  240.10A-3(c)(4) 
through (c)(7) of this chapter.
    (ii)(A) State whether or not the registrant has a separately-
designated standing audit committee established in accordance with 
section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)), or a 
committee performing similar functions. If the registrant has such a 
committee, however designated, identify each committee member. If the 
entire board of directors is acting as the registrant's audit committee 
as specified in section 3(a)(58)(B) of the Exchange Act (15 U.S.C. 
78c(a)(58)(B)), so state.
    (B) If applicable, provide the disclosure required by Sec.  
240.10A-3(d) of this chapter regarding an exemption from the listing 
standards for audit committees.
    (5) Audit committee financial expert.

[[Page 53257]]

    (i)(A) Disclose that the registrant's board of directors has 
determined that the registrant either:
    (1) Has at least one audit committee financial expert serving on 
its audit committee; or
    (2) Does not have an audit committee financial expert serving on 
its audit committee.
    (B) If the registrant provides the disclosure required by paragraph 
(d)(5)(i)(A)(1) of this Item, it must disclose the name of the audit 
committee financial expert and whether that person is independent, as 
independence for audit committee members is defined in the listing 
standards applicable to the listed issuer.
    (C) If the registrant provides the disclosure required by paragraph 
(d)(5)(i)(A)(2) of this Item, it must explain why it does not have an 
audit committee financial expert.

    Instruction to Item 407(d)(5)(i).
    If the registrant's board of directors has determined that the 
registrant has more than one audit committee financial expert 
serving on its audit committee, the registrant may, but is not 
required to, disclose the names of those additional persons. A 
registrant choosing to identify such persons must indicate whether 
they are independent pursuant to paragraph (d)(5)(i)(B) of this 
Item.

    (ii) For purposes of this Item, an audit committee financial expert 
means a person who has the following attributes:
    (A) An understanding of generally accepted accounting principles 
and financial statements;
    (B) The ability to assess the general application of such 
principles in connection with the accounting for estimates, accruals 
and reserves;
    (C) Experience preparing, auditing, analyzing or evaluating 
financial statements that present a breadth and level of complexity of 
accounting issues that are generally comparable to the breadth and 
complexity of issues that can reasonably be expected to be raised by 
the registrant's financial statements, or experience actively 
supervising one or more persons engaged in such activities;
    (D) An understanding of internal control over financial reporting; 
and
    (E) An understanding of audit committee functions.
    (iii) A person shall have acquired such attributes through:
    (A) Education and experience as a principal financial officer, 
principal accounting officer, controller, public accountant or auditor 
or experience in one or more positions that involve the performance of 
similar functions;
    (B) Experience actively supervising a principal financial officer, 
principal accounting officer, controller, public accountant, auditor or 
person performing similar functions;
    (C) Experience overseeing or assessing the performance of companies 
or public accountants with respect to the preparation, auditing or 
evaluation of financial statements; or
    (D) Other relevant experience.
    (iv) Safe harbor. (A) A person who is determined to be an audit 
committee financial expert will not be deemed an expert for any 
purpose, including without limitation for purposes of section 11 of the 
Securities Act (15 U.S.C. 77k), as a result of being designated or 
identified as an audit committee financial expert pursuant to this Item 
407.
    (B) The designation or identification of a person as an audit 
committee financial expert pursuant to this Item 407 does not impose on 
such person any duties, obligations or liability that are greater than 
the duties, obligations and liability imposed on such person as a 
member of the audit committee and board of directors in the absence of 
such designation or identification.
    (C) The designation or identification of a person as an audit 
committee financial expert pursuant to this Item does not affect the 
duties, obligations or liability of any other member of the audit 
committee or board of directors.

    Instructions to Item 407(d)(5).
    1. The disclosure under paragraph (d)(5) of this Item is 
required only in a registrant's annual report. The registrant need 
not provide the disclosure required by paragraph (d)(5) of this Item 
in a proxy or information statement unless that registrant is 
electing to incorporate this information by reference from the proxy 
or information statement into its annual report pursuant to General 
Instruction G(3) to Form 10-K (17 CFR 249.310).
    2. If a person qualifies as an audit committee financial expert 
by means of having held a position described in paragraph 
(d)(5)(iii)(D) of this Item, the registrant shall provide a brief 
listing of that person's relevant experience. Such disclosure may be 
made by reference to disclosures required under Item 401(e) (Sec.  
229.401(e)).
    3. In the case of a foreign private issuer with a two-tier board 
of directors, for purposes of paragraph (d)(5) of this Item, the 
term board of directors means the supervisory or non-management 
board. In the case of a foreign private issuer meeting the 
requirements of Sec.  240.10A-3(c)(3) of this chapter, for purposes 
of paragraph (d)(5) of this Item, the term board of directors means 
the issuer's board of auditors (or similar body) or statutory 
auditors, as applicable. Also, in the case of a foreign private 
issuer, the term generally accepted accounting principles in 
paragraph (d)(5)(ii)(A) of this Item means the body of generally 
accepted accounting principles used by that issuer in its primary 
financial statements filed with the Commission.
    4. A registrant that is an Asset-Backed Issuer (as defined in 
Sec.  229.1101) is not required to disclose the information required 
by paragraph (d)(5) of this Item.
    Instructions to Item 407(d).
    1. The information required by paragraphs (d)(1)-(3) of this 
Item shall not be deemed to be ``soliciting material,'' or to be 
``filed'' with the Commission or subject to Regulation 14A or 14C 
(17 CFR 240.14a-1 through 240.14b-2 or 240.14c-1 through 240.14c-
101), other than as provided in this Item, or to the liabilities of 
section 18 of the Exchange Act (15 U.S.C. 78r), except to the extent 
that the registrant specifically requests that the information be 
treated as soliciting material or specifically incorporates it by 
reference into a document filed under the Securities Act or the 
Exchange Act. Such information will not be deemed to be incorporated 
by reference into any filing under the Securities Act or the 
Exchange Act, except to the extent that the registrant specifically 
incorporates it by reference.
    2. The disclosure required by paragraphs (d)(1)-(3) of this Item 
need only be provided one time during any fiscal year.
    3. The disclosure required by paragraph (d)(3) of this Item need 
not be provided in any filings other than a registrant's proxy or 
information statement relating to an annual meeting of security 
holders at which directors are to be elected (or special meeting or 
written consents in lieu of such meeting).

    (e) Compensation committee. (1) If the registrant does not have a 
standing compensation committee or committee performing similar 
functions, state the basis for the view of the board of directors that 
it is appropriate for the registrant not to have such a committee and 
identify each director who participates in the consideration of 
executive officer and director compensation.
    (2) State whether or not the compensation committee has a charter. 
If the compensation committee has a charter, provide the disclosure 
required by Instruction 2 to this Item regarding the compensation 
committee charter.
    (3) Provide a narrative description of the registrant's processes 
and procedures for the consideration and determination of executive and 
director compensation, including:
    (i)(A) The scope of authority of the compensation committee (or 
persons performing the equivalent functions); and
    (B) The extent to which the compensation committee (or persons 
performing the equivalent functions) may delegate any authority 
described in paragraph (e)(3)(i)(A) of this Item to other persons, 
specifying what authority may be so delegated and to whom;
    (ii) Any role of executive officers in determining or recommending 
the amount or form of executive and director compensation; and

[[Page 53258]]

    (iii) Any role of compensation consultants in determining or 
recommending the amount or form of executive and director compensation, 
identifying such consultants, stating whether such consultants are 
engaged directly by the compensation committee (or persons performing 
the equivalent functions) or any other person, describing the nature 
and scope of their assignment, and the material elements of the 
instructions or directions given to the consultants with respect to the 
performance of their duties under the engagement.
    (4) Under the caption ``Compensation Committee Interlocks and 
Insider Participation'':
    (i) Identify each person who served as a member of the compensation 
committee of the registrant's board of directors (or board committee 
performing equivalent functions) during the last completed fiscal year, 
indicating each committee member who:
    (A) Was, during the fiscal year, an officer or employee of the 
registrant;
    (B) Was formerly an officer of the registrant; or
    (C) Had any relationship requiring disclosure by the registrant 
under any paragraph of Item 404 (Sec.  229.404). In this event, the 
disclosure required by Item 404 (Sec.  229.404) shall accompany such 
identification.
    (ii) If the registrant has no compensation committee (or other 
board committee performing equivalent functions), the registrant shall 
identify each officer and employee of the registrant, and any former 
officer of the registrant, who, during the last completed fiscal year, 
participated in deliberations of the registrant's board of directors 
concerning executive officer compensation.
    (iii) Describe any of the following relationships that existed 
during the last completed fiscal year:
    (A) An executive officer of the registrant served as a member of 
the compensation committee (or other board committee performing 
equivalent functions or, in the absence of any such committee, the 
entire board of directors) of another entity, one of whose executive 
officers served on the compensation committee (or other board committee 
performing equivalent functions or, in the absence of any such 
committee, the entire board of directors) of the registrant;
    (B) An executive officer of the registrant served as a director of 
another entity, one of whose executive officers served on the 
compensation committee (or other board committee performing equivalent 
functions or, in the absence of any such committee, the entire board of 
directors) of the registrant; and
    (C) An executive officer of the registrant served as a member of 
the compensation committee (or other board committee performing 
equivalent functions or, in the absence of any such committee, the 
entire board of directors) of another entity, one of whose executive 
officers served as a director of the registrant.
    (iv) Disclosure required under paragraph (e)(4)(iii) of this Item 
regarding a compensation committee member or other director of the 
registrant who also served as an executive officer of another entity 
shall be accompanied by the disclosure called for by Item 404 with 
respect to that person.

    Instruction to Item 407(e)(4).
    For purposes of paragraph (e)(4) of this Item, the term entity 
shall not include an entity exempt from tax under section 501(c)(3) 
of the Internal Revenue Code (26 U.S.C. 501(c)(3)).

    (5) Under the caption ``Compensation Committee Report:''
    (i) The compensation committee (or other board committee performing 
equivalent functions or, in the absence of any such committee, the 
entire board of directors) must state whether:
    (A) The compensation committee has reviewed and discussed the 
Compensation Discussion and Analysis required by Item 402(b) (Sec.  
229.402(b)) with management; and
    (B) Based on the review and discussions referred to in paragraph 
(e)(5)(i)(A) of this Item, the compensation committee recommended to 
the board of directors that the Compensation Discussion and Analysis be 
included in the registrant's annual report on Form 10-K (Sec.  249.310 
of this chapter), proxy statement on Schedule 14A (Sec.  240.14a-101 of 
this chapter) or information statement on Schedule 14C (Sec.  240.14c-
101 of this chapter).
    (ii) The name of each member of the registrant's compensation 
committee (or other board committee performing equivalent functions or, 
in the absence of any such committee, the entire board of directors) 
must appear below the disclosure required by paragraph (e)(5)(i) of 
this Item.

    Instructions to Item 407(e)(5).
    1. The information required by paragraph (e)(5) of this Item 
shall not be deemed to be ``soliciting material,'' or to be 
``filed'' with the Commission or subject to Regulation 14A or 14C 
(17 CFR 240.14a-1 through 240.14b-2 or 240.14c-1 through 240.14c-
101), other than as provided in this Item, or to the liabilities of 
section 18 of the Exchange Act (15 U.S.C. 78r), except to the extent 
that the registrant specifically requests that the information be 
treated as soliciting material or specifically incorporates it by 
reference into a document filed under the Securities Act or the 
Exchange Act.
    2. The disclosure required by paragraph (e)(5) of this Item need 
not be provided in any filings other than an annual report on Form 
10-K (Sec.  249.310 of this chapter), a proxy statement on Schedule 
14A (Sec.  240.14a-101 of this chapter) or an information statement 
on Schedule 14C (Sec.  240.14c-101 of this chapter). Such 
information will not be deemed to be incorporated by reference into 
any filing under the Securities Act or the Exchange Act, except to 
the extent that the registrant specifically incorporates it by 
reference. If the registrant elects to incorporate this information 
by reference from the proxy or information statement into its annual 
report on Form 10-K pursuant to General Instruction G(3) to Form 10-
K, the disclosure required by paragraph (e)(5) of this Item will be 
deemed furnished in the annual report on Form 10-K and will not be 
deemed incorporated by reference into any filing under the 
Securities Act or the Exchange Act as a result as a result of 
furnishing the disclosure in this manner.
    3. The disclosure required by paragraph (e)(5) of this Item need 
only be provided one time during any fiscal year.

    (f) Shareholder communications. (1) State whether or not the 
registrant's board of directors provides a process for security holders 
to send communications to the board of directors and, if the registrant 
does not have such a process for security holders to send 
communications to the board of directors, state the basis for the view 
of the board of directors that it is appropriate for the registrant not 
to have such a process.
    (2) If the registrant has a process for security holders to send 
communications to the board of directors:
    (i) Describe the manner in which security holders can send 
communications to the board and, if applicable, to specified individual 
directors; and
    (ii) If all security holder communications are not sent directly to 
board members, describe the registrant's process for determining which 
communications will be relayed to board members.

    Instructions to Item 407(f).
    1. In lieu of providing the information required by paragraph 
(f)(2) of this Item in the proxy statement, the registrant may 
instead provide the registrant's Web site address where such 
information appears.
    2. For purposes of the disclosure required by paragraph 
(f)(2)(ii) of this Item, a registrant's process for collecting and 
organizing security holder communications, as well as similar or 
related activities, need not be disclosed provided that the 
registrant's process is approved by a majority of the independent 
directors or, in the case of a

[[Page 53259]]

registrant that is an investment company, a majority of the 
directors who are not ``interested persons'' of the investment 
company as defined in section 2(a)(19) of the Investment Company Act 
of 1940 (15 U.S.C. 80a-2(a)(19)).
    3. For purposes of this paragraph, communications from an 
officer or director of the registrant will not be viewed as 
``security holder communications.'' Communications from an employee 
or agent of the registrant will be viewed as ``security holder 
communications'' for purposes of this paragraph only if those 
communications are made solely in such employee's or agent's 
capacity as a security holder.
    4. For purposes of this paragraph, security holder proposals 
submitted pursuant to Sec.  240.14a-8 of this chapter, and 
communications made in connection with such proposals, will not be 
viewed as ``security holder communications.''
    Instructions to Item 407.
    1. For purposes of this Item:
    a. Listed issuer means a listed issuer as defined in Sec.  
240.10A-3 of this chapter;
    b. National securities exchange means a national securities 
exchange registered pursuant to section 6(a) of the Exchange Act (15 
U.S.C. 78f(a));
    c. Inter-dealer quotation system means an automated inter-dealer 
quotation system of a national securities association registered 
pursuant to section 15A(a) of the Exchange Act (15 U.S.C. 78o-3(a)); 
and
    d. National securities association means a national securities 
association registered pursuant to section 15A(a) of the Exchange 
Act (15 U.S.C. 78o-3(a)) that has been approved by the Commission 
(as that definition may be modified or supplemented).
    2. With respect to paragraphs (c)(2)(i), (d)(1) and (e)(2) of 
this Item, disclose whether a current copy of the applicable 
committee charter is available to security holders on the 
registrant's Web site, and if so, provide the registrant's Web site 
address. If a current copy of the charter is not available to 
security holders on the registrant's Web site, include a copy of the 
charter in an appendix to the registrant's proxy or information 
statement that is provided to security holders at least once every 
three fiscal years, or if the charter has been materially amended 
since the beginning of the registrant's last fiscal year. If a 
current copy of the charter is not available to security holders on 
the registrant's Web site, and is not included as an appendix to the 
registrant's proxy or information statement, identify in which of 
the prior fiscal years the charter was so included in satisfaction 
of this requirement.


0
17. Amend Sec.  229.601 to revise paragraph (b)(10)(iii)(C)(5) to read 
as follows:


Sec.  229.601  (Item 601) Exhibits.

* * * * *
    (b) * * *
    (10) * * *
    (iii) * * *
    (C) * * *
    (5) Any compensatory plan, contract or arrangement if the 
registrant is a foreign private issuer that furnishes compensatory 
information under Item 402(a)(1) (Sec.  229.402(a)(1)) and the public 
filing of the plan, contract or arrangement, or portion thereof, is not 
required in the registrant's home country and is not otherwise publicly 
disclosed by the registrant.
* * * * *

0
18. Amend Sec.  229.1107 by revising paragraph (e) to read as follows:


Sec.  229.1107  (Item 1107) Issuing entities.

* * * * *
    (e) If the issuing entity has executive officers, a board of 
directors or persons performing similar functions, provide the 
information required by Items 401, 402, 403 404 and 407(a), (c)(3), 
(d)(4), (d)(5) and (e)(4) of Regulation S-K (Sec. Sec.  229.401, 
229.402, 229.403, 229.404 and 229.407(a), (c)(3), (d)(4), (d)(5) and 
(e)(4)) for the issuing entity.
* * * * *

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR 
ELECTRONIC FILINGS

0
19. The authority citation for part 232 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a), 
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a-8, 80a-
29, 80a-30, 80a-37, and 7201 et seq.; and 18 U.S.C. 1350.
* * * * *

0
20. Amend Sec.  232.304 to revise paragraphs (d) and (e) to read as 
follows:


Sec.  232.304  Graphic, image, audio and video material.

* * * * *
    (d) For electronically filed ASCII documents, the performance graph 
that is to appear in registrant annual reports to security holders 
required by Exchange Act Rule 14a-3 (Sec.  240.14a-3 of this chapter) 
or Exchange Act Rule 14c-3 (Sec.  240.14c-3 of this chapter) to precede 
or accompany proxy statements or information statements relating to 
annual meetings of security holders at which directors are to be 
elected (or special meetings or written consents in lieu of such 
meetings), as required by Item 201(e) of Regulation S-K (Sec.  
229.201(e) of this chapter), and the line graph that is to appear in 
registrant annual reports to security holders, as required by paragraph 
(b)(7)(ii) of Item 22 of Form N-1A (Sec.  274.11A of this chapter), 
must be furnished to the Commission by presenting the data in tabular 
or chart form within the electronic ASCII document, in compliance with 
paragraph (a) of this section and the formatting requirements of the 
EDGAR Filer Manual.
    (e) Notwithstanding the provisions of paragraphs (a) through (d) of 
this section, electronically filed HTML documents must present the 
following information in an HTML graphic or image file within the 
electronic submission in compliance with the formatting requirements of 
the EDGAR Filer Manual: The performance graph that is to appear in 
registrant annual reports to security holders required by Exchange Act 
Rule 14a-3 (Sec.  240.14a-3 of this chapter) or Exchange Act Rule 14c-3 
(Sec.  240.14c-3 of this chapter) to precede or accompany registrant 
proxy statements or information statements relating to annual meetings 
of security holders at which directors are to be elected (or special 
meetings or written consents in lieu of such meetings), as required by 
Item 201(e) of Regulation S-K (Sec.  229.201(e) of this chapter); the 
line graph that is to appear in registrant annual reports to security 
holders, as required by paragraph (b)(7)(ii) of Item 22 of Form N-1A 
(Sec.  274.11A of this chapter); and any other graphic material 
required by rule or form to be filed with the Commission. Filers may, 
but are not required to, submit any other graphic material in a HTML 
document by presenting the data in an HTML graphic or image file within 
the electronic filing, in compliance with the formatting requirements 
of the EDGAR Filer Manual. However, filers may not present in a graphic 
or image file information such as text or tables that users must be 
able to search and/or download into spreadsheet form (e.g., financial 
statements); filers must present such material as text in an ASCII 
document or as text or an HTML table in an HTML document.
* * * * *

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
21. The authority citation for part 239 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77sss, 78c, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d), 77mm, 
79e, 79f, 79g, 79j, 79l, 79m, 79n, 79q, 79t, 80a-2(a), 80a-3, 80a-8, 
80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 80a-29, 80a-30, and 80a-37, 
unless otherwise noted.

* * * * *

0
22. Amend Form SB-2 (referenced in Sec.  239.10) by revising Item 15 to 
read as follows:


    Note: The text of Form SB-2 does not, and this amendment will 
not, appear in the Code of Federal Regulations.


[[Page 53260]]



Form SB-2

Registration Statement Under the Securities Act of 1933

* * * * *
    Item 15. Certain Relationships and Transactions and Corporate 
Governance.
    Furnish the information required by Item 404 of Regulation S-B and 
Item 407(a) of Regulation S-B.
* * * * *

0
23. Amend Form S-1 (referenced in Sec.  239.11) by revising Item 11, 
paragraphs (l) and (n) to read as follows:


    Note: The text of Form S-1 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form S-1

Registration Statement Under the Securities Act of 1933

* * * * *
    Item 11. Information with Respect to the Registrant.
* * * * *
    (l) Information required by Item 402 of Regulation S-K (Sec.  
229.402 of this chapter), executive compensation, and information 
required by paragraph (e)(4) of Item 407 of Regulation S-K (Sec.  
229.407 of this chapter), corporate governance;
* * * * *
    (n) Information required by Item 404 of Regulation S-K (Sec.  
229.404 of this chapter), transactions with related persons, promoters 
and certain control persons, and Item 407(a) of Regulation S-K (Sec.  
229.407(a) of this chapter), corporate governance.
* * * * *

0
24. Amend Form S-3 (referenced Sec.  239.13) by revising General 
Instruction I.A.3.(b) and the introductory text of General Instruction 
I.B.4.(c) to read as follows:

    Note: The text of Form S-3 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form S-3

Registration Statement Under the Securities Act of 1933

* * * * *

General Instructions

    I. Eligibility Requirements for Use of Form S-3 * * *
    A. Registrant Requirements. * * *
    3. * * *
    (b) has filed in a timely manner all reports required to be filed 
during the twelve calendar months and any portion of a month 
immediately preceding the filing of the registration statement, other 
than a report that is required solely pursuant to Item 1.01, 1.02, 
2.03, 2.04, 2.05, 2.06, 4.02(a) or 5.02(e) of Form 8-K (Sec.  249.308 
of this chapter). If the registrant has used (during the twelve 
calendar months and any portion of a month immediately preceding the 
filing of the registration statement) Rule 12b-25(b) (Sec.  240.12b-
25(b) of this chapter) under the Exchange Act with respect to a report 
or a portion of a report, that report or portion thereof has actually 
been filed within the time period prescribed by that rule.
* * * * *
    B. Transaction Requirements. * * *
    4. * * *
    (c) The issuer also must have provided, within the twelve calendar 
months immediately before the Form S-3 registration statement is filed, 
the information required by Items 401, 402, 403 and 407(c)(3), (d)(4), 
(d)(5) and (e)(4) of Regulation S-K (Sec.  229.401--Sec.  229.403 and 
Sec.  229.407(c)(3),(d)(4), (d)(5) and (e)(4) of this chapter) to:
* * * * *

0
25. Amend Form S-4 (referenced in Sec.  239.25) by revising Items 
18(a)(7)(ii) and (iii) and 19(a)(7)(ii) and (iii) to read as follows:

    Note: The text of Form S-4 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form S-4

Registration Statement Under the Securities Act of 1933

* * * * *
    Item 18. Information if Proxies, Consents or Authorizations are to 
be Solicited.
    (a) * * *
    (7) * * *
    (ii) Item 402 of Regulation S-K (Sec.  229.402 of this chapter), 
executive compensation, and paragraph (e)(4) of Item 407 of Regulation 
S-K (Sec.  229.407(e)(4) of this chapter), corporate governance;
    (iii) Item 404 of Regulation S-K (Sec.  229.404 of this chapter), 
transactions with related persons, promoters and certain control 
persons, and Item 407(a) of Regulation S-K (Sec.  229.407(a) of this 
chapter), corporate governance.
* * * * *
    Item 19. Information if Proxies, Consents or Authorizations are not 
to be Solicited or in an Exchange Offer.
    (a) * * *
    (7) * * *
    (ii) Item 402 of Regulation S-K (Sec.  229.402 of this chapter), 
executive compensation, and paragraph (e)(4) of Item 407 of Regulation 
S-K (Sec.  229.407(e)(4) of this chapter), corporate governance;
    (iii) Item 404 of Regulation S-K (Sec.  229.404), transactions with 
related persons, promoters and certain controls persons, and Item 
407(a) of Regulation S-K (Sec.  229.407(a)), corporate governance.
* * * * *

0
26. Amend Form S-11 (referenced in Sec.  239.18) by revising Items 22 
and 23 to read as follows:

    Note: The text of Form S-11 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form S-11

For Registration Under the Securities Act of 1933 of Securities of 
Certain Real Estate Companies

* * * * *
    Item 22. Executive Compensation.
    Furnish the information required by Item 402 of Regulation S-K 
(Sec.  229.402 of this chapter), and the information required by 
paragraph (e)(4) of Item 407 of Regulation S-K (Sec.  229.407(e)(4) of 
this chapter).
    Item 23. Certain Relationships and Related Transactions and 
Director Independence.
    Furnish the information required by Items 404 and 407(a) of 
Regulation S-K (Sec. Sec.  229.404 and 229.407(a) of this chapter). If 
a transaction involves the purchase or sale of assets by or to the 
registrant, otherwise than in the ordinary course of business, state 
the cost of the assets to the purchaser and, if acquired by the seller 
within two years prior to the transaction, the cost thereof to the 
seller. Furthermore, if the assets have been acquired by the seller 
within five years prior to the transaction, disclose the aggregate 
depreciation claimed by the seller for federal income tax purposes. 
Indicate the principle followed in determining the registrant's 
purchase or sale price and the name of the person making such 
determination.
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
27. The authority citation for part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless 
otherwise noted.

* * * * *

0
28. Amend Sec.  240.13a-11 by revising paragraph (c) to read as 
follows:

[[Page 53261]]

Sec.  240.13a-11  Current reports on Form 8-K (Sec.  249.308 of this 
chapter).

* * * * *
    (c) No failure to file a report on Form 8-K that is required solely 
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a), 5.02(e) 
or 6.03 of Form 8-K shall be deemed to be a violation of 15 U.S.C. 
78j(b) and Sec.  240.10b-5.

0
29. Add Sec.  240.13a-20 to read as follows:


Sec.  240.13a-20  Plain English presentation of specified information.

    (a) Any information included or incorporated by reference in a 
report filed under section 13(a) of the Act (15 U.S.C. 78m(a)) that is 
required to be disclosed pursuant to Item 402, 403, 404 or 407 of 
Regulation S-B (Sec. Sec.  228.402, 228.403, 228.404 or 228.407 of this 
chapter) or Item 402, 403, 404 or 407 of Regulation S-K (Sec. Sec.  
229.402, 229.403, 229.404 or 229.407 of this chapter) must be presented 
in a clear, concise and understandable manner. You must prepare the 
disclosure using the following standards:
    (1) Present information in clear, concise sections, paragraphs and 
sentences;
    (2) Use short sentences;
    (3) Use definite, concrete, everyday words;
    (4) Use the active voice;
    (5) Avoid multiple negatives;
    (6) Use descriptive headings and subheadings;
    (7) Use a tabular presentation or bullet lists for complex 
material, wherever possible;
    (8) Avoid legal jargon and highly technical business and other 
terminology;
    (9) Avoid frequent reliance on glossaries or defined terms as the 
primary means of explaining information. Define terms in a glossary or 
other section of the document only if the meaning is unclear from the 
context. Use a glossary only if it facilitates understanding of the 
disclosure; and
    (10) In designing the presentation of the information you may 
include pictures, logos, charts, graphs and other design elements so 
long as the design is not misleading and the required information is 
clear. You are encouraged to use tables, schedules, charts and graphic 
illustrations that present relevant data in an understandable manner, 
so long as such presentations are consistent with applicable disclosure 
requirements and consistent with other information in the document. You 
must draw graphs and charts to scale. Any information you provide must 
not be misleading.
    (b) [Reserved]

    Note to Sec.  240.13a-20.  In drafting the disclosure to comply 
with this section, you should avoid the following:
    1. Legalistic or overly complex presentations that make the 
substance of the disclosure difficult to understand;
    2. Vague ``boilerplate'' explanations that are imprecise and 
readily subject to different interpretations;
    3. Complex information copied directly from legal documents 
without any clear and concise explanation of the provision(s); and
    4. Disclosure repeated in different sections of the document 
that increases the size of the document but does not enhance the 
quality of the information.



0
30. Amend Sec.  240.14a-3 to revise paragraph (b)(9) to read as 
follows:


Sec.  240.14a-3  Information to be furnished to security holders.

* * * * *
    (b) * * *
    (9) The report shall contain the market price of and dividends on 
the registrant's common equity and related security holder matters 
required by Items 201(a), (b) and (c) of Regulation S-K (Sec.  
229.201(a), (b) and (c) of this chapter). If the report precedes or 
accompanies a proxy statement or information statement relating to an 
annual meeting of security holders at which directors are to be elected 
(or special meeting or written consents in lieu of such meeting), 
furnish the performance graph required by Item 201(e) (Sec.  229.201(e) 
of this chapter).
* * * * *

0
31. Amend Sec.  240.14a-6 to revise paragraph (a)(4) to read as 
follows:


Sec.  240.14a-6  Filing requirements.

    (a) * * *
    (4) The approval or ratification of a plan as defined in paragraph 
(a)(6)(ii) of Item 402 of Regulation S-K (Sec.  229.402(a)(6)(ii) of 
this chapter) or amendments to such a plan;
* * * * *

0
32. Amend Sec.  240.14a-101 by:
0
a. Removing paragraphs (f), (g), and (h) of Item 7 and paragraph 
(b)(13)(iii) of Item 22;
0
b. Revising ``$60,000'' to read ``$120,000'' in the introductory text 
of Items 22(b)(7), (b)(8), and (b)(9); Instruction 2 to Item 22(b)(7); 
and Instruction 6 to Item 22(b)(9);
0
c. Revising Note C, Item 7(b), (c), (d), and (e), the introductory text 
of Item 8, the undesignated paragraph following Item 8(d), Item 
10(b)(1)(ii), the Instruction to Item 10(b)(1)(ii), Instruction 1 to 
Item 10, the introductory text of Item 22(b), Item 22(b)(11), the 
Instruction to paragraph (b)(11) of Item 22, and the introductory text 
of Item 22(b)(13); and
0
d. Adding Items 22(b)(15), (b)(16), and (b)(17).
    The revisions and additions read as follows:


Sec.  240.14a-101  Schedule 14A. Information required in proxy 
statement.

* * * * *

    Notes.
* * * * *
    C. Except as otherwise specifically provided, where any item 
calls for information for a specified period with regard to 
directors, executive officers, officers or other persons holding 
specified positions or relationships, the information shall be given 
with regard to any person who held any of the specified positions or 
relationship at any time during the period. Information, other than 
information required by Item 404 of Regulation S-B (Sec.  228.404 of 
this chapter) or Item 404 of Regulation S-K (Sec.  229.404 of this 
chapter), need not be included for any portion of the period during 
which such person did not hold any such position or relationship, 
provided a statement to that effect is made.

* * * * *
    Item 7. Directors and executive officers. * * *
    (b) The information required by Items 401, 404(a) and (b), 405 and 
407(d)(4) and (d)(5) of Regulation S-K (Sec.  229.401, Sec.  229.404(a) 
and (b), Sec.  229.405 and Sec.  229.407(d)(4) and (d)(5) of this 
chapter).
    (c) The information required by Item 407(a) of Regulation S-K 
(Sec.  229.407 of this chapter).
    (d) The information required by Item 407(b), (c)(1), (c)(2), 
(d)(1), (d)(2), (d)(3), (e)(1), (e)(2), (e)(3) and (f) of Regulation S-
K (Sec.  229.407(b), (c)(1), (c)(2), (d)(1), (d)(2), (d)(3), (e)(1), 
(e)(2), (e)(3) and (f) of this chapter).
    (e) In lieu of the information required by this Item 7, investment 
companies registered under the Investment Company Act of 1940 (15 
U.S.C. 80a) must furnish the information required by Item 22(b) of this 
Schedule 14A.
    Item 8. Compensation of directors and executive officers.
    Furnish the information required by Item 402 of Regulation S-K 
(Sec.  229.402 of this chapter) and paragraphs (e)(4) and (e)(5) of 
Item 407 of Regulation S-K (Sec.  229.407(e)(4) and (e)(5) of this 
chapter) if action is to be taken with regard to:
* * * * *
    (d) * * *
    However, if the solicitation is made on behalf of persons other 
than the registrant, the information required need be furnished only as 
to nominees of the persons making the solicitation and associates of 
such nominees. In the case of investment companies registered

[[Page 53262]]

under the Investment Company Act of 1940 (15 U.S.C. 80a), furnish the 
information required by Item 22(b)(13) of this Schedule 14A.
* * * * *
    Item 10. Compensation Plans. * * *
    (b)(1) Additional information regarding specified plans subject to 
security holder action. * * *
    (ii) The estimated annual payment to be made with respect to 
current services. In the case of a pension or retirement plan, 
information called for by paragraph (a)(2) of this Item may be 
furnished in the format specified by paragraph (h)(2) of Item 402 of 
Regulation S-K (Sec.  229.402(h)(2) of this chapter).

    Instruction to paragraph (b)(1)(ii).
    In the case of investment companies registered under the 
Investment Company Act of 1940 (15 U.S.C. 80a), refer to Instruction 
4 in Item 22(b)(13)(i) of this Schedule in lieu of paragraph (h)(2) 
of Item 402 of Regulation S-K (Sec.  229.402(h)(2) of this chapter).
* * * * *
    Instructions
    1. The term plan as used in this Item means any plan as defined 
in paragraph (a)(6)(ii) of Item 402 of Regulation S-K (Sec.  
229.402(a)(6)(ii) of this chapter).

* * * * *
    Item 22. Information required in investment company proxy 
statement.
* * * * *
    (b) Election of Directors. If action is to be taken with respect to 
the election of directors of a Fund, furnish the following information 
in the proxy statement in addition to, in the case of business 
development companies, the information (and in the format) required by 
Item 7 and Item 8 of this Schedule 14A.
* * * * *
    (11) Provide in tabular form, to the extent practicable, the 
information required by Items 401(f) and (g), 404(a), and 405 of 
Regulation S-K (Sec. Sec.  229.401(f) and (g), 229.404(a), and 229.405 
of this chapter).

    Instruction to paragraph (b)(11).
    Information provided under paragraph (b)(8) of this Item 22 is 
deemed to satisfy the requirements of Item 404(a) of Regulation S-K 
for information about directors, nominees for election as directors, 
and Immediate Family Members of directors and nominees, and need not 
be provided under this paragraph (b)(11).

* * * * *
    (13) In the case of a Fund that is an investment company registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a), for all 
directors, and for each of the three highest-paid Officers that have 
aggregate compensation from the Fund for the most recently completed 
fiscal year in excess of $60,000 (``Compensated Persons''):
* * * * *
    (15)(i) Provide the information (and in the format) required by 
Items 407(b)(1), (b)(2) and (f) of Regulation S-K (Sec.  229.407(b)(1), 
(b)(2) and (f) of this chapter); and
    (ii) Provide the following regarding the requirements for the 
director nomination process:
    (A) The information (and in the format) required by Items 407(c)(1) 
and (c)(2) of Regulation S-K (Sec.  229.407(c)(1) and (c)(2) of this 
chapter); and
    (B) If the Fund is a listed issuer (as defined in Sec.  240.10A-3 
of this chapter) whose securities are listed on a national securities 
exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 
78f(a)) or in an automated inter-dealer quotation system of a national 
securities association registered pursuant to section 15A of the Act 
(15 U.S.C. 78o-3(a)) that has independence requirements for nominating 
committee members, identify each director that is a member of the 
nominating committee that is not independent under the independence 
standards described in this paragraph. In determining whether the 
nominating committee members are independent, use the Fund's definition 
of independence that it uses for determining if the members of the 
nominating committee are independent in compliance with the 
independence standards applicable for the members of the nominating 
committee in the listing standards applicable to the Fund. If the Fund 
does not have independence standards for the nominating committee, use 
the independence standards for the nominating committee in the listing 
standards applicable to the Fund.

    Instruction to paragraph (b)(15)(ii)(B).
    If the national securities exchange or inter-dealer quotation 
system on which the Fund's securities are listed has exemptions to 
the independence requirements for nominating committee members upon 
which the Fund relied, disclose the exemption relied upon and 
explain the basis for the Fund's conclusion that such exemption is 
applicable.

    (16) In the case of a Fund that is a closed-end investment company:
    (i) Provide the information (and in the format) required by Item 
407(d)(1), (d)(2) and (d)(3) of Regulation S-K (Sec. 229.407(d)(1), 
(d)(2) and (d)(3) of this chapter); and
    (ii) Identify each director that is a member of the Fund's audit 
committee that is not independent under the independence standards 
described in this paragraph. If the Fund does not have a separately 
designated audit committee, or committee performing similar functions, 
the Fund must provide the disclosure with respect to all members of its 
board of directors.
    (A) If the Fund is a listed issuer (as defined in Sec.  240.10A-3 
of this chapter) whose securities are listed on a national securities 
exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 
78f(a)) or in an automated inter-dealer quotation system of a national 
securities association registered pursuant to section 15A of the Act 
(15 U.S.C. 78o-3(a)) that has independence requirements for audit 
committee members, in determining whether the audit committee members 
are independent, use the Fund's definition of independence that it uses 
for determining if the members of the audit committee are independent 
in compliance with the independence standards applicable for the 
members of the audit committee in the listing standards applicable to 
the Fund. If the Fund does not have independence standards for the 
audit committee, use the independence standards for the audit committee 
in the listing standards applicable to the Fund.
    (B) If the Fund is not a listed issuer whose securities are listed 
on a national securities exchange registered pursuant to section 6(a) 
of the Act (15 U.S.C. 78f(a)) or in an automated inter-dealer quotation 
system of a national securities association registered pursuant to 
section 15A of the Act (15 U.S.C. 78o-3(a)), in determining whether the 
audit committee members are independent, use a definition of 
independence of a national securities exchange registered pursuant to 
section 6(a) of the Act (15 U.S.C. 78f(a)) or an automated inter-dealer 
quotation system of a national securities association registered 
pursuant to section 15A of the Act (15 U.S.C. 780-3(a)) which has 
requirements that a majority of the board of directors be independent 
and that has been approved by the Commission, and state which 
definition is used. Whatever such definition the Fund chooses, it must 
use the same definition with respect to all directors and nominees for 
director. If the national securities exchange or national securities 
association whose standards are used has independence standards for the 
members of the audit committee, use those specific standards.

    Instruction to paragraph (b)(16)(ii).
    If the national securities exchange or inter-dealer quotation 
system on which the Fund's securities are listed has exemptions to 
the independence requirements for nominating committee members upon 
which the Fund relied, disclose the exemption relied upon and 
explain the basis for the Fund's

[[Page 53263]]

conclusion that such exemption is applicable. The same disclosure 
should be provided if the Fund is not a listed issuer and the 
national securities exchange or inter-dealer quotation system 
selected by the Fund has exemptions that are applicable to the Fund.

    (17) In the case of a Fund that is an investment company registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a), if a director 
has resigned or declined to stand for re-election to the board of 
directors since the date of the last annual meeting of security holders 
because of a disagreement with the registrant on any matter relating to 
the registrant's operations, policies or practices, and if the director 
has furnished the registrant with a letter describing such disagreement 
and requesting that the matter be disclosed, the registrant shall state 
the date of resignation or declination to stand for re-election and 
summarize the director's description of the disagreement. If the 
registrant believes that the description provided by the director is 
incorrect or incomplete, it may include a brief statement presenting 
its view of the disagreement.
* * * * *

0
33. Amend Sec.  240.14c-5 to revise paragraph (a)(4) before the 
undesignated paragraph to read as follows:


Sec.  240.14c-5  Filing requirements.

    (a) * * *
    (4) The approval or ratification of a plan as defined in paragraph 
(a)(6)(ii) of Item 402 of Regulation S-K (Sec.  229.402(a)(6)(ii) of 
this chapter) or amendments to such a plan.
* * * * *

0
34. Amend Sec.  240.15d-11 by revising paragraph (c) to read as 
follows:


Sec.  240.15d-11  Current reports on Form 8-K (Sec.  249.308 of this 
chapter).

* * * * *
    (c) No failure to file a report on Form 8-K that is required solely 
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a), 5.02(e) 
or 6.03 of Form 8-K shall be deemed to be a violation of 15 U.S.C. 
78j(b) and Sec.  240.10b--5.

0
35. Add Sec.  240.15d--20 to read as follows:


Sec.  240.15d--20  Plain English presentation of specified information.

    (a) Any information included or incorporated by reference in a 
report filed under section 15(d) of the Act (15 U.S.C. 78o(d)) that is 
required to be disclosed pursuant to Item 402, 403, 404 or 407 of 
Regulation S-B (Sec. Sec.  228.402, 228.403, 228.404 or 228.407 of this 
chapter) or Item 402, 403, 404 or 407 of Regulation S-K (Sec. Sec.  
229.402, 229.403, 229.404 or 229.407 of this chapter) must be presented 
in a clear, concise and understandable manner. You must prepare the 
disclosure using the following standards:
    (1) Present information in clear, concise sections, paragraphs and 
sentences;
    (2) Use short sentences;
    (3) Use definite, concrete, everyday words;
    (4) Use the active voice;
    (5) Avoid multiple negatives;
    (6) Use descriptive headings and subheadings;
    (7) Use a tabular presentation or bullet lists for complex 
material, wherever possible;
    (8) Avoid legal jargon and highly technical business and other 
terminology;
    (9) Avoid frequent reliance on glossaries or defined terms as the 
primary means of explaining information. Define terms in a glossary or 
other section of the document only if the meaning is unclear from the 
context. Use a glossary only if it facilitates understanding of the 
disclosure; and
    (10) In designing the presentation of the information you may 
include pictures, logos, charts, graphs and other design elements so 
long as the design is not misleading and the required information is 
clear. You are encouraged to use tables, schedules, charts and graphic 
illustrations that present relevant data in an understandable manner, 
so long as such presentations are consistent with applicable disclosure 
requirements and consistent with other information in the document. You 
must draw graphs and charts to scale. Any information you provide must 
not be misleading.
    (b) [Reserved]


    Note to Sec.  240.15d-20. In drafting the disclosure to comply 
with this section, you should avoid the following:
    1. Legalistic or overly complex presentations that make the 
substance of the disclosure difficult to understand;
    2. Vague ``boilerplate'' explanations that are imprecise and 
readily subject to different interpretations;
    3. Complex information copied directly from legal documents 
without any clear and concise explanation of the provision(s); and
    4. Disclosure repeated in different sections of the document 
that increases the size of the document but does not enhance the 
quality of the information.


0
36. Amend Sec.  240.16b-3 by:
0
a. Adding ``and'' at the end of paragraph (b)(3)(i)(B);
0
b. Removing ``; and'' at the end of paragraph (b)(3)(i)(C) and in its 
place adding a period;
0
c. Removing paragraph (b)(3)(i)(D); and
0
d. Adding Note (4) to read as follows:


Sec.  240.16b-3  Transactions between an issuer and its officers or 
directors.

* * * * *
    Notes to Sec.  240.16b-3:
* * * * *

    Note (4): For purposes of determining a director's status under 
those portions of paragraph (b)(3)(i) that reference Sec.  
229.404(a) of this chapter, an issuer may rely on the disclosure 
provided under Sec.  229.404(a) of this chapter for the issuer's 
most recent fiscal year contained in the most recent filing in which 
disclosure required under Sec.  229.404(a) is presented. Where a 
transaction disclosed in that filing was terminated before the 
director's proposed service as a Non-Employee Director, that 
transaction will not bar such service. The issuer must believe in 
good faith that any current or contemplated transaction in which the 
director participates will not be required to be disclosed under 
Sec.  229.404(a) of this chapter, based on information readily 
available to the issuer and the director at the time such director 
proposes to act as a Non-Employee Director. At such time as the 
issuer believes in good faith, based on readily available 
information, that a current or contemplated transaction with a 
director will be required to be disclosed under Sec.  229.404(a) in 
a future filing, the director no longer is eligible to serve as a 
Non-Employee Director; provided, however, that this determination 
does not result in retroactive loss of a Rule 16b-3 exemption for a 
transaction previously approved by the director while serving as a 
Non-Employee Director consistent with this note. In making the 
determinations specified in this Note, the issuer may rely on 
information it obtains from the director, for example, pursuant to a 
response to an inquiry.

PART 245--REGULATION BLACKOUT TRADING RESTRICTION (REGULATION BTR--
BLACKOUT TRADING RESTRICTION)

0
37. The authority citation for Part 245 continues to read in part as 
follows:

    Authority: 15 U.S.C. 78w(a), unless otherwise noted.
* * * * *


Sec.  245.100  [Amended]

0
38. Amend Sec.  245.100, paragraph (a)(2), by revising the phrase 
``paragraph (a) or (b) of Item 404'' to read ``paragraph (a) of Item 
404''.
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
39. The authority citation for part 249 continues to read in part as 
follows:


[[Page 53264]]


    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 
1350, unless otherwise noted.
* * * * *

0
40. Amend Form 10 (referenced in Sec.  249.210) by revising Items 6 and 
7 to read as follows:


    Note: The text of Form 10 does not, and this amendment will not, 
appear in the Code of Federal Regulations.


Form 10

General Form for Registration of Securities Pursuant to Section 12(B) 
or (G) of the Securities Exchange Act of 1934

* * * * *
    Item 6. Executive Compensation.
    Furnish the information required by Item 402 of Regulation S-K 
(Sec.  229.402 of this chapter) and paragraph (e)(4) of Item 407 of 
Regulation S-K (Sec.  229.407 of this chapter).
    Item 7. Certain Relationships and Related Transactions, and 
Director Independence.
    Furnish the information required by Item 404 of Regulation S-K 
(Sec.  229.404 of this chapter) and Item 407(a) of Regulation S-K 
(Sec.  229.407(a) of this chapter).
* * * * *

0
41. Amend Form 10-SB (referenced in Sec.  249.210b), Information 
Required in Registration Statement, by revising Item 7 to read as 
follows:


    Note: The text of Form 10-SB does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-SB

General Form for Registration of Securities of Small Business Issuers

* * * * *
    Information Required in Registration Statement
* * * * *
    Item 7. Certain Relationships and Related Transactions, and 
Director Independence.
    Furnish the information required by Item 404 of Regulation S-B 
(Sec.  228.404 of this chapter) and Item 407(a) of Regulation S-B 
(Sec.  228.407(a) of this chapter).
* * * * *

0
42. Amend Form 20-F (referenced in Sec.  249.220f) by revising 
Instruction 4.(c)(v) to the Instructions as to Exhibits to read as 
follows:


    Note: The text of Form 20-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 20-F

* * * * *

Instructions as to Exhibits

* * * * *
    4.(a) * * *
    (c) * * *
    (v) Public filing of the management contract or compensatory plan, 
contract or arrangement, or portion thereof, is not required in the 
company's home country and is not otherwise publicly disclosed by the 
company.
* * * * *

0
43. Form 8-K (referenced in Sec.  249.308) is amended by:
0
a. Revising General Instruction D;
0
b. Revising the last sentence of Instruction 1 to Item 1.01;
0
c. Revising the heading of Item 5.02;

0
d. Revising Item 5.02(b), the introductory text of Item 5.02(c), Item 
5.02(c)(2) and (c)(3);
0
e. Adding Items 5.02(d)(5), (e) and (f); and
0
f. Adding Instructions 3 and 4 to Item 5.02.
    The revisions and additions read as follows:

    Note: The text of Form 8-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 8-K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

* * * * *

General Instructions

* * * * *
    D. Preparation of Report.
    This form is not to be used as a blank form to be filled in, but 
only as a guide in the preparation of the report on paper meeting the 
requirements of Rule 12b-12 (17 CFR 240.12b-12). The report shall 
contain the number and caption of the applicable item, but the text of 
such item may be omitted, provided the answers thereto are prepared in 
the manner specified in Rule 12b-13 (17 CFR 240.12b-13). To the extent 
that Item 1.01 and one or more other items of the form are applicable, 
registrants need not provide the number and caption of Item 1.01 so 
long as the substantive disclosure required by Item 1.01 is disclosed 
in the report and the number and caption of the other applicable 
item(s) are provided. All items that are not required to be answered in 
a particular report may be omitted and no reference thereto need be 
made in the report. All instructions should also be omitted.
* * * * *
    Item 1.01 Entry into a Material Definitive Agreement.
* * * * *
    Instructions.
    1. * * * An agreement involving the subject matter identified in 
Item 601(b)(10)(iii)(A) or (B) need not be disclosed under this Item.
* * * * *
    Item 5.02 Departure of Directors or Certain Officers; Election of 
Directors; Appointment of Certain Officers; Compensatory Arrangements 
of Certain Officers.
* * * * *
    (b) If the registrant's principal executive officer, president, 
principal financial officer, principal accounting officer, principal 
operating officer, or any person performing similar functions, or any 
named executive officer, retires, resigns or is terminated from that 
position, or if a director retires, resigns, is removed, or refuses to 
stand for re-election (except in circumstances described in paragraph 
(a) of this Item 5.02), disclose the fact that the event has occurred 
and the date of the event.
    (c) If the registrant appoints a new principal executive officer, 
president, principal financial officer, principal accounting officer, 
principal operating officer, or person performing similar functions, 
disclose the following information with respect to the newly appointed 
officer:
    (1) * * *
    (2) the information required by Items 401(b), (d), (e) and Item 
404(a) of Regulation S-K (17 CFR 229.401(b), (d), (e) and 229.404(a)), 
or, in the case of a small business issuer, Items 401(a)(4), (a)(5), 
(c), and Item 404(a) of Regulation S-B (17 CFR 228.401(a)(4), (a)(5), 
(c), and 228.404(a), respectively); and
    (3) a brief description of any material plan, contract or 
arrangement (whether or not written) to which a covered officer is a 
party or in which he or she participates that is entered into or 
material amendment in connection with the triggering event or any grant 
or award to any such covered person or modification thereto, under any 
such plan, contract or arrangement in connection with any such event.
    (d) * * *
    (5) a brief description of any material plan, contract or 
arrangement (whether or not written) to which the director is a party 
or in which he or she participates that is entered into or material 
amendment in connection with the triggering event or any grant or award 
to any such covered person or modification thereto, under any such 
plan, contract or arrangement in connection with any such event.

[[Page 53265]]

    (e) If the registrant enters into, adopts, or otherwise commences a 
material compensatory plan, contract or arrangement (whether or not 
written), as to which the registrant's principal executive officer, 
principal financial officer, or a named executive officer participates 
or is a party, or such compensatory plan, contract or arrangement is 
materially amended or modified, or a material grant or award under any 
such plan, contract or arrangement to any such person is made or 
materially modified, then the registrant shall provide a brief 
description of the terms and conditions of the plan, contract or 
arrangement and the amounts payable to the officer thereunder.

    Instructions to paragraph (e).
    1. Disclosure under this Item 5.02(e) shall be required whether 
or not the specified event is in connection with events otherwise 
triggering disclosure pursuant to this Item 5.02.
    2. Grants or awards (or modifications thereto) made pursuant to 
a plan, contract or arrangement (whether involving cash or equity), 
that are materially consistent with the previously disclosed terms 
of such plan, contract or arrangement, need not be disclosed under 
this Item 5.02(e), provided the registrant has previously disclosed 
such terms and the grant, award or modification is disclosed when 
Item 402 of Regulation S-K (17 CFR 229.402) requires such 
disclosure.

    (f) If the salary or bonus of a named executive officer cannot be 
calculated as of the most recent practicable date and is omitted from 
the Summary Compensation Table as specified in Instruction 1 to Item 
402(b)(2)(iii) and (iv) of Regulation S-B or Instruction 1 to Item 
402(c)(2)(iii) and (iv) of Regulation S-K, disclose the appropriate 
information under this Item 5.02(f) when there is a payment, grant, 
award, decision or other occurrence as a result of which such amounts 
become calculable in whole or part. Disclosure under this Item 5.02(f) 
shall include a new total compensation figure for the named executive 
officer, using the new salary or bonus information to recalculate the 
information that was previously provided with respect to the named 
executive officer in the registrant's Summary Compensation Table for 
which the salary and bonus information was omitted in reliance on 
Instruction 1 to Item 402(b)(2)(iii) and (iv) of Regulation S-B (17 CFR 
228.402(b)(2)(iii) and (iv)) or Instruction 1 to Item 402(c)(2)(iii) 
and (iv) of Regulation S-K (17 CFR 229.402(c)(2)(iii) and (iv)).
    Instructions to Item 5.02.
* * * * *
    3. The registrant need not provide information with respect to 
plans, contracts, and arrangements to the extent they do not 
discriminate in scope, terms or operation, in favor of executive 
officers or directors of the registrant and that are available 
generally to all salaried employees.
    4. For purposes of this Item, the term ``named executive officer'' 
shall refer to those executive officers for whom disclosure was 
required in the registrant's most recent filing with the Commission 
under the Securities Act (15 U.S.C. 77a et seq.) or Exchange Act (15 
U.S.C. 78a et seq.) that required disclosure pursuant to Item 402(c) of 
Regulation S-K (17 CFR 229.402(c)) or Item 402(b) of Regulation S-B (17 
CFR 228.402(b)), as applicable.
* * * * *

0
44. Amend Form 10-Q (referenced in Sec.  249.308a) by revising Item 
5(b) in Part II to read as follows:


    Note: The text of Form 10-Q does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-Q

* * * * *

Part II--Other Information

* * * * *
    Item 5. Other Information.
    (a) * * *
    (b) Furnish the information required by Item 407(c)(3) of 
Regulation S-K (Sec.  229.407 of this chapter).
* * * * *

0
45. Amend Form 10-QSB (referenced in Sec.  249.308b) by revising Item 
5(b) in Part II to read as follows:


    Note: The text of Form 10-QSB does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-QSB

* * * * *

Part II--Other Information

* * * * *
    Item 5. Other Information.
    (a) * * *
    (b) Furnish the information required by Item 407(c)(3) of 
Regulation S-B (Sec.  228.407 of this chapter).
* * * * *

0
46. Amend Form 10-K (referenced in Sec.  249.310) by revising Item 10 
before the instruction and Items 11 and 13 in Part III to read as 
follows:


    Note: The text of Form 10-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-K

* * * * *

Part III

* * * * *
    Item 10. Directors, Executive Officers and Corporate Governance.
    Furnish the information required by Items 401, 405, 406, and 
407(c)(3), (d)(4) and (d)(5) of Regulation S-K (Sec. Sec.  229.401, 
229.405, 229.406, and 229.407(c)(3), (d)(4) and (d)(5) of this 
chapter).
* * * * *
    Item 11. Executive Compensation.
    Furnish the information required by Item 402 of Regulation S-K 
(Sec.  229.402 of this chapter) and paragraphs (e)(4) and (e)(5) of 
Item 407 of Regulation S-K (Sec.  229.407(e)(4) and (e)(5) of this 
chapter).
* * * * *
    Item 13. Certain Relationships and Related Transactions, and 
Director Independence.
    Furnish the information required by Item 404 of Regulation S-K 
(Sec.  229.404 of this chapter) and Item 407(a) of Regulation S-K 
(Sec.  229.407(a) of this chapter).
* * * * *

0
47. Amend Form 10-KSB (referenced in Sec.  249.310b) by revising Item 9 
before the instruction and Item 12 in Part III to read as follows:


    Note: The text of Form 10-KSB does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-KSB

* * * * *

Part III

    Item 9. Directors, Executive Officers, Promoters, Control Persons 
and Corporate Governance; Compliance With Section 16(a) of the Exchange 
Act.
    Furnish the information required by Items 401, 405, 406, and 
407(c)(3), (d)(4) and (d)(5) of Regulation S-B (Sec. Sec.  228.401, 
228.405, 228.406, and 228.407(c)(3), (d)(4) and (d)(5) of this 
chapter).
* * * * *
    Item 12. Certain Relationships and Related Transactions, and 
Director Independence.
    Furnish the information required by Item 404 of Regulation S-B 
(Sec.  228.404 of this chapter) and Item 407(a) of Regulation S-B 
(Sec.  228.407(a) of this chapter).
* * * * *

[[Page 53266]]

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

0
48. The authority citation for Part 274 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 
78n, 78o(d), 80a-8, 80a-24, 80a-26, and 80a-29, unless otherwise 
noted.
* * * * *

0
49. Amend Form N-1A (referenced in Sec. Sec.  239.15A and 274.11A) by:
0
a. Revising ``$60,000'' to read ``$120,000'' in the introductory text 
of Items 12(b)(6), (b)(7), and (b)(8); Instruction 2 to Item 12(b)(6); 
and Instruction 5 to Item 12(b)(8); and
0
b. Removing the word ``relocation,'' in the second sentence of 
Instruction 2 to Item 15(b).


    Note: The text of Form N-1A does not, and this amendment will 
not, appear in the Code of Federal Regulations.


0
50. Amend Form N-2 (referenced in Sec. Sec.  239.14 and 274.11a-1) by:
0
a. Revising ``$60,000'' to read ``$120,000'' in the introductory text 
of paragraphs 9, 10, and 11 of Item 18; Instruction 2 to paragraph 9 of 
Item 18; and Instruction 5 to paragraph 11 of Item 18;
0
b. Revising the introductory text of paragraph 13 of Item 18;
0
c. Removing paragraph 13(c) of Item 18;
0
d. Redesignating paragraphs 14 and 15 of Item 18 as paragraphs 15 and 
16, respectively;
0
e. Adding new paragraph 14 of Item 18;
0
f. Removing ``relocation,'' from the second sentence of Instruction 2 
to paragraph 2 of Item 21; and
0
g. Revising the cite ``Item 18.15'' to read ``Item 18.16'' in 
Instruction 8.a. to Item 24.
    The addition and revision read as follows:

    Note: The text of Form N-2 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-2

* * * * *
    Item 18. Management.
* * * * *
    13. In the case of a Registrant that is not a business development 
company, provide the following for all directors of the Registrant, all 
members of the advisory board of the Registrant, and for each of the 
three highest paid officers or any affiliated person of the Registrant 
with aggregate compensation from the Registrant for the most recently 
completed fiscal year in excess of $60,000 (``Compensated Persons'').
* * * * *
    14. In the case of a Registrant that is a business development 
company, provide the information required by Item 402 of Regulation S-K 
(17 CFR 229.402).
* * * * *

0
51. Amend Form N-3 (referenced in Sec. Sec.  239.17a and 274.11b) by:
0
a. Revising ``$60,000'' to read ``$120,000'' in the introductory text 
of paragraphs (h), (i), and (j) of Item 20; Instruction 2 to paragraph 
(h) of Item 20; and Instruction 5 to paragraph (j) of Item 20; and
0
b. Removing the word ``relocation,'' in the second sentence of 
Instruction 2 to Item 22(b).

    Note: The text of Form N-3 does not, and this amendment will 
not, appear in the Code of Federal Regulations.


0
52. Amend Form N-CSR (referenced in Sec. Sec.  249.331 and 274.128) by 
revising Item 10 to read as follows:

    Note: The text of Form N-CSR does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-CSR

* * * * *
    Item 10. Submission of Matters to a Vote of Security Holders.
    Describe any material changes to the procedures by which 
shareholders may recommend nominees to the registrant's board of 
directors, where those changes were implemented after the registrant 
last provided disclosure in response to the requirements of Item 
407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 
22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
    Instruction. For purposes of this Item, adoption of procedures by 
which shareholders may recommend nominees to the registrant's board of 
directors, where the registrant's most recent disclosure in response to 
the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 
240.14a-101)), or this Item, indicated that the registrant did not have 
in place such procedures, will constitute a material change.
* * * * *

    Dated: August 29, 2006.

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. 06-6968 Filed 9-7-06; 8:45 am]
BILLING CODE 8010-01-P


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