[Federal Register Volume 71, Number 26 (Wednesday, February 8, 2006)]
[Proposed Rules]
[Pages 6542-6631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-946]



[[Page 6541]]

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Part II





Securities and Exchange Commission





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17 CFR Parts 228, 229, 239, et al.



Executive Compensation and Related Party Disclosure; Proposed Rule

Federal Register / Vol. 71, No. 26 / Wednesday, February 8, 2006 / 
Proposed Rules

[[Page 6542]]


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SECURITIES AND EXCHANGE COMMISSION

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

[Release Nos. 33-8655; 34-53185; IC-27218; File No. S7-03-06]
RIN 3235-AI80


Executive Compensation and Related Party Disclosure

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission is proposing amendments 
to the disclosure requirements for executive and director compensation, 
related party transactions, director independence and other corporate 
governance matters and security ownership of officers and directors. 
These amendments would 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 also propose 
to require that disclosure under the amended items generally be 
provided in plain English. The proposed amendments are intended to make 
proxy 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.

DATES: Comments should be received on or before April 10, 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/proposed.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#acded9c0c981cfc3c1c1c9c2d8dfecdfc9cf82cbc3da"><span class="__cf_email__" data-cfemail="6f1d1a030a420c0002020a011b1c2f1c0a0c41080019">[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 20549-9303.

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/proposed/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, Carloyn 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 propose to amend: 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\ 
and Rule 100 \12\ of Regulation BTR.\13\ We also propose to add new 
Item 407 to Regulations S-K and S-B. In addition, we propose to amend 
Rules 13a-11,\14\ 14a-6,\15\ 14c-5,\16\ 15d-11 \17\ and 16b-3 \18\ 
under the Securities Exchange Act of 1934.\19\ We propose to add Rules 
13a-20 and 15d-20 under the Exchange Act. We further propose to amend 
Schedule 14A \20\ under the Exchange Act, as well as Exchange Act Forms 
8-K,\21\ 10,\22\ 10SB,\23\ 10-Q,\24\ 10-QSB,\25\ 10-K,\26\ 10-KSB \27\ 
and 20-F.\28\ Finally, we propose to amend Forms SB-2,\29\ S-1,\30\ S-
3,\31\ S-4 \32\ and S-11 \33\ under the Securities Act, Forms N-1A,\34\ 
N-2,\35\ and N-3 \36\ under the Securities Act and the Investment 
Company Act of 1940,\37\ and Form N-CSR \38\ 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 245.100.
    \13\ 17 CFR 245.100 et seq.
    \14\ 17 CFR 240.13a-11.
    \15\ 17 CFR 240.14a-6.
    \16\ 17 CFR 240.14c-5.
    \17\ 17 CFR 240.15d-11.
    \18\ 17 CFR 240.16b-3.
    \19\ 15 U.S.C. 78a et seq.
    \20\ 17 CFR 240.14a-101.
    \21\ 17 CFR 249.308.
    \22\ 17 CFR 249.210.
    \23\ 17 CFR 249.210b.
    \24\ 17 CFR 249.308a.
    \25\ 17 CFR 249.308b.
    \26\ 17 CFR 249.310.
    \27\ 17 CFR 249.310b.
    \28\ 17 CFR 249.220f.
    \29\ 17 CFR 239.10.
    \30\ 17 CFR 239.11.
    \31\ 17 CFR 239.13.
    \32\ 17 CFR 239.25.
    \33\ 17 CFR 239.18.
    \34\ 17 CFR 239.15A and 274.11A.
    \35\ 17 CFR 239.14 and 274.11a-1.
    \36\ 17 CFR 239.17a and 274.11b.
    \37\ 15 U.S.C. 80a-1 et seq.
    \38\ 17 CFR 249.331 and 274.128.
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Table of Contents

I. Background and Overview of the Proposals
II. Executive and Director Compensation Disclosure
    A. Compensation Discussion and Analysis
    1. Intent and Operation of the Proposed Compensation Discussion 
and Analysis
    2. Proposed Instructions to Compensation Discussion and Analysis
    3. ``Filed'' Status of Compensation Discussion and Analysis
    4. Proposed Elimination of the Performance Graph and the 
Compensation Committee Report
    B. 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-Stock Incentive Plan Compensation Column
    d. All Other Compensation Column
    i. Earnings on Deferred Compensation
    ii. Increase in Pension Value
    iii. Perquisites and Other Personal Benefits
    iv. Additional All Other Compensation Column Items
    e. Captions and Table Layout
    2. Supplemental Annual Compensation Tables
    a. Grants of Performance-Based Awards Table
    b. Grants of All Other Equity Awards Table
    3. Narrative Disclosure to Summary Compensation Table and 
Supplemental Tables

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    4. Exercises and Holdings of Previously Awarded Equity
    a. Outstanding Equity Awards at Fiscal Year-End
    b. Option Exercises and Stock Vesting
    5. Post-Employment Compensation
    a. Retirement Plan Potential Annual Payments and Benefits Table
    b. Nonqualified Defined Contribution and Other Deferred 
Compensation Plans Table
    c. Other Potential Post-Employment Payments
    6. Officers Covered
    a. Named Executive Officers
    b. Identification of Most Highly Compensated Officers; Dollar 
Threshold for Disclosure
    7. Interplay of Items 402 and 404
    8. Other Proposed Changes
    9. Compensation of Directors
    C. Treatment of Specific Types of Issuers
    1. Small Business Issuers
    2. Foreign Private Issuers
    3. Business Development Companies
    D. Conforming Amendments
    E. General Comment Requests on the Item 402 Proposals
III. Proposed Revisions to Form 8-K and the Periodic Report Exhibit 
Requirements
    A. Proposed Revisions to Items 1.01 and 5.02 of Form 8-K
    B. Proposed 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 that 
Item 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
    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. Paperwork Reduction Act Burden Estimates
    1. Securities Act Registration Statements, Exchange Act 
Registration Statements and Exchange Act Annual Reports
    2. Exchange Act Current Reports
    D. Request for Comment
IX. Cost-Benefit Analysis
    A. Background
    B. Summary of Proposals
    C. Benefits
    D. Costs
    E. Request for Comment
X. Consideration of Burden on Competition and Promotion of 
Efficiency, Competition and Capital Formation
XI. Initial Regulatory Flexibility Act Analysis
    A. Reasons for the Proposed Action
    B. Objectives
    C. Legal Basis
    D. Small Entities Subject to the Proposed Amendments
    E. Reporting, Recordkeeping and Other Compliance Requirements
    F. Duplicative, Overlapping or Conflicting Federal Rules
    G. Significant Alternatives
    H. Solicitation of Comment
XII. Small Business Regulatory Enforcement Fairness Act
XIII. Statutory Authority and Text of the Proposed Amendments

I. Background and Overview of the Proposals

    We are proposing revisions to our rules governing disclosure of 
executive compensation, director compensation, related party 
transactions, director independence and other corporate governance 
matters and current reporting regarding compensation arrangements. The 
proposed revisions 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 proposing to revise our 
disclosure rules regarding related party transactions and director 
independence and board committee functions.
    Finally, some compensation arrangements must be disclosed under our 
recently revised rules relating to current reports on Form 8-K. We 
propose to reorganize and more appropriately focus 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,\39\ 
the 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 
issuer.\40\ 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.\41\
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    \39\ 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 issuers 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.''
    \40\ In 1938, the Commission promulgated its first executive and 
director compensation disclosure rules for proxy statements. Release 
No. 34-1823 (Aug. 11, 1938). 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] (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).
    \41\ Executive Compensation Disclosure, Release No. 33-6962 
(Oct. 16, 1992) [57 FR 48125] (the ``1992 Release''); See also 
Executive Compensation Disclosure; Securityholder Lists and Mailing 
Requests, Release No. 33-7032 (Nov. 22, 1993) [58 FR 63010], 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 the 
current rules results 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 proposing an approach that builds on the 
strengths of

[[Page 6544]]

the current requirements rather than discarding them. However, today's 
proposals do represent a thorough rethinking of our current rules that 
would combine a broader-based tabular presentation with improved 
narrative disclosure supplementing the tables. This proposed approach 
would 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 proposals that we publish for comment today would require that 
all elements of compensation must be disclosed. We also seek to 
structure the revised requirements sufficiently broadly so that, if 
they are adopted, they will continue to operate effectively as new 
forms of compensation are developed in the future.
    Under our proposals, compensation disclosure would 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),\42\ the proposed Compensation Discussion and Analysis would 
call for a discussion and analysis of the material factors underlying 
compensation policies and decisions reflected in the data presented in 
the tables. This overview would address in one place these factors with 
respect to both the separate elements of executive compensation and 
executive compensation as a whole.
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    \42\ 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.
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    Following the Compensation Discussion and Analysis, we propose to 
organize 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 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 two tables 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 disclosed as current compensation for those years) and are ``at 
risk,'' as well as recent realization on these interests, such as 
through vesting of restricted stock and similar instruments or the 
exercise of options and similar instruments; and
    <bullet> Retirement and other post-employment benefits, including 
retirement and defined contribution and other deferred compensation 
plans, other retirement benefits and other post-employment benefits, 
such as those payable in the event of a change in control.
    We propose to require improved tabular disclosure for each of the 
above three categories that would be supplemented by appropriate 
narrative that provides material information necessary to an 
understanding of the information presented in the individual 
tables.\43\ We are also proposing a new disclosure requirement of the 
total compensation and job description of up to an additional three 
most highly compensated employees who are not executive officers or 
directors but who earn more than the highest paid executive officers.
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    \43\ As discussed in more detail below, this narrative 
disclosure, together with the Compensation Discussion and Analysis 
noted above, would replace the currently required Compensation 
Committee Report and the Performance Graph. Unlike the current 
requirements under which both the report and the graph, although 
physically included in the proxy statement, need only be furnished 
to the Commission, the proposed narrative disclosure, along with the 
rest of the proposed executive officer and director compensation, 
would be company disclosure filed with the Commission.
    Current Item 402(a)(9) of Regulation S-K provides that the 
Compensation Committee Report and Performance Graph ``shall not be 
deemed to be ``soliciting material'' or to be ``filed'' with the 
Commission or subject to Regulations 14A or 14C [17 CFR 240.14a-1 et 
seq. or 240.14c-1 et seq.], 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.''
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    Finally, we propose a director compensation table that is similar 
to the proposed Summary Compensation Table.\44\
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    \44\ We made similar proposals, 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 propose to modify some of the recently expanded Form 8-K 
requirements regarding compensation. Form 8-K requires disclosure on a 
current basis of the entry into, amendment of, and termination of, 
material definitive agreements entered into outside the ordinary course 
of business within four business days of the triggering event. Under 
our pre-existing definitions of material contracts, many agreements 
regarding executive compensation are deemed to be material agreements 
entered into outside the ordinary course, and when, for purposes of 
consistency, we adopted those definitions for use in the expanded Form 
8-K requirements, we incorporated all of these executive compensation 
agreements into the current disclosure requirements. Therefore, many 
agreements regarding executive compensation, including some not related 
to named executive officers, are required to be disclosed within four 
business days of the applicable triggering event. Consistent with our 
intent in adopting the expanded Form 8-K to capture only events that 
are unquestionably or presumptively material to investors, we believe 
it is appropriate to modify the Form 8-K requirements.
    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 current related party transaction 
disclosure requirements were adopted piecemeal over the years and were 
combined into one disclosure requirement beginning in 1982.\45\ In 
light of the 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 proposals include 
amendments to update, clarify and slightly expand the related party 
transaction disclosure requirements. The proposed amendments would fold 
into the disclosure requirements for related party transactions the 
currently separate

[[Page 6545]]

disclosure requirement regarding indebtedness of management and 
directors.\46\ Further, we propose a requirement that calls for a 
narrative explanation of the independence status of directors under a 
company's director independence policies, consistent with recent 
significant changes to the listing standards of the nation's principal 
securities trading markets.\47\ We also propose to consolidate this and 
other corporate governance disclosure requirements regarding director 
independence and board committees into a single expanded disclosure 
item.\48\
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    \45\ Disclosure of Certain Relationships and Transactions 
Involving Management, Release No. 33-6441 (Dec. 2, 1982) [47 FR 
55661] (the ``1982 Release'').
    \46\ Related party transactions are currently disclosed under 
Items 404(a) of Regulations S-K and S-B. Indebtedness is currently 
disclosed under Item 404(c) of Regulation S-K.
    \47\ 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 proposal would 
replace our existing disclosure requirement about director 
relationships that can affect independence.
    \48\ Proposed Item 407 of Regulation S-K and Regulation 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 
propose to add 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 proposal would extend the 
plain English requirements currently applicable to portions of 
registration statements under the Securities Act to the disclosure 
required under the amended items in Exchange Act reports and proxy or 
information statements incorporated by reference into those reports.
    Finally, we propose to amend our beneficial ownership disclosure 
requirements to require disclosure of shares pledged by named executive 
officers, directors and director nominees, as well as directors' 
qualifying shares.

II. Executive and Director Compensation Disclosure

    As discussed above, executive and director compensation disclosure 
has been required since 1933, and the Commission has had disclosure 
rules in this area since 1938. In 1992, the Commission proposed and 
adopted substantially revised rules that embody our current 
requirements.\49\ 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. We believe that while the 
reasoning behind this approach remains fundamentally sound, significant 
changes are appropriate. Much of the concern with the current tables is 
also their strength: they are highly formatted and rigid.\50\ Thus, 
information not specifically called for in the tables is sometimes not 
provided. For example, the highly formatted and specific approach has 
led some to suggest that items that do not fit squarely within a 
``box'' specified by the rules need not be disclosed.\51\ As another 
example, because the tables do not call for a single figure for total 
compensation, that information is generally not provided, although 
there is 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 current approach and build on them, we 
propose several steps:
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    \49\ 1992 Release.
    \50\ 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).
    \51\ 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 (October 
20, 2004) (indicating that the explicit language of the current 
rules requires disclosure of such items), available at www.sec.gov/news/speech/spch102004alb.htm.
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    <bullet> First, retaining the tabular approach to provide clarity 
and comparability while improving the tabular disclosure requirements;
    <bullet> Second, confirming that all elements of compensation must 
be included in the tables;
    <bullet> Third, providing a format for the Summary Compensation 
Table that requires disclosure of a single figure for total 
compensation; and
    <bullet> Finally, 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.\52\
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    \52\ The discussion that follows focuses on changes to Item 402 
of Regulation S-K, with Section II.C.1 explaining the different 
modifications proposed for Item 402 of Regulation S-B. References 
throughout the following discussion are to current or proposed Items 
of Regulation S-K, unless otherwise indicated.
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A. Compensation Discussion and Analysis

    We propose requiring a new Compensation Discussion and Analysis 
section.\53\ This section would be an overview that would provide 
narrative disclosure that puts into context the compensation disclosure 
provided elsewhere.\54\ This overview would explain material elements 
of the particular company's compensation for named executive officers 
by answering the following questions:
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    \53\ Proposed Item 402(b). In addition to the narrative 
Compensation Discussion and Analysis, we are proposing revisions to 
the rules so that, to the extent material, additional narrative 
disclosure would be provided following certain tables to supplement 
the disclosure in the table. See, e.g., Section II.B.3., discussing 
the narrative disclosure to the Summary Compensation Table and 
supplemental tables. We are also proposing disclosure of 
compensation committee procedures and processes as well as 
information regarding compensation committee interlocks and insider 
participation in compensation decisions as part of proposed Item 407 
of Regulation S-K. See Section V.D., below.
    \54\ 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. (forthcoming Spring 2006) (arguing that the 
SEC 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). Also available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=686464.
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    <bullet> What are the objectives of the company's compensation 
programs?
    <bullet> What is the compensation program designed to reward and 
not 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 does each element and the company's decisions 
regarding that element fit into the company's overall compensation 
objectives and affect decisions regarding other elements?
1. Intent and Operation of the Proposed Compensation Discussion and 
Analysis
    The purpose of the Compensation Discussion and Analysis disclosure 
would be 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.
    The proposed Compensation Discussion and Analysis requirement would 
be principles-based, in that it identifies the disclosure concept and 
provides several illustrative examples. The application of a particular 
example must be tailored to the company. However, the scope of the

[[Page 6546]]

Compensation Discussion and Analysis is intended to be comprehensive, 
so that it would call for discussion of post-termination as well as in-
service compensation arrangements.\55\ Boilerplate disclosure would not 
comply with the proposed item. Examples of the issues that would 
potentially be appropriate for the company to address in given cases in 
the Compensation Discussion and Analysis include the following:
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    \55\ Forward looking information in the Compensation Discussion 
and Analysis would fall with the safe harbor for disclosure of such 
information. See 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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    <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> For equity-based compensation, how the determination is 
made as to when the award is granted;
    <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 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 (e.g., gains from prior option or stock awards) 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 (specifying applicable amounts and forms of 
ownership), 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.
    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 could be 
grouped together. Where, however, the policy for an executive officer 
is materially different, for example in the case of a principal 
executive officer, his or her compensation would be discussed 
separately.
2. Proposed Instructions to Compensation Discussion and Analysis
    We are proposing 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. We also propose to include an instruction to 
make clear, as is currently the case, that 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 factors or criteria 
involving confidential commercial or business information, the 
disclosure of which would have an adverse effect on the company, 
similar to the instruction with respect to the Compensation Committee 
Report today. In applying this instruction, we intend the standard for 
companies to use when determining whether disclosure would have an 
adverse effect on the company to be the same one that would apply when 
companies request confidential treatment of confidential trade secrets 
and commercial or financial information that otherwise is required to 
be disclosed in registration statements, periodic reports and other 
documents filed with us.\56\ Similarly, to the extent a performance 
target has otherwise been disclosed publicly, disclosure under Item 402 
would be required.
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    \56\ See Securities Act Rule 406 [17 CFR 230.406] and Exchange 
Act Rule 24b-2 [17 CFR 240.24b-2] (incorporating the criteria for 
non-disclosure set forth in Exemption 4 of the Freedom of 
Information Act [5 U.S.C. 552(b)(4)] and Exchange Act Rule 80(b)(4) 
[17 CFR 200.80(b)(4)]). Today's proposed rules, like the current 
rules, would not require a company to seek confidential treatment 
under the procedures in Securities Act Rule 406 and Exchange Act 
Rule 24b-2.
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3. ``Filed'' Status of Compensation Discussion and Analysis
    The Compensation Discussion and Analysis will be considered a part 
of the proxy statement and any other filing in which it is included. 
Unlike the current Compensation Committee Report and Performance Graph, 
which would be eliminated under our proposals, as discussed below, the 
proposed Compensation Discussion and Analysis would be soliciting 
material and would be filed with the Commission. Therefore, it would be 
subject to Regulations 14A or 14C and to the liabilities of Section 18 
of the Exchange Act.\57\ 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 
is included or incorporated by reference into a periodic report, the 
disclosure would be covered by the certifications that principal 
executives officers and principal financial officers are required to 
make under the Sarbanes-Oxley Act of 2002.\58\
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    \57\ 15 U.S.C. 78r.
    \58\ 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 note 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'').
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    In adopting the current rules in 1992, the Commission took into 
account comments that the Compensation Committee Report should be 
furnished rather than filed to allow for a more open and robust 
discussion in the reports.\59\ Little that we see in current 
Compensation Committee Reports suggests that this treatment has 
resulted in such discussions, or at least the more transparent 
disclosure that the comments suggested would result. Further, we 
believe that it is appropriate for companies to take responsibility for 
disclosure involving board matters as with other disclosure.
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    \59\ 1992 Release, at Section II.H.
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4. Proposed Elimination of the Performance Graph and the Compensation 
Committee Report
    In light of the Compensation Discussion and Analysis proposal, we 
propose to eliminate the Performance Graph and the Compensation 
Committee Report that currently are required by our rules.\60\ The 
graph and

[[Page 6547]]

the report were intended to be intertwined and their purpose was to 
show the relationship, if any, between compensation and corporate 
performance, as reflected by stock price. Unfortunately, the 
Compensation Committee Report today often results in boilerplate 
disclosure that is of little benefit to investors.\61\ Further, given 
the widespread availability of stock performance information about 
companies, industries and indexes through business-related Web sites or 
similar sources, we believe that the requirement for the Performance 
Graph is 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.
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    \60\ The Compensation Committee Report is currently required by 
Item 402(k) and the Performance Graph is currently required by Item 
402(l).
    \61\ See Martin D. Mobley, Compensation Committee Reports Post-
Sarbanes-Oxley: Unimproved Disclosure for Executive Compensation 
Policies and Practices, 2005 Colum. Bus. L. Rev. 111 (2005).
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Request for Comment
    <bullet> Does the proposed Compensation Discussion and Analysis 
provide companies with the same flexibility as MD&A to provide a clear 
picture to investors?
    <bullet> Are there any further changes that we can make to avoid 
boilerplate disclosure about executive compensation?
    <bullet> Is there any significant impact by not having the report 
over the names of the compensation committee of the board of directors? 
If so, please explain in detail.
    <bullet> Would any significant impact result from treating the 
Compensation Discussion and Analysis as filed and not furnished? A 
commenter that prefers furnishing over filing should describe any 
benefits that would be obtained by treating the material as furnished. 
In particular, such a commenter should describe those benefits in the 
context of the expected benefits of the Commission's decision in 1992 
to treat the report of the Compensation Committee as furnished and 
should address whether and why those benefits were achieved or not 
achieved.
    <bullet> Are there any other specific items we should list in the 
rule as possibly material information? Are there any items that are 
listed that should not be?
    <bullet> Are there any items that we should explicitly mandate be 
disclosed by every issuer?
    <bullet> Should performance targets continue to be excludable based 
on the potential adverse competitive effect on the company of their 
disclosure? Why or why not? If so, what should be the standard for 
exclusion? Are there any other items that should be excludable based on 
potential adverse competitive effect on the company of their 
disclosure?
    <bullet> Should we retain the Performance Graph?

B. Compensation Tables

    We believe that much about the tabular approach to eliciting 
compensation disclosure is sound.\62\ We also believe, however, that 
the tables should be reorganized and streamlined to provide a clearer 
and more logical picture of total compensation and its elements for 
named executive officers. We propose reorganizing the compensation 
tables and their related narrative disclosure into three broad 
categories:
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    \62\ The tabular disclosure and related narrative disclosure 
under proposed Item 402 would apply, as does existing Item 402, to 
named executive officers. As discussed below in Section II.B.6.a., 
we are proposing certain changes to the definition of named 
executive officer.
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    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 two tables providing back-up information for certain 
data in the Summary Compensation Table; \63\
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    \63\ The two tables that would supplement the Summary 
Compensation Table would be the Grants of Performance-Based Awards 
Table, discussed below in Section II.B.2.a., and the Grants of All 
Other Equity Awards Table, discussed below in Section II.B.2.b. A 
proposed narrative disclosure requirement accompanying these three 
tables is discussed below in Section II.B.3.
---------------------------------------------------------------------------

    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 \64\ 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; \65\ and
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    \64\ Under the proposals, these interests would be disclosed as 
current compensation for those prior years.
    \65\ Information regarding holdings of such equity-based 
interests that relate to compensation would be disclosed in the 
Outstanding Equity Awards at Fiscal Year-End Table, discussed below 
in Section II.B.4.a. Information regarding realization on holdings 
of equity-related interests would be required to be disclosed in the 
Option Exercises and Stock Vested Table discussed below in Section 
II.B.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.\66\
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    \66\ The proposed disclosure regarding retirement and post-
employment compensation would be required in the Retirement Plan 
Potential Annual Payments and Benefits Table, discussed below in 
Section II.B.5.a., the Nonqualified Defined Contribution and Other 
Deferred Compensation Plans Table, discussed below in Section 
II.B.5.b., and the narrative disclosure requirement for other 
potential post-employment payments discussed below in Section 
II.B.5.c.
---------------------------------------------------------------------------

    Reorganizing the tables along these themes should help investors 
understand how compensation components relate to each other. At the 
same time we would retain the ability for investors to use the tables 
to compare compensation from year to year and from company to company.
    We note that in 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 risk of ``double counting'' some elements of compensation. 
However, we believe the risk inherent in such double disclosure is 
outweighed by the clearer and more complete picture it would provide to 
investors. We would 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.

1. Compensation to Named Executive Officers in the Last Three Completed 
Fiscal Years--The Summary Compensation Table and Related Disclosure

    Under today's proposals, the Summary Compensation Table would 
continue to serve as the principal disclosure vehicle regarding 
executive compensation. This table, with the proposed revisions, would 
show the named executive officers compensation for each of the last 
three years, whether or not actually paid out. Consistent with current 
requirements, the revised Summary Compensation Table would continue to 
require disclosure of compensation for each of the company's last three 
completed fiscal years.\67\
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    \67\ Current Instruction to Item 402(b), permitting exclusion of 
information for fiscal years prior to the last completed fiscal year 
if the registrant was not a reporting company pursuant to Exchange 
Act Sections 13(a) or 15(d) at any time during that year, unless the 
registrant previously was required to provide information for any 
such year in response to a Commission filing requirement, would be 
retained and redesignated as proposed Instruction 1 to Item 402(c).

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[[Page 6548]]

    However, the proposals would require disclosure of a figure 
representing total compensation, as reflected in other columns of the 
Summary Compensation Table, and would simplify the presentation from 
that in the current table. As described in greater detail below, the 
proposals also provide for two supplementary tables disclosing 
additional information about grants of performance-based awards and all 
other equity awards, respectively. Narrative disclosure would follow 
the three tables, providing disclosure of material information 
necessary to an understanding of the information disclosed in the 
tables.
---------------------------------------------------------------------------

    \68\ ``PEO'' refers to principal executive officer. See Section 
II.B.6.a. below for a description of the proposed named executive 
officers for whom compensation disclosure would be required.
    \69\ ``PFO'' refers to principal financial officer.

                                                               Summary Compensation Table
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                Non-stock
                                                                                                                                incentive     All other
           Name and principal position               Year     Total  ($)  Salary  ($)   Bonus  ($)     Stock        Option        plan      compensation
                                                                                                    awards  ($)  awards  ($)  compensation       ($)
                                                                                                                                   ($)
(a)                                                     (b)          (c)          (d)          (e)          (f)          (g)           (h)           (i)
-------------------------------------------------
PEO \68\........................................         --
                                                         --
                                                         --
PFO \69\........................................         --
                                                         --
                                                         --
A...............................................         --
                                                         --
                                                         --
B...............................................         --
                                                         --
                                                         --
C...............................................         --
                                                         --
                                                         --
--------------------------------------------------------------------------------------------------------------------------------------------------------

Request for Comment
    <bullet> Should the Summary Compensation Table continue as it 
currently does to require disclosure of compensation for each of the 
company's last three fiscal years, or is only the last completed fiscal 
year necessary in light of the availability of historical data on 
compensation through the Commission's EDGAR system and other sources?
    <bullet> Should we require all of the proposed disclosures 
discussed below in addition to those in the Summary Compensation Table, 
or does the Summary Compensation Table itself provide an adequate 
picture of compensation? Is there some other combination of the Summary 
Compensation Table with other proposed disclosures that would fulfill 
our objectives?
a. Total Compensation Column
    We propose to modify the Summary Compensation Table to provide a 
clearer picture of total compensation. We propose requiring that all 
compensation be disclosed in dollars and that a total of all 
compensation be provided.\70\ The new column disclosing total 
compensation would appear as the first column providing compensation 
information--column (c).\71\ This column would aggregate the total 
dollar value of each form of compensation quantified in the columns 
that would follow it (columns (d) through (i)). The proposed ``Total'' 
column would respond to concerns that investors, analysts and other 
users of Item 402 disclosure cannot compute aggregate amounts of 
compensation using current disclosure in a manner that is accurate or 
is comparable across years or companies.
---------------------------------------------------------------------------

    \70\ Proposed Instruction 2 to Item 402(c) (requiring all 
compensation values in the Summary Compensation Table to be reported 
in dollars). Currently, some stock-based compensation is disclosed 
in per share increments rather than in dollar amounts. The 
instruction would further require, 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.
    \71\ Columns (a) and (b) would, as is currently the case, 
specify the executive officer and the year in question.
---------------------------------------------------------------------------

Request for Comment
    <bullet> Should we include a requirement to disclose a total 
compensation amount?
    <bullet> Will a total compensation number provide investors with 
meaningful information about compensation? If not, why? Would 
disclosure of a total compensation number result in any unintended 
consequences? If so, how can they be mitigated?
    <bullet> Should total compensation be calculated in a different 
manner from that proposed? For example, with respect to stock-based and 
option-based awards, should exercise or vesting date valuations be used 
instead?
    <bullet> Is the proposed new instruction which would direct that 
all compensation values are to be reported in U.S. dollars necessary? 
Are there particular circumstances we should address regarding 
disclosure of compensation in foreign currencies?
b. Salary and Bonus Columns
    The next columns we are proposing are the salary and bonus columns 
(columns (d) and (e), respectively), which would be retained 
substantially in their current form. However, we propose certain 
changes that should give an investor a clearer picture of the total 
amount earned, the amount deferred for the year, and the total amount 
of deferred compensation that may be paid out at a later date.
    Compensation that is earned, but for which payment will be 
deferred, would be included in the salary, bonus or other

[[Page 6549]]

column, as appropriate.\72\ A new instruction, applicable to the entire 
Summary Compensation Table, would provide that if receipt of any amount 
of compensation is currently payable (which must be included in the 
appropriate column) but has been deferred for any reason, the amount so 
deferred must be disclosed in a footnote to the applicable column.\73\ 
As described below, the amount deferred would also generally be 
reflected as a contribution in the deferred compensation 
presentation.\74\ The new footnote disclosure of amounts deferred would 
help to clarify the extent to which amounts disclosed in the proposed 
Nonqualified Defined Contribution and Other Deferred Compensation Plans 
Table described below represent compensation already reported, rather 
than additional compensation.
---------------------------------------------------------------------------

    \72\ This is the case today for salary and bonus. This aspect of 
current Instruction 1 to Item 402(b)(2)(iii)(A) and (B) will be 
expanded and redesignated as Proposed Instruction 4 to Item 402(c).
    \73\ Currently, the requirement is triggered only if the officer 
elects the deferral. We propose to revise this to cover all 
deferrals no matter who has initiated them.
    \74\ See Section II.B.5.b., describing the Nonqualified Defined 
Contribution and Other Deferred Compensation Plans Table. Disclosure 
of these amounts as contributions would be required for nonqualified 
deferred compensation plans. This disclosure would 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.
---------------------------------------------------------------------------

    We are also proposing a change eliminating the delay that exists 
under current rules where salary and bonus for the most recent fiscal 
year are determined following compliance with Item 402 disclosure. 
Under our proposal, where salary and bonus cannot be calculated as of 
the most recent practicable date, a current report under Item 5.02 of 
Form 8-K would be triggered by a payment, decision or other occurrence 
as a result of which such amounts become calculable in whole or 
part.\75\ The Form 8-K would include disclosure of the salary or bonus 
amount and a new total compensation figure including that salary or 
bonus amount.
---------------------------------------------------------------------------

    \75\ Proposed Instruction 3 to Item 5.02(e) of Form 8-K and 
proposed Instruction 1 to Item 402(c)(2)(iv) and (v). Currently, in 
the event that such amounts are not determinable at the most recent 
practicable date, they are 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 proposing the use of a current report on Form 8-K. 
Proposed Instruction 1 to Item 402(c)(2)(iv) and (v) would require 
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.
---------------------------------------------------------------------------

Request for Comment
    <bullet> Is the proposed presentation of deferred compensation in 
the Summary Compensation Table and related footnotes, along with the 
proposals outlined below, the best means for communicating the portion 
of compensation that is deferred?
    <bullet> Are there ways that we could better clarify how the 
amounts that would be identified as deferred in a footnote to the 
Summary Compensation Table relate to the amounts that would be required 
in the Nonqualified Defined Contribution and Other Deferred 
Compensation Plans Table?
    <bullet> Is the proposed change to Form 8-K to eliminate the delay 
in disclosing salary or bonus when they cannot be calculated as of the 
most recent practicable date appropriate?
c. Plan-Based Awards
    The next three proposed columns--Stock Awards, Option Awards and 
Non-Stock Incentive Plan Compensation -- cover plan-based awards.
i. Stock Awards and Option Awards Columns
    The Stock Awards Column (proposed column (f)) would disclose stock-
related awards that derive their value from the company's equity 
securities or permit settlement by issuance of the company's equity 
securities, 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.\76\ 
Valuation would be based on the grant date fair value of the award 
determined pursuant to Financial Accounting Standards Board Statement 
of Financial Accounting Standards No. 123 (revised 2004), Share-Based 
Payment (FAS 123R) for financial reporting purposes. Stock awards 
subject to performance-based conditions would also be included in this 
column to ensure consistent reporting of stock awards and to ensure 
their inclusion in the proposed Summary Compensation Table.\77\
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    \76\ 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 an 
``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 would 
be required to be included in the Option Awards column. Currently, 
restricted stock awards are 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.
    \77\ These performance-based stock awards can currently be 
reported at the company's election as incentive plan awards. See 
current Instruction 1 to Item 402(b)(2)(iv). Our proposal would 
eliminate this option. See the discussion of what are considered 
performance-based conditions in note 87, below.
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    Awards of options, stock appreciation right grants, and similar 
stock-based compensation instruments that have option-like features 
(proposed column (g)) would be disclosed in a manner similar to the 
proposed treatment of stock and other stock-based awards.\78\ Instead 
of the current disclosure of the number of securities underlying the 
awards, this column would require disclosure of the grant date fair 
value of the award as determined pursuant to FAS 123R for financial 
reporting purposes. 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 would 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. We propose to eliminate the current 
requirement in the Options/SAR Grants in Last Fiscal Year Table 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),\79\ because these alternative 
disclosures would no longer be necessary if the grant date fair value 
of equity-based awards is included in the Summary Compensation Table.
---------------------------------------------------------------------------

    \78\ 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 case or in shares.
    \79\ Current Item 402(c)(2)(vi).
---------------------------------------------------------------------------

    A new instruction would require a footnote referencing the 
discussion of the relevant assumptions in the notes to the company's 
financial statements or to the discussion of relevant assumptions in 
the MD&A.\80\ The same proposed instruction would also provide 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

[[Page 6550]]

shareholders that must precede or accompany the company's proxy 
statement.\81\ 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.\82\
---------------------------------------------------------------------------

    \80\ Proposed Instruction 1 to Item 402(c)(2)(vi) and (vii).
    \81\ See Exchange Act Rule 14a-3 [17 CFR 240.14a-3].
    \82\ We recently 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].
---------------------------------------------------------------------------

    Under FAS 123R, the compensation cost is initially measured based 
on the grant date fair value of an award.\83\ The key measurement 
principle behind the accounting standard, measuring stock-based 
payments at grant date fair value, is also followed in our proposals. 
Under FAS 123R, the compensation cost calculated as the fair value is 
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). Under our proposals, the 
compensation cost calculated as the grant date fair value will be shown 
as compensation in the year in which the grant is made. We believe that 
this approach is more consistent with the purpose of executive 
compensation disclosure. We are in effect proposing an approach that 
subscribes to the measurement method of FAS 123R based on grant date 
fair value, but that also provides for immediate disclosure of 
compensation as preferable for compensation reporting purposes to the 
timing of recognition of the compensation cost for the company's 
financial statement reporting purposes.
---------------------------------------------------------------------------

    \83\ 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 allow an employee to bear 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 unless 
the award has been modified, as described later in this proposal.
---------------------------------------------------------------------------

    To consolidate related elements of compensation, the Stock Awards 
and Option Awards columns would also require disclosure of the earnings 
on outstanding awards in the respective categories.\84\ New 
instructions would require footnote identification and quantification 
of all earnings, whether the earnings were paid during the fiscal year, 
payable during the period but deferred, or payable by their terms at a 
later date but earned during the year.\85\ Previously awarded options 
or freestanding stock appreciation awards that the company repriced or 
otherwise materially modified during the last fiscal year would be 
disclosed based on the total fair value of the award as so 
modified.\86\
---------------------------------------------------------------------------

    \84\ These earnings are currently reportable in the Other Annual 
Compensation or All Other Compensation columns of the Summary 
Compensation Table. Current Item 402(b)(2)(iii)(C)(2) requires 
disclosure of earnings on restricted stock, options, and SARs paid 
during the fiscal year (or payable during that period but deferred 
at the election of the named executive officer), to the extent those 
earnings are above-market or preferential. The proposal would 
require disclosure of all such earnings, rather than merely any 
above-market or preferential portion. Current item 
402(b)(2)(iii)(C)(3) requires similar disclosure of all earnings on 
long-term incentive plan compensation. See also current Item 
402(b)(2)(v)(B) and (C).
    \85\ Proposed Instruction 3 to Item 402(c)(2)(vi) and (vii) and 
Proposed Instruction 2 to Item 402(c)(2)(viii).
    \86\ See current instruction 3 to Item 402(b)(2)(iv) and 
proposed Instruction 2 to Item 402(c)(2)(vi) and (vii). Under FAS 
123R, unlike under our proposal, only the incremental compensation 
cost is recognized for a modified award.
---------------------------------------------------------------------------

    If the award has no performance conditions, but instead vests with 
the passage of time and continued employment, then the number of shares 
underlying the award and other details regarding the award would be 
disclosed in a separate table covering grants of equity awards 
supplementing the Summary Compensation Table.\87\ If the award has a 
performance condition, then the details on the estimated future payouts 
will be disclosed in a second separate supplemental table covering 
grants of performance-based awards.\88\
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    \87\ See Section II.B.2.b., discussing the Grants of All Other 
Equity Awards Table required by proposed Item 402(c). 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 puropses 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).''
    \88\ See Section II.B.2.a., discussing the Grants of 
Performance-Based Awards Table.
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Request for Comment
    <bullet> Is the proposed presentation of stock awards that do not 
have option-like features in the Summary Compensation Table the best 
means for presenting restricted stock and similar awards?
    <bullet> Is FAS 123R the appropriate approach for valuing equity-
based awards, including restricted stock, restricted stock units, 
phantom stock, phantom stock units, common stock equivalent units, 
options, stock appreciation rights and other similar awards for 
purposes of Item 402 disclosure? If not, why not and what other 
valuation methods would be appropriate? Would any other valuation 
method provide the same comparability? If a different approach were 
used, would investors be confused by differences between the grant date 
fair value for financial reporting purposes and the value in the 
compensation tables? \89\
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    \89\ See, e.g., Jonathan Weil and Betsy McKay, Coke Developed a 
New Way to Value Options, But Company Will Return to its Classic 
Formula, Wall St. J., Mar. 7, 2003, at C3 (highlighting potential 
issue of using one valuation methodology for financial statements 
and another for executive compensation disclosure).
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    <bullet> Should the expected term assumption used in computing the 
grant date fair value for financial statement purposes under FAS 123R 
also be used in measuring the value of an individual named executive 
officer's compensation for the purposes of Item 402? Or, should an 
expected term assumption used to determine an individual named 
executive officer's compensation be used if it differs from the 
expected term assumption used for FAS 123R purposes? \90\ Should 
companies use the

[[Page 6551]]

full term rather than an expected term assumption for calculations for 
named executive officers? Would the complexity of such an approach for 
investors or the additional burden on companies outweigh any 
advantages, such as possible increased comparability among companies, 
of adjusting assumptions?
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    \90\ FAS 123R requires a company to aggregate individuals 
receiving awards into relatively homogeneous groups with respect to 
exercise and post-vesting employment termination behaviors for the 
purpose of determining expected term; for example executives and 
non-executives. Our proposals today are not intended to change the 
method used to value employee share options for purposes of FAS 123R 
or to affect the judgments as to reasonable groups for purposes of 
determining the expected term assumption required by GAS 123R. Under 
our proposals, 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 proposed Item 402(l)).
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    <bullet> Is the timing of reporting stock-based compensation in our 
proposals the best approach? Should stock-based compensation instead be 
reflected in Item 402 according to the same time schedule by which it 
is recognized for a company's financial statement reporting purposes?
    <bullet> Should the valuation method and all of the assumptions 
regarding the valuation also be disclosed in the proxy statement when 
they are required to be disclosed, described and analyzed elsewhere in 
a document furnished to shareholders, including in the notes to the 
financial statements?
    <bullet> We propose treating a modification of an award as a new 
award and requiring disclosure of the total grant date fair value at 
the time of modification. Would it be more appropriate to require only 
disclosure of incremental compensation as is the approach under FAS 
123R?
    <bullet> Should we eliminate as proposed the current instruction 
allowing performance-based stock awards to be reported at the company's 
election as incentive plan awards? If not, please explain whether the 
availability of this election is helpful to and not confusing to 
investors.
ii. Non-Stock Incentive Plan Compensation Column
    We propose that the Non-Stock Incentive Plan Compensation column 
(proposed column (h)) would report the dollar value of all other 
amounts earned during the fiscal year pursuant to incentive plans.\91\ 
This column would be limited to awards where the relevant performance 
measure under the incentive plan is not based on the price of the 
company's equity securities or the award may not be settled by issuance 
of a company's equity securities; those awards would instead be 
disclosed in the Stock Awards and Option Awards columns discussed 
above.\92\ Performance-based compensation under a long-term plan that 
is not tied to the performance of the company's stock (but instead is 
tied to other measures such as a return on assets, return on equity, 
performance of a division, or other such measures) would 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 not payment is actually made to the 
named executive officer in that year. The grant of an award (providing 
for future compensation if such performance measures are satisfied) 
under such a plan would be disclosed in the supplemental Grants of 
Performance-Based Awards Table in the year of grant, which would 
generally be some year prior to the year in which performance-based 
compensation under the plan is reported in the Summary Compensation 
Table.\93\ Because there is not one clearly required or accepted 
standard for measuring the value at grant date of these non-stock based 
performance-based awards that reflects the applicable performance 
contingencies, as there is for equity-based awards with FAS 123R, we do 
not propose to include such a value in the Summary Compensation Table, 
but instead would continue the current disclosure format of reflecting 
these items of compensation when earned.\94\
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    \91\ Proposed Item 402(c)(2)(viii). An incentive plan generally 
provides for compensation intended to serve as an incentive for 
performance to occur over a specific 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 
measure. See proposed Item 402(a)(6)(iii) for definitions of 
``incentive plan'' and ``non-stock incentive plan.''
    \92\ Awards disclosed in this column 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 would be disclosed in the Stock Awards or Option Awards 
columns, as appropriate.
    \93\ See Section II.B.2.a., discussing the Grants of 
Performance-Based Awards Table. Under the proposals, 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 Performance-Based Awards Table, no further 
disclosure would be required under proposed Item 402 when payment is 
actually made to the named executive officer.
    \94\ Current Items 402(b)(2)(iv)(C) and 402(e).
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    As with the Stock Awards and Option Awards columns, earnings on 
outstanding awards of other incentive plans would also be included in 
the Non-Stock Incentive Plan Compensation column.
Request for Comment
    <bullet> Since there is not one clearly required or accepted 
standard for measuring the value at grant date of those cash awards 
that reflect performance contingencies, is our approach to include the 
amounts in the Summary Compensation Table when earned appropriate? Are 
there particular models or standards that would provide a basis for 
measuring the value of these types of awards at grant date that we 
should consider incorporating into our rules?
    <bullet> Should earnings on outstanding awards be reported as 
proposed in the applicable award column or should they be reported in 
another way, such as in separate or different columns?
d. All Other Compensation Column
    The final column in the Summary Compensation Table would disclose 
all other compensation not required to be included in any other column. 
This approach would allow the capture of all current compensation in 
the Summary Compensation Table and also would allow a total 
compensation calculation. We confirm that disclosure of all 
compensation would clearly be required under the proposals.\95\
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    \95\ The only exception, as discussed below, would be 
perquisites and personal benefits if they aggregated less than 
$10,000 for a named executive. 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 current Item 
402(a)(2).
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    We propose to clarify the disclosure required in the All Other 
Compensation Column (proposed column (i)) in two principal respects:
    <bullet> Consistent with the requirement that the Summary 
Compensation Table disclose all compensation, we would 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 would move into this column all 
items currently reportable as ``Other Annual Compensation.'' \96\
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    \96\ Current Item 402(b)(2)(iii)(c).
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    We also propose 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 would be 
included in the column (other than aggregate perquisites and other

[[Page 6552]]

personal benefits less than $10,000 as discussed below), but would not 
be required to be identified by type and amount.\97\ Items that would 
be disclosed in the All Other Compensation column would include, but 
would not be limited to, the items discussed below.
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    \97\ See Section II.B.1.d.iii. regarding separate standards for 
identification of perquisites and other personal benefits.
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Request for Comment
    <bullet> Should all compensation no matter how de minimis be 
required to be disclosed? Will companies be able to track this 
information without undue burden? Is $10,000 the appropriate threshold 
for separate identification and quantification?
i. Earnings on Deferred Compensation
    We propose requiring disclosure in the All Other Compensation 
column of all earnings on compensation that is deferred on a basis that 
is not tax-qualified, including non-tax qualified defined contribution 
retirement plans.\98\ Currently, these earnings must be disclosed only 
to the extent of any portion that is ``above-market or preferential.'' 
\99\ This limitation has generated criticism that Item 402 permits 
companies to avoid disclosure of substantial compensation.\100\
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    \98\ Proposed Item 402(c)(2)(ix)(B).
    \99\ Current Items 402(b)(2)(iii)(C)(2) and 402(b)(2)(v)(B). An 
instruction specifies that interest is above-market only if the rate 
exceeds 120% of the applicable federal long-term rate. Furthermore, 
earnings disclosure is currently required in the Other Annual 
Compensation column or the All Other Compensation column, depending 
upon when paid or payable, complicating the preparation process and 
generating confusion among users of the Summary Compensation Table.
    \100\ See, e.g., Ellen E. Schultz, Buried Treasure: Well-Hidden 
Perk Means Big Money for Top Executives, Wall St. J., Oct. 11, 2002, 
at A1.
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    Separate footnote identification and quantification of all such 
earnings would be required if the amount exceeds $10,000.\101\ A 
company would be permitted to identify by footnote the portion of any 
earnings that it considered to be paid at an above-market rate, 
provided that the footnote explained the company's criteria for 
determining the portion considered ``above-market.'' \102\
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    \101\ Proposed Instruction 3 to Item 402(c)(2)(ix). Consistent 
with current requirements, if 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. Proposed Instruction 5 to Item 402(c)(2)(ix), which is derived 
from current Instruction 3 to Item 402(b)(2)(iii)(C).
    \102\ Proposed Instruction 5 to Item 402(c)(2)(ix).
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Request for Comment
    <bullet> Should we require, as proposed, disclosure of all earnings 
on compensation that is deferred on a basis that is not tax-qualified 
or should we require disclosure only of above-market or preferential 
earnings? If the latter, please explain why such an approach is more 
useful or informative for investors than our proposed approach.
ii. Increase in Pension Value
    We propose requiring in the All Other Compensation Column the 
aggregate of increase in actuarial value to the executive officer of 
defined benefit and actuarial plans (including supplemental plans) 
accrued during the year.\103\
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    \103\ Proposed Item 402(c)(2)(ix)(G).
---------------------------------------------------------------------------

    An instruction would specify 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 
employee retirement plans, but excluding defined contribution 
plans.\104\ The retirement section, discussed below, would provide more 
information regarding these covered plans.\105\ In contrast to defined 
contribution plans, for which the Summary Compensation Table requires 
disclosure of company contributions,\106\ Item 402 does not currently 
require disclosure of the annual increase in value of defined benefit 
plans, such as pension plans, in which the named executive officers 
participate.\107\ 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 believe it is appropriate to include these values 
in the computation of total compensation.
---------------------------------------------------------------------------

    \104\ Proposed Instruction 6 to Item 402(c)(2)(ix). 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.
    \105\ See Section II.B.5.a., discussing the proposed Retirement 
Plan Potential Annual Payments and Benefits Table.
    \106\ Current Item 402(b)(2)(v)(D), which requires annual 
registrant contributions or other allocations to vested and unvested 
defined contribution plans to be disclosed in the All Other 
Compensation column.
    \107\ 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 would 
also permit 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.
Request for Comment
    <bullet> Is disclosure of any additional information necessary to 
provide investors with meaningful information about the compensation 
earned annually through these plans?
    <bullet> Is there any particular form of defined benefit or 
actuarial plan for which the proposed disclosure format is not 
suitable? If so, how could the proposed disclosure requirement be 
adapted for such plans?
    <bullet> Should this disclosure instead be provided as a separate 
column in the Summary Compensation Table?
    <bullet> Is the aggregate increase in accrued actuarial value the 
best measure for disclosing annual compensation earned under defined 
benefit and actuarial plans? If not, why? What other method should be 
used?
    <bullet> Rather than requiring disclosure of the value based on the 
executive officer's benefit, should we require disclosure based on the 
company's cost for the plan? Under our proposals, disclosure of 
assumptions would be considered by companies in the narrative 
disclosure following the Summary Compensation Table and supplementary 
tables. Are there other preferable approaches? Should we otherwise 
require disclosure of any of the details of the calculation?
    <bullet> Is it possible to provide meaningful disclosure about 
total compensation absent tabular disclosure of the compensation earned 
annually through these plans? If so, how? Would such an approach be 
preferable?
iii. Perquisites and Other Personal Benefits
    Perquisites and other personal benefits would be included in the 
All Other Compensation column. We propose changes to disclosure of 
perquisites and other personal benefits to improve disclosure and 
facilitate computing a total amount of compensation. We propose to 
require the disclosure of perquisites and other personal benefits 
unless the aggregate

[[Page 6553]]

amount of such compensation is less than $10,000. We realize this may 
result in the total amount of compensation reportable in the Summary 
Compensation Table being slightly less than a complete total amount of 
compensation, but 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. The current 
provision permits omission of perquisites and other personal benefits 
if the aggregate amount of such compensation is the lesser of either 
$50,000 or 10% of the total of annual salary and bonus.\108\ We believe 
this current rule permits the omission of too much information that 
investors may consider material.
---------------------------------------------------------------------------

    \108\ Current Item 402(b)(2)(iii)(C)(1).
---------------------------------------------------------------------------

    We propose requiring footnote disclosure that identifies 
perquisites and other personal benefits. We propose modifying the 
current requirement that only perquisites and other personal benefits 
that are 25% of the total amount for each named executive officer are 
required to be identified and quantified. We propose modifying this 
requirement so that, unless the aggregate value of perquisites and 
personal benefits is less than $10,000, any perquisite or other 
personal benefit is identified and, if it is valued at the greater of 
$25,000 or ten percent of total perquisites and other personal 
benefits, its value would be disclosed.\109\ 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. As is the case today, tax ``gross-
ups'' or other reimbursement of taxes owed with respect to any 
compensation, including but not limited to perquisites and other 
personal benefits, would 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 
proposal. 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.\110\
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    \109\ Proposed Instruction 3 to Item 402(c)(2)(ix). Compare 
current Instruction 1 to Item 402(b)(2)(iii)(C).
    \110\ See In the Matter of Tyson Foods, Inc. and Donald Tyson, 
Litigation Release No. 34-51625 (Apr. 28, 2005) (failure to identify 
perquisites).
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    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. Further, 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.\111\
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    \111\ In the 1970s and early 1980s, the Commission issued 
several interpretive releases regarding executive compensation 
disclosure issues, including disclosure of perquisites and personal 
benefits. See Disclosure of Management Remuneration, Release No. 33-
5856 (Aug. 18, 1977) [42 FR 43058]; Disclosure of Management 
Remuneration, Release No. 33-5904 (Feb. 6, 1978) [43 FR 6060]; 
Disclosure of Management Remuneration, Release No. 33-6027 (Feb. 22, 
1979) [44 FR 16368]; Disclosure of Management Remuneration, Release 
No. 33-6166 (Dec. 12, 1979) [44 FR 74803]; and Interpretation of 
Rules Relating to Disclosure of Management Remuneration, Release No. 
33-6364 (Dec. 3, 1981) [46 FR 60421]. In Section I of the 1983 
Release, as part of a substantial revision to Item 402 adopted at 
the time, the Commission rescinded those interpretive releases. 
Subsequently, neither the Commission nor its staff has published 
interpretations addressing what must be disclosed as a perquisite or 
personal benefit.
---------------------------------------------------------------------------

    In today's proposals, perquisites and personal benefits are 
required to be disclosed for both named executive officers and 
directors. This discussion regarding perquisites and personal benefits 
therefore applies in the context of disclosure for both named executive 
officers and directors.\112\ The concepts of perquisites and personal 
benefits should not be interpreted artificially narrowly to avoid 
disclosure. Based on our long experience with disclosure in this area, 
we are providing interpretive guidance that among the factors to be 
considered in determining whether an item is a perquisite or other 
personal benefit are the following:
---------------------------------------------------------------------------

    \112\ For directors, the disclosure would be required in the 
Director Compensation Table discussed below in Section B.9.
---------------------------------------------------------------------------

    <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.
    The concept of a benefit that is ``integrally and directly 
related'' to job performance is a narrow one. As discussed below, it 
may extend, among other things, to office space at a company business 
location, a reserved parking space that is closer to business 
facilities but not otherwise preferential or additional clerical or 
secretarial services devoted to company matters. It does not extend to 
items that facilitate job performance, such as use of company-provided 
aircraft, yachts or other watercraft, commuter transportation services, 
additional clerical or secretarial services devoted to personal 
matters, or investment management services. 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 relates principally to questions of state law 
regarding use of corporate assets; our disclosure requirements are 
triggered by different and broader concepts.
    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.
    In addition, as 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. Therefore, for example, 
a company's decision to provide an item of personal benefit for 
security purposes

[[Page 6554]]

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.
    Examples of items that would not be perquisites or personal 
benefits would include, among other things, travel to and from business 
meetings, other business travel, business entertainment, security 
during business travel, and itemized expense accounts the use of which 
is limited to business purposes.
    In seeking to interpret current rules, some legal advisers have put 
forward to the Commission staff examples of arrangements that they 
believe raise issues requiring more detailed bright line guidance 
regarding the definition of perquisites. These examples include larger 
offices or a level of secretarial service not available to employees 
generally. We believe that the factors enumerated above provide 
sufficient guidance in these areas. For example, an office at the job 
location, even if larger than that of other employees, is integrally 
and directly related to performance of the executive's job, as is 
secretarial service used for business purposes, even if at a higher 
level than other employees. On the other hand, provision of additional 
secretarial services, such as a second secretary, that is not directly 
related to performance of an executive's job would be a perquisite or 
personal benefit.
    Beyond these examples, we assume 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 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.\113\
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    \113\ The Commission has recently taken action in circumstances 
where perquisites were not properly disclosed. See In the Matter of 
Tyson Foods, Inc. and Donald Tyson, note 110 above. See also Alex 
Berenson, From Coffee to Jets, Perks for Executives Come Out in 
Court, N.Y. Times, Feb. 22, 2004, at 11 (citing criminal and civil 
litigation in which perquisites were identified and commentators 
discussing the benefits of improved perquisite disclosure).
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    Finally, we observe that the proposal calls for aggregate 
incremental cost to the company and its subsidiaries as the proper 
measure of value of perquisites and other personal benefits.\114\ The 
amount attributed to such 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.\115\
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    \114\ Proposed Instruction 4 to Item 402(c)(2)(ix).
    \115\ 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.
---------------------------------------------------------------------------

Request for Comment
    <bullet> Is $10,000 the proper minimum below which disclosure of 
the total amount of perquisites and personal benefits should not be 
required? Should there be no minimum? Should the minimum be a higher 
amount, such as $25,000 or $50,000? Should the current minimum of the 
lesser of $50,000 or 10% of total salary and bonus be retained? Would 
some other ratio be more appropriate?
    <bullet> Should all perquisites be required to be separately 
identified when the $10,000 aggregate threshold is exceeded, as 
proposed?
    <bullet> Is the greater of $25,000 or 10% of the total amount of 
perquisites and personal benefits the proper minimum below which 
perquisites and personal benefits should not be required to be 
separately identified and their value reported? Should there be a lower 
minimum, such as $10,000, or no minimum? Should the current minimum of 
25% of the total amount be retained?
    <bullet> Should perquisites and personal benefits below the 
proposed threshold be separately identified by category, even if not 
separately quantified? Alternatively, is separate identification and 
quantification of all perquisites and personal benefits so significant 
to investors that no threshold should apply for either purpose?
    <bullet> We propose to retain the current standard for valuing 
perquisites and other personal benefits, based on the aggregate 
incremental cost to the company and its subsidiaries which has applied 
since 1983.\116\ We believe that this approach is consistent with the 
approach we are taking otherwise in valuing compensation, including in 
respect of share-based compensation. Nevertheless, we realize that 
there may be an issue whether the retail value of what is received by 
the executive officer or director, rather than the aggregate 
incremental cost to the company, better measures the compensation 
provided by perquisites and other personal benefits. Therefore we 
request comment as to whether we should require perquisites and other 
personal benefits to be valued based on the retail price of the item 
or, if none, the retail price of a commercially available equivalent. 
In determining the commercially available equivalents, for example, for 
travel on the company's aircraft, the retail price of a commercially 
available equivalent would be the retail price to charter the same 
model aircraft. First-class airfare would not be considered equivalent 
to travel on a private aircraft.
---------------------------------------------------------------------------

    \116\ See the 1983 Release, at Section III.C.
---------------------------------------------------------------------------

    <bullet> Would the proposed valuation standard facilitate Item 402 
compliance while providing meaningful compensation disclosure? Is there 
any other valuation methodology that is preferable for valuing 
perquisites and other personal benefits? If so, why?
    <bullet> Under the proposals a ``gross-up'' or other reimbursement 
of taxes owed with respect to perquisites and other personal benefits 
would be required to be included in the table and separately quantified 
and identified in the tax reimbursement category if it meets the 
relevant threshold, even if the associated perquisites or other 
personal benefits would not be required to be included in the table or 
separately quantified. Is separate identification of items such as tax 
gross-ups material to investors even if it is clear the amount must be 
included in the All Other Compensation column?
    <bullet> Should Item 402 include a definition of perquisites or 
other personal benefits? If so, how should perquisites or other 
personal benefits be defined? How can we assure that new perquisites 
will not be developed in a manner intended to avoid the definition and 
therefore disclosure? If such a definition is principles-based, what 
principles in addition to those described in this release should be 
considered?
    <bullet> We are providing interpretive guidance above regarding 
perquisites and personal benefits. Are there any areas regarding 
perquisites and personal benefits where we should consider providing 
additional or different interpretive guidance? Should any of our 
interpretive guidance be codified?

[[Page 6555]]

iv. Additional All Other Compensation Column Items
    The proposals also would specify that items disclosed in the All 
Other Compensation column would include, but not be limited to, the 
following items: \117\
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    \117\ These items are all currently required to be disclosed 
either under All Other Compensation or under Other Annual 
Compensation.
---------------------------------------------------------------------------

    <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; \118\
---------------------------------------------------------------------------

    \118\ Unlike the current Item 402(b)(2)(v)(A) requirement, 
proposed Item 402(c)(2)(ix)(E) does not refer to amounts payable 
under post-employment benefits, because the focus for this item is 
current year compensation rather than aggregate amounts potentially 
payable in the future. These items are also the subject of 
disclosure as post-termination compensation, as described in Section 
II.B.5., 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 
periods, 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 would be required 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; \119\
---------------------------------------------------------------------------

    \119\ Proposed Item 402(c)(2)(ix)(F).
---------------------------------------------------------------------------

    <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; \120\
---------------------------------------------------------------------------

    \120\ Proposed Item 402(c)(2)(ix)(H). Because the proposal calls 
for disclosure of the dollar value of any life insurance premiums, 
rather than only premiums with respect to term life insurance, as 
currently required, the requirement of current Items 
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 would 
be deleted.
---------------------------------------------------------------------------

    <bullet> ``Gross-ups'' or other amounts reimbursed during the 
fiscal year for the payment of taxes; \121\ and
---------------------------------------------------------------------------

    \121\ Proposed Item 402(c)(2)(ix)(C).
---------------------------------------------------------------------------

    <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 that discount is available generally 
either to all security holders or to all salaried employees of the 
company, the compensation cost computed in accordance with FAS 
123R.\122\
---------------------------------------------------------------------------

    \122\ Proposed Item 402(c)(2)(ix)(D).
---------------------------------------------------------------------------

Request for Comment
    <bullet> Are there other items that should be specifically 
enumerated for inclusion in the All Other Compensation Column? If so, 
what are they and how should they be valued and reported?
    <bullet> Will the combination of the current Other Annual 
Compensation Column and the All Other Compensation Column result in too 
many compensation items being aggregated and separately identified 
within one column of the table? Is there another reason to continue to 
show the two groups of items separately?
    <bullet> Should we retain the treatment of securities purchased at 
a discount in current Item 402(b)(2)(iii)(C)(5), which requires 
inclusion in the Other Annual Compensation column of the dollar value 
of the difference between the price paid by a named executive officer 
for any security of the company or its subsidiaries purchased from the 
company or its subsidiaries (through deferral of salary or bonus, or 
otherwise), and the fair market value of such a security at the date of 
purchase? If so, why?
    <bullet> Because so many different types of compensation would be 
reportable in the ``All Other Compensation'' column, would this 
disclosure be clearer if it were presented as a supplemental table in 
the following or similar format:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Registrant
                               Perquisites   Earnings on                   Discounted   Payments/   contributions  Increase in
             Name               and other     deferred          Tax        securities  accruals on    to defined     pension     Insurance      Other
                                 personal   compensation  reimbursements   purchases   termination   contribution   actuarial     premiums
                                 benefits                                                 plans         plans         value
(a)                                    (b)           (c)            (d)           (e)          (f)           (g)           (h)          (i)          (j)
------------------------------
PEO..........................
PFO..........................
A............................
B............................
C............................
--------------------------------------------------------------------------------------------------------------------------------------------------------

e. Captions and Table Layout
    Currently a portion of the table is labeled as ``annual 
compensation'' and another portion as ``long term compensation.'' These 
captions create distinctions that may be confusing to both users and 
preparers of the Summary Compensation Table. Today's proposal would not 
separately identify some columns as ``annual'' and other columns as 
``long term'' compensation. In eliminating this distinction, we also 
propose to revise the 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, because, like the captions, 
the current approach creates distinctions that may be confusing to 
users and preparers. The proposals would thus define an ``incentive 
plan'' as any plan providing compensation intended to serve as 
incentive for performance to occur over a specified period.\123\ 
Consistent with this change, as described above, we propose to merge 
the current Other Annual Compensation column into the proposed All 
Other Compensation column, and include current information regarding 
incentive plan compensation in the appropriate column for the relevant 
form of award.
---------------------------------------------------------------------------

    \123\ Proposed Item 402(a)(6)(iii).
---------------------------------------------------------------------------

Request for Comment
    <bullet> Will these changes improve the table? Are there any other 
changes to the captions and table layout that would improve the table?
2. Supplemental Annual Compensation Tables
    Following the Summary Compensation Table, we propose requiring two 
supplemental tables. These two tables are intended to help explain 
information in the Summary Compensation Table and would be derived from 
two tables currently required.

[[Page 6556]]

a. Grants of Performance-Based Awards Table
    The first table that would supplement the Summary Compensation 
Table would include 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).\124\ This would ensure 
consistent reporting treatment of these performance-based awards, 
disclosing information equivalent to that currently required for grants 
of other long-term incentive plan awards. For purposes of this table, 
awards would be considered performance-based if they are subject to 
either a performance condition, or a market condition, as those terms 
are defined in FAS 123R.\125\
---------------------------------------------------------------------------

    \124\ This table would contain the information in the current 
Long-Term Incentive Plan Awards Table, augmented with information 
regarding performance-based stock, option and similar awards. See 
current Item 402(e). This table would also include awards with 
performance, market and other conditions affecting the terms of the 
award (exercise price, for example) rather than vesting.
    \125\ See note 87.
---------------------------------------------------------------------------

    Disclosure in this table of grants of incentive plan awards would 
complement Summary Compensation Table disclosure of grant date fair 
value of stock awards and option awards, and the disclosure of annual 
amounts earned under non-stock based incentive compensation. This 
supplemental table would show the terms of grants made during the 
current year, including estimated future payouts, with separate 
disclosure for each grant.\126\
---------------------------------------------------------------------------

    \126\ Proposed Instruction 1 to Item 402(d).

                                                                               Grants of Performance-Based Awards
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Performance-                                                                             Estimated future payouts
                                                               based stock                 Non-stock                               Performance --------------------------------------
                                                               and stock-   Performance-   incentive                                 or other
                                                                  based         based         plan     Dollar amount                  period
                                                                incentive     options:      awards:          of        Grant date     until
                            Name                                 plans:       number of    number of   consideration   for stock    vesting or   Threshold   Target  ($)    Maximum
                                                                number of    securities     units or      paid for     or option    payout and     ($) or    or (<greek-     ($) or
                                                                 shares,     underlying      other     award, if any     awards       option    (<greek-i>)      i>)      (<greek-i>)
                                                                units or       options       rights          ($)                    expiration
                                                              other rights   (<greek-i>)  (<greek-i>)                                  date
                                                               (<greek-i>)
(a)                                                                    (b)           (c)          (d)           (e)           (f)          (g)          (h)          (i)          (j)
-------------------------------------------------------------
PEO.........................................................
PFO.........................................................
A...........................................................
B...........................................................
C...........................................................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Request for Comment
    <bullet> Will the proposed Grants of Performance-Based Awards Table 
effectively supplement the equity awards and non-stock incentive plan 
compensation information to be disclosed in the Summary Compensation 
Table? In particular, should tabular disclosure be required of any 
additional information relating to performance-based equity awards and 
non-stock incentive plan awards?
    <bullet> Is the information required by columns (b), (c) and (d) of 
this proposed table redundant with the information required in the 
Grants of Performance-Based Awards Table describing estimated future 
payouts to be required in columns (h), (i) and (j) of the Table, such 
that any of these columns should be eliminated? Is any other tabular 
information needed to describe estimated future payouts in addition to 
the information that would be required in proposed columns (h), (i) and 
(j)?
    <bullet> Are the references to the definitions of ``performance 
condition'' and ``market condition'' in FAS 123R appropriate in 
defining performance-based awards?
b. Grants of All Other Equity Awards Table
    The second table supplementing the Summary Compensation Table would 
show 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.\127\
---------------------------------------------------------------------------

    \127\ Proposed Item 402(e). Proposed Instruction 2 to Item 
402(e) would require that if more than one award is made to a named 
executive officer during the last completed fiscal year, a separate 
line should be used to disclose each award.

                                        Grants of All Other Equity Awards
----------------------------------------------------------------------------------------------------------------
                                     Number of                              Number of
                                     securities                             shares of
                                     underlying  Exercise or   Expiration    stock or     Vesting
               Name                   options     base price      date        units         date      Grant date
                                      granted       ($/Sh)                   granted
                                    (<greek-i>)                            (<greek-i>)
(a)                                         (b)          (c)          (d)          (e)          (f)          (g)
-----------------------------------
PEO...............................
PFO...............................
A.................................
B.................................
C.................................
----------------------------------------------------------------------------------------------------------------


[[Page 6557]]

    Instructions would require options and stock appreciation rights 
granted in connection with a repricing transaction to be included in 
the table, and footnote descriptions of any material terms of a 
grant.\128\ Because the Summary Compensation Table would disclose grant 
date fair value of the options, stock appreciation rights or similar 
instruments, the columns in the current Option/SAR Grants in Last 
Fiscal Year table requiring disclosure of that value or, alternatively, 
potential realizable value at assumed five percent and ten percent 
annual rates of return, would be eliminated.\129\ This table would also 
supplement the Summary Compensation Table disclosure of the aggregate 
grant date fair value of stock, units and similar instruments with 
disclosure relating to the number of underlying securities and other 
material terms of the grants.
---------------------------------------------------------------------------

    \128\ Proposed Instructions 3 and 4 to Item 402(e).
    \129\ See current Item 402(c)(2)(vi). We also propose removing 
the column, required by current Item 402(c)(2)(iii), requiring 
disclosure of the percent that the grant represents of total options 
and stock appreciation rights granted to all employees during the 
fiscal year. At this time, we do not believe that this relatively 
narrow disclosure is independently material to an understanding of a 
named executive officer's compensation.
---------------------------------------------------------------------------

Request for Comment
    <bullet> Will the Grants of All Other Equity Awards Table, as 
proposed, effectively supplement the option and stock grants 
information to be disclosed in the Summary Compensation Table? In 
particular, should tabular disclosure be required of any additional 
information relating to these grants?
    <bullet> Is this table or any aspect of it too repetitive?
    <bullet> Will it be clear to investors how the two supplemental 
tables relate to the Summary Compensation Table? If not, how could we 
make that more clear?
    <bullet> Are all plan-based awards covered by the two supplemental 
tables? What additional provisions would we need to add to cover all 
such awards?
    <bullet> Instead, would it be preferable to have two separate 
versions of the Summary Compensation Table, with one showing all awards 
made during the year and the other having exactly the same columns 
showing all the amounts earned by services during the year? Would this 
approach increase the risk of double counting? Would it be duplicative 
as to cash salary and bonus and other currently earned and paid amounts 
and benefits?
3. Narrative Disclosure to Summary Compensation Table and Supplemental 
Tables
    We propose requiring narrative disclosure in order to give context 
to the tabular disclosure following the Summary Compensation Table, the 
Grants of Performance-Based Awards Table and the Grants of All Other 
Equity Awards Table. A company would be required to provide a narrative 
description of any additional material factors necessary to an 
understanding of the information disclosed in the tables.\130\ Unlike 
the Compensation Discussion and Analysis, which would focus on broader 
topics regarding the objectives and implementation of executive 
compensation policies, this narrative disclosure would focus on and 
provide context to the quantitative disclosure in the tables. The 
material factors will vary depending on the facts, but may include, in 
given cases, among other things, descriptions of the material terms in 
the named executive officers' employment agreements, which may be a 
potential source of material information necessary to an understanding 
of the tabular disclosure. The proposed narrative disclosure would 
cover written or unwritten agreements or arrangements. Requiring this 
disclosure in proximity to the Summary Compensation Table is intended 
to make the tabular disclosure more meaningful.\131\ Mere filing of 
employment agreements (or summaries of oral agreements) may not be 
adequate to disclose material factors depending on the circumstances.
---------------------------------------------------------------------------

    \130\ Proposed Item 402(f)(1). Disclosure of employment 
agreement information is currently required by Item 402(h)(1). The 
standard of materiality that would apply in proposed Item 402(f)(1) 
is that of Basic v. Levinson, 485 U.S. 224 (1988) and TSC Industries 
v. Northway, 426 U.S. 438 (1976).
    \131\ Provisions regarding post-termination compensation would 
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 would be disclosable 
as post-termination compensation in the manner described in Section 
II.B.5., below.
---------------------------------------------------------------------------

    The factors that could be material include each repricing or other 
material modification of any outstanding option or other stock-based 
award during the last fiscal year. This disclosure would address not 
only option repricings, but also other significant changes to the terms 
of stock-based or other awards. We propose to eliminate the current 
ten-year option repricing table.\132\ In its place, the narrative 
disclosure following the Summary Compensation Table would 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 elimination of applicable 
performance criteria, change of the bases upon which returns are 
determined, or any other material modification. The tabular disclosure 
would reflect the award's total fair value after any such modification 
as a new award.\133\
---------------------------------------------------------------------------

    \132\ Current Item 402(i). We believe that the disclosure 
requirement would provide investors with material information 
regarding repricings and modifications and eliminate the arguably 
dated information contained in the ten-year option repricing table.
    \133\ While this approach is different from that required for 
accounting and financial statement reporting purposes under FAS 
123R, it does proceed from the grant date fair value concept 
embodied in that standard, and we believe it provides more 
meaningful information for executive compensation disclosure than 
the financial statement reporting approach and is consistent with 
our current requirement to treat repricings as a new award. This 
treatment would continue the current approach of essentially 
treating a repricing as a new award in Instruction 3 to Item 
402(b)(2)(iv). However, this approach 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 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. See Proposed Instruction 2 
to Item 402(f)(1).
---------------------------------------------------------------------------

    Narrative text accompanying the tables would also describe, to the 
extent material and necessary to an understanding of the tabular 
disclosure, award terms relating to data provided in the Grants of 
Performance-Based Awards Table, which 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. 
Consistent with current disclosure requirements, however, companies 
would 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 commercial or business information, 
disclosure of which would adversely affect the company's competitive 
position.\134\
---------------------------------------------------------------------------

    \134\ Proposed Item 402(f)(1)(iii), which combines some 
information required by current Instruction 2 to Item 402(b)(2)(iv) 
with information required by current Instruction 1 to Item 402(e). 
For a discussion of the standard companies should use when 
determining whether disclosure would have an adverse impact on the 
company's competitive position, see Section II.A.2., above.

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

[[Page 6558]]

    Another factor that may be necessary to an understanding of the 
information disclosed in the tables is any material waiver or 
modification of any specified performance target, goal or condition to 
payout under any reported incentive plan payout because each action can 
materially affect previously disclosed information about the plans. 
Companies would be required to disclose as part of this narrative 
discussion whether the waiver or modification applied to one or more 
specified named executive officers or applied to all compensation 
subject to the condition.\135\
---------------------------------------------------------------------------

    \135\ Proposed Item 402(f)(1)(iv).
---------------------------------------------------------------------------

    Material factors necessary to an understanding of the tabular 
disclosure could also include information regarding defined benefit and 
deferred compensation plans. For example, such information could 
include material assumptions underlying the determination of the amount 
of increase in actuarial value of defined benefit or actuarial plans or 
the provisions in a plan or otherwise for determining earnings on 
deferred compensation plans, including defined contribution plans, that 
are not tax-qualified.
    We also propose an additional item that would require 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.\136\ The item would require disclosure of the 
amount of each of such employee's total compensation for the most 
recent fiscal year and a description of his or her job position. The 
individuals would not need to be named. We are proposing this 
requirement so that shareholders will have information about the use of 
corporate assets to compensate extremely highly paid employees in a 
company. More detailed information about these employees and their 
compensation does not appear appropriate in light of the fact that they 
do not have a policy making function at the company.\137\
---------------------------------------------------------------------------

    \136\ Proposed Item 402(f)(2).
    \137\ See note 162 below for a discussion of the term 
``executive officer.''
---------------------------------------------------------------------------

Request for Comment
    <bullet> Will the proposed narrative disclosure to the Summary 
Compensation Table enhance an understanding of the table?
    <bullet> Are there any additional material factors that should be 
listed as possibly requiring disclosure in the narrative to the Summary 
Compensation Table?
    <bullet> Is the difference between the proposed required narrative 
disclosure and the Compensation Discussion and Analysis requirement 
sufficiently clear? How can it be made more clear?
    <bullet> Should we require an additional column in the Summary 
Compensation Table where companies must indicate by checkmark whether a 
particular named executive officer has an employment agreement, so that 
investors will know to look for disclosure about the agreement in the 
narrative accompanying the table or to look for the agreement as an 
exhibit to a filing with us?
    <bullet> Is the proposed treatment of repricings the most 
appropriate approach for executive compensation disclosure purposes? 
Should the treatment be consistent with the reporting approach of FAS 
123R? Would tabular presentation rather than discussion of material 
terms in the narrative be preferable? In addition to the disclosure 
proposed in the Summary Compensation Table and the related narrative, 
should we also require quantification of the fair value of the award 
both immediately before and immediately after the repricing or other 
modification?
    <bullet> Would the proposed disclosure of up to three employees who 
are not executive officers but earn more in total compensation than any 
of the named executive officers be appropriate in the narrative 
discussion? Should more disclosure be required regarding these 
employees and their compensation? Is this information material to 
investors? Will disclosure of this information, particularly in the 
case of smaller companies, cause competitive harm? Is disclosure of 
this information consistent with the overall goals of this proposal?
4. Exercises and Holdings of Previously Awarded Equity
    The next section of proposed executive compensation disclosure 
would provide investors with an understanding of the compensation in 
the form of equity that has previously been awarded and remains 
outstanding, that is unexercised or unvested. This section also would 
disclose 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 propose two 
tables. One table shows the amounts of prior awards outstanding and the 
other shows the exercise or vesting of equity awards during the fiscal 
year.\138\
---------------------------------------------------------------------------

    \138\ Some of this information is currently required in one 
table, the Aggregated Option/SAR Exercises in Last Fiscal Year and 
Fiscal Year-End Option/SAR Values Table required by current Item 
402(d).
---------------------------------------------------------------------------

a. Outstanding Equity Awards at Fiscal Year-End
    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 proposing a table that would disclose information regarding 
outstanding awards under, for example, stock option (or stock 
appreciation rights) plans, restricted stock plans, incentive plans and 
similar plans and disclose the market-based values of the options, 
rights, shares or units in question as of the company's most recent 
fiscal year end.\139\
---------------------------------------------------------------------------

    \139\ Proposed Item 402(g). Under current rules such disclosure 
is provided only for holdings of outstanding stock options and stock 
appreciation rights. Consistent with current interpretations, this 
table, like the Summary Compensation Table, would reflect 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. 
Registration of Securities on Form S-8, Release No. 33-7646 (Feb. 
25, 1999) [64 FR 11103], at Section III.D.

[[Page 6559]]



                                  Outstanding Equity Awards at Fiscal Year-End
----------------------------------------------------------------------------------------------------------------
                                                                                                      Incentive
                                                                                         Incentive      plans:
                                  Number of                    Number of      Market       plans:     market or
                                  securities    In-the-money   shares or     value of    number of      payout
                                  underlying     amount of      units of    shares or    nonvested     value of
             Name                unexercised    unexercised    stock held    units of     shares,     nonvested
                                   options      options ($)    that have    stock held    units or     shares,
                                 (<greek-i>)    exercisable/   not vested   that have      other       units or
                                 exercisable/  unexercisable  (<greek-i>)   not vested  rights held     other
                                unexercisable                                  ($)      (<greek-i>)  rights held
                                                                                                         ($)
(a)                                      (b)            (c)           (d)          (e)          (f)          (g)
-------------------------------
PEO...........................
PFO...........................
A.............................
B.............................
C.............................
----------------------------------------------------------------------------------------------------------------

    With respect to options, stock appreciation rights and similar 
instruments, an instruction, which would be the same as the current 
standard, would indicate that these instruments are ``in-the-money'' if 
the market price of the underlying securities exceeds the exercise or 
base price. The in-the-money amount of options, stock appreciation 
rights and similar instruments would be calculated by determining the 
difference, at fiscal year-end, between the market price of the 
underlying securities and the exercise or base price.\140\ The market 
value of stock (including restricted stock, restricted stock units or 
other similar instruments) and incentive plan award holdings would be 
calculated by multiplying the closing market price of the company's 
stock at the end of the last completed fiscal year by the respective 
numbers of stock or incentive plan award holdings that were not then 
vested.\141\
---------------------------------------------------------------------------

    \140\ Proposed Instruction 1 to Item 402(g)(2), which is based 
on current Instruction 1 to Item 402(d)(2).
    \141\ Proposed Instruction 3 to Item 402(g)(2). This standard is 
based on the current Summary Compensation Table footnote disclosure 
regarding restricted stock, expanded to cover restricted stock units 
and incentive plans. Current Instruction 2 to Item 402(b)(2)(iv).
---------------------------------------------------------------------------

    A new instruction would require footnote disclosure of the 
expiration dates of options, stock appreciation rights and similar 
instruments held at fiscal year-end, separately identifying those that 
are exercisable and unexercisable, and the vesting dates of shares of 
stock (including restricted stock, restricted stock units or other 
similar instruments) and incentive plan awards held at fiscal year-end. 
If the expiration date of an option had occurred after fiscal year-end 
but before the date on which the disclosure is made, the footnote would 
need to state whether the option had been exercised or had 
expired.\142\
---------------------------------------------------------------------------

    \142\ Proposed Instruction 2 to Item 402(g)(2).
---------------------------------------------------------------------------

Request for Comment
    <bullet> Will the proposed Outstanding Equity Awards at Fiscal 
Year-End Table provide material information for investors regarding the 
named executive officers' outstanding awards?
    <bullet> Should the table include the value of out-of-the-money 
options and stock appreciation rights? Why or why not? If such 
instruments were included, how would the value be calculated and 
presented?
    <bullet> Should we require, as proposed, that options or similar 
awards that have been transferred by an executive must still be 
included in the table? Should continued disclosure depend on the nature 
of the transfer or the identity of the transferee?
b. Option Exercises and Stock Vesting
    We are proposing a table that would 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 
would allow investors to have a picture of the amounts that a named 
executive officer realizes on equity compensation through its final 
stage.\143\
---------------------------------------------------------------------------

    \143\ This table is similar to a portion of the current 
Aggregate Options/SAR Exercises in Last Fiscal Year and FY-End 
Options/SAR Values Table, except unlike that table it would also 
include the vesting of restricted stock and similar instruments. 
Commentators have noted a need for comparable disclosure of 
restricted stock vesting. See, e.g., Phyllis Plitch, Restricted 
Stock Grants Cloud Executive Pay Tally, Wall St. J. Online Edition, 
Jan. 26, 2005. The number and value of unexercised options and stock 
appreciation rights, included in the current option exercises table, 
would be shown in the proposed Outstanding Equity Awards at Fiscal 
Year-End Table described immediately above. See current Item 402(d).

                    Option Exercises and Stock Vested
------------------------------------------------------------------------
                                                             Grant date
                                   Number of      Value      fair value
                                     shares      realized    previously
    Name of Executive Officer     acquired on      upon      reported in
                                  exercise or  exercise or     summary
                                    vesting    vesting ($)  compensation
                                  (<greek-i>)                 table ($)
(a)                                       (b)          (c)           (d)
---------------------------------
PEO--Options....................
Stock...........................
PFO--Options....................
Stock...........................

[[Page 6560]]

 
A--Options......................
Stock...........................
B--Options......................
Stock...........................
C--Options......................
Stock...........................
------------------------------------------------------------------------

    The grant date fair value of these instruments would have been 
disclosed in the Summary Compensation Table for the year in which they 
were awarded. Therefore, to eliminate the impact of double disclosure, 
this table would show that amount from applicable previous years from 
the Summary Compensation Table.
Request for Comment
    <bullet> In light of the proposed disclosure in the Summary 
Compensation Table of the grant date fair value of the awards, is 
separate reporting of the amounts realized upon exercise or vesting 
appropriate? Would it provide material information? Would separate 
reporting of the market value at exercise or vesting confuse users of 
financial statements and perhaps cause them to call into question the 
original grant date fair value estimate?
    <bullet> Would the proposed separate column for grant date fair 
value previously reported for the same award eliminate potential 
confusion about the amount of compensation provided by options, stock 
appreciation rights, stock and similar instruments? Are there other 
ways we could make this clear, such as an explanatory footnote to the 
table?
    <bullet> Will investors understand that the value of equity 
compensation had already been disclosed in the form of the grant-date 
fair value of equity-based awards? Are other sources of this 
information, such as reports filed by officers and directors pursuant 
to Section 16(a) of the Exchange Act,\144\ adequate to inform investors 
of the information contained in this table?
---------------------------------------------------------------------------

    \144\ 15 U.S.C. 78p(a).
---------------------------------------------------------------------------

    <bullet> Would it be preferable to combine proposed Outstanding 
Equity Awards at Fiscal Year-End Table and the proposed Option 
Exercises and Stock Vested Table into one table?
5. Post-Employment Compensation
    We are proposing significant revisions to the disclosure regarding 
post-employment compensation to provide a clearer picture of this 
potential future compensation. 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 proposing to replace the current 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. Second, we are proposing a table and 
narrative disclosure that will disclose information regarding non-
qualified defined contribution plans and other deferred compensation. 
Finally, we are proposing revised requirements regarding disclosure of 
compensation arrangements triggered upon termination and on changes in 
control.
a. Retirement Plan Potential Annual Payments and Benefits Table
    We are proposing 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.\145\ Current disclosure frequently does not provide 
investors useful information regarding specific potential pension 
benefits. Current disclosure may make it difficult for the reader to 
understand which amounts relate to any particular named executive 
officer, and may thus obscure the value of a significant component of 
compensation.
---------------------------------------------------------------------------

    \145\ Currently, for defined benefit or actuarial plans, 
disclosure consists 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. The table does 
not provide disclosure for any specific named executive officer. See 
current Item 402(f)(1). This requirement is for plans under which 
benefits are determined primarily by final compensation (or average 
final compensation) and years of service, and includes narrative 
disclosure. If named executive officers are subject to other plans 
under which benefits are not determined primarily by final 
compensation (or average final compensation), narrative disclosure 
is required of the benefit formula and estimated annual benefits 
payable to the officers upon retirement at normal retirement age. 
See current Item 402(f)(2).
---------------------------------------------------------------------------

    As a result, we propose a new table disclosing estimated annual 
retirement payments under defined benefit plans for each named 
executive officer, followed by narrative disclosure.\146\ A separate 
line of tabular disclosure would be required for each plan in which a 
named executive officer participates that provides for the payment of 
specified retirement benefits, or benefits that will be paid primarily 
following retirement.\147\
---------------------------------------------------------------------------

    \146\ Proposed Item 402(i).
    \147\ These would include, but not be limited to, tax-qualified 
defined benefit plans, supplemental employee retirement plans and 
cash balance plans, but would exclude defined contribution plans, 
for which we propose disclosure as described below.

[[Page 6561]]



                             Retirement Plan Potential Annual Payments and Benefits
----------------------------------------------------------------------------------------------------------------
                                                  Number of                 Estimated                 Estimated
                                                    years        Normal       normal       Early        early
               Name                  Plan name     credited    retirement   retirement   retirement   retirement
                                                   service    age (<greek-    annual    age (<greek-    annual
                                                 (<greek-i>)      i>)      benefit ($)      i>)      benefit ($)
(a)                                         (b)          (c)          (d)          (e)          (f)          (g)
-----------------------------------
PEO...............................
PFO...............................
A.................................
B.................................
C.................................
----------------------------------------------------------------------------------------------------------------

    An instruction would provide that quantification of benefits should 
reflect the form of benefit currently elected by the named executive 
officer, such as joint and survivor annuity or single life annuity, 
specifying that form in a footnote. Where the named executive officer 
is not yet eligible to retire, the dollar amount of annual benefits to 
which he or she would be entitled upon becoming eligible would be 
computed assuming that the named executive officer continued to earn 
the same amount of compensation as reported for the company's last 
fiscal year. If a named executive officer left during the year, the 
dollar amounts of annual benefits to which he or she would be entitled 
would be required to be disclosed.
    ``Normal retirement age'' would mean 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'' would be defined similarly as early 
retirement age as defined in the plan, or otherwise available to the 
executive.\148\ If the credited years of service for the executive 
under any plan differ from the actual years of service with the 
company, a footnote quantifying the difference and any resulting 
benefit increase would be required.\149\
---------------------------------------------------------------------------

    \148\ Proposed Instruction 3 to Item 402(i).
    \149\ Proposed Instruction 2 to Item 402(i).
---------------------------------------------------------------------------

    The table would be followed by a narrative description of material 
factors necessary to an understanding of each plan disclosed in the 
table. Examples of such factors in the proposed rule 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;
    <bullet> If the executive or company may elect a lump sum 
distribution, the amount of such distribution that would be available 
on election as of the end of the company's last fiscal year, disclosing 
the valuation method and material assumptions applied in quantifying 
such amount;
    <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 reasons for 
each plan; and
    <bullet> Company policies with regard to such matters as granting 
extra years of credited service.
Request for Comment
    <bullet> Should any other information (including information that 
may be disclosed in the narrative) be included in the proposed table? 
Should any of the information we propose to require to be disclosed be 
excluded?
    <bullet> Should this item require quantification of the aggregate 
actuarial value of a plan benefit as of the end of the company's last 
fiscal year without regard to whether the plan permits a lump sum 
distribution? If so, why? Alternatively, would this information provide 
meaningful disclosure only if the named executive officer currently is 
eligible to retire under the plan with a lump sum distribution?
    <bullet> Is there any particular form of plan for which the 
proposed disclosure format is not suitable? If so, how could the 
proposed disclosure requirement be adapted for such plans?
b. Nonqualified Defined Contribution and Other Deferred Compensation 
Plans Table
    In order to provide a more complete picture of potential post-
employment compensation, we are proposing a new table to disclose 
contributions, earnings and balances under nonqualified defined 
contribution and other deferred compensation plans. These plans may be 
a significant element of retirement and post-termination 
compensation.\150\ Our current rules elicit disclosure of the 
compensation when earned and only the above-market earnings on 
nonqualified deferred compensation.\151\ The full value of those 
earnings and the accounts on which they are payable are not currently 
subject to disclosure, nor are shareholders and investors informed 
regarding the rate at which these amounts--and the corresponding cost 
to the company--are growing.\152\
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    \150\ Nonqualified defined contribution and other 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. Nonqualified 
defined contribution and other deferred compensation plans are 
generally unfunded, and their taxation is governed by Section 409A 
of the Internal Revenue Code [26 U.S.C. 409A].
    \151\ See Section II.B.1.d.i. above.
    \152\ See Lucian A. Bebchuk and Jesse M. Fried, Stealth 
Compensation via Retirement Benefits, 1 Berkeley Bus. L.J. 291, 314-
316 (2004); See also The Corporate Counsel (Sept.-Oct. 2005) at 6-7 
and Gretchen Morgenson, Executive Pay, Hiding Behind Small Print, 
N.Y. Times, Feb. 8, 2004, Sec.  3, at 1.
---------------------------------------------------------------------------

    Therefore, as noted above, we are proposing to require disclosure 
in the Summary Compensation Table of all earnings on compensation that 
is deferred on a basis that is not tax-qualified and are also proposing 
new tabular and narrative disclosure of nonqualified deferred 
compensation.\153\
---------------------------------------------------------------------------

    \153\ Proposed Item 402(j).

[[Page 6562]]



                     Nonqualified Defined Contribution and Other Deferred Compensation Plans
----------------------------------------------------------------------------------------------------------------
                                             Executive      Registrant    Aggregate     Aggregate     Aggregate
                                           contributions  contributions  earnings in   withdrawals/   balance at
                   Name                      in last FY     in last FY     last FY    distributions    last FYE
                                                ($)            ($)           ($)            ($)          ($)
(a)                                                 (b)            (c)           (d)           (e)           (f)
------------------------------------------
PEO......................................                                                            ...........
PFO......................................                                                            ...........
A........................................                                                            ...........
B........................................                                                            ...........
C........................................                                                            ...........
----------------------------------------------------------------------------------------------------------------

    An instruction would require 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.\154\ This would 
complement the proposed instruction to the Summary Compensation Table 
that would require footnote disclosure of amounts for which receipt has 
been deferred.\155\ Together, these footnotes would operate to provide 
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.
---------------------------------------------------------------------------

    \154\ Proposed Instruction to Item 402(j)(2).
    \155\ Proposed Instruction 4 to Item 402(c), described in 
Section II.B.1.b., above, regarding the Summary Compensation Table.
---------------------------------------------------------------------------

    The table would be followed by a narrative description of material 
factors necessary to an understanding of the disclosure in the 
table.\156\ Examples of such factors in the proposed rule may include, 
in given cases, among other things:
---------------------------------------------------------------------------

    \156\ Proposed Item 402(j)(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.
Request for Comment
    <bullet> Should tabular or narrative disclosure require 
presentation of any additional information necessary for investors to 
clearly understand nonqualified deferred compensation? For example:

--Should the dollar amount of aggregate interest or other earnings 
accrued from inception of the named executive officer's participation 
in the plan through the end of the company's last fiscal year be 
disclosed in the proposed table?
--Is a narrative description of the tax implications for both the 
participant and the company necessary to a material understanding of 
these plans?

    <bullet> In addition to the footnote required by the proposed 
instruction, are any other provisions necessary or appropriate to avoid 
``double counting'' of previously reported compensation that will have 
been deferred?
    <bullet> Should only above market or preferential earnings be 
included in the table? If so, why would such disclosure be more useful 
or informative to investors?
    <bullet> Is any of the proposed new disclosure unnecessary? If so, 
please explain.
c. Other Potential Post-Employment Payments
    We are proposing significant revisions 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.'' \157\ Currently, disclosure does not in 
many cases capture material information regarding these plans and 
potential payments under them. We therefore propose disclosure of 
specific aspects of any written or unwritten arrangement that provides 
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, or a change in control of the company. Our proposals 
would call for narrative disclosure of the following information 
regarding termination and change in control provisions: \158\
---------------------------------------------------------------------------

    \157\ 1983 Release, at Section III.E.
    \158\ Proposed Item 402(k), which would replace current Item 
402(h)(2).
---------------------------------------------------------------------------

    <bullet> The specific circumstances that would trigger payment(s) 
under the termination or change-in-control arrangements or the 
provision of other benefits (references to benefits include 
perquisites);
    <bullet> The estimated payments and benefits that would be provided 
in each termination circumstance, and whether they would or could be 
lump-sum or annual, disclosing the duration and by whom they would be 
provided; \159\
---------------------------------------------------------------------------

    \159\ We propose to eliminate the current $100,000 disclosure 
threshold. With respect to post-termination perquisites, however, 
the same disclosure and itemization thresholds proposed for the 
Summary Compensation Table would apply. See Section II.B.1.d.iii, 
above.
---------------------------------------------------------------------------

    <bullet> The specific factors used to determine the appropriate 
payment and benefit levels under the various circumstances that would 
trigger payments or provision of benefits;
    <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
    <bullet> Any other material features necessary for an understanding 
of the provisions.

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.
    As proposed, a company would be required to provide quantitative

[[Page 6563]]

disclosure under these requirements even where uncertainties exist as 
to amounts payable under these plans and arrangements. In the event 
that uncertainties exist as to the provision of payments or benefits or 
the amounts involved, the company would be required to make reasonable 
estimates and disclose material assumptions underlying such estimates 
in its disclosure. In such event, the disclosure would be considered 
forward-looking information as appropriate that falls within the safe 
harbor for disclosure of such information.\160\
---------------------------------------------------------------------------

    \160\ See Securities Act Section 27A and Exchange Act Section 
21E.
---------------------------------------------------------------------------

Request for Comment
    <bullet> Should we, as proposed, eliminate the current $100,000 
threshold for disclosure for compensatory plans or arrangements 
providing payments upon termination or change-in-control?
    <bullet> Should the proposed item specifically require narrative 
disclosure of any additional information? If so, what information and 
why?
    <bullet> Would a tabular format result in more effective disclosure 
of any of this information? If so, how should such a table be 
constructed so that it is easily understood, given the wide variability 
of the factors determining payments? For example, should such a table 
have separate columns for cash payments, stock payments, and 
perquisites; separate lines for each potential termination event; and 
narrative disclosure of other material terms, such as duration, renewal 
and applicable covenants?
    <bullet> Should we require companies to provide quantitative 
disclosure as proposed? If not, how can there be assurance that 
investors can understand the significant amounts of compensation that 
may be involved?
6. Officers Covered
a. Named Executive Officers
    We propose to have the principal executive officer, the principal 
financial officer \161\ and the three most highly compensated executive 
officers other than the principal executive officer and principal 
financial officer comprise the named executive officers.\162\ In 
addition, as is currently the case, 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 would be included.
---------------------------------------------------------------------------

    \161\ We propose to adopt the nomenclature used most recently in 
Item 5.02 of Form 8-K, which refers to ``principal executive 
officer'' and ``principal financial officer.''
    \162\ Proposed Item 402(a)(3). Currently, the named executive 
officers for whom disclosure is required include the company's chief 
executive officer and the four most highly compensated executive 
officers excluding the chief executive officer. 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 is currently the case today, a named 
executive officer may be an executive officer of a subsidiary.
---------------------------------------------------------------------------

    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.\163\ Like the principal 
executive officer, disclosure about the principal financial officer 
would be required even if he or she was no longer serving in that 
capacity at the end of the last completed fiscal year.\164\ As is 
currently the case for the chief executive officer, all persons who 
served as the company's principal executive officer or principal 
financial officer during the last completed fiscal year would be named 
executive officers.
---------------------------------------------------------------------------

    \163\ Exchange Act Rules 13a-14 and 15d-14.
    \164\ Proposed paragraphs (a)(3)(i) and (a)(3)(ii) of Item 402 
would 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. Proposed Instruction 4 to Item 402(a)(3) 
would specify 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. Proposed Instruction 4 to 
Item 402(a)(3) would also specify 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 do not propose to require compensation disclosure for all of the 
officers listed in Item 5.02 of Form 8-K.\165\ Item 5.02 of Form 8-K 
was 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. Given these factors, it is 
reasonable for the two groups not to be identical.
---------------------------------------------------------------------------

    \165\ These are the registrant's principal executive officer, 
president, principal financial officer, principal accounting 
officer, principal operating officer or any person performing 
similar functions.
---------------------------------------------------------------------------

Request for Comment
    <bullet> Should the principal financial officer be specifically 
included as a named executive officer?
    <bullet> Would the proposed named executive officers be those 
executive officers whose compensation is material to investors? Is only 
the compensation of the principal executive officer material? The 
principal executive officer and the principal financial officer?
    <bullet> Should Item 402 specifically require disclosure of the 
compensation of any other officers listed in Form 8-K Item 5.02? If so, 
which officers and why? If we were to require Item 402 disclosure 
regarding compensation of additional Item 5.02 officers, should we also 
require Item 402 disclosure for two or three additional officers who 
receive the highest compensation?
    <bullet> Are there any other specific executive officers, such as 
the general counsel or principal accounting officer, who should be 
specifically identified as named executive officers? If so, which 
officers and why?
    <bullet> Should we retain, as proposed, the current requirement 
that 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 year be included in the 
disclosure?
    <bullet> Is the continuation of the current requirement for five 
named executive officers appropriate? Should that number be higher or 
lower?
b. Identification of Most Highly Compensated Officers; Dollar Threshold 
for Disclosure
    We propose to identify the most highly compensated executive 
officers on the basis of total compensation for the most recent fiscal 
year.\166\ We also propose 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.\167\ Both the 
determination of the most highly compensated officers and the $100,000 
disclosure threshold are

[[Page 6564]]

currently based only on total annual salary and bonus for the last 
fiscal year.\168\ Given the proliferation of various forms of 
compensation other than salary and bonus, we believe that total 
compensation more accurately identifies those officers who are, in 
fact, the most highly compensated. Moreover, 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.
---------------------------------------------------------------------------

    \166\ Proposed Instruction 1 to Item 402(a)(3).
    \167\ Id.
    \168\ Current Instruction 1 to Item 402(a)(3).
---------------------------------------------------------------------------

    Under the current rules, companies are permitted to exclude an 
executive officer (other than the chief executive officer) due to 
either an unusually large amount of cash compensation that is not part 
of a recurring arrangement and is unlikely to continue, or cash 
compensation relating to overseas assignments attributed predominantly 
to such assignments.\169\ 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 propose to retain this basis for exclusion. 
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 propose to eliminate this basis for 
exclusion.\170\
---------------------------------------------------------------------------

    \169\ Current Instruction 3 to Item 402(a)(3).
    \170\ Proposed Instruction 3 to Item 402(a)(3).
---------------------------------------------------------------------------

Request for Comment
    <bullet> Are there any particular circumstances or categories of 
companies for which a measure other than total compensation should be 
applied to identify the most highly compensated executive officers? If 
so, what measure should be applied and why? Is $100,000 the correct 
disclosure threshold?
    <bullet> Should payments attributable to overseas assignments be 
included in determining the most highly compensated officers, given 
that the purpose of such payments typically is to compensate for 
disadvantageous currency exchange rates or high costs of living?
    <bullet> Are there any particular circumstances, such as 
commissions for executives responsible for sales, for which the ``not 
recurring and unlikely to continue'' standard should be retained?
7. Interplay of Items 402 and 404
    We propose that Item 402 require 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. 
Currently, while Item 402 states that such compensation is reportable 
under Item 402, even if also called for by another requirement, Item 
402 also provides that information may be excluded if a transaction has 
been reported in response to Item 404.\171\ This provision may cause 
Item 402 disclosure to omit compensation that a transaction disclosed 
under Item 404 provides to executives. We propose to eliminate that 
exclusion from Item 402.\172\ We also propose instructions to Item 404 
that would clarify what compensation does not need to be reported under 
Item 404.\173\ In some cases the result may nevertheless be that 
compensation information is disclosed under Item 402 while a related 
person transaction giving rise to that compensation is disclosed under 
Item 404. We believe the possibility of additional disclosure in the 
context of each of the respective items is preferable to the 
possibility that compensation is not properly and fully disclosed under 
Item 402.
---------------------------------------------------------------------------

    \171\ Current Items 402(a)(2) and 402(a)(5).
    \172\ Because current Item 402(a)(5) otherwise is redundant with 
current Item 402(a)(2), we propose to rescind Item 402(a)(5) in its 
entirety. We propose a conforming amendment to Item 402(a)(2).
    \173\ Proposed Instructions 5 and 6 to Item 404(a).
---------------------------------------------------------------------------

Request for Comment
    <bullet> In light of the amendments to Item 404 that we also 
propose, are there any circumstances for which the current exclusion 
from Item 402 disclosure for transactions reported under Item 404 
should be retained? If so, why?
8. Other Proposed Changes
    A company is currently permitted to omit from Item 402 disclosure 
``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 
company and that are available generally to all salaried employees.'' 
\174\ 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 deprive 
investors of disclosure of significant compensatory benefits.\175\ For 
this reason, we propose to delete relocation plans from this exclusion. 
For the same reason, 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.\176\ We also 
propose to revise the definition of ``plan'' so that it is more 
principles-based.\177\
---------------------------------------------------------------------------

    \174\ Current Item 402(a)(7)(ii), which generally defines the 
term ``plan.''
    \175\ See, e.g., Ellen Simon, At Corporate Helm, Extra Benefits 
Still Alive and Well, Assoc. Press, Apr. 26, 2004; and Carrie 
Johnson, Former Tyco Executive Takes Stand in Trial, Wash. Post, 
Feb. 11, 2004, at E2.
    \176\ Proposed amendment to Instruction 2 to Item 15(b) of Form 
N-1A; proposed amendment to Instruction 2 to Item 21.2 of Form N-2; 
proposed amendment to Instruction 2 to Item 22(b) of Form N-3.
    \177\ Proposed Item 402(a)(6)(ii).
---------------------------------------------------------------------------

Request for Comment
    <bullet> Should relocation plans be required to be disclosed as 
compensation? Should group life, health, hospitalization and medical 
reimbursement also be included in reportable compensation? Can these 
plans be operated in a manner that may obscure compensation disclosure? 
Are there other plans or benefits that should be excluded from the 
disclosure requirements of Item 402? If so, why?
    <bullet> Should management investment companies be required to 
disclose all relocation plans as portfolio manager compensation? Should 
all group life, health, hospitalization, medical reimbursement, and 
pension and retirement plans and arrangements also be included in 
compensation that is disclosed for portfolio managers of management 
investment companies?
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 share-based 
compensation, incentive plans and other forms of compensation.\178\ In 
light of this complexity, we have determined to propose formatted 
tabular disclosure for director compensation, accompanied by narrative 
disclosure of additional material information. In doing so, we are 
revisiting an approach that the

[[Page 6565]]

Commission proposed in 1995 but did not adopt at that time.\179\ The 
commenters supporting the proposal generally believed that it was 
appropriate to treat director compensation similarly to executive 
compensation.\180\ The commenters opposing the proposal believed that 
non-executive directors were generally compensated uniformly, and 
therefore breaking out compensation for each director in a table often 
could yield repetitious data.\181\
---------------------------------------------------------------------------

    \178\ 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).
    \179\ 1995 Release. The 1995 proposal was coupled with a 
proposal 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 
the proposals.
    \180\ The Commission received approximately 153 letters 
supporting the proposal. Of those, 133, all individuals, expressed 
their views via a brief statement submitted using a form letter. 
Additional supporting commenters included corporations, 
associations, unions, and security holder resource providers. See, 
e.g., comment letters on the 1995 Release in File No. S7-14-95 from 
Bell Atlantic Network Services, Inc.; Chevron Corporation; and Scott 
Paper Company (generally offering support for proposal). See also, 
e.g., coment letters from the Amerian Bar Association; American 
Institute of Certified Public Accountants; Association of Investment 
Management and Research; American Society of Corporate Secretaries; 
Instituional Shareholder Services; and Ernst & Young LLP (favoring 
tabular disclosure of director compensation, but with suggested 
improvements to proposed rules).
    \181\ Approximately 20 commenters, primarily corporations and 
associations, opposed the rules. See, e.g., comment letters in File 
No. S7-14-95 from the American Corporate Counsel Association; AT&T 
Corp.; The Business Roundtable; Consolidated Edison Company of New 
York; Deere & Communications, Inc.
---------------------------------------------------------------------------

    Director compensation has continued to evolve since 1995 so that we 
are again proposing a Director Compensation Table, which would resemble 
the proposed Summary Compensation Table, but would present information 
only with respect to the company's last completed fiscal year.

                                              Director Compensation
----------------------------------------------------------------------------------------------------------------
                                                                                        Non-stock
                                               Fees earned                              incentive     All other
               Name                   Total     or paid in     Stock        Option        plan      compensation
                                                 cash ($)    awards ($)   awards ($)  compensation       ($)
                                                                                           ($)
(a)                                       (b)          (c)          (d)          (e)           (f)           (g)
-----------------------------------
A.................................
B.................................
C.................................
D.................................
E.................................
----------------------------------------------------------------------------------------------------------------

    The All Other Compensation column of the proposed Director 
Compensation Table would include, but not be limited to:
    <bullet> All perquisites and other personal benefits if the total 
is $10,000 or greater;
    <bullet> All earnings on compensation that is deferred on a basis 
that is not tax-qualified;
    <bullet> All tax reimbursements;
    <bullet> Annual company contributions or other allocations to 
vested and unvested defined contribution plans;
    <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 computed in accordance with FAS 123R;
    <bullet> Aggregate annual increase in actuarial value of all 
defined benefit and actuarial pension plans;
    <bullet> Annual company contributions to vested and unvested 
defined contribution and other deferred compensation plans;
    <bullet> All consulting fees;
    <bullet> Awards under director legacy or charitable awards 
programs; \182\ and
---------------------------------------------------------------------------

    \182\ 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 registrant upon a designated event such as death or 
retirement. The amount to be disclosed in the table would 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.
---------------------------------------------------------------------------

    <bullet> The dollar value of any insurance premiums paid by, or on 
behalf of, the company for life insurance for the director's benefit.
    In addition to the disclosure specified in the columns of the 
table, companies would be required to disclose, for each director, by 
footnote to the appropriate column, 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.\183\ The same instructions as provided in the Summary 
Compensation Table would govern analogous matters in the Director 
Compensation Table. As with the Summary Compensation Table, the 
proposed rules make clear that all compensation must be included in the 
table.\184\ As is the case with the current director disclosure 
requirement, companies would 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. A proposed instruction to the 
Director Compensation Table would permit the grouping of directors in a 
single row of the table if all of their elements and amounts of 
compensation are identical.\185\
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    \183\ Proposed Instruction to item 402(l)(2)(iv) and (v).
    \184\ The only exception would be if all perquisites received by 
the director total less than $10,000, they would not need to be 
disclosed.
    \185\ Proposed Instruction to item 402(l)(2).
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    Following the table, narrative disclosure would describe any 
material factors necessary to an understanding of the table. Such 
factors may include, for example, a breakdown of types of fees.\186\ We 
are not proposing the supplemental tables for directors.
---------------------------------------------------------------------------

    \186\ Proposed Item 402(l)(3).
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Request for Comment
    <bullet> Does the proposed table organize director compensation 
disclosure in a format that is easy to understand?
    <bullet> Do the proposed table and narrative disclose information 
that is material to an investor's analysis of director compensation? 
Should other tables be required, such as the Grants of Performance-
Based Awards Table and

[[Page 6566]]

the Grants of All Other Equity Awards Table?
    <bullet> Should named executive officers who are also directors be 
omitted from the table, with any compensation for services as a 
director reported only in the Summary Compensation Table, as is 
currently the case? If so, should there be some indication of their 
status as directors and compensation related to their director service 
in the Summary Compensation Table, the Director Compensation Table, or 
both? Should the nature or extent of compensation to the chairman of 
the board of directors be presented differently from that of other 
directors?
    <bullet> With respect to disclosure of perquisites, should the 
director compensation apply the same $10,000 disclosure threshold as 
proposed for the Summary Compensation Table? Should separate 
identification and quantification apply to director perquisites?
    <bullet> Does the proposed table cover any forms of compensation 
that typically are not awarded to directors and therefore should be 
omitted? Should the requirements be modified to make it easier to 
capture forms of compensation, if any, that develop in the future?
    <bullet> Does the proposed table omit any forms of compensation 
awarded to directors that should be specifically included or 
identified?
    <bullet> Should narrative disclosure regarding the company's 
policies and objectives with respect to director compensation and share 
ownership or retention policies accompany this table? Should it be 
included in the Compensation Discussion and Analysis?
    <bullet> Would more specific footnote disclosure, as opposed to the 
proposed accompanying narrative, provide additional material 
information regarding director compensation? Should there be 
supplemental tables for directors, or should we require disclosure of 
the number of shares, units, options and other securities awarded to 
directors in addition to the grant date fair value of such awards?

C. Treatment of Specific Types of Issuers

1. Small Business Issuers
    The Item 402 proposals would continue to differentiate between 
small business issuers and other issuers.\187\ In crafting the 
proposals, we recognize that the executive compensation arrangements of 
small business issuers typically are less complex than those of other 
public companies. We also recognize that satisfying disclosure 
requirements designed to capture more complicated compensation 
arrangements may impose new, unwarranted burdens on small business 
issuers.
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    \187\ The term small business issuer is defined by Item 10(a)(1) 
of Regulation S-B. Currently, under both Item 402 of Regulation S-B 
and Item 402 of Regulation S-K, a small business issuer is 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 current rules also permit samll business issuers to exclude the 
Pension Plan Table.
---------------------------------------------------------------------------

    As proposed, small business issuers would be required to provide, 
along with related narrative disclosure:
    <bullet> The Summary Compensation Table; \188\
---------------------------------------------------------------------------

    \188\ Proposed Items 402(b) and 402(c) of Regulation S-B.
---------------------------------------------------------------------------

    <bullet> The Outstanding Awards at Fiscal Year-End Table; \189\ and
---------------------------------------------------------------------------

    \189\ Proposed Item 402(d) of Regulation S-B.
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    <bullet> The Director Compensation Table.\190\
---------------------------------------------------------------------------

    \190\ Proposed Item 402(f) of Regulation S-B.
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Also as proposed, small business issuers would only be required to 
provide information in the Summary Compensation Table for the last two 
fiscal years. In addition, small business issuers would 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.\191\ Narrative 
discussion of a number of items to the extent material would replace 
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.\192\ Small business issuers 
would not be required to provide a Compensation Discussion and 
Analysis.\193\
---------------------------------------------------------------------------

    \191\ Proposed Item 402(a) of Regulation S-B. Proposed Item 
402(c)(1)(vii) of Regulation S-B would require an identification to 
the extent material of any item included under All Other 
Compensation in the Summary Compensation Table, however 
identification of an item wold not be considered material under the 
proposal if it did not exceed the greater of $25,000 or 10% of all 
items included in the specified category. All items of compensation 
would be requred to be included in the Summary Compensatio Table 
without regard to whether such items are required to be indentified.
    \192\ Proposed Item 402(c) and 402(e) of Regulation S-B.
    \193\ We would also eliminate the current 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. Current Item 
402(a)(1)(i) of Regulation S-K.
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Request for Comment
    <bullet> Would reliance on narrative disclosure adversely affect 
comparability of disclosure among small business issuers? Are there 
particular forms of compensation that for this reason should instead be 
presented in a tabular format? If so, why?
    <bullet> Should small business issuers be categorically exempted 
from providing a Compensation Discussion and Analysis? Are there 
particular elements of the proposed Compensation Discussion and 
Analysis in Item 402 of Regulation S-K that small business issuers 
should be required to address? If so, which elements and why?
    <bullet> Are there other provisions of our rule proposal that 
should not apply to small business issuers?
    <bullet> Should the Summary Compensation Table require disclosure 
of compensation for each of the last two fiscal years, or is only the 
last completed fiscal year necessary?
    <bullet> Should compensation disclosure be provided for a larger 
group of executive officers than we have proposed? If so, which 
officers and why?
    <bullet> Should we require small business issuers to provide an 
Option Exercises and Stock Vested Table?
    <bullet> Should the quantitative threshold for identifying the most 
highly compensated executive officers remain the same in both 
Regulation S-B and Regulation S-K? For example, if we raise this 
threshold in Item 402 of Regulation S-K, should it remain $100,000 for 
Regulation S-B? Should any other threshold be different for small 
business issuers?
    <bullet> Should small business issuers also be required to identify 
perquisites and personal benefits valued, in the aggregate, in excess 
of $10,000 and to quantify perquisites and personal benefits valued at 
the greater of $25,000 or ten percent of total perquisites and other 
personal benefits?
    <bullet> Should we require the supplemental tables to the Summary 
Compensation Table?
    <bullet> Are there other items that should be specifically required 
to be discussed in the proposed narrative disclosure for small business 
issuers?
2. Foreign Private Issuers
    Currently a foreign private issuer will be deemed to comply with 
Item 402 of Regulation S-K if it provides 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. The proposals would 
continue this treatment of these issuers and clarify that the treatment 
of foreign

[[Page 6567]]

private issuers under Item 402 parallels that under Form 20-F.
Request for Comment
    <bullet> Should we eliminate the provision which permits a foreign 
private issuer to comply with Item 402 by complying with the more 
limited disclosure requirements under Form 20-F with respect to 
management remuneration? Should a foreign private issuer that is 
required to comply with Item 402 (for example, by filing an annual 
report on Form 10-K) be required to provide all of the information 
required under Item 402 instead of the information required under Form 
20-F?
3. Business Development Companies
    We are proposing to apply the same executive compensation 
disclosure requirements to business development companies that we are 
proposing for operating companies.\194\ Currently, business development 
companies are required to provide executive compensation disclosure 
based, in part, on the requirements that apply to operating companies 
and, in part, on the requirements that apply to investment companies 
registered under the Investment Company Act. Moreover, the executive 
compensation disclosure requirements for business development companies 
are not uniform in Securities Act registration statements, proxy and 
information statements, and Form 10-K. Under Form 10-K, business 
development companies are required to furnish all of the information 
required by Item 402 of Regulation S-K for all of the persons covered 
by Item 402.\195\ In proxy and information statements, business 
development companies are required to provide for directors and each of 
the three highest paid officers that have aggregate compensation from 
the company for the most recently completed fiscal year in excess of 
$60,000, certain information required by Item 402 of Regulation S-K and 
certain other information that registered investment companies are 
required to provide.\196\ In registration statements, business 
development companies are required to provide the same information 
required in proxy statements, but with respect to directors, members of 
the advisory board, and each of the three highest paid officers or any 
affiliated person of the company that have aggregate compensation from 
the company for the most recently completed fiscal year in excess of 
$60,000.\197\
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    \194\ 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)].
    \195\ Item 11 of Form 10-K.
    \196\ Items 8 and 22(b)(13) of Schedule 14A. These items require 
business development companies to provide certain information 
required by Item 402(b)(2)(iv) and (c) of Regulation S-K, as well as 
a compensation table and a brief description of the material 
provisions of certain pension, retirement and other plans.
    \197\ Item 18.14 of Form N-2.
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    We are proposing to apply to business development companies the 
same executive compensation rules that apply to operating companies 
because the proposed disclosure requirements are intended to provide 
investors with a clearer and more complete picture of executive 
compensation, and we are concerned that this purpose would not be 
achieved through piecemeal application of some of the requirements. Our 
proposal would also eliminate the current 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. 
Finally, we believe that, similar to operating companies, business 
development companies should furnish compensation disclosure on proxies 
relating to the compensation arrangements and other matters enumerated 
in Items 8(b) through (d) of Schedule 14A and not just in the case of 
director elections as currently required by Item 22(b)(13).
    Under the proposals, the registration statements of business 
development companies would 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.\198\ This disclosure would 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.\199\ Business development companies would also be required to make 
these disclosures in their annual reports on Form 10-K.\200\
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    \198\ Proposed Item 18.15 of Form N-2. Under the proposals, 
business development companies would no longer be required to 
respond to Item 18.14 of Form N-2, and Item 18.14(c) of Form N-2 
would be deleted. Current Items 18.15 and 18.16 of Form N-2 would be 
redesignated as Items 18.16 and 18.17, respectively. As a result of 
the redesignation of current Item 18.16 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 proposed.
    \199\ Proposed amendment to Item 8 of Schedule 14A. Under the 
proposals, business development companies would no longer be 
required to respond to Item 22(b)(13) of Schedule 14A, and Item 
22(b)(13)(iii) of Schedule 14A would be deleted. Proposed amendments 
to Item 22(b)(13) of Schedule 14A.
    \200\ Item 11 of Form 10-K.
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    As a result of these proposed amendments, the persons covered by 
the compensation disclosure requirements would be changed. The 
compensation disclosure in the proxy and information statements and 
registration statements of business development companies would 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,\201\ 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 would no longer be 
required to disclose compensation of members of the advisory board or 
certain affiliated persons of the company.
---------------------------------------------------------------------------

    \201\ See Section II.B.6., above.
---------------------------------------------------------------------------

    Finally, under the proposals, the proxy and information statements 
and registration statements of business development companies would not 
be required to include compensation from the ``fund complex.'' 
Currently, this information is required in some circumstances.\202\
---------------------------------------------------------------------------

    \202\ See Instructions 4 and 6 to Item 22(b)(13)(i) of Schedule 
14A; Instructions 4 and 6 to Item 18.14(a) of Form N-2 (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).
---------------------------------------------------------------------------

Request for Comment
    <bullet> Should business development companies be required to 
comply with the same compensation disclosure requirements as operating 
companies or registered investment companies, a combination of the 
compensation disclosure requirements for operating companies and 
registered investment companies, or some other set of compensation 
disclosure requirements? Should the same compensation disclosure 
requirements apply to business development companies in registration 
statements, proxy and information statements, and Form 10-K? In 
addressing the appropriate compensation disclosure requirements for 
business development companies, commenters are requested to address

[[Page 6568]]

separately the persons covered by the disclosure requirements and the 
disclosures required with respect to those persons. Commenters are also 
requested to address separately disclosures for executive officers and 
directors.
    <bullet> Should all business development companies be subject to 
the same executive compensation disclosure or should we distinguish 
between smaller and larger business development companies? Should 
business development companies be subject to the executive compensation 
disclosure requirements of Regulation S-B filers?
    <bullet> Should we require disclosure of compensation paid to 
affiliated persons of a business development company and members of the 
advisory board of the company?
    <bullet> Should we require disclosure of certain compensation paid 
by the fund complex that includes a business development company?

D. Conforming Amendments

    The Item 402 proposals 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, the rule 
proposals would amend:
    <bullet> The Item 201(d) of Regulations S-K and S-B and proxy rule 
references to the Item 402 definition of ``plan;'' \203\
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    \203\ Proposed 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(c) of Schedule 14A.
---------------------------------------------------------------------------

    <bullet> The Item 601(b)(10) of Regulation S-K reference to the 
Item 402 treatment of foreign private issuers; \204\ and
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    \204\ Proposed amendment to Item 601(b)(10)(iii)(C)(5).
---------------------------------------------------------------------------

    <bullet> The proxy rule references to Item 402 retirement plan 
disclosure.\205\
---------------------------------------------------------------------------

    \205\ Proposed amendments to Item 10(b)(1)(ii) and the 
Instruction following Item 10(c) of Schedule 14A.
---------------------------------------------------------------------------

E. General Comment Requests on the Item 402 Proposals

    We request comment on any aspect of these proposals. In particular:
    <bullet> Would the proposals effectively provide clearer, more 
complete disclosure of executive and director compensation? If not, 
what changes are needed to accomplish this result?
    <bullet> Are the proposals sufficiently broad-based to continue to 
operate effectively as new forms of compensation are developed in the 
future? If not, what changes are necessary to achieve this flexibility?
    <bullet> To clarify what other filed documents provide information 
about executive compensation, should a company be required to list in 
its annual proxy statement for the election of directors all other 
documents filed since the last proxy statement (such as Forms 8-K and 
exhibits filed with Forms 10-K and 10-Q) that contain this information? 
Instead, should such a list be provided solely as an EDGAR-filed annex 
to the proxy statement?
    <bullet> Would the presentation and content of the executive and 
director compensation disclosure be improved by making the information 
available in the form of interactive data? For example, could an 
understanding of the information reported in the proposed tables be 
enhanced by the ability to access more detailed information regarding 
discrete amounts or items reported in the tables? If the presentation 
of interactive data would be desirable, what would be the best means 
for introducing interactive data capabilities into the proposed Item 
402 disclosure requirements? For example, should we develop a data 
format that could be used to submit the information that has 
interactive capability while at the same time having the information 
readable on its face? Should we consider having the information 
provided using Extensible Business Reporting Language, also known as 
XBRL? Could the information be provided in a form that permits 
interactive capability in proxy and information statements that are 
made available on the Internet or otherwise electronically?

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

    In March 2004, the Commission adopted amendments to Form 8-K that 
significantly expanded the number of events that are reportable on Form 
8-K and reduced the reporting deadline for most Form 8-K disclosure 
items to four business days after the triggering event.\206\ These 
amendments became effective on August 23, 2004. As part of our broader 
effort to revise our executive and director compensation disclosure 
requirements, we are proposing revisions to Item 1.01 of Form 8-K, 
which currently requires this 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 
over the last year 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.\207\ We 
therefore propose to revise Items 1.01 and 5.02 to require real-time 
disclosure of employee compensation events that more clearly satisfy 
this standard.
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    \206\ Additional Form 8-K Disclosure Requirements and 
Acceleration of Filing Date, Release No. 33-8400 (Mar. 16, 2004) [69 
FR 15593] (the ``Form 8-K Adopting Release'').
    \207\ We stated in Section I of 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 proposed amendments to Items 1.01 and 5.02 of 
Form 8-K, we propose 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.

A. Proposed Revisions to 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 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.\208\ 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 governing 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.\209\
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    \208\ See, e.g., comment letters on Additional Form 8-K 
Disclosure Requirements and Acceleration of Filing Date, Release No. 
33-8106 (June 17, 2002) [67 FR 42913] in File No. S7-22-02 from the 
Committee on Federal Regulation of Securities, Section of Business 
Law of the American Bar Association; Cleary, Gottlieb, Steen & 
Hamilton; Intel Corporation; Professor Joseph A. Grundfest, et al.; 
Perkins Coie LLP; Sherman & Sterling; and Sullivan & Cromwell.
    \209\ See e.g., comment letter in File No. S7-22-02 from the 
Section of Business Law of the American Bar Association.
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    In response to the concerns raised by these comments, we adopted 
Item 1.01 of Form 8-K so that it used the

[[Page 6569]]

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. The item refers specifically to employment 
compensation arrangements and establishes 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 registrant 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.\210\
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    \210\ 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 that are not named executive officers. Id. We reiterate 
that this phrase was intended to indicate that whether plans, 
contracts or arrangements which executive officers other than named 
executive officers participate are to be included in the 
requirements of 601(b)(10) must be determined on the basis of 
materiality.

Therefore, entry into these types of contracts triggers 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, 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 amended Form 8-K 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 has triggered compensation disclosure of the types of 
matters that, in some cases, appear to fall 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 new 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.\211\
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    \211\ See, e.g., Melissa Klein Aguilar, This Side of Caution: 
New Regs. Prompt 8-K Increases, Compliance Week, Aug. 23, 2005; 
Scott S. Cohen, Editorial: Debating the Materiality of ``Material 
Definitive Agreements,'' Compliance Week, Feb. 8, 2005; and Patrick 
McGeehan, Now, an Advance Look at Those Big Paychecks, N.Y. Times, 
Sept. 26, 2004, at 36.
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    We believe that much of the disclosure regarding employment 
compensation matters required in real-time under the new Form 8-K 
requirements is viewed by investors as material.\212\ However, we also 
believe that it would be appropriate to restore a more balanced 
approach to this aspect of Form 8-K that is designed to elicit 
unquestionably or presumptively material information on a real-time 
basis, but seeks to limit Form 8-K disclosure of information below that 
threshold. Accordingly, we propose to amend Item 1.01 of Form 8-K to 
eliminate employment compensation arrangements and to cover such 
arrangements under a modified broader Item 5.02.\213\
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    \212\ See, e.g., Jerry Knight, Tiny SEC Filing Gave a Big Hint 
to Vastera's Plans, Wash. Post, Jan. 24, 2005, at E1; and Alex 
Berenson, Merck Offering Top Executives Rich Way Out, N.Y. Times, 
Nov. 30, 2004, at A1.
    \213\ We propose deleting the last sentence of current 
Instruction 1 to Item 1.01 of Form 8-K, which references the 
portions of Item 601(b)(10) that specifically relate to management 
compensation and compensatory plans. In place of the deleted 
sentence, we propose to add a sentence specifying that agreements 
involving the subject matter identified in Item 601(b)(10)(iii)(A) 
or (B) of Regulation S-K need not be disclosed under Item 1.01 of 
Form 8-K. This change also will apply to 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. 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, employment compensation 
arrangements would be covered under Item 5.02 of Form 8-K.
---------------------------------------------------------------------------

    Item 5.02 of Form 8-K currently generally requires disclosure 
within four business days of the appointment or departure of directors 
and specified officers. In particular, Item 5.02 requires 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 \214\ or 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.\215\ Item 5.02 also requires 
disclosure if a director retires, resigns, is removed, or declines to 
stand for re-election.\216\ The required disclosure currently includes 
a brief description of the material terms of any employment agreement 
between the registrant and the officer and a description of 
disagreements, if any.
---------------------------------------------------------------------------

    \214\ Item 5.02(b) of Form 8-K.
    \215\ Item 5.02(c) of Form 8-K.
    \216\ Item 5.02(a) of Form 8-K.
---------------------------------------------------------------------------

    We propose to modify Item 5.02 to capture generally the currently 
required information under that item, as well as additional information 
regarding material employment compensation arrangements involving named 
executive officers that currently fall under Item 1.01. Our proposal 
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.

[[Page 6570]]

We propose to accomplish 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 currently specified in 
Item 5.02; \217\
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    \217\ The Item would continue to cover the officers specified 
therein, whether or not named executive officers for the previous or 
current years, and all directors.
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    <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, 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; \218\
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    \218\ 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.
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    <bullet> In respect of 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; and
    <bullet> Adding a requirement for disclosure of salary and 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.\219\
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    \219\ See Section II.B.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.
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    In the case of each of these disclosure items proposed for Item 
5.02, we emphasize that we are proposing that a brief description of 
the specified matter be included. We have observed that in response to 
the current requirement under Item 1.01, some companies have included 
disclosure that resembles an updating of the disclosure required under 
current Item 402 of Regulation S-K. In the context of current 
disclosure under Form 8-K, we are seeking a disclosure that informs 
investors of specified material events and developments. However, the 
information we are seeking does not perforce extend to the information 
necessary to comply with Item 402.
Request for Comment
    <bullet> Is there a particular benefit to receiving information 
regarding employment compensation on a current basis rather than 
annually or quarterly? What information is material in that regard?
    <bullet> Is disclosure of material information about executive and 
director compensation and related person transactions avoided if 
comprehensive disclosure of compensation and related party transactions 
only occurs annually? Should we also require quarterly disclosure of 
material changes to information required by Items 402 and 404 in each 
company's Form 10-Q?
    <bullet> Would a quarterly update of material changes to Item 402 
and Item 404 disclosure provide meaningful disclosure to investors that 
they cannot get through other sources? If not, why?
    <bullet> Would quarterly updates eliminate the need for most of the 
current disclosure about executive and director compensation 
transactions provided under Item 1.01 of Form 8-K? Should the 
information we propose to require under Item 5.02(e) of Form 8-K only 
be required quarterly?
    <bullet> Are the proposed revisions to Items 1.01 and 5.02 of Form 
8-K the most effective means to achieve an appropriate balance 
regarding real-time director and executive compensation disclosure? 
Please describe any suggested alternatives in detail.
    <bullet> Should we require disclosure of all amendments to the 
plans, contracts and arrangements encompassed by our proposed 
disclosure requirements under Item 5.02(e) of Form 8-K? Only material 
amendments?

B. Proposed 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 That Item From 
Form S-3 Eligibility Requirements

    We propose to extend 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 the 
final rules for the new Form 8-K requirements, 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 and 4.02(a). The safe 
harbor applies until the filing due date of the company's quarterly or 
annual report for the period in question. As we stated at the time, we 
believe that these items may require management to make rapid 
materiality and similar judgments within the timeframe required for 
filing of a Form 8-K. Under those circumstances we concluded that the 
risk of liability under these provisions was sufficiently 
disproportionate to justify the limited safe harbor of fixed duration. 
For the same reasons, we believe that the safe harbor should also 
extend to proposed Item 5.02(e) of Form 8-K. We therefore propose to 
amend Exchange Act Rules 13a-11(c) and 15d-11(c) accordingly.
    In addition, under our current rules, a company forfeits its 
eligibility to use Form S-3 if it fails to timely file all reports 
required under Exchange Act Sections 13(a) or 15(d) during the 12 
months prior to filing of the registration statement.\220\ For the same 
reasons, when adopting the new Form 8-K rules, 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.\221\ 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.\222\ We 
believe that this safe harbor should be extended to proposed Item 
5.02(e) of Form 8-K. Therefore, we propose to amend General Instruction 
I.4 of Form S-3, which pertains to the eligibility requirements for use 
of Form S-3 to reflect this position.\223\
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    \220\ General Instruction I.A.3 to Form S-3.
    \221\ Form 8-K Adopting Release, at Section II.E.
    \222\ Id.
    \223\ Because Form S-2 was eliminated effective December 1, 
2005, a similar proposed change to the eligibility rules of Form S-2 
is unnecessary. Securities Offering Reform, Release No. 33-8591 
(July 19, 2005) [70 FR 44721], at Section V.B.3.c.
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Request for Comment
    <bullet> Should we extend the Section 10(b) and Rule 10b-5 safe 
harbor and the Form S-3 safe harbor to all of Item 5.02 or just the 
provision proposed?

[[Page 6571]]

C. General Instruction D to Form 8-K

    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 currently 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 propose a revision to General Instruction D 
to permit companies to omit the Item 1.01 heading in a Form 8-K also 
disclosing 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.
Request for Comment
    <bullet> Is it appropriate to allow a company to omit the Item 1.01 
heading in a Form 8-K disclosing any other item?

D. Foreign Private Issuers

    We propose revising the exhibit instructions to Form 20-F under 
which foreign private issuers would be required to file any 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 had otherwise publicly disclosed the plan.\224\
    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, management contracts or compensatory 
plans in which directors or members of management participate generally 
must be filed as exhibits, unless the foreign private issuer provides 
compensation information on an aggregate basis and not on an individual 
basis. Under these rules, an issuer that provides any individualized 
compensation disclosure is required to file as an exhibit to Form 20-F 
management employment agreements that potentially relate to matters 
that have not otherwise been disclosed.
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    \224\ We are also proposing a similar revision to Item 
601(b)(10)(iii)(C)(5) of Regulation S-K.
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    The proposed revision to the exhibit instructions to Form 20-F 
\225\ 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 would under our proposal mirror 
the public availability of such agreements under home country 
requirements or otherwise. In addition, we believe that the proposed 
amendments may encourage foreign private issuers to provide more 
compensation disclosure in their SEC filings 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,\226\ the proposed revisions would 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.
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    \225\ Proposed Instruction 4(c) to Exhibits to Form 20-F.
    \226\ Many jurisdictions now require or encourage disclosure of 
executive compensation information. For example, enhanced disclosure 
of executive remuneration is included as part of he 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).
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Request for Comment
    <bullet> Should we require the filing of employment agreements by 
foreign private issuers when individualized compensation information is 
disclosed? Should we instead require the filing of those portions of 
management employment agreements and plans that relate to the 
information that is disclosed on an individualized basis regardless of 
whether those portions are required to be made public in the issuer's 
home country or otherwise?

IV. Beneficial Ownership Disclosure

    We propose to amend Item 403(b) \227\ by adding a requirement for 
footnote disclosure of the number of shares pledged as security by 
named executive officers, directors and director nominees. 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.\228\ As a result, we believe that the existence of these 
securities pledges could be material to shareholders.\229\ Because 
significant shareholders who are not members of management are in a 
different relationship with other shareholders and have different 
obligations to them, the proposals would 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.\230\ 
The proposals also would specifically require disclosure of beneficial 
ownership of directors' qualifying shares, which is currently not 
required, because the beneficial ownership disclosure should include a 
complete tally of the securities beneficially owned by directors.
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    \227\ Item 403(b) of Regulation S-K and Item 403(b) of 
Regulation S-B are proposed to be revised in the same manner.
    \228\ 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).
    \229\ This proposal is 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].
    \230\ Current Item 403(c) of Regulation S-K. See also Items 6 
and 7(3) of Schedule 13D [17 CFR 240.13d-101].
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Request for Comment
    <bullet> Should any specific categories of loans, such as margin 
loans, be treated differently under the proposal to disclose management 
pledges of beneficially owned securities? If so, please explain why.
    <bullet> Should directors' qualifying shares continue to be 
excluded? If so, explain why that information is not material.

V. Certain Relationships and Related Transactions Disclosure

    We believe that, in addition to disclosure regarding executive 
compensation, a materially complete

[[Page 6572]]

picture of financial relationships with a company involves disclosure 
regarding related party transactions. Therefore, we are also proposing 
significant revisions to Item 404 of Regulation S-K ``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.\231\ Today we propose to amend Item 404 of Regulation S-K and S-B to 
streamline and modernize this disclosure requirement, while making it 
more principles-based. Although the proposals would 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--
would remain unchanged.
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    \231\ 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.
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    As discussed in greater detail below, the proposal has four parts: 
\232\
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    \232\ The discussion that follows focuses on changes to 
Regulation S-K, with Section V.E.1. explaining the modifications 
proposed for Regulation S-B. References throughout the following 
discussion are to current or proposed Items of Regulation S-K, 
unless otherwise indicated.
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    <bullet> Item 404(a) would contain a general disclosure requirement 
for related person transactions, including those involving 
indebtedness.\233\
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    \233\ As previously noted, related party transactions are 
currently disclosed under Item 404(a). Indebtedness is currently 
disclosed under Item 404(c).
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    <bullet> Item 404(b) would require disclosure regarding the 
company's policies and procedures for the review, approval or 
ratification of related person transactions.
    <bullet> Item 404(c) would require disclosure regarding promoters 
of a company.\234\
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    \234\ Disclosure requiring promoters is currently required under 
Item 404(d).
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    <bullet> New Item 407 would consolidate current corporate 
governance disclosure requirements.\235\ Proposed Item 407(a) would 
require disclosure regarding the independence of directors, including 
whether each director and nominee for director of the registrant is 
independent, as well as a description of any relationships not 
disclosed under paragraph (a) of Item 404 that were considered when 
determining whether each director and nominee for director is 
independent.
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    \235\ These matters are currently required pursuant to various 
provisions, including Item 7 of Schedule 14A and Items 306, 401(h), 
(i) and (j), 402(j) and 404(b).
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A. Transactions With Related Persons

    We are proposing revisions to Item 404 to make the certain 
relationships and related transactions disclosure requirements clearer 
and easier to follow. The proposals would retain the principles for 
disclosure of related person transactions that are specified in current 
Item 404(a), but would no longer include all of the instructions that 
serve to delineate what transactions are reportable or excludable from 
disclosure based on bright lines that can depart from a more 
appropriate materiality analysis. Instead, proposed Item 404(a) would 
consist of a general statement of the principle for disclosure, 
followed by specific disclosure requirements and instructions. The 
instructions would explain the related persons covered by the Item, the 
scope of transactions covered by the Item, the method for computation 
of the amounts involved in the relationship or transaction, the 
interaction with Item 402, special requirements for indebtedness with 
banks, and the materiality of certain ownership interests.
    The proposed Item would extend to disclosure of indebtedness. 
Currently, Item 404(a) requires disclosure regarding transactions 
involving the company and certain related persons,\236\ and Item 404(c) 
requires disclosure regarding indebtedness.\237\ We propose to 
consolidate these two provisions in order to eliminate confusion 
regarding the circumstances in which each item applies and streamline 
duplicative portions of current paragraphs (a) and (c) of Item 404.
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    \236\ The related persons specified in current Item 404(a) are: 
(1) Any director or executive officer of the company; (2) any 
nominee for election as a director; (3) any security holder who is 
known to the company to own of record or beneficially more than five 
percent of any class of the company's voting securities; and (4) any 
member of the immediate family of any of the foregoing persons.
    \237\ The related persons specified in current Item 404(c) are: 
(1) Any director or executive officer of the company; (2) any 
nominee for election as a director; (3) any member of the immediate 
family of any of the persons specified in (1) or (2) above; (4) any 
corporation or organization (other than the company or a majority-
owned subsidiary of the company) of which any of the persons in (1) 
or (2) above is an executive officer or partner or is, directly or 
indirectly, the beneficial owner of ten percent or more of any class 
of equity securities; and (5) any trust or other estate in which any 
of the persons in (1) or (2) above has a substantial beneficial 
interest or as to which such person serves as a trustee or in a 
similar capacity.
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1. Broad Principle for Disclosure
    Proposed Item 404(a) would articulate a broad principle for 
disclosure; it would state 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.
    We propose to eliminate current Instruction 1 to Item 404(a), which 
is repetitive of the general materiality standard applicable to the 
item. By proposing to delete this instruction we do not intend to 
change the materiality standard applicable to Item 404(a). The 
``materiality'' standard for disclosure currently embodied in Item 
404(a) would be retained; a company would 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 would 
continue to be determined on the basis of the significance of the 
information to investors in light of all the circumstances and the 
significance of the interest to the person having the interest.\238\ 
The relationship of the related persons to the transaction, and with 
each other, and the amount involved in the transaction would be among 
the factors to be considered in determining the materiality of the 
information to investors.
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    \238\ See Basic v. Levinson and TSC Industries v. Northway.
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    We propose to eliminate current Instruction 7 to Item 404(a), which 
establishes certain presumptions regarding materiality and may operate 
to exclude some transactions from disclosure that might otherwise 
require disclosure under the principles enunciated by the Item. We also 
propose to eliminate current Instruction 9 to Item 404(a), which 
indicates that the $60,000 threshold is not a bright line materiality 
standard. We propose to eliminate current Instruction 9 to Item 404(a) 
because it is repetitive of the general materiality standard applicable 
to the Item.\239\ We believe that application of the materiality 
principles under the Item would be more consistent with a principles-
based approach and would lead to more

[[Page 6573]]

appropriate disclosure outcomes than application of the instructions 
that we propose to eliminate.
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    \239\ It is possible that some registrants have been operating 
under a misconception. The current $60,000 threshold is not, and the 
proposed $120,000 threshold would not be, a bright line materiality 
standard. The rule calls for, and would continue to call for, a 
materiality analysis of transactions above the threshold in order to 
determine if the related person has a direct or indirect material 
interest.
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    In addition, the proposals would:
    <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 single defined term for ``related 
persons.''\240\
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    \240\ The ``related persons'' covered by the rules proposal are 
discussed below in Section V.A.1.b.
---------------------------------------------------------------------------

    As is currently the case, disclosure would be required for three 
years in registration statements filed pursuant to the Securities Act 
or the Exchange Act.\241\
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    \241\ However, if the disclosure were being incorporated by 
reference into a registration statement on Form S-4, the additional 
two years of disclosure would not be required. Proposed Instruction 
1 to Item 404.
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    Finally, the rule proposals would include a technical modification. 
Currently, Item 404(a) states that disclosure must be provided 
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 propose to eliminate it. This 
proposal would not change the scope of disclosure required under the 
Item.\242\
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    \242\ For the same reason, we are eliminating the references to 
``subsidiaries'' in the ``compensation committee interlocks and 
insider participation in compensation decisions'' disclosure 
requirement in current Item 402(j). This proposal would not change 
the scope of disclosure required under the rule. See proposed Item 
407(e)(4).
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Request for Comment
    <bullet> Should we recast Item 404(a) as a more principles-based 
disclosure requirement as proposed? Why or why not?
    <bullet> In recasting Item 404(a) as a more principles-based 
disclosure requirement, should we eliminate all of the current 
instructions, not only the ones we propose eliminating? Are there any 
concepts in the instructions to Item 404(a) that we propose to 
eliminate that should be retained? As a result of eliminating the 
instructions to Item 404(a), would there be any categories of 
transactions which would have an unclear disclosure status? Although 
the analysis required for any particular transaction would be fact-
specific, should we provide further guidance or examples regarding the 
disclosure status of particular types of direct or indirect interests?
    <bullet> Is it appropriate to adjust the threshold for disclosure 
to $120,000? Should there be no threshold? Should the threshold also 
operate on a sliding scale (for example, the lower of $120,000 or 1% of 
the average of total assets for the last three completed fiscal years 
\243\ or the lower of $120,000 or a percentage of annual corporate 
expenses) to capture smaller transactions for smaller companies? 
Explain whether a higher or lower threshold, or no threshold, would 
result in more effective disclosure.
---------------------------------------------------------------------------

    \243\ This is the standard proposed for Item 404 of Regulation 
S-B, which is discussed in Section V.E.1. below.
---------------------------------------------------------------------------

    <bullet> In Item 404(a), should we require a company to be 
``involved'' rather than to be ``a participant'' in transactions 
subject to disclosure?
a. Indebtedness
    Section 402 of the Sarbanes-Oxley Act prohibits most personal loans 
by an issuer to its officers and directors.\244\ This development 
raises the issue of whether disclosure of indebtedness of the sort 
required under our current rules should be maintained. We believe that 
the approach to disclosure of indebtedness involving related persons 
that we propose today would be 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 propose, however, to eliminate the current distinction 
between indebtedness and other types of related person transactions.
---------------------------------------------------------------------------

    \244\ Codified in Section 13(k) of the Exchange Act [15 U.S.C. 
78m(k)].
---------------------------------------------------------------------------

    As a result of integrating paragraph (c) of Item 404 into paragraph 
(a) of Item 404, the proposals would change some situations in which 
indebtedness disclosure is required. First, disclosure of indebtedness 
transactions would be required with regard to all related persons 
covered by the related person transaction disclosure requirement, 
including significant shareholders.\245\ Second, the rule proposals 
would require disclosure of all material indirect interests in 
indebtedness transactions of related persons, including significant 
shareholders and immediate family members.\246\ Disclosure of material 
indirect interests of these related persons in transactions involving 
the company currently is, and would continue to be, required by Item 
404(a). Currently, Item 404(c) requires disclosure of specific indirect 
interests of directors, nominees for director, and executive officers 
of the registrant in indebtedness through corporations, organizations, 
trusts, and estates.\247\ 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, and, as discussed below, we propose to address certain 
ordinary course loans by financial institutions in an instruction to 
Item 404(a).
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    \245\ The related person transaction disclosure requirement in 
current Item 404(a) covers significant shareholders, while the 
indebtedness disclosure requirement in current Item 404(c) does not. 
The significant shareholders covered would continue to be any 
security holder who is known to the registrant to own of record or 
beneficially more than five percent of any class of the registrant's 
voting securities. Proposed Instruction 1.b. to Item 404(a).
    \246\ As a result of integrating pragraph (c) of Item 404 into 
paragraph (a) of Item 404, the rule proposals would set a $120,000 
threshold and require disclosure only if there is a direct or 
indirect material interest in such an indebtedness transaction, 
while Item 404(c) currently generally requires disclosure of all 
indebtedness exceeding $60,000.
    \247\ Disclosure of these interests currently is reuqired by 
subparagraphs (c)(4) and (c)(5) of Item 404. Under the rule 
proposals, these subparagraphs would be eliminated. See note 237 for 
a full description fo the related parties specified in these 
subparagraphs.
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Request for Comment
    <bullet> Is our proposal appropriate in light of the prohibition on 
personal loans to officers and directors in the Sarbanes-Oxley Act?
    <bullet> Should we combine the related person and indebtedness 
disclosure requirements in paragraphs (a) and (c) of Item 404? As a 
result of combining these disclosure requirements, would there be 
categories of indebtedness transactions for which disclosure would be 
required that should not be required or for which disclosure would not 
be required that should be disclosed?
    <bullet> Should the disclosure requirements for indebtedness be 
extended to significant shareholders?
b. Definitions
    We propose to define the terms ``transaction,'' ``related person'' 
and ``amount involved'' to streamline Item 404(a) and clarify the broad 
scope of financial transactions and relationships covered by the rule.

[[Page 6574]]

    The term ``transaction'' would have a broad scope in proposed Item 
404(a).\248\ As proposed, this term is not to be interpreted narrowly, 
but rather would broadly include, but not be limited to, any financial 
transaction, arrangement or relationship or any series of similar 
transactions, arrangements or relationships. The proposals also would 
specifically note that the term ``transactions'' is defined to include 
indebtedness and guarantees of indebtedness.
---------------------------------------------------------------------------

    \248\ The definition of ``transaction'' is in proposed 
Instruction 2 to Item 404(a).
---------------------------------------------------------------------------

    The proposed definition of ``related person'' would identify the 
persons covered, and clarify the time periods during which they would 
be covered. As proposed, the term ``related person'' \249\ would mean 
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 would be required:
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    \249\ The definition of ``related person'' is in proposed 
Instruction 1 to Item 404(a).
---------------------------------------------------------------------------

    <bullet> Any director or executive officer of the registrant and 
his immediate family members; and
    <bullet> If disclosure were provided in a proxy or information 
statement involving 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 registrant to own of record 
or beneficially 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 would also be 
a related person.

    This is the same list of persons covered by current Item 404(a). 
This proposed definition of ``related person'' would result in 
requiring disclosure for all transactions involving the company and a 
person (other than a significant shareholder or 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.\250\ A person 
who had such 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 registrant during 
that year. Although current Item 404(a) does not specifically indicate 
whether disclosure is required for the transaction in this situation, 
the history of Item 404 suggests that disclosure would be 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.\251\ We believe 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 proximity in 
time could influence the person's performance of his or her duties.
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    \250\ The principle for disclosure would only apply to nominees 
for director if disclosure were being provided in a proxy or 
information statement involving the election of directors. Also, 
ongoing disclosure would not be required regarding nominees for 
director who were not elected (unless a nominee was nominated again 
for director).
    \251\ 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--Item 7(f).'' Note 
C to Schedule 14A currently provides that ``information 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.'' The rule proposals would amend Note C to 
Schedule 14A so that it would 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 family members), but are not 
at the time of the transaction, raise different considerations and are 
harder to track, and thus we propose to exclude them. Disclosure would 
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 person becomes a significant shareholder.
    Under the rule proposals, the term ``immediate family member'' of a 
related person would mean 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 
registrant.\252\ The proposed definition would differ from the current 
definition in that it includes stepchildren, stepparents, and any 
person (other than a tenant or employee) sharing the household of a 
related person.
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    \252\ These definitions would replace current instructions to 
paragraphs (a) and (c) of Item 404.
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    The proposed definition of ``amount involved'' would incorporate 
two concepts included in current Item 404 regarding how to determine 
the ``amount involved'' in transactions, and to clarify that the 
amounts reported must be in dollars even if the amount was set or 
expensed in a different currency.\253\ Under the proposals, the term 
``amount involved'' would mean the dollar value of the transaction, or 
series of similar transactions, and would include:
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    \253\ The definition of ``amount involved'' is in proposed 
Instruction 3 to Item 404(a).
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    <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; \254\ and
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    \254\ This proposal is based on current Instruction 3 to Item 
404(a).
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    <bullet> In the case of indebtedness, the largest aggregate 
principal 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.\255\
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    \255\ This proposal is based on and clarifies current Item 
404(c).
---------------------------------------------------------------------------

Request for Comment
    <bullet> Does the definition of ``transaction'' make clear its 
broad scope? Are there any additional categories that it should 
specifically identify? Alternatively, is it overly inclusive? If so, 
explain how.
    <bullet> Should the same categories of people be covered by the 
disclosure requirements currently in paragraphs (a) and (c) of Item 
404? Specifically, are there any persons who would be defined as 
``related persons'' for whom indebtedness disclosure should not be 
required or are there any additional persons who should be covered?
    <bullet> The proposed changes to Item 404 would require disclosure 
of indirect interests in indebtedness of related persons. Should they?
    <bullet> Should disclosure be required regarding portions of a 
period during which a person did not have the relationship giving rise 
to the disclosure requirement? Is it appropriate, as we propose, to 
exclude significant shareholders and their immediate family members 
from this approach?
    <bullet> Should we expand the definition of ``immediate family 
member'' as proposed? Specifically, are there any

[[Page 6575]]

categories of people that should be added to, or removed from, the 
proposed definition?
    <bullet> In 2002 we issued a release regarding MD&A disclosure. At 
that time, we noted the possible need for related party disclosure in 
circumstances additional to those specified in Item 404.\256\ Are there 
any circumstances that fall within the MD&A requirements that should 
also be covered by Item 404 where disclosure currently is not required, 
or would not be required under the rule proposals?
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    \256\ The release stated that:
    Registrants should * * * consider the need for [MD&A] disclosure 
about parties that fall outside the definition of ``related 
parties,'' but with whom the registrant or its related parties have 
a relationship that enables the parties to negotiate terms of 
material transactions that may not be available from other, more 
clearly independent, parties on an arm's-length basis. For example, 
an entity may be established and operated by individuals that were 
former senior management of, or have some other current or former 
relationship with, a registrant. The purpose of the entity may be to 
own assets used by the registrant or provide financing or services 
to the registrant. Although former management or persons with other 
relationships may not meet the definition of a related party 
pursuant to FAS 57, the former management positions may result in 
negotiation of terms that are more or less favorable than those 
available on an arm's-length basis from clearly independent third 
parties that are material to the registrant's financial position or 
results of operations. In some cases, investors may be unable to 
understand the registrant's reported results of operations without a 
clear explanation of these arrangements and relationships.
    Commission Statement about Management's Discussion and Analysis 
of Financial Condition and Results of Operations, Release No. 33-
8056 (Jan. 22, 2002) [67 FR 3746], at Section II.C.
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    <bullet> Is there any reason to change the current meaning of 
amount involved in transactions involving leases, which we propose to 
retain?
2. Disclosure Requirements
    Proposed subparagraphs of Item 404(a) would provide the disclosure 
requirements for related person transactions. The company would be 
required to describe the transaction, including:
    <bullet> The person's 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 dollar value of the amount involved in the transaction 
and of the related person's interest in the transaction.\257\
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    \257\ As is the case today, the dollar value would be computed 
without regard to the amount of the profit or loss involved in the 
transaction. Because of the manner in which the value of the amount 
involved is calculated for indebtedness, as discussed above, 
disclosure with respect to indebtedness would 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.
---------------------------------------------------------------------------

    Registrants would 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.
    Consistent with the principles-based approach that we propose to 
apply to related person transaction disclosure, we have, as noted 
above, eliminated many of the instructions that provide bright line 
tests that may be inconsistent with general materiality standards. 
Similarly, we propose to eliminate a current instruction that, in the 
case of a related person transaction involving a purchase of assets by 
the company or sale of assets to the company, calls for specific 
disclosure of the cost of the assets if acquired within two years of 
the transaction. We would note, however, that if such information was 
material under the proposed standards of Item 404(a), because, for 
example, the recent purchase price to the related person was materially 
less than the sale price to the company, or the sale price to the 
related person was materially more than the recent purchase price to 
the company, disclosure of such prior purchase price could be 
required.\258\
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    \258\ Section 10(b) of the Exchange Act [15 U.S.C. 78j(b)], 
Rules 10b-5 [17 CFR 249,19b-5] and 12b[dash]20 [17 CFR 240.12b-20] 
under the Exchange Act and Section 17 of the Securities Act [15 
U.S.C. 77q].
---------------------------------------------------------------------------

    Currently, disclosure must be provided regarding amounts possibly 
owed to the company under Section 16(b) of the Exchange Act.\259\ The 
purpose of related person transaction disclosure differs from the 
purpose of Section 16(b). Accordingly, the rule proposals eliminate 
this Section 16(b)-related disclosure requirement.
---------------------------------------------------------------------------

    \259\ Current Instruction 4 to Item 404(c).
---------------------------------------------------------------------------

Request for Comment
    <bullet> Should Item 404 require specific disclosure of the person 
determining the registrant's purchase or sale price for registrant 
purchases or sales of assets not in the ordinary course of business?
    <bullet> Should Item 404 require disclosure of Section 16(b)-
related indebtedness? Why or why not?
    <bullet> Consistent with our principles-based approach, should we 
specify any other elements of the transaction for disclosure?
3. Exceptions
    The proposed rules would include categories of transactions that do 
not fall within the principle and therefore are subject to disclosure 
exceptions that we believe are consistent with our principles-based 
approach.\260\ The first category of transactions involves 
compensation. Disclosure of compensation to an executive officer would 
not be required if:
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    \260\ Proposed Instructions 4, 5, 6, 7 and 8 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 of 
a related person 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 as such by the compensation committee of the board of 
directors (or group of independent directors performing a similar 
function) of the company.
    Disclosure of compensation to a director (or nominee for director) 
would not be required if:
    <bullet> The compensation is reported pursuant to proposed Item 
402(l).\261\
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    \261\ Proposed Instructions 5 and 6 to Item 404(a), which would 
replace current Instruction 1 to Item 404.
---------------------------------------------------------------------------

    Since the disclosure either would be reported under Item 402, or 
would not be required under Item 402, we do not believe the 
transactions fall within our proposed principle or will have already 
been disclosed. We believe the transactions involving compensation that 
do not fall within these exceptions would be within the scope of the 
proposed Item 404(a) principle for disclosure. These exceptions would 
clarify the limited situations in which disclosure of compensation to 
related persons is not required under Item 404.\262\
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    \262\ In particular, current Instruction 1 to Item 404 covers 
the scope of Items 402 and 404. We propose to eliminate this 
instruction.
---------------------------------------------------------------------------

    The second category of transactions involves three types of 
situations we believe do not raise the potential issues underlying our 
principle for disclosure. First, in the case of transactions involving 
indebtedness, the following items of indebtedness would 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 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

[[Page 6576]]

ordinary business travel and expense payments and for other 
transactions in the ordinary course of business.\263\
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    \263\ This proposal is based on current Instruction 2 to Item 
404(c).
---------------------------------------------------------------------------

    Second, also in the case of a transaction involving indebtedness, 
if the lender is a bank, savings and loan association, or broker-dealer 
extending credit under Federal Reserve Regulation T \264\ and the loans 
are not disclosed as nonaccrual, past due, restructured or potential 
problems \265\ disclosure under proposed paragraph (a) of Item 404 may 
consist of a statement, if correct, that the loans to such persons 
satisfied the following conditions:
---------------------------------------------------------------------------

    \264\ 12 CFR Part 220.
    \265\ 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 bank; and
    <bullet> They did not involve more than the normal risk of 
collectibility or present other unfavorable features.\266\
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    \266\ Proposed Instruction 7 to Item 404(a).
---------------------------------------------------------------------------

    This proposed exception is based on a current instruction to Item 
404(c),\267\ and is modified to be more consistent with the prohibition 
of the Sarbanes-Oxley Act on personal loans to officers and 
directors.\268\
---------------------------------------------------------------------------

    \267\ Current Instruction 3 to Item 404(c), which would be 
eliminated.
    \268\ Specifically, the language of current Instruction 3 to 
paragraph (c) of Item 404 would be modified to replace the reference 
``comparable transactions with other persons'' with the phase 
``comparable loans with persons not related to the lender.''
---------------------------------------------------------------------------

    Finally, we propose an instruction that indicates 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 which 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.\269\
---------------------------------------------------------------------------

    \269\ Proposed Instruction 8 to Item 404(a). This proposal is 
based on parts A and B of current Instruction 8 to Item 404(a). This 
proposal would omit the portion of the current 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 portion of the current 
instruction may result in inappropriate non-disclosure of 
transactions without regard to whether they are material to the 
company. In addition, we propose to eliminate current Instruction 6 
to Item 404(a) that covers a subset of transactions covered by this 
proposed instruction, and therefore is duplicative.
---------------------------------------------------------------------------

Request for Comment
    <bullet> Does proposed Item 404(a) simplify and clarify the 
requirements currently contained in paragraphs (a) and (c) of Item 404?
    <bullet> Would the proposed rule clarify the situations in which 
compensation would be reportable under Item 404? Are there any 
categories of compensation for which it would be unclear whether 
disclosure would be required under proposed Item 404?
    <bullet> We propose to exclude from the ``amount involved'' 
disclosure requirements indebtedness due for purchases subject to usual 
trade terms, ordinary business travel and expense payments, and 
ordinary course business transactions as is currently the case. Is this 
exclusion appropriate? Why or why not?
    <bullet> Do the current instructions that we propose to modify or 
eliminate provide necessary guidance for determining if disclosure is 
necessary? Should any of these current instructions be retained? Should 
other instructions be added to make the application of the principle 
for disclosure clearer?
    <bullet> Does proposed Instruction 8 to Item 404(a), which 
indicates that a person having the specified positions or relationships 
with a person that engages in a transaction with the company shall not 
be deemed to have an indirect material interest in the transaction, 
provide sufficient guidance for determining whether disclosure is 
necessary in the circumstances identified in the instruction? Should 
the potential exclusions contemplated in the current instructions to 
Item 404(a), including current Instruction 6 (excluding remuneration 
transactions for services when the person's interest arises solely from 
a ten percent equity ownership interest) and current Instruction 8.C. 
(excluding transactions where the interest arises from an equity or 
creditor interest in another person and the transaction is not material 
to the other person) be retained or expanded?

B. Procedures for Approval of Related Person Transactions

    We propose adopting a new requirement for disclosure of the 
policies and procedures established by the company and its board of 
directors regarding related person transactions. State corporate law 
and increasingly robust corporate governance practices support or 
provide for such procedures in connection with transactions involving 
conflicts of interest.\270\ We believe that this type of information is 
material to investors, and our rule proposals would therefore require 
disclosure of policies and procedures regarding related person 
transactions under new paragraph (b) of Item 404.
---------------------------------------------------------------------------

    \270\ 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 proposal would require a description of the 
company's policies and procedures for the review, approval or 
ratification of transactions with related persons that would be 
reportable under paragraph (a) of Item 404. The description would 
include the material features of these policies and procedures that are 
necessary to understand them. While the material features of such 
policies and procedures would 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.
    The proposal would also require identification of any transactions 
required to be reported under paragraph (a) of Item 404 where the 
company's policies and procedures did not require review, approval or 
ratification or where such policies and procedures were not followed.
Request for Comment
    <bullet> Should we require disclosure regarding the review, 
approval or ratification of related person transactions? Should the 
rule include the proposed requirements? Are there other types of 
information that are

[[Page 6577]]

material that should be included in the description of the approval 
process?
    <bullet> Should we require disclosure of transactions required to 
be reported under Item 404(a) where a company's policies and procedures 
did not require review or were not followed?

C. Promoters

    The proposals would 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. The proposed disclosure would be required in 
Securities Act registration statements on Form S-1 (generally, the 
registration statement form for initial public offerings, offerings by 
unseasoned issuers or those with less than $75 million public float and 
offerings by issuers otherwise ineligible to use Form S-3 or S-4) or on 
Form SB-2 (a registration statement form that small business issuers 
may use) and Exchange Act Form 10 (used to register securities 
initially under the Exchange Act) or Form 10-SB (a registration form 
that small business issuers may use). The proposed disclosure would 
include:
    <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 of any 
consideration received by the company; and
    <bullet> Additional information regarding any assets acquired by 
the company from a promoter.
    The proposed disclosure requirements are consistent with those 
currently required regarding promoters. However, this disclosure is not 
currently required if the company has 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 would relate to the period of time during 
which the company had a promoter for which the disclosure should be 
provided, as our proposal provides, rather than the date of 
organization of the company.\271\ We also are proposing to require 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.\272\
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    \271\ The proposed rules would similarly revise the disclosure 
requirement referencing promoters in Item 401(g)(1) of Regulation S-
K. In addition, our proposal would add Form SB-2 to the list of 
registration statement forms in Item 404 for which promoter 
disclosure would be required. While this revision would update the 
registration statement forms listed in Item 404, it would not change 
the promoter disclosure requirement of Form SB-2.
    \272\ Proposed Item 404(c)(2). The term ``group'' would have 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.
---------------------------------------------------------------------------

Request for Comment
    <bullet> Does the proposed requirement cover the circumstances 
where promoter disclosure would be material to investors? If not, what 
other circumstances should be covered?
    <bullet> Does the proposed requirement cover circumstances where 
the required disclosure would not be material to investors? If so, in 
what circumstance?

D. Corporate Governance Disclosure

    We propose to consolidate our disclosure requirements regarding 
director independence and related corporate governance disclosure 
requirements under a single disclosure item and to update such 
disclosure requirements regarding director independence to reflect our 
current requirements and current listing standards.\273\
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    \273\ Proposed Item 407 of Regulations S-K and S-B. As proposed, 
Item 407 would consolidate corporate governance disclosure 
requirements located in several places under our rules and the 
principal markets' listing standards, including in particular our 
requirements under current 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. We are not proposing any changes to the substance of 
Item 306, Item 401(h), (i) or (j), or Item 402(j) as part of this 
consolidation. However, the proposed rules would reorder some 
provisions in Item 306 and reflect 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].
---------------------------------------------------------------------------

    Our current requirements provide for disclosure of business 
relationships between a director or nominee for director and the 
company that may bear on the ability of directors and nominees for 
director to exercise independent judgment in the performance of their 
duties.\274\ In addition, as directed by the Sarbanes-Oxley Act of 
2002, we adopted a rule requiring national securities exchanges to 
adopt listing standards requiring independent audit committees meeting 
the standards of our rule.\275\ Further, in 2003 and 2004, we approved 
amendments to additional listing standards, including those of the New 
York Stock Exchange and Nasdaq,\276\ that imposed specific additional 
independence standards for boards of directors, and the compensation 
and nominating committees or persons performing similar functions. 
Currently, each listed company 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.
---------------------------------------------------------------------------

    \274\ Current Item 404(b).
    \275\ Section 10A(m) of the Exchange Act [15 U.S.C. 78j-1(m)], 
as added by Section 301of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 
7201 et seq.); 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) [68 FR 18788].
    \276\ 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 
proposing additional action under these petitions.
---------------------------------------------------------------------------

    The proposals would include a disclosure requirement identifying 
the

[[Page 6578]]

independent directors of the company (and, in the case of disclosure in 
proxy or information statements, nominees for director) under the 
definition for determining board independence applicable to it. The 
proposals would also require disclosure of any members of the 
compensation, nominating and audit committee that the company had not 
identified as independent under the definition of independence for that 
board committee applicable to it.
    More specifically, if the company is an issuer \277\ with 
securities listed, or for which it has applied for listing, on a 
national securities exchange \278\ or in an automated inter-dealer 
quotation system of a national securities association \279\ which has 
requirements that a majority of the board of directors be independent, 
the proposal would require disclosure of those directors and director 
nominees that the company identifies as independent (and committee 
members not identified as independent), using a definition for 
independence for directors (and for committee members) that is in 
compliance with the applicable listing standards. If the company is not 
a listed issuer, the proposals would require 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 would 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.\280\
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    \277\ Under the rule proposals, ``listed issuer'' would have the 
same meaning as in Exchange Act Rule 10A-3.
    \278\ Under the rule proposals ``national securities exchange'' 
means a national securities exchange registered pursuant to Section 
6(a) of Exchange Act [15 U.S.C. 78f(a)].
    \279\ Under the rule proposals ``automated inter-dealer 
quotation system of a national securities association'' 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)].
    \280\ Similar disclosure is currently required pursuant to Item 
7(d)(2)(ii)(C) and Item 7(d)(3)(iv) of Schedule 14A. As part of our 
consolidation of these provisions into proposed Item 407, we propose 
to revise these provisions to reflect the general approach discussed 
above with regard to disclosure of director independence for board 
and committee purposes.
---------------------------------------------------------------------------

    The proposals would require an issuer that has adopted definitions 
of independence for directors and committee members to disclose whether 
those definitions are posted on the company's Web site, or include the 
definitions as an appendix to the company's proxy materials at least 
once every three years or if the policies have been materially amended 
since the beginning of the company's last fiscal year.\281\ Further, if 
the policies are not on the company's Web site, or included as an 
appendix to the company's proxy statement, the company would have to 
disclose in which of the prior fiscal years the policies were included 
in the company's proxy statement.
---------------------------------------------------------------------------

    \281\ Proposed Item 407(a)(2).
---------------------------------------------------------------------------

    In addition, the proposals would require, for each director or 
director nominee identified as independent, a description 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.
    This independence disclosure would be required for any person who 
served as a director of the company during any part of the year for 
which disclosure must be provided,\282\ 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.\283\
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    \282\ However, disclosure would 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 
Sections 13(a) or 15(d). Disclosure would not be required of anyone 
who was a director only during the time period before the company 
made its initial public offering if he was no longer a director at 
the time of the offering. Proposed Instruction to Item 407(a).
    \283\ For this reason, we do not propose to incorporate the 
concept in current Instruction 4 to Item 404(b) into proposed Item 
407(a).
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    The proposals also would revise the current disclosure required 
regarding the audit committee and nominating committee \284\ to 
eliminate duplicative committee member independence disclosure and to 
update the required audit committee charter disclosure requirement for 
consistency with the more recently adopted nominating committee charter 
disclosure requirements.\285\ As a result, the audit committee charter 
would no longer be required to be delivered to security holders if it 
is posted on the company's Web site.\286\ We also propose moving the 
disclosure required by Section 407 of the Sarbanes-Oxley Act regarding 
audit committee financial experts to Item 407, although we are not 
proposing any substantive changes to that requirement.
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    \284\ Current Item 7 of Schedule 14A.
    \285\ However, we are not proposing to revise the provision that 
the audit committee report is furnished and not filed.
    \286\ Proposed Item 407(d)(1) and Instruction 2 to Item 407.
---------------------------------------------------------------------------

    In addition to the disclosures currently required regarding audit 
and nominating committees of the board of directors, we propose 
requiring similar disclosure regarding compensation committees.\287\ 
The company would also be required to describe its processes and 
procedures for the consideration and determination of executive and 
director compensation including:
---------------------------------------------------------------------------

    \287\ Current Item 7(d) of Schedule 14A. These new proposed 
requirements also would be in proposed 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> Whether the compensation committee's authority is set 
forth in a charter or other document, and if so, the company's Web site 
address at which a current copy is available if it is so posted, and if 
not so posted, attaching the charter to the proxy statement once every 
three years;
    <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, the material elements of the 
instructions or directions given to the consultants with respect to the 
performance of their duties under the engagement and identifying any 
executive officer within the company the consultants contacted in 
carrying out their assignment.

[[Page 6579]]

    In addition, as noted above, disclosure would be required regarding 
each member of the compensation committee that the registrant has 
identified as not independent.
    Further, the rule proposals would consolidate into this 
compensation committee disclosure requirement the disclosure currently 
required in Item 402 regarding compensation committee interlocks and 
insider participation in compensation decisions.\288\
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    \288\ Current Item 402(j).
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    Finally, for registrants other than registered investment 
companies, the rule proposals would eliminate an existing proxy 
disclosure requirement regarding directors that have resigned or 
declined to stand for re-election \289\ which is no longer necessary 
since it has been superseded by a disclosure requirement in Form 8-
K.\290\ For registered investment companies, which do not file Form 8-
K, the requirement would be moved to Item 22(b) of Schedule 14A.\291\ 
Also, the rule proposals would combine various proxy disclosure 
requirements regarding board meetings and committees into one 
location.\292\ In addition, we propose two instructions to Item 407 to 
combine repetitive provisions, one relating to independence disclosure, 
and the other relating to board committee charters.\293\
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    \289\ Item 7(g) of Schedule 14A.
    \290\ Item 5.02(a) of Form 8-K.
    \291\ Proposed Item 22(b)(17) of Schedule 14A.
    \292\ Current paragraphs (d)(1), (f), and (h)(3) of Item 7 of 
Schedule 14A would be included in proposed Item 407(b).
    \293\ Proposed Instructions 1 and 2 to Item 407. Proposed 
Instruction 2 also includes a requirement that the charter be 
provided if it is materially amended.
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Request for Comment
    <bullet> Should the disclosure requirements proposed to be 
consolidated in Item 407 continue to remain separate? If so, why? Is 
the proposed location of this consolidated disclosure appropriate, 
including the proposed options for disclosing adopted independence 
definitions?
    <bullet> Are there independence standards that would be preferable 
to the ones referenced in proposed new Item 407?
    <bullet> Should companies that are not listed on a national 
securities exchange or on an inter-dealer quotation system of a 
national securities association be able to reference their own 
standards of independence that they have adopted, or should those 
companies be required to refer to established listing standards as 
proposed?
    <bullet> Should we require as proposed a description of 
transactions considered (other than those that would be reported under 
proposed Item 404(a)) when determining if the independence standards 
were met?
    <bullet> Is there any reason why we should not eliminate the 
requirement that companies provide disclosure in their proxy statements 
regarding directors who have resigned or declined to stand for re-
election? \294\
---------------------------------------------------------------------------

    \294\ Item 7(g) of Schedule 14A.
---------------------------------------------------------------------------

    <bullet> Are there circumstances in which disclosure should not be 
required under proposed Item 407(a)? Should disclosure not be required 
for a director who is no longer a director at the time of filing any 
registration statement or report? Should disclosure not be required if 
information is being presented in a proxy or information statement for 
a director whose term of officer as a director will not continue after 
the meeting to which the statement relates?
    <bullet> Given that registered investment companies do not file 
Form 8-K, should we continue to require registered investment companies 
to make proxy statement disclosures pursuant to current Item 7(g) of 
Schedule 14A regarding directors who have resigned or declined to stand 
for re-election?
    <bullet> Should we also move the disclosure required by Rule 10A-
3(d) (under which companies must disclose whether they have relied on 
an exemption from the audit committee independence requirements of Rule 
10A-3) to proposed Item 407?
    <bullet> Should the audit committee charter disclosure requirement 
be changed to be consistent with the nominating committee charter 
disclosure requirements? Should the compensation committee charter 
disclosure requirement be the same? Should there be any changes to the 
proposed compensation committee disclosure requirements?
    <bullet> Are there any disclosure requirements regarding 
compensation consultants that we should add to or delete or change from 
the proposal?

E. Treatment of Specific Types of Issuers

1. Small Business Issuers
    Proposed Item 404 of Regulation S-B is substantially similar to 
proposed Item 404 of Regulation S-K, except for the following two 
matters:
    <bullet> Paragraph (b) relating to policies and procedures for 
reviewing related party transactions is proposed not to be included in 
Regulation S-B, and
    <bullet> Regulation S-B would provide for a disclosure threshold of 
the lesser of $120,000 or one percent of the average of the small 
business issuer's total assets for the last three completed fiscal 
years, 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.
    Both proposed items would consist of disclosure requirements 
regarding related person transactions and promoters. These provisions 
of Item 404 of Regulation S-B would be substantially identical to those 
of Item 404 of Regulation S-K, except for certain changes conforming 
proposed Item 404 of Regulation S-B to current Item 404 of Regulation 
S-B. These changes consist of the following:
    <bullet> Throughout proposed Item 404 of Regulation S-B using the 
two year time period for disclosure in current Item 404 of Regulation 
S-B;
    <bullet> Retaining in proposed Item 404 of Regulation S-B an 
instruction in current Item 404 of Regulation S-B regarding 
underwriting discounts and commissions; \295\ and
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    \295\ This instruction, which is current Instruction 2 to Item 
404 of Regulation S-B, is proposed Instruction 9 to Item 404 of 
Regulation S-B.
---------------------------------------------------------------------------

    <bullet> Not including an instruction in proposed Item 404 of 
Regulation S-B regarding the treatment of foreign private issuers that 
is included in proposed Item 404 of Regulation S-K.\296\
---------------------------------------------------------------------------

    \296\ This instruction, which is current Instruction 3 to Item 
404 of Regulation S-K, is not included in current Item 404 of 
Regulation S-B.
---------------------------------------------------------------------------

    In addition, proposed Item 404 of Regulation S-B would retain a 
paragraph from current Item 404 of Regulation S-B 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 its immediate parent, if any.
    One conforming change that we are not making, however, concerns the 
calculation of a related person's interest in a given transaction. 
Current Item 404(a) of Regulation S-B differs from current Item 404(a) 
of S-K with respect to, among other things, the calculation of the 
dollar value of a person's interest in a related transaction. Current 
Instruction 4 to Item 404(a) of Regulation S-K specifically provides 
that the amount of such interest shall be computed without regard to 
the amount of profit or loss involved in the transaction. In contrast, 
current Item 404(a) of Regulation S-B contains no such instruction. We 
propose 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

[[Page 6580]]

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.
    Proposed Item 407 of Regulation S-K is substantially identical to 
proposed Item 407 of Regulation S-B,\297\ except that it would it would 
not require disclosure regarding compensation committee interlocks and 
insider participation in compensation decisions, since Regulation S-B 
currently does not require disclosure of this information.\298\
---------------------------------------------------------------------------

    \297\ Current paragraphs (e), (f), and (g) of Item 401 of 
Regulation S-B would become paragraphs (d)(5), (d)(4) and (c)(3), 
respectively, of Item 407 of Regulation S-B.
    \298\ This disclosure is currently required under Item 402(j) of 
Regulation S-K.
---------------------------------------------------------------------------

Request for Comment
    <bullet> Should small business issuers be categorically exempted 
from any additional aspect of the proposed Item 404 or Item 407 
disclosure requirements? If so, which requirements and why? Should any 
of the proposed exclusions not be excluded? If so, why?
    <bullet> Currently Item 404(a) of Regulation S-K states that 
companies are not to consider the amount of profit or loss when 
computing the amount involved in a transaction, but Item 404 of 
Regulation S-B does not include this statement. We propose to provide 
the same instruction in both Regulation S-K and Regulation S-B. Should 
Item 404(a) of Regulation S-B continue to omit this instruction? Why or 
why not?
    <bullet> Currently Item 404(a) of Regulation S-K specifically 
provides for using the value of the aggregate amount of all periodic 
payments or installments when computing the amount involved in a 
transaction, but Item 404 of Regulation S-B does not. Should Item 
404(a) of Regulation S-B, as does proposed Instruction 3 to Item 404(a) 
of Regulation S-B, provide for this?
    <bullet> Is the definition of ``related person'' in Item 404 of 
Regulation S-B sufficiently broad? Should this definition be expanded 
to include consultants and advisors?
    <bullet> Should we use a different alternative threshold for 
disclosure in proposed Item 404(a) of Regulation S-B? For example the 
lesser of $120,000 or a percentage of annual corporate expenses?
2. Foreign Private Issuers
    Currently a foreign private issuer will be deemed to comply with 
Item 404 of Regulation S-K if it provides the information required by 
Item 7.B. of Form 20-F. The proposals would retain this approach, but 
would require that if more detailed information is 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.
Request for Comment
    <bullet> Is there any reason to discontinue this treatment of 
foreign private issuers? Should a foreign private issuer that is 
required to comply with Item 404 (for example, by filing an annual 
report on Form 10-K) be required to provide all of the information 
required under Item 404 instead of the information required under Form 
20-F?
3. Registered Investment Companies
    We propose to revise Items 7 and 22(b) of Schedule 14A to reflect 
the reorganization that we have proposed with respect to operating 
companies. Under the proposals, information that is currently required 
to be provided by registered investment companies under Item 7 would 
instead be required by Item 22(b).\299\ The requirements of Item 7 that 
are currently applicable to registered investment companies regarding 
the nominating and audit committees, board meetings, the nominating 
process, and shareholder communications generally would be included in 
Item 22(b) by cross-references to the appropriate paragraphs of 
proposed Item 407 of Regulation S-K.\300\ The substance of these 
requirements would not be altered. In addition, the proposed revisions 
to Item 22(b) would directly incorporate disclosures relating to the 
independence of members of nominating and audit committees that are 
similar to those contained in proposed Item 407(a) of Regulation S-K 
and currently contained in Item 7.\301\
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    \299\ Proposed amendments to Item 7(e) of Schedule 14A. Business 
development companies would 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 proposed amendments to Items 7, 8, 
and 22(b) of Schedule 14A.
    \300\ Proposed Items 22(b)(15)(i) and (ii)(A) and 22(b)(16)(i) 
of Schedule 14A. Proposed Item 22(b)(15)(i) would require the 
information required by Items 407(b)(1) and (2) and (f), 
corresponding to the information that registered investment 
companies are required to provide pursuant to current Items 7(f) and 
7(h). Proposed Item 22(b)(15)(ii)(A) would require the information 
required by proposed Items 407(c)(1) and (2), corresponding to the 
information that registered investment companies are required to 
provide pursuant to current Items 7(d)(2)(i) and 7(d)(2)(ii) (other 
than the nominating committee independence disclosures required by 
current Item 7(d)(2)(ii)(C)). Proposed Item 22(b)(16)(i) would 
require closed-end investment companies to provide the information 
required by proposed Items 407(d)(1) through (3), corresponding to 
the information that closed-end investment companies are required to 
provide pursuant to current Item 7(d)(3) (other than the audit 
committee independence disclosures required by Items 
7(d)(3)(iv)(A)(1) and (B)).
    \301\ Proposed Items 22(b)(15)(ii)(B) and (16)(ii) of Schedule 
14A. Proposed Item 22(b)(15)(ii)(B) requires disclosure about the 
independence of nominating committee members that is similar to 
those required by current Item 7(d)(2)(ii)(C) and proposed Item 
22(b)(16)(ii) requires disclosure about the independence of audit 
committee members that is similar to those required by current Items 
7(d)(3)(iv)(A)(1) and (B).
---------------------------------------------------------------------------

    We are also proposing to raise 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.\302\ This disclosure is required in investment company 
proxy and information statements and registration statements. The 
increase in the disclosure threshold would correspond to the proposal 
to increase the disclosure threshold for Item 404 from $60,000 to 
$120,000.
---------------------------------------------------------------------------

    \302\ Proposed amendments to Items 22(b)(7), 22(b)(8), and 
22(b)(9) of Schedule 14A; proposed amendments to Items 12(b)(6), 
12(b)(7), and 12(b)(8) of Form N-1A; proposed amendments to Items 
18.9, 18.10, and 18.11 of Form N-2; proposed amendments to Items 
20(h), 20(i), and 20(j) of Form N-3.
---------------------------------------------------------------------------

Request for Comment
    <bullet> Should we reorganize in the manner proposed the 
disclosures that registered investment companies are currently required 
to make under Item 7 of Schedule 14A? If not, how should these 
disclosures be organized? Should any substantive changes be made to the 
proposed disclosures?
    <bullet> Is it appropriate to adjust 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? Should there 
be no threshold? Should the threshold also operate on a sliding scale 
(for example, the lower of $120,000 or 1% of total or net assets for 
the last three completed fiscal years or the lower of $120,000 or a 
percentage of annual expenses) to capture smaller transactions for 
smaller companies? Explain whether a higher or lower threshold, or no 
threshold, would result in more effective disclosure.

F. Conforming Amendments

    The changes we propose to Item 404 necessitate conforming 
amendments to

[[Page 6581]]

other rules that refer specifically to Item 404.
1. Regulation Blackout Trading Restriction
    We are proposing conforming changes to Regulation Blackout Trading 
Restriction,\303\ also known as Regulation BTR, which we adopted to 
clarify the scope and operation of Section 306(a) \304\ of the 
Sarbanes-Oxley Act of 2002 and to prevent evasion of the statutory 
trading restriction.\305\ 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.'' \306\ Under this definition, 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.'' \307\ To conform 
this provision of Regulation BTR to the proposed Item 404 amendments, 
we propose to amend Rule 100(a)(2) so that it references only 
transactions described in paragraph (a) of Item 404.
---------------------------------------------------------------------------

    \303\ 17 CFR 245.100-104.
    \304\ 15 U.S.C. 7244(a), entitled ``Prohibition of Insider 
Trading During Pension Fund Blackout Periods.''
    \305\ 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 acquired 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.
    \306\ This term is defined in Rule 100(a) of Regulation BTR.
    \307\ Rule 100(a)(2) of Regulation BTR.
---------------------------------------------------------------------------

2. Rule 16b-3 Non-Employee Director Definition
    We also are proposing conforming amendments to the definition of 
Non-Employee Director in Exchange Act Rule 16b-3. 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.\308\
---------------------------------------------------------------------------

    \308\ Exchange Act Rules 16b-3(d)(1) and 16b-3(e).
---------------------------------------------------------------------------

    The definition of ``Non-Employee Director,'' among other things, 
limits 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 proposals would substantially 
revise or rescind the Item 404 provisions on which the Non-Employee 
Director definition is based. To minimize potential disruptions and 
because no problems have been brought to our attention regarding any 
aspect of the current definition, the proposed conforming amendment 
would continue to permit consulting and similar arrangements subject to 
limits measured by reference to the proposed Item 404(a) disclosure 
requirements.\309\ The amendment would delete the provision referring 
to business relationships subject to disclosure under Item 404(b), 
without otherwise revising the text of the rule.\310\ Because the 
disclosure threshold of Item 404(a) would be raised from $60,000 to 
$120,000, however, the effect in some cases may be to permit previously 
ineligible directors to be Non-Employee Directors.\311\ In other cases, 
where proposed Item 404(a) may require disclosure of business 
relationships not subject to disclosure under current Item 404(b), some 
current Non-Employee Directors may become ineligible.
---------------------------------------------------------------------------

    \309\ Because it appears appropriate that the standards for an 
exemption from Section 16(b) liability be readily determinable by 
reference to the exemptive rule, and not variable depending upon 
where the issuer's securities are listed, we do not propose to base 
the amended definition on the listing standards for director 
independence applicable to the issuer.
    \310\ 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,'' 
would not be revised.
    \311\ As under the current rule, each test referring to Item 404 
will be measured by reference to the Regulation S-K Item, even if 
the disclosure requirements applicable to the company are governed 
by Regulation S-B.
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Request for Comment
    <bullet> Should the Rule 16b-3 Non-Employee Director definition 
continue to permit consulting or similar arrangements with the issuer, 
as proposed?
    <bullet> Is the proposed Item 404(a) disclosure threshold an 
appropriate limit for permitting consulting or similar arrangements? 
Instead, should the dollar limit be lower, such as the current $60,000 
threshold? Explain the basis for recommending a different dollar limit.
    <bullet> For business relationships for which disclosure is not 
required by current Item 404(b), but would be under proposed Item 
404(a), should there be a different test? Are there any particular 
transactions or relationships that would become disclosable under 
proposed Item 404(a) that should not render a director ineligible to be 
a Non-Employee Director? If so, explain why.
    <bullet> Would continued use of Item 404 as a measure for defining 
Non-Employee Directors place an undue burden on companies in forming 
their Non-Employee Director committees? Would reference to another 
disclosure requirement or standard be better?
3. Other Conforming Amendments
    The changes we propose 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 
rule proposals would amend:
    <bullet> Forms that require disclosure of the information required 
by Item 404 to instead require disclosure of the information required 
by proposed Items 404 and 407(a); \312\
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    \312\ See proposed 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 proposed 
amendments to Forms SB-2, 10-SB and 10-KSB would require disclosure 
of the information required by proposed Items 404 and 407(a) of 
Regulation S-B.
---------------------------------------------------------------------------

    <bullet> Some forms that require 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 proposed Items 404(a) and 
(b), or proposed Item 404(a), as appropriate; \313\
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    \313\ See proposed amendments to Item 7(b) of Schedule 14A, 
which refers to proposed 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 proposed Item 404(a). The 
proposed amendments to Form 8-K that reference paragraphs (a) and 
(b) of Item 404 of Regulation S-B would require disclosure of the 
information required by proposed Item 404(a) of Regulation S-B.

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[[Page 6582]]

    <bullet> A form that cross-references an instruction in Item 404 
which we propose to eliminate to instead include the text of this 
instruction; \314\
---------------------------------------------------------------------------

    \314\ See proposed amendments to Item 23 of Form S-11.
---------------------------------------------------------------------------

    <bullet> Item 7 of Schedule 14A to require disclosure of the 
information required by proposed Item 407(a) rather than current Item 
404(b), and to eliminate current paragraphs (d)-(h) which are 
duplicative of proposed Item 407 and replace them with a requirement to 
disclose information specified by corresponding paragraphs of Item 407;
    <bullet> Forms that require disclosure of the information required 
by Item 402 to instead require disclosure of the information required 
by proposed Item 402 and Item 407(e)(4); \315\
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    \315\ See proposed amendments to Item 8 of Schedule 14A, Item 
11(l) of Form S-1, General Instruction I.B.4.(c) to 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 require disclosure of the information 
required by Item 401 to instead require disclosure of the information 
required by Item 401 and paragraphs (c)(3), (d)(4) and/or (d)(5) of 
proposed Item 407, as appropriate; \316\
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    \316\ See proposed 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 proposed Item 407, and Item 
7(b) of Schedule 14A, which refers to Item 401 and paragraphs (d)(4) 
and (d)(5) of proposed Item 407.
    The proposed amendments to Forms SB-2, 10-SB and 10-KSB would 
require disclosure of the information required by proposed Items 401 
and 407(c)(3), (d)(4) and (d)(5) of Regulation S-B. We are not 
proposing 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 propose to combine into proposed Item 
407.
---------------------------------------------------------------------------

    <bullet> Forms that require disclosure of the information required 
by Item 401(j), to instead require disclosure of the information 
required by proposed Item 407(c)(3); \317\ and
---------------------------------------------------------------------------

    \317\ See proposed amendments to Item 5 in Part II of Form 10-Q, 
and Item 5 in Part II of Form 10-QSB. The proposed amendments to 
Item 5 in Part II of Form 10-QSB would require disclosure of the 
information required by proposed Item 407(c)(3) of Regulation S-B.
---------------------------------------------------------------------------

    <bullet> Item 10 of Form N-CSR to include a cross reference to 
proposed Item 407(c)(2)(iv) of Regulation S-K and proposed Item 
22(b)(15) of Schedule 14A, in lieu of the current reference to Item 
7(d)(2)(ii)(G) of Schedule 14A.
    In addition, conforming amendments would be made to a provision in 
Regulation AB, which currently requires disclosure of the information 
required by Items 401, 402 and 404, so that instead it would require 
disclosure of the information required by proposed Items 401, 402, 404 
and paragraphs (a), (c)(3), (d)(4), (d)(5) and (e)(4) of Item 407.\318\
---------------------------------------------------------------------------

    \318\ See proposed amendments to Item 1107(e) of Regulation AB.
---------------------------------------------------------------------------

VI. Plain English Disclosure

    We are proposing that most of the disclosure required by proposed 
Items 402, 403, 404 and 407 be provided in plain English. We propose 
that this plain English requirement 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).
    In 1998, we adopted rule changes requiring issuers to write the 
cover page, summary and risk factors section of prospectuses in plain 
English and apply plain English principles to other portions of the 
prospectus.\319\ 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 propose to revise, 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.
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    \319\ 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 General Instruction 1A. 
to Form 10-K and Item 1001 of Regulation M-A 17 CFR 229.1001], 
respectively.
---------------------------------------------------------------------------

    We propose to add Exchange Act Rules 13a-20 and 15d-20 to require 
that companies prepare their executive and director compensation, 
related person transactions, beneficial ownership and corporate 
governance disclosures included in Exchange Act reports using plain 
English principles, including the following standards:
    <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> Use 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, defining terms in the 
glossary or other section of the document only if the meaning is 
unclear from the context and using 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 proposed rule would also provide additional guidance on 
drafting the disclosure that would comply with plain English 
principles, including guidance as to the following practices that 
registrants should avoid:
    <bullet> Legalistic or overly complex presentations that make the 
substance of the disclosure difficult to understand;
    <bullet> Vague ``boilerplate'' explanations that are imprecise and 
readily subject to different interpretations;
    <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 proposed rules, if the executive compensation, beneficial 
ownership, related person transaction or corporate governance matters 
disclosure were incorporated by reference into an Exchange Act report 
from a company's proxy or information statement, the disclosure would 
be required to be in plain English in the proxy or information 
statement.\320\ The plain English rules are proposed as 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

[[Page 6583]]

best administered by the Commission under these rules.
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    \320\ 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).
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Request for Comment
    <bullet> Will the plain English requirements discussed above be 
sufficient to discourage boilerplate and promote clear, more user-
friendly Exchange Act reports and proxy or information statements? If 
not, how should we revise the requirements?
    <bullet> Are there differences between proxy statements and 
Exchange Act reports which would require different requirements in 
order to accomplish the objectives of plain English? If so, what are 
the different requirements and how should the different requirements be 
addressed?
    <bullet> In addition to the proposal, should we require that 
information provided under proposed Items 402, 403, 404 and 407 in 
other filings, such as Form S-1, be written in plain English?
    <bullet> Since only portions of the disclosure under proposed Item 
407 would be required to be included in Exchange Act reports, should we 
specifically require that all Item 407 disclosure be in plain English? 
If so, how should we impose this requirement?
    <bullet> Should we require that all or portions of proxy or 
information statements be in plain English? If so, should a plain 
English requirement apply to disclosure provided by anyone who solicits 
a proxy with a proxy statement, or should it be limited to just 
companies making a solicitation of their shareholders? Should 
shareholder proposals under Exchange Act Rule 14a-8 \321\ or financial 
statements and related disclosures under Item 13 of Schedule 14A be 
excluded from any plain English requirements applicable to proxy 
statements? Would a plain English requirement under the proxy rules 
have the potential to increase disputes, including possible litigation, 
that could inappropriately delay or frustrate the conduct of 
solicitations and shareholder meetings or otherwise interfere with the 
proper operation of the proxy rules?
---------------------------------------------------------------------------

    \321\ 17 CFR 240.14a-8.
---------------------------------------------------------------------------

VII. Transition

    We propose that, following their adoption, the proposed new rules 
and amendments would become effective following publication of the 
adopting release in the Federal Register as follows:
    <bullet> For Forms 10-K and 10-KSB, for fiscal years ending 60 days 
or more after publication;
    <bullet> For Forms 8-K, for triggering events that occur 60 days or 
more after publication;
    <bullet> For Securities Act and Investment Company Act registration 
statements (including post-effective amendments) and Exchange Act 
registration statements that become effective 120 days or more after 
publication; and
    <bullet> For proxy statements that are filed 90 days or more after 
publication.\322\
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    \322\ The proposed amendments to the cross-references in Item 10 
of Form N-CSR would appear in the Form concurrent with the effective 
date of the amendments to our proxy rules, and would 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 proposed 
Item 407(c)(2)(iv) of Regulation S-K (as required by proposed Item 
22(b)(15) of Schedule 14A). The substance of the information 
required by the Item would not be changed.
---------------------------------------------------------------------------

    We do not propose to require companies to ``restate'' compensation 
or related person transaction disclosure for fiscal years for which 
they previously were required to apply the current rules. Instead, the 
proposed Summary Compensation Table and disclosure required by proposed 
Item 404(a) would be required only for the most recent fiscal 
year.\323\ This would result in phased-in implementation of the 
proposed Summary Compensation Table amendments and proposed Item 404(a) 
disclosure over a three-year period for Regulation S-K companies, and a 
two-year period for Regulation S-B companies.
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    \323\ The other proposed executive and director compensation 
disclosure requirements which relate to the last completed fiscal 
year would not be affected by this proposed transition approach. The 
Summary Compensation Table would be treated differently because, as 
proposed, it would require disclosure of compensation to the named 
executive officers for the last three fiscal years.
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Request for Comment
    <bullet> Is the proposed effectiveness schedule workable?
    <bullet> Is the proposed phased-in transition provision for the 
amended Summary Compensation Table and proposed related person 
transaction disclosure necessary? Could companies revise the previous 
years' required disclosure to conform to the amended requirements 
without incurring undue costs or burdens?
    <bullet> Are any special transition provisions necessary for any 
other aspects of the proposed amendments? If so, explain what would be 
needed and why.
General Request for Comments
    We request and encourage any interested person to submit comments 
on any aspect of our proposals and any other matters that might have an 
impact on the amendments. We request comment from companies and all 
users of the executive compensation, related party and corporate 
governance information required by Commission rules that may be 
affected by the proposals. With respect to any comments, we note that 
they are of greatest assistance to our rulemaking initiative if 
accompanied by supporting data and analysis of the issues addressed in 
those comments and by alternatives to our proposals where appropriate.

VIII. Paperwork Reduction Act

A. Background

    The proposed rules and amendments contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995.\324\ We are submitting these to the Office of 
Management and Budget for review and approval in accordance with the 
Paperwork Reduction Act.\325\ The titles for this information are: 
\326\
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    \324\ 44 U.S.C. 3501 et seq.
    \325\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
    \326\ 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

[[Page 6584]]

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 \327\ 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.
---------------------------------------------------------------------------

    \327\ The pertinent annual reports are those on Form 10-K or 10-
KSB.
---------------------------------------------------------------------------

    Our proposed amendments to existing 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;
    <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 
proposals 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 would be mandatory. However, the information 
collection requirements relating exclusively to proxy and information 
statements would only apply to issuers subject to the proxy rules. 
There would be no mandatory retention period for the information 
disclosed, and the information disclosed would be made publicly 
available on the EDGAR filing system.

B. Summary of Information Collections

    The proposals would increase existing disclosure burdens for annual 
reports on Form 10-K \328\ and registration statements on Forms 10, S-
1, S-4 and S-11 by requiring:
---------------------------------------------------------------------------

    \328\ The proposed disclosure requirements regarding executive 
and director compensation, beneficial ownership, related person 
transactions and parts of the proposed 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 Schedules 14A or 14C to satisfy the disclosure requirements of 
Form 10-K. The analysis that follows assumes that companies would 
either provide the proposed 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 proposed 
disclosure requirements that are included in both the Form 10-K and 
in Schedule 14A or 14C.
---------------------------------------------------------------------------

    <bullet> An expanded and reorganized Summary Compensation Table, 
which would 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 stock-based and 
option-based awards computed in accordance with FAS 123R, and the 
aggregate increase in actuarial value of 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 Performance-Based Awards Table and a Grants of All Other 
Equity Awards Table, which would build upon existing tabular 
disclosures regarding long term incentive plans and awards of option 
and stock appreciation rights to supplement the information proposed to 
be included in the Summary Compensation Table;
    <bullet> Expanded disclosure regarding holdings and exercises by 
named executive officers of outstanding previously awarded stock, 
options and similar instruments which would include the grant date of 
the award, the vesting date of restricted stock and similar instruments 
and amounts (both number of shares and value) realized upon vesting and 
the previously reported grant date fair value of awards exercised or 
vested;
    <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> Disclosure regarding up to three employees who were not 
executive officers and whose total compensation for the last completed 
fiscal year was greater than that of any of the named executive 
officers;
    <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 current disclosure requirements;
    <bullet> Disclosure regarding additional related persons under the 
proposed 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 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 directors' qualifying shares.
    At the same time, the proposals would decrease existing disclosure 
burdens for annual reports on Form 10-K and registration statements on 
Form 10, S-1, S-4 and S-11 by:
    <bullet> Eliminating requirements to provide a Compensation 
Committee Report and Performance Graph in proxy materials and 
information statements, which would substantially offset the increased 
burdens regarding Compensation Discussion and Analysis that would be 
required to be included or incorporated by reference in annual reports 
or registration statements;
    <bullet> Eliminating tabular presentation regarding projected stock 
option values under alternative stock appreciation scenarios, which 
would substantially offset the increased burdens regarding equity 
holdings and exercises;
    <bullet> Eliminating a generalized tabular presentation regarding 
defined benefit plans, which would offset in part the increased burdens 
regarding defined benefit plan disclosure;
    <bullet> Increasing the dollar value threshold for determining if 
related person transaction disclosure is required from $60,000 to 
$120,000; and
    <bullet> Eliminating a current disclosure requirement regarding 
specific director

[[Page 6585]]

relationships that could affect independence.
    In addition, the proposals may increase or decrease existing 
disclosure burdens, or not affect them at all, for annual reports on 
Form 10-K and registration statements on Form 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 would be required to be 
included or incorporated by reference in annual reports and 
registration statements; and
    <bullet> Eliminating or reducing the scope of instructions that 
provide bright line tests for determining whether transactions with 
related persons are required to be disclosed in particular 
circumstances.
    Specifically with respect to proxy and information statements, the 
proposals would impose a new disclosure requirement regarding the 
company'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. These proposals would not require a compensation committee to 
establish or maintain a charter. The proposed disclosure that would be 
required regarding compensation committees is similar to what is 
currently required for audit committees and nominating committees. The 
proposals would decrease existing disclosure requirements for proxy and 
information statements by eliminating a current disclosure requirement 
regarding the resignation of directors, as well as eliminating current 
requirements to provide a Compensation Committee Report, Performance 
Graph and a compensation committee report on the repricing of options 
and stock appreciation rights. However, the extent to which eliminating 
current requirements to provide a Compensation Committee Report, 
Performance Graph and a compensation committee report on the repricing 
of options and stock appreciation rights reduces burdens for proxy and 
information statements would be offset to a substantial extent, as 
discussed above, by the proposed Compensation Discussion and Analysis 
and narrative disclosure requirement regarding repricings and other 
modifications, both of which would be required to be included or 
incorporated by reference in annual reports and registration 
statements. We estimate that, on balance, the proposed changes that are 
specific to proxy or information statements would not result in 
incremental burdens on proxy or information statement collections of 
information.
    The proposals would increase existing disclosure burdens for annual 
reports on Form 10-KSB \329\ and registration statements on Forms 10-SB 
and SB-2 filed by small business issuers by requiring:
---------------------------------------------------------------------------

    \329\ 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 would 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 stock-based and 
option-based awards computed in accordance with FAS 123R and the 
aggregate increase in actuarial value of defined benefit and actuarial 
pension plans;
    <bullet> Disclosure at lower dollar thresholds for information 
regarding perquisites and other personal benefits;
    <bullet> Expanded disclosure regarding holdings of previously 
awarded stock, options and similar instruments, which would include the 
value of stock and other similar incentive plan awards that had not 
vested;
    <bullet> A new table for director compensation, to replace current 
narrative disclosure requirements;
    <bullet> A narrative description of retirement plans;
    <bullet> Disclosure regarding additional related persons under the 
proposed 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 proposals would decrease existing disclosure 
burdens for annual reports on Form 10-KSB and registration statements 
on Form 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;
    <bullet> Eliminating tabular disclosure regarding long term 
incentive plan awards in the last fiscal year; and
    <bullet> Eliminating a current disclosure requirement regarding 
specific director relationships that could affect independence.
    In addition, the proposals may increase or decrease, or not affect, 
existing disclosure burdens for annual reports on Form 10-KSB or 
registration statements on Form 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;
    <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 for the last three completed fiscal 
years; and
    <bullet> Eliminating or reducing the scope of instructions that 
provide bright line tests for determining whether transactions with 
related persons are required to be disclosed in particular 
circumstances.
    The proposals would decrease existing disclosure burdens for Forms 
N-1A, N-2, and N-3 by increasing to $120,000 the current $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 these items. The 
proposals would increase the existing disclosure burdens for Form N-2 
by requiring business development companies to provide additional 
disclosure regarding compensation. However, the proposals

[[Page 6586]]

would 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 proposals would decrease the Form 8-K disclosure burdens, by 
limiting both the existing requirement to disclose a company's entry 
into a material definitive agreement outside of the ordinary course of 
business or any material amendment to such an agreement and the 
requirement to collect information regarding directors, executive 
officers other than named executive officers and officers covered by 
Item 5.02 of Form 8-K. By focusing the Form 8-K disclosure requirement 
on more presumptively material employment agreements, plans or 
arrangements of a narrower group of executive officers, the number of 
Form 8-Ks filed each year relating to executive and director 
compensation matters should be reduced.
    We do not believe that our proposals regarding exhibit filing 
requirements for Form 20-F and our proposed treatment for foreign 
private issuers under the revised rules would impose any incremental 
increase or decrease in the disclosure burden for these issuers.

C. Paperwork Reduction Act Burden Estimates

    For purposes of the Paperwork Reduction Act, we estimate the annual 
incremental increase in the paperwork burden for companies to comply 
with our proposed collection of information requirements to be 
approximately 537,792 hours of in-house company personnel time and to 
be approximately $69,794,000 for the services of outside 
professionals.\330\ These estimates include the time and the cost of 
preparing and reviewing disclosure, filing documents and retaining 
records. Our methodologies for deriving the above estimates are 
discussed below.
---------------------------------------------------------------------------

    \330\ For administative 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 thousand.
---------------------------------------------------------------------------

    Our estimates represent the average burden for all issuers, both 
large and small. As described below, we expect that the burdens and 
costs could be greater for larger issuers and lower for smaller 
issuers. For Exchange Act annual reports on Form 10-K or 10-KSB,\331\ 
or current reports on Form 8-K, 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 $300 per hour.\332\ For Securities Act registration 
statements on Forms SB-2, S-1, S-4, S-11, or N-2 and Exchange Act 
registration statements on Form 10 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 $300 per hour.\333\ 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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    \331\ We apply the same allocation of burden with regard to 
proxy or information statements.
    \332\ In connection with other recent rulemakings, we have had 
discussions with several private law firms to estimate an hourly 
rate of $300 as the average cost of outside professionals that 
assist issuers in preparing disclosures and conducting registered 
offerings.
    \333\ As mentioned above, we do not believe that the proposal to 
increase 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 and Exchange Act Annual Reports
    For the purposes of the Paperwork Reduction Act, we estimate that, 
over a three year period,\334\ the annual incremental disclosure burden 
imposed by 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. To the extent that companies incorporate information proposed 
to be required by reference to proxy or information statements, the 
proposed plain English requirements would apply to disclosure in those 
statements, however the incremental burden of preparing plain English 
disclosure is factored into the burden estimates for Forms 10-K and 10-
KSB. We estimate that the proposed amendments to Item 22(b) of Schedule 
14A and the proposal to increase 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 not impose an annual incremental disclosure burden.
---------------------------------------------------------------------------

    \334\ We calculated an annual average over a three year period 
because OMB approval of Paperwork Reduction Act submissions covers a 
three year period.
---------------------------------------------------------------------------

    These estimates were based on the following assumptions:
    <bullet> On an ongoing basis, the hours of company personnel time 
and outside professional time required to prepare the disclosure under 
proposed Item 402 of Regulation S-K (executive and director 
compensation) would increase in light of the expansion and 
reorganization of the proposed disclosure requirements relative to the 
current disclosure requirements on these topics, in particular the 
requirements regarding Compensation Discussion and Analysis.
    <bullet> Companies filing annual reports on Form 10-K that would be 
required to include Item 402 of Regulation S-K, as we propose to amend 
it, and proposed Item 407(e)(4) of Regulation S-K (regarding 
compensation committee interlocks and insider participation), would 
experience higher costs in responding to these disclosure requirements 
in the first year of compliance 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, with lower incremental costs expected in subsequent 
years.\335\
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    \335\ For Form 10-K, we estimate that it would take issuers 120 
additional hours to prepare the proposed disclosure in year one, and 
55 hours in year two and 25 hours in year three and thereafter, 
which results in an average of 67 hours over the three year period. 
This estimate takes into account that the burden would be incurred 
by either including the proposed disclosure in the report directly 
or incorporating by reference from a proxy or information statement.
---------------------------------------------------------------------------

    <bullet> On an ongoing basis, the hours of company personnel time 
and outside professional time required to prepare the disclosure under 
proposed Item 404 (related person transactions), 407(a) (director 
independence) and paragraphs (e)(1) through (e)(3) of Item 407 
(compensation committee functions) of both Regulation S-K and 
Regulation S-B would be approximately the same as for compliance with 
the current related party transaction disclosure and disclosure about 
the board of directors required by existing Item 404 of Regulations S-K 
and S-B and Item 7 of Schedule 14A.\336\ Other revisions proposed to be 
made by moving

[[Page 6587]]

disclosure requirements relating to corporate governance to Item 407 of 
Regulations S-K and S-B would not change the substance of existing 
disclosure and would therefore not increase burdens, particularly for 
proxy or information statements where much of the disclosure is 
currently required.
---------------------------------------------------------------------------

    \336\ Similarly, on an ongoing basis, the hours of company 
personnel time and outside professional time required to prepare the 
disclosure required by the proposed conforming revisions to Item 
22(b) relating to the independence of members of nominating and 
audit committees of investment companies would be approximately the 
same as for compliance with the current requirements regarding 
disclosure of the independence of nominating and audit committee 
members of investment companies required by existing Item 7 of 
Schedule 14A.
---------------------------------------------------------------------------

    <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) would in many cases not have been 
required to comply with the proposed disclosure requirements prior to 
filing such registration statements, and would therefore take an 
estimated 60 hours to comply with the proposed 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 would generally be required for presentation 
in the Summary Compensation Table, as compared to three years for 
issuers already subject to Exchange Act reporting requirements.\337\
---------------------------------------------------------------------------

    \337\ 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. In 
order to factor in disclosure that may be incorporated by reference 
from other filings, we have estimated that 496 out of 619 
registration statements on Form S-4 would include the required 
information contemplated by these rule proposals through 
incorporation by reference to a Form 10-K or Form 10-KSB.
---------------------------------------------------------------------------

    <bullet> Small business issuers filing annual reports on Form 10-
KSB would be subject to lower incremental costs than other issuers as a 
result of the proposals, 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 would experience higher costs in 
responding to the proposed disclosure requirements in the first year of 
compliance with them, 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 in 
subsequent years.\338\
---------------------------------------------------------------------------

    \338\ For Form 10-KSB, we estimate that it would take issuers 70 
additional hours to prepare the proposed disclosure in year one, and 
25 additional hours in year two and 10 additional hours in year 
three and thereafter, which results in an average of 35 additional 
hours over the three year period. This estimate assumes that the 
burden would be incurred by either including the proposed disclosure 
in the report directly or incorporating by reference from a proxy or 
information statement.
---------------------------------------------------------------------------

    <bullet> Small business issuers filing registration statements on 
Forms 10-SB and SB-2 that are not already filing periodic reports 
pursuant to Exchange Act Sections 13(a) or 15(d) would not have been 
required to comply with the proposed disclosure requirements prior to 
filing such registration statements, and would therefore take an 
estimated 30 additional hours to comply with the proposed 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 would 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 companies to write certain sections of prospectuses in plain 
English, drafting documents in plain English would 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. The plain English rule proposals would 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> We estimate that the proposals to increase to $120,000 the 
current $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 would neither 
increase nor decrease the annual paperwork burden, because these forms 
are already required to disclose these interests, transactions, and 
relationships in amounts exceeding $60,000, and 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.
    <bullet> Business development companies filing Form N-2 would be 
required to include Item 402 of Regulation S-K, as we propose to amend 
it, and would 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.\339\
---------------------------------------------------------------------------

    \339\ For Form N-2, we estimate that it would take business 
development companies 100 additional hours to prepare the proposed 
disclosure in year one, 50 hours in year two and 25 hours in year 
three and thereafter, which results in an average of 58 hours for 
each business development company to comply with the proposed 
compensation disclosures that would be required on Form N-2. We 
estimate an average annual incremental disclosure burden of 1.675 
hours per Form N-2, based on 58 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) (58 hours times 27 Form N-2 filings (including 
amendments) = 1,566 hours), divided by 935 total annual filings on 
Form N-2 (representing all Form N-2 and N-2/A filings during the 
year ended December 31, 2005) (1,566 hours divided by 935 filings on 
Form N-2 (including amendments) = 1.675 hours per Form N-2 
(including amendments)).
---------------------------------------------------------------------------

    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, Securities Act registration statements and Exchange Act 
registration statements.

[[Page 6588]]



                     Table 1.--Calculation of Incremental Paperwork Reduction Act Burden Estimates for Exchange Act Periodic Reports
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               $300
                          Form                                Annual        Incremental     Incremental     75% Issuer          25%        Professional
                                                             responses      hours/form        burden                       Professional        cost
                                                                     (A)             (B)   (C) = (A)*(B)         (D) = (  (E) = (C)*0.25  (F) = (E)*$300
                                                                                                                 C)*0.75
---------------------------------------------------------
10-K 340................................................           8,602              67         576,334       432,250.5       144,083.5     $43,225,050
10-KSB..................................................           3,504              35         122,640        91,980.0        30,660.0       9,198,000
                                                         -----------------
    Total...............................................  ..............  ..............         698,974       524,230.5  ..............      52,423,050
--------------------------------------------------------------------------------------------------------------------------------------------------------


 Table 2.--Calculation of Incremental Paperwork Reduction Act Burden Estimates for Securities Act Registration Statements and Exchange Act Registration
                                                                       Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                               $300
                          Form                                Annual        Incremental     Incremental     75% Issuer          75%        Professional
                                                             responses      hours/form        burden                       Professional        cost
                                                                     (A)             (B)   (C) = (A)*(B)  (D) = (C)*0.25  (E) = (C)*0.75  (F) = (E)*$300
---------------------------------------------------------
10......................................................              72              60           4,320         1,080.0         3,240.0        $972,000
10-SB...................................................             166              30           4,980         1,245.0         3,735.0       1,120,500
SB-2....................................................             885              30          26,550         6,637.5        19,912.5       5,973,750
S-1.....................................................             528              60          31,680         7,920.0        23,760.0       7,128,000
S-4.....................................................             123              60           7,380         1,845.0         5,535.0       1,660,500
S-11....................................................              60              60           3,600           900.0         2,700.0         810,000
N-2.....................................................             935           1.675           1,566           391.5         1,174.5         352,350
                                                         -----------------
    Total...............................................  ..............  ..............          80,076        20,019.0  ..............      18,017,100
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Exchange Act Current Reports
    For purposes of the Paperwork Reduction Act, we estimate that the 
proposals affecting the collection of information requirements related 
to current reports on Form 8-K would reduce the annual paperwork burden 
by approximately 6,458 hours of company personnel time and by a cost of 
approximately $645,750 for the services of outside professionals. This 
estimate reflects the reduction in the number of filings that could 
result from our proposals. These estimates were based on the following 
assumptions:
---------------------------------------------------------------------------

    \340\ The burden estimates for Form 10-K and 10-KSB assume that 
the proposed 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 estimate that the proposed changes to executive 
compensation disclosure and corporate governance matters that would 
be included only in proxy or information statements (and thus not in 
Securities Act registration statements or Exchange Act reports or 
registration statement) would not, on balance, impose an incremental 
burden.
---------------------------------------------------------------------------

    <bullet> The number of annual responses for Form 8-K is estimated 
to be 110,416.\341\ 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 pursuant to Item 1.01 of Form 
8-K.
---------------------------------------------------------------------------

    \341\ 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 Form 8-K filings made in 
September 2005, we estimate that 6,625 of the 22,083 current reports on 
Form 8-K filed under Item 1.01 would relate to executive or director 
compensation matters.
    <bullet> Based on a review of Item 1.01 Form 8-K filings made in 
September 2005, we estimate that 1,722 fewer Form 8-Ks would be filed 
because of more focused current reporting of executive officer and 
director compensation transactions under proposed Item 5.02(e) of Form 
8-K.\342\
---------------------------------------------------------------------------

    \342\ 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 
$300 per hour. The computation of the reduction in burden is thus 
based on 1,722 fewer Form 8-Ks filed with a per filing burden of 
3.75 hours carried by the company and 1.25 hours at a cost of $300 
per hour (or $375 per filing).
---------------------------------------------------------------------------

D. Request for Comment

    We request comment in order to: (a) Evaluate whether the 
collections of information are necessary for the proper performance of 
our functions, including whether the information will have practical 
utility; (b) evaluate the accuracy of our estimate of the burden of the 
collections of information; (c) determine whether there are ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and (d) evaluate whether there are ways to minimize the 
burden of the collections of information on those who respond, 
including through the use of automated collection techniques or other 
forms of information technology.\343\
---------------------------------------------------------------------------

    \343\ Comments are requested pursuant to 44 U.S.C. 
3506(c)(2)(B).
---------------------------------------------------------------------------

    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
these burdens. Persons who desire to submit comments on the collection 
of information requirements should direct their comments to the OMB, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Washington, DC 20503, and 
should send a copy of the comments to Nancy M. Morris, Secretary, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-9303, with reference to File No. S7-03-06. Requests for materials 
submitted to the OMB by us with regard to this collection of 
information should be in writing, refer to File No. S7-03-06, and be 
submitted to the Securities and Exchange Commission, Office of Filings 
and Information Services, Branch of Records Management, 6432 General 
Green Way, Alexandria, VA 22312. Because the OMB is required to make a 
decision concerning the collections of

[[Page 6589]]

information between 30 and 60 days after publication, your comments are 
best assured of having their full effect if the OMB receives them 
within 30 days of publication.

IX. Cost-Benefit Analysis

A. Background

    We are proposing revisions 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 proposed 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 also 
propose to revise 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 also propose to revise 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 proposing to amend our beneficial ownership disclosure 
requirement to require disclosure regarding pledges of securities by 
management and directors' qualifying shares. Finally, we are proposing 
that most of the disclosure that would be required under the proposed 
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 it is incorporated by reference from proxy 
or information statements.

B. Summary of Proposals

    In light of the complexity of, and variations in, compensation 
programs, the sometimes inflexible and highly formatted nature of 
current Item 402 of Regulation 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 proposed changes to Item 402 would apply a broader 
approach that would eliminate some tables, simplify or refocus other 
tables, reflect total current compensation in the Summary Compensation 
Table, and reorganize the compensation table 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 would 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 would provide transparency 
regarding company compensation policies and procedures, and be 
sufficiently flexible to operate effectively as new forms of 
compensation continue to evolve.
    Under the proposals, the scope and presentation of information in 
Item 402 of Regulation S-B would differ in a number of significant ways 
from Item 402 of Regulation S-K. Item 402 of Regulation S-B would:
    <bullet> Limit the named executive officers for whom disclosure 
would be required to a smaller group, consisting of the principal 
executive officer and the two other highest paid executive officers; 
\344\
---------------------------------------------------------------------------

    \344\ Current Item 402(a)(2) of Regulation S-B requires 
compensation disclosure for all individuals serving as the small 
business issuer's chief executive officer and the small business 
issuer's four other highest paid 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; \345\
---------------------------------------------------------------------------

    \345\ Current Item 402(b)(1) of Regulation S-B requires 
disclosure of compensation of the named executive officers for each 
of the last three fiscal years, and narrative disclosure is not 
currently required to accompany the Summary Compensation Table, 
however the proposed narrative disclosure would address some 
elements of compensation currently required in tables in current 
Item 402 of Regulation S-B.
---------------------------------------------------------------------------

    <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 would include expanded disclosure regarding holdings of 
previously awarded stock, options and similar instruments, which would 
include the value of stock and other similar incentive plan awards that 
had not vested;
    <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 would not include the following 
disclosures that would be required by proposed Item 402 of Regulation 
S-K:
    <bullet> Compensation Discussion and Analysis;
    <bullet> A third fiscal year of Summary Compensation Table 
disclosure; and
    <bullet> The supplementary Grants of Performance-Based Awards Table 
and Grants of All Other Equity Awards Table, the Option Exercises and 
Stock Vested Table, the Retirement Plan Potential Annual Payments and 
Benefits Table, and the Nonqualified Defined Contribution and Other 
Deferred Compensation Plans 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.
    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 proposed amendments to Items 1.01 and 5.02 of Form 8-
K would 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.
    Current Item 404 of Regulation S-K was adopted to consolidate 
various provisions previously adopted in a piecemeal fashion. The 
proposals would revise Item 404 of Regulation S-K to streamline and 
modernize it, while making it more principles-based. Indebtedness of 
related persons is limited by the Sarbanes-Oxley Act, and the 
disclosure requirement regarding indebtedness of related persons would 
be combined into the requirement regarding other transactions with 
related persons. This consolidated disclosure requirement would apply 
to an expanded group of related persons. While the current principles 
for disclosure would be retained, the proposal would increase the 
$60,000 threshold for disclosure currently in paragraphs (a) and (c) of 
Item 404 to $120,000 and eliminate or reduce the scope of certain 
instructions delineating

[[Page 6590]]

what transactions are reportable or excludable. Existing disclosure 
requirements in Item 404 regarding transactions with promoters would 
slightly expanded 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, 
proposed 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 would similarly increase 
to $120,000 the current $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, Form N-2 would require business development 
companies to include the compensation disclosure required by Item 402 
of Regulation S-K, as we propose to amend it.
    The proposals also would replace the disclosure requirement for 
certain business relationships currently in Item 404(b) of Regulation 
S-K, which focuses on relationships relevant to director independence, 
with requirements for director independence disclosure discussed below. 
Under the proposals, the disclosure currently required by 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. 
Proposed Item 404(b) of Regulation S-K would require disclosure 
regarding the company's policies for the review, approval or 
ratification of transactions with related persons.
    We propose similar amendments to Item 404 of Regulation S-B, which 
would result in a more detailed related person transaction disclosure 
requirement than currently exists in Item 404 of Regulation S-B. 
However, unlike Item 404 of Regulation S-K, Item 404 of Regulation S-B 
would not require disclosure regarding the company's policies for the 
review, approval or ratification of transactions with related persons. 
We propose to retain 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 propose to adopt a new disclosure requirement in Item 407 of 
Regulations S-K and S-B that would consolidate disclosures required in 
several places throughout our rules addressing director independence, 
board committee functions and other related corporate governance 
matters. This proposed Item, which would require 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 the national 
securities exchanges and the inter-dealer quotation systems of a 
national securities association.\346\
---------------------------------------------------------------------------

    \346\ We also propose 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 propose to amend Item 403 of Regulation S-K and 
Regulation S-B to require this disclosure as well as disclosure 
regarding directors' beneficial ownership of qualifying shares.
    We propose to require 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 would make these 
documents easier to understand.
    The proposed changes to Item 402 of Regulation S-K, Items 402 and 
404 of Regulation S-B, and Form 8-K would affect all companies 
reporting under Sections 13(a) and 15(d) of the Exchange Act, other 
than registered investment companies. The proposed changes to Item 404 
of Regulation S-K would 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 proposed changes to Items 402 and 404 of 
Regulation S-K and Regulation S-B would also affect additional 
companies filing Securities Act and Exchange Act registration 
statements. The proposed changes to Item 22(b) of Schedule 14A will 
affect business development companies and registered investment 
companies filing proxy statements with respect to the election of 
directors. The proposed changes to Form N-1A will affect open-end 
investment companies registering with the Commission on Form N-1A. The 
proposed changes to Form N-2 will affect closed-end investment 
companies (including business development companies) registering with 
the Commission on Form N-2. The proposed 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 proposals would be 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 would be 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 tabular and new quantitative estimate disclosure for retirement 
plans and similar benefits and director compensation. The proposals 
would 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 proposals 
also would 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 proposals of certain forms of 
compensation, such as stock-, option- and incentive plan-based 
compensation, as well as retirement and other post-employment 
compensation, combined with the ability of investors to track the 
elements of executive and director compensation and the relative 
weights of those elements over time (and the reasons why companies 
allocate

[[Page 6591]]

compensation in the manner that they do), would enable investors to 
make comparisons both within and across companies. A presentation 
facilitating the comparability and 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 
disclosure of compensation across companies. Disclosure of total 
compensation would 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 would 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.\347\ 
Particularly with respect to the proxy statement for the annual meeting 
at which directors are elected, this improved disclosure would 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.
---------------------------------------------------------------------------

    \347\ 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).
---------------------------------------------------------------------------

    We believe that the extent to which increased transparency and 
completeness in executive and director compensation disclosure would 
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 would affect investors' decision-making with 
respect to that company.
    Improved transparency in executive and director compensation under 
these proposals 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 proposals, including 
requirements to disclose a total amount of compensation and more detail 
regarding compensation policies, could alter existing policies or 
practices in these areas. We emphasize that we are not seeking to 
foster any given directional or other impacts. Our objective is to 
increase transparency to enable decision-makers to make more informed 
decisions, which could result in different policies or practices or 
increase investor confidence in existing policies or practices.
    The proposed amendments to Form 8-K would 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 
would be filed pursuant to Item 5.02(e) of Form 8-K. To find this 
information, shareholders and investors no longer would need to examine 
multiple Item 1.01 disclosures relating to other actions. Companies 
would also be relieved of obligations to quickly report arguably less 
important compensation information on Form 8-K.
    The proposed amendments to Item 404 would 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, approval or ratification of relationships 
with related persons. These proposals would 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 current Item 404 
into a single combined disclosure requirement, the proposals would 
reduce confusion regarding the disclosure required when more than one 
of the item's current provisions applies to a relationship. Improved 
corporate governance disclosure in proposed Item 407 would provide 
investors with better organized and more complete information regarding 
the independence of members of the board of directors. In addition, 
companies would benefit from having one disclosure item to satisfy in 
making required corporate governance disclosures. The proposed 
amendments to Item 403 of Regulation S-K and Regulation S-B would 
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.
    Proposed 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 would decrease the 
disclosure burden imposed on registered investment companies 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).
    Finally, presentation in plain English would facilitate investor 
understanding of most of the matters contemplated by our proposals.
    The benefits of clearer, more useful disclosure are difficult to 
quantify.

D. Costs

    In our view, the proposed revisions to the executive officer and 
director compensation disclosure requirements would increase the costs 
of complying with the Commission's rules. The proposed revisions to the 
related person transaction, director independence and corporate 
governance disclosure requirements would generally not increase costs. 
We further believe that the costs related to preparing required 
disclosure in plain English would be short-term costs arising mainly in 
the first two years of implementation.\348\ Increased costs under the 
proposals would largely impact companies required to comply with the 
proposals; any net increase in costs would ultimately be borne by 
shareholders of those companies. If our assumptions regarding these 
costs and current practices are not correct or complete, then costs may 
prove to be higher.
---------------------------------------------------------------------------

    \348\ The proposed plain English requirements would 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 proposals would, on balance, 
be more costly for companies than compliance with the existing 
disclosure requirements, with the highest incremental annual costs 
occurring principally in the first two years as companies and their 
advisors would 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 proposing would 
incrementally increase

[[Page 6592]]

costs for companies in several ways as a result of the new or expanded 
requirements. First, we propose that companies provide a Compensation 
Discussion and Analysis involving a discussion and analysis of material 
factors underlying compensation decisions reflected in the tabular 
presentations.\349\ Second, we propose to require narrative disclosure 
to accompany tabular presentations so that the data included in the 
tables may be understood in context. Third, we propose to expand 
disclosure regarding compensation-related equity-based and other plan-
based holdings, as well as retirement and similar plans. Finally, we 
propose a director compensation table that would require more detailed 
information regarding director compensation than is specified in the 
current narrative disclosure requirement.\350\ Each of these proposed 
revisions would seek to elicit more complete and clearer information 
than is currently required under existing rules.
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    \349\ The Compensation Discussion and Analysis, unlike the 
current Compensation Committee Report and the Performance Graph, but 
like all of the rest of the current compensation disclosure, would 
be considered filed and as such would be part of the documents for 
which certifications apply. 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 * * * 
[T]he 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 * * * Conversely, the new rule 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.
    \350\ See current Item 402(f) of Regulation S-B and Item 402(g) 
of Regulation S-K.
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    While the Summary Compensation Table as proposed to be revised 
would require reporting of the grant date fair value of stock-based and 
option-based awards under the proposals, we do not believe that this 
change would 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 incremental changes in the actuarial value of 
retirement benefits for the purposes of reporting such compensation in 
the Summary Compensation Table. 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 
would increase costs, because existing disclosure requirements already 
mandate the disclosure of all compensation, and the mechanical process 
of adding up disclosure amounts would not be significant. Additional 
costs may be incurred in preparing and presenting required disclosures 
regarding up to three highly paid non-executive employees, 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 proposals. In addition, because named executive officers 
would be based on total compensation rather than salary and bonus, some 
companies may need to track more employees to determine which are the 
most highly compensated.
    Under the proposals regarding Form 8-K, disclosure regarding 
executive and director arrangements and other plans that would no 
longer be required to be reported within four days under Item 1.01 of 
Form 8-K would 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 would reduce its value to 
investors, the proposals may impose costs on investors.
    We believe that there would not be a significant increase in the 
cost of complying with the related person transaction disclosure 
requirement. The proposals may increase the cost of complying with this 
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'' and also, in the case 
of indebtedness transactions, significant shareholders.\351\ Similarly, 
with respect to registered investment companies and business 
development companies, proposed 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 would 
increase to $120,000 the current $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). Since these forms already require such disclosure using the 
$60,000 threshold, we do not believe the proposals would impose 
additional costs.
---------------------------------------------------------------------------

    \351\ Significant shareholders are those identified under 
proposed Instruction 1.b.(i) to Item 404 of Regulation S-K, that is, 
any security holder who is known to the registrant to own of record 
or beneficially more than five percent of any class of the 
registrant's voting securities.
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    Proposed Item 404(b) of Regulation S-K would introduce 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 their policies for the review, 
approval or ratification of related person transactions or the 
determination of executive and director compensation we understand that 
companies would incur costs of collecting the type of information that 
would be required to be disclosed. These costs would 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 proposed rules would not require 
companies to create new policies for review, approval or ratification 
of relationships with related persons or the determination of executive 
and director compensation; however, to the extent that companies do 
create new policies that require the collection of different or 
additional information, they may incur incremental costs.
    The proposed disclosures regarding director independence are 
similar to existing 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 proposed 
disclosure requirement regarding director independence could be 
performed by the same person or group of persons responsible for 
compliance under the current rules. Because the current rules already 
require 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 proposed disclosure

[[Page 6593]]

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 relationships with 
related persons. 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 existing 
disclosure requirements or corporate governance listing standards.
    We believe that, overall, the costs noted above that are associated 
with the proposed disclosure requirements for related person 
transactions and director independence will be offset by cost decreases 
associated with narrowing the scope of other disclosure requirements 
under the proposal. In this regard, we believe that companies will 
generally be required to provide an amount of information that is 
comparable to what is currently required by our rules, but under the 
proposals the information regarding these matters would be presented in 
a manner that recognizes recent changes such as the imposition of 
corporate governance listing standards at the major markets.
    Our plain English proposal would 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 would be required to be 
disclosed in Exchange Act reports such as annual reports on Forms 10-K 
or 10-KSB. We believe the proposed rules, if adopted, would 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 proposals. 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 proposals. A company 
would 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 could 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 proposed collection of information requirements to be 
approximately 537,792 hours of in-house company personnel time and to 
be approximately $69,794,000 for the services of outside professionals. 
These costs are based on our estimates that the annual incremental 
disclosure burden imposed by the revisions that we propose today 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. We estimate that the proposed 
amendments to Item 22(b) of Schedule 14A and the proposal to increase 
to $120,000 the current $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 $645,750 
for the services of outside professionals, based on an estimate that 
1,722 fewer Form 8-Ks would be filed because of more focused current 
reporting of compensation transactions. Based on these estimates 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 proposals would be approximately $163,908,000. 
We have not quantified other costs which might arise as a result of 
implementation of the rules, especially to the extent that such costs 
could arise as a result of changes in policies, practices or other 
behavior attributable to the proposed disclosure requirements. These 
costs could be more than those estimated for the purposes of the 
Paperwork Reduction Act.

E. Request for Comment

    <bullet> We solicit quantitative data to assist our assessment of 
the benefits and costs of increased disclosure resulting from: (1) 
Requiring narrative disclosure regarding executive and director 
compensation in the form of Compensation Discussion and Analysis and 
narrative disclosures accompanying the tabular presentations, and 
eliminating the Compensation Committee Report and Performance Graph; 
(2) expanding disclosure, in a tabular format, of director 
compensation; and (3) requiring the more focused and in some cases 
expanded tabular presentation of executive compensation. We also 
solicit such data regarding the benefits and costs of any other aspects 
of the executive compensation disclosure proposals.
    <bullet> We solicit quantitative data to assist our assessment of 
the benefits and costs of revising the requirements for current 
reporting of executive and director compensation arrangements on Form 
8-K to focus on those arrangements which are unquestionably material.
    <bullet> We solicit quantitative data to assist our assessment of 
the benefits and costs of increased disclosure resulting from: (1) 
Expanding the group of related persons covered by current Item 404(a) 
to include additional ``immediate family members''; (2) expanding the 
required relationship disclosure to include significant shareholders as 
related persons who may have reportable indebtedness relationships; and 
(3) requiring disclosure of a registrant's policies for approval of 
relationships involving related persons and the independence of 
directors. We also solicit such data regarding the benefits and costs 
of any other aspects of the related person transactions disclosure 
requirements.
    <bullet> Do companies currently have policies and procedures 
regarding the review, approval, authorization or ratification of 
relationships with related persons? If not, what cost would a company 
incur to institute such policies?
    <bullet> Are there any public companies that currently provide 
information to the public regarding their policies and procedures 
related to the review, approval, authorization or ratification of 
relationships with related persons? If so, is there any information 
available as to whether investors find this information to be useful?
    <bullet> We solicit quantitative data to assist our assessment of 
the benefits and costs associated with increased disclosure and the 
proposed application of plain English principles to the disclosure 
resulting from most of the proposed requirements.
    <bullet> What are the direct and indirect costs associated with the 
proposals?
    <bullet> What are the costs in the first year of compliance versus 
subsequent years?
    <bullet> We solicit comments on the degree to which companies 
already collect the information that the proposed rules would require 
to be disclosed.

[[Page 6594]]

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

    Exchange Act Section 23(a)(2) \352\ 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),\353\ Exchange Act 
Section 3(f) \354\ and Investment Company Act Section 2(c) \355\ 
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.
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    \352\ 15 U.S.C. 78w(a)(2).
    \353\ 15 U.S.C. 77b(b).
    \354\ 15 U.S.C. 78c(f).
    \355\ 15 U.S.C. 80a-2(c).
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    The proposed 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 transaction disclosure available to investors and the 
financial markets. These proposals would enhance investors' 
understanding of how corporate resources are used, and enable 
shareholders to better evaluate the actions of the board of directors 
and executive officers in fulfilling their responsibilities.
    The proposed amendments to Form 8-K are intended to facilitate the 
ability of investors and shareholders to access real-time disclosure of 
public companies' employee compensation events that are unquestionably 
or presumptively material by requiring this disclosure only for the 
compensatory agreements with specified executive officers. To find this 
information, shareholders and investors no longer would need to examine 
multiple Form 8-K disclosures relating to other executive officers or 
other material non-ordinary course definitive agreements.
    The proposals to expand and consolidate into one item the director 
independence and related corporate governance disclosure requirements 
in proposed Item 407 of Regulation S-K would improve shareholders' and 
investors' understanding of the composition and functions of the board 
of directors and board committees. Proposed 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 proposal to require most of the information required in these 
proposals to 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 proposed rules would enhance existing reporting 
requirements by providing more effective material disclosure to 
investors in a timely manner. We anticipate that these proposals would 
improve investors'' ability to make informed investment and voting 
decisions and, therefore lead to increased efficiency and 
competitiveness of the U.S. capital markets.
    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, would be required to 
make the proposed 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 
current Item 402, registrants would not be required to disclose target 
levels with respect to specific quantitative or qualitative 
performance-related factors, or any factors or criteria involving 
confidential commercial or business information, the disclosure of 
which would have an adverse effect on 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.
    We request comment on whether the proposals, if adopted, would 
promote efficiency, competition, and capital formation or have an 
impact or burden on competition. Commenters are requested to provide 
empirical data and other factual support for their views, if possible.

XI. Initial Regulatory Flexibility Act Analysis

    This Initial Regulatory Flexibility Act Analysis has been prepared 
in accordance with 5 U.S.C. 603. It relates to proposed 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,\356\ other highly paid executive officers and all 
members of the board of directors, and of related person transactions. 
These proposed revisions include revising 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 of 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 all 
disclosure required by the proposed items to be provided in plain 
English.
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    \356\ The principal financial officer is not specified as a 
named executive officer in Item 402 of Regulation S-B.
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A. Reasons for the Proposed Action

    Since the enactment of the Securities Act and the Exchange Act, the 
Commission has on a number of occasions explored the best methods for 
communicating clear, concise and meaningful material information about 
executive and director compensation and relationships with the issuer. 
With regard to compensation, at different times, the Commission has 
adopted rules mandating narrative, tabular, and combinations of 
narrative and tabular disclosure as the best method for presenting 
compensation disclosure in a manner that is concise and useful to 
investors. From time to time, the Commission has reconsidered executive 
and director compensation information requirements in light of changing 
trends in executive compensation, or due to concerns about the 
usefulness of disclosure elicited under then applicable rules. Most 
recently, in 1992, the Commission proposed and adopted amendments to 
the disclosure rules that moved away from the mostly narrative 
disclosure approach adopted in 1983 to

[[Page 6595]]

formatted tables which sought to capture the various elements of 
compensation and promote comparability from year to year and from 
company to company.
    While this tabular approach remains a sound basis for disclosure, 
its sometimes inflexible and formatted nature has, especially in light 
of the complexity of and variations in compensation programs, resulted 
in some cases in disclosure that does not clearly inform investors as 
to all elements of compensation, notwithstanding the express 
requirement to do so in the rules. Accordingly, the proposals under 
current consideration seek a broader-based approach to eliciting 
executive compensation disclosure while retaining comparability.
    Form 8-K requires disclosure of the entry into, amendment of and 
termination of material definitive agreements entered into outside the 
ordinary course of business. Under our current definitions in 
Regulation S-K, many agreements regarding executive compensation are 
deemed to be material agreements entered into outside the ordinary 
course, and when for purposes of consistency we adopted those 
definitions for use in the expanded Form 8-K requirements, we 
incorporated all of these executive compensation agreements into the 
current Form 8-K disclosure requirements. Therefore, many agreements 
regarding executive compensation are required to be disclosed within 
four business days of the applicable triggering event. Because it was 
not our intent in adopting the expanded Form 8-K requirements to make 
all elements of compensation for all executive officers potential items 
of real-time disclosure, but only to capture in this area, as in 
others, events that are unquestionably or presumptively material to 
investors, we believe it is appropriate to modify our rules so that 
only those events must be disclosed on Form 8-K.
    We believe that disclosure of executive and director compensation 
is closely related to disclosure regarding financial transactions and 
relationships involving companies and their directors, executive 
officers, significant shareholders and respective immediate family 
members. These disclosure requirements have historically been 
interconnected, given that relationships among these persons 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 current related party 
transaction disclosure requirements were adopted piecemeal over the 
years and were combined in one disclosure requirement beginning in 
1982. In light of the many developments, including the increasing focus 
on corporate governance and director independence, we believe it is 
necessary to revise the rule. We propose to replace the current 
requirement for disclosure about 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 
also propose to consolidate this and other requirements regarding 
director independence, board committees and other corporate governance 
matters in a new disclosure Item. In addition, we are also proposing 
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 an 
``interested person'' of the fund within the meaning of Section 
2(a)(19) of the Investment Company Act (and their immediate family 
members).
    To the extent that shares beneficially owned by named executive 
officers, directors and director nominees are pledged, these shares are 
subject to risks and 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, and for 
this reason, it appears that the existence of these securities pledges 
could be material to shareholders and should be disclosed under 
proposed revisions to Item 403 of Regulations S-K and S-B. An exclusion 
from the beneficial ownership disclosure requirement for directors'' 
qualifying shares is also proposed to be removed.
    In order for most of these amended requirements to result in 
disclosure that is clear, concise and understandable for investors when 
responsive disclosure is included in Exchange Act reports or 
incorporated by reference from proxy or information statements, we 
propose to add Exchange Act rules to require that the disclosure 
regarding executive and director compensation, beneficial ownership, 
related person transactions and most corporate governance matters be 
provided in plain English.

B. Objectives

    The overall goal of the rule proposals is to provide investors with 
a clearer and more complete picture of executive and director 
compensation, related person transactions and corporate governance 
matters. We believe that the proposals would:
    <bullet> Confirm our current requirement that all elements of 
compensation must be disclosed;
    <bullet> Retain the comparability of executive and director 
compensation while also providing material qualitative information 
about the context in which compensation is granted, awarded and earned;
    <bullet> Reorganize and modify the type of compensation information 
that must be disclosed in current reports;
    <bullet> Streamline and modernize the related person transaction 
disclosure requirements, while making them more principles-based;
    <bullet> Update the disclosure requirements regarding director 
independence to reflect current listing standards and consolidate all 
such disclosure under a single disclosure item so that it is easier to 
locate; and
    <bullet> Facilitate more informed voting decisions in the face of 
complex information about directors, executive officers and corporate 
governance, by requiring that most of the information required by these 
proposals be written in plain English.

C. Legal Basis

    We are proposing the amendments pursuant to Sections 3(b), 6, 7, 10 
and 19(a) of the Securities Act; Sections 10(b), 12, 13, 14(a), 15(d), 
and 23(a) of the Exchange Act; Sections 8, 20(a), 24(a), 30, and 38 of 
the Investment Company Act; and Section 3(a) of the Sarbanes-Oxley Act 
of 2002.

D. Small Entities Subject to the Proposed Amendments

    The proposals would 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 
proposals also would affect small entities that file, or have filed, a 
registration statement that has not yet become effective under the 
Securities Act and that has not been withdrawn. Securities Act Rule 157 
\357\ and Exchange Act Rule 0-10(a) \358\

[[Page 6596]]

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. 
We believe that the proposals would 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.\359\ We believe that 
the proposals would affect small entities that are investment 
companies. We estimate that there are approximately 240 investment 
companies that may be considered small entities.
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    \357\ 17 CFR 230.157.
    \358\ 17 CFR 240.0-10(a).
    \359\ 17 CFR 270.0-10(a).
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E. Reporting, Recordkeeping and Other Compliance Requirements

    The proposed amendments to Item 402 of Regulation S-K would expand 
some existing disclosure requirements, and consolidate or eliminate 
others. The proposed amendments to Item 402 of Regulation S-B would 
require less extensive disclosure for small business issuers than would 
be required for companies complying with Item 402 of Regulation S-K. 
Under the proposals, the scope and presentation of information in Item 
402 of Regulation S-B would differ in a number of significant ways from 
Item 402 of Regulation S-K. Item 402 of Regulation S-B would:
    <bullet> Limit the named executive officers for whom disclosure 
would 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.
    Item 402 of Regulation S-B would not include the following 
disclosures that would be required by proposed Item 402 of Regulation 
S-K:
    <bullet> Compensation Discussion and Analysis;
    <bullet> Information regarding two additional executives;
    <bullet> The third fiscal year of Summary Compensation Table 
disclosure; and
    <bullet> The supplementary Grants of Performance-Based Awards Table 
and Grants of All Other Equity Awards Table, the Option Exercises and 
Stock Vested Table, the Retirement Plan Potential Annual Payments and 
Benefits Table, and the Nonqualified Defined Contribution and Other 
Deferred Compensation Plans 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 proposed amendments to Item 402 of Regulation S-B 
would not result in the same level of incremental increase in costs or 
burdens as would the requirements of proposed amendments to Item 402 of 
Regulation S-K.
    The proposed amendments to Item 404 of Regulation S-K and S-B would 
decrease the existing related person transaction disclosure requirement 
that companies, including small entities, must comply with in some 
respects and expand it in other respects. The proposed amendments to 
Item 404 of Regulation S-B would 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 for the last three completed fiscal years.\360\ 
At the same time, the proposed amendments to Item 404 of Regulation S-B 
would increase the scope of the related person transaction disclosure 
requirement by expanding the group of related persons covered to 
include additional ``immediate family members,'' and in the case of 
indebtedness relationships, significant shareholders. In addition, the 
proposals 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.
---------------------------------------------------------------------------

    \360\ Proposed Item 404(a) of Regulation S-K only includes 
$120,000 as the threshold.
---------------------------------------------------------------------------

    Unlike the proposed amendments to Item 404 of Regulation S-K, the 
proposed amendments to Item 404 of Regulations S-B would 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 
proposed amendments to Item 404 of Regulation S-B and proposed Item 407 
of Regulation S-B would require, depending upon the particular 
circumstances of a company, more or less disclosure by changing the 
disclosure requirement regarding director independence.\361\
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    \361\ As is the case currently, proposed Item 407 of Regulation 
S-B would not require compensation committee interlocks disclosure 
as would proposed Item 407 of Regulation S-K. This retains a current 
difference between Item 402 of Regulation S-B and Item 402 of 
Regulation S-K.
---------------------------------------------------------------------------

    Similar to proposed Item 404(a) of Regulation S-K, proposed 
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 would 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 
current $60,000 threshold for disclosure of such interests, 
transactions, and relationships.
    The proposed amendments to Item 403 of Regulation S-K and S-B would 
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 
would impose an additional disclosure requirement on companies, 
including small entities.
    The proposed plain English rules applicable to Exchange Act reports 
and proxy or information statements incorporated by reference into 
Exchange Act reports would not affect the substance of disclosures that 
companies must make. The proposed plain English rules would also not 
impose any new recordkeeping requirements or require reporting of 
additional information. Other proposed changes to our rules would 
decrease the scope of the disclosure requirements for Form 8-K,

[[Page 6597]]

and thereby result in a reduction in the number of current reports on 
Form 8-K filed each year.
    Overall, the proposals are expected to result in increased costs to 
all subject companies, large or small, as follows:
    <bullet> Incremental increase in costs is expected with proposed 
changes to executive and director compensation disclosure requirements;
    <bullet> No 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 proposed 
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 proposed 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 proposed expanded director 
independence disclosure in Item 407 of Regulation S-K or S-B could be 
performed by the same person or group of persons responsible for 
compliance under the current rules at a minimal incremental cost.
    Our plain English proposal would 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 would be required to be 
disclosed in Exchange Act reports such as annual reports on Forms 10-K 
or 10-KSB. We believe the proposed rules, if adopted, would 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 proposals. 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 would take issuers 70 additional hours to 
prepare the proposed disclosure in year one, 25 additional hours in 
year two, and 10 additional hours in year three and thereafter, which 
results in an average of 35 additional hours over the three year 
period. The same estimates would 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 would file a Form 10-K, we estimate for purposes 
of the Paperwork Reduction Act that it would take issuers 120 
additional hours to prepare the proposed disclosure in year one, and 55 
hours in year two, and 25 hours in year three and thereafter, which 
results in an average of 67 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 would 
be performed by the company internally at a cost of $175 per hour and 
25% of the burden would be carried by outside professionals retained by 
the company at a cost of $300 per hour, the average annual cost to 
comply with the proposed disclosure requirements in periodic reports 
and/or proxy or information statements would be approximately $7,219. 
The extent to which an additional average compliance cost of 
approximately $7,219 per small entity over a three year period would 
constitute a significant economic impact for small entities would 
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 would take business development companies 100 
additional hours to prepare the proposed disclosure in year one, 50 
hours in year two and 25 hours in year three and thereafter, which 
results in an average of 58 hours for each business development company 
to comply with the proposed compensation disclosures that would be 
required on Form N-2. If we assume that 25% of the burden would be 
borne internally at a cost of $175 per hour and 75% of the burden would 
be carried by outside professionals retained by the company at a cost 
of $300 per hour, the average annual cost for business development 
companies to comply with the proposed disclosure requirements on Form 
N-2 would be approximately $15,588. The extent to which an additional 
average compliance cost of approximately $15,588 per small entity over 
a three year period would constitute a significant economic impact for 
small entities would 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.
    We encourage written comments regarding this analysis. We solicit 
comments as to whether the proposed amendments could have an effect 
that we have not considered. We request that commenters describe the 
nature of any impact on small entities and provide empirical data to 
support the extent of the impact.

F. Duplicative, Overlapping or Conflicting Federal Rules

    We believe that there are no federal rules that conflict with or 
completely duplicate the proposed rules.

G. Significant Alternatives

    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 proposals, 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 proposed some different 
compliance or reporting requirements for small entities and solicited 
comments on others. 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 would 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 would be 
necessary to promote the goal of relatively uniform presentation of 
comparable information for the benefit of investors. Finally, although 
we propose to exempt some information required of larger issuers, a 
wholesale exemption for small entities would not be appropriate because 
the proposals are designed to make uniform the application of the 
disclosure and other requirements that would be amended.

[[Page 6598]]

    We note that small business issuers,\362\ which is a broader 
category of issuers than small entities, in certain circumstances may 
provide the executive compensation and relationships with related 
persons and promoters disclosure specified, respectively, in Items 402 
and 404 of Regulation S-B, rather than the corresponding disclosure 
specified in Items 402 and 404 of Regulation S-K. We have proposed 
disclosure amendments that would require clear and straightforward 
disclosure of executive compensation, and relationships with related 
persons and promoters, respectively. We have proposed what we believe 
to be appropriate revisions to the small business issuer reporting 
requirements under Regulation S-B, given that small business issuer 
compensation structures are likely to be less complex than those of 
registrants that are not small business issuers. Separate disclosure 
requirements for small entities that would differ from the proposed 
reporting requirements of Regulation S-B would not yield the disclosure 
we believe to be necessary to achieve our disclosure objectives. In 
particular, we believe the changes that are reflected in the proposed 
amendments to Regulation S-B would balance the informational needs of 
investors in smaller companies with the burdens imposed on such 
companies by the disclosure requirements.
---------------------------------------------------------------------------

    \362\ 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.
---------------------------------------------------------------------------

    We have used design rather than performance standards in connection 
with the proposals for two reasons. First, based on our past 
experience, we believe the proposed disclosure would be more useful to 
investors if there were specific informational requirements. The 
proposed mandated disclosures are intended to result in more focused 
and comprehensive disclosure. Second, the specific disclosure 
requirements in the proposals would promote more consistent disclosure 
among public companies because they would provide greater certainty as 
to the scope of required disclosure. In addition, specific disclosure 
requirements would improve the Commission's ability to enforce the 
proposed rules. Therefore, amending the disclosure requirements of 
Items 402 and 404 of Regulations S-K and Regulation S-B and Exchange 
Act Form 8-K, and adopting Item 407 of Regulation S-K and S-B, appears 
to be the most effective method of eliciting the disclosure.

H. Solicitation of Comment

    We encourage the submission of comments with respect to any aspect 
of this Initial Regulatory Flexibility Analysis. In particular, we 
request comments regarding: (i) The number of small entity issuers that 
may be affected by the proposed revisions; (ii) the existence or nature 
of the potential impact of the proposed revisions on small entity 
issuers discussed in the analysis; and (iii) how to quantify the impact 
of the proposed revisions. Commenters are asked to describe the nature 
of any impact and provide empirical data supporting the extent of the 
impact. Such comments will be considered in the preparation of the 
Final Regulatory Flexibility Analysis, if the proposed revisions are 
adopted, and will be placed in the same public file as comments on the 
proposed amendments.

XII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996,\363\ a rule is ``major'' if it has resulted, or is likely 
to result in:
---------------------------------------------------------------------------

    \363\ Pub. L. 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

    <bullet> An annual effect on the U.S. economy of $100 million or 
more;
    <bullet> A major increase in costs or prices for consumers or 
individual industries; or
    <bullet> Significant adverse effects on competition, investment or 
innovation.

We request comment on whether our proposals would be a ``major rule'' 
for purposes of the Small Business Regulatory Enforcement Fairness Act. 
We solicit comment and empirical data on: (a) the potential effect on 
the U.S. economy on an annual basis; (b) any potential increase in 
costs or prices for consumers or individual industries; and (c) any 
potential effect on competition, investment or innovation.

XIII. Statutory Authority and Text of the Proposed Amendments

    We are proposing 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) and 23(a) of the Exchange Act, as amended, and 
Sections 8, 20(a), 24(a), 30 and 38 of the Investment Company Act of 
1940, as amended.

List of Subjects

17 CFR Part 228

    Reporting and recordkeeping requirements, Securities, Small 
businesses.

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

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 274

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

    For the reasons set forth above, we propose to amend Title 17, 
Chapter II of the Code of Federal Regulations as follows:

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

    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.
* * * * *
    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]

    3. Remove and reserve Sec.  228.306.


Sec.  228.401  [Amended]

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

[[Page 6599]]

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 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)(iii) of 
this Item), provided, however, that no disclosure need be provided 
for any executive officer, other than the PEO, whose total 
compensation 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 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 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 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.
    (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 measure. A non-stock 
incentive plan is an incentive plan or portion of an incentive plan 
where the relevant performance measure is not based on the price of the 
small business issuer's equity securities or the award does not permit 
settlement by issuance of the small business issuer's equity 
securities. The term incentive plan award means an award provided under 
an incentive plan.
    (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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                Non-stock
                                                                                                                                incentive     All other
           Name and principal position               Year     Total  ($)  Salary  ($)   Bonus  ($)     Stock        Option        plan      compensation
                                                                                                    awards  ($)  awards  ($)  compensation       ($)
                                                                                                                                   ($)
(a)                                                     (b)          (c)          (d)          (e)          (f)          (g)           (h)           (i)
-------------------------------------------------
PEO.............................................         --
                                                         --
A...............................................         --
                                                         --
B...............................................         --
                                                         --
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 6600]]

    (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 total compensation for the covered fiscal 
year (column (c)). With respect to each named executive officer, 
disclose the sum of all amounts reported in columns (d) through (i);
    (iv) The dollar value of base salary (cash and non-cash) earned by 
the named executive officer during the fiscal year covered (column 
(d));
    (v) The dollar value of bonus (cash and non-cash) earned by the 
named executive officer during the fiscal year covered (column (e));

    Instructions to Item 402(b)(2)(iv) and (v). 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 be disclosed in a filing under Item 5.02(e) of Form 8-K 
(17 CFR 249.308).
    2. Small business issuers need not include in the salary column 
(column (d)) or bonus column (column (e)) 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, stock-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 Table corresponding to that fiscal year (e.g., stock awards 
(column (f)); option awards (column (g)); all other compensation 
(column (i))); or if made pursuant to a non-stock incentive plan and 
therefore not reportable at grant in the Summary Compensation Table, 
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.

    (vi) For awards of stock, including restricted stock, restricted 
stock units, phantom stock, phantom stock units, common stock 
equivalent units and other similar instruments that do not have option-
like features, the aggregate grant date fair value computed in 
accordance with Financial Accounting Standards Board Statement of 
Financial Accounting Standards No. 123 (revised 2004), Share-Based 
Payment (``FAS 123R''), as modified or supplemented, applying the same 
valuation model and assumptions as the small business issuer applies 
for financial statement reporting purposes, and all earnings on any 
outstanding awards (column (f));
    (vii) For awards of stock options, with or without tandem SARs, 
freestanding SARs and other similar instruments with option-like 
features (including awards that subsequently have been transferred), 
the aggregate grant date fair value computed in accordance with FAS 
123R applying the same valuation model and assumptions as the small 
business issuer applies for financial statement reporting purposes, and 
all earnings on any outstanding awards (column (g));

    Instructions to Item 402(b)(2)(vi) and (vii). 1. For awards 
reported in columns (f) and (g), 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 
402.
    2. If at any time during the last completed fiscal year, the 
small business issuer has adjusted or amended the exercise price of 
stock 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 (g), the total 
fair value of options or SARs as so repriced or modified, measured 
as of the repricing or modification date.
    3. All earnings on outstanding awards must be identified and 
quantified in a footnote to column (f) or (g), as applicable, 
whether the earnings were paid during the fiscal year, payable 
during the period but deferred, or payable by their terms at a later 
date.

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

    Instructions to Item 402(b)(2)(viii). 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-stock incentive plan compensation must be 
identified and quantified in a footnote to column (h), 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.

    (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 (d)-(h) must be reported in 
this column. 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 earnings on compensation that is deferred on a basis that 
is not tax-qualified, including such earnings on non-qualified defined 
contribution plans;
    (C) All ``gross-ups'' or other amounts reimbursed during the fiscal 
year for the payment of taxes;
    (D) 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 computed in accordance with FAS 123R 
applying the same valuation model and assumptions as the small business 
issuer applies for financial statement reporting purposes;
    (E) 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;
    (F) Small business issuer contributions or other allocations to 
vested and unvested defined contribution plans;
    (G) The aggregate increase in actuarial value to the named 
executive officer of all defined benefit and actuarial pension plans 
(including supplemental plans) accrued during the small business 
issuer's covered fiscal year; and
    (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 named executive 
officer. ?>

    Instructions to Item 402(b)(2)(ix). 1. Incentive plan awards and 
earnings and earnings on restricted stock, options, SARs and similar 
awards are required to be reported elsewhere as provided herein. 
These

[[Page 6601]]

amounts and amounts received on exercise of options and SARs are not 
reportable as All Other Compensation in column (i).
    2. Benefits paid pursuant to defined benefit and actuarial plans 
are reportable as All Other Compensation in column (i) if paid to 
the named executive officer during the period covered by the Table. 
Otherwise 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)(C) 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 and its subsidiaries.
    5. Regarding paragraph (b)(2)(ix)(B) of this Item, 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. Footnote disclosure may be provided 
disclosing the portion of any earnings that the registrant considers 
to be paid at an above-market rate, provided that the footnote 
explains the small business issuer's criteria for determining the 
portion considered to be above-market.
    6. The disclosure required pursuant to paragraph (b)(2)(ix)(G) 
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 employee retirement plans, 
but excluding tax-qualified defined contribution plans and 
nonqualified defined contribution plans.
    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), 78o(d)) at any time during that year, except that the small 
business issuer will be required to provide information for 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. 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. Amounts deferred at the election of a named executive officer 
or at the direction of the small business issuer, 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. The amount 
so deferred must be disclosed in a footnote to the applicable 
column.

    (c) Narrative disclosure to summary compensation table. (1) 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:
    (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, SAR 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 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 
(h) 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.
    (iv) The material terms of each grant, including but not limited to 
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.
    (v) The material terms of any non-option and non-SAR 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.
    (vi) The assumptions underlying any determination of an increase in 
the actuarial value of defined benefit and actuarial plans and the 
method of calculating earnings on deferred compensation plans including 
defined contribution plans.
    (vii) 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 paragraphs (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.
    (2) 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 named 
executive officers, disclose each of such employee's total compensation 
for that year and describe their job positions.
    (d) Outstanding equity awards at fiscal year-end table. (1) Provide 
the information specified in paragraph (d)(2) of this Item, concerning 
the number and value of unexercised options, SARs and similar 
instruments and nonvested stock (including restricted stock, restricted 
stock units or other similar instruments) and incentive plan awards for 
each named executive officer outstanding as of the end of the small 
business issuer's last completed fiscal year on an aggregated basis in 
the following tabular format:

[[Page 6602]]



                                  Outstanding Equity Awards at Fiscal Year-end
----------------------------------------------------------------------------------------------------------------
                                                                                                      Incentive
                                                                                         Incentive      plans:
                                  Number of     In-the-money   Number of      Market       plans:     market or
                                  securities     amount of     shares or     value of    number of      payout
                                  underlying    unexercised     units of    shares or    nonvested     value of
             Name                unexercised       option      stock held    units of     shares,     nonvested
                                   options      (<greek-i>)    that have    stock held    units or     shares,
                                 (<greek-i>)    exercisable/   not vested   that have      other       units or
                                 exercisable/  unexercisable  (<greek-i>)   not vested  rights held     other
                                unexercisable                                  ($)        (<greek-   rights held
                                                                                            i>)           ($)
(a)                                      (b)            (c)           (d)          (e)          (f)          (g)
-------------------------------
PEO...........................
A.............................
B.............................
----------------------------------------------------------------------------------------------------------------

    (2) The Table shall include:
    (i) The name of the executive officer (column (a));
    (ii) The total number of securities underlying unexercised options, 
SARs and similar instruments with option-like features held at the end 
of the last completed fiscal year, including awards that have been 
transferred, separately identifying the exercisable and unexercisable 
options, SARs and similar instruments (column (b));
    (iii) The aggregate in-the-money amount of unexercised options, 
SARs and similar instruments with option-like features held at the end 
of the fiscal year, including awards that have been transferred, 
separately identifying the exercisable and unexercisable options, SARs 
and similar instruments (column (c));
    (iv) The total number of nonvested shares of stock (including 
restricted stock, restricted stock units or similar instruments that do 
not have option-like features) held at the end of the fiscal year 
(column (d));
    (v) The aggregate market value of nonvested shares of stock 
(including restricted stock, restricted stock units or similar 
instruments that do not have option-like features) held at the end of 
the fiscal year (column (e));
    (vi) The total number of nonvested shares, units or other rights 
awarded under any incentive plan, and, if applicable the number of 
shares underlying any such unit or right, held at the end of the fiscal 
year (column (f)); and
    (vii) The aggregate market or payout value of nonvested shares, 
units or other rights awarded under any incentive plan held at the end 
of the fiscal year (column (g)).

    Instructions to Item 402(d)(2). 1. In the title of the table, 
specify the applicable fiscal year of the small business issuer.
    2. Options, SARs or similar instruments are in-the-money if the 
market price of the underlying securities exceeds the exercise or 
base price of the option, SAR or similar instrument. Compute the 
amounts in column (c) by determining the difference between the 
market price at fiscal year-end of the securities underlying the 
options, SARs or similar instruments and the exercise or base price 
of the options, SARs or similar instruments.
    3. The expiration dates of options, SARs and similar instruments 
held at fiscal year-end, separately identifying the exercisable and 
unexercisable options, SARs and similar instruments must be 
disclosed by footnote to column (b). If the expiration date of an 
option, SAR or similar instrument held at fiscal year-end 
subsequently has occurred, state whether it was exercised or expired 
unexercised. The vesting dates of restricted stock shares and 
similar instruments and incentive plan awards held at fiscal-year 
end must be disclosed by footnotes to columns (d) and (f), 
respectively.
    4. Compute the market values of stock (including restricted 
stock, restricted stock units or similar instruments) holdings 
reported in column (e) and equity-based incentive plan awards 
reported in column (g) 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 restricted stock or incentive plan 
award holdings, respectively.

    (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 employee 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 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-stock
                                               Fees earned                              incentive     All other
              Name                 Total  ($)   or paid in     Stock        Option        plan      compensation
                                                cash  ($)   awards  ($)  awards  ($)  compensation       ($)
                                                                                           ($)
(a)                                       (b)          (c)          (d)          (e)           (f)           (g)
---------------------------------
A...............................
B...............................
C...............................

[[Page 6603]]

 
D...............................
E...............................
----------------------------------------------------------------------------------------------------------------

    (2) The Table shall include:
    (i) The name of each director, unless such director is also a named 
executive officer under Item 402(a) and his or her compensation for 
service as a director is fully reflected in the Summary Compensation 
Table pursuant to Item 402(b) and otherwise as required pursuant to 
Items 402(c) and (e) (column (a));
    (ii) The dollar value of total compensation for the covered fiscal 
year (column (b)). With respect to each director, disclose the sum of 
all amounts reported in columns (c) through (g);
    (iii) 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 (c));
    (iv) For awards of stock, including 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, the aggregate grant date fair value computed in 
accordance with FAS 123R, applying the same valuation model and 
assumptions as the small business issuer applies for financial 
statement reporting purposes, and all earnings on any outstanding 
awards (column (d));
    (v) For awards of stock options, with or without tandem SARs, 
freestanding SARs and other similar instruments with option-like 
features (including awards that subsequently have been transferred), 
the aggregate grant date fair value computed in accordance with FAS 
123R applying the same valuation model and assumptions as the small 
business issuer applies for financial statement reporting purposes, and 
all earnings on any outstanding awards (column (e));

    Instruction to Item 402(f)(2)(iv) and (v). Disclose, for each 
director, by footnote to the appropriate column, the outstanding 
equity awards at fiscal year end as would be required if the tabular 
presentation for named executive officers specified in paragraph (d) 
of this Item were required for directors.

    (vi) The dollar value of all earnings for services performed during 
the fiscal year pursuant to non-stock-based incentive plans as defined 
in paragraph (a)(5)(iii) of this Item, and all earnings on any 
outstanding awards (column (f)); and
    (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 
for the last completed fiscal year that is not properly reportable in 
columns (c)-(f) must be reported in this column and must be identified 
and quantified in a footnote if it is deemed material in accordance 
with paragraph (c)(6) of this Item. Such compensation must include, but 
is not limited to:
    (A) All perquisites and other personal benefits, or property, 
unless the aggregate amount of such compensation is less than $10,000;
    (B) All earnings on compensation that is deferred on a basis that 
is not tax-qualified;
    (C) All amounts reimbursed during the fiscal year for the payment 
of taxes;
    (D) 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 computed in accordance with FAS 123R 
applying the same valuation model and assumptions as the small business 
issuer applies for financial statement reporting purposes;
    (E) 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;
    (F) The aggregate increase in actuarial value to the director of 
all defined benefit and actuarial pension plans (including supplemental 
plans) accrued during the small business issuer's covered fiscal year;
    (G) Small business issuer contributions or other allocations to 
vested and unvested defined contribution plans;
    (H) Consulting fees earned from, or paid or payable by the small 
business issuer and/or its subsidiaries (including joint ventures);
    (I) The annual costs of payments and promises of payments pursuant 
to director legacy programs and similar charitable award programs; and
    (J) 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.

    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)(I) of this Item. Provide footnote disclosure of the 
total dollar amount and other material terms of each such program 
for which tabular disclosure is provided.
    Instruction to Item 402(f)(2). Two or more directors may be 
grouped in a single row in the table if all of their elements of 
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 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.


[[Page 6604]]


    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 3 to paragraph (b) of 
this Item; the Instructions to paragraphs (b)(2)(iv) and (v) of this 
Item; the Instructions to paragraphs (b)(2)(vi) and (vii) of this 
Item; the Instructions to paragraph (b)(2)(viii) of this Item; the 
Instructions to paragraph (b)(2)(ix) of this Item; and paragraph 
(c)(6) 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.


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

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


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

    (a) Transactions with related persons. Describe any transaction 
during the last two years, 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 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 each 
transaction and of the amount of the related person's interest in each 
transaction each of which shall be computed without regard to the 
amount of profit or loss.
    (4) In the case of indebtedness, disclosure of the amount involved 
in the transaction shall include the largest aggregate amount of 
principal outstanding during the last two years, 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.
    (5) 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 any of the foregoing 
persons, 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, and any person (other than 
a tenant or employee) sharing the household of a related person 
identified in paragraph 1.a.i. or 1.a.ii. of this instruction; 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.
    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.
    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 transactions involving indebtedness, 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.
    5. 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:
    a. The compensation arising from the relationship or transaction 
is reported pursuant to Item 402 (Sec.  228.402); or
    b. The executive officer is not an immediate family member of a 
related person (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

[[Page 6605]]

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 as such by the compensation committee 
of the board of directors (or group of independent directors 
performing a similar function) of the small business issuer.
    6. Disclosure of compensation to a director need not be provided 
pursuant to paragraph (a) of this Item if the compensation is 
reportable pursuant to Item 402(f) (Sec.  228.402(f)).
    7. In the case of a transaction involving indebtedness, 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:
    a. Were made in the ordinary course of business;
    b. 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
    c. Did not involve more than the normal risk of collectibility 
or present other unfavorable features.
    8. 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 which 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.
    9. 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.

    (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. (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 therefor 
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.
    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 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 a 
national securities association 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 member of a specific 
committee, use those committee specific standards.

[[Page 6606]]

    (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 or Form 10-SB (Sec.  249.210 
or 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 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, identify 
the most recent fiscal years 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 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.

    Instruction to Item 407(a). 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 sections 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.

    (b) Board meetings and committees. (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 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 (d)(4) 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;

[[Page 6607]]

    (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.
    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), as adopted by the Public Company Accounting Oversight 
Board in Rule 3200T;
    (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), 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
    (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 small business issuer's Annual Report on 
Form 10-K (17 CFR 249.310) 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 you meet the following requirements, provide the 
disclosure in paragraph (d)(4)(ii) of this Item:
    (A) You are a listed issuer, as defined in Sec.  240.10A-3 of this 
chapter;
    (B) You are 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

[[Page 6608]]

taken with respect to the election of directors; and
    (C) You are 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 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 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

[[Page 6609]]

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 each 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, the material elements of the 
instructions or directions given to the consultants with respect to the 
performance of their duties under the engagement and identifying the 
executive officer within the small business issuer the consultants 
contacted in carrying out their assignment.
    (f) Shareholder communications and annual meeting attendance. (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.

    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 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 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

    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.

    10. Amend Sec.  229.201 by revising Instruction 2 to paragraph (d) 
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)).
* * * * *


Sec.  229.306  [Removed and reserved]

    11. Remove and reserve Sec.  229.306.
    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), 78o(d)) for the twelve months 
immediately prior to the filing of the registration statement, report, 
or statement to which this Item is

[[Page 6610]]

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.
* * * * *
    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 (l) 
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)(iii) of 
this Item), provided, however, that no disclosure need be provided 
for any executive officer, other than the PEO and PFO, whose total 
compensation 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 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 required to be reported in that table 
or column in any fiscal year covered by that table.
    (6) Definitions. For purposes of this Item:
    (i) 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.
    (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 documents, 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. A non-stock 
incentive plan is an incentive plan or portion of an incentive plan 
where the relevant performance measure is not based on the price of the 
registrant's equity securities or the award does not permit settlement 
by issuance of registrant equity securities. The term incentive plan 
award means an award provided under an incentive plan.
    (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 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 and not 
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

[[Page 6611]]

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) For equity-based compensation, how the determination is made 
as to when awards are granted;
    (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 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;
    (vii) How specific forms of compensation are structured to reflect 
these items of the registrant's performance, including 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 an award);
    (viii) The factors considered in decisions to increase or decrease 
compensation materially;
    (ix) How compensation or amounts realizable from prior compensation 
(e.g., gains from prior option or stock awards) are considered in 
setting other elements of compensation (e.g., how gains from prior 
option or stock awards are considered in setting retirement benefits);
    (x) The impact of the accounting and tax treatments of the 
particular form of compensation;
    (xi) 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;
    (xii) 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
    (xiii) 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.
    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, and shall not 
use boilerplate language or repeat 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 factors or criteria involving confidential 
commercial or business information, the disclosure of which would 
have an adverse effect on the registrant.
    (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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                Non-stock
                                                                                                                                incentive     All other
         Name and principal  position               Year      Total ($)    Salary ($)   Bonus ($)      Stock        Option        plan      compensation
                                                                                                     awards ($)   awards ($)  compensation       ($)
                                                                                                                                   ($)
(a)                                                     (b)          (c)          (d)          (e)          (f)          (g)           (h)           (i)
-----------------------------------------------
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 total compensation for the covered fiscal 
year (column (c)). With respect to each named executive officer, 
disclose the sum of all amounts reported in columns (d) through (i);
    (iv) The dollar value of base salary (cash and non-cash) earned by 
the named executive officer during the fiscal year covered (column 
(d));
    (v) The dollar value of bonus (cash and non-cash) earned by the 
named executive officer during the fiscal year covered (column (e));

    Instructions to Item 402(c)(2)(iv) and (v). 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

[[Page 6612]]

the amount of salary or bonus is expected to be determined, and such 
amount must be disclosed in a filing under Item 5.02(e) of Form 8-K 
(17 CFR 249.308).
    2. Registrants need not include in the salary column (column 
(d)) or bonus column (column (e)) any amount of salary or bonus 
forgone at the election of a named executive officer pursuant to a 
registrant's program under which stock, stock-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 (f)); option awards (column (g)); all other 
compensation (column (i)); or if made pursuant to a non-stock 
incentive plan and therefore not reportable at grant in the Summary 
Compensation Table, a footnote must be added to the salary or bonus 
column so disclosing and referring to the Grants of Performance-
Based Awards Table (required by paragraph (d) of this Item) where 
the award is reported.

    (vi) For awards of stock, including restricted stock, restricted 
stock units, phantom stock, phantom stock units, common stock 
equivalent units and other similar instruments that do not have option-
like features, the aggregate grant date fair value computed in 
accordance with Financial Accounting Standards Board Statement of 
Financial Accounting Standards No. 123 (revised 2004), Share-Based 
Payment (``FAS 123R''), as modified or supplemented, applying the same 
valuation model and assumptions as the registrant applies for financial 
statement reporting purposes, and all earnings on any outstanding 
awards (column (f));
    (vii) For awards of stock options, with or without tandem SARs, 
freestanding SARs and other similar instruments with option-like 
features (including awards that subsequently have been transferred), 
the aggregate grant date fair value computed in accordance with FAS 
123R applying the same valuation model and assumptions as the 
registrant applies for financial statement reporting purposes, and all 
earnings on any outstanding awards (column (g));

    Instructions to Item 402(c)(2)(vi) and (vii). 1. For awards 
reported in columns (f) and (g), 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 stock 
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 registrant shall include, as awards required to be 
reported in column (g), the total fair value of options or SARs as 
so repriced or modified, measured as of the repricing or 
modification date.
    3. All earnings on outstanding awards must be identified and 
quantified in a footnote to column (f) or (g), as applicable, 
whether the earnings were paid during the fiscal year, payable 
during the period but deferred, or payable by their terms at a later 
date.

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

    Instructions to Item 402(c)(2)(viii). 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-stock incentive plan compensation must be 
identified and quantified in a footnote to column (h), 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.

    (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 (d)-(h) must be reported in this column 
and must be identified and quantified in a footnote if the amount of 
the item exceeds $10,000 (or in the case of any perquisite or personal 
benefit, must be identified unless the aggregate value of perquisites 
and personal benefits is less than $10,000, and must be quantified if 
it is valued at the greater of $25,000 or 10% of total perquisites and 
other personal benefits as specified in Instruction 3 to this 
paragraph). 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 earnings on compensation that is deferred on a basis that 
is not tax-qualified, including such earnings on non-qualified defined 
contribution plans;
    (C) All ``gross-ups'' or other amounts reimbursed during the fiscal 
year for the payment of taxes;
    (D) 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 computed in 
accordance with FAS 123R applying the same valuation model and 
assumptions as the registrant applies for financial statement reporting 
purposes;
    (E) 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;
    (F) Registrant contributions or other allocations to vested and 
unvested defined contribution plans;
    (G) The aggregate increase in actuarial value to the named 
executive officer of all defined benefit and actuarial pension plans 
(including supplemental plans) accrued during the registrant's covered 
fiscal year; and
    (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 named executive officer.

    Instructions to Item 402(c)(2)(ix). 1. Incentive plan awards and 
earnings; earnings on restricted stock, options, SARs and similar 
awards; and amounts received on exercise of options and SARs 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 reportable as All Other Compensation in column (i) if paid to 
the named executive officer during the period covered by the Table. 
Otherwise information concerning these plans is reportable pursuant 
to paragraph (i) of this Item.
    3. Each perquisite or personal benefit must be identified by 
type unless the aggregate value of perquisites and personal benefits 
is less than $10,000 and each perquisite or personal benefit that 
exceeds the greater of $25,000 or 10% of the total amount of 
perquisites and personal benefits must be quantified for a named 
executive officer pursuant to paragraph (c)(2)(ix)(A) of this Item, 
and each item reported for a named executive officer pursuant to 
paragraph (c)(2)(ix) of this Item that exceeds $10,000

[[Page 6613]]

must be identified by type and amount in a footnote to column (i). 
All items of compensation are required to be included in the Summary 
Compensation Table without regard to whether such items are required 
to be so identified. Reimbursements of taxes owed with respect to 
perquisites or other personal benefits are subject to inclusion in 
column (i) and to separate quantification and identification as tax 
reimbursements (paragraph (c)(2)(ix)(C) of this Item) even if the 
associated perquisites or other personal benefits are not required 
to be separately quantified or the perquisite or other personal 
benefit is 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 registrant and 
its subsidiaries.
    5. Regarding paragraph (c)(2)(ix)(B) of this Item, 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. Footnote disclosure may be provided 
disclosing the portion of any earnings that the registrant considers 
to be paid at an above-market rate, provided that the footnote 
explains the registrant's criteria for determining the portion 
considered to be above market.
    6. The disclosure required pursuant to paragraph (c)(2)(ix)(G) 
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 employee retirement plans, 
but excluding tax-qualified defined contribution plans and 
nonqualified defined contribution plans.
    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), 
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. 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 (l) of this Item.
    4. Amounts deferred at the election of a named executive officer 
or at the direction of the registrant, 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. The amount so deferred 
must be disclosed in a footnote to the applicable column.

    (d) Grants of performance-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 performance-based plan (including a 
performance-based portion of any plan), including awards that 
subsequently have been transferred, in the following tabular format:

                                                           Grants of Performance-Based Awards
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                 Performance-                                                                             Estimated future payouts
                                  based stock                 Non-stock                               Performance --------------------------------------
                                  and stock-   Performance-   incentive                                 or other
                                     based         based         plan     Dollar amount                  period
                                   incentive     options:      awards:          of        Grant date     until
              Name                  plans:       number of    number of   consideration   for stock    vesting or   Threshold    Target ($)  Maximum ($)
                                   number of    securities     units or      paid for     or option    payout and     ($) or    or (<greek-  or (<greek-
                                    shares,     underlying      other     award, if any     awards       option    (<greek-i>)      i>)          i>)
                                   units or       options       rights         ($)                     expiration
                                 other rights   (<greek-i>)  (<greek-i>)                                  date
                                  (<greek-i>)
(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) The number of shares of performance-based stock, including 
restricted stock, restricted stock units, phantom stock, phantom stock 
units, common stock equivalent units or similar instruments that do not 
have option-like features granted under an award, and the number of 
shares, units or other rights granted under an award under any stock-
based incentive plan (and if applicable, the number of shares 
underlying any such unit or right) (column (b));
    (iii) The number of performance-based options, SARs, and similar 
instruments with option-like features (column (c)) granted under an 
award under any such plan;
    (iv) The number of units or other rights granted under an award 
under any non-stock incentive plan (column (d));
    (v) The dollar amount of consideration, if any, paid by the 
executive officer for the award (column (e));
    (vi) The grant date for stock, option or similar awards reported in 
columns (b) and (c) (column (f));
    (vii) The performance or other time period until earning, payout or 
maturation of the award, and the option/SAR expiration date (column 
(g)); and
    (viii) The dollar value of the estimated future payout or the 
number of shares to be awarded in the future as the payout on 
satisfaction of the conditions in question, or the applicable range of 
estimated payouts denominated in dollars or number of shares under the 
award (threshold, target and maximum amount) (columns (h) through (j)).

    Instructions to Item 402(d). 1. Separate disclosure shall be 
provided in the Table for each grant of an award made to a named 
executive officer, accompanied by the information specified in 
Instruction 2 to this paragraph. 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.

[[Page 6614]]

    2. For column (h), threshold refers to the minimum amount 
payable for a certain level of performance under the plan. For 
column (i), target refers to the amount payable if the specified 
performance target(s) are reached. For column (j), maximum refers to 
the maximum payout possible under the plan. If the award provides 
only for a single estimated payout, that amount should be reported 
as the target in column (i). In column (i), registrants must provide 
a representative amount based on the previous fiscal year's 
performance if the target amount is not determinable.
    3. A tandem grant of two instruments, only one of which is 
performance-based, such as an option granted in tandem with a 
performance share, need be reported only in the table applicable to 
the other instrument. For example, an option granted in tandem with 
a performance share would be reported only as an option grant, with 
the tandem feature noted.
    4. Options, SARs and similar option-like instruments granted in 
connection with a repricing transaction shall be reported in this 
table. See Instruction 2 to paragraphs (c)(2)(vi) and (vii) of this 
item.

    (e) Grants of all other equity awards table. (1) Provide the 
information specified in paragraph (e)(2) of this Item, concerning each 
grant of an equity-based award that is not performance-based (including 
awards that subsequently have been transferred) made during the last 
completed fiscal year to each of the named executive officers in the 
following tabular format:

                                        Grants of All Other Equity Awards
----------------------------------------------------------------------------------------------------------------
                                     Number of                              Number of
                                     securities                             shares of
                                     underlying  Exercise or   Expiration    stock or     Vesting
               Name                   options     base price      date        units         date      Grant date
                                      granted       ($/Sh)                   granted
                                    (<greek-i>)                            (<greek-i>)
(a)                                         (b)          (c)          (d)          (e)          (f)          (g)
-----------------------------------
PEO...............................
PFO...............................
A.................................
B.................................
C.................................
----------------------------------------------------------------------------------------------------------------

    (2) The Table shall include, with respect to each grant:
    (i) The name of the executive officer (column (a));
    (ii) The number of securities underlying options, SARs and similar 
option-like instruments granted that are not performance-based (column 
(b));
    (iii) The per-share exercise or base price of the options, SARs and 
similar option-like instruments granted (column (c)). If such exercise 
or base price is less than the market price of the underlying security 
on the date of the grant, a separate, adjoining column shall be added 
showing market price on the date of the grant;
    (iv) The expiration date of the options, SARs and similar option-
like instruments (column (d));
    (v) The number of shares of stock, including restricted stock, 
units and similar instruments that are not option-like, granted that 
are not performance-based (column (e));
    (vi) The vesting date of the restricted shares, units and similar 
instruments (column (f)); and
    (vii) The grant date of any options, stock or similar instruments 
reported in columns (b) and (e) (column (g)).

    Instructions to Item 402(e). 1. The awards reportable in this 
Table are share-based awards that are not subject to a performance 
condition or a market condition, as those terms are defined in FAS 
123R.
    2. If more than one award was made to a named executive officer 
during the last completed fiscal year, a separate line should be 
used to disclose each such award. However, multiple option grants 
during a single fiscal year may be aggregated where each grant was 
made at the same exercise and/or base price and has the same 
expiration date. A single grant consisting of options, SARs and/or 
similar option-like instruments shall be reported as separate grants 
with respect to each tranche with a different exercise and/or base 
price or expiration date.
    3. Options, SARs and similar option-like instruments granted in 
connection with a repricing transaction shall be reported in this 
Table. See Instruction 2 to paragraphs (c)(2)(vi) and (vii) of this 
Item.
    4. Any material term of the grant or award, including but not 
limited to the date of exercisability, the number and nature of any 
tandem instruments, a reload feature, or a tax-reimbursement 
feature, must be described in a footnote.
    5. If any provision of a grant or award (other than an 
antidilution provision) could cause the exercise price to be 
lowered, registrants must disclose that provision and its potential 
consequences either by a footnote or accompanying textual narrative.
    6. In determining if the exercise or base price of the options, 
SARs and similar option-like instruments is less than the market 
price of the underlying security on the date of the grant, the 
registrant may use either the closing price per share of the 
security on an established public trading market on the date of the 
grant, or if no such market exists, any other formula prescribed for 
the security.

    (f) Narrative disclosure to summary compensation table and 
subsidiary tables. (1) Provide a narrative description of any material 
factors necessary to an understanding of the information disclosed in 
the tables required by paragraphs (c), (d) and (e) 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, SAR 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 (including restricted stock, restricted 
stock units or other similar instruments), and if so, the applicable 
dividend rate and whether that rate is preferential. Describe the 
performance-based conditions, and any other material conditions, that 
are applicable to the award. Registrants are not required to disclose 
any factor, criteria or performance-related or other condition to 
payout or maturation of a

[[Page 6615]]

particular award that involves confidential commercial or business 
information, disclosure of which would adversely affect the 
registrant's competitive position. For purposes of the Table required 
by paragraph (d) of this Item and the narrative disclosure required by 
paragraph (f) of this Item, performance-based conditions include both 
performance conditions and market conditions, as those terms are 
defined in FAS 123R.
    (iv) 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 reported in column (h) to the 
Summary Compensation Table required by paragraph (c) 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.
    (v) The assumptions underlying any determination of an increase in 
the actuarial value of defined benefit and actuarial plans and the 
method of calculating earnings on deferred compensation plans including 
defined contribution plans.

    Instruction to Item 402(f)(1). 1. Include a discussion of 
provisions regarding post-termination compensation only to the 
extent disclosure of such compensation is required in the Summary 
Compensation Table pursuant to paragraph (c)(2)(ix)(E) of this Item; 
otherwise disclose these provisions pursuant to paragraph (k) of 
this Item.
    2. The disclosure required by paragraph (f)(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.

    (2) 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, disclose each of such employee's total 
compensation for that year and describe their job positions.
    (g) Outstanding equity awards at fiscal year-end table. (1) Provide 
the information specified in paragraph (g)(2) of this Item, concerning 
the number and value of unexercised options, SARs and similar 
instruments; nonvested stock (including restricted stock, restricted 
stock units or other similar instruments); and incentive plan awards 
for each named executive officer outstanding as of the end of the 
registrant's last completed fiscal year on an aggregated basis in the 
following tabular format:

                                  Outstanding Equity Awards at Fiscal Year-End
----------------------------------------------------------------------------------------------------------------
                                                                                                      Incentive
                                                                              Market     Incentive      plans:
                                  Number of                    Number of     value of      plans:     market or
                                  securities    In-the-money   shares or    nonvested    number of      payout
                                  underlying     amount of      units of    shares or    nonvested     value of
             Name                unexercised    unexercised    stock held    units of     shares,     nonvested
                                   options      options  ($)   that have    stock held    units or     shares,
                                 (<greek-i>)    exercisable/   not vested   that have      other       units or
                                 exercisable/  unexercisable  (<greek-i>)   not vested  rights held     other
                                unexercisable                                  ($)        (<greek-   rights held
                                                                                            i>)           ($)
(a)                                      (b)            (c)           (d)          (e)          (f)          (g)
-------------------------------
PEO...........................
PFO...........................
A.............................
B.............................
C.............................
----------------------------------------------------------------------------------------------------------------

    (2) The Table shall include:
    (i) The name of the named executive officer (column (a));
    (ii) The total number of securities underlying unexercised options, 
SARs and similar instruments with option-like features held at the end 
of the last completed fiscal year, including awards that have been 
transferred, separately identifying the exercisable and unexercisable 
options, SARs and similar instruments (column (b));
    (iii) The aggregate in-the-money amount of unexercised options, 
SARs and similar instruments with option-like features held at the end 
of the fiscal year, including awards that have been transferred, 
separately identifying the exercisable and unexercisable options, SARs 
and similar instruments (column (c));
    (iv) The total number of nonvested shares of stock (including 
restricted stock, restricted stock units or similar instruments that do 
not have option-like features) held at the end of the fiscal year 
(column (d));
    (v) The aggregate market value of nonvested shares of stock 
(including restricted stock, restricted stock units or similar 
instruments that do not have option-like features) held at the end of 
the fiscal year (column (e));
    (vi) The total number of nonvested shares, units or other rights 
awarded under any incentive plan, and, if applicable the number of 
shares underlying any such unit or right, held at the end of the fiscal 
year (column (f)); and
    (vii) The aggregate market or payout value of nonvested shares, 
units or other rights awarded under any incentive plan held at the end 
of the fiscal year (column (g)).

    Instructions to Item 402(g)(2). 1. Options, SARs or similar 
instruments are in-the-money if the market price of the underlying 
securities exceeds the exercise or base price of the option, SAR or 
similar instrument. Compute the amounts in column (c) by determining 
the difference between the market price at fiscal year-end of the 
securities underlying the options, SARs or similar instruments and 
the exercise or base price of the options, SARs or similar 
instruments.
    2. The expiration dates of options, SARs and similar instruments 
held at fiscal year-end, separately identifying the exercisable and 
unexercisable options, SARs and similar instruments must be 
disclosed by footnote to column (b). If the expiration date of an 
option, SAR or similar instrument held at fiscal year-end 
subsequently has occurred, state whether it was exercised or expired 
unexercised. The vesting dates of restricted stock shares and 
similar instruments and incentive plan awards held at fiscal-year 
end must be disclosed by footnotes to columns (d) and (f), 
respectively.

    3. Compute the market values of stock (including restricted stock, 
restricted stock units or similar instruments)

[[Page 6616]]

holdings reported in column (e) and equity-based incentive plan awards 
reported in column (g) by multiplying the closing market price of the 
registrant's stock at the end of the last completed fiscal year by the 
number of restricted stock or incentive plan award holdings, 
respectively.

    (h) Option exercises and stock vested table. (1) Provide the 
information specified in paragraph (h)(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:

                    Option Exercises and Stock Vested
------------------------------------------------------------------------
                                                             Grant date
                                   Number of      Value      fair value
                                     shares      realized    previously
    Name of executive officer     acquired on      upon      reported in
                                  exercise or  exercise or     summary
                                    vesting      vesting    compensation
                                  (<greek-i>)      ($)       table  ($)
(a)                                       (b)          (c)           (d)
---------------------------------
PEO--Options....................
Stock...........................
PFO--Options....................
Stock...........................
A--Options......................
Stock...........................
B--Options......................
Stock...........................
C--Options......................
Stock...........................
------------------------------------------------------------------------

    (2) The Table shall include:
    (i) The name of the executive officer (column (a));
    (ii) The number of securities for which the options, SARs and 
similar instruments were exercised, and the number of shares of stock, 
including restricted stock, restricted stock units and similar 
instruments that vested (column (b));
    (iii) The aggregate dollar value realized upon exercise and vesting 
(column (c)); and
    (iv) The grant date fair value previously reported in the Summary 
Compensation Table for the same options, SARs, and similar instruments, 
and the same shares of stock, including restricted stock, restricted 
stock units or similar instruments (column (d)).

    Instructions to Item 402(h)(2). 1. Report in column (c), line 1, 
the aggregate dollar amount realized by the named executive officer 
upon exercise of the options, SARs and similar instruments. 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, SARs or 
similar instruments. 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 registration is required to be 
disclosed in accordance with paragraph (c)(2)(ix) of this item.) 
Report in column (c), line 2, the aggregate dollar amount realized 
by the named executive officer upon the vesting of stock, including 
restricted stock, restricted stock units and similar instruments. 
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.
    2. Report in column (d), line 1, the aggregate grant date fair 
value previously reported in the registrant's Summary Compensation 
Table for the fiscal year of the grant for the options, SARs and 
similar instruments that were exercised by the named executive 
officer during the last completed fiscal year. Report in column (d), 
line 2, the aggregate grant date fair value previously reported in 
the registrant's Summary Compensation Table for the fiscal year of 
the grant for the shares of stock or units, including restricted 
stock, restricted stock units and similar instruments held by the 
named executive officer that vested during the last completed fiscal 
year. If the named executive officer was not previously a named 
executive officer during the fiscal year of the grant, report in 
column (d) the grant date fair value of the award valued in 
accordance with FAS 123R.

    (i) Retirement plan potential annual payments and benefits. (1) 
Provide the information specified in paragraph (i)(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:

                             Retirement Plan Potential Annual Payments and Benefits
----------------------------------------------------------------------------------------------------------------
                                                                            Estimated                 Estimated
                                                  Number of      Normal       normal       Early        early
                                                    years      retirement   retirement   retirement   retirement
               Name                  Plan name     credited       age         annual        age         annual
                                                   service    (<greek-i>)    benefit    (<greek-i>)    benefit
                                                 (<greek-i>)                   ($)                       ($)
(a)                                         (b)          (c)          (d)          (e)          (f)          (g)
-----------------------------------
PEO...............................
PFO...............................
A.................................
B.................................
C.................................
----------------------------------------------------------------------------------------------------------------


[[Page 6617]]

    (2) The Table shall include:
    (i) The name of the executive officer (column (a));
    (ii) The name of the plan (column (b));
    (iii) The number of years of service credited to the named 
executive officer under the plan (column (c));
    (iv) The normal retirement age under the plan (column (d));
    (v) The estimated dollar amount of annual payments and benefits 
that the named executive officer would be entitled to receive upon 
attaining normal retirement age, or, if the named executive officer 
currently is eligible to retire, the dollar amount of annual payments 
and benefits that the named executive officer would be entitled to 
receive, if he or she had retired at the end of the registrant's last 
completed fiscal year (column (e));
    (vi) The early retirement age, if applicable, under the plan 
(column (f)); and
    (vii) The estimated dollar amount of annual payments and benefits 
that the named executive officer would be entitled to receive upon 
attaining early retirement age, or, if the named executive officer 
currently is eligible for early retirement under the plan, the dollar 
amount of annual payments and benefits that the named executive officer 
would be entitled to receive if he or she had so retired at the end of 
the registrant's last completed fiscal year (column (g)).

    Instructions to Item 402(i)(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 
employee 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. 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. Normal retirement age means 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. Early retirement age means early retirement age as 
defined in the plan, or otherwise available to the executive.
    4. Quantification of payments and benefits should reflect the 
form of benefit currently elected by the executive, such as joint 
and survivor annuity or single life annuity, specifying that form in 
a footnote. Where the named executive officer is not yet eligible to 
retire, the dollar amount of annual payments and benefits that the 
named executive officer would be entitled to receive upon becoming 
eligible shall be computed assuming that the named executive officer 
will continue to earn the same amount of compensation as reported 
for the registrant's last fiscal year.

    (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 (if 
applicable) early retirement payment and benefit formula and 
eligibility standards. If the plan permits a lump sum distribution at 
the election of the executive or the registrant, quantify the amount of 
such distribution that would be available on such election as of the 
end of the registrant's last fiscal year, and disclose the valuation 
method and all material assumptions applied in quantifying such amount;
    (ii) The specific elements of compensation (e.g., salary, bonus, 
etc.) included in applying the payment and benefit formula, identifying 
each such element;
    (iii) With respect to named executive officers'' participation in 
multiple plans, the reasons for each plan; and
    (iv) Registrant policies with regard to such matters as granting 
extra years of credited service.
    (j) Nonqualified defined contribution and other deferred 
compensation plans. (1) Provide the information specified in paragraph 
(j)(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 Defined Contribution and Other Deferred Compensation Plans
----------------------------------------------------------------------------------------------------------------
                                             Executive      Registrant    Aggregate     Aggregate     Aggregate
                                           contributions  contributions  earnings in   withdrawals/   balance at
                   Name                      in last FY     in last FY     last FY    distributions    last FYE
                                                ($)            ($)           ($)            ($)          ($)
(a)                                                (b)             (c)           (d)           (e)           (f)
------------------------------------------
PEO......................................
PFO......................................
A........................................
B........................................
C........................................
----------------------------------------------------------------------------------------------------------------

    (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));
    (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(j)(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.


[[Page 6618]]


    (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.
    (k) 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;
    (2) Describe and quantify the estimated annual 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 the specific factors used to determine the 
appropriate payment and benefit levels 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.

    Instruction to Item 402(k). The registrant must provide 
quantitative disclosure under these requirements even where 
uncertainties exist as to amounts in given circumstances payable 
under these plans and arrangements. In the event that uncertainties 
exist as to the provision of payments and benefits or the amounts 
involved, the registrant is required to make reasonable estimates 
and disclose material assumptions underlying such estimates in its 
disclosure. In such event the disclosure would require forward-
looking information as appropriate. 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 3 to paragraph (c)(2)(ix) of this Item.

    (l) Compensation of directors. (1) Provide the information 
specified in paragraph (l)(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
----------------------------------------------------------------------------------------------------------------
                                                                                        Non-stock
                                               Fees earned                              incentive     All other
              Name                 Total  ($)   or paid in     Stock        Option        plan      compensation
                                                cash  ($)   awards  ($)  awards  ($)  compensation       ($)
                                                                                           ($)
(a)                                       (b)          (c)          (d)          (e)           (f)           (g)
---------------------------------
A...............................
B...............................
C...............................
D...............................
E...............................
----------------------------------------------------------------------------------------------------------------

    (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 402(d)-(k) (column (a)) of 
this Item;
    (ii) The dollar value of total compensation for the covered fiscal 
year (column (b)). With respect to each director, disclose the sum of 
all amounts reported in columns (c) through (g);
    (iii) 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 (c));
    (iv) For awards of stock, including 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, the aggregate grant date fair value computed in 
accordance with FAS 123R, applying the same valuation model and 
assumptions as the registrant applies for financial statement reporting 
purposes, and all earnings on any outstanding awards (column (d));
    (v) For awards of stock options, with or without tandem SARs, 
freestanding SARs and other similar instruments with option-like 
features (including awards that subsequently have been transferred), 
the aggregate grant date fair value computed in accordance with FAS 
123R applying the same valuation model and assumptions as the 
registrant applies for financial statement reporting purposes, and all 
earnings on any outstanding awards (column (e));

    Instruction to Item 402(l)(2)(iv) and (v). Disclose, for each 
director, by footnote to the appropriate column, the outstanding 
equity awards at fiscal year end as would be required if the tabular 
presentation for named executive officers specified in paragraph (g) 
of this Item were required for directors.

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

[[Page 6619]]

    (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 for 
the last completed fiscal year that is not properly reportable in 
columns (c)-(f) must be reported in this column and must be identified 
and quantified in a footnote if the amount of the item exceeds $10,000 
(or in the case of any perquisites or personal benefits, must be 
itemized unless the aggregate value of perquisites and personal 
benefits is less than $10,000, and must be quantified if it is valued 
at the greater of $25,000 or 10% of total perquisites and personal 
benefits of the director). Such compensation must include, but is not 
limited to:
    (A) All perquisites and other personal benefits, or property, 
unless the aggregate amount of such compensation is less than $10,000;
    (B) All earnings on compensation that is deferred on a basis that 
is not tax-qualified;
    (C) All amounts reimbursed during the fiscal year for the payment 
of taxes;
    (D) 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 computed in 
accordance with FAS 123R applying the same valuation model and 
assumptions as the registrant applies for financial statement reporting 
purposes;
    (E) 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;
    (F) The aggregate increase in actuarial value to the director of 
all defined benefit and actuarial pension plans (including supplemental 
plans) accrued during the registrant's covered fiscal year;
    (G) Registrant contributions or other allocations to vested and 
unvested defined contribution plans;
    (H) Consulting fees earned from, or paid or payable by the 
registrant and/or its subsidiaries (including joint ventures);
    (I) The annual costs of payments and promises of payments pursuant 
to director legacy programs and similar charitable award programs; and
    (J) 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.

    Instruction to Item 402(l)(2)(vii). 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 
(l)(2)(vii)(I) of this Item. Provide footnote disclosure of the 
total dollar amount and other material terms of each such program 
for which tabular disclosure is provided.
    Instruction to Item 402(l)(2). Two or more directors may be 
grouped in a single row in the table if all of their elements of 
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 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(l). In addition to the Instruction to 
paragraph (l)(2)(vii) of this Item, the following apply equally to 
paragraph (l) of this Item: Instructions 2 and 3 to paragraph (c) of 
this Item; Instructions to paragraphs (c)(2)(iv) and (v) of this 
Item; Instructions to paragraphs (c)(2)(vi) and (vii) of this Item; 
Instructions to paragraph (c)(2)(viii) of this Item and Instructions 
to paragraph (c)(2)(ix). 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 (l) 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.

    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.

    (a) * * *
    (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 class so owned. Of the number of shares shown in 
column (3), indicate, by footnote, 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
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------

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


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

    (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 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 
registrant, including the related person's

[[Page 6620]]

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 each 
transaction and of the amount of the related person's interest in each 
transaction, each of which shall be computed without regard to the 
amount of profit or loss.
    (4) 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.
    (5) 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 any of the foregoing 
persons, 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, and any person (other than 
a tenant or employee) sharing the household of a related person 
identified in paragraph 1.a.i or 1.a.ii. of this instruction; 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:
    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.
    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 transactions involving indebtedness, 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.
    5. 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:
    a. The compensation arising from the relationship or transaction 
is reported pursuant to Item 402 (Sec.  229.402); or
    b. The executive officer is not an immediate family member of a 
related person (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 as such by the compensation 
committee of the board of directors (or group of independent 
directors performing a similar function) of the registrant.
    6. 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(l) (Sec.  229.402(l)).
    7. In the case of a transaction involving indebtedness, 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:
    a. Were made in the ordinary course of business;
    b. 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
    c. Did not involve more than the normal risk of collectibility 
or present other unfavorable features.
    8. 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 which 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.

    (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.
    (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.
    (c) Promoters. (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

[[Page 6621]]

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 or 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 an 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 an issuer, that acquired control of an issuer that 
is a shell company.

    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.

    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 a national 
securities association 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 member 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 or Form 10-SB (Sec.  249.210 
or 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 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, identify the most recent 
fiscal years in which the

[[Page 6622]]

policies were so included in satisfaction of this requirement.
    (3) For each director and nominee for director that is identified 
as independent, describe 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 14 (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.

    Instruction to Item 407(a). 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 sections 13(a) or 15(d) of the Exchange Act (15 
U.S.C. 78m(a), 78o(d)) respecting any director who is no longer a 
director at the time of effectiveness of the registration statement.

    (b) Board meetings and committees. (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 
(d)(4) 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 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

[[Page 6623]]

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), as adopted by the Public Company Accounting Oversight 
Board in Rule 3200T;
    (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), 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
    (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 you meet the following requirements, provide the 
disclosure in paragraph (d)(4)(ii) of this Item:
    (A) You are a listed issuer, as defined in Sec.  240.10A-3 of this 
chapter;
    (B) You are 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) You are 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. (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

[[Page 6624]]

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-1through 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 each 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, the material elements of the 
instructions or directions given to the consultants with respect to the 
performance of their duties under the engagement and identifying any

[[Page 6625]]

executive officer within the registrant the consultants contacted in 
carrying out their assignment.
    (4) Under the caption ``Compensation Committee Interlocks and 
Insider Participation'':
    (i) The registrant shall 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) The registrant shall 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 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)).

    (f) Shareholder communications and annual meeting attendance. (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 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 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 
statement, identify in which of the prior fiscal years the charter 
was so included in satisfaction of this requirement.

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


Sec.  229.1107  (Item 1107) Issuing Entities.

* * * * *

[[Page 6626]]

    (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 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

    19. 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.
* * * * *
    20. 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.

Form SB-2 Registration Statement Under the Securities Act of 1933

* * * * *
    Item 15. Organization Within Last Five Years.
    Furnish the information required by Item 404 of Regulation S-B and 
Item 407(a) of Regulation S-B.
* * * * *
    21. 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 Securites 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 and 
promoters, and Item 407(a) of Regulation S-K (Sec.  229.407(a) of this 
chapter), corporate governance.
* * * * *
    22. 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 Items 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:
* * * * *
    23. 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 of this chapter), corporate governance;
    (iii) Item 404 of Regulation S-K (Sec.  229.404 of this chapter), 
transactions with related persons and promoters, 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 of this chapter), corporate governance;
    (iii) Item 404 of Regulation S-K (Sec.  229.404), transactions with 
related persons and promoters, and Item 407(a) of Regulation S-K (Sec.  
229.407(a)), corporate governance.
* * * * *
    24. 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 of this 
chapter).
    Item 23. Certain Relationships and Related Transactions.
    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.
* * * * *

[[Page 6627]]

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    25. 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.
* * * * *
    26. Amend Sec.  240.13a-11 by revising paragraph (c) to read as 
follows:


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.
    27. 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.
    28. 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;
* * * * *
    29. Amend Sec.  240.14a-101 by:
    a. Removing paragraphs (f), (g), and (h) of Item 7 and paragraph 
(b)(13)(iii) of Item 22;
    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);
    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), 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
    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 or Item 404 of 
Regulation S-K, 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, Sec.  229.405 and Sec.  229.407 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 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 paragraph (e)(4) of Item 407 of 
Regulation S-K (Sec.  229.407 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 
under the Investment Company Act of 1940 (15 U.S.C. 80a), furnish 
the information required by Item 22(b)(13) of this Schedule.
* * * * *
    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 (i)(2) of Item 402 of 
Regulation S-K (Sec.  229.402(i)(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

[[Page 6628]]

paragraph (i)(2) of Item 402 of Regulation S-K (Sec.  229.402(i)(2) 
of this chapter).
* * * * *
    Item 22. Information required in investment company proxy 
statement.
    (a) * * *
    (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 
Item 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 Item 
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.
    (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. 
78o-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.
    (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.

* * * * *
    30. 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.
    31. 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 Items 402, 403, 404 or 407 of 
Regulation S-B (Sec. Sec.  228.402, 228.403, 228.404 or 228.407 of this 
chapter) or Items 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

[[Page 6629]]

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.

Sec.  240.16b-3  [Amended]

    32. Amend Sec.  240.16b-3 by:
    a. Adding ``and'' at the end of paragraph (b)(3)(i)(B);
    b. Removing ``; and'' at the end of paragraph (b)(3)(i)(C) and in 
its place adding a period; and
    c. Removing paragraph (b)(3)(i)(D).

PART 245--REGULATION BLACKOUT TRADING RESTRICTION (REGULATION BTR--
BLACKOUT TRADING RESTRICTION)

    33. 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]

    34. 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

    35. The authority citation for part 249 continues to read in part 
as follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 
1350, unless otherwise noted.
* * * * *
    36. 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).
* * * * *
    37. 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 and 
Item 407(a) of Regulation S-B.
* * * * *
    38. 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 contact 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.
* * * * *
    39. Form 8-K (referenced in Sec.  249.308) is amended by:
    a. Revising General Instruction D;
    b. Revising the last sentence of Instruction 1 to Item 1.01;
    c. Revising the heading of Item 5.02;
    d. Revising Item 5.02(b), the introductory text of Item 5.02(c), 
Item 5.02(c)(2) and (c)(3);
    e. Adding Item 5.02(d)(5) and (e); and
    f. Adding Instruction 3 to Item 5.02.
    The revisions and addition 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

[[Page 6630]]

officer, principal operating officer, or any person performing similar 
functions, or any named executive officer for the registrant's most 
recent fiscal year (as defined by Item 402(a)(3) of Regulation S-K (17 
CFR 229.402(a)(3)), 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 Items 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 a 
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.
    (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 (as defined 
by Item 402(a)(3) of Regulation S-K (17 CFR 229.402(a)(3)) for the 
registrant's most recent fiscal year 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, that are materially consistent with 
the original terms of such plan, contract or arrangement, need not 
be disclosed under this Item 5.02(e), provided the registrant has 
previously disclosed such original terms and the grant, award or 
modification is disclosed when Item 402 of Regulation S-K (17 CFR 
229.402) requires such disclosure.
    3. If the salary and bonus of a named executive officer cannot 
be calculated as of the most recent practicable date and are omitted 
from the Summary Compensation Table as specified in Instruction 1 to 
Item 402(b)(2)(iv) and (v) of Regulation S-B or Instruction 1 to 
Item 402(c)(2)(iv) and (v) of Regulation S-K, disclose the 
appropriate information under this Item 5.02(e) 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 is 
required even where Instruction 2 would permit such information not 
to be disclosed.
    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.

* * * * *
    40. 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).
* * * * *
    41. 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).
* * * * *
    42. 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 paragraph (e)(4) of Item 407 of 
Regulation S-K (Sec.  229.407 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).
* * * * *
    43. 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)

[[Page 6631]]

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).
* * * * *

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

    44. 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.
* * * * *
    45. Amend Form N-1A (referenced in Sec. Sec.  239.15A and 274.11A) 
by:
    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
    b. Removing the word ``relocation,'' in 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.

    46. Amend Form N-2 (referenced in Sec. Sec.  239.14 and 274.11a-1) 
by:
    a. Removing paragraph 14(c) of Item 18;
    b. Redesignating paragraphs 15 and 16 of Item 18 as paragraphs 16 
and 17, respectively;
    c. Adding new paragraph 15 of Item 18;
    d. 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;
    e. Revising the introductory text of paragraph 14 of Item 18;
    f. Removing ``relocation,'' from Instruction 2 to paragraph 2 of 
Item 21; and
    g. Revising the cite ``Item 18.16'' to read ``Item 18.17'' 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.
* * * * *
    14. 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'').
* * * * *
    15. 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).
* * * * *
    47. Amend Form N-3 (referenced in Sec. Sec.  239.17a and 274.11b) 
by:
    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
    b. Removing the word ``relocation,'' in 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.

    48. 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: January 27, 2006.

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. 06-946 Filed 2-7-06; 8:45 am]
BILLING CODE 8010-01-P


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