232 Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 

1 17 CFR 228.201.

2 17 CFR 228.601.

3 17 CFR 228.10 et seq.

4 17 CFR 229.201.

5 17 CFR 229.601.

6 17 CFR 229.10 et seq.

7 17 CFR 249.310.

8 17 CFR 249.310b.

9 17 CFR 240.14a–101.

10 15 U.S.C. § 78a et seq.

11 17 CFR 240.14c–101.

12 Item 1 of Schedule 14C requires that a 

registrant yfurnish the information called for by all 

of the items of Schedule 14A (other than Items 1(c), 

2, 4 and 5) which would be applicable to any matter 

to be acted upon at the meeting if proxies were to 

be solicited in connection with the meeting.

13A study of stock-based pay practices at the 

nation’s 200 largest corporations indicates that 

these companies allocated 15.2% of outstanding 

shares (calculated on a fully-diluted basis) for 

management and employee equity incentives in 

2000, compared to only 6.9% in 1989. See Pearl 

Meyers & Partners, Inc., 2000 Equity Stake, Study 

of Management Equity Participation in the Top 200 

Corporations (2000).

14See Eric D. Roiter, The NYSE Wrestles with 

Shareholder Approval of Stock Option Plans, Corp. 

Gov. Adv., Vol. 8, No. 1 (Jan./Feb. 2000), at 1. See 

also, for example, Justin Fox, The Amazing Stock 

Option Sleight of Hand, Fortune, June 25, 2001, at 

86.

15 In its most recent study, the Investor 

Responsibility Research Center found that the 

average potential dilution for the 1,500 companies 

in the ‘‘S&P Super 1,500’’ (the combination of the 

S&P 500, the S&P MidCap 400 and the S&P 

SmallCap 600) was 14.6% in 2000, compared to 

11.6% in 1997; an increase of approximately 26%. 

The increase was even greater for S&P 500 

companies, with average potential dilution rising to 

13.1% in 2000, compared to 9.2% in 1995. See 

Investor Responsibility Research Center, Potential 

Dilution—2000, The Potential Dilution from Stock 

Plans at the S&P Super 1,500 Companies (2000) 

(the ‘‘IRRC Dilution Study’’).

16The amendments were proposed in Release No. 

33–7944 (Jan. 26, 2001) [66 FR 8732] (the 

‘‘Proposing Release’’).

17The commenters included 11 individual and 

institutional investors, eight registrants and 

registrant associations (one registrant submitted two 

letters), one self-regulatory organization and 10 

members of the executive compensation consulting, 

accounting and legal communities. These comment 

letters and a summary of comments prepared by our 

staff are available for public inspection and copying 

in our Public Reference Room, 450 Fifth Street, NW, 

Washington, DC 20549, in File No. S7–04–01. 

Public comments submitted electronically and the 

summary of comments are available on our Web site 

http://www.sec.gov.

18The discussion of Form 10–K in this release 

also includes Form 10–KSB.

19The discussion of proxy statements in this 

release also includes Schedule 14C information 

statements.

20To help investors better understand equity 

compensation, our Office of Investor Education and 

Assistance will create educational materials about 

the available disclosure on equity compensation 

programs (including the information available in 

financial statements).

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 228, 229, 240 and 249 

[Release Nos. 33–8048, 34–45189; File No. 

S7–04–01] 

RIN 3235–AI01 

Disclosure of Equity Compensation 

Plan Information

AGENCY: Securities and Exchange 

Commission.

ACTION: Final rules.

SUMMARY: We are adopting amendments 

to the Securities Exchange Act of 1934 

disclosure requirements applicable to 

annual reports filed on Forms 10–K and 

10–KSB and to proxy and information 

statements. The amendments will 

enhance disclosure of the number of 

outstanding options, warrants and rights 

granted by registrants to participants in 

equity compensation plans, as well as 

the number of securities remaining 

available for future issuance under these 

plans. The amendments require 

registrants to provide this information 

separately for equity compensation 

plans that have not been approved by 

their security holders, and to file with 

us copies of these plans unless 

immaterial in amount of significance.

DATES: Effective Date: February 1, 2002. 

Compliance Dates: Registrants must 

comply with the new disclosure 

requirements for their annual reports on 

Forms 10–K or 10–KSB to be filed for 

fiscal years ending on or after March 15, 

2002 and for proxy and information 

statements for meetings of, or action by, 

security holders occurring on or after 

June 15, 2002. Registrants voluntarily 

may comply with the new disclosure 

requirements before the compliance 

dates. 

Comments: Comments on the 

‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

should be received by February 1, 2002.

FOR FURTHER INFORMATION CONTACT:

Mark A. Borges, Special Counsel, Office 

of Rulemaking, Division of Corporation 

Finance, by telephone at (202) 942–

2910, or in writing at the Securities and 

Exchange Commission, 450 Fifth Street 

NW, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are 

adopting amendments to Items 201 1

and 601 2 of Regulation S–B,3 Items 

201 4 and 601 5 of Regulation S–K 6 and 

Form 10–K, 7 Form 10–KSB8 and 

Schedule 14A 9 under the Securities 

Exchange Act of 1934.10 Schedule 

14C11 under the Exchange Act also is 

affected by the amendments.12

I. Introduction 

As the use of equity compensation has 

increased during the last decade,13 so 

have concerns about its impact on 

registrants and their security holders.14

Equity compensation grants and awards 

may result in a significant reallocation 

of ownership between existing security 

holders and management and 

employees.15 Our current rules do not 

require disclosure in a single location of 

the total number of securities that a 

registrant has remaining available for 

issuance under all of its equity 

compensation plans. Also, because 

these plans may be implemented 

without the approval of security 

holders, it is possible that investors may 

not be able to determine the total size 

of a registrant’s equity compensation 

program.

In January 2001, we proposed 

amendments to our equity 

compensation disclosure rules, where 

our intent was to furnish investors with 

a more understandable presentation of a 

registrant’s equity compensation 

program.16 We received 31 comment 

letters in response to the proposals.17

While a majority of commenters 

supported the proposals, several 

questioned the need for disclosure that 

was, in their view, substantially 

equivalent to disclosure already 

required in registrants’ audited financial 

statements. In addition, many of the 

supportive commenters offered 

suggestions for refining the proposals to 

better accomplish the goal of assuring 

that all material information about a 

registrant’s equity compensation 

program is fully and clearly disclosed. 

We have made a number of changes to 

the proposals in response to these 

comments. These changes are discussed 

in Section II of this release.

As a result of today’s amendments, 

registrants must include a new table in 

their annual reports on Form 10–K,18 as 

well as in their proxy statements 19 in 

years when they are submitting a 

compensation plan for security holder 

action. This table requires information 

about two categories of equity 

compensation plans: plans that have 

been approved by security holders and 

plans that have not been approved by 

security holders. With respect to each 

category, a registrant must disclose the 

number of securities to be issued upon 

the exercise, and the weighted-average 

exercise price, of all outstanding 

options, warrants and rights, as well as 

the number of securities remaining 

available for future issuance under the 

registrant’s equity compensation 

plans.20

Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 233

21See, for example, the Letter dated March 26, 

2001 from the Council of Institutional Investors (the 

‘‘CII Letter’’), the Letter dated April 24, 2001 from 

the Association for Investment Management and 

Research and the Letter dated April 16, 2001 from 

the Association of the Bar of the City of New York 

(the ‘‘NYC Bar Letter’’).

22While the impact of outstanding options, 

warrants and rights is contained in the presentation 

of diluted earnings-per-share required by Statement 

of Financial Accounting Standards No. 128, 

Earnings-Per-Share (Feb. 1997) (‘‘SFAS 128’’), this 

disclosure does not necessarily isolate 

‘‘compensatory’’ instruments. Typically, the diluted 

earnings-per-share figure combines the dilutive 

effect of compensatory options, warrants and rights 

with that of other outstanding convertible 

securities.

23See new Item 201(d)(2)(ii) of Regulation S–B 

[17 CFR 228.201(d)(2)(ii)] and new Item 

201(d)(2)(ii) of Regulation S–K [17 CFR 

229.201(d)(2)(ii)]. This weighted-average exercise 

price information may be different from that 

contained in a registrant’s financial statements as 

required by Statement of Financial Accounting 

Standards No. 123, Accounting for Stock-Based 

Compensation (Oct. 1995) (‘‘SFAS 123’’) because 

the information includes grants and awards to nonemployees while the information required by SFAS 

123 may not. See n. 55 below.

24This includes any equity compensation plan 

that provides for grants and awards to employees 

or non-employees in exchange for consideration in 

the form of goods or services as described in SFAS 

123.

25For purposes of the amendments, we consider 

an equity compensation plan to be in effect as long 

as securities remain available for future issuance 

under the plan, or as long as options, warrants or 

rights previously granted under the plan remain 

outstanding.

26 Disclosure is required without regard to 

whether participants are employees (including 

officers) or non-employees (such as directors, 

consultants, advisors, vendors, customers, suppliers 

or lenders).

27See, for example, the Letter dated May 7, 2001 

from the American Bar Association (the ‘‘ABA 

Letter’’), the Letter dated April 2, 2001 from Lucent 

Technologies Inc. and the Letter dated May 22, 

2001 from the New York State Bar Association (the 

‘‘NY State Bar Letter’’).

28One commenter estimated that, based upon the 

number of equity compensation plans it 

administers, compliance could cost an additional 

$300,000 annually for printing and distribution. See 

the Letter dated April 9, 2001 from Lucent 

Technologies Inc. (the ‘‘Second Lucent Letter’’). 29See the Letter dated February 27, 2001 from 

Intel Corporation (the ‘‘Intel Letter’’). 30 In addition, information on the number and 

identity of a registrant’s equity compensation plans 

should be available in the footnotes to the 

registrant’s financial statements as part of its 

required SFAS 123 disclosure. See paragraph 46 of 

SFAS 123.

II. Discussion of Amendments 

A. Content of Disclosure 

1. Required Disclosure 

Under the original proposals 

described in the Proposing Release, 

registrants were to disclose in tabular 

form several categories of information 

about their equity compensation plans, 

including the number of securities 

authorized for issuance under each 

plan, the number of securities issued, 

plus the number of securities to be 

issued upon the exercise of outstanding 

options, warrants or rights granted, 

under each plan during the last fiscal 

year, the number of securities to be 

issued upon the exercise of outstanding 

options, warrants or rights granted other 

than in the last fiscal year and the 

number of securities remaining 

available for future issuance under each 

plan. The proposals would have 

required registrants to list each plan 

separately in the table. We also sought 

comment as to whether any additional 

categories of information should be 

included in the table. 

In response to concerns that the 

proposals would be costly and 

burdensome to implement and 

duplicative of some of the information 

required in registrants’ financial 

statements, we have eliminated the first 

two proposed categories of disclosure. 

We have made a number of other 

changes as well, including a change that 

permits registrants to present the 

required information on an aggregated 

basis. These changes are discussed in 

detail below. 

In addition to comments suggesting 

that we scale back the proposed 

disclosure, we also received comments 

citing the need for additional types of 

disclosure not originally proposed. For 

example, several commenters suggested 

that we add a column to the proposed 

table showing the weighted-average 

exercise price of outstanding options, 

warrants and rights.21 These 

commenters asserted that investors need 

this information to assess the dilutive 

effect of a registrant’s equity 

compensation program.22 To enable 

investors to better understand dilution 

and to enhance the visibility of exercise 

price information, we have added a 

column to the table requiring disclosure 

of the weighted-average exercise price of 

all outstanding compensatory options, 

warrants and rights.23

As adopted, the amendments require 

a registrant to provide investors with the 

following tabular disclosure:

EQUITY COMPENSATION PLAN INFORMATION

Plan category 

Number of securities to be issued 

upon exercise of outstanding options, warrants and rights 

Weighted-average exercise price 

of outstanding options, warrants 

and rights 

Number of securities remaining 

available for future issuance 

under equity compensation plans 

(excluding securities reflected in 

column (a)) 

(a) (b) (c) 

Equity compensation plans approved by security holders 

Equity compensation plans not approved by security holders 

Total 

Registrants must provide the 

disclosure with respect to any equity 

compensation plan24 in effect25 as of the 

end of the registrant’s last completed 

fiscal year that provides for the award 

of a registrant’s securities or the grant of 

options, warrants or rights to purchase 

the registrant’s securities to employees 

of the registrant or its parent, subsidiary 

or affiliated companies, or to any other 

person.26 The disclosure also is to be 

provided without regard to whether the 

securities to be issued under the equity 

compensation plan are authorized but 

unissued securities of the registrant or 

reacquired shares.

2. Aggregated Disclosure 

Several commenters suggested that we 

permit registrants to provide the 

required tabular disclosure on an 

aggregate, rather than a plan-by-plan, 

basis.27 These commenters indicated 

that it would be unduly burdensome for 

many registrants if plans had to be listed 

separately in the table.28 Another 

commenter expressed similar concerns 

if registrants were required to itemize 

plans assumed as the result of mergers, 

consolidations or other acquisition 

transactions.29 We are persuaded that 

plan-by-plan disclosure may be

234 Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 

31See new Item 201(d)(1) of Regulation S–B [17 

CFR 228.201(d)(1)] and new Item 201(d)(1) of 

Regulation S–K [17 CFR 229.201(d)(1)]. 32These plans otherwise are subject to the 

disclosure requirements of Item 10 of Schedule 

14A. Item 10 requires a description of the material 

features of, and tabular disclosure of the benefits 

receivable or allocable under, the plan being acted 

upon, as well as additional information regarding 

specific types of plans. 33See, for example, the CII Letter, the Letter dated 

March 28, 2001 from the State of Wisconsin 

Investment Board (the ‘‘SWIB Letter’’) and the 

Letter dated March 29, 2001 from the Teachers 

Insurance and Annuity Association—College 

Retirement Equities Fund (the ‘‘TIAA-CREF 

Letter’’). 34See Instruction 1 to new Item 10(c) of Schedule 

14A.

35For these purposes, an individual equity 

compensation arrangement includes a ‘‘plan’’ for a 

single person as defined by Item 402(a)(7)(ii) of 

Regulation S–K [17 CFR 229.402(a)(7)(ii)] (‘‘A plan 

may be applicable to one person.’’), as well as an 

individual ‘‘written compensation contract’’ (see, 

for example, the Securities Act Rule 405 [17 CFR 

230.405] definition of the term ‘‘employee benefit 

plan’’). 36See, for example, the NY State Bar Letter and 

the TIAA–CREF letter. 37See the ABA Letter. 38See the Intel Letter, the Letter dated August 17, 

2001 from Leonard S. Stein and the Letter dated 

August 26, 2001 from Hendrick Vater. 39See Instruction 4 to new Item 201(d) of 

Regulation S–B [17 CFR 228.201(d)] and Instruction 

4 to new Item 201(d) of Regulation S–K [17 CFR 

229.201(d)]. 40See Instruction 5 to new Item 201(d) of 

Regulation S–B and Instruction 5 to new Item 

201(d) of Regulation S–K. In the case of individual 

options, warrants and rights assumed in connection 

with a merger, consolidation or other acquisition 

transaction, registrants should disclose the number 

of securities underlying the assumed options, 

warrants and rights and the related weightedaverage exercise price information on an aggregated 

basis in a footnote to the table. Id. 41See new Item 201(d)(3) of Regulation S–B [17 

CFR 228.201(d)(3)] and new Item 201(d)(3) of 

Regulation S–K [17 CFR 229.201(d)(3)]. 42See, for example, the CII Letter, the Letter dated 

April 2, 2001 from the Investment Company 

Institute and the TIAA–CREF Letter.

43See the NYC Bar Letter. Similar crossreferencing is permitted under Item 101(b) 

(financial information about segments) and Item 

101(d) (financial information about geographic 

areas) of Regulation S–K [17 CFR 229.101(b) and 

(d)].

44As originally proposed, the plan description 

would have been provided only once—following 

the year of adoption. The Proposing Release 

contemplated that, in subsequent years, registrants 

simply would identify the prior filing containing 

the plan description. Since SFAS 123 requires plan 

descriptions to be provided annually, the 

information will be available each year.

45See Instruction 7 to new Item 201(d) of 

Regulation S–B and Instruction 7 to new Item 

201(d) of Regulation S–K. Paragraph 46 of SFAS 

123 requires a description of each stock-based 

compensation plan, including the general terms of 

awards under the plan, such as vesting 

requirements, the maximum term of options granted 

and the number of shares authorized for grants of 

options or other equity instruments. See also 

paragraph 362 of SFAS 123. If the SFAS 123 plan 

description does not contain all of the material 

features of the plan, cross-referencing is not 

permitted.

46See Item 6.B of Form 20–F [17 CFR 249.220f]. 

Item 6.B requires disclosure of compensation 

information about a foreign private issuer’s 

directors and senior management on an aggregated 

basis, including the amount of compensation paid 

and benefits in kind granted.

47 Item 6.E.2 of Form 20–F requires a foreign 

private issuer to ‘‘describe any arrangements for 

involving the employees in the capital of the

burdensome for many registrants.30

Accordingly, we have revised the table 

to permit registrants to aggregate 

disclosure in two general categories: • equity compensation plans 

approved by security holders; and • equity compensation plans not 

approved by security holders.31

In the Proposing Release, we sought 

comment as to whether, when a 

registrant is submitting a new or 

existing equity compensation plan for 

security holder action, the required 

proxy statement disclosure should 

include that plan.32 Several commenters 

suggested that we expand the table to 

include information about an existing 

plan upon which further action is being 

taken (for example, where a registrant is 

seeking the approval of security holders 

for an increase in the number of 

securities authorized for issuance under 

the plan).33 These commenters 

indicated that, absent this requirement, 

a registrant amending an existing equity 

compensation plan otherwise might 

avoid disclosing information about the 

securities previously authorized for 

issuance under the plan. We are 

persuaded that registrants should 

include this information in the table.

Accordingly, where action is being 

taken to amend an existing equity 

compensation plan, the table should 

include information about the securities 

previously authorized for issuance 

under the plan; that is, the number of 

securities to be issued upon the 

exercise, and the weighted-average 

exercise price, of outstanding options, 

warrants and rights previously granted 

under the plan and the number of 

securities remaining available for future 

issuance under the plan.34 A registrant 

should not include in the table the 

number of additional securities that are 

the subject of the plan amendment for 

which the registrant is seeking security 

holder approval.

3. Individual Arrangements and 

Assumed Plans 

In the Proposing Release, we sought 

comment as to whether aggregated 

disclosure of individual equity 

compensation arrangements35 was 

appropriate. We also asked whether 

aggregated disclosure should be 

permitted where a registrant had 

assumed an equity compensation plan 

in connection with a merger, 

consolidation or other acquisition 

transaction. Several commenters 

supported aggregated disclosure of 

individual arrangements,36 and one 

commenter was in favor of aggregating 

the disclosure of individual 

arrangements with the disclosure of 

equity compensation plans.37 Other 

commenters favored permitting 

aggregated disclosure of assumed 

plans.38 Consistent with the concept of 

aggregated plan disclosure, we have 

revised the table to permit registrants to 

combine information about individual 

arrangements39 and assumed plans 

(where further grants and awards can be 

made under these plans)40 with 

information about other plans, all in the 

appropriate disclosure category.

4. Non-Security Holder-Approved Plans 

As adopted, the amendments require 

a registrant to identify and describe 

briefly, in narrative form, the material 

features of each equity compensation 

plan in effect as of the end of the last 

completed fiscal year that was adopted 

without security holder approval.41

While several commenters supported 

this requirement,42 one commenter 

suggested that we permit registrants to 

cross-reference the portion of their 

required SFAS 123 disclosure 

containing descriptions of their nonsecurity holder-approved plans to 

satisfy this requirement.43 Because it 

streamlines compliance and ensures 

that investors have annual 44 access to 

this information, we are permitting 

registrants to satisfy the disclosure 

requirement in this manner.45 The 

cross-reference should identify the 

specific plan or plans in the required 

SFAS 123 disclosure that have not been 

approved by security holders. In view of 

this change, we have eliminated the 

provision that would have permitted a 

registrant to satisfy this disclosure 

requirement by simply identifying the 

filing containing a narrative description 

of the plan in the years following the 

initial disclosure.

5. Foreign Registrants 

Some commenters inquired about the 

applicability of the proposals to foreign 

registrants. Historically, we have 

applied a more flexible standard to 

foreign registrants than domestic 

registrants in the area of executive 

compensation disclosure. For example, 

foreign registrants need not disclose 

executive compensation information on 

an individual basis unless they disclose 

it in that manner under home country 

law or otherwise.46 We do not find it 

necessary to vary from our historical 

treatment of executive compensation 

disclosure for foreign registrants,47 and,

Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 235

company, including any arrangement that involves 

the issue or grant of options or shares or securities 

of the company.’’ 48 In addition, while the use of equity 

compensation by foreign companies is increasing, it 

still trails use by U.S. companies. See Towers 

Perrin, Stock Options Around the World (2001). 49See the Letter dated April 2, 2001 from Arthur 

Andersen LLP, the Letter dated April 17, 2001 from 

the American Institute of Certified Public 

Accountants, the Letter dated March 29, 2001 from 

Emerson Electric Co., the Letter dated March 26, 

2001 from the Institute of Management 

Accountants, the Letter dated April 12, 2001 from 

Microsoft Corporation, the Letter dated April 2, 

2001 from PricewaterhouseCoopers LLP, the NY 

State Bar Letter and the Letter dated March 30, 2001 

from Verizon Communications. These commenters 

also pointed out that duplicative disclosure is 

inconsistent with initiatives that we jointly have 

undertaken with the accounting profession to 

simplify disclosure and eliminate redundancies in 

financial reporting. See FASB Business Reporting 

Research Project, Report of GAAP–SEC Disclosure 

Requirements Working Group (2001), available at 

http://www.rarc.rutgers.edu/fasb/brrp/

BRRP3pl.PDF.

50This information is required by paragraph 46 of 

SFAS 123.

51This information is required by paragraphs 

47(a) and (c) of SFAS 123.

52See Report of the New York Stock Exchange 

Special Task Force on Stockholder Approval Policy

(Oct. 1999) (the ‘‘NYSE Task Force Report’’), at 14, 

available at http://www.nyse.com/pdfs/policy.pdf. 53While SFAS 123 requires an entity to provide 

a description of each stock-based compensation 

plan, these descriptions need not indicate whether 

a plan has been approved by security holders. See 

paragraphs 46 and 362 of SFAS 123. 54Paragraph 46 of SFAS 123 provides for 

disclosure of the number of shares authorized for 

grants of options or other equity instruments 

pursuant to stock-based compensation plans. It does 

not specifically require disclosure of the current

number of authorized shares available for grant. In 

addition, it may be difficult for investors to 

determine this number. Currently, a registrant 

submitting an equity compensation plan for 

security holder action need not provide any specific 

disclosure about its other equity compensation 

plans. In its annual study on stock plan dilution, 

the Investor Responsibility Research Center found 

that approximately 22% of the companies surveyed 

did not disclose the number of shares available for 

future issuance under their employee stock plans. 

See the IRRC Dilution Study.

55Paragraph 46 of SFAS 123 provides that ‘‘[a]n 

entity that uses equity instruments to acquire goods 

or services other than employee services shall 

provide disclosures similar to those required [for 

employee transactions] to the extent that those 

disclosures are important in understanding the 

effects of those transactions on the financial 

statements’’ (emphasis added). Consequently, a 

registrant has discretion to exclude non-employee 

grants and awards of equity instruments from its 

SFAS 123 disclosure. In addition, registrants need 

not apply the disclosure provisions of SFAS 123 to 

immaterial items, as determined based on a 

registrant’s particular circumstances. See paragraph 

244 of SFAS 123.

56See, for example, the NYSE Task Force Report, 

n. 52 above, at 14 (‘‘The requisite information [to 

make dilution calculations] is not consistently 

available in any one place or format in corporate 

disclosure documents * * * .), the Letter dated 

April 2, 2001 from the Association of Publicly 

Traded Companies (‘‘[t]he sheer volume and 

complexity of most corporate compensation 

proposals, coupled with stock option plans, makes 

it difficult for the average investor to interpret and 

effectively utilize the information provided.’’) and 

the TIAA–CREF Letter (‘‘[l]ack of transparency 

* * * limits the ability of shareholders * * * to 

protect themselves against plans that can be highly 

dilutive.’’).

57See the Proposing Release at n. 17.

58This table does not describe all of the 

information that registrants must disclose under 

SFAS 123.

thus, we do not extend the amendments 

to foreign registrants at this time.48

B. Relationship to Accounting 

Disclosure 

We have made significant changes to 

the proposals in response to arguments 

by several commenters that the current 

accounting literature provides for 

adequate disclosure about stock-based 

compensation.49 We agree that we 

should strive to minimize redundant 

disclosure under generally accepted 

accounting principles and our rules, 

where practical. Accordingly, we have 

revised the proposals and will not 

require disclosure of

• The number of securities authorized 

for issuance under each equity 

compensation plan; 50 and

• The number of securities issued, 

plus the number of securities to be 

issued upon the exercise of outstanding 

options, warrants or rights granted, 

under each plan during the last fiscal 

year.51

The revised table will provide useful 

information to investors that is not 

always readily available in a registrant’s 

financial statements.52 This includes

• An indication of whether an equity 

compensation plan has been approved 

by security holders; 53

• The total number of securities 

available for future issuance under a 

registrant’s equity compensation 

program; 54 and

• The number of options and other 

securities granted or awarded to nonemployees for compensatory 

purposes.55

Because this information may be 

important to investors in making 

informed voting and investment 

decisions, we believe it is appropriate to 

require all registrants subject to 

Exchange Act reporting to disclose it 

regularly. 

Even where information, such as the 

number of securities to be issued upon 

the exercise, and the weighted-average 

exercise price, of outstanding options, 

warrants and rights, otherwise is 

available, it is not transparent to 

investors.56 The amendments enhance 

the accessibility of this information, 

thereby making it easier for investors to 

assess the impact of a registrant’s equity 

compensation policies and practices. 

Moreover, the amendments present the 

information in categories—plans that 

have been approved by security holders 

and plans that have not been approved 

by security holders—that investors have 

requested.57

The following table reflects the 

current relevant SFAS 123 disclosure 

requirements for stock-based 

compensation 58 and the new disclosure 

required by the amendments being 

adopted today, as adjusted to minimize 

redundancy between the two.

Equity compensation disclosure Item Required by 

SFAS 123 

Required by 

Item 201 

Required by 

Item 601 

Location of disclosure (financial 

statements/form 10-K/proxy by statement) 

Description of general terms of each plan ......... Yes (¶ 46) ......... No ..................... No ..................... Financial Statements. 

Number of securities authorized for grants of 

options or other equity instruments.

Yes (¶ 46) ......... No ..................... No ..................... Financial Statements. 

Number and weighted-average exercise price 

of: 

Options outstanding at beginning of year ... Yes (¶ 47a) ....... No ..................... No ..................... Financial Statements. 

Options outstanding at end of year ............ Yes (¶ 47a) ....... Yes* .................. No ..................... Financial Statements/Form 10–K/

Proxy Statement.** 

Options exercisable at end of year ............. Yes (¶ 47a) ....... No ..................... No ..................... Financial Statements. 

Options granted during year ....................... Yes (¶ 47a) ....... No ..................... No ..................... Financial Statements. 

Options exercised during year .................... Yes (¶ 47a) ....... No ..................... No ..................... Financial Statements. 

Options forfeited during year ...................... Yes (¶ 47a) ....... No ..................... No ..................... Financial Statements. 

Options expired during year ....................... Yes (¶ 47a) ....... No ..................... No ..................... Financial Statements. 

236 Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 

59 In the Proposing Release, we also sought 

comment as to whether the table should be required 

in registration statements filed under the Securities 

Act of 1933 [15 U.S.C. §§ 77a et seq.]. While no 

commenter favored a blanket requirement for all 

registration statements, two commenters suggested 

that registrants include the table in registration 

statements filed in connection with initial public 

offerings. See the NYC Bar Letter and the NY State 

Bar Letter. Two commenters expressly opposed a 

registration statement disclosure requirement. See 

the ABA Letter and the Letter dated June 11, 2001 

from the New York Stock Exchange (the ‘‘NYSE 

Letter’’). Generally, registrants already include 

information about the possible effects of future sales 

of securities, including outstanding options, in 

registration statements for initial public offerings to 

the extent that this information is material. Item 506 

of Regulation S–K [17 CFR 229.506] requires 

specific information in a registration statement filed 

in connection with an initial public offering about 

dilution, as well as with respect to common equity 

securities that have been acquired by officers and 

directors. In addition, Item 201(a)(2) of Regulation 

S–K [17 CFR 229.201(a)(2)] requires disclosure of 

the amount of common equity that is subject to 

outstanding options or warrants. Further 

information is available pursuant to the disclosure 

required by Item 402 of Regulation S–K. 

Accordingly, except where the table is part of an 

annual report on Form 10–K or 10–KSB that is 

incorporated by reference into a prospectus, we are 

not extending the disclosure requirements to 

registration statements at this time. See Instruction 

10 to new Item 201(d) of Regulation S–B and 

Instruction 10 to new Item 201(d) of Regulation S–

K.

60See, for example, the ABA Letter, the CII Letter 

and the SWIB Letter.

61See, for example, the Letter dated March 29, 

2001 from Ernst &Young LLP, the Second Lucent 

Letter and the NYC Bar Letter.

62 15 U.S.C. § 78o(d).

63Some commenters argued that even where a 

registrant is not submitting a compensation plan for 

security holder action, the new disclosure contains 

relevant information with respect to the 

backgrounds and compensation of directors and 

executive officers that should be available for 

evaluation in connection with the election of 

directors. In general, we find the relevance of the 

new disclosure to be somewhat attenuated from 

decisions regarding the election of directors. 

Moreover, there would be little connection when a 

nominee has not served previously as a director of 

the registrant. Finally, the relevance of the new 

disclosure to decisions concerning the 

remuneration of directors and officers also is 

questionable because the table requires general 

information that does not specifically identify 

director and executive officer awards.

64Registrants are required, however, to provide 

security holders with an annual report to security 

holders pursuant to Exchange Act Rule 14a–3(b) [17 

CFR 240.14a–3(b)] when soliciting proxies in 

connection with an annual meeting of security 

holders at which directors are to be elected. 

Typically, this annual report to security holders 

includes the financial statements of the registrant, 

including the required SFAS 123 disclosure. In 

some instances, registrants use their annual report 

on Form 10–K to satisfy this delivery requirement. 

See Exchange Act Rule 14a–3(d) [17 CFR 240.14a–

3(d)].

65Under Exchange Act Rule 14a–3(b)(10) [17 CFR 

240.14a–3(b)(10)], a registrant must include in its 

proxy statement or annual report an undertaking to 

provide without charge to each security holder 

solicited, upon written request, a copy of the 

registrant’s annual report on Form 10–K. Once filed, 

the annual report on Form 10–K also is available 

via our Electronic Data Gathering, Analysis and 

Retrieval, or EDGAR, system.

66Another possible location for the table is the 

annual report to security holders required by 

Exchange Act Rule 14a–3(b). This alternative has 

several drawbacks, however. First, because it is not 

considered a ‘‘filed’’ document, the annual report 

is not subject to the express civil liability provisions 

of Section 18 of the Exchange Act [15 U.S.C. § 78r]. 

See Exchange Act Rule 14a–3(c) [17 CFR 240.14a–

3(c)]. Second, as with proxy statements, the 

disclosure would not apply to registrants subject to 

reporting solely under Section 15(d) of the 

Exchange Act. Finally, because principally financial 

information is required to be included in the annual 

report, non-financial disclosure such as the table 

would appear out of place.

Equity compensation disclosure Item Required by 

SFAS 123 

Required by 

Item 201 

Required by 

Item 601 

Location of disclosure (financial 

statements/form 10-K/proxy by statement) 

Terms of significant modifications of outstanding awards.Yes (¶ 47f) ........ No ..................... No ..................... Financial Statements. 

Range of exercise prices for outstanding options.Yes (¶ 48) ......... No ..................... No ..................... Financial Statements. 

Weighted-average exercise price of outstanding 

options and similar instruments.

Yes (¶ 48) ......... Yes* .................. No ..................... Financial Statements/Form 10–K/

Proxy Statement.** 

Weighted-average remaining contractual life of 

outstanding options.

Yes (¶ 48) ......... No ..................... No ..................... Financial Statements. 

Number of securities remaining available for future issuance.No ..................... Yes* .................. No ..................... Form 10-K/Proxy Statement.** 

Description of material terms of each plan that 

has not been approved by security holders.

No ..................... Yes ................... No ..................... Form 10-K/Proxy Statement.** 

Filing of compensatory plans in which named 

executive officers and directors participate 

and any other compensatory plan unless immaterial.

No ..................... No ..................... Yes ................... Form 10-K. 

*Disclosed by category: plans approved by security holders and plans not approved by security holders. 

**May be incorporated by reference into the annual report on Form 10-K by including in proxy statement. 

C. Location of Disclosure 

As proposed, registrants were to 

include the table in the proxy statement 

whenever they submitted a 

compensation plan for security holder 

action and in the annual report on Form 

10–K in all other years. In the Proposing 

Release, we sought comment as to 

whether the proposed location of the 

disclosure was appropriate. Most 

commenters suggested that, for 

consistency and to avoid confusion, we 

should require disclosure in the same 

document each year.59 Citing the 

relevance of the information when 

electing directors, several commenters 

suggested that we require disclosure in 

the proxy statement in all instances, 

even if a registrant were not submitting 

a compensation plan for security holder 

action.60 Other commenters, on the 

other hand, recommended that we 

require the disclosure only in the 

annual report on Form 10–K.61

Although the idea of requiring the 

disclosure in a single location is 

appealing, we have elected not to do so 

for several reasons. If we adopted a 

requirement that the table appear only 

in proxy statements, a significant 

number of companies whose reporting 

obligations arise solely under Section 

15(d) of the Exchange Act 62 would not 

be subject to the requirement. These 

companies are not required to prepare 

and file proxy statements. Further, we 

are not persuaded that, as a general rule, 

the proposed disclosure is material to 

voting decisions by security holders 

other than those relating to 

compensation plans.63

We also do not believe that the table 

should be located exclusively in the 

annual report on Form 10–K. Although 

the annual report on Form 10–K is filed 

with us, a registrant is not required to 

deliver it to security holders.64 Thus, 

security holders must take some 

affirmative action to obtain the 

information.65 In addition, limiting the 

table to the annual report on Form 10–

K would misplace the disclosure in 

those cases when the information would 

be useful to investors in assessing the 

merits of a compensation plan 

submitted for security holder action.66

Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 237

67See revised Item 12 of Part III of Form 10–K 

and revised Item 11 of Part III of Form 10–KSB.

68See new Item 10(c) of Schedule 14A. Proxy or 

information statement disclosure is triggered by the 

submission of any compensation plan for security 

holder action, including cash-only plans.

69Similar incorporation by reference is permitted 

with respect to the other disclosure items required 

by Part III of Form 10–K and 10–KSB. See General 

Instruction E(3) to Form 10–KSB and General 

Instruction G(3) to Form 10–K.

70See Section II.A.4 above.

71See, for example, the CII Letter, the SWIB Letter 

and the TIAA–CREF Letter. Other commenters 

suggested that we require registrants to file copies 

of all equity compensation plans (whether or not 

approved by security holders). See the ABA Letter 

and the NYSE Letter.

72 17 CFR 229.601(b)(10).

73 17 CFR 229.601(b)(10)(iii)(A). 

Nondiscriminatory, broad-based compensatory 

plans, contracts or arrangements are exempt from 

this requirement. See Item 601(b)(10)(iii)(B)(4) [17 

CFR 229.601(b)(10)(iii)(B)(4)].

74 Id.

75See, for example, the CII Letter and the Letter 

dated March 29, 2001 from the Office of the State 

Comptroller of the State of New York.

76See new Item 601(b)(10)(iii)(B) of Regulation S–

B [17 CFR 228.601(b)(10)(iii)(B)] and new Item 

601(b)(10)(iii)(B) of Regulation S–K [17 CFR 

229.601(b)(10)(iii)(B)]. This is consistent with our 

action in 1981 amending then-Item 7 of Regulation 

S–K to reformulate the definition of ‘‘material 

contracts’’ as applied to remunerative plans, 

contracts or arrangements. See Release No. 33–6287 

(Feb. 6, 1981) [46 FR 11952]. Previously, we had 

indicated that remuneration plans in which 

directors or executive officers of the registrant did 

not participate generally did not need to be filed as 

exhibits. See Release No. 33–6230, Section 

II.A.2.b.i. (Aug. 27, 1980) [45 FR 58822].

77With respect to an existing non-security holderapproved equity compensation plan subject to new 

Item 601(b)(10)(iii)(B) of Regulation S–B or new 

Item 601(b)(10)(iii)(B) of Regulation S–K that is in 

effect as of the effective date of these amendments 

and that has not been filed previously, a copy of 

the plan must be filed as an exhibit to the annual 

report on Form 10–K or 10–KSB filed by the 

registrant for its first fiscal year ending on or after 

March 15, 2002.

78 44 U.S.C. § 3501 et seq.

79Publication and submission were in accordance 

with 44 U.S.C. § 3507(d) and 5 CFR 1320.11.

80The titles for the collections of information 

affected by the amendments are (1) ‘‘Regulation 14A 

(Commission Rules 14a–1 through 14b–2 and 

Schedule 14A),’’ (2) ‘‘Regulation 14C (Commission 

Rules 14c–1 through 14c–7 and Schedule 14C),’’ (3) 

‘‘Form 10–K,’’ (4) ‘‘Form 10–KSB,’’ (5) ‘‘Regulation 

S–B’’ and (6) ‘‘Regulation S–K.’’

81The likely respondents subject to the 

collections of information include entities whose 

reporting obligations arise under the Exchange Act. 

The reporting requirements of Section 13 of the 

Exchange Act [15 U.S.C. § 78m], as well as the 

proxy disclosure requirements of Section 14 of the

Continued

We have concluded that the best way 

to promote consistency, clarity and 

relevant placement of the new 

information is to require that the table 

be included each year in a registrant’s 

annual report on Form 10–K 67 and, 

additionally, in the proxy statement 

when the registrant is submitting a 

compensation plan for security holder 

action.68 In situations where a registrant 

is required to include the information in 

both filings, it may satisfy its Form 10–

K disclosure obligation by incorporating 

the required information by reference 

from its definitive proxy statement, if 

that statement involves the election of 

directors and is filed not later than 120 

days after the end of the fiscal year 

covered by the Form 10–K.69

D. Filing Copies of Non-Security HolderApproved Plans 

In the Proposing Release, we sought 

comment as to whether, in lieu of, or in 

addition to, the narrative disclosure 

required for an equity compensation 

plan that has been adopted without the 

approval of security holders, a registrant 

should be required to file a copy of the 

plan as an exhibit to the registrant’s 

annual report on Form 10–K for the 

fiscal year in which the plan was 

adopted.70 Several commenters favored 

a filing requirement in addition to 

requiring registrants to provide narrative 

disclosure of the ‘‘material features’’ of 

non-security holder-approved equity 

compensation plans.71

Item 601(b)(10) of Regulation S–K 72

requires registrants to file material 

contracts as exhibits to many of their 

documents filed under the Securities 

Act of 1933 (the ‘‘Securities Act’’) and 

the Exchange Act. Of particular 

relevance is the provision in Item 

601(b)(10)(iii) stating that ‘‘any 

management contract or other 

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 * * * in which any 

director or any of the named executive 

officers of the registrant * * * 

participates shall be deemed material 

and shall be filed.’’ 73 Item 

601(b)(10)(iii) also states that ‘‘any other 

management contract or any other 

compensatory plan, contract, or 

arrangement in which any other 

executive officer of the registrant 

participates shall be filed unless 

immaterial in amount or 

significance.’’ 74 Some commenters 

expressed concern that non-security 

holder-approved plans, many of which 

exclude executive officers and directors, 

often do not fall within these 

provisions.75

We believe this concern has merit. 

Accordingly, we have amended Item 

601(b)(10) to require registrants to file 

any equity compensation plan adopted 

without the approval of security holders 

in which any employee (whether or not 

an executive officer or director of the 

registrant) participates, unless 

immaterial in amount or significance.76

Compliance with this requirement 

should ensure that significant nonsecurity holder-approved plans are 

available to investors.77 Coupled with 

the required narrative description of 

non-security holder-approved plans, 

investors should have access to 

complete information about a 

registrant’s principal equity 

compensation plans.

III. Paperwork Reduction Act Analysis 

The amendments contain ‘‘collection 

of information’’ requirements within the 

meaning of the Paperwork Reduction 

Act of 1995, 78 or PRA. We published a 

notice requesting comment on the 

collection of information requirements 

in the Proposing Release, and submitted 

these requirements to the Office of 

Management and Budget, or OMB, for 

review.79 Subsequently, OMB approved 

the proposed information collection 

requirements.

As discussed in Section I above, we 

received several comment letters on the 

proposals. We have made a number of 

changes to the proposals in response to 

these comments. Accordingly, we are 

revising our previous burden estimates. 

We are submitting the revised estimates 

to the OMB for approval.80 An agency 

may not conduct or sponsor, and a 

person is not required to respond to, an 

information collection unless it displays 

a currently valid OMB control number.

A. Summary of Amendments 

The amendments require tabular 

disclosure of the number of securities to 

be issued upon the exercise, and the 

weighted-average exercise price, of all 

outstanding options, warrants and rights 

under a registrant’s equity 

compensation plans, as well as the 

number of securities remaining 

available for future issuance under these 

plans and certain related information. 

Disclosure is to be made in two 

categories: plans that have been 

approved by security holders and plans 

that have not been approved by security 

holders. Registrants must include the 

table in their annual reports on Form 

10–K or 10–KSB, and, additionally, in 

their proxy or information statements in 

years when they are submitting a 

compensation plan for security holder 

action. Registrants also must file copies 

of their non-security holder-approved 

plans with us, unless immaterial in 

amount or significance. Preparing and 

filing an annual report on Form 10–K or 

10–KSB is a collection of information. 

Similarly, preparing, filing and 

disseminating a proxy or information 

statement is a collection of 

information.81 The collection of

238 Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 

Exchange Act, apply to entities that have securities 

registered under Section 12 of the Exchange Act [15 

U.S.C. § 78l]. The reporting requirements of Section 

15(d) of the Exchange Act apply to entities with 

effective registration statements under the 

Securities Act that are not otherwise subject to the 

registration requirements of Section 12 of the 

Exchange Act.

82See the Letter dated April 17, 2001 from the 

American Institute of Certified Public Accountants 

(the ‘‘AICPA Letter’’), the Letter dated April 2, 2001 

from the Association of Publicly-Traded Companies 

(the ‘‘APTC Letter’’), the Letter dated April 2, 2001 

from Lucent Technologies Inc. (the ‘‘First Lucent 

Letter’’), the Letter dated May 22, 2001 from the 

New York State Bar Association, the Letter dated 

August 17, 2001 from Leonard S. Stein (the ‘‘Stein 

Letter’’) and the Letter dated August 26, 2001 from 

Hendrick Vater.

83See the Letter dated April 9, 2001 from Lucent 

Technologies Inc.

84See the APTC Letter.

85See the Stein Letter.

86We have changed our assumption about the 

number of registrants with equity compensation 

plans that, in any year, either adopt a new plan or 

amend an existing plan to increase the number of 

securities authorized for issuance under the plan. 

In the Proposing Release, we estimated that 50% of 

the registrants with equity compensation plans 

would either adopt a new plan or amend an existing 

plan each year. Based on the available survey data, 

we have revised this assumption to 30%. See n. 91 

below.

87This estimate is made after a review of 

available survey data, which varies widely. For 

example, in its most recent study of the ‘‘S&P Super 

1,500’’ (the combination of the S&P 500, the S&P 

MidCap 400 and the S&P SmallCap 600), the 

Investor Responsibility Research Center determined 

that, of the 1,157 companies examined, 1,142 

(98.7%) awarded equity to some portion of their 

employees. See Investor Responsibility Research 

Center, Potential Dilution—2000, The Potential 

Dilution from Stock Plans at the S&P Super 1,500 

Companies (2000). In contrast, a Pilot Survey 

conducted by the Bureau of Labor Statistics in 1999 

determined that 22% of publicly-held companies 

offered stock options to their employees. This 

survey sampled 2,100 ‘‘establishments,’’ of which 

approximately 1 in 10 were publicly-held 

companies. See Bureau of Labor Statistics, Pilot 

Survey on the Incidence of Stock Options in Private 

Industry in 1999, (Oct. 11, 2000), available at http:/

/www.bls.gov/ncs/ocs/sp/ncnr0001.txt. Further, in 

the Proposing Release we sought comment as to 

whether our estimates of the burden of the 

proposed collections of information were accurate. 

We received no comment letters responding to that 

request. Because of variations in the available data, 

we also have estimated the reporting and cost 

burdens for the proposed collections of information 

assuming that 98% of the registrants that file annual 

reports on Form 10–K or 10–KSB maintain an 

equity compensation plan and are subject to the 

required disclosure. See nn. 108 and 110 below.

88Based on the actual number of registrants filing 

annual reports on Form 10–K and 10–KSB, we 

estimate that 6,229 registrants that file on Form 10–

K (10,381 × 60%) maintain equity compensation 

plans (‘‘Form 10–K Filers’’) and 2,185 registrants 

that file on Form 10–KSB (3,641 × 60%) maintain 

equity compensation plans (‘‘Form 10–KSB Filers’’).

89 In the Proposing Release, we estimated that this 

figure was 25%. The available survey data does not 

appear to be representative of the general registrant 

population. See William M. Mercer, Inc., Equity 

Compensation Survey (2001) (48% of survey 

respondents (83 participants) maintained nonsecurity holder-approved stock option plans for 

employees below management level; 60% of such 

plans most prevalent in large companies (more than 

5,000 employees)); iQuantic, Inc., Trends in Equity 

Compensation 1996–2000 (2000) (27.3% of survey 

respondents in 1999 (161 participants) maintained 

non-security holder-approved stock option plans, 

compared to 3.2% before 1996). After discussions 

with several compensation professionals, we 

reduced our estimate to 20%.

90We estimate that of the Form 10–K Filers, 1,246 

(6,229 × 20%) maintain a non-security holderapproved equity compensation plan (‘‘Form 10–K 

Filers with Non-Approved Plans’’) and 4,983 (6,229 

× 80%) do not (‘‘Form 10–K Filers with Only 

Approved Plans’’). We estimate that of the Form 

10–KSB Filers, 437 (2,185 × 20%) maintain a nonsecurity holder-approved equity compensation plan 

(‘‘Form 10–KSB Filers with Non-Approved Plans’’) 

and 1,748 (2,185 × 80%) do not (‘‘Form 10–KSB 

Filers with Only Approved Plans’’).

91This estimate is based on a review of available 

survey data. In its most recent study, the Investor 

Responsibility Research Center determined that, of 

1,157 companies studied in calendar year 2000, 337 

(29%) presented proposals for new or amended 

equity compensation plans to security holders. See 

Investor Responsibility Research Center, Potential 

Dilution—2000, The Potential Dilution from Stock 

Plans at the S&P Super 1,500 Companies (2000). In 

its most recent study, Pearl Meyers & Partners 

found that new plan authorizations among the top 

200 companies were submitted by 58 companies in 

2000 (29%). See Pearl Meyers & Partners, Inc., 2000 

Equity Stake, Study of Management Equity 

Participation in the Top 200 Corporations (2000).

92We estimate that of the Form 10–K Filers with 

Only Approved Plans, 1,495 (4,983 × 30%) submit 

a new or amended equity compensation plan for 

security holder approval annually (‘‘Form 10–K 

Filers with Only Approved Plans Subject to Section 

14’’) and of the Form 10–K Filers with NonApproved Plans, 374 (1,246 × 30%) submit a new 

or amended equity compensation plan for security 

holder approval annually (‘‘Form 10–K Filers with 

Non-Approved Plans Subject to Section 14’’). 

Similarly, we estimate that of the Form 10–KSB

information is mandatory for all 

registrants and there is no mandatory 

retention period for the information 

collected. The collection of information 

will not be kept confidential.

B. Summary of Comment Letters and 

Revisions to Proposals 

We requested comment on the PRA 

analysis contained in the Proposing 

Release. We received six comment 

letters specifically addressing the 

estimated paperwork burden associated 

with the collections of information.82

These commenters indicated that the 

amount of time required to comply with 

the proposals would be significant for 

many registrants and substantially 

greater than our estimates. One 

commenter estimated that, if adopted, 

the proposals would add at least four 

pages to its disclosure documents and, 

where the disclosure appeared in the 

proxy statement, would result in 

additional printing costs of $100,000 

and additional mailing costs of $200,000 

for the extra pages.83 Another 

commenter suggested that we offset any 

increased costs to registrants by 

eliminating current requirements that 

do not result in the disclosure of useful 

information.84 A third commenter 

suggested that we consider providing a 

model form of disclosure for small 

businesses to reduce their compliance 

burden.85

In response to these comments, we 

have made a number of changes to the 

proposals, including eliminating two of 

the proposed tabular columns and 

permitting aggregated disclosure. We 

also are permitting registrants with nonsecurity holder-approved plans to 

describe the material terms of these 

plans by cross-referencing to their SFAS 

123 disclosure. These changes will 

streamline compliance and, 

correspondingly, reduce the burden on 

registrants. While the amendments 

require the filing of non-security holderapproved equity compensation plans 

unless immaterial in amount or 

significance, this should not increase 

the burden for registrants significantly 

as these documents are readily available 

and will be filed electronically. 

C. Revisions to Reporting and Cost 

Burden Estimates 

As a result of the changes described 

above and a change in one of our 

underlying assumptions,86 the reporting 

and cost burden estimates for the 

collections of information have 

changed. Accordingly, we have revised 

the estimated information collection 

requirements that were originally 

submitted to the OMB. With respect to 

Forms 10–K and 10–KSB, we have 

increased our estimate by 1,174 hours in 

the case of Form 10–K and increased 

our estimate by 707 hours in the case of 

Form 10–KSB. With respect to 

Schedules 14A and 14C, we have 

decreased our estimate by 13,139 hours 

in the case of Schedule 14A and 

decreased our estimate by 139 hours in 

the case of Schedule 14C.

Our estimates are based on several 

assumptions. First, we estimate that 

approximately 60%87 of the registrants 

that file an annual report on either Form 

10–K or 10–KSB maintain equity 

compensation plans and will be 

required to provide the new disclosure 

table.88 We also estimate that 

approximately 20%89 of these 

registrants maintain non-security 

holder-approved equity compensation 

plans and, thus will be required to 

describe the material features of these 

plans and file copies with us unless 

immaterial in amount or significance.90

We further estimate that, in any year, 

30%91 of the registrants with equity 

compensation plans will either adopt a 

new plan or amend an existing plan to 

increase the number of securities 

authorized for issuance under the plan, 

thereby triggering proxy or information 

statement disclosure.92 In this situation,

Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 239

Filers with Only Approved Plans, 524 (1,748 ×

30%) submit a new or amended equity 

compensation plan for security holder approval 

annually (‘‘Form 10–KSB Filers with Only 

Approved Plans Subject to Section 14’’) and of the 

Form 10–KSB Filers with Non-Approved Plans, 131 

(437 × 30%) submit a new or amended equity 

compensation plan for security holder approval 

annually (‘‘Form 10–KSB Filers with NonApproved Plans Subject to Section 14’’).

93This estimate is based on a comparison of the 

actual number of registrants filing annual reports on 

Form 10–K or 10–KSB during the 2000 fiscal year 

(10,381 + 3,641 = 14,022) with the actual number 

of registrants filing proxy or information statements 

during the 2000 fiscal year (9,892 + 253 = 10,145), 

or 10,145/14,022.

94Thus, we have subtracted 419 registrants (1,495 

× 28%) from the group of Form 10–K Filers with 

Only Approved Plans Subject to Section 14, 105 

registrants (374 × 28%) from the group of Form 10–

K Filers with Non-Approved Plans Subject to 

Section 14, 147 registrants (524 × 28%) from the 

group of Form 10–KSB Filers with Only Approved 

Plans Subject to Section 14 and 37 registrants (131 

× 28%) from the group of Form 10–KSB Filers with 

Non-Approved Plans Subject to Section 14.

95This estimate is based on a comparison of the 

actual number of registrants filing proxy statements 

during the 2000 fiscal year (9,982) with the actual 

number of registrants filing information statements 

during the same period (253), or 9,982/10,145.

96Thus, we estimate that of the 1,076 Form 10–

K Filers with Only Approved Plans Subject to 

Section 14, 1,054 (1,076 × 98%) will file proxy 

statements and 22 will file information statements, 

of the 269 Form 10 × K Filers with Non-Approved 

Plans Subject to Section 14, 264 (269 × 98%) will 

file proxy statements and five will file information 

statements, of the 377 Form 10–KSB Filers with 

Only Approved Plans Subject to Section 14, 369 

(377 × 98%) will file proxy statements and eight 

will file information statements and of the 94 Form 

10–KSB Filers with Non-Approved Plans Subject to 

Section 14, 92 (94 × 98%) will file proxy statements 

and two will file information statements.

97Even though we have streamlined compliance 

in order to reduce the burden on registrants, we 

have not reduced the number of estimated burden 

hours to prepare the required disclosure. This 

decision is in response to comments that our initial 

burden hour estimate was too low. See the AICPA 

Letter and the First Lucent Letter.

we have assumed that a registrant will 

include the required disclosure in its 

proxy or information statement and 

incorporate that disclosure by reference 

into its annual report on Form 10–K or 

10–KSB. We estimate that 

approximately 28%93 of the registrants 

filing annual reports on Form 10–K or 

10–KSB are subject to Section 13 of the 

Exchange Act by virtue of Section 15(d) 

of the Exchange Act and, thus, do not 

file proxy or information statements,94

and that approximately 98%95 of the 

registrants file proxy, rather than 

information, statements in connection 

with their annual meeting of security 

holders at which directors are to be 

elected.96 Finally, we estimate that 

preparation of the required tabular 

disclosure will take two burden hours 

and, where required, preparation of the 

description of the material features of a 

non-security holder-approved equity 

compensation plan will take two burden 

hours.97

Our revised estimate of the total 

burden hours of the required collections 

of information is set forth in the 

following table.

TABLE—BURDEN HOUR ESTIMATES

Form 

Filings/year Estimated burden hours/filing Estimated burden hours/

year 

Estimated 

filings/year 

Estimated 

filings subject to tabular 

disclosre 

Estimated 

filings subject to tabular and 

narrative 

disclosrue 

Before 

amendments 

Adjusted for 

tabular disclosure 

Adjusted for 

tabular and 

narrative 

disclosure 

Before 

amendments 

After 

amendments 

(A) (B) (C) (D) (E)98 (F)99 (G) = 

(A) x (D) 

(H) = 

(B) x (E) + 

(C) x (F) 

0-K .................................. 10,381 100 3,907 101 977 430 430.4 430.6 4,463,830 4,469,691 

10-KSB ........................... 3,641 102 1,371 103 343 294 294.4 294.6 1,070,454 1,072,511 

14A ................................. 9,892 104 1,423 105 356 18.2 18.3 18.4 179,966 182,101 

14C ................................. 253 106 30 1077 18.1 18.2 18.3 4,582 4,626 

Total ........................ .................... .................... .................... ...................... .................... .................... 5,718,832 5,728,929 

240 Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 

98We estimate that registrants will prepare 50% 

of the required disclosure and outside counsel will 

prepare the remaining 50%. Accordingly, this 

estimate reflects the addition of one burden hour to 

prepare the required tabular disclosure. See n. 97 

above and the accompanying text.

99We estimate that registrants will prepare 50% 

of the required disclosure and outside counsel will 

prepare the remaining 50%. Accordingly, this 

estimate reflects the addition of two burden hours 

to prepare the required tabular and narrative 

disclosure. See n. 97 above and the accompanying 

text.

100We arrived at this estimate by taking the 

number of Form 10–K Filers (see n. 88 above) and 

subtracting (a) the number of Form 10–K Filers with 

Non-Approved Plans (see n. 90 above) and (b) the 

number of Form 10–K Filers with Only Approved 

Plans Subject to Section 14 (see nn. 92 and 94 

above), or (6,229 ¥ 1,246 ¥ 1,076).

101We arrived at this estimate by taking the 

number of Form 10–K Filers with Non-Approved 

Plans (see n. 90 above) and subtracting the number 

of Form 10–K Filers with Non-Approved Plans 

Subject to Section 14 (see nn. 92 and 94 above), or 

(1,246 ¥ 269).

102We arrived at this estimate by taking the 

number of Form 10–KSB Filers (see n. 88 above) 

and subtracting (a) the number of Form 10–KSB 

Filers with Non-Approved Plans (see n. 90 above) 

and (b) the number of Form 10–KSB Filers with 

Only Approved Plans Subject to Section 14 (see nn. 

92 and 94 above), or (2,185 ¥ 437 ¥ 377).

103We arrived at this estimate by taking the 

number of Form 10–KSB Filers with Non-Approved 

Plans (see n. 90 above) and subtracting the number 

of Form 10–KSB Filers with Non-Approved Plans 

Subject to Section 14 (see nn. 92 and 94 above), or 

(437 ¥ 94).

104We arrived at this estimate by taking the 

number of Form 10–K Filers with Only Approved 

Plans Subject to Section 14 that will file proxy 

statements and adding the number of Form 10–KSB 

Filers with Only Approved Plans Subject to Section 

14 that will file proxy statements (see n. 96 above), 

or (1,054 + 369).

105We arrived at this estimate by taking the 

number of Form 10–K Filers with Non-Approved 

Plans Subject to Section 14 that will file proxy 

statements and adding the number of Form 10–KSB 

Filers with Non-Approved Plans Subject to Section 

14 that will file proxy statements (see n. 96 above), 

or (264 + 92).

106We arrived at this estimate by taking the 

number of Form 10–K Filers with Only Approved 

Plans Subject to Section 14 that will file 

information statements and adding the number of 

Form 10–KSB Filers with Only Approved Plans 

Subject to Section 14 that will file information 

statements (see n. 96 above), or (22 + 8).

107We arrived at this estimate by taking the 

number of Form 10–K Filers with Non-Approved 

Plans Subject to Section 14 that will file 

information statements and adding the number of 

Form 10–KSB Filers with Non-Approved Plans 

Subject to Section 14 that will file information 

statements (see n. 96 above), or (5 + 2).

108Assuming that 98% of the registrants that file 

annual reports on Form 10–K or 10–KSB maintain 

an equity compensation plan and are subject to the 

required disclosure, the estimated burden hours per 

year resulting from the amendments would be 

16,511 hours, increasing this estimate to 5,735,343 

hours.

In addition to the internal hours they 

will expend,108 we expect that 

registrants will retain outside counsel to 

assist in the preparation of the required 

disclosures.109 The total dollar cost of 

complying with Form 10–K and Form 

10–KSB, revised to include outside 

counsel costs expected from the 

amendments, is estimated to be 

$2,345,268,300 for Form 10–K, an 

increase of $1,758,300 from the current 

annual burden of $2,343,510,000, and 

$562,605,100 for Form 10–KSB, an 

increase of $617,100 from the current 

annual burden of $561,988,000. The 

total dollar cost of complying with 

Regulations 14A and 14C, revised to 

include outside counsel costs expected 

from the amendments, are estimated to 

be $93,254,500 for Regulation 14A, an 

increase of $640,500 from the current 

annual burden of $92,614,000, and 

$2,382,200 for Regulation 14C, an 

increase of $13,200 from the current 

annual burden of $2,369,000.110

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.111

Any member of the public may direct 

to us any comments concerning the 

accuracy of this burden estimate and 

any suggestions for reducing this 

burden. 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 send a copy 

of the comments to Jonathan G. Katz, 

Secretary, Securities and Exchange 

Commission, 450 Fifth Street NW., 

Washington, DC 20549, with reference 

to File No. S7–04–01. Requests for 

materials submitted to the OMB by us 

with regard to this collection of 

information should be in writing, refer 

to File No. S7–04–01 and be submitted 

to the Securities and Exchange 

Commission, Records Management, 

Office of Filings and Information 

Services, 450 Fifth Street NW., 

Washington, DC 20549. Because the 

OMB is required to make a decision 

concerning the collections of 

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.

IV. Costs and Benefits of Final Rules 

A. Background 

The use of equity compensation, 

particularly stock options, has grown 

significantly during the last decade.112

Consequently, existing security holders 

may face higher levels of dilution of 

their ownership interests as some 

companies issue more shares of their 

stock to employees.113 Since the 

distribution of equity may result in a 

significant reallocation of ownership in 

an enterprise between existing security 

holders and management and 

employees, investors have a strong 

interest in understanding a registrant’s 

equity compensation program.114

Until recently, security holder 

approval was required for most equity 

compensation plans. However, as 

approval requirements have been 

relaxed115 and as opposition to these 

plans has grown,116 an increasing 

number of registrants have adopted 

stock option plans without the approval 

of security holders,117 thus potentially 

obscuring investors’ ability to assess the 

dilutive effect of a registrant’s equity 

compensation program. Our current 

rules do not require that a registrant 

disclose specific information about its 

non-security holder-approved equity 

compensation plans.118 Nor do current

Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 241

109One-half of the total burden resulting from the 

amendments is reflected as burden hours and the 

remainder is reflected in the total cost of complying 

with the information collection requirements. We 

have used an estimated hourly rate of $300.00 to 

determine the estimated cost to respondents of the 

disclosure prepared by outside counsel. We arrived 

at this hourly rate estimate after consulting with 

several private law firms. 110These cost burden increases reflect a change 

in our assumption of the number of registrants with 

equity compensation plans that either adopt a new 

plan or amend an existing plan to increase the 

number of securities authorized for issuance under 

the plan (see n. 85 above) and a change in the 

estimated hourly rate of outside counsel. With 

respect to Forms 10–K and 10–KSB, we increased 

our estimate by $937,300 in the case of Form 10–

K and increased our estimate by $483,100 in the 

case of Form 10–KSB. With respect to Schedules 

14A and 14C, we decreased our estimate by 

$8,089,500 in the case of Schedule 14A and 

decreased our estimate by $209,800 in the case of 

Schedule 14C. Assuming that 98% of the registrants 

that file annual reports on Form 10–K or 10–KSB 

maintain an equity compensation plan and are 

subject to the required disclosure, the estimated 

cost burden per year resulting from the 

amendments would be $4,946,400. 111Comments are requested pursuant to 44 U.S.C. 

3506(c)(2)(B). 112A study of stock-based pay practices at the 

nation’s 200 largest corporations indicates that 

these companies allocated 15.2% of outstanding 

shares (calculated on a fully-diluted basis) for 

management and employee equity incentives in 

2000, compared to only 6.9% in 1989. See Pearl 

Meyers & Partners, Inc., 2000 Equity Stake, Study 

of Management Equity Participation in the Top 200 

Corporations (2000). Both the size of individual 

awards and the number of companies that use 

equity broadly throughout the organization have 

increased significantly. See Core, Guay and Larcker, 

Executive Equity Compensation and Incentives: A 

Survey, Working Paper, University of Pennsylvania 

(2001), at 5–7. 113This question should be considered in the 

dilutive effect may already have occurred and is 

likely to be reflected in the basic earnings-per-share 

computation and security holders’ equity data. 122These commenters included seven individual 

and institutional investors, four registrants and 

registrant associations, one self-regulatory 

organization and 10 members of the executive 

compensation consulting, accounting and legal 

communities. 123See, for example, the Letter dated April 2, 

2001 from Arthur Andersen LLP (the ‘‘AA Letter’’), 

the Letter dated April 17, 2001 from the American 

Institute of Certified Public Accountants (the 

‘‘AICPA Letter’’), the Letter dated March 29, 2001 

from Emerson Electric Co., the Letter dated April 

12, 2001 from Microsoft Corporation and the Letter 

dated April 2, 2001 from PricewaterhouseCoopers 

LLP (the ‘‘PWC Letter’’).

127See Section II.C above. 128Available information on non-security holderapproved stock option plans is sparse. See William 

M. Mercer, Inc. Equity Compensation Survey (2001) 

(48% of survey respondents (83 participants) 

maintained non-security holder-approved stock 

option plan for employees below management level; 

such plans (60%) most prevalent in large 

companies (more than 5,000 employees); iQuantic, 

Inc., Trends in Equity Compensation 1996–2000

(2000) (27.3% of survey respondents in 1999 (161 

participants) maintained non-security holderapproved stock option plans, compared to 3.2% 

before 1996).

financial reporting disclosure rules 

require that non-security holderapproved plans be identified.119

Consequently, it is often difficult for 

investors to determine whether they 

have adequate information about a 

registrant’s equity compensation 

program. In response to ongoing 

investor concerns,120 in January 2001 

we proposed amendments to our rules 

to enhance the quality of information 

available to investors about equity 

compensation plans.121

B. Response to Comment Letters 

In the Proposing Release, we noted 

that registrants would incur costs in 

complying with the proposals. We also 

noted that these costs, to the extent that 

they could be estimated, would not be 

significant, as the required disclosure 

can be derived from information that is 

readily available to registrants through 

the routine administration of their 

equity compensation programs. We 

requested comment on the costs and 

benefits of the proposals. Of the 

comment letters we received, 22 

respondents discussed the costs and 

benefits associated with the 

proposals.122 Most of the comment 

letters addressed these matters in 

general terms.

Several respondents asserted that, 

because the proposals duplicated 

disclosure already required in 

registrants’ audited financial statements, 

the cost of providing information to 

investors would increase without any 

useful benefit.123 In response to these 

comments, we have revised the 

proposals to eliminate redundant 

disclosure and to minimize the overlap 

with financial reporting requirements, 

thereby reducing the cost of compliance. 

As discussed in Subsection C below, the 

amendments will enhance the quality of 

the disclosure available to investors 

about the dilutive effect of registrants’ 

equity compensation programs.

Other respondents, while generally 

supporting the proposals, suggested that 

we scale back the required disclosure to 

reduce compliance costs. For example, 

some respondents indicated that 

requiring plan-by-plan disclosure would 

create an undue burden for registrants 

without providing an incremental 

benefit to investors.124 In response to 

these comments, we have revised the 

proposals to permit aggregated 

disclosure of information about plans 

and individual equity compensation 

arrangements and to allow the required 

narrative summary of a non-security 

holder-approved stock option plan to be 

provided by a cross-reference to a 

description of the plan in a registrant’s 

financial statements.125 Some 

respondents suggested that we expand 

the required disclosure to include 

additional information, such as 

weighted-average exercise price data 

and information about existing equity 

compensation plans being submitted for 

security holder action. They also 

requested that we require the filing of 

non-security holder-approved equity 

compensation plans. We have made 

these changes.126

Most respondents suggested that the 

proposed disclosure be required in the 

same document each year, to both 

streamline compliance and to minimize 

investor confusion. While we carefully 

considered this suggestion, ultimately 

we concluded that these concerns were 

outweighed by the need for consistent 

application of the disclosure to all 

registrants.127 Accordingly, the required 

disclosure is to be provided each year in 

a registrant’s annual report on Form 10–

K or 10–KSB and, additionally, in the 

proxy or information statement in years 

when the registrant is submitting a 

compensation plan for security holder 

action.

C. Benefits 

1. Disclosure of Non-Security HolderApproved Plans 

New Item 201(d)(1) of Regulation S–

K and Regulation S–B requires 

registrants to disclose whether they 

have one or more non-security holderapproved stock option plans by 

separately providing information about 

the dilutive effects of these plans. New 

Item 201(d)(3) of Regulation S–K and 

Regulation S–B requires that this 

disclosure be accompanied by a 

narrative summary of the material 

features of each non-security holderapproved plan. Also, as amended Item 

601(b)(10) of Regulation S–K and 

Regulation S–B requires registrants to 

file a copy of any non-security holderapproved equity compensation plan 

with us unless the plan is immaterial in 

amount or significance. 

Presently, it is difficult for investors 

to ascertain whether a registrant has 

adopted a non-security holder approved 

stock option plan.128 If a plan is broadbased, restricts or prohibits the 

participation of officers and directors 

and does not permit the grant of taxqualified stock options, for instance, it 

is unlikely to require security holder 

approval. Frequently, investors must 

examine the required public filings of a 

registrant made over several years in 

order to identify the registrant’s stock 

option plans and determine if they have 

been approved by security holders. Even 

when a non-security holder-approved 

plan is identified, information about the 

plan may be limited since it may not be 

subject to our disclosure rules and may 

not be filed with us. The amendments 

will enable investors to ascertain if a 

registrant has adopted a non-security 

holder approved plan and highlight a

242 Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 

129This measure may be formulated in different 

ways. For purposes of this discussion, ‘‘overhang’’ 

means the sum of the number of securities 

underlying outstanding options, warrants and rights 

plus the number of securities remaining available 

for future issuance under the registrant’s existing 

equity compensation plans, and is often expressed 

as a percentage of the total number of outstanding 

securities.

130 It may be difficult for investors to calculate the 

‘‘overhang’’ of a registrant’s equity compensation 

program because the number of securities available 

for future issuance under the registrant’s plans may 

not be disclosed or apparent. Currently, a registrant 

submitting an equity compensation plan for 

security holder action need not provide any specific 

disclosure about its other equity compensation 

plans. Moreover, in its annual study on stock plan 

dilution, the Investor Responsibility Research 

Center found that approximately 22% of the 

companies surveyed did not disclose the number of 

shares available for future issuance under their 

employee stock plans. See the IRRC Dilution Study.

131While the full dilutive impact of these 

authorized but unissued securities cannot be 

assessed until derivative instruments have been 

granted and the prices for which the underlying 

securities may be issued can be compared to 

existing market values, this information, combined 

with knowledge of the minimum exercise price at 

which these instruments may be granted, may 

provide useful insight into the potential future 

economic consequences of the program.

132See, for example, the AA Letter, the AICPA 

Letter, the Letter dated May 22, 2001 from the New 

York State Bar Association and the PWC Letter.

133See the Letter dated April 9, 2001 from Lucent 

Technologies Inc.

134See the ABA Letter.

description of the plan’s material 

features.

2. Tabular Disclosure 

New Item 201(d)(1) of Regulation S–

K and Regulation S–B requires 

registrants to disclose, for their entire 

equity compensation program as in 

effect as of the end of the last completed 

fiscal year, the number of securities 

underlying, and the weighted-average 

exercise price of, outstanding options, 

warrants and rights and the number of 

securities remaining available for future 

issuance. This disclosure is to be made 

separately for plans approved by 

security holders and plans that have not 

been approved by security holders. 

The required disclosure will assist 

investors in assessing the potential 

dilution from a registrant’s equity 

compensation program in two ways. 

First, the required disclosure of the 

number of securities to be issued upon 

the exercise, and weighted-average 

exercise price, of all outstanding 

options, warrants and rights will enable 

investors to view this information in 

two categories: plans approved by 

security holders and plans not approved 

by security holders. While numerical 

and weighted-average exercise price 

information is presently available in the 

footnotes to a registrant’s audited 

financial statements, this disclosure 

does not separately identify the 

potential dilutive effect of any nonsecurity-holder approved stock option 

plans. 

Second, disclosure of the number of 

securities available for future issuance 

under a registrant’s equity 

compensation plans will enable 

investors to better calculate the 

‘‘overhang 129 resulting from the 

registrant’s entire equity compensation 

program. Under existing disclosure 

requirements, it is not always possible 

to make this calculation.130 This 

information may be useful to investors 

where the cost of a registrant’s equity 

compensation plan exceeds its incentive 

effects. The new disclosure also will 

enhance the ability of investors and 

others, such as proxy review firms, to 

monitor the impact of a board of 

directors’ actions concerning equity 

compensation matters. Access to this 

information will make it easier for 

investors to determine both the portion 

of the current value of a business that 

will be transferred to option holders 

upon exercise and the potential 

allocation of future cash flow rights.131

While the economic impact of 

outstanding options, warrants and rights 

is incorporated into the presentation of 

diluted earnings-per-share under SFAS 

128, this calculation differs from the 

new disclosure in several ways. First, it 

does not isolate ‘‘compensatory’’ 

instruments. Typically, the diluted 

earnings-per-share figure combines the 

dilutive effect of compensatory options, 

warrants and rights with that of other 

outstanding convertible securities. 

Second, SFAS 128 employs the socalled ‘‘treasury stock method’’ to 

compute diluted earnings-per-share. 

Among other things, this methodology 

excludes ‘‘out-of-the-money’’ options 

and warrants from the computation and 

requires certain assumptions about the 

timing of option exercises and the use 

of the assumed proceeds of exercise to 

arrive at the total number of potentially 

dilutive securities. Finally, while 

weighted-average exercise price 

information is available for various 

option groupings under SFAS 123, it 

does not differentiate between equity 

compensation plans that have been 

approved by security holders and plans 

that have not been approved by security 

holders. 

D. Costs 

The amendments will increase the 

cost of preparing annual reports on 

Form 10–K and 10–KSB and proxy and 

information statements. Registrants 

must compile the required information, 

place it in the appropriate category and 

prepare the required table. In addition, 

registrants with non-security holderapproved stock option plans must 

prepare a narrative summary of the 

material features of each plan and file a 

copy of any material plan with us. 

Registrants also will incur an increase in 

printing and distribution costs as a 

result of the amendments. 

While several respondents indicated 

that the cost estimates in the Proposing 

Release were too low,132 only one 

provided an alternative cost estimate. 

This respondent stated that compliance 

could result in additional costs 

approximating $300,000 in years when 

disclosure was required in its proxy 

statement.133 The respondent’s estimate 

is no longer relevant because of the 

substantial revisions that we have made 

to the proposals, as discussed in 

Subsection B above.

The required disclosure will provide 

investors both with new information 

and with an alternative means for 

analyzing currently available 

information. With respect to the 

dilution disclosure, we believe that the 

compliance costs are warranted because 

this information is not otherwise 

available to investors. Moreover, these 

costs should be minimal because this 

information can be derived from 

information that is readily available to 

registrants through the routine 

administration of their equity 

compensation programs. 

With respect to the information 

concerning non-security holderapproved stock option plans, much of 

the required tabular disclosure, such as 

the number of outstanding options, 

warrants and rights and the related 

weighted-average exercise price data, is 

already maintained for purposes of 

satisfying financial reporting 

requirements. The amendments merely 

require registrants to disclose this 

information on the basis of whether or 

not the related plan has been approved 

by security holders. In addition, many 

registrants summarize the material 

features of their equity compensation 

plans to satisfy their SFAS 123 

disclosure obligations. Indeed, one 

respondent indicated that the 

amendments would result in only 

minimal additional costs to registrants 

because, in their experience, most 

registrants already maintain the 

required information in order to comply 

with SRO rules and for effective plan 

administration.134

Although the amendments will 

increase the length of registrants’ annual 

reports on Form 10–K and 10–KSB, as 

well as their proxy and information 

statements, generally this should not 

have a major impact on a registrant’s

Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 243

135This estimate is based on the Letter dated 

April 9, 2001 from Lucent Technologies, Inc., in 

which the commenter estimated that providing four 

additional pages of disclosure to its over five 

million security holders would result in additional 

printing costs of $100,000 and additional mailing 

costs of $200,000. Assuming that the required 

disclosure consists of one additional page and that 

a registrant has 50,000 security holders, the 

registrant may incur additional costs of $750 to 

prepare and distribute the additional disclosure. 136Since all registrants are required to make the 

same disclosure, the amendments will impose the 

same dollar costs on each registrant. Accordingly, 

for small entities the relative burden of compliance 

will be higher than for large entities.

137This figure is based on our estimate that 60% 

of the actual number of registrants filing annual 

reports on Form 10–K or 10–KSB (14,022 

registrants) maintain equity compensation plans. 

This estimate is made after a review of available 

survey data, which varies widely. For example, in 

its most recent study of the ‘‘S&P Super 1,500’’ (the 

combination of the S&P 500, the S&P MidCap 400 

and the S&P SmallCap 600), the Investor 

Responsibility Research Center determined that, of 

the 1,157 companies examined, 1,142 (98.7%) 

awarded equity to some portion of their employees. 

See Investor Responsibility Research Center, 

Potential Dilution—2000, The Potential Dilution 

from Stock Plans at the S&P Super 1,500 

Companies (2000). In contrast, a Pilot Survey 

conducted by the Bureau of Labor Statistics in 1999 

determined that 22% of publicly-held companies 

offered stock options to their employees. This 

survey sampled 2,100 ‘‘establishments,’’ of which 

approximately 1 in 10 were publicly-held 

companies. See Bureau of Labor Statistics, Pilot 

Survey on the Incidence of Stock Options in Private 

Industry in 1999, (Oct. 11, 2000), available at http:/

/www.bls.gov/ncs/ocs/sp/ncnr0001.txt.

138We arrived at this estimate by assuming that 

approximately 80% of these registrants will be 

required to provide the tabular disclosure only and 

20% of these registrants will be required to describe 

the material features of their non-security holderapproved plans as well. See n. 90 above and the 

accompanying text. Thus, 80% of the registrants 

will incur an average annual outside counsel cost 

of $300 (80% of 8,400 x $300 = $2,016,000) while 

20% will incur an average annual outside cost of 

$600 (20% of 8,400 x $600 = $1,008,000). In 

addition, we estimate that approximately 365 

registrants with non-security holder-approved plans 

will incur additional printing and distribution costs 

of $750 each, or $273,750. See n. 135 above. The 

sum of these amounts averaged over 8,400 

registrants equals $393.

139 5 U.S.C. § 603.

140A recent study of approximately 250 

companies conducted by the National Center for 

Employee Ownership found that 55% of the 

respondents had less than 200 employees (with 

17% having less than 31 employees) and that 55% 

of the respondents had less than $40 million in 

annual revenue (with 14% having annual revenues 

of $1.1 million or less). See National Center for 

Employee Ownership, An Overview of How 

Companies are Granting Stock Options (2001).

141See the Proposing Release at Section V.

142 17 CFR 240.0–10(c).

143A similar definition is provided under 

Securities Act Rule 157 [17 CFR 230.157].

144This estimate is based on filings with the 

Commission.

printing and distribution costs. We have 

revised the proposals to reduce and 

standardize the size of the required 

tabular disclosure. These revisions 

should ensure that registrants do not 

incur significant additional printing and 

postage charges to prepare and 

distribute their proxy or information 

statements to security holders. While in 

most instances, the required disclosure 

should not exceed one-third of a page, 

where a registrant has one or more nonsecurity holder-approved stock option 

plans, the disclosure may be longer. 

These registrants may incur additional 

expense to print and distribute their 

proxy or information statement 

materials. While we do not expect these 

costs to be significant, we have 

estimated these amounts to be 

approximately $750 per registrant.135

For the reasons discussed above, we 

do not believe that the amendments will 

lead to significant compliance costs for 

registrants.136 Notwithstanding the 

foregoing, we have adjusted our initial 

cost estimates to reflect the revisions 

made to the proposals. Because the size 

and scope of equity compensation 

programs vary among registrants, it is 

difficult to provide an accurate cost 

estimate with which all parties will 

agree; however, we estimate that each of 

the approximately 8,400 registrants 137

subject to the amendments will spend 

an average of approximately one to two 

hours each year and incur an average 

annual cost of approximately $393 138 to 

prepare the disclosure. Thus, the 

aggregate cost of the amendments is 

estimated to be approximately 

$3,300,000.

E. Conclusion 

Based on the information provided in 

the comment letters and our own 

analysis, we believe that the 

amendments will enhance the quality of 

disclosure available to investors about 

registrants’ equity compensation plans, 

thereby leading to better-informed 

investment and voting decisions. These 

benefits are difficult to quantify. We 

also believe that these benefits will 

justify the minimal costs of compliance. 

V. Final Regulatory Flexibility Analysis 

This Final Regulatory Flexibility 

Analysis, or FRFA, has been prepared in 

accordance with the Regulatory 

Flexibility Act.139 This FRFA relates to 

rule amendments adopted under the 

Exchange Act that revise the disclosure 

requirements with respect to registrants’ 

equity compensation plans. Specifically, 

the amendments revise Item 201 of 

Regulation S–B, Item 201 of Regulation 

S–K and Form 10–K, Form 10–KSB, 

Exchange Act Rule 14a–3 and Schedule 

14A under the Exchange Act to require 

tabular disclosure of the number and 

weighted-average exercise price of all 

outstanding options, warrants and rights 

under a registrant’s equity 

compensation plans, as well as the 

number of securities remaining 

available for future issuance under these 

plans and certain related information. 

Disclosure is to be made in two 

categories: plans that have been 

approved by security holders and plans 

that have not been approved by security 

holders. Registrants must include the 

table in their annual reports on Form 

10–K or 10–KSB, as well as in their 

proxy or information statements in years 

when they are submitting a 

compensation plan for security holder 

action. Copies of most equity 

compensation plans will be required to 

be filed with us for public inspection.

A. Need for the Amendments 

The increased use of equity 

compensation has raised investor 

concerns about the potential dilutive 

effect of a registrant’s equity 

compensation plans, the absence of full 

disclosure to security holders about 

these plans and the adoption of many 

plans without the approval of security 

holders. These concerns may be 

especially acute for investors in small 

entities, which use equity compensation 

in order to attract and retain key 

employees and to preserve scarce cash 

resources.140 The amendments enhance 

the quality of information available to 

investors about a registrant’s equity 

compensation plans.

B. Significant Issues Raised by Public 

Comment 

A summary of the Initial Regulatory 

Flexibility Analysis, or IRFA, appeared 

in the Proposing Release.141 We 

requested comment on any aspect of the 

IRFA, including the number of small 

businesses that would be affected by the 

proposals, the nature of the impact, how 

to quantify the number of small entities 

that would be affected and how to 

quantify the impact of the proposals. We 

received no comment letters responding 

to that request.

C. Small Entities Subject to the 

Amendments 

Exchange Act Rule 0–10 142 defines 

the term ‘‘small business’’ to be an 

issuer that, on the last day of its most 

recent fiscal year, has total assets of $5 

million or less.143 There are 

approximately 770 issuers that are 

subject to the reporting requirements of 

Section 13 of the Exchange Act that 

have assets of $5 million or less.144 Only 

small businesses that have a reporting 

obligation under the Exchange Act and

adopt or maintain an equity 

compensation plan will be subject to the 

amendments. We estimate that there are 

approximately 460 entities that have

244 Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 

145This figure is based on our estimate that 60% 

of the registrants that file an annual report on either 

Form 10–K or 10–KSB maintain equity 

compensation plans and will be required to provide 

the new tabular disclosure. See n. 87 above.

146See n. 140 above.

147 15 U.S.C. 78w(a).

148See n. 140 above. 149 15 U.S.C. § 77b(b) and 78c(f). 150See, for example, the American Benefits 

Council, Taking Stock in Employee Benefits: The 

Democratization of Broad-Based Stock Plans (Feb. 

2001), at 2–3.

total assets of $5 million or less that 

meet this criteria.145

D. Projected Reporting, Recordkeeping 

and Other Compliance Requirements 

The amendments impose new 

reporting requirements by requiring 

specific annual disclosure by all 

registrants, including ‘‘small 

businesses,’’ concerning their equity 

compensation plans in effect as of the 

end of the most recently completed 

fiscal year. Consequently, the 

amendments will increase the costs 

associated with the preparation of the 

disclosure included in annual reports 

on Form 10–K or 10–KSB and furnished 

to security holders in proxy and 

information statements. Specifically, the 

amendments require registrants to 

disclose the number and weightedaverage exercise price of all outstanding 

options, warrants and rights under a 

registrant’s equity compensation plans, 

as well as the number of securities 

remaining available for future issuance 

under these plans and certain related 

information. Disclosure is to be made in 

two categories: plans that have been 

approved by security holders and plans 

that have not been approved by security 

holders. Since this information can be 

derived from information that is readily 

available to registrants through the 

routine administration of their equity 

compensation programs, we do not 

expect these additional costs to be 

significant. 

We do not anticipate that the 

amendments will impose any significant 

recordkeeping requirements in addition 

to those already required under the 

Exchange Act. The information to be 

disclosed can be derived from 

information that is readily available to 

registrants through the routine 

administration of their equity 

compensation programs. All registrants 

with equity compensation plans have 

various legal, financial reporting and 

other disclosure obligations that require 

maintenance of information regarding 

these plans similar to that covered by 

the amendments. 

E. Agency Action To Minimize Effect on 

Small Entities 

As required by Sections 603 and 604 

of the Regulatory Flexibility Act, we 

have considered alternatives that would 

accomplish the stated objectives, while 

minimizing any significant adverse 

impact on small entities. In connection 

with the amendments, we considered 

several alternatives, including the 

following: 

• Establishing different compliance 

and reporting requirements that take 

into account the resources of small 

entities; 

• Clarifying, consolidating or 

simplifying compliance and reporting 

requirements under the rules for small 

entities; 

• Using performance rather than 

design standards; and 

• Exempting small entities from all or 

part of the requirements. 

Overall, the amendments are intended 

to assist investors in understanding a 

registrant’s equity compensation 

policies and practices. The quality of 

information available about the 

potential dilutive effect of a registrant’s 

equity compensation plans is relevant to 

investors in both small and large 

entities. Different compliance or 

reporting requirements for small entities 

are not appropriate because small 

entities may use equity compensation 

plans to a greater extent than large 

entities to preserve scarce cash 

resources.146 In addition, it is not 

feasible to further clarify, consolidate or 

simplify the amendments for small 

entities because the amendments 

require only minimal information about 

a registrant’s equity compensation 

plans. Because uniformity and 

comparability are important, especially 

where small entities have equity 

compensation plans, we do not propose 

to use performance standards to specify 

different requirements for small entities. 

Finally, we believe that the amendments 

should apply equally to all entities 

required to disclose information, in 

order to safeguard protection of all 

investors.

VI. Analysis of Impact on the Economy, 

Burden on Competition and Promotion 

of Efficiency, Competition and Capital 

Formation 

Section 23(a)(2) of the Exchange 

Act 147 requires us, when adopting rules 

under the Exchange Act, to consider the 

impact that any new rule will have on 

competition. In addition, Section 

23(a)(2) prohibits us from adopting any 

rule that will impose a burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act. We have 

considered the amendments in light of 

the standards in Section 23(a)(2). We 

requested comment on any anticompetitive effects of the proposals. We 

received no comment letters responding 

to that request.

The amendments may have a 

disparate impact on registrants that use 

equity compensation extensively, such 

as smaller firms or registrants in certain 

industry sectors (such as hightechnology companies), as compared to 

registrants with limited or no equity 

compensation programs.148 Thus, we 

are sensitive to the concern that 

registrants with a greater compliance 

obligation will be placed at a 

competitive disadvantage. In addition, 

several commenters, while not 

specifically addressing this issue, did 

argue that the new disclosure would be 

duplicative of information currently 

required to be included in registrants’ 

audited financial statements. In 

response to these concerns, we have 

revised the proposals to eliminate 

redundant requirements and to 

streamline the compliance process. 

Because these changes should enable 

registrants to keep compliance costs 

low, we do not believe that the 

amendments will impose a significantly 

disproportionate cost on smaller firms 

or high-technology companies.

Section 2(b) of the Securities Act and 

Section 3(f) of the Exchange Act 149

require us, when engaging in 

rulemaking requiring us 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. We 

have considered the amendments in 

light of the standards in these 

provisions. We requested comment on 

how the proposals would affect 

efficiency, competition and capital 

formation. We received no comment 

letters responding to that request.

It is widely believed that equity 

compensation, particularly instruments 

such as stock options, can be used to 

align the interests of employees and 

security holders, thereby promoting 

effective corporate governance.150

Because an equity compensation plan 

may necessarily have an unintended 

dilutive effect on the existing ownership 

interests, however, it is important that 

the plan be closely monitored to ensure 

that its cost is commensurate with its 

benefit to investors. The amendments 

are intended to enhance the quality of 

disclosure about registrants’ equity 

compensation programs that is available

Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 245

to investors. Increasing the transparency 

of these programs should result in better 

monitoring by investors. This should 

result in better corporate governance, 

thereby increasing the efficiency of the 

organization. This should promote 

capital formation.

VII. Statutory Authority 

The amendments contained in this 

release are being adopted under the 

authority set forth in Sections 3(b) and 

19(a) of the Securities Act and Sections 

12, 13, 14(a), 15(d) and 23(a) of the 

Exchange Act.

List of Subjects in 17 CFR Parts 228, 

229, 240 and 249 

Reporting and recordkeeping 

requirements, Securities.

Text of Rule Amendments

■ In accordance with the foregoing, Title 

17, Chapter II of the Code of Federal 

Regulations is amended as follows:

PART 228—INTEGRATED 

DISCLOSURE SYSTEM FOR SMALL 

BUSINESS ISSUERS

■ 1. The general authority citation for 

Part 228 continues to read as follows:

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 

77k, 77s, 77z–2, 77aa(25), 77aa(26), 77ddd, 

77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss, 78l, 

78m, 78n, 78o, 78u–5, 78w, 78ll, 80a–8, 80a–

29, 80a–30, 80a–37 and 80b–11, unless 

otherwise noted.

■ 2. Section 228.201 is amended by 

adding paragraph (d) before the 

Instruction to read as follows:

§ 228.201 (Item 201) Market for Common 

Equity and Related Stockholder Matters.

* * * * *

(d) Securities authorized for issuance 

under equity compensation plans. (1) In 

the following tabular format, provide 

the information specified in paragraph 

(d)(2) of this Item as of the end of the 

most recently completed fiscal year with 

respect to compensation plans 

(including individual compensation 

arrangements) under which equity 

securities of the small business issuer 

are authorized for issuance, aggregated 

as follows: 

(i) All compensation plans previously 

approved by security holders; and 

(ii) All compensation plans not 

previously approved by security 

holders.

EQUITY COMPENSATION PLAN INFORMATION

Plan category 

Number of securities to be issued 

upon exercise of outstanding options, warrants and rights 

Weighted-average exercise price 

of outstanding options, warrants 

and rights 

Number of securities remaining 

available for future issuance 

under equity compensation plans 

(excluding securities reflected in 

column (a)) 

(a) (b) (c) 

Equity compensation plans approved by security holders 

Equity compensation plans not approved by security holders 

Total 

(2) The table shall include the 

following information as of the end of 

the most recently completed fiscal year 

for each category of equity 

compensation plan described in 

paragraph (d)(1) of this Item: 

(i) The number of securities to be 

issued upon the exercise of outstanding 

options, warrants and rights (column 

(a)); 

(ii) The weighted-average exercise 

price of the outstanding options, 

warrants and rights disclosed pursuant 

to paragraph (d)(2)(i) of this Item 

(column (b)); and 

(iii) Other than securities to be issued 

upon the exercise of the outstanding 

options, warrants and rights disclosed 

in paragraph (d)(2)(i) of this Item, the 

number of securities remaining 

available for future issuance under the 

plan (column (c)). 

(3) For each compensation plan under 

which equity securities of the small 

business issuer are authorized for 

issuance that was adopted without the 

approval of security holders, describe 

briefly, in narrative form, the material 

features of the plan.

Instructions to Paragraph (d). 

1. Disclosure shall be provided with 

respect to any compensation plan and 

individual compensation arrangement of the 

small business issuer (or parent, subsidiary 

or affiliate of the small business issuer) under 

which equity securities of the small business 

issuer are authorized for issuance to 

employees or non-employees (such as 

directors, consultants, advisors, vendors, 

customers, suppliers or lenders) in exchange 

for consideration in the form of goods or 

services as described in Statement of 

Financial Accounting Standards No. 123, 

Accounting for Stock-Based Compensation,

or any successor standard. No disclosure is 

required with respect to: 

a. Any plan, contract or arrangement for 

the issuance of warrants or rights to all 

security holders of the small business issuer 

as such on a pro rata basis (such as a stock 

rights offering) or 

b. Any employee benefit plan that is 

intended to meet the qualification 

requirements of Section 401(a) of the Internal 

Revenue Code (26 U.S.C. 401(a)). 

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 

§ 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)(7)(ii) of Regulation S–B 

(§ 228.402(a)(7)(ii)). 

3. If more than one class of equity security 

is issued under its equity compensation 

plans, a small business issuer should 

aggregate plan information for each class of 

security. 

4. A small business issuer may aggregate 

information regarding individual 

compensation arrangements with the plan 

information required under paragraph 

(d)(1)(i) and (ii) of this item, as applicable. 

5. A small business issuer may aggregate 

information regarding a compensation plan 

assumed in connection with a merger, 

consolidation or other acquisition transaction 

pursuant to which the small business issuer 

may make subsequent grants or awards of its 

equity securities with the plan information 

required under paragraph (d)(1)(i) and (ii) of 

this Item, as applicable. A small business 

issuer shall disclose on an aggregated basis 

in a footnote to the table the information 

required under paragraph (d)(2)(i) and (ii) of 

this Item with respect to any individual 

options, warrants or rights assumed in 

connection with a merger, consolidation or 

other acquisition transaction. 

6. To the extent that the number of 

securities remaining available for future 

issuance disclosed in column (c) includes 

securities available for future issuance under 

any compensation plan or individual 

compensation arrangement other than upon 

the exercise of an option, warrant or right, 

disclose the number of securities and type of

246 Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 

plan separately for each such plan in a 

footnote to the table. 

7. If the description of an equity 

compensation plan set forth in a small 

business issuer’s financial statements 

contains the disclosure required by 

paragraph (d)(3) of this Item, a crossreference to such description will satisfy the 

requirements of paragraph (d)(3) of this Item. 

8. If an equity compensation plan contains 

a formula for calculating the number of 

securities available for issuance under the 

plan, including, without limitation, a formula 

that automatically increases the number of 

securities available for issuance by a 

percentage of the number of outstanding 

securities of the small business issuer, a 

description of this formula shall be disclosed 

in a footnote to the table. 

9. Except where it is part of a document 

that is incorporated by reference into a 

prospectus, the information required by this 

paragraph need not be provided in any 

registration statement filed under the 

Securities Act.

* * * * *

■ 3. Section 228.601 is amended by 

redesignating paragraph (b)(10)(ii)(B) as 

paragraph (b)(10)(ii)(C) and by adding 

new paragraph (b)(10)(ii)(B) to read as 

follows:

§ 228.601 (Item 601) Exhibits.

* * * * *

(b) Description of Exhibits * * * 

(10) Material Contracts * * * 

(ii) * * * 

(B) Any compensatory 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 (or if not set forth in 

any formal document, a written 

description thereof), in which any 

employee (whether or not an executive 

officer of the small business issuer) 

participates shall be filed unless 

immaterial in amount or significance. A 

compensation plan assumed by a small 

business issuer in connection with a 

merger, consolidation or other 

acquisition transaction pursuant to 

which the small business issuer may 

make further grants or awards of its 

equity securities shall be considered a 

compensation plan of the small business 

issuer for purposes of the preceding 

sentence.

* * * * *

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

■ 4. The general authority citation for 

Part 229 is revised to read as follows:

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 

77k, 77s, 77z–2, 77aa(25), 77aa(26), 77ddd, 

77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 

77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u–

5, 78w, 78ll(d), 79e, 79n, 79t, 80a–8, 80a–29, 

80a–30, 80a–31(c), 80a–37, 80a–38(a), and 

80b–11, unless otherwise noted.

* * * * *

■ 5. The authority citation following 

§ 229.201 is removed.

■ 6. Section 229.201 is amended by 

adding paragraph (d) before the 

Instructions to Item 201 to read as 

follows:

§ 229.201 (Item 201) Market price of and 

dividends on the registrant’s common 

equity and related stockholder matters.

* * * * *

(d) Securities authorized for issuance 

under equity compensation plans. (1) In 

the following tabular format, provide 

the information specified in paragraph 

(d)(2) of this Item as of the end of the 

most recently completed fiscal year with 

respect to compensation plans 

(including individual compensation 

arrangements) under which equity 

securities of the registrant are 

authorized for issuance, aggregated as 

follows: 

(i) All compensation plans previously 

approved by security holders; and 

(ii) All compensation plans not 

previously approved by security 

holders.

EQUITY COMPENSATION PLAN INFORMATION

Plan category 

Number of securities to be issued 

upon exercise of outstanding options, warrants and rights 

Weighted-average exercise price 

of outstanding options, warrants 

and rights 

Number of securities remaining 

available for future issuance 

under equity compensation plans 

(excluding securities reflected in 

column (a)) 

(a) (b) (c) 

Equity compensation plans approved by security holders 

Equity compensation plans not approved by security holders 

Total.

(2) The table shall include the 

following information as of the end of 

the most recently completed fiscal year 

for each category of equity 

compensation plan described in 

paragraph (d)(1) of this Item: 

(i) The number of securities to be 

issued upon the exercise of outstanding 

options, warrants and rights (column 

(a)); 

(ii) The weighted-average exercise 

price of the outstanding options, 

warrants and rights disclosed pursuant 

to paragraph (d)(2)(i) of this Item 

(column (b)); and 

(iii) Other than securities to be issued 

upon the exercise of the outstanding 

options, warrants and rights disclosed 

in paragraph (d)(2)(i) of this Item, the 

number of securities remaining 

available for future issuance under the 

plan (column (c)). 

(3) For each compensation plan under 

which equity securities of the registrant 

are authorized for issuance that was 

adopted without the approval of 

security holders, describe briefly, in 

narrative form, the material features of 

the plan.

Instructions to Paragraph (d). 

1. Disclosure shall be provided with 

respect to any compensation plan and 

individual compensation arrangement of the 

registrant (or parent, subsidiary or affiliate of 

the registrant) under which equity securities 

of the registrant are authorized for issuance 

to employees or non-employees (such as 

directors, consultants, advisors, vendors, 

customers, suppliers or lenders) in exchange 

for consideration in the form of goods or 

services as described in Statement of 

Financial Accounting Standards No. 123, 

Accounting for Stock-Based Compensation,

or any successor standard. No disclosure is 

required with respect to: 

a. Any plan, contract or arrangement for 

the issuance of warrants or rights to all 

security holders of the registrant as such on

Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 247

a pro rata basis (such as a stock rights 

offering) or 

b. Any employee benefit plan that is 

intended to meet the qualification 

requirements of Section 401(a) of the Internal 

Revenue Code (26 U.S.C. 401(a)). 

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 

§ 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)(7)(ii) of Regulation S–K 

(§ 229.402(a)(7)(ii)). 

3. If more than one class of equity security 

is issued under its equity compensation 

plans, a registrant should aggregate plan 

information for each class of security. 

4. A registrant may aggregate information 

regarding individual compensation 

arrangements with the plan information 

required under paragraph (d)(1)(i) and (ii) of 

this Item, as applicable. 

5. A registrant may aggregate information 

regarding a compensation plan assumed in 

connection with a merger, consolidation or 

other acquisition transaction pursuant to 

which the registrant may make subsequent 

grants or awards of its equity securities with 

the plan information required under 

paragraph (d)(1)(i) and (ii) of this Item, as 

applicable. A registrant shall disclose on an 

aggregated basis in a footnote to the table the 

information required under paragraph 

(d)(2)(i) and (ii) of this Item with respect to 

any individual options, warrants or rights 

assumed in connection with a merger, 

consolidation or other acquisition 

transaction. 

6. To the extent that the number of 

securities remaining available for future 

issuance disclosed in column (c) includes 

securities available for future issuance under 

any compensation plan or individual 

compensation arrangement other than upon 

the exercise of an option, warrant or right, 

disclose the number of securities and type of 

plan separately for each such plan in a 

footnote to the table. 

7. If the description of an equity 

compensation plan set forth in a registrant’s 

financial statements contains the disclosure 

required by paragraph (d)(3) of this Item, a 

cross-reference to such description will 

satisfy the requirements of paragraph (d)(3) of 

this Item. 

8. If an equity compensation plan contains 

a formula for calculating the number of 

securities available for issuance under the 

plan, including, without limitation, a formula 

that automatically increases the number of 

securities available for issuance by a 

percentage of the number of outstanding 

securities of the registrant, a description of 

this formula shall be disclosed in a footnote 

to the table. 

9. Except where it is part of a document 

that is incorporated by reference into a 

prospectus, the information required by this 

paragraph need not be provided in any 

registration statement filed under the 

Securities Act.

* * * * *

■ 7. Section 229.601 is amended by 

redesignating paragraph (b)(10)(iii)(B) as 

paragraph (b)(10)(iii)(C) and by adding 

new paragraph (b)(10)(iii)(B) to read as 

follows:

§ 229. 601 (Item 601) Exhibits.

* * * * *

(b) Description of Exhibits * * * 

(10) Material Contracts * * * 

(iii) * * * 

(B) Any compensatory 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 (or if not set forth in 

any formal document, a written 

description thereof), in which any 

employee (whether or not an executive 

officer of the registrant) participates 

shall be filed unless immaterial in 

amount or significance. A compensation 

plan assumed by a registrant in 

connection with a merger, consolidation 

or other acquisition transaction 

pursuant to which the registrant may 

make further grants or awards of its 

equity securities shall be considered a 

compensation plan of the registrant for 

purposes of the preceding sentence.

* * * * *

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934

■ 8. The general authority citation for 

Part 240 is revised 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 and 80b–11, unless otherwise noted.

* * * * *

■ 9. The authority citation following 

§ 240.14a–3 is removed.

■ 10. Section 240.14a–3 is amended by 

revising paragraph (b)(9) to read as 

follows:

§ 240.14a–3 Information to be furnished to 

security holders.

* * * * *

(b) * * * 

(9) The report shall contain the 

market price of and dividends on the 

registrant’s common equity and related 

security holder matters required by Item 

201(a), (b) and (c) of Regulation S–K 

(§ 229.201(a), (b) and (c) of this chapter).

* * * * *

■ 11. In § 240.14a–101, amend Item 10 of 

Schedule 14A by adding paragraph (c) 

before the undesignated heading 

Instructions and revise Item 14(d)(4) of 

Schedule 14A to read as follows:

§ 240.14a–101 Schedule 14A. Information 

required in proxy statement.

* * * * *

Item 10. Compensation Plans. * * *

* * * * *

(c) Information regarding plans and other 

arrangements not subject to security holder 

action. Furnish the information required by 

Item 201(d) of Regulation S–K (§ 229.201(d) 

of this chapter). 

Instructions to paragraph (c).

1. If action is to be taken as described in 

paragraph (a) of this Item with respect to the 

approval of a new compensation plan under 

which equity securities of the registrant are 

authorized for issuance, information about 

the plan shall be disclosed as required under 

paragraphs (a) and (b) of this Item and shall 

not be included in the disclosure required by 

Item 201(d) of Regulation S–K (§ 229.201(d) 

of this chapter). If action is to be taken as 

described in paragraph (a) of this Item with 

respect to the amendment or modification of 

an existing plan under which equity 

securities of the registrant are authorized for 

issuance, the registrant shall include 

information about securities previously 

authorized for issuance under the plan 

(including any outstanding options, warrants 

and rights previously granted pursuant to the 

plan and any securities remaining available 

for future issuance under the plan) in the 

disclosure required by Item 201(d) of 

Regulation S–K (§ 229.201(d) of this chapter). 

Any additional securities that are the subject 

of the amendments or modification of the 

existing plan shall be disclosed as required 

under paragraphs (a) and (b) of this Item and 

shall not be included in the Item 201(d) 

disclosure.

* * * * *

Item 14. Mergers, consolidations, 

acquisitions and similar matters. * * *

* * * * *

(d) Information about parties to the 

transaction: registered investment companies 

and business development companies. ***

* * * * *

(4) Information required by Item 201(a), (b) 

and (c) of Regulation S–K (§ 229.201(a), (b) 

and (c) of this chapter), market price of and 

dividends on the registrant’s common equity 

and related stockholder matters;

* * * * *

PART 249—FORMS, SECURITIES 

EXCHANGE ACT OF 1934

■ 12. The authority citation for Part 249 

continues to read, in part, as follows:

Authority: 15 U.S.C. 78a et seq., unless 

otherwise noted.

* * * * *

■ 13. By amending Form 10–K 

(referenced in § 249.310) by revising 

Item 12 of 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.

248 Federal Register / Vol. 67, No. 1 / Wednesday, January 2, 2002 / Rules and Regulations 

Form 10–K 

Annual Report Pursuant to Section 13 or 

15(d) of the Securities Exchange Act of 

1934

* * * * *

Part III

* * * * *

Item 12. Security Ownership of 

Certain Beneficial Owners and 

Management and Related Stockholder 

Matters. 

Furnish the information required by 

Item 201(d) of Regulation S–K 

(§ 229.201(d) of this chapter) and by 

Item 403 of Regulation S–K (§ 229.403 of 

this chapter).

* * * * *

■ 12. By amending Form 10–KSB 

(referenced in § 249.310b) by revising 

Item 11 of 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 11. Security Ownership of 

Certain Beneficial Owners and 

Management and Related Stockholder 

Matters. 

Furnish the information required by 

Item 201(d) of Regulation S–B and by 

Item 403 of Regulation S–B.

* * * * *

By the Commission.

Dated: December 21, 2001. 

Margaret H. McFarland, 

Deputy Secretary.

[FR Doc. 01–32078 Filed 12–31–01; 8:45 am] 

BILLING CODE 8010–01–P