

[Federal Register: February 8, 2006 (Volume 71, Number 26)]
[Proposed Rules]
[Page 6541-6631]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08fe06-39]


[[Page 6541]]

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Part II





Securities and Exchange Commission





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



Executive Compensation and Related Party Disclosure; Proposed Rule


[[Page 6542]]


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SECURITIES AND EXCHANGE COMMISSION

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

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


Executive Compensation and Related Party Disclosure

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission is proposing amendments
to the disclosure requirements for executive and director compensation,
related party transactions, director independence and other corporate
governance matters and security ownership of officers and directors.
These amendments would apply to disclosure in proxy and information
statements, periodic reports, current reports and other filings under
the Securities Exchange Act of 1934 and to registration statements
under the Exchange Act and the Securities Act of 1933. We also propose
to require that disclosure under the amended items generally be
provided in plain English. The proposed amendments are intended to make
proxy statements, reports and registration statements easier to
understand. They are also intended to provide investors with a clearer
and more complete picture of the compensation earned by a company's
principal executive officer, principal financial officer and highest
paid executive officers and members of its board of directors. In
addition, they are intended to provide better information about key
financial relationships among companies and their executive officers,
directors, significant shareholders and their respective immediate
family members.

DATES: Comments should be received on or before April 10, 2006.

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include

File Number S7-03-06 on the subject line; or
     Use the Federal Rulemaking Portal (http://www.regulations.gov
). Follow the instructions for submitting comments.


Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.

All submissions should refer to File Number S7-03-06. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/proposed/shtml). Comments

are also available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE, Washington, DC
20549. All comments received will be posted without change; we do not
edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available.

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

SUPPLEMENTARY INFORMATION: We propose to amend: Items 201,\1\ 306,\2\
401,\3\ 402,\4\ 403 \5\ and 404 \6\ of Regulations S-K \7\ and S-B,\8\
Item 601 \9\ of Regulation S-K, Item 1107 \10\ of Regulation AB,\11\
and Rule 100 \12\ of Regulation BTR.\13\ We also propose to add new
Item 407 to Regulations S-K and S-B. In addition, we propose to amend
Rules 13a-11,\14\ 14a-6,\15\ 14c-5,\16\ 15d-11 \17\ and 16b-3 \18\
under the Securities Exchange Act of 1934.\19\ We propose to add Rules
13a-20 and 15d-20 under the Exchange Act. We further propose to amend
Schedule 14A \20\ under the Exchange Act, as well as Exchange Act Forms
8-K,\21\ 10,\22\ 10SB,\23\ 10-Q,\24\ 10-QSB,\25\ 10-K,\26\ 10-KSB \27\
and 20-F.\28\ Finally, we propose to amend Forms SB-2,\29\ S-1,\30\ S-
3,\31\ S-4 \32\ and S-11 \33\ under the Securities Act, Forms N-1A,\34\
N-2,\35\ and N-3 \36\ under the Securities Act and the Investment
Company Act of 1940,\37\ and Form N-CSR \38\ under the Investment
Company Act and the Exchange Act.
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    \1\ 17 CFR 229.201 and 17 CFR 228.201.
    \2\ 17 CFR 229.306 and 17 CFR 228.306.
    \3\ 17 CFR 229.401 and 17 CFR 228.401.
    \4\ 17 CFR 229.402 and 17 CFR 228.402.
    \5\ 17 CFR 229.403 and 17 CFR 228.403.
    \6\ 17 CFR 229.404 and 17 CFR 228.404.
    \7\ 17 CFR 229.10 et seq.
    \8\ 17 CFR 228.10 et seq.
    \9\ 17 CFR 229.601.
    \10\ 17 CFR 229.1107.
    \11\ 17 CFR 229.1100 et seq.
    \12\ 17 CFR 245.100.
    \13\ 17 CFR 245.100 et seq.
    \14\ 17 CFR 240.13a-11.
    \15\ 17 CFR 240.14a-6.
    \16\ 17 CFR 240.14c-5.
    \17\ 17 CFR 240.15d-11.
    \18\ 17 CFR 240.16b-3.
    \19\ 15 U.S.C. 78a et seq.
    \20\ 17 CFR 240.14a-101.
    \21\ 17 CFR 249.308.
    \22\ 17 CFR 249.210.
    \23\ 17 CFR 249.210b.
    \24\ 17 CFR 249.308a.
    \25\ 17 CFR 249.308b.
    \26\ 17 CFR 249.310.
    \27\ 17 CFR 249.310b.
    \28\ 17 CFR 249.220f.
    \29\ 17 CFR 239.10.
    \30\ 17 CFR 239.11.
    \31\ 17 CFR 239.13.
    \32\ 17 CFR 239.25.
    \33\ 17 CFR 239.18.
    \34\ 17 CFR 239.15A and 274.11A.
    \35\ 17 CFR 239.14 and 274.11a-1.
    \36\ 17 CFR 239.17a and 274.11b.
    \37\ 15 U.S.C. 80a-1 et seq.
    \38\ 17 CFR 249.331 and 274.128.
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Table of Contents

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

[[Page 6543]]

    4. Exercises and Holdings of Previously Awarded Equity
    a. Outstanding Equity Awards at Fiscal Year-End
    b. Option Exercises and Stock Vesting
    5. Post-Employment Compensation
    a. Retirement Plan Potential Annual Payments and Benefits Table
    b. Nonqualified Defined Contribution and Other Deferred
Compensation Plans Table
    c. Other Potential Post-Employment Payments
    6. Officers Covered
    a. Named Executive Officers
    b. Identification of Most Highly Compensated Officers; Dollar
Threshold for Disclosure
    7. Interplay of Items 402 and 404
    8. Other Proposed Changes
    9. Compensation of Directors
    C. Treatment of Specific Types of Issuers
    1. Small Business Issuers
    2. Foreign Private Issuers
    3. Business Development Companies
    D. Conforming Amendments
    E. General Comment Requests on the Item 402 Proposals
III. Proposed Revisions to Form 8-K and the Periodic Report Exhibit
Requirements
    A. Proposed Revisions to Items 1.01 and 5.02 of Form 8-K
    B. Proposed Extension of Limited Safe Harbor under Section 10(b)
and Rule 10b-5 to Item 5.02(e) of Form 8-K and Exclusion of that
Item from Form S-3 Eligibility Requirements
    C. General Instruction D to Form 8-K
    D. Foreign Private Issuers
IV. Beneficial Ownership Disclosure
V. Certain Relationships and Related Transactions Disclosure
    A. Transactions with Related Persons
    1. Broad Principle for Disclosure
    a. Indebtedness
    b. Definitions
    2. Disclosure Requirements
    3. Exceptions
    B. Procedures for Approval of Related Person Transactions
    C. Promoters
    D. Corporate Governance Disclosure
    E. Treatment of Specific Types of Issuers
    1. Small Business Issuers
    2. Foreign Private Issuers
    3. Registered Investment Companies
    F. Conforming Amendments
    1. Regulation Blackout Trading Restriction
    2. Rule 16b-3 Non-Employee Director Definition
    3. Other Conforming Amendments
VI. Plain English Disclosure
VII. Transition
VIII. Paperwork Reduction Act
    A. Background
    B. Summary of Information Collections
    C. Paperwork Reduction Act Burden Estimates
    1. Securities Act Registration Statements, Exchange Act
Registration Statements and Exchange Act Annual Reports
    2. Exchange Act Current Reports
    D. Request for Comment
IX. Cost-Benefit Analysis
    A. Background
    B. Summary of Proposals
    C. Benefits
    D. Costs
    E. Request for Comment
X. Consideration of Burden on Competition and Promotion of
Efficiency, Competition and Capital Formation
XI. Initial Regulatory Flexibility Act Analysis
    A. Reasons for the Proposed Action
    B. Objectives
    C. Legal Basis
    D. Small Entities Subject to the Proposed Amendments
    E. Reporting, Recordkeeping and Other Compliance Requirements
    F. Duplicative, Overlapping or Conflicting Federal Rules
    G. Significant Alternatives
    H. Solicitation of Comment
XII. Small Business Regulatory Enforcement Fairness Act
XIII. Statutory Authority and Text of the Proposed Amendments

I. Background and Overview of the Proposals

    We are proposing revisions to our rules governing disclosure of
executive compensation, director compensation, related party
transactions, director independence and other corporate governance
matters and current reporting regarding compensation arrangements. The
proposed revisions to the compensation disclosure rules are intended to
provide investors with a clearer and more complete picture of
compensation to principal executive officers, principal financial
officers, the other highest paid executive officers and directors.
    Closely related to executive officer and director compensation is
the participation by executive officers, directors, significant
shareholders and other related persons in financial transactions and
relationships with the company. We are also proposing to revise our
disclosure rules regarding related party transactions and director
independence and board committee functions.
    Finally, some compensation arrangements must be disclosed under our
recently revised rules relating to current reports on Form 8-K. We
propose to reorganize and more appropriately focus our requirements on
the type of compensation information that should be disclosed on a
real-time basis.
    Since the enactment of the Securities Act and the Exchange Act,\39\
the Commission has on a number of occasions explored the best methods
for communicating clear, concise and meaningful information about
executive and director compensation and relationships with the
issuer.\40\ The Commission also has had to reconsider executive and
director compensation disclosure requirements in light of changing
trends in executive compensation. Most recently, in 1992, the
Commission adopted amendments to the disclosure rules that eschewed a
mostly narrative disclosure approach adopted in 1983 in favor of
formatted tables that captured all compensation, while categorizing the
various elements of compensation and promoting comparability from year
to year and from company to company.\41\
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    \39\ Initially, disclosure requirements regarding executive and
director compensation were set forth in Schedule A to the Securities
Act and Section 12(b) of the Exchange Act, which list the type of
information to be included in Securities Act and Exchange Act
registration statements. Item 14 of Schedule A called for disclosure
of the ``remuneration, paid or estimated to be paid, by the issuer
or its predecessor, directly or indirectly, during the past year and
ensuing year to (a) the directors or persons performing similar
functions, and (b) its officers and other persons, naming them
wherever such remuneration exceeded $25,000 during any such year.''
Section 12(b) of the Exchange Act as enacted required disclosure of
``(D) the directors, officers, and underwriters, and each security
holder of record holding more than 10 per centum of any class of any
equity security of the issuer (other than an exempted security),
their remuneration and their interests in the securities of, and
their material contracts with, the issuers and any person directly
or indirectly controlling or controlled by, or under direct or
indirect common control with the issuer;'' and ``(E) remuneration to
others than directors and officers exceeding $20,000 per annum.''
    \40\ In 1938, the Commission promulgated its first executive and
director compensation disclosure rules for proxy statements. Release
No. 34-1823 (Aug. 11, 1938). At different times thereafter, the
Commission has adopted rules mandating narrative, tabular, or
combinations of narrative and tabular disclosure as the best method
for presenting compensation disclosure in a manner that is clear and
useful to investors. See e.g., Release No. 34-3347 (Dec. 18, 1942)
[7 FR 10653] (introducing first tabular disclosure); Release No. 34-
4775 (Dec. 11, 1952) [17 FR 11431] (introducing separate table for
pensions and deferred remuneration); Uniform and Integrated
Reporting Requirements: Management Remuneration, Release No. 33-6003
(Dec. 4, 1978) [43 FR 58151] (expanding tabular disclosure to cover
all forms of compensation); and Disclosure of Executive
Compensation, Release No. 33-6486 (Sept. 23, 1983) [48 FR 44467]
(the ``1983 Release'') (limiting tabular disclosure to cash
remuneration).
    \41\ Executive Compensation Disclosure, Release No. 33-6962
(Oct. 16, 1992) [57 FR 48125] (the ``1992 Release''); See also
Executive Compensation Disclosure; Securityholder Lists and Mailing
Requests, Release No. 33-7032 (Nov. 22, 1993) [58 FR 63010], at
Section II.
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    We believe this tabular approach remains a sound basis for
disclosure. However, especially in light of the complexity of and
variations in compensation programs, the very formatted nature of the
current rules results in too many cases in disclosure that does not
inform investors adequately as to all elements of compensation. In
those cases investors may lack material information that we believe
they should receive.
    We are thus today proposing an approach that builds on the
strengths of

[[Page 6544]]

the current requirements rather than discarding them. However, today's
proposals do represent a thorough rethinking of our current rules that
would combine a broader-based tabular presentation with improved
narrative disclosure supplementing the tables. This proposed approach
would promote clarity and completeness of numerical information through
an improved tabular presentation, continue to provide the ability to
make comparisons using tables, and call for material qualitative
information regarding the manner and context in which compensation is
awarded and earned.
    The proposals that we publish for comment today would require that
all elements of compensation must be disclosed. We also seek to
structure the revised requirements sufficiently broadly so that, if
they are adopted, they will continue to operate effectively as new
forms of compensation are developed in the future.
    Under our proposals, compensation disclosure would begin with a
narrative providing a general overview. Much like the overview that we
have encouraged companies to provide with their Management's Discussion
and Analysis of Financial Condition and Results of Operations
(MD&A),\42\ the proposed Compensation Discussion and Analysis would
call for a discussion and analysis of the material factors underlying
compensation policies and decisions reflected in the data presented in
the tables. This overview would address in one place these factors with
respect to both the separate elements of executive compensation and
executive compensation as a whole.
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    \42\ Item 303 of Regulation S-K [17 CFR 229.303]. See also
Commission Guidance Regarding Management's Discussion and Analysis
of Financial Condition and Results of Operations, Release No. 33-
8350 (Dec. 19, 2003) [68 FR 75055], at Section III.A.
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    Following the Compensation Discussion and Analysis, we propose to
organize detailed disclosure of executive compensation into three broad
categories:
     Compensation with respect to the last fiscal year (and the
two preceding fiscal years), as reflected in a revised Summary
Compensation Table that presents compensation paid currently or
deferred (including options, restricted stock and similar grants) and
compensation consisting of current earnings or awards that are part of
a plan, and as supplemented by two tables providing back-up information
for certain data in the Summary Compensation Table;
     Holdings of equity-related interests that relate to
compensation or are potential sources of future gains, with a focus on
compensation-related equity interests that were awarded in prior years
(and disclosed as current compensation for those years) and are ``at
risk,'' as well as recent realization on these interests, such as
through vesting of restricted stock and similar instruments or the
exercise of options and similar instruments; and
     Retirement and other post-employment benefits, including
retirement and defined contribution and other deferred compensation
plans, other retirement benefits and other post-employment benefits,
such as those payable in the event of a change in control.
    We propose to require improved tabular disclosure for each of the
above three categories that would be supplemented by appropriate
narrative that provides material information necessary to an
understanding of the information presented in the individual
tables.\43\ We are also proposing a new disclosure requirement of the
total compensation and job description of up to an additional three
most highly compensated employees who are not executive officers or
directors but who earn more than the highest paid executive officers.
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    \43\ As discussed in more detail below, this narrative
disclosure, together with the Compensation Discussion and Analysis
noted above, would replace the currently required Compensation
Committee Report and the Performance Graph. Unlike the current
requirements under which both the report and the graph, although
physically included in the proxy statement, need only be furnished
to the Commission, the proposed narrative disclosure, along with the
rest of the proposed executive officer and director compensation,
would be company disclosure filed with the Commission.
    Current Item 402(a)(9) of Regulation S-K provides that the
Compensation Committee Report and Performance Graph ``shall not be
deemed to be ``soliciting material'' or to be ``filed'' with the
Commission or subject to Regulations 14A or 14C [17 CFR 240.14a-1 et
seq. or 240.14c-1 et seq.], other than as provided in this item, or
to the liabilities of section 18 of the Exchange Act [15 U.S.C.
78r], except to the extent that the registrant specifically requests
that such information be treated as soliciting material or
specifically incorporates it by reference into a filing under the
Securities Act or the Exchange Act.''
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    Finally, we propose a director compensation table that is similar
to the proposed Summary Compensation Table.\44\
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    \44\ We made similar proposals, which we did not act on,
regarding director compensation in 1995. Streamlining and
Consolidation of Executive and Director Compensation Disclosure,
Release No. 33-7184 (Aug. 6, 1995) [60 FR 35633] (the ``1995
Release''), at Section I.B.
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    We also propose to modify some of the recently expanded Form 8-K
requirements regarding compensation. Form 8-K requires disclosure on a
current basis of the entry into, amendment of, and termination of,
material definitive agreements entered into outside the ordinary course
of business within four business days of the triggering event. Under
our pre-existing definitions of material contracts, many agreements
regarding executive compensation are deemed to be material agreements
entered into outside the ordinary course, and when, for purposes of
consistency, we adopted those definitions for use in the expanded Form
8-K requirements, we incorporated all of these executive compensation
agreements into the current disclosure requirements. Therefore, many
agreements regarding executive compensation, including some not related
to named executive officers, are required to be disclosed within four
business days of the applicable triggering event. Consistent with our
intent in adopting the expanded Form 8-K to capture only events that
are unquestionably or presumptively material to investors, we believe
it is appropriate to modify the Form 8-K requirements.
    We believe that executive and director compensation is closely
related to financial transactions and relationships involving companies
and their directors, executive officers and significant shareholders
and respective immediate family members. Disclosure requirements
regarding these matters historically have been interconnected, given
that relationships among these parties and the company can include
transactions that involve compensation or analogous features. Such
disclosure also represents material information in evaluating the
overall relationship with a company's executive officers and directors.
Further, this disclosure provides material information regarding the
independence of directors. The current related party transaction
disclosure requirements were adopted piecemeal over the years and were
combined into one disclosure requirement beginning in 1982.\45\ In
light of the many developments since then, including the increasing
focus on corporate governance and director independence, we believe it
is necessary to revise our requirements. Today's proposals include
amendments to update, clarify and slightly expand the related party
transaction disclosure requirements. The proposed amendments would fold
into the disclosure requirements for related party transactions the
currently separate

[[Page 6545]]

disclosure requirement regarding indebtedness of management and
directors.\46\ Further, we propose a requirement that calls for a
narrative explanation of the independence status of directors under a
company's director independence policies, consistent with recent
significant changes to the listing standards of the nation's principal
securities trading markets.\47\ We also propose to consolidate this and
other corporate governance disclosure requirements regarding director
independence and board committees into a single expanded disclosure
item.\48\
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    \45\ Disclosure of Certain Relationships and Transactions
Involving Management, Release No. 33-6441 (Dec. 2, 1982) [47 FR
55661] (the ``1982 Release'').
    \46\ Related party transactions are currently disclosed under
Items 404(a) of Regulations S-K and S-B. Indebtedness is currently
disclosed under Item 404(c) of Regulation S-K.
    \47\ See, e.g., NASD and NYSE Rulemaking: Relating to Corporate
Governance, Release No. 34-48745 (Nov. 4, 2003) [68 FR 64154] (the
``NASD and NYSE Listing Standards Release''). This proposal would
replace our existing disclosure requirement about director
relationships that can affect independence.
    \48\ Proposed Item 407 of Regulation S-K and Regulation S-B.
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    In order to ensure that these amended requirements result in
disclosure that is clear, concise and understandable for investors, we
propose to add Rules 13a-20 and 15d-20 under the Exchange Act to
require that most of the disclosure provided in response to the amended
items be presented in plain English. This proposal would extend the
plain English requirements currently applicable to portions of
registration statements under the Securities Act to the disclosure
required under the amended items in Exchange Act reports and proxy or
information statements incorporated by reference into those reports.
    Finally, we propose to amend our beneficial ownership disclosure
requirements to require disclosure of shares pledged by named executive
officers, directors and director nominees, as well as directors'
qualifying shares.

II. Executive and Director Compensation Disclosure

    As discussed above, executive and director compensation disclosure
has been required since 1933, and the Commission has had disclosure
rules in this area since 1938. In 1992, the Commission proposed and
adopted substantially revised rules that embody our current
requirements.\49\ In doing so, the Commission moved away from narrative
disclosure and back to using tables that permit comparability from year
to year and from company to company. We believe that while the
reasoning behind this approach remains fundamentally sound, significant
changes are appropriate. Much of the concern with the current tables is
also their strength: they are highly formatted and rigid.\50\ Thus,
information not specifically called for in the tables is sometimes not
provided. For example, the highly formatted and specific approach has
led some to suggest that items that do not fit squarely within a
``box'' specified by the rules need not be disclosed.\51\ As another
example, because the tables do not call for a single figure for total
compensation, that information is generally not provided, although
there is considerable commentary indicating that a single total figure
is high on the list of information that some investors wish to have. To
preserve the strengths of the current approach and build on them, we
propose several steps:
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    \49\ 1992 Release.
    \50\ See, e.g., Council of Institutional Investors' Discussion
Paper on Executive Pay Disclosure, Executive Compensation
Disclosure: How It Works Now, How It Can Be Improved, at 11
(available at http://www.cii.org/site_files/ pdfs/

CII%20pay%20primer%20edited.pdf).
    \51\ For examples, see, e.g., The Corporate Counsel (Sept.-Oct.
2005) at 6-7; The Corporate Counsel (Sept.-Oct. 2004) at 7; but see
Alan L. Beller, Director, Division of Corporation Finance, U.S.
Securities and Exchange Commission, Remarks Before Conference of the
NASPP, The Corporate Counsel and the Corporate Executive (October
20, 2004) (indicating that the explicit language of the current
rules requires disclosure of such items), available at http://www.sec.gov/news/speech
 /spch102004alb.htm.

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     First, retaining the tabular approach to provide clarity
and comparability while improving the tabular disclosure requirements;
     Second, confirming that all elements of compensation must
be included in the tables;
     Third, providing a format for the Summary Compensation
Table that requires disclosure of a single figure for total
compensation; and
     Finally, requiring narrative disclosure comprising both a
general discussion and analysis of compensation and specific material
information regarding tabular items where necessary to an understanding
of the tabular disclosure.\52\
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    \52\ The discussion that follows focuses on changes to Item 402
of Regulation S-K, with Section II.C.1 explaining the different
modifications proposed for Item 402 of Regulation S-B. References
throughout the following discussion are to current or proposed Items
of Regulation S-K, unless otherwise indicated.
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A. Compensation Discussion and Analysis

    We propose requiring a new Compensation Discussion and Analysis
section.\53\ This section would be an overview that would provide
narrative disclosure that puts into context the compensation disclosure
provided elsewhere.\54\ This overview would explain material elements
of the particular company's compensation for named executive officers
by answering the following questions:
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    \53\ Proposed Item 402(b). In addition to the narrative
Compensation Discussion and Analysis, we are proposing revisions to
the rules so that, to the extent material, additional narrative
disclosure would be provided following certain tables to supplement
the disclosure in the table. See, e.g., Section II.B.3., discussing
the narrative disclosure to the Summary Compensation Table and
supplemental tables. We are also proposing disclosure of
compensation committee procedures and processes as well as
information regarding compensation committee interlocks and insider
participation in compensation decisions as part of proposed Item 407
of Regulation S-K. See Section V.D., below.
    \54\ See Jeffrey N. Gordon, Executive Compensation: What's the
Problem, What's the Remedy? The Case for Compensation Discussion and
Analysis, 30 J. Corp. L. (forthcoming Spring 2006) (arguing that the
SEC should require proxy disclosure that includes a ``Compensation
Discussion and Analysis'' section that collects and summarizes all
the compensation elements for senior executives, providing a
``bottom line assessment'' of the different compensation elements
and an explanation as to why the board thinks such compensation is
warranted). Also available at http://papers.ssrn.com/sol3/

papers.cfm?abstract--id=686464.
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     What are the objectives of the company's compensation
programs?
     What is the compensation program designed to reward and
not reward?
     What is each element of compensation?
     Why does the company choose to pay each element?
     How does the company determine the amount (and, where
applicable, the formula) for each element?
     How does each element and the company's decisions
regarding that element fit into the company's overall compensation
objectives and affect decisions regarding other elements?
1. Intent and Operation of the Proposed Compensation Discussion and
Analysis
    The purpose of the Compensation Discussion and Analysis disclosure
would be to provide material information about the compensation
objectives and policies for named executive officers without resorting
to boilerplate disclosure. The Compensation Discussion and Analysis is
intended to put into perspective for investors the numbers and
narrative that follow it.
    The proposed Compensation Discussion and Analysis requirement would
be principles-based, in that it identifies the disclosure concept and
provides several illustrative examples. The application of a particular
example must be tailored to the company. However, the scope of the

[[Page 6546]]

Compensation Discussion and Analysis is intended to be comprehensive,
so that it would call for discussion of post-termination as well as in-
service compensation arrangements.\55\ Boilerplate disclosure would not
comply with the proposed item. Examples of the issues that would
potentially be appropriate for the company to address in given cases in
the Compensation Discussion and Analysis include the following:
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    \55\ Forward looking information in the Compensation Discussion
and Analysis would fall with the safe harbor for disclosure of such
information. See Securities Act Section 27A [15 U.S.C. 77z-2] and
Exchange Act Section 21E [15 U.S.C. 78u-5]).
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     Policies for allocating between long-term and currently
paid out compensation;
     Policies for allocating between cash and non-cash
compensation, and among different forms of non-cash compensation;
     For long-term compensation, the basis for allocating
compensation to each different form of award;
     For equity-based compensation, how the determination is
made as to when the award is granted;
     What specific items of corporate performance are taken
into account in setting compensation policies and making compensation
decisions;
     How specific elements of compensation are structured to
reflect these items of the company's performance and the executive's
individual performance;
     The factors considered in decisions to increase or
decrease compensation materially;
     How compensation or amounts realizable from prior
compensation (e.g., gains from prior option or stock awards) are
considered in setting other elements of compensation (e.g., how gains
from prior option or stock awards are considered in setting retirement
benefits);
     The impact of accounting and tax treatments of a
particular form of compensation;
     The company's equity or other security ownership
requirements or guidelines (specifying applicable amounts and forms of
ownership), and any company policies regarding hedging the economic
risk of such ownership;
     Whether the company engaged in any benchmarking of total
compensation or any material element of compensation, identifying the
benchmark and, if applicable, its components (including component
companies); and
     The role of executive officers in the compensation
process.
    The Compensation Discussion and Analysis should be sufficiently
precise to identify material differences in compensation policies and
decisions for individual named executive officers where appropriate.
Where policies or decisions are materially similar, officers could be
grouped together. Where, however, the policy for an executive officer
is materially different, for example in the case of a principal
executive officer, his or her compensation would be discussed
separately.
2. Proposed Instructions to Compensation Discussion and Analysis
    We are proposing instructions to make clear that the Compensation
Discussion and Analysis should focus on the material principles
underlying the company's executive compensation policies and decisions,
and the most important factors relevant to analysis of those policies
and decisions, without using boilerplate language or repeating the more
detailed information set forth in the tables and related narrative
disclosures that follow. We also propose to include an instruction to
make clear, as is currently the case, that companies are not required
to disclose target levels with respect to specific quantitative or
qualitative performance-related factors considered by the compensation
committee or the board of directors, or any factors or criteria
involving confidential commercial or business information, the
disclosure of which would have an adverse effect on the company,
similar to the instruction with respect to the Compensation Committee
Report today. In applying this instruction, we intend the standard for
companies to use when determining whether disclosure would have an
adverse effect on the company to be the same one that would apply when
companies request confidential treatment of confidential trade secrets
and commercial or financial information that otherwise is required to
be disclosed in registration statements, periodic reports and other
documents filed with us.\56\ Similarly, to the extent a performance
target has otherwise been disclosed publicly, disclosure under Item 402
would be required.
---------------------------------------------------------------------------

    \56\ See Securities Act Rule 406 [17 CFR 230.406] and Exchange
Act Rule 24b-2 [17 CFR 240.24b-2] (incorporating the criteria for
non-disclosure set forth in Exemption 4 of the Freedom of
Information Act [5 U.S.C. 552(b)(4)] and Exchange Act Rule 80(b)(4)
[17 CFR 200.80(b)(4)]). Today's proposed rules, like the current
rules, would not require a company to seek confidential treatment
under the procedures in Securities Act Rule 406 and Exchange Act
Rule 24b-2.
---------------------------------------------------------------------------

3. ``Filed'' Status of Compensation Discussion and Analysis
    The Compensation Discussion and Analysis will be considered a part
of the proxy statement and any other filing in which it is included.
Unlike the current Compensation Committee Report and Performance Graph,
which would be eliminated under our proposals, as discussed below, the
proposed Compensation Discussion and Analysis would be soliciting
material and would be filed with the Commission. Therefore, it would be
subject to Regulations 14A or 14C and to the liabilities of Section 18
of the Exchange Act.\57\ In addition, to the extent that the
Compensation Discussion and Analysis and any of the other disclosure
regarding executive officer and director compensation or other matters
is included or incorporated by reference into a periodic report, the
disclosure would be covered by the certifications that principal
executives officers and principal financial officers are required to
make under the Sarbanes-Oxley Act of 2002.\58\
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    \57\ 15 U.S.C. 78r.
    \58\ Exchange Act Rules 13a-14 [17 CFR 240.13a-14] and 15d-14
[17 CFR 240.15d-14]. See also Certification of Disclosure in
Companies' Quarterly and Annual Reports, Release No. 34-46427 (Aug.
29, 2002) [67 FR 57275], at note 35 (the ``Certification Release'')
(stating that ``the certification in the annual report on Form 10-K
or 10-KSB would be considered to cover the Part III information in a
registrant's proxy or information statement as and when filed'').
---------------------------------------------------------------------------

    In adopting the current rules in 1992, the Commission took into
account comments that the Compensation Committee Report should be
furnished rather than filed to allow for a more open and robust
discussion in the reports.\59\ Little that we see in current
Compensation Committee Reports suggests that this treatment has
resulted in such discussions, or at least the more transparent
disclosure that the comments suggested would result. Further, we
believe that it is appropriate for companies to take responsibility for
disclosure involving board matters as with other disclosure.
---------------------------------------------------------------------------

    \59\ 1992 Release, at Section II.H.
---------------------------------------------------------------------------

4. Proposed Elimination of the Performance Graph and the Compensation
Committee Report
    In light of the Compensation Discussion and Analysis proposal, we
propose to eliminate the Performance Graph and the Compensation
Committee Report that currently are required by our rules.\60\ The
graph and

[[Page 6547]]

the report were intended to be intertwined and their purpose was to
show the relationship, if any, between compensation and corporate
performance, as reflected by stock price. Unfortunately, the
Compensation Committee Report today often results in boilerplate
disclosure that is of little benefit to investors.\61\ Further, given
the widespread availability of stock performance information about
companies, industries and indexes through business-related Web sites or
similar sources, we believe that the requirement for the Performance
Graph is outdated, particularly since the disclosure in the
Compensation Discussion and Analysis regarding the elements of
corporate performance that a given company's policies might reach is
intended to allow broader discussion than just that of the relationship
of compensation to the performance of the company as reflected by stock
price.
---------------------------------------------------------------------------

    \60\ The Compensation Committee Report is currently required by
Item 402(k) and the Performance Graph is currently required by Item
402(l).
    \61\ See Martin D. Mobley, Compensation Committee Reports Post-
Sarbanes-Oxley: Unimproved Disclosure for Executive Compensation
Policies and Practices, 2005 Colum. Bus. L. Rev. 111 (2005).
---------------------------------------------------------------------------

Request for Comment
     Does the proposed Compensation Discussion and Analysis
provide companies with the same flexibility as MD&A to provide a clear
picture to investors?
     Are there any further changes that we can make to avoid
boilerplate disclosure about executive compensation?
     Is there any significant impact by not having the report
over the names of the compensation committee of the board of directors?
If so, please explain in detail.
     Would any significant impact result from treating the
Compensation Discussion and Analysis as filed and not furnished? A
commenter that prefers furnishing over filing should describe any
benefits that would be obtained by treating the material as furnished.
In particular, such a commenter should describe those benefits in the
context of the expected benefits of the Commission's decision in 1992
to treat the report of the Compensation Committee as furnished and
should address whether and why those benefits were achieved or not
achieved.
     Are there any other specific items we should list in the
rule as possibly material information? Are there any items that are
listed that should not be?
     Are there any items that we should explicitly mandate be
disclosed by every issuer?
     Should performance targets continue to be excludable based
on the potential adverse competitive effect on the company of their
disclosure? Why or why not? If so, what should be the standard for
exclusion? Are there any other items that should be excludable based on
potential adverse competitive effect on the company of their
disclosure?
     Should we retain the Performance Graph?

B. Compensation Tables

    We believe that much about the tabular approach to eliciting
compensation disclosure is sound.\62\ We also believe, however, that
the tables should be reorganized and streamlined to provide a clearer
and more logical picture of total compensation and its elements for
named executive officers. We propose reorganizing the compensation
tables and their related narrative disclosure into three broad
categories:
---------------------------------------------------------------------------

    \62\ The tabular disclosure and related narrative disclosure
under proposed Item 402 would apply, as does existing Item 402, to
named executive officers. As discussed below in Section II.B.6.a.,
we are proposing certain changes to the definition of named
executive officer.
---------------------------------------------------------------------------

    1. Compensation with respect to the last fiscal year (and the two
preceding fiscal years), as reflected in a revised Summary Compensation
Table that presents compensation paid currently or deferred (including
options, restricted stock and similar grants) and compensation
consisting of current earnings or awards that are part of a plan, and
as supplemented by two tables providing back-up information for certain
data in the Summary Compensation Table; \63\
---------------------------------------------------------------------------

    \63\ The two tables that would supplement the Summary
Compensation Table would be the Grants of Performance-Based Awards
Table, discussed below in Section II.B.2.a., and the Grants of All
Other Equity Awards Table, discussed below in Section II.B.2.b. A
proposed narrative disclosure requirement accompanying these three
tables is discussed below in Section II.B.3.
---------------------------------------------------------------------------

    2. Holdings of equity-based interests that relate to compensation
or are potential sources of future compensation, focusing on
compensation-related equity-based interests that were awarded in prior
years \64\ and are ``at risk,'' as well as recent realization on these
interests, such as through vesting of restricted stock or the exercise
of options and similar instruments; \65\ and
---------------------------------------------------------------------------

    \64\ Under the proposals, these interests would be disclosed as
current compensation for those prior years.
    \65\ Information regarding holdings of such equity-based
interests that relate to compensation would be disclosed in the
Outstanding Equity Awards at Fiscal Year-End Table, discussed below
in Section II.B.4.a. Information regarding realization on holdings
of equity-related interests would be required to be disclosed in the
Option Exercises and Stock Vested Table discussed below in Section
II.B.4.b.
---------------------------------------------------------------------------

    3. Retirement and other post-employment compensation, including
retirement and deferred compensation plans, other retirement benefits
and other post-employment benefits, such as those payable in the event
of a change in control.\66\
---------------------------------------------------------------------------

    \66\ The proposed disclosure regarding retirement and post-
employment compensation would be required in the Retirement Plan
Potential Annual Payments and Benefits Table, discussed below in
Section II.B.5.a., the Nonqualified Defined Contribution and Other
Deferred Compensation Plans Table, discussed below in Section
II.B.5.b., and the narrative disclosure requirement for other
potential post-employment payments discussed below in Section
II.B.5.c.
---------------------------------------------------------------------------

    Reorganizing the tables along these themes should help investors
understand how compensation components relate to each other. At the
same time we would retain the ability for investors to use the tables
to compare compensation from year to year and from company to company.
    We note that in more clearly organizing the compensation tables to
explain how the elements relate to each other, we may in some
situations be requiring disclosure of both amounts earned (or
potentially earned) and amounts subsequently paid out. This approach
raises the risk of ``double counting'' some elements of compensation.
However, we believe the risk inherent in such double disclosure is
outweighed by the clearer and more complete picture it would provide to
investors. We would encourage companies to use the narrative following
the tables (and where appropriate the Compensation Discussion and
Analysis) to explain how disclosures relate to each other in their
particular circumstances.

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

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

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

[[Page 6548]]

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

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

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

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

    \70\ Proposed Instruction 2 to Item 402(c) (requiring all
compensation values in the Summary Compensation Table to be reported
in dollars). Currently, some stock-based compensation is disclosed
in per share increments rather than in dollar amounts. The
instruction would further require, where compensation was paid or
received in a different currency, footnote disclosure identifying
that currency and describing the rate and methodology used for
conversion to dollars.
    \71\ Columns (a) and (b) would, as is currently the case,
specify the executive officer and the year in question.
---------------------------------------------------------------------------

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

[[Page 6549]]

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

    \72\ This is the case today for salary and bonus. This aspect of
current Instruction 1 to Item 402(b)(2)(iii)(A) and (B) will be
expanded and redesignated as Proposed Instruction 4 to Item 402(c).
    \73\ Currently, the requirement is triggered only if the officer
elects the deferral. We propose to revise this to cover all
deferrals no matter who has initiated them.
    \74\ See Section II.B.5.b., describing the Nonqualified Defined
Contribution and Other Deferred Compensation Plans Table. Disclosure
of these amounts as contributions would be required for nonqualified
deferred compensation plans. This disclosure would not be required
for qualified plans. Nonqualified deferred compensation plans and
arrangements provide for the deferral of compensation that does not
satisfy the minimum coverage, nondiscrimination and other rules that
``qualify'' broad-based plans for favorable tax treatment under the
Internal Revenue Code.
---------------------------------------------------------------------------

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

    \75\ Proposed Instruction 3 to Item 5.02(e) of Form 8-K and
proposed Instruction 1 to Item 402(c)(2)(iv) and (v). Currently, in
the event that such amounts are not determinable at the most recent
practicable date, they are generally reported in the annual report
on Form 10-K or proxy statement for the following fiscal year. We
believe providing the information more quickly is appropriate and
are therefore proposing the use of a current report on Form 8-K.
Proposed Instruction 1 to Item 402(c)(2)(iv) and (v) would require
that the company disclose in a footnote that the salary or bonus is
not calculable through the latest practicable date and the date that
the salary or bonus is expected to be determined.
---------------------------------------------------------------------------

Request for Comment
     Is the proposed presentation of deferred compensation in
the Summary Compensation Table and related footnotes, along with the
proposals outlined below, the best means for communicating the portion
of compensation that is deferred?
     Are there ways that we could better clarify how the
amounts that would be identified as deferred in a footnote to the
Summary Compensation Table relate to the amounts that would be required
in the Nonqualified Defined Contribution and Other Deferred
Compensation Plans Table?
     Is the proposed change to Form 8-K to eliminate the delay
in disclosing salary or bonus when they cannot be calculated as of the
most recent practicable date appropriate?
c. Plan-Based Awards
    The next three proposed columns--Stock Awards, Option Awards and
Non-Stock Incentive Plan Compensation -- cover plan-based awards.
i. Stock Awards and Option Awards Columns
    The Stock Awards Column (proposed column (f)) would disclose stock-
related awards that derive their value from the company's equity
securities or permit settlement by issuance of the company's equity
securities, such as restricted stock, restricted stock units, phantom
stock, phantom stock units, common stock equivalent units or other
similar instruments that do not have option-like features.\76\
Valuation would be based on the grant date fair value of the award
determined pursuant to Financial Accounting Standards Board Statement
of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment (FAS 123R) for financial reporting purposes. Stock awards
subject to performance-based conditions would also be included in this
column to ensure consistent reporting of stock awards and to ensure
their inclusion in the proposed Summary Compensation Table.\77\
---------------------------------------------------------------------------

    \76\ Generally speaking, a restricted stock award is an award of
stock subject to vesting conditions, such as performance-based
conditions or conditions based on continued employment for a
specified period of time. This type of award is referred to an
``nonvested equity shares'' in FAS 123R. Phantom stock, phantom
stock units, common stock equivalent units and other similar awards
are typically awards where an executive obtains a right to receive
payment in the future of an amount based on the value of a
hypothetical, or notional, amount of shares of common equity (or in
some cases stock based on that value). To the extent that the terms
of phantom stock, phantom stock units, common stock equivalents or
other similar awards include option-like features, the awards would
be required to be included in the Option Awards column. Currently,
restricted stock awards are valued in the Summary Compensation Table
by multiplying the closing market price of the company's
unrestricted stock on the date of grant by the number of shares
awarded.
    \77\ These performance-based stock awards can currently be
reported at the company's election as incentive plan awards. See
current Instruction 1 to Item 402(b)(2)(iv). Our proposal would
eliminate this option. See the discussion of what are considered
performance-based conditions in note 87, below.
---------------------------------------------------------------------------

    Awards of options, stock appreciation right grants, and similar
stock-based compensation instruments that have option-like features
(proposed column (g)) would be disclosed in a manner similar to the
proposed treatment of stock and other stock-based awards.\78\ Instead
of the current disclosure of the number of securities underlying the
awards, this column would require disclosure of the grant date fair
value of the award as determined pursuant to FAS 123R for financial
reporting purposes. In order to calculate a total dollar amount of
compensation, the value rather than the number of securities underlying
an award must be used. The FAS 123R valuation would be used whether the
award itself is in the form of stock, options or similar instruments or
the award is settled in cash but the amount of payment is tied to
performance of the company's stock. We propose to eliminate the current
requirement in the Options/SAR Grants in Last Fiscal Year Table to
report the potential realizable value of each option grant under 5% or
10% increases in value or the present value of each grant (computed
under any option pricing model),\79\ because these alternative
disclosures would no longer be necessary if the grant date fair value
of equity-based awards is included in the Summary Compensation Table.
---------------------------------------------------------------------------

    \78\ A stock appreciation right usually gives the executive the
right to receive the value of the increase in the price of a
specified number of shares over a specified period of time. These
awards may be settled in case or in shares.
    \79\ Current Item 402(c)(2)(vi).
---------------------------------------------------------------------------

    A new instruction would require a footnote referencing the
discussion of the relevant assumptions in the notes to the company's
financial statements or to the discussion of relevant assumptions in
the MD&A.\80\ The same proposed instruction would also provide that the
referenced sections will be deemed to be part of the disclosure
provided pursuant to Item 402. The referenced sections containing this
disclosure are required in the company's annual report to

[[Page 6550]]

shareholders that must precede or accompany the company's proxy
statement.\81\ In the case of Internet disclosure of proxy materials,
companies could provide hyperlinks from the proxy statement to the
referenced sections contained in the annual report.\82\
---------------------------------------------------------------------------

    \80\ Proposed Instruction 1 to Item 402(c)(2)(vi) and (vii).
    \81\ See Exchange Act Rule 14a-3 [17 CFR 240.14a-3].
    \82\ We recently proposed rules that would allow companies and
other persons to use the Internet to satisfy proxy material delivery
requirements. Internet Availability of Proxy Materials, Release No.
34-52926 (Dec. 8, 2005) [70 FR 74597].
---------------------------------------------------------------------------

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

    \83\ Under FAS 123R, the classification of an award as an equity
or liability award is an important aspect of the accounting because
the classification will affect the measurement of compensation cost.
Awards with cash-based settlement, repurchase features, or other
features that do not allow an employee to bear the risks and rewards
normally associated with share ownership for a specified period of
time would be classified as liability awards under FAS 123R. For an
award classified as an equity award under FAS 123R, the compensation
cost recognized is fixed for a particular award, and absent
modification, is not revised with subsequent changes in market
prices or other assumptions used for purposes of the valuation. In
contrast, liability awards are initially measured at fair value on
the grant date, but for purposes of recognition in financial
statement reporting are then re-measured at each reporting date
through the settlement date under FAS 123R. These re-measurements
would not be the basis for executive compensation disclosure unless
the award has been modified, as described later in this proposal.
---------------------------------------------------------------------------

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

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

    If the award has no performance conditions, but instead vests with
the passage of time and continued employment, then the number of shares
underlying the award and other details regarding the award would be
disclosed in a separate table covering grants of equity awards
supplementing the Summary Compensation Table.\87\ If the award has a
performance condition, then the details on the estimated future payouts
will be disclosed in a second separate supplemental table covering
grants of performance-based awards.\88\
---------------------------------------------------------------------------

    \87\ See Section II.B.2.b., discussing the Grants of All Other
Equity Awards Table required by proposed Item 402(c). As defined in
Appendix E of FAS 123R, a performance condition is ``a condition
affecting the vesting, exercisability, exercise price or other
pertinent factors used in determining the fair value of an award
that relates to both (a) an employee's rendering service for a
specified (either explicitly or implicitly) period of time and (b)
achieving a specified performance target that is defined solely by
reference to the employer's own operations (or activities).
Attaining a specified growth rate in return on assets, obtaining
regulatory approval to market a specified product, selling shares in
an initial public offering or other financing event, and a change in
control are examples of performance conditions for puropses of this
Statement. A performance target also may be defined by reference to
the same performance measure of another entity or group of entities.
For example, attaining a growth rate in earnings per share that
exceeds the average growth rate in earnings per share of other
entities in the same industry is a performance condition for
purposes of this Statement. A performance target might pertain
either to the performance of the enterprise as a whole or to some
part of the enterprise, such as a division or an individual
employee.'' An award also would be considered to have a performance
condition if it is subject to a market condition, which is ``a
condition affecting the exercise price, exercisability, or other
pertinent factors used in determining the fair value of an award
under a share-based payment arrangement that relates to the
achievement of (a) a specified price of the issuer's shares or a
specified amount of intrinsic value indexed solely to the issuer's
shares or (b) a specified price of the issuer's shares in terms of a
similar (or index of similar) equity security (securities).''
    \88\ See Section II.B.2.a., discussing the Grants of
Performance-Based Awards Table.
---------------------------------------------------------------------------

Request for Comment
     Is the proposed presentation of stock awards that do not
have option-like features in the Summary Compensation Table the best
means for presenting restricted stock and similar awards?
     Is FAS 123R the appropriate approach for valuing equity-
based awards, including restricted stock, restricted stock units,
phantom stock, phantom stock units, common stock equivalent units,
options, stock appreciation rights and other similar awards for
purposes of Item 402 disclosure? If not, why not and what other
valuation methods would be appropriate? Would any other valuation
method provide the same comparability? If a different approach were
used, would investors be confused by differences between the grant date
fair value for financial reporting purposes and the value in the
compensation tables? \89\
---------------------------------------------------------------------------

    \89\ See, e.g., Jonathan Weil and Betsy McKay, Coke Developed a
New Way to Value Options, But Company Will Return to its Classic
Formula, Wall St. J., Mar. 7, 2003, at C3 (highlighting potential
issue of using one valuation methodology for financial statements
and another for executive compensation disclosure).
---------------------------------------------------------------------------

     Should the expected term assumption used in computing the
grant date fair value for financial statement purposes under FAS 123R
also be used in measuring the value of an individual named executive
officer's compensation for the purposes of Item 402? Or, should an
expected term assumption used to determine an individual named
executive officer's compensation be used if it differs from the
expected term assumption used for FAS 123R purposes? \90\ Should
companies use the

[[Page 6551]]

full term rather than an expected term assumption for calculations for
named executive officers? Would the complexity of such an approach for
investors or the additional burden on companies outweigh any
advantages, such as possible increased comparability among companies,
of adjusting assumptions?
---------------------------------------------------------------------------

    \90\ FAS 123R requires a company to aggregate individuals
receiving awards into relatively homogeneous groups with respect to
exercise and post-vesting employment termination behaviors for the
purpose of determining expected term; for example executives and
non-executives. Our proposals today are not intended to change the
method used to value employee share options for purposes of FAS 123R
or to affect the judgments as to reasonable groups for purposes of
determining the expected term assumption required by GAS 123R. Under
our proposals, where a company uses more than one group, the
measurement of grant date fair value for purposes of Item 402 would
be derived using the expected term assumption for the group that
includes the named executive officers (or the group that includes
directors for purposes of proposed Item 402(l)).
---------------------------------------------------------------------------

     Is the timing of reporting stock-based compensation in our
proposals the best approach? Should stock-based compensation instead be
reflected in Item 402 according to the same time schedule by which it
is recognized for a company's financial statement reporting purposes?
     Should the valuation method and all of the assumptions
regarding the valuation also be disclosed in the proxy statement when
they are required to be disclosed, described and analyzed elsewhere in
a document furnished to shareholders, including in the notes to the
financial statements?
     We propose treating a modification of an award as a new
award and requiring disclosure of the total grant date fair value at
the time of modification. Would it be more appropriate to require only
disclosure of incremental compensation as is the approach under FAS
123R?
     Should we eliminate as proposed the current instruction
allowing performance-based stock awards to be reported at the company's
election as incentive plan awards? If not, please explain whether the
availability of this election is helpful to and not confusing to
investors.
ii. Non-Stock Incentive Plan Compensation Column
    We propose that the Non-Stock Incentive Plan Compensation column
(proposed column (h)) would report the dollar value of all other
amounts earned during the fiscal year pursuant to incentive plans.\91\
This column would be limited to awards where the relevant performance
measure under the incentive plan is not based on the price of the
company's equity securities or the award may not be settled by issuance
of a company's equity securities; those awards would instead be
disclosed in the Stock Awards and Option Awards columns discussed
above.\92\ Performance-based compensation under a long-term plan that
is not tied to the performance of the company's stock (but instead is
tied to other measures such as a return on assets, return on equity,
performance of a division, or other such measures) would be disclosed
in the Summary Compensation Table in the year when the relevant
specified performance criteria under the plan are satisfied and the
compensation earned, whether or not payment is actually made to the
named executive officer in that year. The grant of an award (providing
for future compensation if such performance measures are satisfied)
under such a plan would be disclosed in the supplemental Grants of
Performance-Based Awards Table in the year of grant, which would
generally be some year prior to the year in which performance-based
compensation under the plan is reported in the Summary Compensation
Table.\93\ Because there is not one clearly required or accepted
standard for measuring the value at grant date of these non-stock based
performance-based awards that reflects the applicable performance
contingencies, as there is for equity-based awards with FAS 123R, we do
not propose to include such a value in the Summary Compensation Table,
but instead would continue the current disclosure format of reflecting
these items of compensation when earned.\94\
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    \91\ Proposed Item 402(c)(2)(viii). An incentive plan generally
provides for compensation intended to serve as an incentive for
performance to occur over a specific period, whether such
performance is measured by reference to financial performance of the
company or an affiliate, the company's stock price, or any other
measure. See proposed Item 402(a)(6)(iii) for definitions of
``incentive plan'' and ``non-stock incentive plan.''
    \92\ Awards disclosed in this column are not covered by FAS 123R
for financial reporting purposes because they do not involve share-
based payment arrangements. Awards that involve share-based payment
arrangements would be disclosed in the Stock Awards or Option Awards
columns, as appropriate.
    \93\ See Section II.B.2.a., discussing the Grants of
Performance-Based Awards Table. Under the proposals, once the
disclosure has been provided in the Summary Compensation Table when
the specified performance criteria have been satisfied and the
compensation earned, and the grant of the award has been disclosed
in the Grants of Performance-Based Awards Table, no further
disclosure would be required under proposed Item 402 when payment is
actually made to the named executive officer.
    \94\ Current Items 402(b)(2)(iv)(C) and 402(e).
---------------------------------------------------------------------------

    As with the Stock Awards and Option Awards columns, earnings on
outstanding awards of other incentive plans would also be included in
the Non-Stock Incentive Plan Compensation column.
Request for Comment
     Since there is not one clearly required or accepted
standard for measuring the value at grant date of those cash awards
that reflect performance contingencies, is our approach to include the
amounts in the Summary Compensation Table when earned appropriate? Are
there particular models or standards that would provide a basis for
measuring the value of these types of awards at grant date that we
should consider incorporating into our rules?
     Should earnings on outstanding awards be reported as
proposed in the applicable award column or should they be reported in
another way, such as in separate or different columns?
d. All Other Compensation Column
    The final column in the Summary Compensation Table would disclose
all other compensation not required to be included in any other column.
This approach would allow the capture of all current compensation in
the Summary Compensation Table and also would allow a total
compensation calculation. We confirm that disclosure of all
compensation would clearly be required under the proposals.\95\
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    \95\ The only exception, as discussed below, would be
perquisites and personal benefits if they aggregated less than
$10,000 for a named executive. The 1992 Release, at Section II.A.4,
also noted ``the revised item includes an express statement that it
requires disclosure of all compensation to the named executive
officers and directors for services rendered in all capacities to
the registrant and its subsidiaries.'' See also current Item
402(a)(2).
---------------------------------------------------------------------------

    We propose to clarify the disclosure required in the All Other
Compensation Column (proposed column (i)) in two principal respects:
     Consistent with the requirement that the Summary
Compensation Table disclose all compensation, we would state explicitly
that compensation not properly reportable in the other columns
reporting specified forms of compensation must be reported in this
column; and
     To simplify the Summary Compensation Table and eliminate
confusing distinctions between items currently reported as ``Annual''
and ``Long Term'' compensation, we would move into this column all
items currently reportable as ``Other Annual Compensation.'' \96\
---------------------------------------------------------------------------

    \96\ Current Item 402(b)(2)(iii)(c).
---------------------------------------------------------------------------

    We also propose that each item of compensation included in the All
Other Compensation column that exceeds $10,000 be separately identified
and quantified in a footnote. We believe that the $10,000 threshold
balances our desire to avoid disclosure of clearly de minimis matters
against the interests of investors in the nature of items comprising
compensation. Each item of compensation less than that amount would be
included in the column (other than aggregate perquisites and other

[[Page 6552]]

personal benefits less than $10,000 as discussed below), but would not
be required to be identified by type and amount.\97\ Items that would
be disclosed in the All Other Compensation column would include, but
would not be limited to, the items discussed below.
---------------------------------------------------------------------------

    \97\ See Section II.B.1.d.iii. regarding separate standards for
identification of perquisites and other personal benefits.
---------------------------------------------------------------------------

Request for Comment
     Should all compensation no matter how de minimis be
required to be disclosed? Will companies be able to track this
information without undue burden? Is $10,000 the appropriate threshold
for separate identification and quantification?
i. Earnings on Deferred Compensation
    We propose requiring disclosure in the All Other Compensation
column of all earnings on compensation that is deferred on a basis that
is not tax-qualified, including non-tax qualified defined contribution
retirement plans.\98\ Currently, these earnings must be disclosed only
to the extent of any portion that is ``above-market or preferential.''
\99\ This limitation has generated criticism that Item 402 permits
companies to avoid disclosure of substantial compensation.\100\
---------------------------------------------------------------------------

    \98\ Proposed Item 402(c)(2)(ix)(B).
    \99\ Current Items 402(b)(2)(iii)(C)(2) and 402(b)(2)(v)(B). An
instruction specifies that interest is above-market only if the rate
exceeds 120% of the applicable federal long-term rate. Furthermore,
earnings disclosure is currently required in the Other Annual
Compensation column or the All Other Compensation column, depending
upon when paid or payable, complicating the preparation process and
generating confusion among users of the Summary Compensation Table.
    \100\ See, e.g., Ellen E. Schultz, Buried Treasure: Well-Hidden
Perk Means Big Money for Top Executives, Wall St. J., Oct. 11, 2002,
at A1.
---------------------------------------------------------------------------

    Separate footnote identification and quantification of all such
earnings would be required if the amount exceeds $10,000.\101\ A
company would be permitted to identify by footnote the portion of any
earnings that it considered to be paid at an above-market rate,
provided that the footnote explained the company's criteria for
determining the portion considered ``above-market.'' \102\
---------------------------------------------------------------------------

    \101\ Proposed Instruction 3 to Item 402(c)(2)(ix). Consistent
with current requirements, if applicable interest rates vary
depending upon conditions such as a minimum period of continued
service, the reported amount should be calculated assuming
satisfaction of all conditions to receiving interest at the highest
rate. Proposed Instruction 5 to Item 402(c)(2)(ix), which is derived
from current Instruction 3 to Item 402(b)(2)(iii)(C).
    \102\ Proposed Instruction 5 to Item 402(c)(2)(ix).
---------------------------------------------------------------------------

Request for Comment
     Should we require, as proposed, disclosure of all earnings
on compensation that is deferred on a basis that is not tax-qualified
or should we require disclosure only of above-market or preferential
earnings? If the latter, please explain why such an approach is more
useful or informative for investors than our proposed approach.
ii. Increase in Pension Value
    We propose requiring in the All Other Compensation Column the
aggregate of increase in actuarial value to the executive officer of
defined benefit and actuarial plans (including supplemental plans)
accrued during the year.\103\
---------------------------------------------------------------------------

    \103\ Proposed Item 402(c)(2)(ix)(G).
---------------------------------------------------------------------------

    An instruction would specify that this disclosure applies to each
plan that provides for the payment of retirement benefits, or benefits
that will be paid primarily following retirement, including but not
limited to tax-qualified defined benefit plans and supplemental
employee retirement plans, but excluding defined contribution
plans.\104\ The retirement section, discussed below, would provide more
information regarding these covered plans.\105\ In contrast to defined
contribution plans, for which the Summary Compensation Table requires
disclosure of company contributions,\106\ Item 402 does not currently
require disclosure of the annual increase in value of defined benefit
plans, such as pension plans, in which the named executive officers
participate.\107\ The annual increase in actuarial value of these plans
may be a significant element of compensation that is earned on an
annual basis, thus we believe it is appropriate to include these values
in the computation of total compensation.
---------------------------------------------------------------------------

    \104\ Proposed Instruction 6 to Item 402(c)(2)(ix). Defined
benefit plans include, for example, cash balance plans in which the
retiree's benefit may be determined by the amount represented in an
account rather than based on a formula referencing salary while
still employed.
    \105\ See Section II.B.5.a., discussing the proposed Retirement
Plan Potential Annual Payments and Benefits Table.
    \106\ Current Item 402(b)(2)(v)(D), which requires annual
registrant contributions or other allocations to vested and unvested
defined contribution plans to be disclosed in the All Other
Compensation column.
    \107\ A typical defined contribution plan is a retirement plan
in which the company and/or the executive makes contributions of a
specified amount, and the amount that is paid out to the executive
depends on the return on investments from the contributed amounts. A
typical defined benefit plan is a retirement plan in which the
company pays the executive specified amounts at retirement which are
not tied to investment performance of the contributions that fund
the plan.
---------------------------------------------------------------------------

    Such disclosure is necessary to permit the Summary Compensation
Table to reflect total compensation for the year. Such disclosure would
also permit a full understanding of the company's compensation
obligations to named executive officers, given that defined benefit
plans guarantee what can be a lifetime stream of payments and allocate
risk of investment performance to the company and its shareholders. In
addition, commentators have noted that the absence of such a disclosure
requirement creates an incentive to shift compensation to pensions,
results in the understatement of non-performance-based compensation,
and distorts pay comparisons between executives and between companies.
Request for Comment
     Is disclosure of any additional information necessary to
provide investors with meaningful information about the compensation
earned annually through these plans?
     Is there any particular form of defined benefit or
actuarial plan for which the proposed disclosure format is not
suitable? If so, how could the proposed disclosure requirement be
adapted for such plans?
     Should this disclosure instead be provided as a separate
column in the Summary Compensation Table?
     Is the aggregate increase in accrued actuarial value the
best measure for disclosing annual compensation earned under defined
benefit and actuarial plans? If not, why? What other method should be
used?
     Rather than requiring disclosure of the value based on the
executive officer's benefit, should we require disclosure based on the
company's cost for the plan? Under our proposals, disclosure of
assumptions would be considered by companies in the narrative
disclosure following the Summary Compensation Table and supplementary
tables. Are there other preferable approaches? Should we otherwise
require disclosure of any of the details of the calculation?
     Is it possible to provide meaningful disclosure about
total compensation absent tabular disclosure of the compensation earned
annually through these plans? If so, how? Would such an approach be
preferable?
iii. Perquisites and Other Personal Benefits
    Perquisites and other personal benefits would be included in the
All Other Compensation column. We propose changes to disclosure of
perquisites and other personal benefits to improve disclosure and
facilitate computing a total amount of compensation. We propose to
require the disclosure of perquisites and other personal benefits
unless the aggregate

[[Page 6553]]

amount of such compensation is less than $10,000. We realize this may
result in the total amount of compensation reportable in the Summary
Compensation Table being slightly less than a complete total amount of
compensation, but we believe $10,000 is a reasonable balance between
investors' need for disclosure of total compensation and the burden on
a company to track every benefit, no matter how small. The current
provision permits omission of perquisites and other personal benefits
if the aggregate amount of such compensation is the lesser of either
$50,000 or 10% of the total of annual salary and bonus.\108\ We believe
this current rule permits the omission of too much information that
investors may consider material.
---------------------------------------------------------------------------

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

    We propose requiring footnote disclosure that identifies
perquisites and other personal benefits. We propose modifying the
current requirement that only perquisites and other personal benefits
that are 25% of the total amount for each named executive officer are
required to be identified and quantified. We propose modifying this
requirement so that, unless the aggregate value of perquisites and
personal benefits is less than $10,000, any perquisite or other
personal benefit is identified and, if it is valued at the greater of
$25,000 or ten percent of total perquisites and other personal
benefits, its value would be disclosed.\109\ Consistent with our
objective to streamline the Summary Compensation Table, the revised
threshold is intended to avoid requiring separate quantification of
perquisites having de minimis value. As is the case today, tax ``gross-
ups'' or other reimbursement of taxes owed with respect to any
compensation, including but not limited to perquisites and other
personal benefits, would be separately quantified and identified in the
tax reimbursement category described below, even if the associated
perquisites or other personal benefits are eligible for exclusion or
would not require identification or footnote quantification under the
proposal. Where perquisites are subject to identification, they must be
described in a manner that identifies the particular nature of the
benefit received. For example, it is not sufficient to characterize
generally as ``travel and entertainment'' different company-financed
benefits, such as clothing, jewelry, artwork, theater tickets and
housekeeping services.\110\
---------------------------------------------------------------------------

    \109\ Proposed Instruction 3 to Item 402(c)(2)(ix). Compare
current Instruction 1 to Item 402(b)(2)(iii)(C).
    \110\ See In the Matter of Tyson Foods, Inc. and Donald Tyson,
Litigation Release No. 34-51625 (Apr. 28, 2005) (failure to identify
perquisites).
---------------------------------------------------------------------------

    For decades questions have arisen as to what is a perquisite or
other personal benefit required to be disclosed. We continue to believe
that it is not appropriate for Item 402 to define perquisites or
personal benefits, given that different forms of these items continue
to develop, and thus a definition would become outdated. Further, we
are concerned that sole reliance on a bright line definition in our
rules might provide an incentive to characterize perquisites or
personal benefits in ways that would attempt to circumvent the bright
lines.\111\
---------------------------------------------------------------------------

    \111\ In the 1970s and early 1980s, the Commission issued
several interpretive releases regarding executive compensation
disclosure issues, including disclosure of perquisites and personal
benefits. See Disclosure of Management Remuneration, Release No. 33-
5856 (Aug. 18, 1977) [42 FR 43058]; Disclosure of Management
Remuneration, Release No. 33-5904 (Feb. 6, 1978) [43 FR 6060];
Disclosure of Management Remuneration, Release No. 33-6027 (Feb. 22,
1979) [44 FR 16368]; Disclosure of Management Remuneration, Release
No. 33-6166 (Dec. 12, 1979) [44 FR 74803]; and Interpretation of
Rules Relating to Disclosure of Management Remuneration, Release No.
33-6364 (Dec. 3, 1981) [46 FR 60421]. In Section I of the 1983
Release, as part of a substantial revision to Item 402 adopted at
the time, the Commission rescinded those interpretive releases.
Subsequently, neither the Commission nor its staff has published
interpretations addressing what must be disclosed as a perquisite or
personal benefit.
---------------------------------------------------------------------------

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

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

     An item is not a perquisite or personal benefit if it is
integrally and directly related to the performance of the executive's
duties.
     Otherwise, an item is a perquisite or personal benefit if
it confers a direct or indirect benefit that has a personal aspect,
without regard to whether it may be provided for some business reason
or for the convenience of the company, unless it is generally available
on a non-discriminatory basis to all employees.
    The concept of a benefit that is ``integrally and directly
related'' to job performance is a narrow one. As discussed below, it
may extend, among other things, to office space at a company business
location, a reserved parking space that is closer to business
facilities but not otherwise preferential or additional clerical or
secretarial services devoted to company matters. It does not extend to
items that facilitate job performance, such as use of company-provided
aircraft, yachts or other watercraft, commuter transportation services,
additional clerical or secretarial services devoted to personal
matters, or investment management services. The fact that the company
has determined that an expense is an ``ordinary'' or ``necessary''
business expense for tax or other purposes or that an expense is for
the benefit or convenience of the company is not responsive to the
inquiry as to whether the expense provides a perquisite or other
personal benefit for disclosure purposes. Whether the company should
pay for an expense relates principally to questions of state law
regarding use of corporate assets; our disclosure requirements are
triggered by different and broader concepts.
    Applying the concepts that we outline above, examples of items
requiring disclosure as perquisites or personal benefits under Item 402
include, but are not limited to: club memberships not used exclusively
for business entertainment purposes, personal financial or tax advice,
personal travel using vehicles owned or leased by the company, personal
travel otherwise financed by the company, personal use of other
property owned or leased by the company, housing and other living
expenses (including but not limited to relocation assistance and
payments for the executive or director to stay at his or her personal
residence), security provided at a personal residence or during
personal travel, commuting expenses (whether or not for the company's
convenience or benefit), and discounts on the company's products or
services not generally available to employees on a non-discriminatory
basis.
    In addition, as noted, business purpose or convenience does not
affect the characterization of an item as a perquisite or personal
benefit where it is not integrally and directly related to the
performance by the executive of his or her job. Therefore, for example,
a company's decision to provide an item of personal benefit for
security purposes

[[Page 6554]]

does not affect its characterization as a perquisite or personal
benefit. A company policy that for security purposes an executive (or
an executive and his or her family) must use company aircraft or other
company means of travel for personal travel, or must use company or
company-provided property for vacations, does not affect the conclusion
that the item provided is a perquisite or personal benefit.
    Examples of items that would not be perquisites or personal
benefits would include, among other things, travel to and from business
meetings, other business travel, business entertainment, security
during business travel, and itemized expense accounts the use of which
is limited to business purposes.
    In seeking to interpret current rules, some legal advisers have put
forward to the Commission staff examples of arrangements that they
believe raise issues requiring more detailed bright line guidance
regarding the definition of perquisites. These examples include larger
offices or a level of secretarial service not available to employees
generally. We believe that the factors enumerated above provide
sufficient guidance in these areas. For example, an office at the job
location, even if larger than that of other employees, is integrally
and directly related to performance of the executive's job, as is
secretarial service used for business purposes, even if at a higher
level than other employees. On the other hand, provision of additional
secretarial services, such as a second secretary, that is not directly
related to performance of an executive's job would be a perquisite or
personal benefit.
    Beyond these examples, we assume companies and their advisors, who
are more familiar with the detailed facts of a particular situation and
who are responsible for providing materially accurate and complete
disclosure satisfying our requirements, can assess whether particular
arrangements require disclosure as perquisites or personal benefits. In
light of the importance of the subject to many investors, all
participants should approach the subject of perquisites and personal
benefits thoughtfully.\113\
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    \113\ The Commission has recently taken action in circumstances
where perquisites were not properly disclosed. See In the Matter of
Tyson Foods, Inc. and Donald Tyson, note 110 above. See also Alex
Berenson, From Coffee to Jets, Perks for Executives Come Out in
Court, N.Y. Times, Feb. 22, 2004, at 11 (citing criminal and civil
litigation in which perquisites were identified and commentators
discussing the benefits of improved perquisite disclosure).
---------------------------------------------------------------------------

    Finally, we observe that the proposal calls for aggregate
incremental cost to the company and its subsidiaries as the proper
measure of value of perquisites and other personal benefits.\114\ The
amount attributed to such benefits for federal income tax purposes is
not the incremental cost for purposes of our disclosure rules unless,
independently of the tax characterization, it constitutes such
incremental cost. Therefore, for example, the cost of aircraft travel
attributed to an executive for federal income tax purposes is not
generally the incremental cost of such a perquisite or personal benefit
for purposes of our disclosure rules.\115\
---------------------------------------------------------------------------

    \114\ Proposed Instruction 4 to Item 402(c)(2)(ix).
    \115\ See IRS Regulation Sec.  1.61-21(g) [26 CFR 1.61-21(g)]
regarding Internal Revenue Service guidelines for imputing taxable
personal income to an employee who travels for personal reasons on
corporate aircraft. These complex regulations are known as the
Standard Industry Fare Level or SIFL rules.
---------------------------------------------------------------------------

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

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

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

[[Page 6555]]

iv. Additional All Other Compensation Column Items
    The proposals also would specify that items disclosed in the All
Other Compensation column would include, but not be limited to, the
following items: \117\
---------------------------------------------------------------------------

    \117\ These items are all currently required to be disclosed
either under All Other Compensation or under Other Annual
Compensation.
---------------------------------------------------------------------------

     Amounts paid or accrued pursuant to a plan or arrangement
in connection with any termination (or constructive termination) of
employment or a change in control; \118\
---------------------------------------------------------------------------

    \118\ Unlike the current Item 402(b)(2)(v)(A) requirement,
proposed Item 402(c)(2)(ix)(E) does not refer to amounts payable
under post-employment benefits, because the focus for this item is
current year compensation rather than aggregate amounts potentially
payable in the future. These items are also the subject of
disclosure as post-termination compensation, as described in Section
II.B.5., below. For any compensation as a result of a business
combination, other than pursuant to a plan or arrangement in
connection with any termination of employment or change-in-control,
such as a retention bonus, acceleration of option or stock vesting
periods, or performance-based compensation intended to serve as an
incentive for named executive officers to acquire other companies or
enter into a merger agreement, disclosure would be required in the
appropriate Summary Compensation Table column and in the other
tables or narrative disclosure where the particular element of
compensation is required to be disclosed.
---------------------------------------------------------------------------

     Annual company contributions or other allocations to
vested and unvested defined contribution plans; \119\
---------------------------------------------------------------------------

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

     The dollar value of any insurance premiums paid by the
company with respect to life insurance for the benefit of a named
executive officer; \120\
---------------------------------------------------------------------------

    \120\ Proposed Item 402(c)(2)(ix)(H). Because the proposal calls
for disclosure of the dollar value of any life insurance premiums,
rather than only premiums with respect to term life insurance, as
currently required, the requirement of current Items
402(b)(2)(v)(E)(1) and (2) to disclose the value of any remaining
premiums with respect to circumstances where the named executive
officer has an interest in the policy's cash surrender value would
be deleted.
---------------------------------------------------------------------------

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

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

     For any security of the company or its subsidiaries
purchased from the company or its subsidiaries (through deferral of
fees or otherwise) at a discount from the market price of such security
at the date of purchase, unless that discount is available generally
either to all security holders or to all salaried employees of the
company, the compensation cost computed in accordance with FAS
123R.\122\
---------------------------------------------------------------------------

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

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

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

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

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

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

[[Page 6556]]

a. Grants of Performance-Based Awards Table
    The first table that would supplement the Summary Compensation
Table would include information regarding non-stock grants of incentive
plan awards, stock-based incentive plan awards and awards of options,
restricted stock and similar instruments under plans that are
performance-based (and thus provide the opportunity for future
compensation if conditions are satisfied).\124\ This would ensure
consistent reporting treatment of these performance-based awards,
disclosing information equivalent to that currently required for grants
of other long-term incentive plan awards. For purposes of this table,
awards would be considered performance-based if they are subject to
either a performance condition, or a market condition, as those terms
are defined in FAS 123R.\125\
---------------------------------------------------------------------------

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

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

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

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

Request for Comment
     Will the proposed Grants of Performance-Based Awards Table
effectively supplement the equity awards and non-stock incentive plan
compensation information to be disclosed in the Summary Compensation
Table? In particular, should tabular disclosure be required of any
additional information relating to performance-based equity awards and
non-stock incentive plan awards?
     Is the information required by columns (b), (c) and (d) of
this proposed table redundant with the information required in the
Grants of Performance-Based Awards Table describing estimated future
payouts to be required in columns (h), (i) and (j) of the Table, such
that any of these columns should be eliminated? Is any other tabular
information needed to describe estimated future payouts in addition to
the information that would be required in proposed columns (h), (i) and
(j)?
     Are the references to the definitions of ``performance
condition'' and ``market condition'' in FAS 123R appropriate in
defining performance-based awards?
b. Grants of All Other Equity Awards Table
    The second table supplementing the Summary Compensation Table would
show the equity-based compensation awards granted in the last fiscal
year that are not performance-based, such as stock, options or similar
instruments where the payout or future value is tied to the company's
stock price, and not to other performance criteria.\127\
---------------------------------------------------------------------------

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

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


[[Page 6557]]

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

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

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

    \130\ Proposed Item 402(f)(1). Disclosure of employment
agreement information is currently required by Item 402(h)(1). The
standard of materiality that would apply in proposed Item 402(f)(1)
is that of Basic v. Levinson, 485 U.S. 224 (1988) and TSC Industries
v. Northway, 426 U.S. 438 (1976).
    \131\ Provisions regarding post-termination compensation would
need to be addressed in the narrative section only to the extent
disclosure of such compensation is required in the Summary
Compensation Table; otherwise these provisions would be disclosable
as post-termination compensation in the manner described in Section
II.B.5., below.
---------------------------------------------------------------------------

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

    \132\ Current Item 402(i). We believe that the disclosure
requirement would provide investors with material information
regarding repricings and modifications and eliminate the arguably
dated information contained in the ten-year option repricing table.
    \133\ While this approach is different from that required for
accounting and financial statement reporting purposes under FAS
123R, it does proceed from the grant date fair value concept
embodied in that standard, and we believe it provides more
meaningful information for executive compensation disclosure than
the financial statement reporting approach and is consistent with
our current requirement to treat repricings as a new award. This
treatment would continue the current approach of essentially
treating a repricing as a new award in Instruction 3 to Item
402(b)(2)(iv). However, this approach would not apply to any
repricing that occurs through a pre-existing formula or mechanism in
the plan or award that results in the periodic adjustment of the
option or stock appreciation right exercise or base price, an
antidilution provision, or a recapitalization or similar transaction
equally affecting all holders of the class of securities underlying
the options or stock appreciation rights. See Proposed Instruction 2
to Item 402(f)(1).
---------------------------------------------------------------------------

    Narrative text accompanying the tables would also describe, to the
extent material and necessary to an understanding of the tabular
disclosure, award terms relating to data provided in the Grants of
Performance-Based Awards Table, which could include, for example, a
general description of the formula or criteria to be applied in
determining the amounts payable, the vesting schedule, a description of
the performance-based conditions and any other material conditions
applicable to the award, whether dividends or other amounts would be
paid, the applicable rate and whether that rate is preferential.
Consistent with current disclosure requirements, however, companies
would not be required to disclose any factor, criteria, or performance-
related or other condition to payout or vesting of a particular award
that involves confidential commercial or business information,
disclosure of which would adversely affect the company's competitive
position.\134\
---------------------------------------------------------------------------

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

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

[[Page 6558]]

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

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

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

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

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

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

a. Outstanding Equity Awards at Fiscal Year-End
    Outstanding awards that have been granted but the ultimate outcomes
of which have not yet been realized in effect represent potential
amounts that the named executive officer might or might not realize,
depending on the outcome for the measure or measures (for example,
stock price or performance benchmarks) to which the award relates. We
are proposing a table that would disclose information regarding
outstanding awards under, for example, stock option (or stock
appreciation rights) plans, restricted stock plans, incentive plans and
similar plans and disclose the market-based values of the options,
rights, shares or units in question as of the company's most recent
fiscal year end.\139\
---------------------------------------------------------------------------

    \139\ Proposed Item 402(g). Under current rules such disclosure
is provided only for holdings of outstanding stock options and stock
appreciation rights. Consistent with current interpretations, this
table, like the Summary Compensation Table, would reflect that the
transfer of an option or similar award by an executive does not
negate the award's status as compensation that should be reported.
Registration of Securities on Form S-8, Release No. 33-7646 (Feb.
25, 1999) [64 FR 11103], at Section III.D.

[[Page 6559]]



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

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

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

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

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

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

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

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

[[Page 6560]]


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

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

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

     Would it be preferable to combine proposed Outstanding
Equity Awards at Fiscal Year-End Table and the proposed Option
Exercises and Stock Vested Table into one table?
5. Post-Employment Compensation
    We are proposing significant revisions to the disclosure regarding
post-employment compensation to provide a clearer picture of this
potential future compensation. Executive retirement packages and other
post-termination compensation may represent a significant commitment of
corporate resources and a significant portion of overall compensation.
First, we are proposing to replace the current pension plan table,
alternative plan disclosure and some of the other narrative
descriptions with a table regarding defined benefit pension plans and
enhanced narrative disclosure. Second, we are proposing a table and
narrative disclosure that will disclose information regarding non-
qualified defined contribution plans and other deferred compensation.
Finally, we are proposing revised requirements regarding disclosure of
compensation arrangements triggered upon termination and on changes in
control.
a. Retirement Plan Potential Annual Payments and Benefits Table
    We are proposing significant revisions to the rules disclosing
retirement benefits to require disclosure of the estimate of retirement
benefits to be payable at normal retirement age and, if available,
early retirement.\145\ Current disclosure frequently does not provide
investors useful information regarding specific potential pension
benefits. Current disclosure may make it difficult for the reader to
understand which amounts relate to any particular named executive
officer, and may thus obscure the value of a significant component of
compensation.
---------------------------------------------------------------------------

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

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

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

[[Page 6561]]



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

    An instruction would provide that quantification of benefits should
reflect the form of benefit currently elected by the named executive
officer, such as joint and survivor annuity or single life annuity,
specifying that form in a footnote. Where the named executive officer
is not yet eligible to retire, the dollar amount of annual benefits to
which he or she would be entitled upon becoming eligible would be
computed assuming that the named executive officer continued to earn
the same amount of compensation as reported for the company's last
fiscal year. If a named executive officer left during the year, the
dollar amounts of annual benefits to which he or she would be entitled
would be required to be disclosed.
    ``Normal retirement age'' would mean the normal retirement age
defined in the plan, or if not so defined, the earliest time at which a
participant may retire under the plan without any benefit reduction due
to age. ``Early retirement age'' would be defined similarly as early
retirement age as defined in the plan, or otherwise available to the
executive.\148\ If the credited years of service for the executive
under any plan differ from the actual years of service with the
company, a footnote quantifying the difference and any resulting
benefit increase would be required.\149\
---------------------------------------------------------------------------

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

    The table would be followed by a narrative description of material
factors necessary to an understanding of each plan disclosed in the
table. Examples of such factors in the proposed rule may include, in
given cases, among other things:
     The material terms and conditions of benefits available
under the plan, including the plan's retirement benefit formula and
eligibility standards, and early retirement arrangements;
     If the executive or company may elect a lump sum
distribution, the amount of such distribution that would be available
on election as of the end of the company's last fiscal year, disclosing
the valuation method and material assumptions applied in quantifying
such amount;
     The specific elements of compensation, such as salary and
various forms of bonus, included in applying the benefit formula,
identifying each such element;
     Regarding participation in multiple plans, the reasons for
each plan; and
     Company policies with regard to such matters as granting
extra years of credited service.
Request for Comment
     Should any other information (including information that
may be disclosed in the narrative) be included in the proposed table?
Should any of the information we propose to require to be disclosed be
excluded?
     Should this item require quantification of the aggregate
actuarial value of a plan benefit as of the end of the company's last
fiscal year without regard to whether the plan permits a lump sum
distribution? If so, why? Alternatively, would this information provide
meaningful disclosure only if the named executive officer currently is
eligible to retire under the plan with a lump sum distribution?
     Is there any particular form of plan for which the
proposed disclosure format is not suitable? If so, how could the
proposed disclosure requirement be adapted for such plans?
b. Nonqualified Defined Contribution and Other Deferred Compensation
Plans Table
    In order to provide a more complete picture of potential post-
employment compensation, we are proposing a new table to disclose
contributions, earnings and balances under nonqualified defined
contribution and other deferred compensation plans. These plans may be
a significant element of retirement and post-termination
compensation.\150\ Our current rules elicit disclosure of the
compensation when earned and only the above-market earnings on
nonqualified deferred compensation.\151\ The full value of those
earnings and the accounts on which they are payable are not currently
subject to disclosure, nor are shareholders and investors informed
regarding the rate at which these amounts--and the corresponding cost
to the company--are growing.\152\
---------------------------------------------------------------------------

    \150\ Nonqualified defined contribution and other deferred
compensation plans are plans providing for deferral of compensation
that do not satisfy the minimum coverage, nondiscrimination and
other rules that ``qualify'' broad-based plans for favorable tax
treatment under the Internal Revenue Code. A typical 401(k) plan, by
contrast, is a qualified deferred compensation plan. Nonqualified
defined contribution and other deferred compensation plans are
generally unfunded, and their taxation is governed by Section 409A
of the Internal Revenue Code [26 U.S.C. 409A].
    \151\ See Section II.B.1.d.i. above.
    \152\ See Lucian A. Bebchuk and Jesse M. Fried, Stealth
Compensation via Retirement Benefits, 1 Berkeley Bus. L.J. 291, 314-
316 (2004); See also The Corporate Counsel (Sept.-Oct. 2005) at 6-7
and Gretchen Morgenson, Executive Pay, Hiding Behind Small Print,
N.Y. Times, Feb. 8, 2004, Sec.  3, at 1.
---------------------------------------------------------------------------

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

    \153\ Proposed Item 402(j).

[[Page 6562]]



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

    An instruction would require footnote quantification of the extent
to which amounts in the contributions and earnings columns are reported
as compensation in the year in question and other amounts reported in
the table in the aggregate balance column were reported previously in
the Summary Compensation Table for prior years.\154\ This would
complement the proposed instruction to the Summary Compensation Table
that would require footnote disclosure of amounts for which receipt has
been deferred.\155\ Together, these footnotes would operate to provide
information so that investors can avoid ``double counting'' of deferred
amounts by clarifying the extent to which amounts payable as deferred
compensation represent compensation previously reported, rather than
additional currently earned compensation.
---------------------------------------------------------------------------

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

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

    \156\ Proposed Item 402(j)(3).
---------------------------------------------------------------------------

     The type(s) of compensation permitted to be deferred, and
any limitations (by percentage of compensation or otherwise) on the
extent to which deferral is permitted;
     The measures of calculating interest or other plan
earnings (including whether such measure(s) are selected by the named
executive officer or the company and the frequency and manner in which
such selections may be changed), quantifying interest rates and other
earnings measures applicable during the company's last fiscal year; and
     Material terms with respect to payouts, withdrawals and
other distributions.
Request for Comment
     Should tabular or narrative disclosure require
presentation of any additional information necessary for investors to
clearly understand nonqualified deferred compensation? For example:

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

     In addition to the footnote required by the proposed
instruction, are any other provisions necessary or appropriate to avoid
``double counting'' of previously reported compensation that will have
been deferred?
     Should only above market or preferential earnings be
included in the table? If so, why would such disclosure be more useful
or informative to investors?
     Is any of the proposed new disclosure unnecessary? If so,
please explain.
c. Other Potential Post-Employment Payments
    We are proposing significant revisions to our requirements to
describe termination or change in control provisions. The Commission
has long recognized that ``termination provisions are distinct from
other plans in both intent and scope and, moreover, are of particular
interest to shareholders.'' \157\ Currently, disclosure does not in
many cases capture material information regarding these plans and
potential payments under them. We therefore propose disclosure of
specific aspects of any written or unwritten arrangement that provides
for payments at, following, or in connection with the resignation,
severance, retirement or other termination (including constructive
termination) of a named executive officer, a change in his or her
responsibilities, or a change in control of the company. Our proposals
would call for narrative disclosure of the following information
regarding termination and change in control provisions: \158\
---------------------------------------------------------------------------

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

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

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

     The specific factors used to determine the appropriate
payment and benefit levels under the various circumstances that would
trigger payments or provision of benefits;
     Any material conditions or obligations applicable to the
receipt of payments or benefits, including but not limited to non-
compete, non-solicitation, non-disparagement or confidentiality
covenants; and
     Any other material features necessary for an understanding
of the provisions.

The item contemplates disclosure of the duration of non-compete and
similar agreements, and provisions regarding waiver of breach of these
agreements, and disclosure of tax gross-up payments.
    As proposed, a company would be required to provide quantitative

[[Page 6563]]

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

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

Request for Comment
     Should we, as proposed, eliminate the current $100,000
threshold for disclosure for compensatory plans or arrangements
providing payments upon termination or change-in-control?
     Should the proposed item specifically require narrative
disclosure of any additional information? If so, what information and
why?
     Would a tabular format result in more effective disclosure
of any of this information? If so, how should such a table be
constructed so that it is easily understood, given the wide variability
of the factors determining payments? For example, should such a table
have separate columns for cash payments, stock payments, and
perquisites; separate lines for each potential termination event; and
narrative disclosure of other material terms, such as duration, renewal
and applicable covenants?
     Should we require companies to provide quantitative
disclosure as proposed? If not, how can there be assurance that
investors can understand the significant amounts of compensation that
may be involved?
6. Officers Covered
a. Named Executive Officers
    We propose to have the principal executive officer, the principal
financial officer \161\ and the three most highly compensated executive
officers other than the principal executive officer and principal
financial officer comprise the named executive officers.\162\ In
addition, as is currently the case, up to two additional individuals
for whom disclosure would have been required but for the fact that they
were no longer serving as executive officers at the end of the last
completed fiscal year would be included.
---------------------------------------------------------------------------

    \161\ We propose to adopt the nomenclature used most recently in
Item 5.02 of Form 8-K, which refers to ``principal executive
officer'' and ``principal financial officer.''
    \162\ Proposed Item 402(a)(3). Currently, the named executive
officers for whom disclosure is required include the company's chief
executive officer and the four most highly compensated executive
officers excluding the chief executive officer. As defined in
Securities Act Rule 405 [17 CFR 230.405] and Exchange Act Rule 3b-7
[17 CFR 240.3b-7], ``the term `executive officer,' when used with
reference to a registrant, means its president, any vice president
of the registrant in charge of a principal business unit, division
or function (such as sales, administration or finance), any other
officer who performs a policy making function or any other person
who performs similar policy making functions for the registrant.
Executive officers of subsidiaries may be deemed executive officers
of the registrant if they perform such policy making functions for
the registrant.'' Therefore, as is currently the case today, a named
executive officer may be an executive officer of a subsidiary.
---------------------------------------------------------------------------

    We believe that compensation of the principal financial officer is
important to shareholders because, along with the principal executive
officer, the principal financial officer provides the certifications
required with the company's periodic reports and has important
responsibility for the fair presentation of the company's financial
statements and other financial information.\163\ Like the principal
executive officer, disclosure about the principal financial officer
would be required even if he or she was no longer serving in that
capacity at the end of the last completed fiscal year.\164\ As is
currently the case for the chief executive officer, all persons who
served as the company's principal executive officer or principal
financial officer during the last completed fiscal year would be named
executive officers.
---------------------------------------------------------------------------

    \163\ Exchange Act Rules 13a-14 and 15d-14.
    \164\ Proposed paragraphs (a)(3)(i) and (a)(3)(ii) of Item 402
would provide that all individuals who served as a principal
executive officer and principal financial officer or in similar
capacities during the last completed fiscal year must be considered
named executive officers. Proposed Instruction 4 to Item 402(a)(3)
would specify that if the principal executive officer or principal
financial officer served in that capacity for only part of a fiscal
year, information must be provided as to all of the individual's
compensation for the full fiscal year. Proposed Instruction 4 to
Item 402(a)(3) would also specify that if a named executive officer
(other than the principal executive officer or principal financial
officer) served as an executive officer of the company (whether or
not in the same position) during any part of the fiscal year, then
information is required as to all compensation of that individual
for the full fiscal year.
---------------------------------------------------------------------------

    We do not propose to require compensation disclosure for all of the
officers listed in Item 5.02 of Form 8-K.\165\ Item 5.02 of Form 8-K
was adopted to provide current disclosure in the event of an
appointment, resignation, retirement or termination of the specified
officers, based on the principle that changes in employment status of
these particular officers are unquestionably or presumptively material.
At the time when a decision is made regarding the employment status of
a particular officer, it will not always be clear who will be the named
executive officers for the current year. Given these factors, it is
reasonable for the two groups not to be identical.
---------------------------------------------------------------------------

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

Request for Comment
     Should the principal financial officer be specifically
included as a named executive officer?
     Would the proposed named executive officers be those
executive officers whose compensation is material to investors? Is only
the compensation of the principal executive officer material? The
principal executive officer and the principal financial officer?
     Should Item 402 specifically require disclosure of the
compensation of any other officers listed in Form 8-K Item 5.02? If so,
which officers and why? If we were to require Item 402 disclosure
regarding compensation of additional Item 5.02 officers, should we also
require Item 402 disclosure for two or three additional officers who
receive the highest compensation?
     Are there any other specific executive officers, such as
the general counsel or principal accounting officer, who should be
specifically identified as named executive officers? If so, which
officers and why?
     Should we retain, as proposed, the current requirement
that up to two additional individuals for whom disclosure would have
been required but for the fact that they were no longer serving as
executive officers at the end of the year be included in the
disclosure?
     Is the continuation of the current requirement for five
named executive officers appropriate? Should that number be higher or
lower?
b. Identification of Most Highly Compensated Officers; Dollar Threshold
for Disclosure
    We propose to identify the most highly compensated executive
officers on the basis of total compensation for the most recent fiscal
year.\166\ We also propose to revise the dollar threshold for
disclosure of named executive officers other than the principal
executive officer and the principal financial officer to $100,000 of
total compensation for the last fiscal year.\167\ Both the
determination of the most highly compensated officers and the $100,000
disclosure threshold are

[[Page 6564]]

currently based only on total annual salary and bonus for the last
fiscal year.\168\ Given the proliferation of various forms of
compensation other than salary and bonus, we believe that total
compensation more accurately identifies those officers who are, in
fact, the most highly compensated. Moreover, basing identification of
named executive officers solely on the compensation reportable in the
salary and bonus categories may provide an incentive to re-characterize
compensation.
---------------------------------------------------------------------------

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

    Under the current rules, companies are permitted to exclude an
executive officer (other than the chief executive officer) due to
either an unusually large amount of cash compensation that is not part
of a recurring arrangement and is unlikely to continue, or cash
compensation relating to overseas assignments attributed predominantly
to such assignments.\169\ Because payments attributed to overseas
assignments have the potential to skew the application of Item 402
disclosure away from executives whose compensation otherwise properly
would be disclosed, we propose to retain this basis for exclusion.
However, we believe that other compensation that is ``not recurring and
unlikely to continue'' should be considered compensation for disclosure
purposes. There has been inconsistent interpretation of the ``not
recurring and unlikely to continue'' standard, and it is susceptible to
manipulation. We therefore propose to eliminate this basis for
exclusion.\170\
---------------------------------------------------------------------------

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

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

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

Request for Comment
     In light of the amendments to Item 404 that we also
propose, are there any circumstances for which the current exclusion
from Item 402 disclosure for transactions reported under Item 404
should be retained? If so, why?
8. Other Proposed Changes
    A company is currently permitted to omit from Item 402 disclosure
``information regarding group life, health, hospitalization, medical
reimbursement or relocation plans that do not discriminate in scope,
terms or operation, in favor of executive officers or directors of the
company and that are available generally to all salaried employees.''
\174\ Because relocation plans, even when available generally to all
salaried employees, are susceptible to operation in a discriminatory
manner that favors executive officers, this exclusion may deprive
investors of disclosure of significant compensatory benefits.\175\ For
this reason, we propose to delete relocation plans from this exclusion.
For the same reason, we are also deleting relocation plans from the
exclusion from portfolio manager compensation in forms used by
management investment companies to register under the Investment
Company Act and offer securities under the Securities Act.\176\ We also
propose to revise the definition of ``plan'' so that it is more
principles-based.\177\
---------------------------------------------------------------------------

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

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

[[Page 6565]]

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

    \178\ See, e.g., National Association of Corporate Directors and
Pearl Meyer & Partners, 2003-2004 Director Compensation Survey
(2004); National Association of Corporate Directors, Report of the
NACD Blue Ribbon Commission On Director Compensation (2001); and
Dennis C. Carey, et al., How Should Corporate Directors Be
Compensated?, Investment Dealers' Digest Inc.--Special Issue: Boards
and Directors (Jan. 1996).
    \179\ 1995 Release. The 1995 proposal was coupled with a
proposal to permit companies to reduce the detailed executive
compensation information provided in the proxy statement by instead
furnishing that information in the Form 10-K. We did not act upon
the proposals.
    \180\ The Commission received approximately 153 letters
supporting the proposal. Of those, 133, all individuals, expressed
their views via a brief statement submitted using a form letter.
Additional supporting commenters included corporations,
associations, unions, and security holder resource providers. See,
e.g., comment letters on the 1995 Release in File No. S7-14-95 from
Bell Atlantic Network Services, Inc.; Chevron Corporation; and Scott
Paper Company (generally offering support for proposal). See also,
e.g., coment letters from the Amerian Bar Association; American
Institute of Certified Public Accountants; Association of Investment
Management and Research; American Society of Corporate Secretaries;
Instituional Shareholder Services; and Ernst & Young LLP (favoring
tabular disclosure of director compensation, but with suggested
improvements to proposed rules).
    \181\ Approximately 20 commenters, primarily corporations and
associations, opposed the rules. See, e.g., comment letters in File
No. S7-14-95 from the American Corporate Counsel Association; AT&T
Corp.; The Business Roundtable; Consolidated Edison Company of New
York; Deere & Communications, Inc.
---------------------------------------------------------------------------

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

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

    The All Other Compensation column of the proposed Director
Compensation Table would include, but not be limited to:
     All perquisites and other personal benefits if the total
is $10,000 or greater;
     All earnings on compensation that is deferred on a basis
that is not tax-qualified;
     All tax reimbursements;
     Annual company contributions or other allocations to
vested and unvested defined contribution plans;
     For any security of the company or its subsidiaries
purchased from the company or its subsidiaries (through deferral of
fees or otherwise) at a discount from the market price of such security
at the date of purchase, unless the discount is generally available to
all security holders or to all salaried employees of the company, the
compensation cost computed in accordance with FAS 123R;
     Aggregate annual increase in actuarial value of all
defined benefit and actuarial pension plans;
     Annual company contributions to vested and unvested
defined contribution and other deferred compensation plans;
     All consulting fees;
     Awards under director legacy or charitable awards
programs; \182\ and
---------------------------------------------------------------------------

    \182\ Under director legacy programs, also known as charitable
award programs registrants typically agree to make a future donation
to one or more charitable institutions in the director's name,
payable by the registrant upon a designated event such as death or
retirement. The amount to be disclosed in the table would be the
annual cost of such promises and payments, with footnote disclosure
of the total dollar amount and other material terms of each such
program.
---------------------------------------------------------------------------

     The dollar value of any insurance premiums paid by, or on
behalf of, the company for life insurance for the director's benefit.
    In addition to the disclosure specified in the columns of the
table, companies would be required to disclose, for each director, by
footnote to the appropriate column, the outstanding equity awards at
fiscal year end as would be required if the Outstanding Equity Awards
at Fiscal Year-End table for named executive officers were required for
directors.\183\ The same instructions as provided in the Summary
Compensation Table would govern analogous matters in the Director
Compensation Table. As with the Summary Compensation Table, the
proposed rules make clear that all compensation must be included in the
table.\184\ As is the case with the current director disclosure
requirement, companies would not be required to include in the director
disclosure any amounts of compensation paid to a named executive
officer and disclosed in the Summary Compensation Table with footnote
disclosure indicating what amounts reflected in that table are
compensation for services as a director. A proposed instruction to the
Director Compensation Table would permit the grouping of directors in a
single row of the table if all of their elements and amounts of
compensation are identical.\185\
---------------------------------------------------------------------------

    \183\ Proposed Instruction to item 402(l)(2)(iv) and (v).
    \184\ The only exception would be if all perquisites received by
the director total less than $10,000, they would not need to be
disclosed.
    \185\ Proposed Instruction to item 402(l)(2).
---------------------------------------------------------------------------

    Following the table, narrative disclosure would describe any
material factors necessary to an understanding of the table. Such
factors may include, for example, a breakdown of types of fees.\186\ We
are not proposing the supplemental tables for directors.
---------------------------------------------------------------------------

    \186\ Proposed Item 402(l)(3).
---------------------------------------------------------------------------

Request for Comment
     Does the proposed table organize director compensation
disclosure in a format that is easy to understand?
     Do the proposed table and narrative disclose information
that is material to an investor's analysis of director compensation?
Should other tables be required, such as the Grants of Performance-
Based Awards Table and

[[Page 6566]]

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

C. Treatment of Specific Types of Issuers

1. Small Business Issuers
    The Item 402 proposals would continue to differentiate between
small business issuers and other issuers.\187\ In crafting the
proposals, we recognize that the executive compensation arrangements of
small business issuers typically are less complex than those of other
public companies. We also recognize that satisfying disclosure
requirements designed to capture more complicated compensation
arrangements may impose new, unwarranted burdens on small business
issuers.
---------------------------------------------------------------------------

    \187\ The term small business issuer is defined by Item 10(a)(1)
of Regulation S-B. Currently, under both Item 402 of Regulation S-B
and Item 402 of Regulation S-K, a small business issuer is not
required to provide the Compensation Committee Report, the
Performance Graph, the Compensation Committee Interlocks disclosure,
the Ten-Year Option/SAR Repricings Table, and the Option Grant Table
columns disclosing potential realizable value or grant date value.
The current rules also permit samll business issuers to exclude the
Pension Plan Table.
---------------------------------------------------------------------------

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

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

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

    \189\ Proposed Item 402(d) of Regulation S-B.
---------------------------------------------------------------------------

     The Director Compensation Table.\190\
---------------------------------------------------------------------------

    \190\ Proposed Item 402(f) of Regulation S-B.
---------------------------------------------------------------------------

Also as proposed, small business issuers would only be required to
provide information in the Summary Compensation Table for the last two
fiscal years. In addition, small business issuers would be required to
provide information for fewer named executive officers, namely the
principal executive officer and the two most highly compensated
officers other than the principal executive officer.\191\ Narrative
discussion of a number of items to the extent material would replace
tabular or footnote disclosure, for example identification of other
items in the All Other Compensation column and a description of post-
employment payments and other benefits.\192\ Small business issuers
would not be required to provide a Compensation Discussion and
Analysis.\193\
---------------------------------------------------------------------------

    \191\ Proposed Item 402(a) of Regulation S-B. Proposed Item
402(c)(1)(vii) of Regulation S-B would require an identification to
the extent material of any item included under All Other
Compensation in the Summary Compensation Table, however
identification of an item wold not be considered material under the
proposal if it did not exceed the greater of $25,000 or 10% of all
items included in the specified category. All items of compensation
would be requred to be included in the Summary Compensatio Table
without regard to whether such items are required to be indentified.
    \192\ Proposed Item 402(c) and 402(e) of Regulation S-B.
    \193\ We would also eliminate the current provision of Item 402
of Regulation S-K that allows small business issuers using forms
that call for Regulation S-K disclosure to exclude the disclosure
required by certain paragraphs of that Item. Current Item
402(a)(1)(i) of Regulation S-K.
---------------------------------------------------------------------------

Request for Comment
     Would reliance on narrative disclosure adversely affect
comparability of disclosure among small business issuers? Are there
particular forms of compensation that for this reason should instead be
presented in a tabular format? If so, why?
     Should small business issuers be categorically exempted
from providing a Compensation Discussion and Analysis? Are there
particular elements of the proposed Compensation Discussion and
Analysis in Item 402 of Regulation S-K that small business issuers
should be required to address? If so, which elements and why?
     Are there other provisions of our rule proposal that
should not apply to small business issuers?
     Should the Summary Compensation Table require disclosure
of compensation for each of the last two fiscal years, or is only the
last completed fiscal year necessary?
     Should compensation disclosure be provided for a larger
group of executive officers than we have proposed? If so, which
officers and why?
     Should we require small business issuers to provide an
Option Exercises and Stock Vested Table?
     Should the quantitative threshold for identifying the most
highly compensated executive officers remain the same in both
Regulation S-B and Regulation S-K? For example, if we raise this
threshold in Item 402 of Regulation S-K, should it remain $100,000 for
Regulation S-B? Should any other threshold be different for small
business issuers?
     Should small business issuers also be required to identify
perquisites and personal benefits valued, in the aggregate, in excess
of $10,000 and to quantify perquisites and personal benefits valued at
the greater of $25,000 or ten percent of total perquisites and other
personal benefits?
     Should we require the supplemental tables to the Summary
Compensation Table?
     Are there other items that should be specifically required
to be discussed in the proposed narrative disclosure for small business
issuers?
2. Foreign Private Issuers
    Currently a foreign private issuer will be deemed to comply with
Item 402 of Regulation S-K if it provides the information required by
Items 6.B. and 6.E.2. of Form 20-F, with more detailed information
provided if otherwise made publicly available. The proposals would
continue this treatment of these issuers and clarify that the treatment
of foreign

[[Page 6567]]

private issuers under Item 402 parallels that under Form 20-F.
Request for Comment
     Should we eliminate the provision which permits a foreign
private issuer to comply with Item 402 by complying with the more
limited disclosure requirements under Form 20-F with respect to
management remuneration? Should a foreign private issuer that is
required to comply with Item 402 (for example, by filing an annual
report on Form 10-K) be required to provide all of the information
required under Item 402 instead of the information required under Form
20-F?
3. Business Development Companies
    We are proposing to apply the same executive compensation
disclosure requirements to business development companies that we are
proposing for operating companies.\194\ Currently, business development
companies are required to provide executive compensation disclosure
based, in part, on the requirements that apply to operating companies
and, in part, on the requirements that apply to investment companies
registered under the Investment Company Act. Moreover, the executive
compensation disclosure requirements for business development companies
are not uniform in Securities Act registration statements, proxy and
information statements, and Form 10-K. Under Form 10-K, business
development companies are required to furnish all of the information
required by Item 402 of Regulation S-K for all of the persons covered
by Item 402.\195\ In proxy and information statements, business
development companies are required to provide for directors and each of
the three highest paid officers that have aggregate compensation from
the company for the most recently completed fiscal year in excess of
$60,000, certain information required by Item 402 of Regulation S-K and
certain other information that registered investment companies are
required to provide.\196\ In registration statements, business
development companies are required to provide the same information
required in proxy statements, but with respect to directors, members of
the advisory board, and each of the three highest paid officers or any
affiliated person of the company that have aggregate compensation from
the company for the most recently completed fiscal year in excess of
$60,000.\197\
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    \194\ Business development companies are a category of closed-
end investment companies that are not required to register under the
Investment Company Act [15 U.S.C. 80a-2(a)(48)].
    \195\ Item 11 of Form 10-K.
    \196\ Items 8 and 22(b)(13) of Schedule 14A. These items require
business development companies to provide certain information
required by Item 402(b)(2)(iv) and (c) of Regulation S-K, as well as
a compensation table and a brief description of the material
provisions of certain pension, retirement and other plans.
    \197\ Item 18.14 of Form N-2.
---------------------------------------------------------------------------

    We are proposing to apply to business development companies the
same executive compensation rules that apply to operating companies
because the proposed disclosure requirements are intended to provide
investors with a clearer and more complete picture of executive
compensation, and we are concerned that this purpose would not be
achieved through piecemeal application of some of the requirements. Our
proposal would also eliminate the current inconsistency between Form
10-K, on the one hand, which requires business development companies to
furnish all of the information required by Item 402 of Regulation S-K,
and the proxy rules and Form N-2, on the other, which require business
development companies to provide some of the information from Item 402
and other information that applies to registered investment companies.
Finally, we believe that, similar to operating companies, business
development companies should furnish compensation disclosure on proxies
relating to the compensation arrangements and other matters enumerated
in Items 8(b) through (d) of Schedule 14A and not just in the case of
director elections as currently required by Item 22(b)(13).
    Under the proposals, the registration statements of business
development companies would be required to include all of the
disclosures required by Item 402 of Regulation S-K for all of the
persons covered by Item 402.\198\ This disclosure would also be
required in the proxy and information statements of business
development companies if action is to be taken with respect to the
election of directors or with respect to the compensation arrangements
and other matters enumerated in Items 8(b) through (d) of Schedule
14A.\199\ Business development companies would also be required to make
these disclosures in their annual reports on Form 10-K.\200\
---------------------------------------------------------------------------

    \198\ Proposed Item 18.15 of Form N-2. Under the proposals,
business development companies would no longer be required to
respond to Item 18.14 of Form N-2, and Item 18.14(c) of Form N-2
would be deleted. Current Items 18.15 and 18.16 of Form N-2 would be
redesignated as Items 18.16 and 18.17, respectively. As a result of
the redesignation of current Item 18.16 of Form N-2, a change to the
cross reference to this Item in Instruction 8(a) of Item 24 of the
form is also proposed.
    \199\ Proposed amendment to Item 8 of Schedule 14A. Under the
proposals, business development companies would no longer be
required to respond to Item 22(b)(13) of Schedule 14A, and Item
22(b)(13)(iii) of Schedule 14A would be deleted. Proposed amendments
to Item 22(b)(13) of Schedule 14A.
    \200\ Item 11 of Form 10-K.
---------------------------------------------------------------------------

    As a result of these proposed amendments, the persons covered by
the compensation disclosure requirements would be changed. The
compensation disclosure in the proxy and information statements and
registration statements of business development companies would be
required to cover the same officers as for operating companies,
including the principal executive officer and principal financial
officer, as well as the three most highly compensated executive
officers that have total compensation exceeding $100,000,\201\ instead
of each of the three highest paid officers of the company that have
aggregate compensation from the company for the most recently completed
fiscal year in excess of $60,000. In addition, the registration
statements of business development companies would no longer be
required to disclose compensation of members of the advisory board or
certain affiliated persons of the company.
---------------------------------------------------------------------------

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

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

    \202\ See Instructions 4 and 6 to Item 22(b)(13)(i) of Schedule
14A; Instructions 4 and 6 to Item 18.14(a) of Form N-2 (requiring
certain entries in the compensation table in the proxy and
information statements and registration statements of business
development companies to include compensation from the fund
complex).
---------------------------------------------------------------------------

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

[[Page 6568]]

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

D. Conforming Amendments

    The Item 402 proposals necessitate conforming amendments to the
Items of Regulations S-K and S-B and the proxy rules that cross
reference amended paragraphs of Item 402. On this basis, the rule
proposals would amend:
     The Item 201(d) of Regulations S-K and S-B and proxy rule
references to the Item 402 definition of ``plan;'' \203\
---------------------------------------------------------------------------

    \203\ Proposed amendments to: Instruction 2 to paragraph (d) of
Item 201 of Regulation S-B; Instruction 2 to paragraph (d) of Item
201 of Regulation S-K; Exchange Act Rules 14a-6(a)(4) and 14c-
5(a)(4); and Instruction 1 to Item 10(c) of Schedule 14A.
---------------------------------------------------------------------------

     The Item 601(b)(10) of Regulation S-K reference to the
Item 402 treatment of foreign private issuers; \204\ and
---------------------------------------------------------------------------

    \204\ Proposed amendment to Item 601(b)(10)(iii)(C)(5).
---------------------------------------------------------------------------

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

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

E. General Comment Requests on the Item 402 Proposals

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

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

    In March 2004, the Commission adopted amendments to Form 8-K that
significantly expanded the number of events that are reportable on Form
8-K and reduced the reporting deadline for most Form 8-K disclosure
items to four business days after the triggering event.\206\ These
amendments became effective on August 23, 2004. As part of our broader
effort to revise our executive and director compensation disclosure
requirements, we are proposing revisions to Item 1.01 of Form 8-K,
which currently requires this real-time disclosure about an Exchange
Act reporting company's entry into a material definitive agreement
outside of the ordinary course of the company's business, as well as
any material amendment to such an agreement. Our staff's experience
over the last year suggests that this item has elicited executive
compensation disclosure regarding types of matters that do not appear
always to be unquestionably or presumptively material, which is the
standard we set for the expanded Form 8-K disclosure events.\207\ We
therefore propose to revise Items 1.01 and 5.02 to require real-time
disclosure of employee compensation events that more clearly satisfy
this standard.
---------------------------------------------------------------------------

    \206\ Additional Form 8-K Disclosure Requirements and
Acceleration of Filing Date, Release No. 33-8400 (Mar. 16, 2004) [69
FR 15593] (the ``Form 8-K Adopting Release'').
    \207\ We stated in Section I of the Form 8-K Adopting Release:
``The revisions that we adopt today will benefit markets by
increasing the number of unquestionably or presumptively material
events that must be disclosed currently.''
---------------------------------------------------------------------------

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

A. Proposed Revisions to Items 1.01 and 5.02 of Form 8-K

    Item 1.01 of Form 8-K requires an Exchange Act reporting company to
disclose, within four business days, the company's entry into a
material definitive agreement outside of its ordinary course of
business, or any amendment of such agreement that is material to the
company. When we initially proposed this item, several commenters
stated that it would be difficult to determine, within the shortened
Form 8-K filing period, whether a particular definitive agreement met
the materiality threshold of Item 1.01, and whether the agreement was
outside of the ordinary course of business.\208\ Some of these
commenters suggested that we apply to Item 1.01 the standards used in
pre-existing Item 601(b)(10) of Regulation S-K governing the filing as
exhibits to Commission reports of material contracts entered into
outside the ordinary course because these standards had been in place
for many years and were familiar to reporting companies.\209\
---------------------------------------------------------------------------

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

    In response to the concerns raised by these comments, we adopted
Item 1.01 of Form 8-K so that it used the

[[Page 6569]]

standards of Item 601(b)(10) to determine the types of agreements that
are material to a company and not in the ordinary course of business.
Item 601(b)(10) of Regulation S-K requires a company to file, as an
exhibit to Securities Act and Exchange Act filings, material contracts
that are not made in the ordinary course of business and are to be
performed in whole or part at or after the filing of the registration
statement or report, or were entered into not more than two years
before the filing. The item refers specifically to employment
compensation arrangements and establishes a company's obligation to
file the following as exhibits:
     Any management contract or any compensatory plan, contract
or arrangement, including but not limited to plans relating to options,
warrants or rights, pension, retirement or deferred compensation or
bonus, incentive or profit sharing (or if not set forth in any formal
document, a written description thereof) in which any director or any
named executive officer (as defined by Item 402(a)(3) of Regulation S-
K) participates;
     Any other management contract or any other compensatory
plan, contract, or arrangement in which any other executive officer of
the registrant participates, unless immaterial in amount or
significance; and
     Any compensation plan, contract or arrangement adopted
without the approval of security holders pursuant to which equity may
be awarded, including, but not limited to, options, warrants or rights
in which any employee (whether or not an executive officer of the
company) participates unless immaterial in amount or significance.\210\
---------------------------------------------------------------------------

    \210\ Item 601(b)(10)(iii) of Regulation S-K. We note the
provision in Item 601(b)(10)(iii)(A) that carves out any plan,
contract or arrangement in which named executive officers and
directors do not participate that is ``immaterial in amount or
significance.'' In 1980, the Commission adopted amendments to
Regulation S-K that consolidated all of the exhibit requirements of
various disclosure forms into a single item in Regulation S-K.
Amendments Regarding Exhibit Requirements, Release No. 33-6230 (Aug.
27, 1980) [45 FR 58822], at Section II.B. This item was a forerunner
of the current Item 601. As part of that 1980 adopting release, the
definition of material contract contained in the new item was also
revised in an effort to reduce the number of remunerative plans or
arrangements that must be filed. Not long after, though, the staff
discovered that rather than reduce the number of exhibits filed, the
provision actually had the opposite effect. The staff found that the
revised definition of material contract ``has resulted in
registrants filing a large volume of varied remunerative contracts
involving directors and executive officers, contracts which are not
material and which would not have been filed under the previously
existing `material in amount or significance' standard.'' Technical
Amendment Regarding Exhibit Requirement, Release No. 33-6287 (Feb.
6, 1981) 46 FR 11952], at Section I. Therefore, in February 1981,
the Commission added ``unless immaterial in amount or significance''
to the definition of ``material contracts'' as applied to
remunerative plans, contracts or arrangements participated in by
executives that are not named executive officers. Id. We reiterate
that this phrase was intended to indicate that whether plans,
contracts or arrangements which executive officers other than named
executive officers participate are to be included in the
requirements of 601(b)(10) must be determined on the basis of
materiality.

Therefore, entry into these types of contracts triggers the filing of a
Form 8-K within four business days. Importantly, the requirement for
directors and named executive officers does not include an exception
for those that are ``immaterial in amount or significance.''
    The incorporation of the Item 601(b)(10) standards into Item 1.01
of Form 8-K has therefore significantly affected executive compensation
disclosure practices. Prior to the Form 8-K amendments, it was
customary for a company's annual proxy statement to be the primary
vehicle for disclosure of executive and director compensation
information. However, Item 1.01 of amended Form 8-K has resulted in
executive compensation disclosures that are much more frequent and
accelerated than those included in a company's proxy statement. In
addition, particularly because of the terms of Item 601(b)(10), Item
1.01 of Form 8-K has triggered compensation disclosure of the types of
matters that, in some cases, appear to fall short of the
``unquestionably or presumptively material'' standard associated with
the expanded Form 8-K disclosure items. Companies and their counsel
have raised concerns that the new Form 8-K requirements have resulted
in real-time disclosure of compensation events that should be
disclosed, if at all, in a company's proxy statement for its annual
meeting or as an exhibit to the company's next periodic report, such as
the Form 10-Q or Form 10-K.\211\
---------------------------------------------------------------------------

    \211\ See, e.g., Melissa Klein Aguilar, This Side of Caution:
New Regs. Prompt 8-K Increases, Compliance Week, Aug. 23, 2005;
Scott S. Cohen, Editorial: Debating the Materiality of ``Material
Definitive Agreements,'' Compliance Week, Feb. 8, 2005; and Patrick
McGeehan, Now, an Advance Look at Those Big Paychecks, N.Y. Times,
Sept. 26, 2004, at 36.
---------------------------------------------------------------------------

    We believe that much of the disclosure regarding employment
compensation matters required in real-time under the new Form 8-K
requirements is viewed by investors as material.\212\ However, we also
believe that it would be appropriate to restore a more balanced
approach to this aspect of Form 8-K that is designed to elicit
unquestionably or presumptively material information on a real-time
basis, but seeks to limit Form 8-K disclosure of information below that
threshold. Accordingly, we propose to amend Item 1.01 of Form 8-K to
eliminate employment compensation arrangements and to cover such
arrangements under a modified broader Item 5.02.\213\
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    \212\ See, e.g., Jerry Knight, Tiny SEC Filing Gave a Big Hint
to Vastera's Plans, Wash. Post, Jan. 24, 2005, at E1; and Alex
Berenson, Merck Offering Top Executives Rich Way Out, N.Y. Times,
Nov. 30, 2004, at A1.
    \213\ We propose deleting the last sentence of current
Instruction 1 to Item 1.01 of Form 8-K, which references the
portions of Item 601(b)(10) that specifically relate to management
compensation and compensatory plans. In place of the deleted
sentence, we propose to add a sentence specifying that agreements
involving the subject matter identified in Item 601(b)(10)(iii)(A)
or (B) of Regulation S-K need not be disclosed under Item 1.01 of
Form 8-K. This change also will apply to disclosure of terminations
of material definitive agreements under Item 1.02 of Form 8-K, which
references the definition of ``material definitive agreement'' in
Item 1.01 of Form 8-K. Instead of being required to be disclosed
based on the general requirements with regard to material definitive
agreements in Item 1.01 and Item 1.02, employment compensation
arrangements would be covered under Item 5.02 of Form 8-K.
---------------------------------------------------------------------------

    Item 5.02 of Form 8-K currently generally requires disclosure
within four business days of the appointment or departure of directors
and specified officers. In particular, Item 5.02 requires disclosure if
a company's principal executive officer, president, principal financial
officer, principal accounting officer, principal operating officer, or
any person performing similar functions, retires, resigns or is
terminated from that position \214\ or if a company appoints a new
principal executive officer, president, principal financial officer,
principal accounting officer, principal operating officer, or any
person performing similar functions.\215\ Item 5.02 also requires
disclosure if a director retires, resigns, is removed, or declines to
stand for re-election.\216\ The required disclosure currently includes
a brief description of the material terms of any employment agreement
between the registrant and the officer and a description of
disagreements, if any.
---------------------------------------------------------------------------

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

    We propose to modify Item 5.02 to capture generally the currently
required information under that item, as well as additional information
regarding material employment compensation arrangements involving named
executive officers that currently fall under Item 1.01. Our proposal
will both modify the overall requirements for disclosure of employment
compensation arrangements on Form 8-K and locate all such disclosure
under a single item.

[[Page 6570]]

We propose to accomplish this by taking the following steps:
     Expanding the information regarding retirement,
resignation or termination to include all persons falling within the
definition of named executive officers for the company's previous
fiscal year, whether or not included in the list currently specified in
Item 5.02; \217\
---------------------------------------------------------------------------

    \217\ The Item would continue to cover the officers specified
therein, whether or not named executive officers for the previous or
current years, and all directors.
---------------------------------------------------------------------------

     Expanding the disclosure items covered under Item 5.02
beyond employment agreements to require a brief description of any
material plan, contract or arrangement to which a covered officer or
director is a party or in which he or she participates that is entered
into or materially amended in connection with any of the triggering
events specified in Item 5.02, or any grant or award to any such
covered person, or modification thereto, under any such plan, contract
or arrangement in connection with any such event; \218\
---------------------------------------------------------------------------

    \218\ Plans, contracts or arrangements (but not material
amendments or grants or awards or modifications thereto) may be
denoted by reference to the description in the company's most recent
annual report on Form 10-K or proxy statement.
---------------------------------------------------------------------------

     In respect of the principal executive officer, the
principal financial officer, or persons falling within the definition
of named executive officer for the company's previous fiscal year,
expanding the disclosure items to include a brief description of any
material new compensatory plan, contract or arrangement, or new grant
or award thereunder (whether or not written), and any material
amendment to any compensatory plan, contract or arrangement (or any
modification to a grant or award thereunder), whether or not such
occurrence is in connection with a triggering event specified in Item
5.02. Grants or awards or modifications thereto will not be required to
be disclosed if they are consistent with the terms of previously
disclosed plans or arrangements and they are disclosed the next time
the company is required to provide new disclosure under Item 402 of
Regulation S-K; and
     Adding a requirement for disclosure of salary and bonus
for the most recent fiscal year that was not available at the latest
practicable date in connection with disclosure under Item 402 of
Regulation S-K.\219\
---------------------------------------------------------------------------

    \219\ See Section II.B.1.b. above for a discussion of the
reporting delay that exists under the current disclosure rules when
bonus and salary are not determinable at the most recent practicable
date.
---------------------------------------------------------------------------

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

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

    We propose to extend the safe harbors regarding Section 10(b) and
Rule 10b-5 and Form S-3 eligibility in the event that a company fails
to timely file reports required by Item 5.02(e) of Form 8-K. In the
final rules for the new Form 8-K requirements, we adopted a limited
safe harbor from liability under Section 10(b) of the Exchange Act and
Rule 10b-5 thereunder for failure to timely file reports required by
Form 8-K Items 1.01, 1.02, 2.03, 2.04, 2.05, 2.06 and 4.02(a). The safe
harbor applies until the filing due date of the company's quarterly or
annual report for the period in question. As we stated at the time, we
believe that these items may require management to make rapid
materiality and similar judgments within the timeframe required for
filing of a Form 8-K. Under those circumstances we concluded that the
risk of liability under these provisions was sufficiently
disproportionate to justify the limited safe harbor of fixed duration.
For the same reasons, we believe that the safe harbor should also
extend to proposed Item 5.02(e) of Form 8-K. We therefore propose to
amend Exchange Act Rules 13a-11(c) and 15d-11(c) accordingly.
    In addition, under our current rules, a company forfeits its
eligibility to use Form S-3 if it fails to timely file all reports
required under Exchange Act Sections 13(a) or 15(d) during the 12
months prior to filing of the registration statement.\220\ For the same
reasons, when adopting the new Form 8-K rules, we revised the Form S-3
eligibility requirements so that a company would not lose its
eligibility to use Form S-3 registration statements if it failed to
timely file reports required by the Form 8-K items to which the Section
10(b) and Rule 10b-5 safe harbor applies.\221\ In particular, the
burden resulting from a company's sudden loss of eligibility to use
Form S-3 could be a disproportionately large negative consequence of an
untimely Form 8-K filing under one of the specified items.\222\ We
believe that this safe harbor should be extended to proposed Item
5.02(e) of Form 8-K. Therefore, we propose to amend General Instruction
I.4 of Form S-3, which pertains to the eligibility requirements for use
of Form S-3 to reflect this position.\223\
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    \220\ General Instruction I.A.3 to Form S-3.
    \221\ Form 8-K Adopting Release, at Section II.E.
    \222\ Id.
    \223\ Because Form S-2 was eliminated effective December 1,
2005, a similar proposed change to the eligibility rules of Form S-2
is unnecessary. Securities Offering Reform, Release No. 33-8591
(July 19, 2005) [70 FR 44721], at Section V.B.3.c.
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Request for Comment
     Should we extend the Section 10(b) and Rule 10b-5 safe
harbor and the Form S-3 safe harbor to all of Item 5.02 or just the
provision proposed?

[[Page 6571]]

C. General Instruction D to Form 8-K

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

D. Foreign Private Issuers

    We propose revising the exhibit instructions to Form 20-F under
which foreign private issuers would be required to file any employment
or compensatory plan with management or directors (or portion of such
plan) only when the foreign private issuer either is required to
publicly file the plan (or portion of it) in its home country or if the
foreign private issuer had otherwise publicly disclosed the plan.\224\
    Under Item 6.B.1 of Form 20-F, a foreign private issuer must
disclose the compensation of directors and management on an aggregate
basis and, additionally, on an individual basis, unless individual
disclosure is not required in the issuer's home country and is not
otherwise publicly disclosed by the foreign private issuer. Under the
exhibit instructions to Form 20-F, management contracts or compensatory
plans in which directors or members of management participate generally
must be filed as exhibits, unless the foreign private issuer provides
compensation information on an aggregate basis and not on an individual
basis. Under these rules, an issuer that provides any individualized
compensation disclosure is required to file as an exhibit to Form 20-F
management employment agreements that potentially relate to matters
that have not otherwise been disclosed.
---------------------------------------------------------------------------

    \224\ We are also proposing a similar revision to Item
601(b)(10)(iii)(C)(5) of Regulation S-K.
---------------------------------------------------------------------------

    The proposed revision to the exhibit instructions to Form 20-F
\225\ is intended to be consistent with the existing disclosure
requirements under Form 20-F relating to executive compensation matters
for foreign private issuers. In the same way that executive
compensation disclosure under Form 20-F largely mirrors the disclosure
that a foreign private issuer makes under home country requirements or
voluntarily, so too the public filing of management employment
agreements as an exhibit to Form 20-F would under our proposal mirror
the public availability of such agreements under home country
requirements or otherwise. In addition, we believe that the proposed
amendments may encourage foreign private issuers to provide more
compensation disclosure in their SEC filings by eliminating privacy
concerns associated with filing an individual's employment agreement
when such agreement is not required to be made public by a home country
exchange or securities regulator. As foreign disclosure related to
executive remuneration varies in different countries but continues to
improve,\226\ the proposed revisions would recognize that trend and
provide for greater harmonization of international disclosure standards
with respect to executive compensation in a manner consistent with
other requirements of Form 20-F.
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    \225\ Proposed Instruction 4(c) to Exhibits to Form 20-F.
    \226\ Many jurisdictions now require or encourage disclosure of
executive compensation information. For example, enhanced disclosure
of executive remuneration is included as part of he European
Commission's 2003 Company Law Action Plan. See Guido Ferrarini and
Niamh Moloney, Executive Remuneration in the EU: The Context for
Reform, European Corporate Governance Institute, Law Working Paper
N. 32/2005 (April 2005).
---------------------------------------------------------------------------

Request for Comment
     Should we require the filing of employment agreements by
foreign private issuers when individualized compensation information is
disclosed? Should we instead require the filing of those portions of
management employment agreements and plans that relate to the
information that is disclosed on an individualized basis regardless of
whether those portions are required to be made public in the issuer's
home country or otherwise?

IV. Beneficial Ownership Disclosure

    We propose to amend Item 403(b) \227\ by adding a requirement for
footnote disclosure of the number of shares pledged as security by
named executive officers, directors and director nominees. To the
extent that shares beneficially owned by named executive officers,
directors and director nominees are used as collateral, these shares
may be subject to material risk or contingencies that do not apply to
other shares beneficially owned by these persons. These circumstances
have the potential to influence management's performance and
decisions.\228\ As a result, we believe that the existence of these
securities pledges could be material to shareholders.\229\ Because
significant shareholders who are not members of management are in a
different relationship with other shareholders and have different
obligations to them, the proposals would not require disclosure of
their pledges pursuant to Item 403(a), other than pledges that may
result in a change of control currently required to be disclosed.\230\
The proposals also would specifically require disclosure of beneficial
ownership of directors' qualifying shares, which is currently not
required, because the beneficial ownership disclosure should include a
complete tally of the securities beneficially owned by directors.
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    \227\ Item 403(b) of Regulation S-K and Item 403(b) of
Regulation S-B are proposed to be revised in the same manner.
    \228\ See, e.g., Marianne M. Jennings, The Disconnect Between
and Among Legal Ethics, Business Ethics, Law, and Virtue: Learning
Not to Make Ethics So Complex, 1 U. St. Thomas L.J. 995, 1010
(Spring 2004) (arguing that the extension of loans to the CEO of
WorldCom, which were collateralized by WorldCom shares owned by the
CEO, contributed to WorldCom's financial demise).
    \229\ This proposal is similar to a proposal the Commission made
in 2002. See Form 8-K Disclosure of Certain Management Transactions,
Release No. 33-8090 (Apr. 12, 2002) [67 FR 19914].
    \230\ Current Item 403(c) of Regulation S-K. See also Items 6
and 7(3) of Schedule 13D [17 CFR 240.13d-101].
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Request for Comment
     Should any specific categories of loans, such as margin
loans, be treated differently under the proposal to disclose management
pledges of beneficially owned securities? If so, please explain why.
     Should directors' qualifying shares continue to be
excluded? If so, explain why that information is not material.

V. Certain Relationships and Related Transactions Disclosure

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

[[Page 6572]]

picture of financial relationships with a company involves disclosure
regarding related party transactions. Therefore, we are also proposing
significant revisions to Item 404 of Regulation S-K ``Certain
Relationships and Related Transactions.'' In 1982, various provisions
that had been adopted in a piecemeal fashion and had been subject to
frequent amendment were consolidated into Item 404 of Regulation S-
K.\231\ Today we propose to amend Item 404 of Regulation S-K and S-B to
streamline and modernize this disclosure requirement, while making it
more principles-based. Although the proposals would significantly
modify this disclosure requirement, its purpose--to elicit disclosure
regarding transactions and relationships, including indebtedness,
involving the company and related persons and the independence of
directors and nominees for director and the interests of management--
would remain unchanged.
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    \231\ See the 1982 Release. For a discussion of these
provisions, see also Disclosure of Certain Relationships and
Transactions Involving Management, Release No. 33-6416 (July 9,
1982) [47 FR 31394], at Section II.
---------------------------------------------------------------------------

    As discussed in greater detail below, the proposal has four parts:
\232\
---------------------------------------------------------------------------

    \232\ The discussion that follows focuses on changes to
Regulation S-K, with Section V.E.1. explaining the modifications
proposed for Regulation S-B. References throughout the following
discussion are to current or proposed Items of Regulation S-K,
unless otherwise indicated.
---------------------------------------------------------------------------

     Item 404(a) would contain a general disclosure requirement
for related person transactions, including those involving
indebtedness.\233\
---------------------------------------------------------------------------

    \233\ As previously noted, related party transactions are
currently disclosed under Item 404(a). Indebtedness is currently
disclosed under Item 404(c).
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     Item 404(b) would require disclosure regarding the
company's policies and procedures for the review, approval or
ratification of related person transactions.
     Item 404(c) would require disclosure regarding promoters
of a company.\234\
---------------------------------------------------------------------------

    \234\ Disclosure requiring promoters is currently required under
Item 404(d).
---------------------------------------------------------------------------

     New Item 407 would consolidate current corporate
governance disclosure requirements.\235\ Proposed Item 407(a) would
require disclosure regarding the independence of directors, including
whether each director and nominee for director of the registrant is
independent, as well as a description of any relationships not
disclosed under paragraph (a) of Item 404 that were considered when
determining whether each director and nominee for director is
independent.
---------------------------------------------------------------------------

    \235\ These matters are currently required pursuant to various
provisions, including Item 7 of Schedule 14A and Items 306, 401(h),
(i) and (j), 402(j) and 404(b).
---------------------------------------------------------------------------

A. Transactions With Related Persons

    We are proposing revisions to Item 404 to make the certain
relationships and related transactions disclosure requirements clearer
and easier to follow. The proposals would retain the principles for
disclosure of related person transactions that are specified in current
Item 404(a), but would no longer include all of the instructions that
serve to delineate what transactions are reportable or excludable from
disclosure based on bright lines that can depart from a more
appropriate materiality analysis. Instead, proposed Item 404(a) would
consist of a general statement of the principle for disclosure,
followed by specific disclosure requirements and instructions. The
instructions would explain the related persons covered by the Item, the
scope of transactions covered by the Item, the method for computation
of the amounts involved in the relationship or transaction, the
interaction with Item 402, special requirements for indebtedness with
banks, and the materiality of certain ownership interests.
    The proposed Item would extend to disclosure of indebtedness.
Currently, Item 404(a) requires disclosure regarding transactions
involving the company and certain related persons,\236\ and Item 404(c)
requires disclosure regarding indebtedness.\237\ We propose to
consolidate these two provisions in order to eliminate confusion
regarding the circumstances in which each item applies and streamline
duplicative portions of current paragraphs (a) and (c) of Item 404.
---------------------------------------------------------------------------

    \236\ The related persons specified in current Item 404(a) are:
(1) Any director or executive officer of the company; (2) any
nominee for election as a director; (3) any security holder who is
known to the company to own of record or beneficially more than five
percent of any class of the company's voting securities; and (4) any
member of the immediate family of any of the foregoing persons.
    \237\ The related persons specified in current Item 404(c) are:
(1) Any director or executive officer of the company; (2) any
nominee for election as a director; (3) any member of the immediate
family of any of the persons specified in (1) or (2) above; (4) any
corporation or organization (other than the company or a majority-
owned subsidiary of the company) of which any of the persons in (1)
or (2) above is an executive officer or partner or is, directly or
indirectly, the beneficial owner of ten percent or more of any class
of equity securities; and (5) any trust or other estate in which any
of the persons in (1) or (2) above has a substantial beneficial
interest or as to which such person serves as a trustee or in a
similar capacity.
---------------------------------------------------------------------------

1. Broad Principle for Disclosure
    Proposed Item 404(a) would articulate a broad principle for
disclosure; it would state that a company must provide disclosure
regarding:
     Any transaction since the beginning of the company's last
fiscal year, or any currently proposed transaction.
     In which the company was or is to be a participant;
     In which the amount involved exceeds $120,000; and
     In which any related person had, or will have, a direct or
indirect material interest.
    We propose to eliminate current Instruction 1 to Item 404(a), which
is repetitive of the general materiality standard applicable to the
item. By proposing to delete this instruction we do not intend to
change the materiality standard applicable to Item 404(a). The
``materiality'' standard for disclosure currently embodied in Item
404(a) would be retained; a company would disclose based on whether the
related person had, or will have, a direct or indirect material
interest in the transaction. The materiality of any interest would
continue to be determined on the basis of the significance of the
information to investors in light of all the circumstances and the
significance of the interest to the person having the interest.\238\
The relationship of the related persons to the transaction, and with
each other, and the amount involved in the transaction would be among
the factors to be considered in determining the materiality of the
information to investors.
---------------------------------------------------------------------------

    \238\ See Basic v. Levinson and TSC Industries v. Northway.
---------------------------------------------------------------------------

    We propose to eliminate current Instruction 7 to Item 404(a), which
establishes certain presumptions regarding materiality and may operate
to exclude some transactions from disclosure that might otherwise
require disclosure under the principles enunciated by the Item. We also
propose to eliminate current Instruction 9 to Item 404(a), which
indicates that the $60,000 threshold is not a bright line materiality
standard. We propose to eliminate current Instruction 9 to Item 404(a)
because it is repetitive of the general materiality standard applicable
to the Item.\239\ We believe that application of the materiality
principles under the Item would be more consistent with a principles-
based approach and would lead to more

[[Page 6573]]

appropriate disclosure outcomes than application of the instructions
that we propose to eliminate.
---------------------------------------------------------------------------

    \239\ It is possible that some registrants have been operating
under a misconception. The current $60,000 threshold is not, and the
proposed $120,000 threshold would not be, a bright line materiality
standard. The rule calls for, and would continue to call for, a
materiality analysis of transactions above the threshold in order to
determine if the related person has a direct or indirect material
interest.
---------------------------------------------------------------------------

    In addition, the proposals would:
     Call for disclosure if a company is a ``participant'' in a
transaction, rather than if it is ``a party'' to the transaction, as
``participant'' more accurately connotes the company's involvement;
     Modify the $60,000 threshold for disclosure to $120,000 to
adjust for inflation;
     Include a defined term for ``transaction'' to provide that
it includes a series of similar transactions and to make clear its
broad scope; and
     Include a single defined term for ``related
persons.''\240\
---------------------------------------------------------------------------

    \240\ The ``related persons'' covered by the rules proposal are
discussed below in Section V.A.1.b.
---------------------------------------------------------------------------

    As is currently the case, disclosure would be required for three
years in registration statements filed pursuant to the Securities Act
or the Exchange Act.\241\
---------------------------------------------------------------------------

    \241\ However, if the disclosure were being incorporated by
reference into a registration statement on Form S-4, the additional
two years of disclosure would not be required. Proposed Instruction
1 to Item 404.
---------------------------------------------------------------------------

    Finally, the rule proposals would include a technical modification.
Currently, Item 404(a) states that disclosure must be provided
regarding situations involving ``the registrant or any of its
subsidiaries.'' Because companies must include subsidiaries in making
materiality determinations in all circumstances, the reference to
``subsidiaries'' is superfluous, and we propose to eliminate it. This
proposal would not change the scope of disclosure required under the
Item.\242\
---------------------------------------------------------------------------

    \242\ For the same reason, we are eliminating the references to
``subsidiaries'' in the ``compensation committee interlocks and
insider participation in compensation decisions'' disclosure
requirement in current Item 402(j). This proposal would not change
the scope of disclosure required under the rule. See proposed Item
407(e)(4).
---------------------------------------------------------------------------

Request for Comment
     Should we recast Item 404(a) as a more principles-based
disclosure requirement as proposed? Why or why not?
     In recasting Item 404(a) as a more principles-based
disclosure requirement, should we eliminate all of the current
instructions, not only the ones we propose eliminating? Are there any
concepts in the instructions to Item 404(a) that we propose to
eliminate that should be retained? As a result of eliminating the
instructions to Item 404(a), would there be any categories of
transactions which would have an unclear disclosure status? Although
the analysis required for any particular transaction would be fact-
specific, should we provide further guidance or examples regarding the
disclosure status of particular types of direct or indirect interests?
     Is it appropriate to adjust the threshold for disclosure
to $120,000? Should there be no threshold? Should the threshold also
operate on a sliding scale (for example, the lower of $120,000 or 1% of
the average of total assets for the last three completed fiscal years
\243\ or the lower of $120,000 or a percentage of annual corporate
expenses) to capture smaller transactions for smaller companies?
Explain whether a higher or lower threshold, or no threshold, would
result in more effective disclosure.
---------------------------------------------------------------------------

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

     In Item 404(a), should we require a company to be
``involved'' rather than to be ``a participant'' in transactions
subject to disclosure?
a. Indebtedness
    Section 402 of the Sarbanes-Oxley Act prohibits most personal loans
by an issuer to its officers and directors.\244\ This development
raises the issue of whether disclosure of indebtedness of the sort
required under our current rules should be maintained. We believe that
the approach to disclosure of indebtedness involving related persons
that we propose today would be appropriate because of the scope of the
direct and indirect interests covered by our disclosure requirements,
because related persons include persons not covered by the
prohibitions, and because there are certain exceptions to the
prohibitions. We propose, however, to eliminate the current distinction
between indebtedness and other types of related person transactions.
---------------------------------------------------------------------------

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

    As a result of integrating paragraph (c) of Item 404 into paragraph
(a) of Item 404, the proposals would change some situations in which
indebtedness disclosure is required. First, disclosure of indebtedness
transactions would be required with regard to all related persons
covered by the related person transaction disclosure requirement,
including significant shareholders.\245\ Second, the rule proposals
would require disclosure of all material indirect interests in
indebtedness transactions of related persons, including significant
shareholders and immediate family members.\246\ Disclosure of material
indirect interests of these related persons in transactions involving
the company currently is, and would continue to be, required by Item
404(a). Currently, Item 404(c) requires disclosure of specific indirect
interests of directors, nominees for director, and executive officers
of the registrant in indebtedness through corporations, organizations,
trusts, and estates.\247\ We believe that disclosure requirements for
indebtedness and for other related person transactions should be
congruent. In particular, we believe that loans by companies other than
financial institutions should be treated like any other related person
transactions, and, as discussed below, we propose to address certain
ordinary course loans by financial institutions in an instruction to
Item 404(a).
---------------------------------------------------------------------------

    \245\ The related person transaction disclosure requirement in
current Item 404(a) covers significant shareholders, while the
indebtedness disclosure requirement in current Item 404(c) does not.
The significant shareholders covered would continue to be any
security holder who is known to the registrant to own of record or
beneficially more than five percent of any class of the registrant's
voting securities. Proposed Instruction 1.b. to Item 404(a).
    \246\ As a result of integrating pragraph (c) of Item 404 into
paragraph (a) of Item 404, the rule proposals would set a $120,000
threshold and require disclosure only if there is a direct or
indirect material interest in such an indebtedness transaction,
while Item 404(c) currently generally requires disclosure of all
indebtedness exceeding $60,000.
    \247\ Disclosure of these interests currently is reuqired by
subparagraphs (c)(4) and (c)(5) of Item 404. Under the rule
proposals, these subparagraphs would be eliminated. See note 237 for
a full description fo the related parties specified in these
subparagraphs.
---------------------------------------------------------------------------

Request for Comment
     Is our proposal appropriate in light of the prohibition on
personal loans to officers and directors in the Sarbanes-Oxley Act?
     Should we combine the related person and indebtedness
disclosure requirements in paragraphs (a) and (c) of Item 404? As a
result of combining these disclosure requirements, would there be
categories of indebtedness transactions for which disclosure would be
required that should not be required or for which disclosure would not
be required that should be disclosed?
     Should the disclosure requirements for indebtedness be
extended to significant shareholders?
b. Definitions
    We propose to define the terms ``transaction,'' ``related person''
and ``amount involved'' to streamline Item 404(a) and clarify the broad
scope of financial transactions and relationships covered by the rule.

[[Page 6574]]

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

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

    The proposed definition of ``related person'' would identify the
persons covered, and clarify the time periods during which they would
be covered. As proposed, the term ``related person'' \249\ would mean
any person who was in any of the following categories at any time
during the specified period for which disclosure under paragraph (a) of
Item 404 would be required:
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    \249\ The definition of ``related person'' is in proposed
Instruction 1 to Item 404(a).
---------------------------------------------------------------------------

     Any director or executive officer of the registrant and
his immediate family members; and
     If disclosure were provided in a proxy or information
statement involving the election of directors, any nominee for director
and the immediate family members of any nominee for director.
In addition, a security holder known to the registrant to own of record
or beneficially more than five percent of any class of the company's
voting securities or any immediate family member of any such person,
when a transaction in which such security holder or family member had a
direct or indirect material interest occurred or existed would also be
a related person.

    This is the same list of persons covered by current Item 404(a).
This proposed definition of ``related person'' would result in
requiring disclosure for all transactions involving the company and a
person (other than a significant shareholder or family member of such
shareholder) that occurred during the last fiscal year, if the person
was a ``related person'' during any part of that year.\250\ A person
who had such a position or relationship giving rise to the person being
a ``related person'' during only part of the last fiscal year may have
had a material interest in a transaction with the registrant during
that year. Although current Item 404(a) does not specifically indicate
whether disclosure is required for the transaction in this situation,
the history of Item 404 suggests that disclosure would be required if
the requisite relationship existed at the time of the transaction, even
if the person was no longer a related person at the end of the
year.\251\ We believe that, because of the potential for abuse and the
close proximity in time between the transaction and the person's status
as a ``related person,'' it is appropriate to require disclosure for
transactions in which the person had a material interest occurring at
any time during the fiscal year. For example, it is possible that a
material interest of a person in a transaction during this proximity in
time could influence the person's performance of his or her duties.
---------------------------------------------------------------------------

    \250\ The principle for disclosure would only apply to nominees
for director if disclosure were being provided in a proxy or
information statement involving the election of directors. Also,
ongoing disclosure would not be required regarding nominees for
director who were not elected (unless a nominee was nominated again
for director).
    \251\ This position, which had been included in the proxy rule
provisions that were the precursor to Item 404, was deleted from
those provisions in 1967 as duplicative of a note that applied to
all of the disclosure required in Schedule 14A (including the
related party disclosure requirement in Schedule 14A). Adoption of
Amendments to Proxy Rules and Information Rules, Release No. 34-8206
(Dec. 14, 1967) [32 FR 20960], at ``Schedule 14A--Item 7(f).'' Note
C to Schedule 14A currently provides that ``information need not be
included for any portion of the period during which such person did
not hold any such position or relationship, provided a statement to
that effect is made.'' The rule proposals would amend Note C to
Schedule 14A so that it would no longer apply to disclosure of
related person transactions.
---------------------------------------------------------------------------

    We believe that transactions with persons who have been or who will
become significant shareholders (or their family members), but are not
at the time of the transaction, raise different considerations and are
harder to track, and thus we propose to exclude them. Disclosure would
be required, however, regarding a transaction that begins before a
significant shareholder becomes a significant shareholder, and
continues (for example, through the on-going receipt of payments) on or
after the person becomes a significant shareholder.
    Under the rule proposals, the term ``immediate family member'' of a
related person would mean any child, stepchild, parent, stepparent,
spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-
law, brother-in-law, or sister-in-law, and any person (other than a
tenant or employee) sharing the household of any director, nominee for
director, executive officer, or significant shareholder of the
registrant.\252\ The proposed definition would differ from the current
definition in that it includes stepchildren, stepparents, and any
person (other than a tenant or employee) sharing the household of a
related person.
---------------------------------------------------------------------------

    \252\ These definitions would replace current instructions to
paragraphs (a) and (c) of Item 404.
---------------------------------------------------------------------------

    The proposed definition of ``amount involved'' would incorporate
two concepts included in current Item 404 regarding how to determine
the ``amount involved'' in transactions, and to clarify that the
amounts reported must be in dollars even if the amount was set or
expensed in a different currency.\253\ Under the proposals, the term
``amount involved'' would mean the dollar value of the transaction, or
series of similar transactions, and would include:
---------------------------------------------------------------------------

    \253\ The definition of ``amount involved'' is in proposed
Instruction 3 to Item 404(a).
---------------------------------------------------------------------------

     In the case of any lease or other transaction providing
for periodic payments or installments, the aggregate amount of all
periodic payments or installments due on or after the beginning of the
company's last fiscal year, including any required or optional payments
due during or at the conclusion of the lease; \254\ and
---------------------------------------------------------------------------

    \254\ This proposal is based on current Instruction 3 to Item
404(a).
---------------------------------------------------------------------------

     In the case of indebtedness, the largest aggregate
principal amount of all indebtedness outstanding at any time since the
beginning of the company's last fiscal year and all amounts of interest
payable on it during the last fiscal year.\255\
---------------------------------------------------------------------------

    \255\ This proposal is based on and clarifies current Item
404(c).
---------------------------------------------------------------------------

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

[[Page 6575]]

categories of people that should be added to, or removed from, the
proposed definition?
     In 2002 we issued a release regarding MD&A disclosure. At
that time, we noted the possible need for related party disclosure in
circumstances additional to those specified in Item 404.\256\ Are there
any circumstances that fall within the MD&A requirements that should
also be covered by Item 404 where disclosure currently is not required,
or would not be required under the rule proposals?
---------------------------------------------------------------------------

    \256\ The release stated that:
    Registrants should * * * consider the need for [MD&A] disclosure
about parties that fall outside the definition of ``related
parties,'' but with whom the registrant or its related parties have
a relationship that enables the parties to negotiate terms of
material transactions that may not be available from other, more
clearly independent, parties on an arm's-length basis. For example,
an entity may be established and operated by individuals that were
former senior management of, or have some other current or former
relationship with, a registrant. The purpose of the entity may be to
own assets used by the registrant or provide financing or services
to the registrant. Although former management or persons with other
relationships may not meet the definition of a related party
pursuant to FAS 57, the former management positions may result in
negotiation of terms that are more or less favorable than those
available on an arm's-length basis from clearly independent third
parties that are material to the registrant's financial position or
results of operations. In some cases, investors may be unable to
understand the registrant's reported results of operations without a
clear explanation of these arrangements and relationships.
    Commission Statement about Management's Discussion and Analysis
of Financial Condition and Results of Operations, Release No. 33-
8056 (Jan. 22, 2002) [67 FR 3746], at Section II.C.
---------------------------------------------------------------------------

     Is there any reason to change the current meaning of
amount involved in transactions involving leases, which we propose to
retain?
2. Disclosure Requirements
    Proposed subparagraphs of Item 404(a) would provide the disclosure
requirements for related person transactions. The company would be
required to describe the transaction, including:
     The person's relationship to the company;
     The person's interest in the transaction with the company,
including the related person's position or relationship with, or
ownership in, a firm, corporation, or other entity that is a party to
or has an interest in the transaction; and
     The dollar value of the amount involved in the transaction
and of the related person's interest in the transaction.\257\
---------------------------------------------------------------------------

    \257\ As is the case today, the dollar value would be computed
without regard to the amount of the profit or loss involved in the
transaction. Because of the manner in which the value of the amount
involved is calculated for indebtedness, as discussed above,
disclosure with respect to indebtedness would include the largest
aggregate amount of principal outstanding during the period for
which disclosure is provided, as well as the amount of principal and
interest paid during the period for which disclosure is provided,
the aggregate amount of principal outstanding as of the latest
practicable date, and the rate or amount of interest payable on the
indebtedness.
---------------------------------------------------------------------------

    Registrants would also be required to disclose any other
information regarding the transaction or the related person in the
context of the transaction that is material to investors in light of
the circumstances of the particular transaction.
    Consistent with the principles-based approach that we propose to
apply to related person transaction disclosure, we have, as noted
above, eliminated many of the instructions that provide bright line
tests that may be inconsistent with general materiality standards.
Similarly, we propose to eliminate a current instruction that, in the
case of a related person transaction involving a purchase of assets by
the company or sale of assets to the company, calls for specific
disclosure of the cost of the assets if acquired within two years of
the transaction. We would note, however, that if such information was
material under the proposed standards of Item 404(a), because, for
example, the recent purchase price to the related person was materially
less than the sale price to the company, or the sale price to the
related person was materially more than the recent purchase price to
the company, disclosure of such prior purchase price could be
required.\258\
---------------------------------------------------------------------------

    \258\ Section 10(b) of the Exchange Act [15 U.S.C. 78j(b)],
Rules 10b-5 [17 CFR 249,19b-5] and 12b[dash]20 [17 CFR 240.12b-20]
under the Exchange Act and Section 17 of the Securities Act [15
U.S.C. 77q].
---------------------------------------------------------------------------

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

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

Request for Comment
     Should Item 404 require specific disclosure of the person
determining the registrant's purchase or sale price for registrant
purchases or sales of assets not in the ordinary course of business?
     Should Item 404 require disclosure of Section 16(b)-
related indebtedness? Why or why not?
     Consistent with our principles-based approach, should we
specify any other elements of the transaction for disclosure?
3. Exceptions
    The proposed rules would include categories of transactions that do
not fall within the principle and therefore are subject to disclosure
exceptions that we believe are consistent with our principles-based
approach.\260\ The first category of transactions involves
compensation. Disclosure of compensation to an executive officer would
not be required if:
---------------------------------------------------------------------------

    \260\ Proposed Instructions 4, 5, 6, 7 and 8 to Item 404(a).
---------------------------------------------------------------------------

     The compensation is reported pursuant to Item 402 of
Regulation S-K; or
     The executive officer is not an immediate family member of
a related person and such compensation would have been reported under
Item 402 as compensation earned for services to the company if the
executive officer was a named executive officer, and such compensation
had been approved as such by the compensation committee of the board of
directors (or group of independent directors performing a similar
function) of the company.
    Disclosure of compensation to a director (or nominee for director)
would not be required if:
     The compensation is reported pursuant to proposed Item
402(l).\261\
---------------------------------------------------------------------------

    \261\ Proposed Instructions 5 and 6 to Item 404(a), which would
replace current Instruction 1 to Item 404.
---------------------------------------------------------------------------

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

    \262\ In particular, current Instruction 1 to Item 404 covers
the scope of Items 402 and 404. We propose to eliminate this
instruction.
---------------------------------------------------------------------------

    The second category of transactions involves three types of
situations we believe do not raise the potential issues underlying our
principle for disclosure. First, in the case of transactions involving
indebtedness, the following items of indebtedness would be excluded
from the calculation of the amount of indebtedness and need not be
disclosed because they do not have the potential to impact the parties
as the transactions for which disclosure is required: amounts due from
the related person for purchases of goods and services subject to usual
trade terms, for

[[Page 6576]]

ordinary business travel and expense payments and for other
transactions in the ordinary course of business.\263\
---------------------------------------------------------------------------

    \263\ This proposal is based on current Instruction 2 to Item
404(c).
---------------------------------------------------------------------------

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

    \264\ 12 CFR Part 220.
    \265\ See Item III.C.1. and 2. of Industry Guide 3, Statistical
Disclosure by Bank Holding Companies [17 CFR 229.802(c)].
---------------------------------------------------------------------------

     They were made in the ordinary course of business;
     They were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable loans with persons not related to the bank; and
     They did not involve more than the normal risk of
collectibility or present other unfavorable features.\266\
---------------------------------------------------------------------------

    \266\ Proposed Instruction 7 to Item 404(a).
---------------------------------------------------------------------------

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

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

    Finally, we propose an instruction that indicates that a person who
has a position or relationship with a firm, corporation, or other
entity that engages in a transaction with the company shall not be
deemed to have an indirect ``material'' interest within the meaning of
paragraph (a) of Item 404 if:
     The interest arises only: (i) From the person's position
as a director of another corporation or organization which is a party
to the transaction; or (ii) from the direct or indirect ownership by
such person and all other related persons, in the aggregate, of less
than a ten percent equity interest in another person (other than a
partnership) which is a party to the transaction; or (iii) from both
such position and ownership; or
     The interest arises only from the person's position as a
limited partner in a partnership in which the person and all other
related persons, have an interest of less than ten percent, and the
person is not a general partner of and does not have another position
in the partnership.\269\
---------------------------------------------------------------------------

    \269\ Proposed Instruction 8 to Item 404(a). This proposal is
based on parts A and B of current Instruction 8 to Item 404(a). This
proposal would omit the portion of the current instruction
(Instruction 8.C.) regarding interests arising solely from holding
an equity or a creditor interest in a person other than the company
that is a party to the transaction, when the transaction is not
material to the other person. This portion of the current
instruction may result in inappropriate non-disclosure of
transactions without regard to whether they are material to the
company. In addition, we propose to eliminate current Instruction 6
to Item 404(a) that covers a subset of transactions covered by this
proposed instruction, and therefore is duplicative.
---------------------------------------------------------------------------

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

B. Procedures for Approval of Related Person Transactions

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

    \270\ Del. Code Ann. tit. 8, Sec.  144 (2004). See also NYSE,
Inc. Listed Company Manual Section 307.00 and NASD Manual,
Marketplace Rules 4350(h) and 4360(i).
---------------------------------------------------------------------------

    Specifically, the proposal would require a description of the
company's policies and procedures for the review, approval or
ratification of transactions with related persons that would be
reportable under paragraph (a) of Item 404. The description would
include the material features of these policies and procedures that are
necessary to understand them. While the material features of such
policies and procedures would vary depending on the particular
circumstances, examples of such features may include, in given cases,
among other things:
     The types of transactions that are covered by such
policies and procedures, and the standards to be applied pursuant to
such policies and procedures;
     The persons or groups of persons on the board of directors
or otherwise who are responsible for applying such policies and
procedures; and
     Whether such policies and procedures are in writing and,
if not, how such policies and procedures are evidenced.
    The proposal would also require identification of any transactions
required to be reported under paragraph (a) of Item 404 where the
company's policies and procedures did not require review, approval or
ratification or where such policies and procedures were not followed.
Request for Comment
     Should we require disclosure regarding the review,
approval or ratification of related person transactions? Should the
rule include the proposed requirements? Are there other types of
information that are

[[Page 6577]]

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

C. Promoters

    The proposals would require a company to provide disclosure
regarding the identity of promoters and its transactions with those
promoters if the company had a promoter at any time during the last
five fiscal years. The proposed disclosure would be required in
Securities Act registration statements on Form S-1 (generally, the
registration statement form for initial public offerings, offerings by
unseasoned issuers or those with less than $75 million public float and
offerings by issuers otherwise ineligible to use Form S-3 or S-4) or on
Form SB-2 (a registration statement form that small business issuers
may use) and Exchange Act Form 10 (used to register securities
initially under the Exchange Act) or Form 10-SB (a registration form
that small business issuers may use). The proposed disclosure would
include:
     The names of the promoters;
     The nature and amount of anything of value received by
each promoter from the company and the nature and amount of any
consideration received by the company; and
     Additional information regarding any assets acquired by
the company from a promoter.
    The proposed disclosure requirements are consistent with those
currently required regarding promoters. However, this disclosure is not
currently required if the company has been organized more than five
years ago, even if the company otherwise had a promoter within the last
five years. Our staff's experience in reviewing registration
statements, especially of smaller companies, suggests that the more
appropriate five-year test would relate to the period of time during
which the company had a promoter for which the disclosure should be
provided, as our proposal provides, rather than the date of
organization of the company.\271\ We also are proposing to require the
same disclosure that is required for promoters for any person who
acquired control, or is part of a group that acquired control, of an
issuer that is a shell company.\272\
---------------------------------------------------------------------------

    \271\ The proposed rules would similarly revise the disclosure
requirement referencing promoters in Item 401(g)(1) of Regulation S-
K. In addition, our proposal would add Form SB-2 to the list of
registration statement forms in Item 404 for which promoter
disclosure would be required. While this revision would update the
registration statement forms listed in Item 404, it would not change
the promoter disclosure requirement of Form SB-2.
    \272\ Proposed Item 404(c)(2). The term ``group'' would have the
same meaning as in Exchange Act Rule 13d-5(b)(1) [17 CFR 240.13d-
5(b)(1)], that is, any two or more persons that agree to act
together for the purpose of acquiring, holding, voting, or disposing
of equity securities of an issuer.
---------------------------------------------------------------------------

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

D. Corporate Governance Disclosure

    We propose to consolidate our disclosure requirements regarding
director independence and related corporate governance disclosure
requirements under a single disclosure item and to update such
disclosure requirements regarding director independence to reflect our
current requirements and current listing standards.\273\
---------------------------------------------------------------------------

    \273\ Proposed Item 407 of Regulations S-K and S-B. As proposed,
Item 407 would consolidate corporate governance disclosure
requirements located in several places under our rules and the
principal markets' listing standards, including in particular our
requirements under current Items 306, 401(h), (i) and (j), 402(j)
and 404(b) of Regulation S-K and Item 7 of Schedule 14A under the
Exchange Act. We are not proposing any changes to the substance of
Item 306, Item 401(h), (i) or (j), or Item 402(j) as part of this
consolidation. However, the proposed rules would reorder some
provisions in Item 306 and reflect the relevant Public Company
Accounting Oversight Board rules. See PCAOB Rulemaking: Public
Company Accounting Oversight Board; Order Approving Proposed
Technical Amendments to Interim Standards Rules, Release No. 34-
49624 (Apr. 28, 2004) [69 FR 24199]; and Order Regarding Section
101(d) of the Sarbanes-Oxley Act of 2002, Release No. 33-8223 (Apr.
25, 2003) [68 FR 2336].
---------------------------------------------------------------------------

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

    \274\ Current Item 404(b).
    \275\ Section 10A(m) of the Exchange Act [15 U.S.C. 78j-1(m)],
as added by Section 301of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7201 et seq.); Exchange Act Rule 10A-3 [17 CFR 240.10A-3]; and
Standards Relating to Listed Company Audit Committees, Release No.
33-8220 (Apr. 9, 2003) [68 FR 18788].
    \276\ NASD and NYSE Listing Standards Release. The other
exchanges have also adopted corporate governance listing standards.
See Order Granting Approval of Proposed Rule Change by the American
Stock Exchange LLC and Notice of Filing and Order Granting
Accelerated Approval of Amendment No. 2 Relating to Enhanced
Corporate Governance Requirements Applicable to Listed Companies,
Release No. 34-48863 (Dec. 1, 2003) [68 FR 68432]; Notice of Filing
and Order Granting Accelerated Approval of Proposed Rule Change and
Amendment Nos. 1 and 2 Thereto by the Philadelphia Stock Exchange,
Inc. Relating to Corporate Governance, Release No. 34-49881 (June
17, 2004) [69 FR 35408]; Order Approving Proposed Rule Change and
Notice of Filing and Order Granting Accelerated Approval to
Amendment Nos. 2 and 3 to the Proposed Rule Change by the Chicago
Stock Exchange, Inc. Relating to Governance of Issuers on the
Exchange, Release No. 34-49911 (June 24, 2004) [69 FR 39989]; Notice
of Filing and Order Granting Accelerated Approval of Proposed Rule
Change by the Boston Stock Exchange, Inc. to Amend Chapter XXVII,
Section 10 of the Rules of the Board of Governors by Adding
Requirements Concerning Corporate Governance Standards of Exchange-
Listed Companies, Release No. 34-49955 (July 1, 2004) [69 FR 41555];
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change and Amendment Nos. 1 and 2 Thereto by the Chicago Board
Options Exchange, Incorporated, Relating to Enhanced Corporate
Governance Requirements for Listed Companies, Release No. 34-49995
(July 9, 2004) [69 FR 42476]; Notice of Filing and Order Granting
Accelerated Approval of Proposed Rule Change and Amendment Nos. 1
and 2 Thereto by National Stock Exchange Relating to Corporate
Governance, Release No. 34-49998 (July 9, 2004) [69 FR 42788]; and
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
by the Pacific Exchange, Inc. to Amend the Corporate Governance
Requirements for PCX Listed Companies, Release No. 34-50677 (Nov.
16, 2004) [69 FR 68205].
    The Commission has previously received a rulemaking petition
submitted by the AFL/CIO, which requested the Commission to amend
Items 401 and 404 of Regulation S-K to require disclosure about
transactions with non-profit organizations (letter dated Dec. 12,
2001 from Richard Trumka, Secretary-Treasurer, AFL/CIO, File No. 4-
499, available at http://www.sec.gov/rules/petitions/petn4-499.pdf) and a

rulemaking petition submitted by the Council of Institutional
Investors, which requested amendments to Item 401 of Regulation S-K
to require disclosure of certain transactions between directors,
executive officers and nominees (letter dated Oct. 1, 1997, as
amended Oct. 19, 1998, from Sarah A.B. Teslik, Executive Director,
Council of Institutional Investors, File No. 4-404). We believe
these requests have in large part been addressed by revised listing
standards instituted by the exchanges, so that we are not now
proposing additional action under these petitions.
---------------------------------------------------------------------------

    The proposals would include a disclosure requirement identifying
the

[[Page 6578]]

independent directors of the company (and, in the case of disclosure in
proxy or information statements, nominees for director) under the
definition for determining board independence applicable to it. The
proposals would also require disclosure of any members of the
compensation, nominating and audit committee that the company had not
identified as independent under the definition of independence for that
board committee applicable to it.
    More specifically, if the company is an issuer \277\ with
securities listed, or for which it has applied for listing, on a
national securities exchange \278\ or in an automated inter-dealer
quotation system of a national securities association \279\ which has
requirements that a majority of the board of directors be independent,
the proposal would require disclosure of those directors and director
nominees that the company identifies as independent (and committee
members not identified as independent), using a definition for
independence for directors (and for committee members) that is in
compliance with the applicable listing standards. If the company is not
a listed issuer, the proposals would require disclosure of those
directors and director nominees that the company identifies as
independent (and committee members not identified as independent) using
the definition for independence for directors (and for committee
members) of a national securities exchange or a national securities
association, specified by the company. The company would be required to
apply the same definition consistently to all directors and also to use
the independence standards of the same national securities exchange or
national securities association for purposes of determining the
independence of members of the compensation, nominating and audit
committees.\280\
---------------------------------------------------------------------------

    \277\ Under the rule proposals, ``listed issuer'' would have the
same meaning as in Exchange Act Rule 10A-3.
    \278\ Under the rule proposals ``national securities exchange''
means a national securities exchange registered pursuant to Section
6(a) of Exchange Act [15 U.S.C. 78f(a)].
    \279\ Under the rule proposals ``automated inter-dealer
quotation system of a national securities association'' means an
automated inter-dealer quotation system of a national securities
association registered pursuant to Section 15A(a) of the Exchange
Act [15 U.S.C. 78o-3(a)].
    \280\ Similar disclosure is currently required pursuant to Item
7(d)(2)(ii)(C) and Item 7(d)(3)(iv) of Schedule 14A. As part of our
consolidation of these provisions into proposed Item 407, we propose
to revise these provisions to reflect the general approach discussed
above with regard to disclosure of director independence for board
and committee purposes.
---------------------------------------------------------------------------

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

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

    In addition, the proposals would require, for each director or
director nominee identified as independent, a description of any
transactions, relationships or arrangements not disclosed pursuant to
paragraph (a) of Item 404 that were considered by the board of
directors of the company in determining that the applicable
independence standards were met.
    This independence disclosure would be required for any person who
served as a director of the company during any part of the year for
which disclosure must be provided,\282\ even if the person no longer
serves as director at the time of filing the registration statement or
report or, if the information is in a proxy statement, if the
director's term of office as a director will not continue after the
meeting. In this regard, we believe that the independence status of a
director is material while the person is serving as director, and not
just as a matter of reelection.\283\
---------------------------------------------------------------------------

    \282\ However, disclosure would not be required for persons no
longer serving as a director in registration statements under the
Securities Act or the Exchange Act filed at a time when the company
is not subject to the reporting requirements of Exchange Act
Sections 13(a) or 15(d). Disclosure would not be required of anyone
who was a director only during the time period before the company
made its initial public offering if he was no longer a director at
the time of the offering. Proposed Instruction to Item 407(a).
    \283\ For this reason, we do not propose to incorporate the
concept in current Instruction 4 to Item 404(b) into proposed Item
407(a).
---------------------------------------------------------------------------

    The proposals also would revise the current disclosure required
regarding the audit committee and nominating committee \284\ to
eliminate duplicative committee member independence disclosure and to
update the required audit committee charter disclosure requirement for
consistency with the more recently adopted nominating committee charter
disclosure requirements.\285\ As a result, the audit committee charter
would no longer be required to be delivered to security holders if it
is posted on the company's Web site.\286\ We also propose moving the
disclosure required by Section 407 of the Sarbanes-Oxley Act regarding
audit committee financial experts to Item 407, although we are not
proposing any substantive changes to that requirement.
---------------------------------------------------------------------------

    \284\ Current Item 7 of Schedule 14A.
    \285\ However, we are not proposing to revise the provision that
the audit committee report is furnished and not filed.
    \286\ Proposed Item 407(d)(1) and Instruction 2 to Item 407.
---------------------------------------------------------------------------

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

    \287\ Current Item 7(d) of Schedule 14A. These new proposed
requirements also would be in proposed Item 407(e).
---------------------------------------------------------------------------

     The scope of authority of the compensation committee (or
persons performing the equivalent functions);
     The extent to which the compensation committee (or persons
performing the equivalent functions) may delegate any authority to
other persons, specifying what authority may be so delegated and to
whom;
     Whether the compensation committee's authority is set
forth in a charter or other document, and if so, the company's Web site
address at which a current copy is available if it is so posted, and if
not so posted, attaching the charter to the proxy statement once every
three years;
     Any role of executive officers in determining or
recommending the amount or form of executive and director compensation;
and
     Any role of compensation consultants in determining or
recommending the amount or form of executive and director compensation,
identifying such consultants, stating whether such consultants are
engaged directly by the compensation committee (or persons performing
the equivalent functions) or any other person, describing the nature
and scope of their assignment, the material elements of the
instructions or directions given to the consultants with respect to the
performance of their duties under the engagement and identifying any
executive officer within the company the consultants contacted in
carrying out their assignment.

[[Page 6579]]

    In addition, as noted above, disclosure would be required regarding
each member of the compensation committee that the registrant has
identified as not independent.
    Further, the rule proposals would consolidate into this
compensation committee disclosure requirement the disclosure currently
required in Item 402 regarding compensation committee interlocks and
insider participation in compensation decisions.\288\
---------------------------------------------------------------------------

    \288\ Current Item 402(j).
---------------------------------------------------------------------------

    Finally, for registrants other than registered investment
companies, the rule proposals would eliminate an existing proxy
disclosure requirement regarding directors that have resigned or
declined to stand for re-election \289\ which is no longer necessary
since it has been superseded by a disclosure requirement in Form 8-
K.\290\ For registered investment companies, which do not file Form 8-
K, the requirement would be moved to Item 22(b) of Schedule 14A.\291\
Also, the rule proposals would combine various proxy disclosure
requirements regarding board meetings and committees into one
location.\292\ In addition, we propose two instructions to Item 407 to
combine repetitive provisions, one relating to independence disclosure,
and the other relating to board committee charters.\293\
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    \289\ Item 7(g) of Schedule 14A.
    \290\ Item 5.02(a) of Form 8-K.
    \291\ Proposed Item 22(b)(17) of Schedule 14A.
    \292\ Current paragraphs (d)(1), (f), and (h)(3) of Item 7 of
Schedule 14A would be included in proposed Item 407(b).
    \293\ Proposed Instructions 1 and 2 to Item 407. Proposed
Instruction 2 also includes a requirement that the charter be
provided if it is materially amended.
---------------------------------------------------------------------------

Request for Comment
     Should the disclosure requirements proposed to be
consolidated in Item 407 continue to remain separate? If so, why? Is
the proposed location of this consolidated disclosure appropriate,
including the proposed options for disclosing adopted independence
definitions?
     Are there independence standards that would be preferable
to the ones referenced in proposed new Item 407?
     Should companies that are not listed on a national
securities exchange or on an inter-dealer quotation system of a
national securities association be able to reference their own
standards of independence that they have adopted, or should those
companies be required to refer to established listing standards as
proposed?
     Should we require as proposed a description of
transactions considered (other than those that would be reported under
proposed Item 404(a)) when determining if the independence standards
were met?
     Is there any reason why we should not eliminate the
requirement that companies provide disclosure in their proxy statements
regarding directors who have resigned or declined to stand for re-
election? \294\
---------------------------------------------------------------------------

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

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

E. Treatment of Specific Types of Issuers

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

    \295\ This instruction, which is current Instruction 2 to Item
404 of Regulation S-B, is proposed Instruction 9 to Item 404 of
Regulation S-B.
---------------------------------------------------------------------------

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

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

    In addition, proposed Item 404 of Regulation S-B would retain a
paragraph from current Item 404 of Regulation S-B requiring disclosure
of a list of all parents of the small business issuer showing the basis
of control and as to each parent, the percentage of voting securities
owned or other basis of control by its immediate parent, if any.
    One conforming change that we are not making, however, concerns the
calculation of a related person's interest in a given transaction.
Current Item 404(a) of Regulation S-B differs from current Item 404(a)
of S-K with respect to, among other things, the calculation of the
dollar value of a person's interest in a related transaction. Current
Instruction 4 to Item 404(a) of Regulation S-K specifically provides
that the amount of such interest shall be computed without regard to
the amount of profit or loss involved in the transaction. In contrast,
current Item 404(a) of Regulation S-B contains no such instruction. We
propose that the method of calculation of a related person's interest
in a transaction will be the same for both Regulation S-B and
Regulation S-K. We believe that differences, if any, between the types
of

[[Page 6580]]

transactions that small business issuers may engage in with related
persons as compared to transactions of larger issuers would not warrant
a different approach for calculating a related person's interest in a
transaction.
    Proposed Item 407 of Regulation S-K is substantially identical to
proposed Item 407 of Regulation S-B,\297\ except that it would it would
not require disclosure regarding compensation committee interlocks and
insider participation in compensation decisions, since Regulation S-B
currently does not require disclosure of this information.\298\
---------------------------------------------------------------------------

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

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

    \299\ Proposed amendments to Item 7(e) of Schedule 14A. Business
development companies would furnish the information required by Item
7 of Schedule 14A, in addition to the information required by Items
8 and 22(b) of Schedule 14A. See proposed amendments to Items 7, 8,
and 22(b) of Schedule 14A.
    \300\ Proposed Items 22(b)(15)(i) and (ii)(A) and 22(b)(16)(i)
of Schedule 14A. Proposed Item 22(b)(15)(i) would require the
information required by Items 407(b)(1) and (2) and (f),
corresponding to the information that registered investment
companies are required to provide pursuant to current Items 7(f) and
7(h). Proposed Item 22(b)(15)(ii)(A) would require the information
required by proposed Items 407(c)(1) and (2), corresponding to the
information that registered investment companies are required to
provide pursuant to current Items 7(d)(2)(i) and 7(d)(2)(ii) (other
than the nominating committee independence disclosures required by
current Item 7(d)(2)(ii)(C)). Proposed Item 22(b)(16)(i) would
require closed-end investment companies to provide the information
required by proposed Items 407(d)(1) through (3), corresponding to
the information that closed-end investment companies are required to
provide pursuant to current Item 7(d)(3) (other than the audit
committee independence disclosures required by Items
7(d)(3)(iv)(A)(1) and (B)).
    \301\ Proposed Items 22(b)(15)(ii)(B) and (16)(ii) of Schedule
14A. Proposed Item 22(b)(15)(ii)(B) requires disclosure about the
independence of nominating committee members that is similar to
those required by current Item 7(d)(2)(ii)(C) and proposed Item
22(b)(16)(ii) requires disclosure about the independence of audit
committee members that is similar to those required by current Items
7(d)(3)(iv)(A)(1) and (B).
---------------------------------------------------------------------------

    We are also proposing to raise from $60,000 to $120,000 the
threshold for disclosure of certain interests, transactions, and
relationships of each director or nominee for election as director who
is not or would not be an ``interested person'' of an investment
company within the meaning of Section 2(a)(19) of the Investment
Company Act.\302\ This disclosure is required in investment company
proxy and information statements and registration statements. The
increase in the disclosure threshold would correspond to the proposal
to increase the disclosure threshold for Item 404 from $60,000 to
$120,000.
---------------------------------------------------------------------------

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

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

F. Conforming Amendments

    The changes we propose to Item 404 necessitate conforming
amendments to

[[Page 6581]]

other rules that refer specifically to Item 404.
1. Regulation Blackout Trading Restriction
    We are proposing conforming changes to Regulation Blackout Trading
Restriction,\303\ also known as Regulation BTR, which we adopted to
clarify the scope and operation of Section 306(a) \304\ of the
Sarbanes-Oxley Act of 2002 and to prevent evasion of the statutory
trading restriction.\305\ Rule 100 of Regulation BTR defines terms used
in Section 306(a) and Regulation BTR, including the term ``acquired in
connection with service or employment as a director or executive
officer.'' \306\ Under this definition, one of the specified methods by
which a director or executive officer directly or indirectly acquires
equity securities in connection with such service is an acquisition
``at a time when he or she was a director or executive officer, as a
result of any transaction or business relationship described in
paragraph (a) or (b) of Item 404 of Regulation S-K.'' \307\ To conform
this provision of Regulation BTR to the proposed Item 404 amendments,
we propose to amend Rule 100(a)(2) so that it references only
transactions described in paragraph (a) of Item 404.
---------------------------------------------------------------------------

    \303\ 17 CFR 245.100-104.
    \304\ 15 U.S.C. 7244(a), entitled ``Prohibition of Insider
Trading During Pension Fund Blackout Periods.''
    \305\ Insider Trades During Pension Fund Blackout Periods,
Release No. 34-47225 (Jan. 22, 2003) [68 FR 4337]. Section 306(a)
makes it unlawful for any director or executive officer of an issuer
of any equity security (other than an exempted security), directly
or indirectly, to purchase, sell, or otherwise acquire or transfer
any equity security of the issuer (other than an exempted security)
during any pension plan blackout period with respect to such equity
security, if the director or executive officer acquired the equity
security in connection with his or her service or employment as a
director or executive officer. This provision equalizes the
treatment of corporate executives and rank-and-file employees with
respect to their ability to engage in transactions involving issuer
equity securities during a pension plan blackout period if the
securities were acquired in connection with their service to, or
employment with, the issuer.
    \306\ This term is defined in Rule 100(a) of Regulation BTR.
    \307\ Rule 100(a)(2) of Regulation BTR.
---------------------------------------------------------------------------

2. Rule 16b-3 Non-Employee Director Definition
    We also are proposing conforming amendments to the definition of
Non-Employee Director in Exchange Act Rule 16b-3. Section 16(b)
provides an issuer (or shareholders suing on its behalf) the right to
recover from an officer, director, or ten percent shareholder profits
realized from a purchase and sale of issuer equity securities within a
period of less than six months. However, Rule 16b-3 exempts
transactions between issuers of securities and their officers and
directors if specified conditions are met. In particular, acquisitions
from and dispositions to the issuer are exempt if the transaction is
approved in advance by the issuer's board of directors, or board
committee composed solely of two or more Non-Employee Directors.\308\
---------------------------------------------------------------------------

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

    The definition of ``Non-Employee Director,'' among other things,
limits these directors to those who:
     Do not directly or indirectly receive compensation from
the issuer, its parent or subsidiary for consulting or other non-
director services, except for an amount that does not exceed the Item
404(a) dollar disclosure threshold;
     Do not possess an interest in any other transaction for
which Item 404(a) disclosure would be required; and
     Are not engaged in a business relationship required to be
disclosed under Item 404(b).
    As described above, the Item 404 proposals would substantially
revise or rescind the Item 404 provisions on which the Non-Employee
Director definition is based. To minimize potential disruptions and
because no problems have been brought to our attention regarding any
aspect of the current definition, the proposed conforming amendment
would continue to permit consulting and similar arrangements subject to
limits measured by reference to the proposed Item 404(a) disclosure
requirements.\309\ The amendment would delete the provision referring
to business relationships subject to disclosure under Item 404(b),
without otherwise revising the text of the rule.\310\ Because the
disclosure threshold of Item 404(a) would be raised from $60,000 to
$120,000, however, the effect in some cases may be to permit previously
ineligible directors to be Non-Employee Directors.\311\ In other cases,
where proposed Item 404(a) may require disclosure of business
relationships not subject to disclosure under current Item 404(b), some
current Non-Employee Directors may become ineligible.
---------------------------------------------------------------------------

    \309\ Because it appears appropriate that the standards for an
exemption from Section 16(b) liability be readily determinable by
reference to the exemptive rule, and not variable depending upon
where the issuer's securities are listed, we do not propose to base
the amended definition on the listing standards for director
independence applicable to the issuer.
    \310\ Exchange Act Rule 16b-3(b)(3)(ii), which defines a Non-
Employee Director of a closed-end investment company as ``a director
who is not an ``interested person'' of the issuer, as that term is
defined in Section 2(a)(19) of the Investment Company Act of 1940,''
would not be revised.
    \311\ As under the current rule, each test referring to Item 404
will be measured by reference to the Regulation S-K Item, even if
the disclosure requirements applicable to the company are governed
by Regulation S-B.
---------------------------------------------------------------------------

Request for Comment
     Should the Rule 16b-3 Non-Employee Director definition
continue to permit consulting or similar arrangements with the issuer,
as proposed?
     Is the proposed Item 404(a) disclosure threshold an
appropriate limit for permitting consulting or similar arrangements?
Instead, should the dollar limit be lower, such as the current $60,000
threshold? Explain the basis for recommending a different dollar limit.
     For business relationships for which disclosure is not
required by current Item 404(b), but would be under proposed Item
404(a), should there be a different test? Are there any particular
transactions or relationships that would become disclosable under
proposed Item 404(a) that should not render a director ineligible to be
a Non-Employee Director? If so, explain why.
     Would continued use of Item 404 as a measure for defining
Non-Employee Directors place an undue burden on companies in forming
their Non-Employee Director committees? Would reference to another
disclosure requirement or standard be better?
3. Other Conforming Amendments
    The changes we propose to Item 404, along with the consolidation of
provisions into Item 407, necessitate conforming amendments to various
forms and schedules under the Securities Act and the Exchange Act. The
rule proposals would amend:
     Forms that require disclosure of the information required
by Item 404 to instead require disclosure of the information required
by proposed Items 404 and 407(a); \312\
---------------------------------------------------------------------------

    \312\ See proposed amendments to Item 15 of Form SB-2, Item
11(n) of Form S-1, Item 18(a)(7)(iii) and Item 19(a)(7)(iii) of Form
S-4, Item 23 of Form S-11, Item 7 of Form 10, Item 13 of Form 10-K,
Item 7 of Form 10-SB, and Item 12 of Form 10-KSB. The proposed
amendments to Forms SB-2, 10-SB and 10-KSB would require disclosure
of the information required by proposed Items 404 and 407(a) of
Regulation S-B.
---------------------------------------------------------------------------

     Some forms that require disclosure of the information
required by Item 404(a) or by Items 404(a) and (c), to instead require
disclosure of the information required by proposed Items 404(a) and
(b), or proposed Item 404(a), as appropriate; \313\
---------------------------------------------------------------------------

    \313\ See proposed amendments to Item 7(b) of Schedule 14A,
which refers to proposed Items 404(a) and (b), and Item 22(b)(11)
and the Instruction to Item 22(b)(11) of Schedule 14A, and Item
5.02(c)(2) of Form 8-K, which refer to proposed Item 404(a). The
proposed amendments to Form 8-K that reference paragraphs (a) and
(b) of Item 404 of Regulation S-B would require disclosure of the
information required by proposed Item 404(a) of Regulation S-B.

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

[[Page 6582]]

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

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

     Item 7 of Schedule 14A to require disclosure of the
information required by proposed Item 407(a) rather than current Item
404(b), and to eliminate current paragraphs (d)-(h) which are
duplicative of proposed Item 407 and replace them with a requirement to
disclose information specified by corresponding paragraphs of Item 407;
     Forms that require disclosure of the information required
by Item 402 to instead require disclosure of the information required
by proposed Item 402 and Item 407(e)(4); \315\
---------------------------------------------------------------------------

    \315\ See proposed amendments to Item 8 of Schedule 14A, Item
11(l) of Form S-1, General Instruction I.B.4.(c) to Form S-3, Items
18(a)(7)(ii) and 19(a)(7)(ii) of Form S-4, Item 22 of Form S-11,
Item 6 of Form 10 and Item 11 of Form 10-K.
---------------------------------------------------------------------------

     Some forms that require disclosure of the information
required by Item 401 to instead require disclosure of the information
required by Item 401 and paragraphs (c)(3), (d)(4) and/or (d)(5) of
proposed Item 407, as appropriate; \316\
---------------------------------------------------------------------------

    \316\ See proposed amendments to General Instruction I.B.4.(c)
of Form S-3, and Item 10 of Form 10-K, which refer to Item 401 and
paragraphs (c)(3), (d)(4) and (d)(5) of proposed Item 407, and Item
7(b) of Schedule 14A, which refers to Item 401 and paragraphs (d)(4)
and (d)(5) of proposed Item 407.
    The proposed amendments to Forms SB-2, 10-SB and 10-KSB would
require disclosure of the information required by proposed Items 401
and 407(c)(3), (d)(4) and (d)(5) of Regulation S-B. We are not
proposing any changes to the reference to Item 401 in Note G to Form
10-K, however, because the portion of Item 401 applicable in Note G
(certain disclosure regarding executive officers) does not include
the part of Item 401 that we propose to combine into proposed Item
407.
---------------------------------------------------------------------------

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

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

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

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

VI. Plain English Disclosure

    We are proposing that most of the disclosure required by proposed
Items 402, 403, 404 and 407 be provided in plain English. We propose
that this plain English requirement apply when information responding
to these items is included (whether directly or through incorporation
by reference) in reports required to be filed under Exchange Act
Sections 13(a) or 15(d).
    In 1998, we adopted rule changes requiring issuers to write the
cover page, summary and risk factors section of prospectuses in plain
English and apply plain English principles to other portions of the
prospectus.\319\ These rules transformed the landscape of public
offering disclosure and made prospectuses more accessible to investors.
We believe that plain English principles should apply to the disclosure
requirements that we propose to revise, so disclosure provided in
response to those requirements is easier to read and understand.
Clearer, more concise presentation of executive and director
compensation, related person transactions, beneficial ownership and
corporate governance matters can facilitate more informed investing and
voting decisions in the face of complex information about these
important areas.
---------------------------------------------------------------------------

    \319\ Plain English Disclosure, Release No. 33-7497 (Jan. 28,
1998) [63 FR 6369] (adopting revisions to Securities Act Rule 421
[17 CFR 230.421]). We have also required that risk factor disclosure
included in annual reports and Summary Term Sheets in business
combination filings be in plain English. See General Instruction 1A.
to Form 10-K and Item 1001 of Regulation M-A 17 CFR 229.1001],
respectively.
---------------------------------------------------------------------------

    We propose to add Exchange Act Rules 13a-20 and 15d-20 to require
that companies prepare their executive and director compensation,
related person transactions, beneficial ownership and corporate
governance disclosures included in Exchange Act reports using plain
English principles, including the following standards:
     Present information in clear, concise sections, paragraphs
and sentences;
     Use short sentences;
     Use definite, concrete, everyday words;
     Use the active voice;
     Avoid multiple negatives;
     Use descriptive headings and subheadings;
     Use a tabular presentation or bullet lists for complex
material, wherever possible;
     Avoid legal jargon and highly technical business and other
terminology;
     Avoid frequent reliance on glossaries or defined terms as
the primary means of explaining information, defining terms in the
glossary or other section of the document only if the meaning is
unclear from the context and using a glossary only if it facilitates
understanding of the disclosure; and
     In designing the presentation of the information, include
pictures, logos, charts, graphs, schedules, tables or other design
elements so long as the design is not misleading and the required
information is clear, understandable, consistent with applicable
disclosure requirements and any other included information, drawn to
scale and not misleading.
    The proposed rule would also provide additional guidance on
drafting the disclosure that would comply with plain English
principles, including guidance as to the following practices that
registrants should avoid:
     Legalistic or overly complex presentations that make the
substance of the disclosure difficult to understand;
     Vague ``boilerplate'' explanations that are imprecise and
readily subject to different interpretations;
     Complex information copied directly from legal documents
without any clear and concise explanation of the provision(s); and
     Disclosure repeated in different sections of the document
that increases the size of the document but does not enhance the
quality of the information.
    Under the proposed rules, if the executive compensation, beneficial
ownership, related person transaction or corporate governance matters
disclosure were incorporated by reference into an Exchange Act report
from a company's proxy or information statement, the disclosure would
be required to be in plain English in the proxy or information
statement.\320\ The plain English rules are proposed as part of the
disclosure rules applicable to filings required under Sections 13(a)
and 15(d) of the Exchange Act. We believe that these plain English
requirements are

[[Page 6583]]

best administered by the Commission under these rules.
---------------------------------------------------------------------------

    \320\ See, e.g., General Instruction G(3) to Form 10-K and
General Instruction E.3. to Form 10-KSB (specifying information that
may be incorporated by reference from a proxy or information
statement in an annual report on Form 10-K or 10-KSB).
---------------------------------------------------------------------------

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

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

VII. Transition

    We propose that, following their adoption, the proposed new rules
and amendments would become effective following publication of the
adopting release in the Federal Register as follows:
     For Forms 10-K and 10-KSB, for fiscal years ending 60 days
or more after publication;
     For Forms 8-K, for triggering events that occur 60 days or
more after publication;
     For Securities Act and Investment Company Act registration
statements (including post-effective amendments) and Exchange Act
registration statements that become effective 120 days or more after
publication; and
     For proxy statements that are filed 90 days or more after
publication.\322\
---------------------------------------------------------------------------

    \322\ The proposed amendments to the cross-references in Item 10
of Form N-CSR would appear in the Form concurrent with the effective
date of the amendments to our proxy rules, and would be effective
for a particular registrant's Forms N-CSR that are filed after the
filing of any proxy statement that includes a response to proposed
Item 407(c)(2)(iv) of Regulation S-K (as required by proposed Item
22(b)(15) of Schedule 14A). The substance of the information
required by the Item would not be changed.
---------------------------------------------------------------------------

    We do not propose to require companies to ``restate'' compensation
or related person transaction disclosure for fiscal years for which
they previously were required to apply the current rules. Instead, the
proposed Summary Compensation Table and disclosure required by proposed
Item 404(a) would be required only for the most recent fiscal
year.\323\ This would result in phased-in implementation of the
proposed Summary Compensation Table amendments and proposed Item 404(a)
disclosure over a three-year period for Regulation S-K companies, and a
two-year period for Regulation S-B companies.
---------------------------------------------------------------------------

    \323\ The other proposed executive and director compensation
disclosure requirements which relate to the last completed fiscal
year would not be affected by this proposed transition approach. The
Summary Compensation Table would be treated differently because, as
proposed, it would require disclosure of compensation to the named
executive officers for the last three fiscal years.
---------------------------------------------------------------------------

Request for Comment
     Is the proposed effectiveness schedule workable?
     Is the proposed phased-in transition provision for the
amended Summary Compensation Table and proposed related person
transaction disclosure necessary? Could companies revise the previous
years' required disclosure to conform to the amended requirements
without incurring undue costs or burdens?
     Are any special transition provisions necessary for any
other aspects of the proposed amendments? If so, explain what would be
needed and why.
General Request for Comments
    We request and encourage any interested person to submit comments
on any aspect of our proposals and any other matters that might have an
impact on the amendments. We request comment from companies and all
users of the executive compensation, related party and corporate
governance information required by Commission rules that may be
affected by the proposals. With respect to any comments, we note that
they are of greatest assistance to our rulemaking initiative if
accompanied by supporting data and analysis of the issues addressed in
those comments and by alternatives to our proposals where appropriate.

VIII. Paperwork Reduction Act

A. Background

    The proposed rules and amendments contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995.\324\ We are submitting these to the Office of
Management and Budget for review and approval in accordance with the
Paperwork Reduction Act.\325\ The titles for this information are:
\326\
---------------------------------------------------------------------------

    \324\ 44 U.S.C. 3501 et seq.
    \325\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
    \326\ The paperwork burden from Regulations S-K and S-B is
imposed through the forms that are subject to the requirements in
those Regulations and is reflected in the analysis of those forms.
To avoid a Paperwork Reduction Act inventory reflecting duplicative
burdens, for administrative convenience we estimate the burdens
imposed by each of Regulations S-K and S-B to be a total of one
hour.
---------------------------------------------------------------------------

    (1) ``Regulation S-B'' (OMB Control No. 3235-0417);
    (2) ``Regulation S-K'' (OMB Control No. 3235-0071);
    (3) ``Form SB-2'' (OMB Control No. 3235-0418);
    (4) ``Form S-1'' (OMB Control No. 3235-0065);
    (5) ``Form S-4'' (OMB Control Number 3235-0324);
    (6) ``Form S-11'' (OMB Control Number 3235-0067);
    (7) ``Regulation 14A and Schedule 14A'' (OMB Control Number 3235-
0059);
    (8) ``Regulation 14C and Schedule 14C'' (OMB Control Number 3235-
0057);
    (9) ``Form 10'' (OMB Control No. 3235-0064);
    (10) ``Form 10-SB'' (OMB Control No. 3235-0419);
    (11) ``Form 10-K'' (OMB Control No. 3235-0063);
    (12) ``Form 10-KSB'' (OMB Control No. 3235-0420);
    (13) ``Form 8-K'' (OMB Control No. 3235-0060); and
    (14) ``Form N-2'' (OMB Control No. 3235-0026).
    We adopted all of the existing regulations and forms pursuant to
the

[[Page 6584]]

Securities Act and the Exchange Act. In addition, we adopted Form N-2
pursuant to the Investment Company Act. These regulations and forms set
forth the disclosure requirements for annual \327\ and current reports,
registration statements, proxy statements and information statements
that are prepared by issuers to provide investors with the information
they need to make informed investment decisions in registered offerings
and in secondary market transactions, as well as informed voting
decisions in the case of proxy statements.
---------------------------------------------------------------------------

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

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

B. Summary of Information Collections

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

    \328\ The proposed disclosure requirements regarding executive
and director compensation, beneficial ownership, related person
transactions and parts of the proposed corporate governance
disclosure requirements are in Form 10-K, Schedule 14A and Schedule
14C. Form 10-K permits the incorporation by reference of information
in Schedules 14A or 14C to satisfy the disclosure requirements of
Form 10-K. The analysis that follows assumes that companies would
either provide the proposed disclosure in a Form 10-K only, if the
company is not subject to the proxy rules, or would incorporate the
required disclosure into the Form 10-K by reference to the proxy or
information statement if the company is subject to the proxy rules.
This approach takes into account the burden from the proposed
disclosure requirements that are included in both the Form 10-K and
in Schedule 14A or 14C.
---------------------------------------------------------------------------

     An expanded and reorganized Summary Compensation Table,
which would require expanded disclosure of a ``total compensation''
amount, and information necessary for computing the total amount of
compensation, such as the grant date fair value of stock-based and
option-based awards computed in accordance with FAS 123R, and the
aggregate increase in actuarial value of defined benefit and actuarial
pension plans;
     Disclosure at lower thresholds of information regarding
perquisites and other personal benefits;
     A more focused presentation of compensation plan awards in
a Grants of Performance-Based Awards Table and a Grants of All Other
Equity Awards Table, which would build upon existing tabular
disclosures regarding long term incentive plans and awards of option
and stock appreciation rights to supplement the information proposed to
be included in the Summary Compensation Table;
     Expanded disclosure regarding holdings and exercises by
named executive officers of outstanding previously awarded stock,
options and similar instruments which would include the grant date of
the award, the vesting date of restricted stock and similar instruments
and amounts (both number of shares and value) realized upon vesting and
the previously reported grant date fair value of awards exercised or
vested;
     Improved narrative disclosure accompanying data presented
in the executive compensation tables and a new Compensation Discussion
and Analysis section to explain material elements of compensation of
named executive officers;
     Disclosure regarding up to three employees who were not
executive officers and whose total compensation for the last completed
fiscal year was greater than that of any of the named executive
officers;
     New tables and narrative disclosure regarding retirement
plans and nonqualified defined contribution and other deferred
compensation plans;
     Expanded disclosure regarding post-employment payments
other than pursuant to retirement and deferred compensation plans;
     A new table and improved narrative disclosure for director
compensation to replace current disclosure requirements;
     Disclosure regarding additional related persons under the
proposed related person transaction disclosure requirement;
     New disclosure regarding a company's policies and
procedures for the review, approval or ratification of transactions
with related persons;
     New and reorganized disclosure regarding corporate
governance matters such as the independence of directors and members of
the nominating, compensation and audit committees of the board of
directors; and
     Additional disclosure regarding pledges of securities by
officers and directors and directors' qualifying shares.
    At the same time, the proposals would decrease existing disclosure
burdens for annual reports on Form 10-K and registration statements on
Form 10, S-1, S-4 and S-11 by:
     Eliminating requirements to provide a Compensation
Committee Report and Performance Graph in proxy materials and
information statements, which would substantially offset the increased
burdens regarding Compensation Discussion and Analysis that would be
required to be included or incorporated by reference in annual reports
or registration statements;
     Eliminating tabular presentation regarding projected stock
option values under alternative stock appreciation scenarios, which
would substantially offset the increased burdens regarding equity
holdings and exercises;
     Eliminating a generalized tabular presentation regarding
defined benefit plans, which would offset in part the increased burdens
regarding defined benefit plan disclosure;
     Increasing the dollar value threshold for determining if
related person transaction disclosure is required from $60,000 to
$120,000; and
     Eliminating a current disclosure requirement regarding
specific director

[[Page 6585]]

relationships that could affect independence.
    In addition, the proposals may increase or decrease existing
disclosure burdens, or not affect them at all, for annual reports on
Form 10-K and registration statements on Form 10, S-1, S-4 and S-11,
depending on a company's particular circumstances, by:
     Eliminating the requirement to include in proxy or
information statements a compensation committee report on the repricing
of options and stock appreciation rights and a table reporting on the
repricing of options and stock appreciation rights over the past ten
years, in favor of a narrative discussion of repricings, if any
occurred in the last fiscal year, which would be required to be
included or incorporated by reference in annual reports and
registration statements; and
     Eliminating or reducing the scope of instructions that
provide bright line tests for determining whether transactions with
related persons are required to be disclosed in particular
circumstances.
    Specifically with respect to proxy and information statements, the
proposals would impose a new disclosure requirement regarding the
company's processes and procedures for the consideration and
determination of executive and director compensation, and disclosure
regarding the availability of the compensation committee's charter (if
it has one), either as an appendix to the proxy or information
statement at least once every three fiscal years or on the company's
Web site. These proposals would not require a compensation committee to
establish or maintain a charter. The proposed disclosure that would be
required regarding compensation committees is similar to what is
currently required for audit committees and nominating committees. The
proposals would decrease existing disclosure requirements for proxy and
information statements by eliminating a current disclosure requirement
regarding the resignation of directors, as well as eliminating current
requirements to provide a Compensation Committee Report, Performance
Graph and a compensation committee report on the repricing of options
and stock appreciation rights. However, the extent to which eliminating
current requirements to provide a Compensation Committee Report,
Performance Graph and a compensation committee report on the repricing
of options and stock appreciation rights reduces burdens for proxy and
information statements would be offset to a substantial extent, as
discussed above, by the proposed Compensation Discussion and Analysis
and narrative disclosure requirement regarding repricings and other
modifications, both of which would be required to be included or
incorporated by reference in annual reports and registration
statements. We estimate that, on balance, the proposed changes that are
specific to proxy or information statements would not result in
incremental burdens on proxy or information statement collections of
information.
    The proposals would increase existing disclosure burdens for annual
reports on Form 10-KSB \329\ and registration statements on Forms 10-SB
and SB-2 filed by small business issuers by requiring:
---------------------------------------------------------------------------

    \329\ The same analysis as discussed above with regard to the
relationship of Form 10-K to the disclosure required in proxy or
information statements is also applied to Form 10-KSB.
---------------------------------------------------------------------------

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

[[Page 6586]]

would decrease the existing disclosure burden by no longer requiring
compensation disclosure with respect to certain affiliated persons and
the advisory board of business development companies and by no longer
requiring business development companies to disclose certain
compensation from the fund complex.
    The proposals would decrease the Form 8-K disclosure burdens, by
limiting both the existing requirement to disclose a company's entry
into a material definitive agreement outside of the ordinary course of
business or any material amendment to such an agreement and the
requirement to collect information regarding directors, executive
officers other than named executive officers and officers covered by
Item 5.02 of Form 8-K. By focusing the Form 8-K disclosure requirement
on more presumptively material employment agreements, plans or
arrangements of a narrower group of executive officers, the number of
Form 8-Ks filed each year relating to executive and director
compensation matters should be reduced.
    We do not believe that our proposals regarding exhibit filing
requirements for Form 20-F and our proposed treatment for foreign
private issuers under the revised rules would impose any incremental
increase or decrease in the disclosure burden for these issuers.

C. Paperwork Reduction Act Burden Estimates

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

    \330\ For administative convenience, the presentation of the
totals related to the paperwork burden hours have been rounded to
the nearest whole number and the cost totals have been rounded to
the nearest thousand.
---------------------------------------------------------------------------

    Our estimates represent the average burden for all issuers, both
large and small. As described below, we expect that the burdens and
costs could be greater for larger issuers and lower for smaller
issuers. For Exchange Act annual reports on Form 10-K or 10-KSB,\331\
or current reports on Form 8-K, we estimate that 75% of the burden of
preparation is carried by the company internally and that 25% of the
burden is carried by outside professionals retained by the issuer at an
average cost of $300 per hour.\332\ For Securities Act registration
statements on Forms SB-2, S-1, S-4, S-11, or N-2 and Exchange Act
registration statements on Form 10 or 10-SB, we estimate that 25% of
the burden of preparation is carried by the company internally and that
75% of the burden is carried by outside professionals retained by the
issuer at an average cost of $300 per hour.\333\ The portion of the
burden carried by outside professionals is reflected as a cost, while
the portion of the burden carried by the company internally is
reflected in hours.
---------------------------------------------------------------------------

    \331\ We apply the same allocation of burden with regard to
proxy or information statements.
    \332\ In connection with other recent rulemakings, we have had
discussions with several private law firms to estimate an hourly
rate of $300 as the average cost of outside professionals that
assist issuers in preparing disclosures and conducting registered
offerings.
    \333\ As mentioned above, we do not believe that the proposal to
increase to $120,000 the current $60,000 threshold in Forms N-1A, N-
2, and N-3 for disclosure of certain interests, transactions, and
relationships of disinterested directors will significantly impact
the hours of company personnel time and cost of outside
professionals in responding to these items.
---------------------------------------------------------------------------

1. Securities Act Registration Statements, Exchange Act Registration
Statements and Exchange Act Annual Reports
    For the purposes of the Paperwork Reduction Act, we estimate that,
over a three year period,\334\ the annual incremental disclosure burden
imposed by the proposed revisions would average 67 hours per Form 10-K;
35 hours per Form 10-KSB; 60 hours per Form 10; 30 hours per Forms 10-
SB and SB-2; 60 hours per Forms S-1, S-4 and S-11; and 1.675 hours per
Form N-2. To the extent that companies incorporate information proposed
to be required by reference to proxy or information statements, the
proposed plain English requirements would apply to disclosure in those
statements, however the incremental burden of preparing plain English
disclosure is factored into the burden estimates for Forms 10-K and 10-
KSB. We estimate that the proposed amendments to Item 22(b) of Schedule
14A and the proposal to increase to $120,000 the current $60,000
threshold in Forms N-1A, N-2, and N-3 for disclosure of certain
interests, transactions, and relationships of disinterested directors
will not impose an annual incremental disclosure burden.
---------------------------------------------------------------------------

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

    These estimates were based on the following assumptions:
     On an ongoing basis, the hours of company personnel time
and outside professional time required to prepare the disclosure under
proposed Item 402 of Regulation S-K (executive and director
compensation) would increase in light of the expansion and
reorganization of the proposed disclosure requirements relative to the
current disclosure requirements on these topics, in particular the
requirements regarding Compensation Discussion and Analysis.
     Companies filing annual reports on Form 10-K that would be
required to include Item 402 of Regulation S-K, as we propose to amend
it, and proposed Item 407(e)(4) of Regulation S-K (regarding
compensation committee interlocks and insider participation), would
experience higher costs in responding to these disclosure requirements
in the first year of compliance with them, and, to a lesser extent, in
the second year, as systems are implemented to obtain the relevant data
and compliance efforts with respect to new or expanded disclosure
requirements, with lower incremental costs expected in subsequent
years.\335\
---------------------------------------------------------------------------

    \335\ For Form 10-K, we estimate that it would take issuers 120
additional hours to prepare the proposed disclosure in year one, and
55 hours in year two and 25 hours in year three and thereafter,
which results in an average of 67 hours over the three year period.
This estimate takes into account that the burden would be incurred
by either including the proposed disclosure in the report directly
or incorporating by reference from a proxy or information statement.
---------------------------------------------------------------------------

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

[[Page 6587]]

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

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

     Companies filing registration statements on Forms 10, S-1,
S-4 and S-11 that are not already filing periodic reports pursuant to
Exchange Act Sections 13(a) or 15(d) would in many cases not have been
required to comply with the proposed disclosure requirements prior to
filing such registration statements, and would therefore take an
estimated 60 hours to comply with the proposed changes in the
disclosure requirements. The additional time required by these
registrants to obtain the relevant data and to compile the required
information is offset to some extent by the fact that only one year of
compensation information would generally be required for presentation
in the Summary Compensation Table, as compared to three years for
issuers already subject to Exchange Act reporting requirements.\337\
---------------------------------------------------------------------------

    \337\ Our estimates of the number of annual responses to the
collections of information are based on the number of filings made
in the period from October 1, 2004 through September 30, 2005. In
order to factor in disclosure that may be incorporated by reference
from other filings, we have estimated that 496 out of 619
registration statements on Form S-4 would include the required
information contemplated by these rule proposals through
incorporation by reference to a Form 10-K or Form 10-KSB.
---------------------------------------------------------------------------

     Small business issuers filing annual reports on Form 10-
KSB would be subject to lower incremental costs than other issuers as a
result of the proposals, given the reduced disclosure required by Item
402 of Regulation S-B relative to Item 402 of Regulation S-K, as
described above. As with companies filing annual reports on Form 10-K,
we expect that small business issuers would experience higher costs in
responding to the proposed disclosure requirements in the first year of
compliance with them, as systems are implemented to obtain the relevant
data and compliance efforts with respect to new or expanded disclosure
requirements are implemented, with lower incremental costs in
subsequent years.\338\
---------------------------------------------------------------------------

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

     Small business issuers filing registration statements on
Forms 10-SB and SB-2 that are not already filing periodic reports
pursuant to Exchange Act Sections 13(a) or 15(d) would not have been
required to comply with the proposed disclosure requirements prior to
filing such registration statements, and would therefore take an
estimated 30 additional hours to comply with the proposed changes in
the disclosure requirements. The additional time required by these
registrants to obtain the relevant data and to compile the required
information is offset to some extent by the fact that only one year of
compensation information would generally be required for presentation
in the Summary Compensation Table, as compared to two years for small
business issuers already subject to Exchange Act reporting
requirements.
     Based on our experience with the requirement we adopted in
1998 for companies to write certain sections of prospectuses in plain
English, drafting documents in plain English would result in an initial
increase in time and cost burdens in the first year of implementation,
and to a lesser extent, the second year, with those time or cost
burdens decreasing in the year following implementation of the new
rules. The plain English rule proposals would not affect the substance
of the required disclosure, and companies that have filed registration
statements under the Securities Act are already familiar with the
requirements.
     We estimate that the proposals to increase to $120,000 the
current $60,000 threshold for disclosure of certain interests,
transactions, and relationships of disinterested directors in Forms N-
1A, N-2, and N-3 and in proxy and information statements would neither
increase nor decrease the annual paperwork burden, because these forms
are already required to disclose these interests, transactions, and
relationships in amounts exceeding $60,000, and we do not believe the
increase in the disclosure threshold will significantly impact the
hours of company personnel time and cost of outside professionals in
responding to these items.
     Business development companies filing Form N-2 would be
required to include Item 402 of Regulation S-K, as we propose to amend
it, and would experience higher costs in responding to these disclosure
requirements in the first year of complying with them, and, to a lesser
extent, in the second year, as systems are implemented to obtain the
relevant data and compliance efforts with respect to new or expanded
disclosure requirements are implemented, with lower incremental costs
expected in subsequent years.\339\
---------------------------------------------------------------------------

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

    Tables 1 and 2 below illustrate the incremental annual compliance
burden in the collection of information in hours and cost for Exchange
Act periodic reports for companies other than registered investment
companies, Securities Act registration statements and Exchange Act
registration statements.

[[Page 6588]]



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


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

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

    \340\ The burden estimates for Form 10-K and 10-KSB assume that
the proposed requirements are satisfied by either including
information directly in the annual reports or incorporating the
information by reference from the proxy statement or information
statement in Schedule 14A or Schedule 14C, respectively. As
described above, we estimate that the proposed changes to executive
compensation disclosure and corporate governance matters that would
be included only in proxy or information statements (and thus not in
Securities Act registration statements or Exchange Act reports or
registration statement) would not, on balance, impose an incremental
burden.
---------------------------------------------------------------------------

     The number of annual responses for Form 8-K is estimated
to be 110,416.\341\ Based on a study of current reports on Form 8-K
filed in September 2005, we estimate that approximately 22,083 current
reports filed on Forms 8-K would be filed pursuant to Item 1.01 of Form
8-K.
---------------------------------------------------------------------------

    \341\ This is based on the number of responses made in the
period from October 1, 2004 through September 30, 2005.
---------------------------------------------------------------------------

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

    \342\ For Form 8-K, the current burden estimate is 5 hours per
filing. We estimate that 75% of the burden of preparation is carried
by the company internally and that 25% of the burden is carried by
outside professionals retained by the issuer at an average cost of
$300 per hour. The computation of the reduction in burden is thus
based on 1,722 fewer Form 8-Ks filed with a per filing burden of
3.75 hours carried by the company and 1.25 hours at a cost of $300
per hour (or $375 per filing).
---------------------------------------------------------------------------

D. Request for Comment

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

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

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

[[Page 6589]]

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

IX. Cost-Benefit Analysis

A. Background

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

B. Summary of Proposals

    In light of the complexity of, and variations in, compensation
programs, the sometimes inflexible and highly formatted nature of
current Item 402 of Regulation S-K and S-B has resulted, in some cases,
in disclosure that does not clearly inform investors as to all elements
of compensation. The proposed changes to Item 402 would apply a broader
approach that would eliminate some tables, simplify or refocus other
tables, reflect total current compensation in the Summary Compensation
Table, and reorganize the compensation table to group together
compensation elements that have similar functions so that the
quantitative disclosure is both more informative and more easily
understood. This improved quantitative disclosure would be complemented
by enhanced narrative disclosure clearly and comprehensively describing
the context in which compensation is paid and received. In particular,
the narrative disclosure requirements would provide transparency
regarding company compensation policies and procedures, and be
sufficiently flexible to operate effectively as new forms of
compensation continue to evolve.
    Under the proposals, the scope and presentation of information in
Item 402 of Regulation S-B would differ in a number of significant ways
from Item 402 of Regulation S-K. Item 402 of Regulation S-B would:
     Limit the named executive officers for whom disclosure
would be required to a smaller group, consisting of the principal
executive officer and the two other highest paid executive officers;
\344\
---------------------------------------------------------------------------

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

     Require a revised Summary Compensation Table to disclose
compensation information for the small business issuer's two most
recent fiscal years, and to require that narrative disclosure accompany
the Summary Compensation Table; \345\
---------------------------------------------------------------------------

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

     Provide a higher threshold for separate identification of
categories of ``All Other Compensation'' in the Summary Compensation
Table;
     Require a new Outstanding Equity Awards at Fiscal Year-End
Table that would include expanded disclosure regarding holdings of
previously awarded stock, options and similar instruments, which would
include the value of stock and other similar incentive plan awards that
had not vested;
     Require additional narrative disclosure addressing the
material terms of defined benefit and defined contribution plans and
other post-termination compensation arrangements; and
     Require a new Director Compensation Table.
    Item 402 of Regulation S-B would not include the following
disclosures that would be required by proposed Item 402 of Regulation
S-K:
     Compensation Discussion and Analysis;
     A third fiscal year of Summary Compensation Table
disclosure; and
     The supplementary Grants of Performance-Based Awards Table
and Grants of All Other Equity Awards Table, the Option Exercises and
Stock Vested Table, the Retirement Plan Potential Annual Payments and
Benefits Table, and the Nonqualified Defined Contribution and Other
Deferred Compensation Plans Table and the separate Potential Payments
Upon Termination or Change-in-Control narrative section, while
providing a general requirement to discuss the material terms of
retirement plans and the material terms of contracts providing for
payment upon a termination or change in control.
    The application of Item 1.01 of Form 8-K to compensatory
arrangements has raised concerns that real-time disclosure may be
required for executive compensation events that are not unquestionably
or presumptively material, and that are more appropriately disclosed,
if at all, in the company's proxy statement for its annual meeting of
shareholders. The proposed amendments to Items 1.01 and 5.02 of Form 8-
K would focus real-time disclosure on compensation arrangements with
executives and directors that we believe are unquestionably or
presumptively material, and eliminate the obligation to file Form 8-K
with respect to other compensatory arrangements.
    Current Item 404 of Regulation S-K was adopted to consolidate
various provisions previously adopted in a piecemeal fashion. The
proposals would revise Item 404 of Regulation S-K to streamline and
modernize it, while making it more principles-based. Indebtedness of
related persons is limited by the Sarbanes-Oxley Act, and the
disclosure requirement regarding indebtedness of related persons would
be combined into the requirement regarding other transactions with
related persons. This consolidated disclosure requirement would apply
to an expanded group of related persons. While the current principles
for disclosure would be retained, the proposal would increase the
$60,000 threshold for disclosure currently in paragraphs (a) and (c) of
Item 404 to $120,000 and eliminate or reduce the scope of certain
instructions delineating

[[Page 6590]]

what transactions are reportable or excludable. Existing disclosure
requirements in Item 404 regarding transactions with promoters would
slightly expanded to apply when a company had a promoter over the past
five years, as well as to require analogous disclosure regarding
transactions with control persons of a shell company. With respect to
registered investment companies and business development companies,
proposed amendments to Items 22(b)(7), 22(b)(8), and 22(b)(9) of
Schedule 14A and to Forms N-1A, N-2, and N-3 would similarly increase
to $120,000 the current $60,000 threshold for disclosure of certain
interests, transactions, and relationships of each director (and, in
the case of Items 22(b)(7), 22(b)(8), and 22(b)(9) of Schedule 14A,
each nominee for election as director) who is not or would not be an
``interested person'' of the fund within the meaning of Section
2(a)(19) of the Investment Company Act (and their immediate family
members). In addition, Form N-2 would require business development
companies to include the compensation disclosure required by Item 402
of Regulation S-K, as we propose to amend it.
    The proposals also would replace the disclosure requirement for
certain business relationships currently in Item 404(b) of Regulation
S-K, which focuses on relationships relevant to director independence,
with requirements for director independence disclosure discussed below.
Under the proposals, the disclosure currently required by the certain
business relationship disclosure requirement may be required by the
consolidated disclosure requirement regarding transactions and
relationships with related persons in Item 404(a) of Regulation S-K.
Proposed Item 404(b) of Regulation S-K would require disclosure
regarding the company's policies for the review, approval or
ratification of transactions with related persons.
    We propose similar amendments to Item 404 of Regulation S-B, which
would result in a more detailed related person transaction disclosure
requirement than currently exists in Item 404 of Regulation S-B.
However, unlike Item 404 of Regulation S-K, Item 404 of Regulation S-B
would not require disclosure regarding the company's policies for the
review, approval or ratification of transactions with related persons.
We propose to retain the requirement that transactions occurring within
the last two years must be disclosed under Item 404 of Regulation S-B,
whereas Item 404 of Regulation S-K requires disclosure for the last
fiscal year, unless the information is included in a Securities Act or
Exchange Act registration statement, where information as to the last
three fiscal years is required.
    We propose to adopt a new disclosure requirement in Item 407 of
Regulations S-K and S-B that would consolidate disclosures required in
several places throughout our rules addressing director independence,
board committee functions and other related corporate governance
matters. This proposed Item, which would require new disclosure
regarding independence of members of the board of directors and board
committees, is intended to enhance disclosures regarding independence
required by corporate governance listing standards of the national
securities exchanges and the inter-dealer quotation systems of a
national securities association.\346\
---------------------------------------------------------------------------

    \346\ We also propose conforming revisions to Item 22(b)
relating to the independence of members of nominating and audit
committees of investment companies.
---------------------------------------------------------------------------

    To the extent that shares beneficially owned by named executive
officers, directors and director nominees are used as collateral for
loans, these shares are subject to risks or contingencies that do not
apply to other shares beneficially owned by these persons. These
circumstances have the potential to influence management's performance
and decisions. As a result, we believe that the existence of these
securities pledges could be material to shareholders and should be
disclosed. We therefore propose to amend Item 403 of Regulation S-K and
Regulation S-B to require this disclosure as well as disclosure
regarding directors' beneficial ownership of qualifying shares.
    We propose to require that most of the information that is required
by these amendments be provided in plain English in Exchange Act
reports or in proxy or information statements incorporated by reference
into those reports. The plain English requirements would make these
documents easier to understand.
    The proposed changes to Item 402 of Regulation S-K, Items 402 and
404 of Regulation S-B, and Form 8-K would affect all companies
reporting under Sections 13(a) and 15(d) of the Exchange Act, other
than registered investment companies. The proposed changes to Item 404
of Regulation S-K would affect all companies reporting under Sections
13(a) and 15(d) of the Exchange Act, other than registered investment
companies, and all companies, including registered investment
companies, filing proxy or information statements with respect to the
election of directors. The proposed changes to Items 402 and 404 of
Regulation S-K and Regulation S-B would also affect additional
companies filing Securities Act and Exchange Act registration
statements. The proposed changes to Item 22(b) of Schedule 14A will
affect business development companies and registered investment
companies filing proxy statements with respect to the election of
directors. The proposed changes to Form N-1A will affect open-end
investment companies registering with the Commission on Form N-1A. The
proposed changes to Form N-2 will affect closed-end investment
companies (including business development companies) registering with
the Commission on Form N-2. The proposed changes to Form N-3 will
affect separate accounts, organized as management investment companies
and offering variable annuities, registering with the Commission on
Form N-3.

C. Benefits

    As discussed, the overall goal of the executive and director
compensation proposals would be to provide investors with clearer,
better organized and more complete disclosure regarding the mix, size
and incentive components of executive and director compensation. This
goal would be accomplished by eliminating some tables and other
disclosures that we believe may no longer be useful to investors,
revising other tables so that they are more informative, and requiring
new tabular and new quantitative estimate disclosure for retirement
plans and similar benefits and director compensation. The proposals
would require enhanced narrative disclosure, in the form of a
Compensation Discussion and Analysis section and narrative disclosure
accompanying the tables, to explain the significant factors underlying
the compensation decisions reflected in the tabular data. The proposals
also would require companies to report the total amount of compensation
for named executive officers and directors, and provide important
context to the disclosure of total compensation.
    Improved disclosure under the proposals of certain forms of
compensation, such as stock-, option- and incentive plan-based
compensation, as well as retirement and other post-employment
compensation, combined with the ability of investors to track the
elements of executive and director compensation and the relative
weights of those elements over time (and the reasons why companies
allocate

[[Page 6591]]

compensation in the manner that they do), would enable investors to
make comparisons both within and across companies. A presentation
facilitating the comparability and different elements of compensation
in different companies should make it easier for investors to analyze
both the manner of compensation across companies and the quality of
disclosure of compensation across companies. Disclosure of total
compensation would benefit investors by reducing the need to make
individual computations in order to assess the size of current
compensation. Further, improved executive and director compensation
disclosure would enhance investors' understanding of this use of
corporate resources and the actions of boards of directors and
compensation committees in making decisions in this area.\347\
Particularly with respect to the proxy statement for the annual meeting
at which directors are elected, this improved disclosure would provide
better information to shareholders for purposes of evaluating the
actions of the board of directors in fulfilling its responsibilities to
the company and its shareholders.
---------------------------------------------------------------------------

    \347\ For a discussion of the debate concerning board of
directors and managerial decision-making in the area of executive
compensation, see, e.g., Steven M. Bainbridge, Executive
Compensation: Who Decides?, 83 Tex. L. Rev. 1615 (2005).
---------------------------------------------------------------------------

    We believe that the extent to which increased transparency and
completeness in executive and director compensation disclosure would
result in broader benefits depends at least in part on the extent to
which current executive and director compensation practices are aligned
with the interests of investors as reflected in their investment and
voting decisions. Any changes to a company that might occur, including
changes in corporate governance, changes in control, changes in the
employment of particular executives or other changes could depend to
some extent on the degree to which improved transparency in executive
and director compensation would affect investors' decision-making with
respect to that company.
    Improved transparency in executive and director compensation under
these proposals could have other benefits in terms of the allocative
efficiency of affected corporations with regard to the use of resources
for executive compensation relative to other corporate needs, as well
as improvements in efficiency of managerial labor markets. Benefits
such as these depend on the extent to which the proposals, including
requirements to disclose a total amount of compensation and more detail
regarding compensation policies, could alter existing policies or
practices in these areas. We emphasize that we are not seeking to
foster any given directional or other impacts. Our objective is to
increase transparency to enable decision-makers to make more informed
decisions, which could result in different policies or practices or
increase investor confidence in existing policies or practices.
    The proposed amendments to Form 8-K would facilitate shareholder
and investor access to real-time disclosure of public companies
significant personnel and compensation decisions by focusing this
disclosure only on what we believe are the most important compensatory
arrangements with executive officers and directors. This information
would be filed pursuant to Item 5.02(e) of Form 8-K. To find this
information, shareholders and investors no longer would need to examine
multiple Item 1.01 disclosures relating to other actions. Companies
would also be relieved of obligations to quickly report arguably less
important compensation information on Form 8-K.
    The proposed amendments to Item 404 would provide investors with
more complete disclosure of related person transactions and director
independence, and new disclosure regarding a company's policies and
procedures for the review, approval or ratification of relationships
with related persons. These proposals would enhance investors
understanding of how corporate resources are used in related person
transactions, and provide improved information to shareholders for
purposes of better evaluating the actions of the board of directors and
executive officers in fulfilling their responsibilities to the company
and its shareholders.
    In addition, by combining similar provisions of current Item 404
into a single combined disclosure requirement, the proposals would
reduce confusion regarding the disclosure required when more than one
of the item's current provisions applies to a relationship. Improved
corporate governance disclosure in proposed Item 407 would provide
investors with better organized and more complete information regarding
the independence of members of the board of directors. In addition,
companies would benefit from having one disclosure item to satisfy in
making required corporate governance disclosures. The proposed
amendments to Item 403 of Regulation S-K and Regulation S-B would
provide investors with disclosure of pledges of the securities
beneficially owned by management and directors and full disclosure of
beneficial ownership by directors, including directors' qualifying
shares.
    Proposed changes to Items 22(b)(7), 22(b)(8) and 22(b)(9) of
Schedule 14A and to Forms N-1A, N-2, and N-3 would decrease the
disclosure burden imposed on registered investment companies by
increasing the threshold for disclosure of certain interests,
transactions, and relationships of each director (and, in the case of
Items 22(b)(7), 22(b)(8), and 22(b)(9) of Schedule 14A, each nominee
for election as director) who is not or would not be an ``interested
person'' of the fund within the meaning of Section 2(a)(19) of the
Investment Company Act (and their immediate family members).
    Finally, presentation in plain English would facilitate investor
understanding of most of the matters contemplated by our proposals.
    The benefits of clearer, more useful disclosure are difficult to
quantify.

D. Costs

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

    \348\ The proposed plain English requirements would require both
the rewriting of existing disclosures in plain English, as well as
drafting new disclosures in plain English, such as Compensation
Discussion and Analysis.
---------------------------------------------------------------------------

    We believe that compliance with these proposals would, on balance,
be more costly for companies than compliance with the existing
disclosure requirements, with the highest incremental annual costs
occurring principally in the first two years as companies and their
advisors would determine how best to compile and report information in
response to new or expanded disclosure requirements.
    The improved quantitative and textual disclosure regarding
executive and director compensation that we are proposing would
incrementally increase

[[Page 6592]]

costs for companies in several ways as a result of the new or expanded
requirements. First, we propose that companies provide a Compensation
Discussion and Analysis involving a discussion and analysis of material
factors underlying compensation decisions reflected in the tabular
presentations.\349\ Second, we propose to require narrative disclosure
to accompany tabular presentations so that the data included in the
tables may be understood in context. Third, we propose to expand
disclosure regarding compensation-related equity-based and other plan-
based holdings, as well as retirement and similar plans. Finally, we
propose a director compensation table that would require more detailed
information regarding director compensation than is specified in the
current narrative disclosure requirement.\350\ Each of these proposed
revisions would seek to elicit more complete and clearer information
than is currently required under existing rules.
---------------------------------------------------------------------------

    \349\ The Compensation Discussion and Analysis, unlike the
current Compensation Committee Report and the Performance Graph, but
like all of the rest of the current compensation disclosure, would
be considered filed and as such would be part of the documents for
which certifications apply. The release adopting our certification
requirements discussed the costs and benefits of the requirements as
follows:
    The new certification requirement may lead to some additional
costs for issuers. The new rules require an issuer's principal
executive and financial officers to review the issuer's periodic
reports and to make the required certification. To the extent that
corporate officers would need to spend additional time thinking
critically about the overall context of their company's disclosure,
issuers would incur costs (although investors would benefit from
improved disclosure). The certification requirement creates a new
legal obligation for an issuer's principal executive and financial
officers, but does not change the standard of legal liability * * *
[T]he new rules are likely to provide significant benefits by
ensuring that information about an issuer's business and financial
condition is adequately reviewed by the issuer's principal executive
and financial officers * * * Conversely, the new rule are likely to
provide significant benefits by ensuring that information about an
issuer's business and financial condition is adequately reviewed by
the issuer's principal executive and financial officers.
    Certification Release, at Section VII.
    \350\ See current Item 402(f) of Regulation S-B and Item 402(g)
of Regulation S-K.
---------------------------------------------------------------------------

    While the Summary Compensation Table as proposed to be revised
would require reporting of the grant date fair value of stock-based and
option-based awards under the proposals, we do not believe that this
change would increase costs for companies, because the computation of
the grant date fair values of stock, options and similar instruments
already is required for financial statement purposes as a result of the
implementation of FAS 123R. Companies may incur additional costs,
however, in determining incremental changes in the actuarial value of
retirement benefits for the purposes of reporting such compensation in
the Summary Compensation Table. Costs may also arise from the reporting
of other compensation in the All Other Compensation Column of the
Summary Compensation Table. We do not believe that the addition of a
``Total'' column to the Summary Compensation Table in and of itself
would increase costs, because existing disclosure requirements already
mandate the disclosure of all compensation, and the mechanical process
of adding up disclosure amounts would not be significant. Additional
costs may be incurred in preparing and presenting required disclosures
regarding up to three highly paid non-executive employees, retirement
benefits, deferred compensation and post-termination or change in
control payments to the extent that information regarding these matters
is not currently collected in a way that would facilitate disclosure
under the proposals. In addition, because named executive officers
would be based on total compensation rather than salary and bonus, some
companies may need to track more employees to determine which are the
most highly compensated.
    Under the proposals regarding Form 8-K, disclosure regarding
executive and director arrangements and other plans that would no
longer be required to be reported within four days under Item 1.01 of
Form 8-K would be required to be disclosed by way of the exhibit filing
requirements on at least a quarterly basis. To the extent that a
reduction in timeliness of this information would reduce its value to
investors, the proposals may impose costs on investors.
    We believe that there would not be a significant increase in the
cost of complying with the related person transaction disclosure
requirement. The proposals may increase the cost of complying with this
disclosure requirement by eliminating or reducing the scope of certain
instructions and by expanding the group of related persons covered to
include additional ``immediate family members'' and also, in the case
of indebtedness transactions, significant shareholders.\351\ Similarly,
with respect to registered investment companies and business
development companies, proposed amendments to Items 22(b)(7), 22(b)(8),
and 22(b)(9) of Schedule 14A and to Forms N-1A, N-2, and N-3 would
increase to $120,000 the current $60,000 threshold for disclosure of
certain interests, transactions, and relationships of each director
(and, in the case of Items 22(b)(7), 22(b)(8), and 22(b)(9) of Schedule
14A, each nominee for election as director) who is not or would not be
an ``interested person'' of the fund within the meaning of Section
2(a)(19) of the Investment Company Act (and their immediate family
members). Since these forms already require such disclosure using the
$60,000 threshold, we do not believe the proposals would impose
additional costs.
---------------------------------------------------------------------------

    \351\ Significant shareholders are those identified under
proposed Instruction 1.b.(i) to Item 404 of Regulation S-K, that is,
any security holder who is known to the registrant to own of record
or beneficially more than five percent of any class of the
registrant's voting securities.
---------------------------------------------------------------------------

    Proposed Item 404(b) of Regulation S-K would introduce new costs by
imposing new disclosure requirements on companies regarding their
policies for review, approval or ratification of related person
transactions. In order to comply with their policies for the review,
approval or ratification of related person transactions or the
determination of executive and director compensation we understand that
companies would incur costs of collecting the type of information that
would be required to be disclosed. These costs would be higher to the
extent companies do not already collect this information either
pursuant to their corporate governance policies or through directors
and officers' questionnaires. The proposed rules would not require
companies to create new policies for review, approval or ratification
of relationships with related persons or the determination of executive
and director compensation; however, to the extent that companies do
create new policies that require the collection of different or
additional information, they may incur incremental costs.
    The proposed disclosures regarding director independence are
similar to existing disclosure requirements under the proxy rules
regarding the independence of directors who are members of the
company's audit and nominating committees. Thus, for companies that are
subject to the proxy rules, the task of complying with the proposed
disclosure requirement regarding director independence could be
performed by the same person or group of persons responsible for
compliance under the current rules. Because the current rules already
require companies subject to the proxy rules to collect and disclose
information about the independence of directors who serve on the audit
and nominating committees, this proposed disclosure

[[Page 6593]]

should not impose significant new costs for the collection of
information by companies that are subject to the proxy rules. The new
disclosure requirement regarding director and committee member
independence may require disclosure of additional relationships with
related persons. Additional costs may be incurred in seeking this
information. However, such costs are limited by the extent to which
companies already identify and track the relationships that may be
required to be disclosed for the purposes of complying with existing
disclosure requirements or corporate governance listing standards.
    We believe that, overall, the costs noted above that are associated
with the proposed disclosure requirements for related person
transactions and director independence will be offset by cost decreases
associated with narrowing the scope of other disclosure requirements
under the proposal. In this regard, we believe that companies will
generally be required to provide an amount of information that is
comparable to what is currently required by our rules, but under the
proposals the information regarding these matters would be presented in
a manner that recognizes recent changes such as the imposition of
corporate governance listing standards at the major markets.
    Our plain English proposal would require that companies use a clear
writing style to present the information about executive and director
compensation, related person transactions, beneficial ownership and
some corporate governance matters that would be required to be
disclosed in Exchange Act reports such as annual reports on Forms 10-K
or 10-KSB. We believe the proposed rules, if adopted, would result in a
short-term increase in costs for companies as they rewrite the
information required to be included in annual reports or incorporated
by reference from proxy or information statements, but few additional
costs after the first year or two of implementation, as companies
become familiar with the organizational, language, and document
structure changes necessary to comply with these proposals. Additional
costs, if any, should be one-time or otherwise short-term.
    We believe that there would be little, if any, increase in the cost
of complying with the beneficial ownership rule proposals. A company
would be required to disclose named executive officer, director and
director nominee pledges of securities, and directors'' full beneficial
ownership of equity securities, including directors qualifying shares.
The company could inquire as to this information in questionnaires it
already circulates to the company's officers and directors.
    For purposes of the Paperwork Reduction Act, we have estimated the
annual incremental increase in the paperwork burden for companies to
comply with our proposed collection of information requirements to be
approximately 537,792 hours of in-house company personnel time and to
be approximately $69,794,000 for the services of outside professionals.
These costs are based on our estimates that the annual incremental
disclosure burden imposed by the revisions that we propose today would
average 67 hours per Form 10-K; 35 hours per Form 10-KSB; 60 hours per
Form 10; 30 hours per Forms 10-SB and SB-2; 60 hours per Forms S-1, S-4
and S-11; and 1.675 hours per Form N-2. We estimate that the proposed
amendments to Item 22(b) of Schedule 14A and the proposal to increase
to $120,000 the current $60,000 threshold for disclosure of certain
interests, transactions, and relationships of each director in Forms N-
1A, N-2, and N-3 will not impose an annual incremental disclosure
burden. These estimated costs include an estimated reduction in costs
attributable to current reports on Form 8-K of approximately 6,458
hours of company personnel time and by a cost of approximately $645,750
for the services of outside professionals, based on an estimate that
1,722 fewer Form 8-Ks would be filed because of more focused current
reporting of compensation transactions. Based on these estimates for
the purposes of the Paperwork Reduction Act and assuming that the cost
of in-house company personnel time is $175, the total estimated
incremental costs of the proposals would be approximately $163,908,000.
We have not quantified other costs which might arise as a result of
implementation of the rules, especially to the extent that such costs
could arise as a result of changes in policies, practices or other
behavior attributable to the proposed disclosure requirements. These
costs could be more than those estimated for the purposes of the
Paperwork Reduction Act.

E. Request for Comment

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

[[Page 6594]]

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

    Exchange Act Section 23(a)(2) \352\ requires us, when adopting
rules under the Exchange Act, to consider the impact that any new rule
would have on competition. In addition, Section 23(a)(2) prohibits us
from adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act. Furthermore, Securities Act Section 2(b),\353\ Exchange Act
Section 3(f) \354\ and Investment Company Act Section 2(c) \355\
require us, when engaging in rulemaking where we are required to
consider or determine whether an action is necessary or appropriate in
the public interest, to consider, in addition to the protection of
investors, whether the action will promote efficiency, competition, and
capital formation.
---------------------------------------------------------------------------

    \352\ 15 U.S.C. 78w(a)(2).
    \353\ 15 U.S.C. 77b(b).
    \354\ 15 U.S.C. 78c(f).
    \355\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------

    The proposed amendments to Regulations S-K and S-B, to Items 8 and
22(b) of Schedule 14A, and to Forms N-1A, N-2, and N-3 are intended to
improve the completeness and clarity of executive compensation and
related person transaction disclosure available to investors and the
financial markets. These proposals would enhance investors'
understanding of how corporate resources are used, and enable
shareholders to better evaluate the actions of the board of directors
and executive officers in fulfilling their responsibilities.
    The proposed amendments to Form 8-K are intended to facilitate the
ability of investors and shareholders to access real-time disclosure of
public companies' employee compensation events that are unquestionably
or presumptively material by requiring this disclosure only for the
compensatory agreements with specified executive officers. To find this
information, shareholders and investors no longer would need to examine
multiple Form 8-K disclosures relating to other executive officers or
other material non-ordinary course definitive agreements.
    The proposals to expand and consolidate into one item the director
independence and related corporate governance disclosure requirements
in proposed Item 407 of Regulation S-K would improve shareholders' and
investors' understanding of the composition and functions of the board
of directors and board committees. Proposed amendments to beneficial
ownership reporting requiring disclosure of pledged securities and
director qualifying shares are intended to improve the disclosure
regarding security holdings of directors and executive officers.
    The proposal to require most of the information required in these
proposals to be written in plain English is intended to make Exchange
Act reports and proxy or information statements incorporated by
reference in those reports easier to understand.
    Thus, the proposed rules would enhance existing reporting
requirements by providing more effective material disclosure to
investors in a timely manner. We anticipate that these proposals would
improve investors'' ability to make informed investment and voting
decisions and, therefore lead to increased efficiency and
competitiveness of the U.S. capital markets.
    Because only companies subject to the reporting requirements of
Sections 13 and 15 of the Exchange Act, and companies filing
registration statements under the Securities Act, would be required to
make the proposed disclosures required by Items 402, 404 and 407,
competitors not in those categories could gain an informational
advantage. However, with respect to executive compensation, as under
current Item 402, registrants would not be required to disclose target
levels with respect to specific quantitative or qualitative
performance-related factors, or any factors or criteria involving
confidential commercial or business information, the disclosure of
which would have an adverse effect on the company. Notwithstanding this
exception for competitively sensitive information, competitors could
potentially gain additional insight into the executive compensation
policies of companies through disclosure required in Compensation
Discussion and Analysis and in other portions of the required
disclosure. Further, the availability of more broad-based compensation
disclosure may provide additional information to be used by competitors
in recruiting executive talent.
    We request comment on whether the proposals, if adopted, would
promote efficiency, competition, and capital formation or have an
impact or burden on competition. Commenters are requested to provide
empirical data and other factual support for their views, if possible.

XI. Initial Regulatory Flexibility Act Analysis

    This Initial Regulatory Flexibility Act Analysis has been prepared
in accordance with 5 U.S.C. 603. It relates to proposed revisions to
the rules and forms under the Securities Act and Exchange Act that seek
to improve the clarity and completeness of companies' disclosure of the
compensation earned by the principal executive officer, principal
financial officer,\356\ other highly paid executive officers and all
members of the board of directors, and of related person transactions.
These proposed revisions include revising the executive and director
compensation disclosure requirements, modifying our rules so that only
elements of compensation that are unquestionably or presumptively
material to investors must be disclosed in current reports of Form 8-K,
streamlining and modernizing disclosure requirements regarding related
person transactions, adding disclosure regarding pledges of securities
beneficially owned by executive officers and directors and regarding
directors' qualifying shares, consolidating corporate governance
disclosure requirements and expanding disclosure regarding the
independence of the board of directors, as well as requiring that all
disclosure required by the proposed items to be provided in plain
English.
---------------------------------------------------------------------------

    \356\ The principal financial officer is not specified as a
named executive officer in Item 402 of Regulation S-B.
---------------------------------------------------------------------------

A. Reasons for the Proposed Action

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

[[Page 6595]]

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

B. Objectives

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

C. Legal Basis

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

D. Small Entities Subject to the Proposed Amendments

    The proposals would affect small entities, the securities of which
are registered under Section 12 of the Exchange Act or that are
required to file reports under Section 15(d) of the Exchange Act. The
proposals also would affect small entities that file, or have filed, a
registration statement that has not yet become effective under the
Securities Act and that has not been withdrawn. Securities Act Rule 157
\357\ and Exchange Act Rule 0-10(a) \358\

[[Page 6596]]

define an issuer to be a ``small business'' or ``small organization''
for purposes of the Regulatory Flexibility Act if it had total assets
of $5 million or less on the last day of its most recent fiscal year.
We believe that the proposals would affect small entities that are
operating companies. We estimate that there are approximately 2,500
issuers, other than investment companies, that may be considered small
entities. An investment company is considered to be a ``small
business'' if it, together with other investment companies in the same
group of related investment companies, has net assets of $50 million or
less as of the end of its most recent fiscal year.\359\ We believe that
the proposals would affect small entities that are investment
companies. We estimate that there are approximately 240 investment
companies that may be considered small entities.
---------------------------------------------------------------------------

    \357\ 17 CFR 230.157.
    \358\ 17 CFR 240.0-10(a).
    \359\ 17 CFR 270.0-10(a).
---------------------------------------------------------------------------

E. Reporting, Recordkeeping and Other Compliance Requirements

    The proposed amendments to Item 402 of Regulation S-K would expand
some existing disclosure requirements, and consolidate or eliminate
others. The proposed amendments to Item 402 of Regulation S-B would
require less extensive disclosure for small business issuers than would
be required for companies complying with Item 402 of Regulation S-K.
Under the proposals, the scope and presentation of information in Item
402 of Regulation S-B would differ in a number of significant ways from
Item 402 of Regulation S-K. Item 402 of Regulation S-B would:
     Limit the named executive officers for whom disclosure
would be required to a smaller group, consisting of the principal
executive officer and the two other highest paid executive officers;
     Require that the Summary Compensation Table disclose the
two most recent fiscal years and that narrative disclosure accompany
the Summary Compensation Table;
     Provide a higher threshold for separate identification of
categories of ``All Other Compensation'' in the Summary Compensation
Table;
     Require the Outstanding Equity Awards at Fiscal Year-End
Table;
     Require additional narrative disclosure addressing the
material terms of defined benefit and defined contribution plans and
other post-termination compensation arrangements; and
     Require the Director Compensation Table.
    Item 402 of Regulation S-B would not include the following
disclosures that would be required by proposed Item 402 of Regulation
S-K:
     Compensation Discussion and Analysis;
     Information regarding two additional executives;
     The third fiscal year of Summary Compensation Table
disclosure; and
     The supplementary Grants of Performance-Based Awards Table
and Grants of All Other Equity Awards Table, the Option Exercises and
Stock Vested Table, the Retirement Plan Potential Annual Payments and
Benefits Table, and the Nonqualified Defined Contribution and Other
Deferred Compensation Plans Table and the separate Potential Payments
Upon Termination or Change-in-Control narrative section, while
providing a general requirement to discuss the material terms of
retirement plans and the material terms of contracts providing for
payment upon a termination or change in control.
    As a result, the proposed amendments to Item 402 of Regulation S-B
would not result in the same level of incremental increase in costs or
burdens as would the requirements of proposed amendments to Item 402 of
Regulation S-K.
    The proposed amendments to Item 404 of Regulation S-K and S-B would
decrease the existing related person transaction disclosure requirement
that companies, including small entities, must comply with in some
respects and expand it in other respects. The proposed amendments to
Item 404 of Regulation S-B would potentially decrease the scope of the
related person transaction disclosure requirement by changing the
$60,000 threshold for disclosure of related person transactions to the
lesser of $120,000 or one percent of the average of the small business
issuers' total assets for the last three completed fiscal years.\360\
At the same time, the proposed amendments to Item 404 of Regulation S-B
would increase the scope of the related person transaction disclosure
requirement by expanding the group of related persons covered to
include additional ``immediate family members,'' and in the case of
indebtedness relationships, significant shareholders. In addition, the
proposals may decrease or increase the scope of the related person
transaction disclosure requirement by eliminating or reducing the scope
of instructions that provide bright line tests for whether related
person transaction disclosure is required.
---------------------------------------------------------------------------

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

    Unlike the proposed amendments to Item 404 of Regulation S-K, the
proposed amendments to Item 404 of Regulations S-B would not impose an
additional disclosure requirement for small business issuers, including
small entities, regarding their policies and procedures for the review,
approval or ratification of relationships with related persons. The
proposed amendments to Item 404 of Regulation S-B and proposed Item 407
of Regulation S-B would require, depending upon the particular
circumstances of a company, more or less disclosure by changing the
disclosure requirement regarding director independence.\361\
---------------------------------------------------------------------------

    \361\ As is the case currently, proposed Item 407 of Regulation
S-B would not require compensation committee interlocks disclosure
as would proposed Item 407 of Regulation S-K. This retains a current
difference between Item 402 of Regulation S-B and Item 402 of
Regulation S-K.
---------------------------------------------------------------------------

    Similar to proposed Item 404(a) of Regulation S-K, proposed
amendments to Items 22(b)(7), 22(b)(8), and 22(b)(9) of Schedule 14A
and to Forms N-1A, N-2, and N-3 would decrease the scope of the
requirement imposed on registered investment companies and business
development companies to disclose certain interests, transactions, and
relationships of each director (and, in the case of Items 22(b)(7),
22(b)(8), and 22(b)(9) of Schedule 14A, each nominee for election as
director) who is not or would not be an ``interested person'' of the
fund within the meaning of Section 2(a)(19) of the Investment Company
Act (and their immediate family members) by increasing to $120,000 the
current $60,000 threshold for disclosure of such interests,
transactions, and relationships.
    The proposed amendments to Item 403 of Regulation S-K and S-B would
require footnote disclosure to the beneficial ownership table of the
number of shares pledged by named executive officers, directors and
director nominees and disclosure of directors'' qualifying shares. This
would impose an additional disclosure requirement on companies,
including small entities.
    The proposed plain English rules applicable to Exchange Act reports
and proxy or information statements incorporated by reference into
Exchange Act reports would not affect the substance of disclosures that
companies must make. The proposed plain English rules would also not
impose any new recordkeeping requirements or require reporting of
additional information. Other proposed changes to our rules would
decrease the scope of the disclosure requirements for Form 8-K,

[[Page 6597]]

and thereby result in a reduction in the number of current reports on
Form 8-K filed each year.
    Overall, the proposals are expected to result in increased costs to
all subject companies, large or small, as follows:
     Incremental increase in costs is expected with proposed
changes to executive and director compensation disclosure requirements;
     No incremental increase in costs is expected from the
amendments to the related person transaction rules and corporate
governance disclosures; and
     Decreased costs are expected as a result of the proposed
revisions to Form 8-K. Because the current proxy rules require a
subject registrant to collect and disclose information about the
independence of its directors who serve on the audit or nominating
committee of its board, the proposed disclosure should not impose on
companies subject to the proxy rules significant new costs for the
collection of information regarding the independence of directors.
Thus, the task of complying with the proposed expanded director
independence disclosure in Item 407 of Regulation S-K or S-B could be
performed by the same person or group of persons responsible for
compliance under the current rules at a minimal incremental cost.
    Our plain English proposal would require that companies use a clear
writing style to present the information about executive and director
compensation, related person transactions, beneficial ownership and
some corporate governance matters that would be required to be
disclosed in Exchange Act reports such as annual reports on Forms 10-K
or 10-KSB. We believe the proposed rules, if adopted, would result in a
short-term increase in costs for companies as they rewrite the
information required to be included in annual reports or incorporated
by reference from proxy or information statements, but few additional
costs after the first year or two of implementation, as companies
become familiar with the organizational, language, and document
structure changes necessary to comply with these proposals. Additional
costs, if any, should be one-time or otherwise short-term.
    For purposes of the Paperwork Reduction Act, we estimate that with
respect to Form 10-KSB, it would take issuers 70 additional hours to
prepare the proposed disclosure in year one, 25 additional hours in
year two, and 10 additional hours in year three and thereafter, which
results in an average of 35 additional hours over the three year
period. The same estimates would apply to preparation of information in
the proxy or information statement that is then incorporated by
reference into the Form 10-KSB. With regard to persons other than small
business issuers who would file a Form 10-K, we estimate for purposes
of the Paperwork Reduction Act that it would take issuers 120
additional hours to prepare the proposed disclosure in year one, and 55
hours in year two, and 25 hours in year three and thereafter, which
results in an average of 67 hours over the three year period. If we
assume that a small entity complies with the disclosure provisions of
Regulation S-B rather than Regulation S-K and 75% of the burden would
be performed by the company internally at a cost of $175 per hour and
25% of the burden would be carried by outside professionals retained by
the company at a cost of $300 per hour, the average annual cost to
comply with the proposed disclosure requirements in periodic reports
and/or proxy or information statements would be approximately $7,219.
The extent to which an additional average compliance cost of
approximately $7,219 per small entity over a three year period would
constitute a significant economic impact for small entities would
depend on the relative revenues, costs and allocation of resources
toward compliance with the Commission's rules for small entities both
individually and as a group.
    For purposes of the Paperwork Reduction Act, we estimate that with
respect to Form N-2, it would take business development companies 100
additional hours to prepare the proposed disclosure in year one, 50
hours in year two and 25 hours in year three and thereafter, which
results in an average of 58 hours for each business development company
to comply with the proposed compensation disclosures that would be
required on Form N-2. If we assume that 25% of the burden would be
borne internally at a cost of $175 per hour and 75% of the burden would
be carried by outside professionals retained by the company at a cost
of $300 per hour, the average annual cost for business development
companies to comply with the proposed disclosure requirements on Form
N-2 would be approximately $15,588. The extent to which an additional
average compliance cost of approximately $15,588 per small entity over
a three year period would constitute a significant economic impact for
small entities would depend on the relative assets, income, operating
expenses and the allocation of resources toward compliance with the
Commission's rules for small entities both individually and as a group.
    We encourage written comments regarding this analysis. We solicit
comments as to whether the proposed amendments could have an effect
that we have not considered. We request that commenters describe the
nature of any impact on small entities and provide empirical data to
support the extent of the impact.

F. Duplicative, Overlapping or Conflicting Federal Rules

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

G. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider significant
alternatives that would accomplish the stated objectives, while
minimizing any significant adverse impact on small entities. In
connection with the proposals, we considered the following
alternatives:
    1. Establishing different compliance or reporting requirements
which take into account the resources available to smaller entities;
    2. The clarification, consolidation or simplification of disclosure
for small entities;
    3. Use of performance standards rather than design standards; and
    4. Exempting smaller entities from coverage of the disclosure
requirements, or any part thereof.
    With regard to Alternative 1, we have proposed some different
compliance or reporting requirements for small entities and solicited
comments on others. We nevertheless believe improving the clarity and
completeness of disclosure regarding executive and director
compensation and related person transactions requires a high degree of
comparability between all issuers. Regarding Alternative 2, the
amendments would clarify, consolidate and simplify the requirements for
all public companies, and some especially for small entities. Regarding
Alternative 3, we believe that design rather than performance standards
are appropriate, because design standards for small entities would be
necessary to promote the goal of relatively uniform presentation of
comparable information for the benefit of investors. Finally, although
we propose to exempt some information required of larger issuers, a
wholesale exemption for small entities would not be appropriate because
the proposals are designed to make uniform the application of the
disclosure and other requirements that would be amended.

[[Page 6598]]

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

    \362\ Item 10 of Regulation S-B (17 CFR 228.10) defines a small
business issuer as a registrant that has revenues of less than $25
million, is a U.S. or Canadian issuer, is not an investment company,
and has a public float of less than $25 million. Also, if it is a
majority owned subsidiary, the parent corporation also must be a
small business issuer.
---------------------------------------------------------------------------

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

H. Solicitation of Comment

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

XII. Small Business Regulatory Enforcement Fairness Act

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

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

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

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

XIII. Statutory Authority and Text of the Proposed Amendments

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

List of Subjects

17 CFR Part 228

    Reporting and recordkeeping requirements, Securities, Small
businesses.

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

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 274

    Investment companies, Reporting and recordkeeping requirements,
Securities.

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

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

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

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn,
77sss, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-29,
80a-30, 80a-37, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350.
* * * * *
    2. Amend Sec.  228.201 by revising Instruction 2 to paragraph (d)
to read as follows:


Sec.  228.201  (Item 201) Market for Common Equity and Related
Stockholder Matters.

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


Sec.  228.306  [Removed and Reserved]

    3. Remove and reserve Sec.  228.306.


Sec.  228.401  [Amended]

    4. Amend Sec.  228.401 by removing paragraphs (e), (f) and (g).
    5. Revise Sec.  228.402 to read as follows:


Sec.  228.402  (Item 402) Executive compensation.

    (a) General. (1) All compensation covered. This Item requires
clear, concise and understandable disclosure of all plan and non-plan
compensation awarded to, earned by, or paid to the named executive
officers designated under paragraph (a)(2) of this Item, and directors
covered by paragraph (f) of this Item, by any person for all services

[[Page 6599]]

rendered in all capacities to the small business issuer and its
subsidiaries, unless otherwise specifically excluded from disclosure in
this Item. All such compensation shall be reported pursuant to this
Item, even if also called for by another requirement, including
transactions between the small business issuer and a third party where
a purpose of the transaction is to furnish compensation to any such
named executive officer or director. No amount reported as compensation
for one fiscal year need be reported in the same manner as compensation
for a subsequent fiscal year; amounts reported as compensation for one
fiscal year may be required to be reported in a different manner
pursuant to this Item.
    (2) Persons covered. Disclosure shall be provided pursuant to this
Item for each of the following (the ``named executive officers''):
    (i) All individuals serving as the small business issuer's
principal executive officer or acting in a similar capacity during the
last completed fiscal year (``PEO''), regardless of compensation level;
    (ii) The small business issuer's two most highly compensated
executive officers other than the PEO who were serving as executive
officers at the end of the last completed fiscal year; and
    (iii) Up to two additional individuals for whom disclosure would
have been provided pursuant to paragraph (a)(2)(ii) of this Item but
for the fact that the individual was not serving as an executive
officer of the small business issuer at the end of the last completed
fiscal year.

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

    (3) Information for full fiscal year. If the PEO served in that
capacity during any part of a fiscal year with respect to which
information is required, information should be provided as to all of
his or her compensation for the full fiscal year. If a named executive
officer (other than the PEO) served as an executive officer of the
small business issuer (whether or not in the same position) during any
part of the fiscal year with respect to which information is required,
information shall be provided as to all compensation of that individual
for the full fiscal year.
    (4) Omission of table or column. A table or column may be omitted,
if there has been no compensation awarded to, earned by, or paid to any
of the named executive officers required to be reported in that table
or column in any fiscal year covered by that table.
    (5) Definitions. For purposes of this Item:
    (i) The term stock appreciation rights (``SARs'') refers to SARs
payable in cash or stock, including SARs payable in cash or stock at
the election of the small business issuer or a named executive officer.
    (ii) The term plan includes, but is not limited to, the following:
Any plan, contract, authorization or arrangement, whether or not set
forth in any formal document, pursuant to which cash, securities,
similar instruments or any other property may be received. A plan may
be applicable to one person. Small business issuers may omit
information regarding group life, health, hospitalization, or medical
reimbursement plans that do not discriminate in scope, terms or
operation, in favor of executive officers or directors of the small
business issuer and that are available generally to all salaried
employees.
    (iii) The term incentive plan means any plan providing compensation
intended to serve as incentive for performance to occur over a
specified period, whether such performance is measured by reference to
financial performance of the small business issuer or an affiliate, the
small business issuer's stock price, or any other measure. A non-stock
incentive plan is an incentive plan or portion of an incentive plan
where the relevant performance measure is not based on the price of the
small business issuer's equity securities or the award does not permit
settlement by issuance of the small business issuer's equity
securities. The term incentive plan award means an award provided under
an incentive plan.
    (b) Summary compensation table. (1) General. Provide the
information specified in paragraph (b)(2) of this Item, concerning the
compensation of the named executive officers for each of the small
business issuer's last two completed fiscal years, in a Summary
Compensation Table in the tabular format specified below.

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


[[Page 6600]]

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

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

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

    Instructions to Item 402(b)(2)(vi) and (vii). 1. For awards
reported in columns (f) and (g), include a footnote disclosing all
assumptions made in the valuation, by reference to a discussion of
those assumptions in the small business issuer's financial
statements, footnotes to the financial statements, or discussion in
the Management's Discussion and Analysis. The sections so referenced
are deemed part of the disclosure provided pursuant to this Item
402.
    2. If at any time during the last completed fiscal year, the
small business issuer has adjusted or amended the exercise price of
stock options or SARs previously awarded to a named executive
officer, whether through amendment, cancellation or replacement
grants, or any other means (``repriced''), or otherwise has
materially modified such awards, the small business issuer shall
include, as awards required to be reported in column (g), the total
fair value of options or SARs as so repriced or modified, measured
as of the repricing or modification date.
    3. All earnings on outstanding awards must be identified and
quantified in a footnote to column (f) or (g), as applicable,
whether the earnings were paid during the fiscal year, payable
during the period but deferred, or payable by their terms at a later
date.

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

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

    (ix) All other compensation for the covered fiscal year that the
small business issuer could not properly report in any other column of
the Summary Compensation Table (column (i)). Each compensation item
that is not properly reportable in columns (d)-(h) must be reported in
this column. Such compensation must include, but is not limited to:
    (A) Perquisites and other personal benefits, or property, unless
the aggregate amount of such compensation is less than $10,000;
    (B) All earnings on compensation that is deferred on a basis that
is not tax-qualified, including such earnings on non-qualified defined
contribution plans;
    (C) All ``gross-ups'' or other amounts reimbursed during the fiscal
year for the payment of taxes;
    (D) For any security of the small business issuer or its
subsidiaries purchased from the small business issuer or its
subsidiaries (through deferral of salary or bonus, or otherwise) at a
discount from the market price of such security at the date of
purchase, unless that discount is available generally, either to all
security holders or to all salaried employees of the small business
issuer, the compensation cost computed in accordance with FAS 123R
applying the same valuation model and assumptions as the small business
issuer applies for financial statement reporting purposes;
    (E) The amount paid or accrued to any named executive officer
pursuant to a plan or arrangement in connection with:
    (1) Any termination, including without limitation through
retirement, resignation, severance or constructive termination
(including a change in responsibilities) of such executive officer's
employment with the small business issuer and its subsidiaries; or
    (2) A change in control of the small business issuer;
    (F) Small business issuer contributions or other allocations to
vested and unvested defined contribution plans;
    (G) The aggregate increase in actuarial value to the named
executive officer of all defined benefit and actuarial pension plans
(including supplemental plans) accrued during the small business
issuer's covered fiscal year; and
    (H) The dollar value of any insurance premiums paid by, or on
behalf of, the small business issuer during the covered fiscal year
with respect to life insurance for the benefit of a named executive
officer. ?>

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

[[Page 6601]]

amounts and amounts received on exercise of options and SARs are not
reportable as All Other Compensation in column (i).
    2. Benefits paid pursuant to defined benefit and actuarial plans
are reportable as All Other Compensation in column (i) if paid to
the named executive officer during the period covered by the Table.
Otherwise information concerning these plans is reportable pursuant
to paragraph (e)(1) of this Item.
    3. Reimbursements of taxes owed with respect to perquisites or
other personal benefits must be included in the columns as tax
reimbursements (paragraph (b)(2)(ix)(C) of this Item) even if the
associated perquisites or other personal benefits are not required
to be included because the aggregate amount of such compensation is
less than $10,000.
    4. Perquisites and other personal benefits shall be valued on
the basis of the aggregate incremental cost to the small business
issuer and its subsidiaries.
    5. Regarding paragraph (b)(2)(ix)(B) of this Item, if the
applicable interest rates vary depending upon conditions such as a
minimum period of continued service, the reported amount should be
calculated assuming satisfaction of all conditions to receiving
interest at the highest rate. Footnote disclosure may be provided
disclosing the portion of any earnings that the registrant considers
to be paid at an above-market rate, provided that the footnote
explains the small business issuer's criteria for determining the
portion considered to be above-market.
    6. The disclosure required pursuant to paragraph (b)(2)(ix)(G)
of this Item applies to each plan that provides for the payment of
retirement benefits, or benefits that will be paid primarily
following retirement, including but not limited to tax-qualified
defined benefit plans and supplemental employee retirement plans,
but excluding tax-qualified defined contribution plans and
nonqualified defined contribution plans.
    Instructions to Item 402(b). 1. Information with respect to the
fiscal year prior to the last completed fiscal year will not be
required if the small business issuer was not a reporting company
pursuant to Section 13(a) or 15(d) of the Exchange Act (15 U.S.C.
78m(a), 78o(d)) at any time during that year, except that the small
business issuer will be required to provide information for such
year if that information previously was required to be provided in
response to a Commission filing requirement.
    2. All compensation values reported in the Summary Compensation
Table must be reported in dollars. Where compensation was paid to or
received by a named executive officer in a different currency, a
footnote must be provided to identify that currency and describe the
rate and methodology used to convert the payment amounts to dollars.
    3. If a named executive officer is also a director who receives
compensation for his or her services as a director, reflect that
compensation in the Summary Compensation Table and provide a
footnote identifying and itemizing such compensation and amounts.
Use the categories in the Director Compensation Table required
pursuant to paragraph (f) of this Item.
    4. Amounts deferred at the election of a named executive officer
or at the direction of the small business issuer, whether pursuant
to a plan established under Section 401(k) of the Internal Revenue
Code (26 U.S.C. 401(k)), or otherwise, shall be included in the
appropriate column for the fiscal year in which earned. The amount
so deferred must be disclosed in a footnote to the applicable
column.

    (c) Narrative disclosure to summary compensation table. (1) Provide
a narrative description of any material factors necessary to an
understanding of the information disclosed in the Table required by
paragraph (b) of this Item. Examples of such factors may include, in
given cases, among other things:
    (i) The material terms of each named executive officer's employment
agreement or arrangement, whether written or unwritten.
    (ii) If at any time during the last fiscal year, any outstanding
option, SAR or other equity-based award was repriced or otherwise
materially modified (such as by extension of exercise periods, the
change of vesting or forfeiture conditions, the change or elimination
of applicable performance criteria, or the change of the bases upon
which returns are determined), a description of each such repricing or
other material modification.
    (iii) The waiver or modification of any specified performance
target, goal or condition to payout with respect to any amount included
in non-stock incentive plan compensation or payouts reported in column
(h) to the Summary Compensation Table required by paragraph (b) of this
Item, stating whether the waiver or modification applied to one or more
specified named executive officers or to all compensation subject to
the target, goal or condition.
    (iv) The material terms of each grant, including but not limited to
date of exercisability, any conditions to exercisability, any tandem
feature, any reload feature, any tax-reimbursement feature, and any
provision that could cause the exercise price to be lowered.
    (v) The material terms of any non-option and non-SAR award made to
a named executive officer during the last completed fiscal year,
including a general description of the formula or criteria to be
applied in determining the amounts payable and vesting schedule.
    (vi) The assumptions underlying any determination of an increase in
the actuarial value of defined benefit and actuarial plans and the
method of calculating earnings on deferred compensation plans including
defined contribution plans.
    (vii) An identification to the extent material of any item included
under All Other Compensation (column (i)) in the Summary Compensation
Table. Identification of an item shall not be considered material if it
does not exceed the greater of $25,000 or 10% of all items included in
the specified category in question set forth in paragraphs (b)(2)(ix)
of this Item. All items of compensation are required to be included in
the Summary Compensation Table without regard to whether such items are
required to be identified.
    (2) For up to three employees who were not executive officers
during the last completed fiscal year and whose total compensation for
the last completed fiscal year was greater than that of any named
executive officers, disclose each of such employee's total compensation
for that year and describe their job positions.
    (d) Outstanding equity awards at fiscal year-end table. (1) Provide
the information specified in paragraph (d)(2) of this Item, concerning
the number and value of unexercised options, SARs and similar
instruments and nonvested stock (including restricted stock, restricted
stock units or other similar instruments) and incentive plan awards for
each named executive officer outstanding as of the end of the small
business issuer's last completed fiscal year on an aggregated basis in
the following tabular format:

[[Page 6602]]



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

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

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

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

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

[[Page 6603]]


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

    (2) The Table shall include:
    (i) The name of each director, unless such director is also a named
executive officer under Item 402(a) and his or her compensation for
service as a director is fully reflected in the Summary Compensation
Table pursuant to Item 402(b) and otherwise as required pursuant to
Items 402(c) and (e) (column (a));
    (ii) The dollar value of total compensation for the covered fiscal
year (column (b)). With respect to each director, disclose the sum of
all amounts reported in columns (c) through (g);
    (iii) The aggregate dollar amount of all fees earned or paid in
cash for services as a director, including annual retainer fees,
committee and/or chairmanship fees, and meeting fees (column (c));
    (iv) For awards of stock, including restricted stock, restricted
stock units, phantom stock, phantom stock units, common stock
equivalent units or other similar instruments that do not have option-
like features, the aggregate grant date fair value computed in
accordance with FAS 123R, applying the same valuation model and
assumptions as the small business issuer applies for financial
statement reporting purposes, and all earnings on any outstanding
awards (column (d));
    (v) For awards of stock options, with or without tandem SARs,
freestanding SARs and other similar instruments with option-like
features (including awards that subsequently have been transferred),
the aggregate grant date fair value computed in accordance with FAS
123R applying the same valuation model and assumptions as the small
business issuer applies for financial statement reporting purposes, and
all earnings on any outstanding awards (column (e));

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

    (vi) The dollar value of all earnings for services performed during
the fiscal year pursuant to non-stock-based incentive plans as defined
in paragraph (a)(5)(iii) of this Item, and all earnings on any
outstanding awards (column (f)); and
    (vii) All other compensation for the covered fiscal year that the
small business issuer could not properly report in any other column of
the Director Compensation Table (column (g)). Each compensation item
for the last completed fiscal year that is not properly reportable in
columns (c)-(f) must be reported in this column and must be identified
and quantified in a footnote if it is deemed material in accordance
with paragraph (c)(6) of this Item. Such compensation must include, but
is not limited to:
    (A) All perquisites and other personal benefits, or property,
unless the aggregate amount of such compensation is less than $10,000;
    (B) All earnings on compensation that is deferred on a basis that
is not tax-qualified;
    (C) All amounts reimbursed during the fiscal year for the payment
of taxes;
    (D) For any security of the small business issuer or its
subsidiaries purchased from the small business issuer or its
subsidiaries (through deferral of salary or bonus, or otherwise) at a
discount from the market price of such security at the date of
purchase, unless that discount is available generally, either to all
security holders or to all salaried employees of the small business
issuer, the compensation cost computed in accordance with FAS 123R
applying the same valuation model and assumptions as the small business
issuer applies for financial statement reporting purposes;
    (E) The amount paid or accrued to any director pursuant to a plan
or arrangement in connection with:
    (1) The resignation, retirement or any other termination of such
director; or
    (2) A change in control of the small business issuer;
    (F) The aggregate increase in actuarial value to the director of
all defined benefit and actuarial pension plans (including supplemental
plans) accrued during the small business issuer's covered fiscal year;
    (G) Small business issuer contributions or other allocations to
vested and unvested defined contribution plans;
    (H) Consulting fees earned from, or paid or payable by the small
business issuer and/or its subsidiaries (including joint ventures);
    (I) The annual costs of payments and promises of payments pursuant
to director legacy programs and similar charitable award programs; and
    (J) The dollar value of any insurance premiums paid by, or on
behalf of, the small business issuer during the covered fiscal year
with respect to life insurance for the benefit of a director.

    Instruction to Item 402(f)(2)(vii). Programs in which small
business issuers agree to make donations to one or more charitable
institutions in a director's name, payable by the small business
issuer currently or upon a designated event, such as the retirement
or death of the director, are charitable awards programs or director
legacy programs for purposes of the disclosure required by paragraph
(f)(2)(vii)(I) of this Item. Provide footnote disclosure of the
total dollar amount and other material terms of each such program
for which tabular disclosure is provided.
    Instruction to Item 402(f)(2). Two or more directors may be
grouped in a single row in the table if all of their elements of
compensation are identical. The names of the directors for whom
disclosure is presented on a group basis should be clear from the
table.

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


[[Page 6604]]


    Instruction to Item 402(f). In addition to the Instruction to
paragraph (f)(2)(vii) of this Item, the following apply equally to
paragraph (f) of this Item: Instructions 2 and 3 to paragraph (b) of
this Item; the Instructions to paragraphs (b)(2)(iv) and (v) of this
Item; the Instructions to paragraphs (b)(2)(vi) and (vii) of this
Item; the Instructions to paragraph (b)(2)(viii) of this Item; the
Instructions to paragraph (b)(2)(ix) of this Item; and paragraph
(c)(6) of this Item. These Instructions apply to the columns in the
Director Compensation Table that are analogous to the columns in the
Summary Compensation Table to which they refer and to disclosures
under paragraph (f) of this Item that correspond to analogous
disclosures provided for in paragraph (b) of this Item to which they
refer.


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


Sec.  228.403  (Item 403) Security Ownership of Certain Beneficial
Owners and Management.

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

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

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

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


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

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

    Instructions to Item 404(a). 1. For the purposes of paragraph
(a) of this Item, the term related person means:
    a. Any person who was in any of the following categories at any
time during the specified period for which disclosure under
paragraph (a) of this Item is required:
    i. Any director or executive officer of the small business
issuer;
    ii. Any nominee for director, when the information called for by
paragraph (a) of this Item is being presented in a proxy or
information statement relating to the election of that nominee for
director; or
    iii. Any immediate family member of any of the foregoing
persons, which means any child, stepchild, parent, stepparent,
spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-
in-law, brother-in-law, or sister-in-law, and any person (other than
a tenant or employee) sharing the household of a related person
identified in paragraph 1.a.i. or 1.a.ii. of this instruction; and
    b. Any person who was in any of the following categories when a
transaction in which such person had a direct or indirect material
interest occurred or existed:
    i. A security holder covered by Item 403(a) (Sec.  228.403(a));
or
    ii. Any immediate family member of any such security holder,
which means any child, stepchild, parent, stepparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, of such security holder and any
person (other than a tenant or employee) sharing the household of
such security holder.
    2. For purposes of paragraph (a) of this Item, a transaction
includes, but is not limited to, any financial transaction,
arrangement or relationship (including any indebtedness or guarantee
of indebtedness) or any series of similar transactions, arrangements
or relationships.
    3. The amount involved in the transaction shall be computed by
determining the dollar value of the amount involved in the
transaction in question, which shall include:
    a. In the case of any lease or other transaction providing for
periodic payments or installments, the aggregate amount of all
periodic payments or installments due on or after the beginning of
the small business issuer's last fiscal year, including any required
or optional payments due during or at the conclusion of the lease.
    b. In the case of indebtedness, the largest aggregate amount of
all indebtedness outstanding at any time since the beginning of the
small business issuer's last fiscal year and all amounts of interest
payable on it during the last fiscal year.
    4. In the case of transactions involving indebtedness, the
following items of indebtedness may be excluded from the calculation
of the amount of indebtedness and need not be disclosed: amounts due
from the related person for purchases of goods and services subject
to usual trade terms, for ordinary business travel and expense
payments and for other transactions in the ordinary course of
business.
    5. Disclosure of an employment relationship or transaction
involving an executive officer and any related compensation solely
resulting from that employment relationship or transaction need not
be provided pursuant to paragraph (a) of this Item if:
    a. The compensation arising from the relationship or transaction
is reported pursuant to Item 402 (Sec.  228.402); or
    b. The executive officer is not an immediate family member of a
related person (as specified in Instruction 1. to paragraph (a) of
this Item) and such compensation would have been reported under Item
402 (Sec.  228.402) as compensation earned for services to the small
business issuer if the

[[Page 6605]]

executive officer was a named executive officer as that term is
defined in Item 402(a)(2) (Sec.  228.402(a)(2)), and such
compensation had been approved as such by the compensation committee
of the board of directors (or group of independent directors
performing a similar function) of the small business issuer.
    6. Disclosure of compensation to a director need not be provided
pursuant to paragraph (a) of this Item if the compensation is
reportable pursuant to Item 402(f) (Sec.  228.402(f)).
    7. In the case of a transaction involving indebtedness, if the
lender is a bank, savings and loan association, or broker-dealer
extending credit under Federal Reserve Regulation T (12 CFR part
220) and the loans are not disclosed as nonaccrual, past due,
restructured or potential problems (see Item III.C.1. and 2. of
Industry Guide 3, Statistical Disclosure by Bank Holding Companies
(17 CFR 229.802(c))), disclosure under paragraph (a) of this Item
may consist of a statement, if such is the case, that the loans to
such persons:
    a. Were made in the ordinary course of business;
    b. Were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
loans with persons not related to the lender; and
    c. Did not involve more than the normal risk of collectibility
or present other unfavorable features.
    8. A person who has a position or relationship with a firm,
corporation, or other entity that engages in a transaction with the
small business issuer shall not be deemed to have an indirect
``material'' interest within the meaning of paragraph (a) of this
Item where:
    a. The interest arises only:
    i. From such person's position as a director of another
corporation or organization which is a party to the transaction; or
    ii. From the direct or indirect ownership by such person and all
other persons specified in Instruction 1 to paragraph (a) of this
Item, in the aggregate, of less than a ten percent equity interest
in another person (other than a partnership) which is a party to the
transaction; or
    iii. From both such position and ownership; or
    b. The interest arises only from such person's position as a
limited partner in a partnership in which the person and all other
persons specified in Instruction 1 to paragraph (a) of this Item,
have an interest of less than ten percent, and the person is not a
general partner of and does not hold another position in the
partnership.
    9. Include information for any material underwriting discounts
and commissions upon the sale of securities by the small business
issuer where any of the specified persons was or is to be a
principal underwriter or is a controlling person or member of a firm
that was or is to be a principal underwriter.

    (b) Parents. List all parents of the small business issuer showing
the basis of control and as to each parent, the percentage of voting
securities owned or other basis of control by its immediate parent, if
any.
    (c) Promoters. (1) Small business issuers that had a promoter at
any time during the past five fiscal years shall:
    (i) State the names of the promoter(s), the nature and amount of
anything of value (including money, property, contracts, options or
rights of any kind) received or to be received by each promoter,
directly or indirectly, from the small business issuer and the nature
and amount of any assets, services or other consideration therefor
received or to be received by the small business issuer; and
    (ii) As to any assets acquired or to be acquired by the small
business issuer from a promoter, state the amount at which the assets
were acquired or are to be acquired and the principle followed or to be
followed in determining such amount, and identify the persons making
the determination and their relationship, if any, with the small
business issuer or any promoter. If the assets were acquired by the
promoter within two years prior to their transfer to the small business
issuer, also state the cost thereof to the promoter.
    (2) Small business issuers shall provide the disclosure required by
paragraphs (c)(1)(i) and (c)(1)(ii) of this Item as to any person who
acquired control of a small business issuer that is a shell company, or
any person that is part of a group, consisting of two or more persons
that agree to act together for the purpose of acquiring, holding,
voting or disposing of equity securities of a small business issuer,
that acquired control of a small business issuer that is a shell
company.
    8. Add Sec.  228.407 to read as follows:


Sec.  228.407  (Item 407) Corporate governance.

    (a) Director independence. Identify each director and, when the
disclosure called for by this paragraph is being presented in a proxy
or information statement relating to the election of directors, each
nominee for director, that is independent under the independence
standards applicable to the small business issuer under paragraph
(a)(1) of this Item. In addition, if such independence standards
contain independence requirements for committees of the board of
directors, identify each director that is a member of the compensation,
nominating or audit committee that is not independent under such
committee independence standards. If the small business issuer does not
have a separately designated audit, nominating or compensation
committee or committee performing similar functions, the small business
issuer must provide the disclosure of directors that are not
independent with respect to all members of the board of directors
applying such committee independence standards.
    (1) In determining whether or not the director or nominee for
director is independent for the purposes of paragraph (a) of this Item,
the small business issuer shall use the applicable definition of
independence, as follows:
    (i) If the small business issuer is a listed issuer whose
securities are listed on a national securities exchange or in an inter-
dealer quotation system which has requirements that a majority of the
board of directors be independent, the small business issuer's
definition of independence that it uses for determining if a majority
of the board of directors is independent in compliance with the listing
standards applicable to the small business issuer. When determining
whether the members of a committee of the board of directors are
independent, the small business issuer's definition of independence
that it uses for determining if the members of that specific committee
are independent in compliance with the independence standards
applicable for the members of the specific committee in the listing
standards of the national securities exchange or inter-dealer quotation
system that the small business issuer uses for determining if a
majority of the board of directors are independent. If the small
business issuer does not have independence standards for a committee,
the independence standards for that specific committee in the listing
standards of the national securities exchange or inter-dealer quotation
system that the small business issuer uses for determining if a
majority of the board of directors are independent.
    (ii) If the small business issuer is not a listed issuer, a
definition of independence of a national securities exchange or of a
national securities association which has requirements that a majority
of the board of directors be independent, and state which definition is
used. Whatever such definition the small business issuer chooses, it
must use the same definition with respect to all directors and nominees
for director. When determining whether the members of a specific
committee of the board of directors are independent, if the national
securities exchange or national securities association whose standards
are used has independence standards for the member of a specific
committee, use those committee specific standards.

[[Page 6606]]

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

    Instruction to Item 407(a). No information called for by
paragraph (a) of this Item need be given in a registration statement
filed at a time when the small business issuer is not subject to the
reporting requirements of sections 13(a) or 15(d) of the Exchange
Act (15 U.S.C. 78m(a), or 78o(d)) respecting any director who is no
longer a director at the time of effectiveness of the registration
statement.

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

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

    (3) State whether or not the small business issuer has standing
audit, nominating and compensation committees of the board of
directors, or committees performing similar functions. If the small
business issuer has such committees, however designated, identify each
committee member, state the number of committee meetings held by each
such committee during the last fiscal year and describe briefly the
functions performed by each such committee. Such disclosure need not be
provided to the extent it is duplicative of disclosure provided in
accordance with paragraph (d)(4) of this Item.
    (c) Nominating committee. (1) If the small business issuer does not
have a standing nominating committee or committee performing similar
functions, state the basis for the view of the board of directors that
it is appropriate for the small business issuer not to have such a
committee and identify each director who participates in the
consideration of director nominees.
    (2) Provide the following information regarding the small business
issuer's director nomination process:
    (i) State whether or not the nominating committee has a charter. If
the nominating committee has a charter, provide the disclosure required
by Instruction 2 to this Item regarding the nominating committee
charter;
    (ii) If the nominating committee has a policy with regard to the
consideration of any director candidates recommended by security
holders, provide a description of the material elements of that policy,
which shall include, but need not be limited to, a statement as to
whether the committee will consider director candidates recommended by
security holders;
    (iii) If the nominating committee does not have a policy with
regard to the consideration of any director candidates recommended by
security holders, state that fact and state the basis for the view of
the board of directors that it is appropriate for the small business
issuer not to have such a policy;
    (iv) If the nominating committee will consider candidates
recommended by security holders, describe the procedures to be followed
by security holders in submitting such recommendations;
    (v) Describe any specific minimum qualifications that the
nominating committee believes must be met by a nominating committee-
recommended nominee for a position on the small business issuer's board
of directors, and describe any specific qualities or skills that the
nominating committee believes are necessary for one or more of the
small business issuer's directors to possess;
    (vi) Describe the nominating committee's process for identifying
and evaluating nominees for director, including nominees recommended by
security holders, and any differences in the manner in which the
nominating committee evaluates nominees for director based on whether
the nominee is recommended by a security holder;
    (vii) With regard to each nominee approved by the nominating
committee for inclusion on the small business issuer's proxy card
(other than nominees who are executive officers or who are directors
standing for re-election), state which one or more of the following
categories of persons or entities recommended that nominee: security
holder, non-management director, chief executive officer, other
executive officer, third-party search firm, or other specified source;

[[Page 6607]]

    (viii) If the small business issuer pays a fee to any third party
or parties to identify or evaluate or assist in identifying or
evaluating potential nominees, disclose the function performed by each
such third party; and
    (ix) If the small business issuer's nominating committee received,
by a date not later than the 120th calendar day before the date of the
small business issuer's proxy statement released to security holders in
connection with the previous year's annual meeting, a recommended
nominee from a security holder that beneficially owned more than 5% of
the small business issuer's voting common stock for at least one year
as of the date the recommendation was made, or from a group of security
holders that beneficially owned, in the aggregate, more than 5% of the
small business issuer's voting common stock, with each of the
securities used to calculate that ownership held for at least one year
as of the date the recommendation was made, identify the candidate and
the security holder or security holder group that recommended the
candidate and disclose whether the nominating committee chose to
nominate the candidate, provided, however, that no such identification
or disclosure is required without the written consent of both the
security holder or security holder group and the candidate to be so
identified.

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

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

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

    (d) Audit committee. (1) State whether or not the audit committee
has a charter. If the audit committee has a charter, provide the
disclosure required by Instruction 2 to this Item regarding the audit
committee charter.
    (2) If a listed issuer's board of directors determines, in
accordance with the listing standards applicable to the issuer, to
appoint a director to the audit committee who is not independent (apart
from the requirements in Sec.  240.10A-3 of this chapter), including as
a result of exceptional or limited or similar circumstances, disclose
the nature of the relationship that makes that individual not
independent and the reasons for the board of directors' determination.
    (3)(i) The audit committee must state whether:
    (A) The audit committee has reviewed and discussed the audited
financial statements with management;
    (B) The audit committee has discussed with the independent auditors
the matters required to be discussed by the statement on Auditing
Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU
section 380), as adopted by the Public Company Accounting Oversight
Board in Rule 3200T;
    (C) The audit committee has received the written disclosures and
the letter from the independent accountants required by Independence
Standards Board Standard No. 1 (Independence Standards Board Standard
No. 1, Independence Discussions with Audit Committees), as adopted by
the Public Company Accounting Oversight Board in Rule 3600T, and has
discussed with the independent accountant the independent accountant's
independence; and
    (D) Based on the review and discussions referred to in paragraphs
(d)(3)(i)(A) through (d)(3)(i)(C) of this Item, the audit committee
recommended to the board of directors that the audited financial
statements be included in the small business issuer's Annual Report on
Form 10-K (17 CFR 249.310) for the last fiscal year for filing with the
Commission.
    (ii) The name of each member of the company's audit committee (or,
in the absence of an audit committee, the board committee performing
equivalent functions or the entire board of directors) must appear
below the disclosure required by paragraph (d)(3)(i) of this Item.
    (4)(i) If you meet the following requirements, provide the
disclosure in paragraph (d)(4)(ii) of this Item:
    (A) You are a listed issuer, as defined in Sec.  240.10A-3 of this
chapter;
    (B) You are filing either an annual report on Form 10-K or 10-KSB
(17 CFR 249.310 or 17 CFR 249.310b), or a proxy statement or
information statement pursuant to the Exchange Act (15 U.S.C. 78a et
seq.) if action is to be

[[Page 6608]]

taken with respect to the election of directors; and
    (C) You are neither:
    (1) A subsidiary of another listed issuer that is relying on the
exemption in Sec.  240.10A-3(c)(2) of this chapter; nor
    (2) Relying on any of the exemptions in Sec.  240.10A-3(c)(4)
through (c)(7) of this chapter.
    (ii)(A) State whether or not the small business issuer has a
separately-designated standing audit committee established in
accordance with section 3(a)(58)(A) of the Exchange Act (15 U.S.C.
78c(a)(58)(A)), or a committee performing similar functions. If the
small business issuer has such a committee, however designated,
identify each committee member. If the entire board of directors is
acting as the small business issuer's audit committee as specified in
section 3(a)(58)(B) of the Exchange Act (15 U.S.C. 78c(a)(58)(B)), so
state.
    (B) If applicable, provide the disclosure required by Sec.
240.10A-3(d) of this chapter regarding an exemption from the listing
standards for audit committees.
    (5) Audit committee financial expert. (i)(A) Disclose that the
small business issuer's board of directors has determined that the
small business issuer either:
    (1) Has at least one audit committee financial expert serving on
its audit committee; or
    (2) Does not have an audit committee financial expert serving on
its audit committee.
    (B) If the small business issuer provides the disclosure required
by paragraph (d)(5)(i)(A)(1) of this Item, it must disclose the name of
the audit committee financial expert and whether that person is
independent, as independence for audit committee members is defined in
the listing standards applicable to the listed issuer.
    (C) If the small business issuer provides the disclosure required
by paragraph (d)(5)(i)(A)(2) of this Item, it must explain why it does
not have an audit committee financial expert.

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

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

    Instructions to Item 407(d)(5). 1. The disclosure under
paragraph (d)(5) of this Item is required only in a small business
issuer's annual report. The small business issuer need not provide
the disclosure required by paragraph (d)(5) of this Item in a proxy
or information statement unless that small business issuer is
electing to incorporate this information by reference from the proxy
or information statement into its annual report pursuant to General
Instruction E(3) to Form 10-KSB (17 CFR 249.310b).
    2. If a person qualifies as an audit committee financial expert
by means of having held a position described in paragraph
(d)(5)(iii)(D) of this Item, the small business issuer shall provide
a brief listing of that person's relevant experience. Such
disclosure may be made by reference to disclosures required under
Item 401(a)(4) (Sec.  228.401(a)(4)).
    3. In the case of a foreign private issuer with a two-tier board
of directors, for purposes of paragraph (d)(5) of this Item, the
term board of directors means the supervisory or non-management
board. Also, in the case of a foreign private issuer, the term
generally accepted accounting principles in paragraph (d)(5)(ii)(A)
of this Item means the body of generally accepted accounting
principles used by that issuer in its primary financial statements
filed with the Commission.
    4. Following the effective date of the first registration
statement filed under the Securities Act (15 U.S.C. 77a et seq.) or
Exchange Act (15 U.S.C. 78a et seq.) by a small business issuer, the
small business issuer or successor issuer need not make the
disclosures required by this Item in its first annual report filed
pursuant to section 13(a) or 15(d) (15 U.S.C. 78m(a) or 78o(d)) of
the Exchange Act after effectiveness.
    Instructions to Item 407(d). 1. The information required by
paragraphs (d)(1)-(3) of this Item shall not be deemed to be
``soliciting material,'' or to be ``filed'' with the Commission or
subject to Regulation 14A or 14C (17 CFR 240.14a-1 through 240.14b-2
or 240.14c-1 through 240.14c-101), other than as provided in this
Item, or to the liabilities of section 18 of the Exchange Act (15
U.S.C. 78r), except to the extent that the small business issuer
specifically requests that the information be treated as soliciting
material or specifically incorporates it by reference into a
document filed under the Securities Act or the Exchange Act. Such
information will not be deemed to be incorporated by reference into
any filing under the Securities Act or the Exchange Act, except to
the extent that the small business issuer specifically incorporates
it by reference.
    2. The disclosure required by paragraphs (d)(1)-(3) of this Item
need only be provided one time during any fiscal year.
    3. The disclosure required by paragraph (d)(3) of this Item need
not be provided in any filings other than a small business issuer's
proxy or information statement relating to an annual meeting of
security holders at which directors are to be elected (or special
meeting or written consents in lieu of such meeting).

    (e) Compensation committee. (1) If the small business issuer does
not have a standing compensation committee or

[[Page 6609]]

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

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

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

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

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

    10. Amend Sec.  229.201 by revising Instruction 2 to paragraph (d)
to read as follows:


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

* * * * *
    Instructions to paragraph (d). 1. * * *
    2. For purposes of this paragraph, an ``individual compensation
arrangement'' includes, but is not limited to, the following: a
written compensation contract within the meaning of ``employee
benefit plan'' under Sec.  230.405 of this chapter and a plan
(whether or not set forth in any formal document) applicable to one
person as provided under Item 402(a)(6)(ii) of Regulation S-K (Sec.
229.402(a)(6)(ii)).
* * * * *


Sec.  229.306  [Removed and reserved]

    11. Remove and reserve Sec.  229.306.
    12. Amend Sec.  229.401 by removing paragraphs (h), (i) and (j) and
by revising paragraph (g)(1) to read as follows:


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

* * * * *
    (g) Promoters and control persons. (1) Registrants, which have not
been subject to the reporting requirements of section 13(a) or 15(d) of
the Exchange Act (15 U.S.C. 78m(a), 78o(d)) for the twelve months
immediately prior to the filing of the registration statement, report,
or statement to which this Item is

[[Page 6610]]

applicable, and which had a promoter at any time during the past five
fiscal years, shall describe with respect to any promoter, any of the
events enumerated in paragraphs (f)(1) through (f)(6) of this Item that
occurred during the past five years and that are material to a voting
or investment decision.
* * * * *
    13. Revise Sec.  229.402 to read as follows:


Sec.  229.402  (Item 402) Executive compensation.

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

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

    (4) Information for full fiscal year. If the PEO or PFO served in
that capacity during any part of a fiscal year with respect to which
information is required, information should be provided as to all of
his or her compensation for the full fiscal year. If a named executive
officer (other than the PEO or PFO) served as an executive officer of
the registrant (whether or not in the same position) during any part of
the fiscal year with respect to which information is required,
information shall be provided as to all compensation of that individual
for the full fiscal year.
    (5) Omission of table or column. A table or column may be omitted,
if there has been no compensation awarded to, earned by, or paid to any
of the named executive officers required to be reported in that table
or column in any fiscal year covered by that table.
    (6) Definitions. For purposes of this Item:
    (i) The term stock appreciation rights (``SARs'') refers to SARs
payable in cash or stock, including SARs payable in cash or stock at
the election of the registrant or a named executive officer.
    (ii) The term plan includes, but is not limited to, the following:
Any plan, contract, authorization or arrangement, whether or not set
forth in any formal documents, pursuant to which cash, securities,
similar instruments, or any other property may be received. A plan may
be applicable to one person. Registrants may omit information regarding
group life, health, hospitalization, or medical reimbursement plans
that do not discriminate in scope, terms or operation, in favor of
executive officers or directors of the registrant and that are
available generally to all salaried employees.
    (iii) The term incentive plan means any plan providing compensation
intended to serve as incentive for performance to occur over a
specified period, whether such performance is measured by reference to
financial performance of the registrant or an affiliate, the
registrant's stock price, or any other performance measure. A non-stock
incentive plan is an incentive plan or portion of an incentive plan
where the relevant performance measure is not based on the price of the
registrant's equity securities or the award does not permit settlement
by issuance of registrant equity securities. The term incentive plan
award means an award provided under an incentive plan.
    (b) Compensation discussion and analysis. (1) Discuss the
compensation awarded to, earned by, or paid to the named executive
officers. The discussion shall explain all elements of the registrant's
compensation of the named executive officers. The discussion shall
describe the following:
    (i) The objectives of the registrant's compensation programs;
    (ii) What the compensation program is designed to reward and not
reward;
    (iii) Each element of compensation;
    (iv) Why the registrant chooses to pay each element;
    (v) How the registrant determines the amount (and, where
applicable, the formula) for each element to pay; and
    (vi) How each compensation element and the registrant's decisions
regarding that element fit into the registrant's overall compensation
objectives and affect decisions regarding other elements.
    (2) While the material information to be disclosed under
Compensation Discussion and Analysis will vary depending upon the facts
and circumstances, examples of such information may include, in a given
case, among other things, the following:
    (i) The policies for allocating between long-term and currently
paid out compensation;
    (ii) The policies for allocating between cash and non-cash

[[Page 6611]]

compensation, and among different forms of non-cash compensation;
    (iii) For long-term compensation, the basis for allocating
compensation to each different form of award (such as relationship of
the award to the achievement of the registrant's long-term goals,
management's exposure to downside equity performance risk, correlation
between cost to registrant and expected benefits to the registrant);
    (iv) For equity-based compensation, how the determination is made
as to when awards are granted;
    (v) What specific items of corporate performance are taken into
account in setting compensation policies and making compensation
decisions;
    (vi) How specific forms of compensation are structured to reflect
the named executive officer's individual performance and/or individual
contribution to these items of the registrant's performance, describing
the elements of individual performance and/or contribution that are
taken into account;
    (vii) How specific forms of compensation are structured to reflect
these items of the registrant's performance, including whether
discretion can be exercised (either to award compensation absent
attainment of the relevant performance goal(s) or to reduce or increase
the size of an award);
    (viii) The factors considered in decisions to increase or decrease
compensation materially;
    (ix) How compensation or amounts realizable from prior compensation
(e.g., gains from prior option or stock awards) are considered in
setting other elements of compensation (e.g., how gains from prior
option or stock awards are considered in setting retirement benefits);
    (x) The impact of the accounting and tax treatments of the
particular form of compensation;
    (xi) The registrant's equity or other security ownership
requirements or guidelines (specifying applicable amounts and forms of
ownership), and any registrant policies regarding hedging the economic
risk of such ownership;
    (xii) Whether the registrant engaged in any benchmarking of total
compensation, or any material element of compensation, identifying the
benchmark and, if applicable, its components (including component
companies); and
    (xiii) The role of executive officers in determining executive
compensation.

    Instructions to Item 402(b). 1. The purpose of the Compensation
Discussion and Analysis is to provide to investors material
information that is necessary to an understanding of the
registrant's compensation policies and decisions regarding the named
executive officers.
    2. The Compensation Discussion and Analysis should be of the
information contained in the tables and otherwise disclosed pursuant
to this Item.
    3. The Compensation Discussion and Analysis should focus on the
material principles underlying the registrant's executive
compensation policies and decisions and the most important factors
relevant to analysis of those policies and decisions, and shall not
use boilerplate language or repeat the more detailed information set
forth in the tables and narrative disclosures that follow.
    4. Registrants are not required to disclose target levels with
respect to specific quantitative or qualitative performance-related
factors considered by the compensation committee or the board of
directors, or any factors or criteria involving confidential
commercial or business information, the disclosure of which would
have an adverse effect on the registrant.
    (c) Summary compensation table. (1) General. Provide the
information specified in paragraph (c)(2) of this Item, concerning the
compensation of the named executive officers for each of the
registrant's last three completed fiscal years, in a Summary
Compensation Table in the tabular format specified below.

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

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

    Instructions to Item 402(c)(2)(iv) and (v). 1. If the amount of
salary or bonus earned in a given fiscal year is not calculable
through the latest practicable date, a footnote shall be included
disclosing that the amount of salary or bonus is not calculable
through the latest practicable date and providing the date that

[[Page 6612]]

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

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

    Instructions to Item 402(c)(2)(vi) and (vii). 1. For awards
reported in columns (f) and (g), include a footnote disclosing all
assumptions made in the valuation, by reference to a discussion of
those assumptions in the registrant's financial statements,
footnotes to the financial statements, or discussion in the
Management's Discussion and Analysis. The sections so referenced are
deemed part of the disclosure provided pursuant to this Item.
    2. If at any time during the last completed fiscal year, the
registrant has adjusted or amended the exercise price of stock
options or SARs previously awarded to a named executive officer,
whether through amendment, cancellation or replacement grants, or
any other means (``repriced''), or otherwise has materially modified
such awards, the registrant shall include, as awards required to be
reported in column (g), the total fair value of options or SARs as
so repriced or modified, measured as of the repricing or
modification date.
    3. All earnings on outstanding awards must be identified and
quantified in a footnote to column (f) or (g), as applicable,
whether the earnings were paid during the fiscal year, payable
during the period but deferred, or payable by their terms at a later
date.

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

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

    (ix) All other compensation for the covered fiscal year that the
registrant could not properly report in any other column of the Summary
Compensation Table (column (i)). Each compensation item that is not
properly reportable in columns (d)-(h) must be reported in this column
and must be identified and quantified in a footnote if the amount of
the item exceeds $10,000 (or in the case of any perquisite or personal
benefit, must be identified unless the aggregate value of perquisites
and personal benefits is less than $10,000, and must be quantified if
it is valued at the greater of $25,000 or 10% of total perquisites and
other personal benefits as specified in Instruction 3 to this
paragraph). Such compensation must include, but is not limited to:
    (A) Perquisites and other personal benefits, or property, unless
the aggregate amount of such compensation is less than $10,000;
    (B) All earnings on compensation that is deferred on a basis that
is not tax-qualified, including such earnings on non-qualified defined
contribution plans;
    (C) All ``gross-ups'' or other amounts reimbursed during the fiscal
year for the payment of taxes;
    (D) For any security of the registrant or its subsidiaries
purchased from the registrant or its subsidiaries (through deferral of
salary or bonus, or otherwise) at a discount from the market price of
such security at the date of purchase, unless that discount is
available generally, either to all security holders or to all salaried
employees of the registrant, the compensation cost computed in
accordance with FAS 123R applying the same valuation model and
assumptions as the registrant applies for financial statement reporting
purposes;
    (E) The amount paid or accrued to any named executive officer
pursuant to a plan or arrangement in connection with:
    (1) Any termination, including without limitation through
retirement, resignation, severance or constructive termination
(including a change in responsibilities) of such executive officer's
employment with the registrant and its subsidiaries; or
    (2) A change in control of the registrant;
    (F) Registrant contributions or other allocations to vested and
unvested defined contribution plans;
    (G) The aggregate increase in actuarial value to the named
executive officer of all defined benefit and actuarial pension plans
(including supplemental plans) accrued during the registrant's covered
fiscal year; and
    (H) The dollar value of any insurance premiums paid by, or on
behalf of, the registrant during the covered fiscal year with respect
to life insurance for the benefit of a named executive officer.

    Instructions to Item 402(c)(2)(ix). 1. Incentive plan awards and
earnings; earnings on restricted stock, options, SARs and similar
awards; and amounts received on exercise of options and SARs are
required to be reported elsewhere as provided in this Item and are
not reportable as All Other Compensation in column (i).
    2. Benefits paid pursuant to defined benefit and actuarial plans
are reportable as All Other Compensation in column (i) if paid to
the named executive officer during the period covered by the Table.
Otherwise information concerning these plans is reportable pursuant
to paragraph (i) of this Item.
    3. Each perquisite or personal benefit must be identified by
type unless the aggregate value of perquisites and personal benefits
is less than $10,000 and each perquisite or personal benefit that
exceeds the greater of $25,000 or 10% of the total amount of
perquisites and personal benefits must be quantified for a named
executive officer pursuant to paragraph (c)(2)(ix)(A) of this Item,
and each item reported for a named executive officer pursuant to
paragraph (c)(2)(ix) of this Item that exceeds $10,000

[[Page 6613]]

must be identified by type and amount in a footnote to column (i).
All items of compensation are required to be included in the Summary
Compensation Table without regard to whether such items are required
to be so identified. Reimbursements of taxes owed with respect to
perquisites or other personal benefits are subject to inclusion in
column (i) and to separate quantification and identification as tax
reimbursements (paragraph (c)(2)(ix)(C) of this Item) even if the
associated perquisites or other personal benefits are not required
to be separately quantified or the perquisite or other personal
benefit is not required to be included because the aggregate amount
of such compensation is less than $10,000.
    4. Perquisites and other personal benefits shall be valued on
the basis of the aggregate incremental cost to the registrant and
its subsidiaries.
    5. Regarding paragraph (c)(2)(ix)(B) of this Item, if the
applicable interest rates vary depending upon conditions such as a
minimum period of continued service, the reported amount should be
calculated assuming satisfaction of all conditions to receiving
interest at the highest rate. Footnote disclosure may be provided
disclosing the portion of any earnings that the registrant considers
to be paid at an above-market rate, provided that the footnote
explains the registrant's criteria for determining the portion
considered to be above market.
    6. The disclosure required pursuant to paragraph (c)(2)(ix)(G)
of this Item applies to each plan that provides for the payment of
retirement benefits, or benefits that will be paid primarily
following retirement, including but not limited to tax-qualified
defined benefit plans and supplemental employee retirement plans,
but excluding tax-qualified defined contribution plans and
nonqualified defined contribution plans.
    Instructions to Item 402(c). 1. Information with respect to
fiscal years prior to the last completed fiscal year will not be
required if the registrant was not a reporting company pursuant to
section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78m(a),
78o(d)) at any time during that year, except that the registrant
will be required to provide information for any such year if that
information previously was required to be provided in response to a
Commission filing requirement.
    2. All compensation values reported in the Summary Compensation
Table must be reported in dollars. Where compensation was paid to or
received by a named executive officer in a different currency, a
footnote must be provided to identify that currency and describe the
rate and methodology used to convert the payment amounts to dollars.
    3. If a named executive officer is also a director who receives
compensation for his or her services as a director, reflect that
compensation in the Summary Compensation Table and provide a
footnote identifying and itemizing such compensation and amounts.
Use the categories in the Director Compensation Table required
pursuant to paragraph (l) of this Item.
    4. Amounts deferred at the election of a named executive officer
or at the direction of the registrant, whether pursuant to a plan
established under section 401(k) of the Internal Revenue Code (26
U.S.C. 401(k)), or otherwise, shall be included in the appropriate
column for the fiscal year in which earned. The amount so deferred
must be disclosed in a footnote to the applicable column.

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

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

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

    Instructions to Item 402(d). 1. Separate disclosure shall be
provided in the Table for each grant of an award made to a named
executive officer, accompanied by the information specified in
Instruction 2 to this paragraph. If grants of awards were made to a
named executive officer during the fiscal year under more than one
plan, identify the particular plan under which each such grant was
made.

[[Page 6614]]

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

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

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

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

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

    (f) Narrative disclosure to summary compensation table and
subsidiary tables. (1) Provide a narrative description of any material
factors necessary to an understanding of the information disclosed in
the tables required by paragraphs (c), (d) and (e) of this Item.
Examples of such factors may include, in given cases, among other
things:
    (i) The material terms of each named executive officer's employment
agreement or arrangement, whether written or unwritten.
    (ii) If at any time during the last fiscal year, any outstanding
option, SAR or other equity-based award was repriced or otherwise
materially modified (such as by extension of exercise periods, the
change of vesting or forfeiture conditions, the change or elimination
of applicable performance criteria, or the change of the bases upon
which returns are determined), a description of each such repricing or
other material modification.
    (iii) The material terms of any award reported in response to
paragraph (d) of this Item, including a general description of the
formula or criteria to be applied in determining the amounts payable,
and the vesting schedule. For example, state where applicable that
dividends will be paid on stock (including restricted stock, restricted
stock units or other similar instruments), and if so, the applicable
dividend rate and whether that rate is preferential. Describe the
performance-based conditions, and any other material conditions, that
are applicable to the award. Registrants are not required to disclose
any factor, criteria or performance-related or other condition to
payout or maturation of a

[[Page 6615]]

particular award that involves confidential commercial or business
information, disclosure of which would adversely affect the
registrant's competitive position. For purposes of the Table required
by paragraph (d) of this Item and the narrative disclosure required by
paragraph (f) of this Item, performance-based conditions include both
performance conditions and market conditions, as those terms are
defined in FAS 123R.
    (iv) The waiver or modification of any specified performance
target, goal or condition to payout with respect to any amount included
in non-stock incentive plan compensation reported in column (h) to the
Summary Compensation Table required by paragraph (c) of this Item,
stating whether the waiver or modification applied to one or more
specified named executive officers or to all compensation subject to
the target, goal or condition.
    (v) The assumptions underlying any determination of an increase in
the actuarial value of defined benefit and actuarial plans and the
method of calculating earnings on deferred compensation plans including
defined contribution plans.

    Instruction to Item 402(f)(1). 1. Include a discussion of
provisions regarding post-termination compensation only to the
extent disclosure of such compensation is required in the Summary
Compensation Table pursuant to paragraph (c)(2)(ix)(E) of this Item;
otherwise disclose these provisions pursuant to paragraph (k) of
this Item.
    2. The disclosure required by paragraph (f)(2) of this Item
would not apply to any repricing that occurs through a pre-existing
formula or mechanism in the plan or award that results in the
periodic adjustment of the option or SAR exercise or base price, an
antidilution provision in a plan or award, or a recapitalization or
similar transaction equally affecting all holders of the class of
securities underlying the options or SARs.

    (2) For up to three employees who were not executive officers
during the last completed fiscal year and whose total compensation for
the last completed fiscal year was greater than that of any of the
named executive officers, disclose each of such employee's total
compensation for that year and describe their job positions.
    (g) Outstanding equity awards at fiscal year-end table. (1) Provide
the information specified in paragraph (g)(2) of this Item, concerning
the number and value of unexercised options, SARs and similar
instruments; nonvested stock (including restricted stock, restricted
stock units or other similar instruments); and incentive plan awards
for each named executive officer outstanding as of the end of the
registrant's last completed fiscal year on an aggregated basis in the
following tabular format:

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

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

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

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

[[Page 6616]]

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

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

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

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

    Instructions to Item 402(h)(2). 1. Report in column (c), line 1,
the aggregate dollar amount realized by the named executive officer
upon exercise of the options, SARs and similar instruments. Compute
the dollar amount realized upon exercise by determining the
difference between the market price of the underlying securities at
exercise and the exercise or base price of the options, SARs or
similar instruments. Do not include the value of any related payment
or other consideration provided (or to be provided) by the
registrant to or on behalf of a named executive officer, whether in
payment of the exercise price or related taxes. (Any such payment or
other consideration provided by the registration is required to be
disclosed in accordance with paragraph (c)(2)(ix) of this item.)
Report in column (c), line 2, the aggregate dollar amount realized
by the named executive officer upon the vesting of stock, including
restricted stock, restricted stock units and similar instruments.
Compute the aggregate dollar amount realized upon vesting by
multiplying the number of shares of stock or units by the market
value of the underlying shares on the vesting date.
    2. Report in column (d), line 1, the aggregate grant date fair
value previously reported in the registrant's Summary Compensation
Table for the fiscal year of the grant for the options, SARs and
similar instruments that were exercised by the named executive
officer during the last completed fiscal year. Report in column (d),
line 2, the aggregate grant date fair value previously reported in
the registrant's Summary Compensation Table for the fiscal year of
the grant for the shares of stock or units, including restricted
stock, restricted stock units and similar instruments held by the
named executive officer that vested during the last completed fiscal
year. If the named executive officer was not previously a named
executive officer during the fiscal year of the grant, report in
column (d) the grant date fair value of the award valued in
accordance with FAS 123R.

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

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


[[Page 6617]]

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

    Instructions to Item 402(i)(2). 1. The disclosure required
pursuant to this Table applies to each plan that provides for
specified retirement payments and benefits, or payments and benefits
that will be provided primarily following retirement, including but
not limited to tax-qualified defined benefit plans and supplemental
employee retirement plans, but excluding tax-qualified defined
contribution plans and nonqualified defined contribution plans.
Provide a separate row for each such plan in which the named
executive officer participates.
    2. If a named executive officer's number of years of credited
service with respect to any plan is different from the named
executive officer's number of actual years of service with the
registrant, provide footnote disclosure quantifying the difference
and any resulting benefit augmentation.
    3. Normal retirement age means normal retirement age as defined
in the plan, or if not so defined, the earliest time at which a
participant may retire under the plan without any benefit reduction
due to age. Early retirement age means early retirement age as
defined in the plan, or otherwise available to the executive.
    4. Quantification of payments and benefits should reflect the
form of benefit currently elected by the executive, such as joint
and survivor annuity or single life annuity, specifying that form in
a footnote. Where the named executive officer is not yet eligible to
retire, the dollar amount of annual payments and benefits that the
named executive officer would be entitled to receive upon becoming
eligible shall be computed assuming that the named executive officer
will continue to earn the same amount of compensation as reported
for the registrant's last fiscal year.

    (3) Provide a succinct narrative description of any material
factors necessary to an understanding of each plan covered by the
tabular disclosure required by this paragraph. While material factors
will vary depending upon the facts, examples of such factors may
include, in given cases, among other things:
    (i) The material terms and conditions of payments and benefits
available under the plan, including the plan's normal retirement
payment and benefit formula and eligibility standards, and (if
applicable) early retirement payment and benefit formula and
eligibility standards. If the plan permits a lump sum distribution at
the election of the executive or the registrant, quantify the amount of
such distribution that would be available on such election as of the
end of the registrant's last fiscal year, and disclose the valuation
method and all material assumptions applied in quantifying such amount;
    (ii) The specific elements of compensation (e.g., salary, bonus,
etc.) included in applying the payment and benefit formula, identifying
each such element;
    (iii) With respect to named executive officers'' participation in
multiple plans, the reasons for each plan; and
    (iv) Registrant policies with regard to such matters as granting
extra years of credited service.
    (j) Nonqualified defined contribution and other deferred
compensation plans. (1) Provide the information specified in paragraph
(j)(2) of this Item with respect to each defined contribution or other
plan that provides for the deferral of compensation on a basis that is
not tax-qualified in the following tabular format:

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

    (2) The Table shall include:
    (i) The name of the executive officer (column (a));
    (ii) The dollar amount of aggregate executive contributions during
the registrant's last fiscal year (column (b));
    (iii) The dollar amount of aggregate registrant contributions
during the registrant's last fiscal year (column (c));
    (iv) The dollar amount of aggregate interest or other earnings
accrued during the registrant's last fiscal year (column (d));
    (v) The aggregate dollar amount of all withdrawals by and
distributions to the executive during the registrant's last fiscal year
(column (e)); and
    (vi) The dollar amount of total balance of the executive's account
as of the end of the registrant's last fiscal year (column (f)).

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


[[Page 6618]]


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

    Instruction to Item 402(k). The registrant must provide
quantitative disclosure under these requirements even where
uncertainties exist as to amounts in given circumstances payable
under these plans and arrangements. In the event that uncertainties
exist as to the provision of payments and benefits or the amounts
involved, the registrant is required to make reasonable estimates
and disclose material assumptions underlying such estimates in its
disclosure. In such event the disclosure would require forward-
looking information as appropriate. Perquisites and other personal
benefits or property may be excluded only if the aggregate amount of
such compensation will be less than $10,000. Individual perquisites
and personal benefits shall be identified and quantified as required
by Instruction 3 to paragraph (c)(2)(ix) of this Item.

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

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

    (2) The Table shall include:
    (i) The name of each director unless such director is also a named
executive officer under paragraph (a) of this Item and his or her
compensation for service as a director is fully reflected in the
Summary Compensation Table pursuant to paragraph (c) of this Item and
otherwise as required pursuant to paragraphs 402(d)-(k) (column (a)) of
this Item;
    (ii) The dollar value of total compensation for the covered fiscal
year (column (b)). With respect to each director, disclose the sum of
all amounts reported in columns (c) through (g);
    (iii) The aggregate dollar amount of all fees earned or paid in
cash for services as a director, including annual retainer fees,
committee and/or chairmanship fees, and meeting fees (column (c));
    (iv) For awards of stock, including restricted stock, restricted
stock units, phantom stock, phantom stock units, common stock
equivalent units or other similar instruments that do not have option-
like features, the aggregate grant date fair value computed in
accordance with FAS 123R, applying the same valuation model and
assumptions as the registrant applies for financial statement reporting
purposes, and all earnings on any outstanding awards (column (d));
    (v) For awards of stock options, with or without tandem SARs,
freestanding SARs and other similar instruments with option-like
features (including awards that subsequently have been transferred),
the aggregate grant date fair value computed in accordance with FAS
123R applying the same valuation model and assumptions as the
registrant applies for financial statement reporting purposes, and all
earnings on any outstanding awards (column (e));

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

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

[[Page 6619]]

    (vii) All other compensation for the covered fiscal year that the
registrant could not properly report in any other column of the
Director Compensation Table (column (g)). Each compensation item for
the last completed fiscal year that is not properly reportable in
columns (c)-(f) must be reported in this column and must be identified
and quantified in a footnote if the amount of the item exceeds $10,000
(or in the case of any perquisites or personal benefits, must be
itemized unless the aggregate value of perquisites and personal
benefits is less than $10,000, and must be quantified if it is valued
at the greater of $25,000 or 10% of total perquisites and personal
benefits of the director). Such compensation must include, but is not
limited to:
    (A) All perquisites and other personal benefits, or property,
unless the aggregate amount of such compensation is less than $10,000;
    (B) All earnings on compensation that is deferred on a basis that
is not tax-qualified;
    (C) All amounts reimbursed during the fiscal year for the payment
of taxes;
    (D) For any security of the registrant or its subsidiaries
purchased from the registrant or its subsidiaries (through deferral of
salary or bonus, or otherwise) at a discount from the market price of
such security at the date of purchase, unless that discount is
available generally, either to all security holders or to all salaried
employees of the registrant, the compensation cost computed in
accordance with FAS 123R applying the same valuation model and
assumptions as the registrant applies for financial statement reporting
purposes;
    (E) The amount paid or accrued to any director pursuant to a plan
or arrangement in connection with:
    (1) The resignation, retirement or any other termination of such
director; or
    (2) A change in control of the registrant;
    (F) The aggregate increase in actuarial value to the director of
all defined benefit and actuarial pension plans (including supplemental
plans) accrued during the registrant's covered fiscal year;
    (G) Registrant contributions or other allocations to vested and
unvested defined contribution plans;
    (H) Consulting fees earned from, or paid or payable by the
registrant and/or its subsidiaries (including joint ventures);
    (I) The annual costs of payments and promises of payments pursuant
to director legacy programs and similar charitable award programs; and
    (J) The dollar value of any insurance premiums paid by, or on
behalf of, the registrant during the covered fiscal year with respect
to life insurance for the benefit of a director.

    Instruction to Item 402(l)(2)(vii). Programs in which
registrants agree to make donations to one or more charitable
institutions in a director's name, payable by the registrant
currently or upon a designated event, such as the retirement or
death of the director, are charitable awards programs or director
legacy programs for purposes of the disclosure required by paragraph
(l)(2)(vii)(I) of this Item. Provide footnote disclosure of the
total dollar amount and other material terms of each such program
for which tabular disclosure is provided.
    Instruction to Item 402(l)(2). Two or more directors may be
grouped in a single row in the table if all of their elements of
compensation are identical. The names of the directors for whom
disclosure is presented on a group basis should be clear from the
Table.

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

    Instruction to Item 402(l). In addition to the Instruction to
paragraph (l)(2)(vii) of this Item, the following apply equally to
paragraph (l) of this Item: Instructions 2 and 3 to paragraph (c) of
this Item; Instructions to paragraphs (c)(2)(iv) and (v) of this
Item; Instructions to paragraphs (c)(2)(vi) and (vii) of this Item;
Instructions to paragraph (c)(2)(viii) of this Item and Instructions
to paragraph (c)(2)(ix). These Instructions apply to the columns in
the Director Compensation Table that are analogous to the columns in
the Summary Compensation Table to which they refer and to
disclosures under paragraph (l) of this Item that correspond to
analogous disclosures provided for in paragraph (c) of this Item to
which they refer.
    Instruction to Item 402. Specify the applicable fiscal year in
the title to each table required under this Item which calls for
disclosure as of or for a completed fiscal year.

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


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

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

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

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

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


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

    (a) Transactions with related persons. Describe any transaction,
since the beginning of the registrant's last fiscal year, or any
currently proposed transaction, in which the registrant was or is to be
a participant and the amount involved exceeds $120,000, and in which
any related person had, or will have, a direct or indirect material
interest. Disclose the following information regarding the transaction
    (1) The name of the related person and the basis on which the
person is a related person.
    (2) The related person's interest in the transaction with the
registrant, including the related person's

[[Page 6620]]

position(s) or relationship(s) with, or ownership in, a firm,
corporation, or other entity that is a party to, or has an interest in,
the transaction.
    (3) The approximate dollar value of the amount involved in each
transaction and of the amount of the related person's interest in each
transaction, each of which shall be computed without regard to the
amount of profit or loss.
    (4) In the case of indebtedness, disclosure of the amount involved
in the transaction shall include the largest aggregate amount of
principal outstanding during the period for which disclosure is
provided, the amount thereof outstanding as of the latest practicable
date, the amount of principal paid during the periods for which
disclosure is provided, the amount of interest paid during the period
for which disclosure is provided, and the rate or amount of interest
payable on the indebtedness.
    (5) Any other information regarding the transaction or the related
person in the context of the transaction that is material to investors
in light of the circumstances of the particular transaction.

    Instructions to Item 404(a). 1. For the purposes of paragraph
(a) of this Item, the term related person means:
    a. Any person who was in any of the following categories at any
time during the specified period for which disclosure under
paragraph (a) of this Item is required:
    i. Any director or executive officer of the registrant,
    ii. Any nominee for director, when the information called for by
paragraph (a) of this Item is being presented in a proxy or
information statement relating to the election of that nominee for
director; or
    iii. Any immediate family member of any of the foregoing
persons, which means any child, stepchild, parent, stepparent,
spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-
in-law, brother-in-law, or sister-in-law, and any person (other than
a tenant or employee) sharing the household of a related person
identified in paragraph 1.a.i or 1.a.ii. of this instruction; and
    b. Any person who was in any of the following categories when a
transaction in which such person had a direct or indirect material
interest occurred or existed:
    i. A security holder covered by Item 403(a) (Sec.  229.403(a));
or
    ii. Any immediate family member of any such security holder,
which means any child, stepchild, parent, stepparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, of such security holder and any
person (other than a tenant or employee) sharing the household of
such security holder.
    2. For purposes of paragraph (a) of this Item, a transaction
includes, but is not limited to, any financial transaction,
arrangement or relationship (including any indebtedness or guarantee
of indebtedness) or any series of similar transactions, arrangements
or relationships.
    3. The amount involved in the transaction shall be computed by
determining the dollar value of the amount involved in the
transaction in question, which shall include:
    a. In the case of any lease or other transaction providing for
periodic payments or installments, the aggregate amount of all
periodic payments or installments due on or after the beginning of
the registrant's last fiscal year, including any required or
optional payments due during or at the conclusion of the lease.
    b. In the case of indebtedness, the largest aggregate amount of
all indebtedness outstanding at any time since the beginning of the
registrant's last fiscal year and all amounts of interest payable on
it during the last fiscal year.
    4. In the case of transactions involving indebtedness, the
following items of indebtedness may be excluded from the calculation
of the amount of indebtedness and need not be disclosed: amounts due
from the related person for purchases of goods and services subject
to usual trade terms, for ordinary business travel and expense
payments and for other transactions in the ordinary course of
business.
    5. Disclosure of an employment relationship or transaction
involving an executive officer and any related compensation solely
resulting from that employment relationship or transaction, need not
be provided pursuant to paragraph (a) of this Item if:
    a. The compensation arising from the relationship or transaction
is reported pursuant to Item 402 (Sec.  229.402); or
    b. The executive officer is not an immediate family member of a
related person (as specified in Instruction 1. to paragraph (a) of
this Item) and such compensation would have been reported under Item
402 (Sec.  229.402) as compensation earned for services to the
registrant if the executive officer was a named executive officer as
that term is defined in Item 402(a)(3) (Sec.  229.402(a)(3)), and
such compensation had been approved as such by the compensation
committee of the board of directors (or group of independent
directors performing a similar function) of the registrant.
    6. Disclosure of compensation to a director need not be provided
pursuant to paragraph (a) of this Item if the compensation is
reported pursuant to Item 402(l) (Sec.  229.402(l)).
    7. In the case of a transaction involving indebtedness, if the
lender is a bank, savings and loan association, or broker-dealer
extending credit under Federal Reserve Regulation T (12 CFR part
220) and the loans are not disclosed as nonaccrual, past due,
restructured or potential problems (see Item III.C.1. and 2. of
Industry Guide 3, Statistical Disclosure by Bank Holding Companies
(17 CFR 229.802(c))), disclosure under paragraph (a) of this Item
may consist of a statement, if such is the case, that the loans to
such persons:
    a. Were made in the ordinary course of business;
    b. Were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
loans with persons not related to the lender; and
    c. Did not involve more than the normal risk of collectibility
or present other unfavorable features.
    8. A person who has a position or relationship with a firm,
corporation, or other entity that engages in a transaction with the
registrant shall not be deemed to have an indirect ``material''
interest within the meaning of paragraph (a) of this Item where:
    a. The interest arises only:
    i. From such person's position as a director of another
corporation or organization which is a party to the transaction; or
    ii. From the direct or indirect ownership by such person and all
other persons specified in Instruction 1 to paragraph (a) of this
Item, in the aggregate, of less than a ten percent equity interest
in another person (other than a partnership) which is a party to the
transaction; or
    iii. From both such position and ownership; or
    b. The interest arises only from such person's position as a
limited partner in a partnership in which the person and all other
persons specified in Instruction 1 to paragraph (a) of this Item,
have an interest of less than ten percent, and the person is not a
general partner of and does not hold another position in the
partnership.

    (b) Review, approval or ratification of transactions with related
persons. (1) Describe the registrant's policies and procedures for the
review, approval, or ratification of any transaction required to be
reported under paragraph (a) of this Item. While the material features
of such policies and procedures will vary depending on the particular
circumstances, examples of such features may include, in given cases,
among other things:
    (i) The types of transactions that are covered by such policies and
procedures.
    (ii) The standards to be applied pursuant to such policies and
procedures.
    (iii) The persons or groups of persons on the board of directors or
otherwise who are responsible for applying such policies and
procedures.
    (iv) A statement of whether such policies and procedures are in
writing and, if not, how such policies and procedures are evidenced.
    (2) Identify any transaction required to be reported under
paragraph (a) of this Item since the beginning of the registrant's last
fiscal year where such policies and procedures did not require review,
approval or ratification or where such policies and procedures were not
followed.
    (c) Promoters. (1) Registrants that are filing a registration
statement on Form S-1 or Form SB-2 under the Securities Act (Sec.
239.11 or Sec.  239.10 of this chapter) or on Form 10 or Form 10-SB
under the

[[Page 6621]]

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

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

    16. Add Sec.  229.407 to read as follows:


Sec.  229.407  (Item 407) Corporate governance.

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

[[Page 6622]]

policies were so included in satisfaction of this requirement.
    (3) For each director and nominee for director that is identified
as independent, describe any transactions, relationships or
arrangements not disclosed pursuant to Item 404(a) (Sec.  229.404(a)),
or for investment companies, Item 22(b) of Schedule 14 (Sec.  240.14a-
101 of this chapter), that were considered by the board of directors
under the applicable independence definitions in determining that the
director is independent.

    Instruction to Item 407(a). No information called for by
paragraph (a) of this Item need be given in a registration statement
filed at a time when the registrant is not subject to the reporting
requirements of sections 13(a) or 15(d) of the Exchange Act (15
U.S.C. 78m(a), 78o(d)) respecting any director who is no longer a
director at the time of effectiveness of the registration statement.

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

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

    (3) State whether or not the registrant has standing audit,
nominating and compensation committees of the board of directors, or
committees performing similar functions. If the registrant has such
committees, however designated, identify each committee member, state
the number of committee meetings held by each such committee during the
last fiscal year and describe briefly the functions performed by each
such committee. Such disclosure need not be provided to the extent it
is duplicative of disclosure provided in accordance with paragraph
(d)(4) of this Item.
    (c) Nominating committee. (1) If the registrant does not have a
standing nominating committee or committee performing similar
functions, state the basis for the view of the board of directors that
it is appropriate for the registrant not to have such a committee and
identify each director who participates in the consideration of
director nominees.
    (2) Provide the following information regarding the registrant's
director nomination process:
    (i) State whether or not the nominating committee has a charter. If
the nominating committee has a charter, provide the disclosure required
by Instruction 2 to this Item regarding the nominating committee
charter;
    (ii) If the nominating committee has a policy with regard to the
consideration of any director candidates recommended by security
holders, provide a description of the material elements of that policy,
which shall include, but need not be limited to, a statement as to
whether the committee will consider director candidates recommended by
security holders;
    (iii) If the nominating committee does not have a policy with
regard to the consideration of any director candidates recommended by
security holders, state that fact and state the basis for the view of
the board of directors that it is appropriate for the registrant not to
have such a policy;
    (iv) If the nominating committee will consider candidates
recommended by security holders, describe the procedures to be followed
by security holders in submitting such recommendations;
    (v) Describe any specific minimum qualifications that the
nominating committee believes must be met by a nominating committee-
recommended nominee for a position on the registrant's board of
directors, and describe any specific qualities or skills that the
nominating committee believes are necessary for one or more of the
registrant's directors to possess;
    (vi) Describe the nominating committee's process for identifying
and evaluating nominees for director, including nominees recommended by
security holders, and any differences in the manner in which the
nominating committee evaluates nominees for director based on whether
the nominee is recommended by a security holder;
    (vii) With regard to each nominee approved by the nominating
committee for inclusion on the registrant's proxy card (other than
nominees who are executive officers or who are directors standing for
re-election), state which one or more of the following categories of
persons or entities recommended that nominee: security holder, non-
management director, chief executive officer, other executive officer,
third-party search firm, or other specified source. With regard to each
such nominee approved by a nominating committee of an investment
company, state which one or more of the following additional categories
of persons or entities recommended that nominee: security holder,
director, chief executive officer, other executive officer, or employee
of the investment company's investment adviser, principal underwriter,
or any affiliated person of the investment adviser or principal
underwriter;
    (viii) If the registrant pays a fee to any third party or parties
to identify or evaluate or assist in identifying or evaluating
potential nominees, disclose the function performed by each such third
party; and
    (ix) If the registrant's nominating committee received, by a date
not later than the 120th calendar day before the date of the
registrant's proxy statement released to security holders in connection
with the previous year's annual meeting, a recommended nominee from a
security holder that beneficially owned more than 5% of the
registrant's voting common stock for at least one year as of the date
the recommendation was made, or from a group of security holders that
beneficially owned, in the aggregate, more than 5% of the registrant's
voting common stock, with each of the securities used to calculate that
ownership held for at least one year as of the date the recommendation
was made, identify the candidate and the security holder or security
holder group that recommended the candidate and disclose whether the
nominating committee chose to nominate the candidate, provided,
however, that no such identification or disclosure is required without
the written consent of both the security holder or security holder
group and the candidate to be so identified.

    Instructions to Item 407(c)(2)(ix). 1. For purposes of paragraph
(c)(2)(ix) of this Item, the percentage of securities held by a
nominating security holder may be determined using information set
forth in the registrant's most recent quarterly or annual report,
and any current report subsequent thereto, filed with the Commission
pursuant to the Exchange Act (or, in the case of a registrant that
is an investment company registered under the Investment Company Act
of 1940, the registrant's most recent report on Form N-CSR
(Sec. Sec.  249.331 and 274.128 of this chapter)), unless the party
relying on such report knows or has reason

[[Page 6623]]

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

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

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

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

[[Page 6624]]

that person is independent, as independence for audit committee members
is defined in the listing standards applicable to the listed issuer.
    (C) If the registrant provides the disclosure required by paragraph
(d)(5)(i)(A)(2) of this Item, it must explain why it does not have an
audit committee financial expert.

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

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

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

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

[[Page 6625]]

executive officer within the registrant the consultants contacted in
carrying out their assignment.
    (4) Under the caption ``Compensation Committee Interlocks and
Insider Participation'':
    (i) The registrant shall identify each person who served as a
member of the compensation committee of the registrant's board of
directors (or board committee performing equivalent functions) during
the last completed fiscal year, indicating each committee member who:
    (A) Was, during the fiscal year, an officer or employee of the
registrant;
    (B) Was formerly an officer of the registrant; or
    (C) Had any relationship requiring disclosure by the registrant
under any paragraph of Item 404 (Sec.  229.404). In this event, the
disclosure required by Item 404 (Sec.  229.404) shall accompany such
identification.
    (ii) If the registrant has no compensation committee (or other
board committee performing equivalent functions), the registrant shall
identify each officer and employee of the registrant, and any former
officer of the registrant, who, during the last completed fiscal year,
participated in deliberations of the registrant's board of directors
concerning executive officer compensation.
    (iii) The registrant shall describe any of the following
relationships that existed during the last completed fiscal year:
    (A) An executive officer of the registrant served as a member of
the compensation committee (or other board committee performing
equivalent functions or, in the absence of any such committee, the
entire board of directors) of another entity, one of whose executive
officers served on the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of the registrant;
    (B) An executive officer of the registrant served as a director of
another entity, one of whose executive officers served on the
compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of
directors) of the registrant; and
    (C) An executive officer of the registrant served as a member of
the compensation committee (or other board committee performing
equivalent functions or, in the absence of any such committee, the
entire board of directors) of another entity, one of whose executive
officers served a director of the registrant.
    (iv) Disclosure required under paragraph (e)(4)(iii) of this Item
regarding a compensation committee member or other director of the
registrant who also served as an executive officer of another entity
shall be accompanied by the disclosure called for by Item 404 with
respect to that person.

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

    (f) Shareholder communications and annual meeting attendance. (1)
State whether or not the registrant's board of directors provides a
process for security holders to send communications to the board of
directors and, if the registrant does not have such a process for
security holders to send communications to the board of directors,
state the basis for the view of the board of directors that it is
appropriate for the registrant not to have such a process.
    (2) If the registrant has a process for security holders to send
communications to the board of directors:
    (i) Describe the manner in which security holders can send
communications to the board and, if applicable, to specified individual
directors; and
    (ii) If all security holder communications are not sent directly to
board members, describe the registrant's process for determining which
communications will be relayed to board members.
    Instructions to Item 407(f). 1. In lieu of providing the
information required by paragraph (f)(2) of this Item in the proxy
statement, the registrant may instead provide the registrant's Web
site address where such information appears.
    2. For purposes of the disclosure required by paragraph
(f)(2)(ii) of this Item, a registrant's process for collecting and
organizing security holder communications, as well as similar or
related activities, need not be disclosed provided that the
registrant's process is approved by a majority of the independent
directors or, in the case of a registrant that is an investment
company, a majority of the directors who are not ``interested
persons'' of the investment company as defined in section 2(a)(19)
of the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(19)).
    3. For purposes of this paragraph, communications from an
officer or director of the registrant will not be viewed as
``security holder communications.'' Communications from an employee
or agent of the registrant will be viewed as ``security holder
communications'' for purposes of this paragraph only if those
communications are made solely in such employee's or agent's
capacity as a security holder.
    4. For purposes of this paragraph, security holder proposals
submitted pursuant to Sec.  240.14a-8 of this chapter, and
communications made in connection with such proposals, will not be
viewed as ``security holder communications.''
    Instructions to Item 407. 1. For purposes of this Item:
    a. Listed issuer means a listed issuer as defined in Sec.
240.10A-3 of this chapter;
    b. National securities exchange means a national securities
exchange registered pursuant to section 6(a) of the Exchange Act (15
U.S.C. 78f(a));
    c. Inter-dealer quotation system means an automated inter-dealer
quotation system of a national securities association registered
pursuant to section 15A(a) of the Exchange Act (15 U.S.C. 78o-3(a));
and
    d. National securities association means a national securities
association registered pursuant to section 15A(a) of the Exchange
Act (15 U.S.C. 78o-3(a)) that has been approved by the Commission
(as that definition may be modified or supplemented).
    2. With respect to paragraphs (c)(2)(i), (d)(1) and (e)(2) of
this Item, disclose whether a current copy of the applicable
committee charter is available to security holders on the
registrant's Web site, and if so, provide the registrant's Web site
address. If a current copy of the charter is not available to
security holders on the registrant's Web site, include a copy of the
charter in an appendix to the registrant's proxy statement that is
provided to security holders at least once every three fiscal years,
or if the charter has been materially amended since the beginning of
the registrant's last fiscal year. If a current copy of the charter
is not available to security holders on the registrant's Web site,
and is not included as an appendix to the registrant's proxy
statement, identify in which of the prior fiscal years the charter
was so included in satisfaction of this requirement.

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


Sec.  229.601  (Item 601) Exhibits.

* * * * *
    (b) * * *
    (10) * * *
    (iii) * * *
    (C) * * *
    (5) Any compensatory plan, contract or arrangement if the
registrant is a foreign private issuer that furnishes compensatory
information under Item 402(a)(1) (Sec.  229.402(a)(1)) and the public
filing of the plan, contract or arrangement, or portion thereof, is not
required in the registrant's home country and is not otherwise publicly
disclosed by the registrant.
* * * * *
    18. Amend Sec.  229.1107 by revising paragraph (e) to read as
follows:


Sec.  229.1107  (Item 1107) Issuing Entities.

* * * * *

[[Page 6626]]

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

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

    19. The authority citation for part 239 continues to read in part
as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3,
77sss, 78c, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d), 77mm,
79e, 79f, 79g, 79j, 79l, 79m, 79n, 79q, 79t, 80a-2(a), 80a-3, 80a-8,
80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 80a-29, 80a-30, and 80a-37,
unless otherwise noted.
* * * * *
    20. Amend Form SB-2 (referenced in Sec.  239.10) by revising Item
15 to read as follows:


    Note: The text of Form SB-2 does not, and this amendment will
not, appear in the Code of Federal Regulations.

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

* * * * *
    Item 15. Organization Within Last Five Years.
    Furnish the information required by Item 404 of Regulation S-B and
Item 407(a) of Regulation S-B.
* * * * *
    21. Amend Form S-1 (referenced in Sec.  239.11) by revising Item
11, paragraphs (l) and (n) to read as follows:


    Note: The text of Form S-1 does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form S-1 Registration Statement Under the Securites Act of 1933

* * * * *
    Item 11. Information with Respect to the Registrant.
* * * * *
    (l) Information required by Item 402 of Regulation S-K (Sec.
229.402 of this chapter), executive compensation, and information
required by paragraph (e)(4) of Item 407 of Regulation S-K (Sec.
229.407 of this chapter), corporate governance;
* * * * *
    (n) Information required by Item 404 of Regulation S-K (Sec.
229.404 of this chapter), transactions with related persons and
promoters, and Item 407(a) of Regulation S-K (Sec.  229.407(a) of this
chapter), corporate governance.
* * * * *
    22. Amend Form S-3 (referenced Sec.  239.13) by revising General
Instruction I.A.3.(b) and the introductory text of General Instruction
I.B.4.(c) to read as follows:


    Note:  The text of Form S-3 does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form S-3 Registration Statement Under the Securities Act of 1933

* * * * *

General Instructions

    I. Eligibility Requirements for Use of Form S-3 * * *
    A. Registrant Requirements. * * *
    3. * * *
    (b) has filed in a timely manner all reports required to be filed
during the twelve calendar months and any portion of a month
immediately preceding the filing of the registration statement, other
than a report that is required solely pursuant to Items 1.01, 1.02,
2.03, 2.04, 2.05, 2.06, 4.02(a) or 5.02(e) of Form 8-K (Sec.  249.308
of this chapter). If the registrant has used (during the twelve
calendar months and any portion of a month immediately preceding the
filing of the registration statement) Rule 12b-25(b) (Sec.  240.12b-
25(b) of this chapter) under the Exchange Act with respect to a report
or a portion of a report, that report or portion thereof has actually
been filed within the time period prescribed by that rule.
* * * * *
    B. Transaction Requirements. * * *
    4. * * *
    (c) The issuer also must have provided, within the twelve calendar
months immediately before the Form S-3 registration statement is filed,
the information required by Items 401, 402, 403 and 407(c)(3), (d)(4),
(d)(5) and (e)(4) of Regulation S-K (Sec.  229.401-Sec.  229.403 and
Sec.  229.407(c)(3),(d)(4), (d)(5) and (e)(4) of this chapter) to:
* * * * *
    23. Amend Form S-4 (referenced in Sec.  239.25) by revising Items
18(a)(7)(ii) and (iii) and 19(a)(7)(ii) and (iii) to read as follows:


    Note: The text of Form S-4 does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form S-4 Registration Statement Under the Securities Act of 1933

* * * * *
    Item 18. Information if Proxies, Consents or Authorizations are to
be Solicited.
    (a) * * *
    (7) * * *
    (ii) Item 402 of Regulation S-K (Sec.  229.402 of this chapter),
executive compensation, and paragraph (e)(4) of Item 407 of Regulation
S-K (Sec.  229.407 of this chapter), corporate governance;
    (iii) Item 404 of Regulation S-K (Sec.  229.404 of this chapter),
transactions with related persons and promoters, and Item 407(a) of
Regulation S-K (Sec.  229.407(a) of this chapter), corporate
governance.
* * * * *
    Item 19. Information if Proxies, Consents or Authorizations are not
to be Solicited or in an Exchange Offer.
    (a) * * *
    (7) * * *
    (ii) Item 402 of Regulation S-K (Sec.  229.402 of this chapter),
executive compensation, and paragraph (e)(4) of Item 407 of Regulation
S-K (Sec.  229.407 of this chapter), corporate governance;
    (iii) Item 404 of Regulation S-K (Sec.  229.404), transactions with
related persons and promoters, and Item 407(a) of Regulation S-K (Sec.
229.407(a)), corporate governance.
* * * * *
    24. Amend Form S-11 (referenced in Sec.  239.18) by revising Items
22 and 23 to read as follows:


    Note: The text of Form S-11 does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form S-11 For Registration Under the Securities Act of 1933 of
Securities of Certain Real Estate Companies

* * * * *
    Item 22. Executive Compensation.
    Furnish the information required by Item 402 of Regulation S-K
(Sec.  229.402 of this chapter), and the information required by
paragraph (e)(4) of Item 407 of Regulation S-K (Sec.  229.407 of this
chapter).
    Item 23. Certain Relationships and Related Transactions.
    Furnish the information required by Items 404 and 407(a) of
Regulation S-K (Sec. Sec.  229.404 and 229.407(a) of this chapter). If
a transaction involves the purchase or sale of assets by or to the
registrant, otherwise than in the ordinary course of business, state
the cost of the assets to the purchaser and, if acquired by the seller
within two years prior to the transaction, the cost thereof to the
seller. Furthermore, if the assets have been acquired by the seller
within five years prior to the transaction, disclose the aggregate
depreciation claimed by the seller for federal income tax purposes.
Indicate the principle followed in determining the registrant's
purchase or sale price and the name of the person making such
determination.
* * * * *

[[Page 6627]]

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

    25. The authority citation for part 240 continues to read in part
as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5,
78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless
otherwise noted.
* * * * *
    26. Amend Sec.  240.13a-11 by revising paragraph (c) to read as
follows:


Sec.  240.13a-11  Current reports on Form 8-K (Sec.  249.308 of this
chapter).

* * * * *
    (c) No failure to file a report on Form 8-K that is required solely
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a), 5.02(e)
or 6.03 of Form 8-K shall be deemed to be a violation of 15 U.S.C.
78j(b) and Sec.  240.10b-5.
    27. Add Sec.  240.13a-20 to read as follows:


Sec.  240.13a-20  Plain English presentation of specified information.

    (a) Any information included or incorporated by reference in a
report filed under section 13(a) of the Act (15 U.S.C. 78m(a)) that is
required to be disclosed pursuant to Item 402, 403, 404 or 407 of
Regulation S-B (Sec. Sec.  228.402, 228.403, 228.404 or 228.407 of this
chapter) or Item 402, 403, 404 or 407 of Regulation S-K (Sec. Sec.
229.402, 229.403, 229.404 or 229.407 of this chapter) must be presented
in a clear, concise and understandable manner. You must prepare the
disclosure using the following standards:
    (1) Present information in clear, concise sections, paragraphs and
sentences;
    (2) Use short sentences;
    (3) Use definite, concrete, everyday words;
    (4) Use the active voice;
    (5) Avoid multiple negatives;
    (6) Use descriptive headings and subheadings;
    (7) Use a tabular presentation or bullet lists for complex
material, wherever possible;
    (8) Avoid legal jargon and highly technical business and other
terminology;
    (9) Avoid frequent reliance on glossaries or defined terms as the
primary means of explaining information. Define terms in a glossary or
other section of the document only if the meaning is unclear from the
context. Use a glossary only if it facilitates understanding of the
disclosure; and
    (10) In designing the presentation of the information you may
include pictures, logos, charts, graphs and other design elements so
long as the design is not misleading and the required information is
clear. You are encouraged to use tables, schedules, charts and graphic
illustrations that present relevant data in an understandable manner,
so long as such presentations are consistent with applicable disclosure
requirements and consistent with other information in the document. You
must draw graphs and charts to scale. Any information you provide must
not be misleading.
    (b) [Reserved].

    Note to Sec.  240.13a-20. In drafting the disclosure to comply
with this section, you should avoid the following:
    1. Legalistic or overly complex presentations that make the
substance of the disclosure difficult to understand;
    2. Vague ``boilerplate'' explanations that are imprecise and
readily subject to different interpretations;
    3. Complex information copied directly from legal documents
without any clear and concise explanation of the provision(s); and
    4. Disclosure repeated in different sections of the document
that increases the size of the document but does not enhance the
quality of the information.
    28. Amend Sec.  240.14a-6 to revise paragraph (a)(4) to read as
follows:


Sec.  240.14a-6  Filing requirements.

    (a) * * *
    (4) The approval or ratification of a plan as defined in paragraph
(a)(6)(ii) of Item 402 of Regulation S-K (Sec.  229.402(a)(6)(ii) of
this chapter) or amendments to such a plan;
* * * * *
    29. Amend Sec.  240.14a-101 by:
    a. Removing paragraphs (f), (g), and (h) of Item 7 and paragraph
(b)(13)(iii) of Item 22;
    b. Revising ``$60,000'' to read ``$120,000'' in the introductory
text of Items 22(b)(7), (b)(8), and (b)(9); Instruction 2 to Item
22(b)(7); and Instruction 6 to Item 22(b)(9);
    c. Revising Note C, Item 7(b), (c), (d), and (e), the introductory
text of Item 8, the undesignated paragraph following Item 8(d), Item
10(b)(1)(ii), the Instruction to Item 10(b)(1)(ii), the introductory
text of Item 22(b), Item 22(b)(11), the Instruction to paragraph
(b)(11) of Item 22, and the introductory text of Item 22(b)(13); and
    d. Adding Items 22(b)(15), (b)(16), and (b)(17).
    The revisions and additions read as follows:


Sec.  240.14a-101  Schedule 14A. Information required in proxy
statement.

* * * * *
    Notes.
* * * * *
    C. Except as otherwise specifically provided, where any item
calls for information for a specified period with regard to
directors, executive officers, officers or other persons holding
specified positions or relationships, the information shall be given
with regard to any person who held any of the specified positions or
relationship at any time during the period. Information, other than
information required by Item 404 of Regulation S-B or Item 404 of
Regulation S-K, need not be included for any portion of the period
during which such person did not hold any such position or
relationship, provided a statement to that effect is made.
* * * * *
    Item 7. Directors and executive officers. * * *
* * * * *
    (b) The information required by Items 401, 404(a) and (b), 405
and 407(d)(4) and (d)(5) of Regulation S-K (Sec.  229.401, Sec.
229.404, Sec.  229.405 and Sec.  229.407 of this chapter).
    (c) The information required by Item 407(a) of Regulation S-K
(Sec.  229.407 of this chapter).
    (d) The information required by Item 407(b), (c)(1), (c)(2),
(d)(1), (d)(2), (d)(3), (e)(1), (e)(2), (e)(3) and (f) of Regulation
S-K (Sec.  229.407 of this chapter).
    (e) In lieu of the information required by this Item 7,
investment companies registered under the Investment Company Act of
1940 (15 U.S.C. 80a) must furnish the information required by Item
22(b) of this Schedule 14A.
* * * * *
    Item 8. Compensation of directors and executive officers.
Furnish the information required by Item 402 of Regulation S-K
(Sec.  229.402 of this chapter) and paragraph (e)(4) of Item 407 of
Regulation S-K (Sec.  229.407 of this chapter) if action is to be
taken with regard to:
* * * * *
    (d) * * *
    However, if the solicitation is made on behalf of persons other
than the registrant, the information required need be furnished only
as to nominees of the persons making the solicitation and associates
of such nominees. In the case of investment companies registered
under the Investment Company Act of 1940 (15 U.S.C. 80a), furnish
the information required by Item 22(b)(13) of this Schedule.
* * * * *
    Item 10. Compensation plans. * * *
    (b)(1) Additional information regarding specified plans subject
to security holder action. * * *
    (ii) The estimated annual payment to be made with respect to
current services. In the case of a pension or retirement plan,
information called for by paragraph (a)(2) of this Item may be
furnished in the format specified by paragraph (i)(2) of Item 402 of
Regulation S-K (Sec.  229.402(i)(2) of this chapter).
    Instruction to paragraph (b)(1)(ii). In the case of investment
companies registered under the Investment Company Act of 1940 (15
U.S.C. 80a), refer to Instruction 4 in Item 22(b)(13)(i) of this
Schedule in lieu of

[[Page 6628]]

paragraph (i)(2) of Item 402 of Regulation S-K (Sec.  229.402(i)(2)
of this chapter).
* * * * *
    Item 22. Information required in investment company proxy
statement.
    (a) * * *
    (b) Election of Directors. If action is to be taken with respect
to the election of directors of a Fund, furnish the following
information in the proxy statement in addition to, in the case of
business development companies, the information (and in the format)
required by Item 7 and Item 8 of this Schedule 14A.
* * * * *
    (11) Provide in tabular form, to the extent practicable, the
information required by Items 401(f) and (g), 404(a), and 405 of
Regulation S-K (Sec. Sec.  229.401(f) and (g), 229.404(a), and
229.405 of this chapter).
    Instruction to paragraph (b)(11). Information provided under
paragraph (b)(8) of this Item 22 is deemed to satisfy the
requirements of Item 404(a) of Regulation S-K for information about
directors, nominees for election as directors, and Immediate Family
Members of directors and nominees, and need not be provided under
this paragraph (b)(11).
* * * * *
    (13) In the case of a Fund that is an investment company
registered under the Investment Company Act of 1940 (15 U.S.C. 80a),
for all directors, and for each of the three highest-paid Officers
that have aggregate compensation from the Fund for the most recently
completed fiscal year in excess of $60,000 (``Compensated
Persons''):
* * * * *
    (15)(i) Provide the information (and in the format) required by
Item 407(b)(1), (b)(2) and (f) of Regulation S-K (Sec.
229.407(b)(1), (b)(2) and (f) of this chapter); and
    (ii) Provide the following regarding the requirements for the
director nomination process:
    (A) The information (and in the format) required by Item
407(c)(1) and (c)(2) of Regulation S-K (Sec.  229.407(c)(1) and
(c)(2) of this chapter); and
    (B) If the Fund is a listed issuer (as defined in Sec.  240.10A-
3 of this chapter) whose securities are listed on a national
securities exchange registered pursuant to section 6(a) of the Act
(15 U.S.C. 78f(a)) or in an automated inter-dealer quotation system
of a national securities association registered pursuant to section
15A of the Act (15 U.S.C. 78o-3(a)) that has independence
requirements for nominating committee members, identify each
director that is a member of the nominating committee that is not
independent under the independence standards described in this
paragraph. In determining whether the nominating committee members
are independent, use the Fund's definition of independence that it
uses for determining if the members of the nominating committee are
independent in compliance with the independence standards applicable
for the members of the nominating committee in the listing standards
applicable to the Fund. If the Fund does not have independence
standards for the nominating committee, use the independence
standards for the nominating committee in the listing standards
applicable to the Fund.
    (16) In the case of a Fund that is a closed-end investment
company:
    (i) Provide the information (and in the format) required by Item
407(d)(1), (d)(2) and (d)(3) of Regulation S-K (Sec.  229.407(d)(1),
(d)(2) and (d)(3) of this chapter); and
    (ii) Identify each director that is a member of the Fund's audit
committee that is not independent under the independence standards
described in this paragraph. If the Fund does not have a separately
designated audit committee, or committee performing similar
functions, the Fund must provide the disclosure with respect to all
members of its board of directors.
    (A) If the Fund is a listed issuer (as defined in Sec.  240.10A-
3 of this chapter) whose securities are listed on a national
securities exchange registered pursuant to section 6(a) of the Act
(15 U.S.C. 78f(a)) or in an automated inter-dealer quotation system
of a national securities association registered pursuant to section
15A of the Act (15 U.S.C. 78o-3(a)) that has independence
requirements for audit committee members, in determining whether the
audit committee members are independent, use the Fund's definition
of independence that it uses for determining if the members of the
audit committee are independent in compliance with the independence
standards applicable for the members of the audit committee in the
listing standards applicable to the Fund. If the Fund does not have
independence standards for the audit committee, use the independence
standards for the audit committee in the listing standards
applicable to the Fund.
    (B) If the Fund is not a listed issuer whose securities are
listed on a national securities exchange registered pursuant to
section 6(a) of the Act (15 U.S.C. 78f(a)) or in an automated inter-
dealer quotation system of a national securities association
registered pursuant to section 15A of the Act (15 U.S.C. 78o-3(a)),
in determining whether the audit committee members are independent,
use a definition of independence of a national securities exchange
registered pursuant to section 6(a) of the Act (15 U.S.C. 78f(a)) or
an automated inter-dealer quotation system of a national securities
association registered pursuant to section 15A of the Act (15 U.S.C.
78o-3(a)) which has requirements that a majority of the board of
directors be independent and that has been approved by the
Commission, and state which definition is used. Whatever such
definition the Fund chooses, it must use the same definition with
respect to all directors and nominees for director. If the national
securities exchange or national securities association whose
standards are used has independence standards for the members of the
audit committee, use those specific standards.
    (17) In the case of a Fund that is an investment company
registered under the Investment Company Act of 1940 (15 U.S.C. 80a),
if a director has resigned or declined to stand for re-election to
the board of directors since the date of the last annual meeting of
security holders because of a disagreement with the registrant on
any matter relating to the registrant's operations, policies or
practices, and if the director has furnished the registrant with a
letter describing such disagreement and requesting that the matter
be disclosed, the registrant shall state the date of resignation or
declination to stand for re-election and summarize the director's
description of the disagreement. If the registrant believes that the
description provided by the director is incorrect or incomplete, it
may include a brief statement presenting its view of the
disagreement.

* * * * *
    30. Amend Sec.  240.15d-11 by revising paragraph (c) to read as
follows:


Sec.  240.15d-11  Current reports on Form 8-K (Sec.  249.308 of this
chapter).

* * * * *
    (c) No failure to file a report on Form 8-K that is required solely
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a), 5.02(e)
or 6.03 of Form 8-K shall be deemed to be a violation of 15 U.S.C.
78j(b) and Sec.  240.10b-5.
    31. Add Sec.  240.15d-20 to read as follows:


Sec.  240.15d-20  Plain English presentation of specified information.

    (a) Any information included or incorporated by reference in a
report filed under section 15(d) of the Act (15 U.S.C. 78o(d)) that is
required to be disclosed pursuant to Items 402, 403, 404 or 407 of
Regulation S-B (Sec. Sec.  228.402, 228.403, 228.404 or 228.407 of this
chapter) or Items 402, 403, 404 or 407 of Regulation S-K (Sec. Sec.
229.402, 229.403, 229.404 or 229.407 of this chapter) must be presented
in a clear, concise and understandable manner. You must prepare the
disclosure using the following standards:
    (1) Present information in clear, concise sections, paragraphs and
sentences;
    (2) Use short sentences;
    (3) Use definite, concrete, everyday words;
    (4) Use the active voice;
    (5) Avoid multiple negatives;
    (6) Use descriptive headings and subheadings;
    (7) Use a tabular presentation or bullet lists for complex
material, wherever possible;
    (8) Avoid legal jargon and highly technical business and other
terminology;
    (9) Avoid frequent reliance on glossaries or defined terms as the
primary means of explaining information. Define terms in a glossary or
other section of the document only if the meaning is unclear from the
context. Use a glossary only if it facilitates understanding of the
disclosure; and
    (10) In designing the presentation of the information you may
include pictures, logos, charts, graphs and other design elements so
long as the design is not misleading and the required

[[Page 6629]]

information is clear. You are encouraged to use tables, schedules,
charts and graphic illustrations that present relevant data in an
understandable manner, so long as such presentations are consistent
with applicable disclosure requirements and consistent with other
information in the document. You must draw graphs and charts to scale.
Any information you provide must not be misleading.
    (b) [Reserved].

    Note to Sec.  240.15d-20. In drafting the disclosure to comply
with this section, you should avoid the following:
    1. Legalistic or overly complex presentations that make the
substance of the disclosure difficult to understand;
    2. Vague ``boilerplate'' explanations that are imprecise and
readily subject to different interpretations;
    3. Complex information copied directly from legal documents
without any clear and concise explanation of the provision(s); and
    4. Disclosure repeated in different sections of the document
that increases the size of the document but does not enhance the
quality of the information.

Sec.  240.16b-3  [Amended]

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

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

    33. The authority citation for Part 245 continues to read in part
as follows:

    Authority: 15 U.S.C. 78w(a), unless otherwise noted.
* * * * *


Sec.  245.100  [Amended]

    34. Amend Sec.  245.100, paragraph (a)(2), by revising the phrase
``paragraph (a) or (b) of Item 404'' to read ``paragraph (a) of Item
404''.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

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

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C.
1350, unless otherwise noted.
* * * * *
    36. Amend Form 10 (referenced in Sec.  249.210) by revising Items 6
and 7 to read as follows:


    Note: The text of Form 10 does not, and this amendment will not,
appear in the Code of Federal Regulations.

Form 10

General Form for Registration of Securities Pursuant to Section 12(b)
or (g) of the Securities Exchange Act of 1934

* * * * *
    Item 6. Executive Compensation.
    Furnish the information required by Item 402 of Regulation S-K
(Sec.  229.402 of this chapter) and paragraph (e)(4) of Item 407 of
Regulation S-K (Sec.  229.407 of this chapter).
    Item 7. Certain Relationships and Related Transactions, and
Director Independence.
    Furnish the information required by Item 404 of Regulation S-K
(Sec.  229.404 of this chapter) and Item 407(a) of Regulation S-K
(Sec.  229.407(a) of this chapter).
* * * * *
    37. Amend Form 10-SB (referenced in Sec.  249.210b), Information
Required in Registration Statement, by revising Item 7 to read as
follows:


    Note: The text of Form 10-SB does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form 10-SB General Form for Registration of Securities of Small
Business Issuers

* * * * *

Information Required in Registration Statement

* * * * *
    Item 7. Certain Relationships and Related Transactions, and
Director Independence.
    Furnish the information required by Item 404 of Regulation S-B and
Item 407(a) of Regulation S-B.
* * * * *
    38. Amend Form 20-F (referenced in Sec.  249.220f) by revising
Instruction 4.(c)(v) to the Instructions as to Exhibits to read as
follows:


    Note: The text of Form 20-F does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form 20-F

* * * * *
Instructions as to Exhibits
* * * * *
    4.(a) * * *
    (c) * * *
    (v) Public filing of the management contact or compensatory plan,
contract or arrangement, or portion thereof, is not required in the
company's home country and is not otherwise publicly disclosed by the
company.
* * * * *
    39. Form 8-K (referenced in Sec.  249.308) is amended by:
    a. Revising General Instruction D;
    b. Revising the last sentence of Instruction 1 to Item 1.01;
    c. Revising the heading of Item 5.02;
    d. Revising Item 5.02(b), the introductory text of Item 5.02(c),
Item 5.02(c)(2) and (c)(3);
    e. Adding Item 5.02(d)(5) and (e); and
    f. Adding Instruction 3 to Item 5.02.
    The revisions and addition read as follows:


    Note: The text of Form 8-K does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form 8-K Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

* * * * *

General Instructions

* * * * *
    D. Preparation of Report.
    This form is not to be used as a blank form to be filled in, but
only as a guide in the preparation of the report on paper meeting the
requirements of Rule 12b-12 (17 CFR 240.12b-12). The report shall
contain the number and caption of the applicable item, but the text of
such item may be omitted, provided the answers thereto are prepared in
the manner specified in Rule 12b-13 (17 CFR 240.12b-13). To the extent
that Item 1.01 and one or more other items of the form are applicable,
registrants need not provide the number and caption of Item 1.01 so
long as the substantive disclosure required by Item 1.01 is disclosed
in the report and the number and caption of the other applicable
item(s) are provided. All items that are not required to be answered in
a particular report may be omitted and no reference thereto need be
made in the report. All instructions should also be omitted.
* * * * *
    Item 1.01 Entry into a Material Definitive Agreement.
* * * * *
    Instructions. 1. * * * An agreement involving the subject matter
identified in Item 601(b)(10)(iii)(A) or (B) need not be disclosed
under this item.
* * * * *
    Item 5.02 Departure of Directors or Certain Officers; Election of
Directors; Appointment of Certain Officers; Compensatory Arrangements
of Certain Officers.
* * * * *
    (b) If the registrant's principal executive officer, president,
principal financial officer, principal accounting

[[Page 6630]]

officer, principal operating officer, or any person performing similar
functions, or any named executive officer for the registrant's most
recent fiscal year (as defined by Item 402(a)(3) of Regulation S-K (17
CFR 229.402(a)(3)), retires, resigns or is terminated from that
position, or if a director retires, resigns, is removed, or refuses to
stand for re-election (except in circumstances described in paragraph
(a) of this Item 5.02), disclose the fact that the event has occurred
and the date of the event.
    (c) If the registrant appoints a new principal executive officer,
president, principal financial officer, principal accounting officer,
principal operating officer, or person performing similar functions,
disclose the following information with respect to the newly appointed
officer:
    (1) * * *
    (2) the information required by Items 401(b), (d), (e) and Item
404(a) of Regulation S-K (17 CFR 229.401(b), (d), (e) and 229.404(a)),
or, in the case of a small business issuer, Items 401(a)(4), (a)(5),
(c), and Items 404(a) of Regulation S-B (17 CFR 228.401(a)(4), (a)(5),
(c), and 228.404(a), respectively); and
    (3) a brief description of any material plan, contract or
arrangement (whether or not written) to which a covered officer is a
party or in which he or she participates that is entered into or a
material amendment in connection with the triggering event or any grant
or award to any such covered person or modification thereto, under any
such plan, contract or arrangement in connection with any such event.
    (d) * * *
    (5) a brief description of any material plan, contract or
arrangement (whether or not written) to which the director is a party
or in which he or she participates that is entered into or material
amendment in connection with the triggering event or any grant or award
to any such covered person or modification thereto, under any such
plan, contract or arrangement in connection with any such event.
    (e) If the registrant enters into, adopts, or otherwise commences a
material compensatory plan, contract or arrangement (whether or not
written), as to which the registrant's principal executive officer,
principal financial officer, or a named executive officer (as defined
by Item 402(a)(3) of Regulation S-K (17 CFR 229.402(a)(3)) for the
registrant's most recent fiscal year participates or is a party, or
such compensatory plan, contract or arrangement is materially amended
or modified, or a material grant or award under any such plan, contract
or arrangement to any such person is made or materially modified, then
the registrant shall provide a brief description of the terms and
conditions of the plan, contract or arrangement and the amounts payable
to the officer thereunder.

    Instructions to paragraph (e). 1. Disclosure under this Item
5.02(e) shall be required whether or not the specified event is in
connection with events otherwise triggering disclosure pursuant to
this Item 5.02.
    2. Grants or awards (or modifications thereto) made pursuant to
a plan, contract or arrangement, that are materially consistent with
the original terms of such plan, contract or arrangement, need not
be disclosed under this Item 5.02(e), provided the registrant has
previously disclosed such original terms and the grant, award or
modification is disclosed when Item 402 of Regulation S-K (17 CFR
229.402) requires such disclosure.
    3. If the salary and bonus of a named executive officer cannot
be calculated as of the most recent practicable date and are omitted
from the Summary Compensation Table as specified in Instruction 1 to
Item 402(b)(2)(iv) and (v) of Regulation S-B or Instruction 1 to
Item 402(c)(2)(iv) and (v) of Regulation S-K, disclose the
appropriate information under this Item 5.02(e) when there is a
payment, grant, award, decision or other occurrence as a result of
which such amounts become calculable in whole or part. Disclosure is
required even where Instruction 2 would permit such information not
to be disclosed.
    Instructions to Item 5.02.
* * * * *
    3. The registrant need not provide information with respect to
plans, contracts, and arrangements to the extent they do not
discriminate in scope, terms or operation, in favor of executive
officers or directors of the registrant and that are available
generally to all salaried employees.

* * * * *
    40. Amend Form 10-Q (referenced in Sec.  249.308a) by revising Item
5(b) in Part II to read as follows:


    Note: The text of Form 10-Q does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form 10-Q

* * * * *

Part II--Other Information

* * * * *
    Item 5. Other Information.
    (a) * * *
    (b) Furnish the information required by Item 407(c)(3) of
Regulation S-K (Sec.  229.407).
* * * * *
    41. Amend Form 10-QSB (referenced in Sec.  249.308b) by revising
Item 5(b) in Part II to read as follows:


    Note: The text of Form 10-QSB does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form 10-QSB

* * * * *

Part II--Other Information

* * * * *
    Item 5. Other Information.
    (a) * * *
    (b) Furnish the information required by Item 407(c)(3) of
Regulation S-B (Sec.  228.407).
* * * * *
    42. Amend Form 10-K (referenced in Sec.  249.310) by revising Item
10 before the instruction and Items 11 and 13 in Part III to read as
follows:


    Note: The text of Form 10-K does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form 10-K

* * * * *

Part III

* * * * *
    Item 10. Directors, Executive Officers and Corporate Governance.
    Furnish the information required by Items 401, 405, 406, and
407(c)(3), (d)(4) and (d)(5) of Regulation S-K (Sec. Sec.  229.401,
229.405, 229.406, and 229.407(c)(3), (d)(4) and (d)(5) of this
chapter).
* * * * *
    Item 11. Executive Compensation.
    Furnish the information required by Item 402 of Regulation S-K
(Sec.  229.402 of this chapter) and paragraph (e)(4) of Item 407 of
Regulation S-K (Sec.  229.407 of this chapter).
* * * * *
    Item 13. Certain Relationships and Related Transactions, and
Director Independence.
    Furnish the information required by Item 404 of Regulation S-K
(Sec.  229.404 of this chapter) and Item 407(a) of Regulation S-K
(Sec.  229.407(a) of this chapter).
* * * * *
    43. Amend Form 10-KSB (referenced in Sec.  249.310b) by revising
Item 9 before the instruction and Item 12 in Part III to read as
follows:


    Note: The text of Form 10-KSB does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form 10-KSB

* * * * *

Part III

    Item 9. Directors, Executive Officers, Promoters, Control Persons
and Corporate Governance; Compliance With Section 16(a) of the Exchange
Act.
    Furnish the information required by Items 401, 405, 406, and
407(c)(3), (d)(4)

[[Page 6631]]

and (d)(5) of Regulation S-B (Sec. Sec.  228.401, 228.405, 228.406, and
228.407(c)(3), (d)(4) and (d)(5) of this chapter).
* * * * *
    Item 12. Certain Relationships and Related Transactions, and
Director Independence.
    Furnish the information required by Item 404 of Regulation S-B
(Sec.  228.404 of this chapter) and Item 407(a) of Regulation S-B
(Sec.  228.407(a) of this chapter).
* * * * *

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

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

    44. The authority citation for Part 274 continues to read in part
as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m,
78n, 78o(d), 80a-8, 80a-24, 80a-26, and 80a-29, unless otherwise
noted.
* * * * *
    45. Amend Form N-1A (referenced in Sec. Sec.  239.15A and 274.11A)
by:
    a. Revising ``$60,000'' to read ``$120,000'' in the introductory
text of Items 12(b)(6), (b)(7), and (b)(8); Instruction 2 to Item
12(b)(6); and Instruction 5 to Item 12(b)(8); and
    b. Removing the word ``relocation,'' in Instruction 2 to Item
15(b).


    Note: The text of Form N-1A does not, and this amendment will
not, appear in the Code of Federal Regulations.

    46. Amend Form N-2 (referenced in Sec. Sec.  239.14 and 274.11a-1)
by:
    a. Removing paragraph 14(c) of Item 18;
    b. Redesignating paragraphs 15 and 16 of Item 18 as paragraphs 16
and 17, respectively;
    c. Adding new paragraph 15 of Item 18;
    d. Revising ``$60,000'' to read ``$120,000'' in the introductory
text of paragraphs 9, 10, and 11 of Item 18; Instruction 2 to paragraph
9 of Item 18; and Instruction 5 to paragraph 11 of Item 18;
    e. Revising the introductory text of paragraph 14 of Item 18;
    f. Removing ``relocation,'' from Instruction 2 to paragraph 2 of
Item 21; and
    g. Revising the cite ``Item 18.16'' to read ``Item 18.17'' in
Instruction 8.a. to Item 24.
    The addition and revision read as follows:


    Note: The text of Form N-2 does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form N-2

* * * * *
    Item 18. Management.
* * * * *
    14. In the case of a Registrant that is not a business development
company, provide the following for all directors of the Registrant, all
members of the advisory board of the Registrant, and for each of the
three highest paid officers or any affiliated person of the Registrant
with aggregate compensation from the Registrant for the most recently
completed fiscal year in excess of $60,000 (``Compensated Persons'').
* * * * *
    15. In the case of a Registrant that is a business development
company, provide the information required by Item 402 of Regulation S-K
(17 CFR 229.402).
* * * * *
    47. Amend Form N-3 (referenced in Sec. Sec.  239.17a and 274.11b)
by:
    a. Revising ``$60,000'' to read ``$120,000'' in the introductory
text of paragraphs (h), (i), and (j) of Item 20; Instruction 2 to
paragraph (h) of Item 20; and Instruction 5 to paragraph (j) of Item
20; and
    b. Removing the word ``relocation,'' in Instruction 2 to Item
22(b).


    Note: The text of Form N-3 does not, and this amendment will
not, appear in the Code of Federal Regulations.

    48. Amend Form N-CSR (referenced in Sec. Sec.  249.331 and 274.128)
by revising Item 10 to read as follows:


    Note: The text of Form N-CSR does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form N-CSR

* * * * *
    Item 10. Submission of Matters to a Vote of Security Holders.
    Describe any material changes to the procedures by which
shareholders may recommend nominees to the registrant's board of
directors, where those changes were implemented after the registrant
last provided disclosure in response to the requirements of Item
407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item
22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
    Instruction. For purposes of this Item, adoption of procedures by
which shareholders may recommend nominees to the registrant's board of
directors, where the registrant's most recent disclosure in response to
the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR
229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR
240.14a-101)), or this Item, indicated that the registrant did not have
in place such procedures, will constitute a material change.
* * * * *

    Dated: January 27, 2006.

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

BILLING CODE 8010-01-P
