• Proxy Statements. For proxy and information statements, companies must comply with the new rules for filings made on or after December 15, 2006 that contain compensation and related person disclosures for fiscal years ending on or after December 15, 2006.
• Annual Reports. For Forms 10-K, companies must comply with the new rules for fiscal years ending on or after December 15, 2006.
• Current Reports on Form 8-K. For Form 8-K, companies must comply with the new rules for triggering events that occur on or after November 7, 2006.
• Registration Statements. Companies must comply with the new rules for registration statements filed under the Securities Act of 1933 and under the Securities Exchange Act of 1934 filed on or after December 15, 2006 that contain compensation and related person disclosures for fiscal years ending on or after December 15, 2006.

 Named Executive Officer Compensation

Compensation Discussion and Analysis. The new rules create a Compensation Discussion and Analysis section, which requires companies to provide a principles-based discussion of the material information necessary to understand the objectives and policies of their compensation programs for their "named executive officers." Like the Management's Discussion and Analysis section in an annual report that discusses a company's results of operation and financial condition, the CD&A must not use "boilerplate" language or simply repeat the information provided in the executive compensation tables and narrative that follow.

New Compensation Committee Report

In response to commentators' concerns that compensation committees should continue to focus on the executive compensation disclosure process, the SEC mandates a new Compensation Committee Report, similar in form to the Audit Committee Report, that states whether

This Compensation Committee Report must be over the names of the compensation committee members.

Required CD&A Topics. The CD&A must answer the following questions about the company's compensation for its named executive officers.

• What are the objectives of the company's compensation programs?
• What is the compensation program designed to 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 do each element and the company's decisions regarding that element fit into the company's overall compensation objectives and affect decisions regarding other elements?

Suggested CD&A Topics. In the Adopting Release, the SEC provided a nonexclusive list of topics that a company may discuss in the CD&A if material and relevant to an understanding of its compensation policies and procedures for its named executive officers, based on the company's individual circumstances. The CD&A must be comprehensive and must discuss the compensation policies and practices that the company actually applies, even if they do not fall within one of the examples below.

In discussing performance-related factors, companies may omit the specific target levels or other factors or criteria that involve confidential and sensitive information if such disclosure would result in competitive harm to the company. The standard for determining whether disclosing this information would result in competitive harm to the company is the same standard companies apply in requesting confidential treatment of information that is otherwise required to be disclosed in documents filed with the SEC.

Stock Option Practices Disclosure in the CD&A

The SEC, responding to recent investor concerns and civil and criminal actions involving companies' stock option granting practices, discusses in its CD&A guidance the types of matters relating to stock option practices that companies will need to address in the CD&A, including practices relating to timing stock option grants and selecting exercise prices. Each company should consider its own facts and circumstances and include all relevant material information in the CD&A.

Timing Stock Option Grants. For stock option timing issues, the SEC has suggested that companies should address the following questions in the CD&A, to the extent applicable:

• Does the company have any program, plan or practice to time stock option grants to its executives in coordination with the release of material nonpublic information?
• How does any such program, plan or practice fit in the context of the company's program, plan or practice, if any, with regard to stock option grants to employees more generally?
• What was the role of the compensation committee of the board of directors in approving and administering such a program, plan or practice, including how did the board or compensation committee take such information into account when determining whether and in what amount to grant stock options and whether the compensation committee delegated to any other person any aspect of the actual administration of a program, plan or practice?
• What was the role of executive officers in such a program, plan or practice?
• Does the company set the grant date of its stock option grants to new executives in coordination with the release of material nonpublic information?
• Does the company plan to time, or has it timed, the release of material nonpublic information for the purpose of affecting the value of executive compensation?

Selecting Stock Option Exercise Prices. Companies must also discuss in the CD&A any program, plan or practice related to setting stock option exercise prices based on the value of the company's stock on a date other than the stock option's actual grant date or based on a value other than the market price of its stock on the stock option grant date (which could include using a formula based on average prices, or lowest prices, of the company's stock over a period preceding, surrounding or following the grant date).

Compensation Tables and Related Narrative Disclosures

Three Broad Disclosure Categories. The SEC modified, expanded and added tables to improve compensation disclosure and facilitate greater year-to-year and company-to-company comparisons, and also now requires additional and improved plain English narrative disclosure.

Summary Compensation Table

The SEC significantly amended the Summary Compensation Table, which remains the principal source of specific executive officer compensation disclosure. The Summary Compensation Table requires, to the extent applicable, information in U.S. dollars for each of the column headings shown below.

New Total Column. This new column is one of the most significant changes in the new rules. The number in this column equals the sum of the dollar values of each type of compensation quantified in other columns of the table.

Who Are the Named Executive Officers? Each company must disclose compensation information in the Summary Compensation Table for its "named executive officers."

• Next Three Most Highly Compensated Executives. The three most highly compensated executive officers (other than the CEO and CFO)
• who were serving as executive officers at the end of the most recent fiscal year and
• whose total compensation was $100,000 or more for the most recent fiscal year, excluding the amount shown in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column.

• Up to Two Former Executives. Up to two additional individuals who served as executive officers during part of the most recent fiscal year, but who ceased providing services to the company before fiscal year-end, whose total compensation (calculated the same way as above) earned for the portion of the year served would otherwise make the individual one of the next three most highly compensated executives for the most recent fiscal year.

Salary and Bonus Columns. Companies must disclose the dollar value of base salary and bonus (cash and noncash) earned by the named executive officers during the applicable fiscal years. The new rules may also affect which elements of compensation will be included in these categories.

Stock Awards and Option Awards Columns. Companies must disclose the total grant date fair value of stock awards and option awards as determined under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment.

• Disclose Incremental Increase in Fair Value Resulting From Repricing or Material Modification. If options or stock appreciation rights were repriced or otherwise materially modified during the past fiscal year, companies must report the resulting incremental increase in the fair value, measured as of the repricing or modification date.

Non-Equity Incentive Plan Compensation Column. Companies must report the dollar value of all amounts earned during the most recent fiscal year under non-equity incentive plans, including all earnings with respect to outstanding non-equity incentive plan awards, and quantify these amounts in a footnote. Non-equity incentive plans are incentive plans that are not covered by FAS 123R for financial reporting purposes.

• When is a "Bonus" a Non-Equity Incentive Plan Award? An award is generally not a "bonus," for purposes of the Summary Compensation Table, if (1) the outcome of a performance target is substantially uncertain at the time the target is established and (2) the target is communicated to the executive. A non-equity incentive award, even if just for one year's performance, is reported in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table when and to the extent earned, and not in the Bonus column.

Change in Pension Value and Nonqualified Deferred Compensation Earnings Column. Companies must disclose an amount equal to the sum of the value of (1) the change in pension value under the company's pension plans and (2) any above-market or preferential earnings under the company's nonqualified deferred compensation plans, and identify and quantify each component in a footnote.

• Change in Pension Value. Change in pension value reflects the aggregate annual change in the actuarial present value of accumulated pension benefits for each named executive officer under all of the company's defined benefit and actuarial plans, including under nonqualified and tax-qualified defined benefit plans, cash balance plans and supplemental executive retirement plans.

• Earnings on Nonqualified Deferred Compensation. This column continues to include only above-market or preferential earnings under any of the company's nonqualified deferred compensation plans during the most recent fiscal year, including nonqualified defined contribution plans. Companies must disclose their criteria for determining above-market or preferential earnings in a footnote or as part of the narrative disclosure.

All Other Compensation Column. The All Other Compensation column is used to disclose the aggregate amount of any compensation that the company cannot properly report in any other column of the Summary Compensation Table.

• Companies Must Identify and Quantify in a Footnote Each Element of All Other Compensation That Exceeds $10,000 in Value. In a footnote to the All Other Compensation column, a company must separately identify by type (in a manner that identifies the particular nature of the benefit received) each item of compensation (other than perquisites or personal benefits) that it included in the amount reported in the All Other Compensation column. Unlike the prior rules, which required quantification of all elements of All Other Compensation, the new rules require quantification only if the value of the item exceeds $10,000. Special rules apply to perquisites and other personal benefits (described below).
• Elements of All Other Compensation. The elements of compensation required to be included in the All Other Compensation column include, for example, the value of the items listed below.
  • Amounts paid or accrued in connection with a named executive officer's termination of employment (or constructive termination) or in connection with a change in control of the company, including distributions under a defined benefit or actuarial plan if accelerated in connection with a change in control.
  • Annual company contributions or other allocations to vested and unvested qualified defined contribution plans (e.g., 401(k) plans) and nonqualified defined contribution plans.
  • Any life insurance premiums paid by, or on behalf of, the company for the benefit of a named executive officer (other than nondiscriminatory group life insurance available generally to all salaried employees).
  • All tax gross-ups or other amounts reimbursed by the company during the most recent fiscal year for the payment of taxes (even if in connection with perquisites and other personal benefits that do not meet the $10,000 disclosure threshold).
  • Perquisites and other personal benefits or property paid to a named executive officer only if the aggregate value is equal to or greater than $10,000. Companies must separately identify in a footnote each perquisite or personal benefit included in the column, separately quantify in a footnote the value of any perquisite or personal benefit that exceeds the greater of $25,000 and 10% of the aggregate value of all perquisites and personal benefits received by a named executive officer, and footnote the method used to calculate aggregate incremental cost.

Phase In. Companies may phase in their disclosure under the new rules so that in the first year's filings, companies will provide compensation information in the table only for the most recently completed fiscal year, with the second and third years added in each of the two succeeding years.

Grants of Plan-Based Awards Table

The Grants of Plan-Based Awards Table follows and supplements the Summary Compensation Table by providing additional information about plan-based compensation. The table requires, to the extent applicable, information for each of the column headings shown below.

Disclose Each Award Separately. A company must disclose each award granted during the fiscal year as a separate line item in the Grants of Plan-Based Awards Table.

Up to Three Additional Columns May Be Required. Companies must add one or more additional columns indicated above by dashes to the Grants of Plan-Based Awards Table in the following situations.

• If Stock Option Exercise Price Is Less Than Closing Market Price on Grant Date. If the per share exercise price, or base price, of options, stock appreciation rights or similar option-like instruments is less than the per share closing market price reported for the underlying security on the FAS 123R grant date, a company must add a column at the far right side of the table that reports the closing market price on the grant date. The company must also describe its methodology for determining any exercise or base prices that differ from the closing market price on the awards' respective grant dates in a footnote to the table or in the accompanying narrative disclosure.
• If Compensation Committee Action Did Not Occur on Grant Date. If a company's compensation committee (or other similar committee) or the full board took action, or was deemed to take action, to grant equity-based awards on a date other than the FAS 123R grant date for such awards, the company must disclose the date of the actual committee or board action in a new column immediately to the right of the Grant Date column.
• If Any Non-Equity Incentive Plan Award Is Denominated in Units or Other Rights. If a non-equity incentive plan award is denominated in units or other rights, a company must disclose the units or other rights awarded in a separate column immediately to the left of the Incentive Plan Awards columns.

Narrative Description of Additional Material Factors

Following the Summary Compensation Table and Grants of Plan-Based Awards Table, companies must describe by narrative any additional material factors necessary to understand and give context to the information in the two preceding tables, which may include the following (depending on a company's specific circumstances).

• The material aspects of any plan that governs awards included in the Summary Compensation Table or Grants of Plan-Based Awards Table if the terms are not evident from the tabular disclosure and not addressed in the CD&A.
• The material terms of each named executive officer's employment agreement or arrangement, whether written or unwritten, that are necessary to understand the information in the tables.
• The material terms of any repricing or material modification to outstanding awards.
• A general description of the formula or criteria to be applied in determining the amounts payable, the vesting schedule(s), whether dividends or other amounts will be paid on the awards, and a description of the performance-based conditions and any other material conditions applicable to the awards.
• An explanation of each named executive officer's salary and bonus in proportion to total compensation.

Outstanding Equity Awards at Fiscal Year-End Table

Companies must disclose outstanding option awards and unvested stock awards held by the named executive officers as of the most recent fiscal year-end in the Outstanding Equity Awards at Fiscal Year-End Table, which shows exercise prices for all outstanding option awards and market value for all unvested stock awards (including restricted stock, restricted stock units and similar instruments) and unearned awards granted under equity incentive plans. The table requires, to the extent applicable, information for each of the column headings shown below.

Disclose Each Outstanding Option Award Separately. A company must disclose each individual option award outstanding, along with its exercise price and expiration date, as a separate line item and not on an aggregated basis unless the stock options share an identical exercise price and expiration date. A company must disclose the value of performance-vesting options in the separate Equity Incentive Plan Awards column (until such time as they vest based on performance). Vesting dates for each option award must be disclosed in a footnote.

Disclose Number and Value of Stock Awards. A company must disclose in the table the number and market value of all unvested equity plan stock awards and unearned shares of stock under equity incentive plan awards. A company may disclose stock awards on an aggregated basis, but must disclose the vesting dates for each stock award in a footnote.

Disclose Equity Incentive Awards in the Applicable Option Awards or Stock Awards Column. A company must report unearned option awards or stock awards granted under equity incentive plans under the applicable Equity Incentive Plan Awards column until the relevant performance condition is satisfied. After the performance condition is satisfied, if the option awards or stock awards remain subject to forfeiture conditions (such as a time-based vesting requirement), a company must report options in the appropriate Number of Securities Underlying Unexercised Options column and unvested stock awards in the Number of Shares or Units of Stock That Have Not Vested column.

Awards Transferred Other Than for Value. A company must include disclosure of any awards that a named executive officer transferred other than for value (such as for family estate planning purposes), and must include by footnote the nature of the transfer.

Option Exercises and Stock Vested Table

A company must report in the Option Exercises and Stock Vested Table the number of shares acquired and the dollar amounts realized by named executive officers during the most recent fiscal year on the exercise of stock options, stock appreciation rights and similar instruments, and on the vesting of shares of stock, including restricted stock, restricted stock units and similar instruments. The company may present the data on an aggregated basis for its option awards and stock awards, respectively.

Post-Employment Compensation

The new rules require extensive disclosures about post-employment compensation to the named executive officers.

Pension Benefits Table

Companies must disclose in the Pension Benefits Table the actuarial present value of each named executive officer's total accumulated benefit under each pension plan of the company in which the executive participates as of the company's most recent fiscal year-end, including defined benefit plans, cash balance plans and supplemental employee retirement plans, but excluding both tax-qualified and non-tax-qualified defined contribution plans.

A Company Must Provide Specific Additional Information About Each Pension Plan. A company must identify each plan in which a named executive officer participates in a separate row, and provide the required disclosure for each plan. If any named executive officer participates in more than one plan, the company must describe the different purposes for each plan in the narrative following the table if necessary for an understanding of the plan.

Narrative Disclosure to Accompany Pension Benefits Table. Companies must also provide additional narrative disclosure of material factors necessary to understand each plan disclosed in the Pension Benefits Table. Material factors necessary to understand each plan may include, depending on the facts and specific circumstances of a company:

• Material terms and conditions of payments and benefits available under a plan, including the plan's normal retirement payment, benefit formula and eligibility standards and the effect of the form of benefit elected on the amount of annual benefits.

• Each specific element of compensation (such as salary and various forms of bonus) applied in each plan's benefit formula.

Nonqualified Deferred Compensation Table

In the new Nonqualified Deferred Compensation Table, companies must disclose specified information shown in the column headings below for each named executive officer for all nonqualified deferred compensation plans.

Companies must disclose this information for each named executive officer and for each nonqualified defined contribution plan and any other nonqualified deferred compensation plan in which a named executive officer participated during the most recent fiscal year.

Additional Narrative Disclosure Describing Material Factors. Following the Nonqualified Deferred Compensation Table, companies must provide narrative disclosure that describes the material factors necessary to understand the tabular disclosure. This discussion may address, depending on the facts and specific circumstances of the company:

• the types of deferrable compensation and any limits on deferrals (e.g., percentage of compensation);
• material terms about payouts, withdrawals and other distributions; and
• the measures for calculating interest or other plan earnings (including who selects the measures and the frequency and manner in which selections can be changed), quantifying interest rates and other earnings measures.

Other Potential Post-Employment Payments

Companies Must Provide Additional Disclosure of Potential Payments Under Termination and Change-in-Control Arrangements. Companies must provide narrative disclosure about written or unwritten contracts, agreements, plans or arrangements that provide for potential payments to the named executive officers at, following or in connection with:

• termination of employment, including termination in connection with resignation, severance, retirement, constructive termination or other termination;
• a change in control of the company; or
• a change in the named executive officer's responsibilities (that may not result in termination of employment).

Specific Disclosure Requirements. To the extent required and not disclosed elsewhere, for each named executive officer, companies must describe and explain:

• The specific events triggering payments or the provision of other benefits, including health care benefits and perquisites, and any tax gross-up payments, including golden parachute excise tax payments;
• For each triggering event, the estimated payments and benefits due, even if the payment amounts are uncertain (in which case a reasonable estimate or range of payments and benefits may be provided), including whether these payments would or could be annual or lump sum, the duration of these payments if not lump sum, who provides the payments, and a description and explanation of how the company determines the appropriate payment and benefit levels under the various triggering events;
• For each triggering event, that the triggering event is assumed to have taken place on the last business day of the company's prior fiscal year, the closing market price per share of the company's common stock on that date, and, if uncertainties exist as to the provision of payments and benefits or the amounts involved, the material assumptions underlying the estimates (or the reasonable estimated ranges of amounts) — this disclosure falls within the safe harbor for forward-looking information;
• Any material conditions or obligations that apply to the receipt of payments or benefits (e.g., the obligation to abide by noncompete, nonsolicitation, nondisparagement or confidentiality agreements, including the duration of such agreements and any provisions regarding waiver of breach of these agreements); and
• Any other material features of the contracts, agreements, plans or arrangements necessary to understand the foregoing.

Director Compensation Disclosure

As independent director duties and responsibilities — and potential liability — increased in the wake of the Sarbanes-Oxley Act of 2002, director compensation arrangements evolved in terms of amount, type and complexity to reflect the increased time and energy that companies require from their non-employee directors. The new rules require companies to disclose all director compensation in a new Director Compensation Table and accompanying narrative disclosure.

Director Compensation Table. In the new Director Compensation Table, companies must disclose the specified information shown in the column headings below for each director. The Director Compensation Table generally mirrors the Summary Compensation Table, except that companies must disclose director compensation for only the most recent fiscal year, may aggregate in a single row disclosure for directors with the same compensation, and must footnote the Stock Awards and Option Awards columns to disclose the total number of stock awards and option awards held by each director at the end of the most recent fiscal year.

• Disclose Consulting Fees and Legacy or Charitable Awards Programs. The All Other Compensation column must include as director compensation, if applicable:
  • the dollar amounts of consulting fees paid to directors (including pursuant to joint ventures) and
  • the annual costs of payments and promises of payments under director legacy or charitable awards programs. Companies must disclose in the table the annual amount of the cost of a director legacy or charitable awards program with footnote disclosure of the total dollar amount payable under each such program and other material terms of each such program.

Narrative Disclosure of Director Compensation. Following the Director Compensation Table, companies must disclose in a narrative format any additional material factors necessary to understand the tabular disclosures.

Transactions With Related Persons

Under the new related transaction disclosure rules, a company must provide narrative, principles-based disclosure about:

• all related person transactions (using a new definition that replaces the prior definition of a related "party" transaction);
• the material features of the company's policies and procedures for reviewing, approving or ratifying related person transactions; and
• in specified registration statements, the company's relationships with promoters and control persons.

The SEC has provided several new definitions for the terms used in the related person transaction disclosure rules.

New "Related Person Transaction" Definition. Under the new rules, a related person transaction is any transaction that occurred since the beginning of the company's most recent fiscal year (or the most recent three fiscal-year period for registration statements), or any currently proposed transaction:

• in which the company was or is to be a participant;
• where the amount involved exceeds $120,000 (increased from $60,000 under prior rules); and
• in which any "related person" had or will have a direct or indirect material interest.

New "Related Person" Definition. Under the new rules "related person" means any person who was in any of the following categories at any time during the period for which disclosure is required (irrespective of when the transaction actually occurred):

• a director or executive officer of the company;
• a nominee for director (if the proxy statement relates to the election of directors); and
• any "immediate family member" of any of the foregoing persons.

"Related person" also includes any person who was a security holder who owns of record or beneficially more than 5% of any class of the company's securities or an immediate family member of such security holder.

The new rules expand "immediate family member" to add stepchildren and stepparents, and any person (other than a tenant or employee) sharing the household of a related person who is a director or executive officer of the company, a nominee for director or a more than 5% security holder.

New "Transaction" Definition. The new rules define a "transaction" as any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships.

Specific Narrative Disclosure for Each Related Person Transaction. For each reportable related person transaction, a company must identify the name of the related person and the person's relationship to the company, the related person's interest in the transaction, the approximate dollar value of the amount involved in the transaction (and of the related person's interest) and any other information that is material to investors in light of the circumstances of the particular transaction.

Must Provide Specific Additional Disclosure for Indebtedness Transactions. For indebtedness transactions, companies must specifically disclose the largest aggregate amount of principal outstanding during the period for which disclosure is provided, the amount outstanding as of the latest practicable date, the amount of principal paid during the period 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.

Companies May Exclude Disclosure for Some Types of Transactions. Companies may generally exclude some types of transactions from their related person transactions disclosure, including named executive officer and director compensation, indebtedness of significant shareholders, some ordinary course debts, transactions where charges are determined by competitive bids or fixed under law, transactions that involve services as a bank depository, transfer agent or registrar, and transactions where the related person's interest arises solely from owning securities.

Policies and Procedures for Approving Related Person Transactions

Companies Must Disclose Policies and Procedures for Approving Related Person Transactions. Companies must describe in narrative format the material features of their policies and procedures for reviewing, approving or ratifying any reportable transactions with a related person. Companies also must identify any related person transaction that did not require review, approval or ratification under its policies and procedures, or for which it did not follow applicable policies and procedures.

Corporate Governance Disclosures

The new rules update independence-related disclosure requirements and consolidated all corporate governance disclosures into a single item that imposes additional and new disclosure requirements with respect to director independence and compensation committee practices and procedures.

Director Independence. Under the new director independence disclosure rules, companies must continue to disclose whether their directors are independent and, for independent directors, describe any related person transactions that were not otherwise required to be disclosed but were considered by the board of directors in determining the subject director's independence. Companies must disclose this information for any individual who served as a director during the most recent fiscal year.

• Independence Standards. A company that adopts categorical standards must disclose whether its adopted standards are posted on its website and, if so, must supply the website address. If the standards are not available on the website, the company must attach the standards to its proxy statement filing at least once every three fiscal years, or sooner if the policies have been materially amended since the beginning of the company's most recent fiscal year, and must disclose the most recent filing that attached the standards.
• Describe Categories or Types of Transactions Not Disclosed as Related Person Transactions. For each person who served as an independent director during the subject fiscal year, and for each director nominee, a company must describe by specific category or type any transactions, relationships or arrangements that the board considered in determining the individual's independence, but which the company did not disclose as a related person transaction. The company must describe each category or type of relationship or arrangement with sufficient detail to make its nature readily apparent.

Compensation Committee Practices and Procedures. Under the new rules, each company must disclose specific information about its compensation committee that mirrors disclosure previously required only for its audit and nominating committees, including whether it has a charter and whether the charter is posted on the company's website (or attached to the company's proxy statement at least once every three years).

• Additional Narrative Disclosure. A company must describe (in narrative format) its processes and procedures for considering and determining executive officer and director compensation, including
  • the role of executive officers in determining or recommending the amount or form of executive officer and director compensation, and
  • the role compensation consultants play in determining or recommending executive officer and director compensation, identifying the consultants, whether they were engaged directly by the compensation committee (or persons performing the equivalent functions) or by any other person, the nature and scope of their assignment and the material elements of the instructions or directions given to the consultants.

Other Corporate Governance Disclosures. The new rules eliminate duplicative audit and nominating committee disclosures. A company that provides its audit committee charter on its website will no longer be required to append this charter to its proxy statement. In addition, companies (other than registered investment companies) may omit from proxy statements disclosure required under prior rules regarding directors who resigned or declined to stand for re-election (as Form 8-K now requires this disclosure).

Reporting Compensation on Form 8-K

Form 8-K requires companies to report specified events within four business days after their occurrence. The SEC amended Form 8-K to consolidate under amended Item 5.02 all executive officer and director compensation disclosure.

Departure or Election of Directors and Departure or Appointment of Specified Officers and Named Executive Officers. Under amended Item 5.02, companies will file a Form 8-K to report the departure or election of any director and the departure or appointment of any specified officer (principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer or any person performing similar functions) or any named executive officer.

Companies Must Disclose Compensatory Arrangements With New Directors and Specified Officers. A company must continue to report on Form 8-K when it elects a new director (other than at an annual or special shareholders' meeting) and when it appoints any of the specified executive officers, and must now also disclose a brief description of:

• Any material plan, contract or arrangement (whether or not written) entered into in connection with the election or appointment;
• A material amendment to a material plan, contract or arrangement in connection with the election or appointment; or
• A grant or award to a new director or specified officer, or a modification to an existing grant or award, in connection with the election or appointment.

Companies Must Continue to Report on Form 8-K When They Enter Into or Materially Amend Material Compensatory Arrangements With Named Executive Officers. New Item 5.02(e) requires a company to report on Form 8-K when the company:

• Enters into, adopts, commences or materially amends a material compensatory plan, contract or arrangement (whether or not written) in which any of the named executive officers participate or are a party, or
• Approves or materially amends any material grant or award under any plan, contract or arrangement (whether involving cash or equity) — unless the company previously disclosed the material terms of the grant or award, such as by filing as exhibits the plan and form of grant, award or agreement, and the new or modified grant or award is materially consistent with the terms of these previously filed exhibits and is disclosed in the company's next SEC filing that requires disclosure of the new or modified grant or award.

Companies Must Also File Form 8-K to Disclose Omitted Salary or Bonus Amounts. If a company omits from the Summary Compensation Table the value of the salary or bonus earned by a named executive officer because it cannot calculate the value prior to filing its annual report or proxy statement, new Item 5.02(f) requires the company to file a Form 8-K to report this information, and a new total compensation amount, as soon as the amounts are calculable in whole or part.

SEC Extends Limited Safe Harbor to Cover Item 5.02(e). The SEC also extended the limited safe harbor from liability under Rule 10b-5 and Section 10(b) of the Exchange Act to a company's failure to timely file reports required by Item 5.02(e) of Form 8-K. This safe harbor extends only until the due date of the next periodic report for the relevant period in which the Form 8-K was not timely filed. Companies that fail to file timely reports on Form 8-K required solely by Item 5.02(e) will not lose their eligibility to use Form S-3 registration statements as a result of those failures to file timely. However, a company must be current in its Form 8-K reports, and have filed the disclosure required by Form 8-K Item 5.02(e), on or before the date on which it files a Form S-3.

Beneficial Ownership Table

The Beneficial Ownership Table requires companies to disclose the number and percentage of the company's shares beneficially owned by each named executive officer, director and nominee, and by the company's officers and directors as a group. Under the new rules, companies must also disclose information regarding stock pledges and directors' qualifying shares, which are shares held by directors pursuant to minimum shareholding requirements required by applicable law or a company's charter.

Plain English Requirements

Under the new rules, companies must disclose in "plain English" all information regarding executive officer and director compensation, beneficial ownership, related person transaction and corporate governance disclosures included in current or periodic reports or proxy statements.

Effect of The New Rules on Foreign Private Issuers and Small Businesses

Foreign Private Issuers. Companies that qualify for treatment as foreign private issuers may generally comply with executive compensation and related person transaction disclosure requirements by providing the information required under Form 20-F.

Small Business Issuers. Small business issuers do not have to provide the Compensation Discussion and Analysis, but must provide the disclosure required by the tables identified below, along with related narrative (and may voluntarily provide supplemental disclosure). Small business issuers must provide the Outstanding Equity Awards at Fiscal Year-End Table and the Director Compensation Table, and must also provide:

• the Summary Compensation Table, but may
  • disclose compensation only for the two most recent fiscal years (not three),
  • provide disclosure only for the CEO and the two other most highly compensated officers (not three),
  • omit disclosure of changes in pension value, and
  • identify material items in the All Other Compensation column by narrative (rather than using tabular and footnote disclosure); and
• the related person disclosures, but may
  • apply a different disclosure threshold for related person transactions (the lesser of $120,000 and 1% of the average of the company's total assets at the fiscal year-end for the last three fiscal years), and
  • omit disclosure of the company's policies and procedures for reviewing related person transactions, compensation committee interlocks and insider participation in compensation decisions.

Additional Information

You can obtain a copy of the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's New Rules (West Legalworks) by contacting us.

You can find the full text of the SEC's release on the final rules at http://www.sec.gov/rules/final/2006/33-8732.pdf. You can find additional information regarding the SEC's plain English requirements in the SEC's plain English handbook at http://www.sec.gov/pdf/handbook.pdf. You can find discussions of other recent cases, laws, regulations and rule proposals of interest to public companies on our website.