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.

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

    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.

                                  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...........................

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.

                             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).

                     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

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.
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    \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

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.
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    \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

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

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

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\
---------------------------------------------------------------------------

    \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\
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    \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).
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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

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\
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    \203\ Proposed amendments to: Instruction 2 to paragraph (d) of
Item 201 of Regulation S-B; Instruction 2 to paragraph (d) of Item
201 of Regulation S-K; Exchange Act Rules 14a-6(a)(4) and 14c-
5(a)(4); and Instruction 1 to Item 10(c) of Schedule 14A.
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     The Item 601(b)(10) of Regulation S-K reference to the
Item 402 treatment of foreign private issuers; \204\ and
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    \204\ Proposed amendment to Item 601(b)(10)(iii)(C)(5).
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     The proxy rule references to Item 402 retirement plan
disclosure.\205\
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    \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.
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    \206\ Additional Form 8-K Disclosure Requirements and
Acceleration of Filing Date, Release No. 33-8400 (Mar. 16, 2004) [69
FR 15593] (the ``Form 8-K Adopting Release'').
    \207\ We stated in Section I of the Form 8-K Adopting Release:
``The revisions that we adopt today will benefit markets by
increasing the number of unquestionably or presumptively material
events that must be disclosed currently.''
---------------------------------------------------------------------------

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

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

    Item 1.01 of Form 8-K requires an Exchange Act reporting company to
disclose, within four business days, the company's entry into a
material definitive agreement outside of its ordinary course of
business, or any amendment of such agreement that is material to the
company. When we initially proposed this item, several commenters
stated that it would be difficult to determine, within the shortened
Form 8-K filing period, whether a particular definitive agreement met
the materiality threshold of Item 1.01, and whether the agreement was
outside of the ordinary course of business.\208\ Some of these
commenters suggested that we apply to Item 1.01 the standards used in
pre-existing Item 601(b)(10) of Regulation S-K governing the filing as
exhibits to Commission reports of material contracts entered into
outside the ordinary course because these standards had been in place
for many years and were familiar to reporting companies.\209\
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    \208\ See, e.g., comment letters on Additional Form 8-K
Disclosure Requirements and Acceleration of Filing Date, Release No.
33-8106 (June 17, 2002) [67 FR 42913] in File No. S7-22-02 from the
Committee on Federal Regulation of Securities, Section of Business
Law of the American Bar Association; Cleary, Gottlieb, Steen &
Hamilton; Intel Corporation; Professor Joseph A. Grundfest, et al.;
Perkins Coie LLP; Sherman & Sterling; and Sullivan & Cromwell.
    \209\ See e.g., comment letter in File No. S7-22-02 from the
Section of Business Law of the American Bar Association.
---------------------------------------------------------------------------

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

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

Therefore, entry into these types of contracts triggers the filing of a
Form 8-K within four business days. Importantly, the requirement for
directors and named executive officers does not include an exception
for those that are ``immaterial in amount or significance.''
    The incorporation of the Item 601(b)(10) standards into Item 1.01
of Form 8-K has therefore significantly affected executive compensation
disclosure practices. Prior to the Form 8-K amendments, it was
customary for a company's annual proxy statement to be the primary
vehicle for disclosure of executive and director compensation
information. However, Item 1.01 of amended Form 8-K has resulted in
executive compensation disclosures that are much more frequent and
accelerated than those included in a company's proxy statement. In
addition, particularly because of the terms of Item 601(b)(10), Item
1.01 of Form 8-K has triggered compensation disclosure of the types of
matters that, in some cases, appear to fall short of the
``unquestionably or presumptively material'' standard associated with
the expanded Form 8-K disclosure items. Companies and their counsel
have raised concerns that the new Form 8-K requirements have resulted
in real-time disclosure of compensation events that should be
disclosed, if at all, in a company's proxy statement for its annual
meeting or as an exhibit to the company's next periodic report, such as
the Form 10-Q or Form 10-K.\211\
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    \211\ See, e.g., Melissa Klein Aguilar, This Side of Caution:
New Regs. Prompt 8-K Increases, Compliance Week, Aug. 23, 2005;
Scott S. Cohen, Editorial: Debating the Materiality of ``Material
Definitive Agreements,'' Compliance Week, Feb. 8, 2005; and Patrick
McGeehan, Now, an Advance Look at Those Big Paychecks, N.Y. Times,
Sept. 26, 2004, at 36.
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    We believe that much of the disclosure regarding employment
compensation matters required in real-time under the new Form 8-K
requirements is viewed by investors as material.\212\ However, we also
believe that it would be appropriate to restore a more balanced
approach to this aspect of Form 8-K that is designed to elicit
unquestionably or presumptively material information on a real-time
basis, but seeks to limit Form 8-K disclosure of information below that
threshold. Accordingly, we propose to amend Item 1.01 of Form 8-K to
eliminate employment compensation arrangements and to cover such
arrangements under a modified broader Item 5.02.\213\
---------------------------------------------------------------------------

    \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.

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

     Expanding the disclosure items covered under Item 5.02
beyond employment agreements to require a brief description of any
material plan, contract or arrangement to which a covered officer or
director is a party or in which he or she participates that is entered
into or materially amended in connection with any of the triggering
events specified in Item 5.02, or any grant or award to any such
covered person, or modification thereto, under any such plan, contract
or arrangement in connection with any such event; \218\
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    \218\ Plans, contracts or arrangements (but not material
amendments or grants or awards or modifications thereto) may be
denoted by reference to the description in the company's most recent
annual report on Form 10-K or proxy statement.
---------------------------------------------------------------------------

     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?

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.
---------------------------------------------------------------------------

    \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

picture of financial relationships with a company involves disclosure
regarding related party transactions. Therefore, we are also proposing
significant revisions to Item 404 of Regulation S-K ``Certain
Relationships and Related Transactions.'' In 1982, various provisions
that had been adopted in a piecemeal fashion and had been subject to
frequent amendment were consolidated into Item 404 of Regulation S-
K.\231\ Today we propose to amend Item 404 of Regulation S-K and S-B to
streamline and modernize this disclosure requirement, while making it
more principles-based. Although the proposals would significantly
modify this disclosure requirement, its purpose--to elicit disclosure
regarding transactions and relationships, including indebtedness,
involving the company and related persons and the independence of
directors and nominees for director and the interests of management--
would remain unchanged.
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    \231\ See the 1982 Release. For a discussion of these
provisions, see also Disclosure of Certain Relationships and
Transactions Involving Management, Release No. 33-6416 (July 9,
1982) [47 FR 31394], at Section II.
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    As discussed in greater detail below, the proposal has four parts:
\232\
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    \232\ The discussion that follows focuses on changes to
Regulation S-K, with Section V.E.1. explaining the modifications
proposed for Regulation S-B. References throughout the following
discussion are to current or proposed Items of Regulation S-K,
unless otherwise indicated.
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     Item 404(a) would contain a general disclosure requirement
for related person transactions, including those involving
indebtedness.\233\
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    \233\ As previously noted, related party transactions are
currently disclosed under Item 404(a). Indebtedness is currently
disclosed under Item 404(c).
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     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\
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    \234\ Disclosure requiring promoters is currently required under
Item 404(d).
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     New Item 407 would consolidate current corporate
governance disclosure requirements.\235\ Proposed Item 407(a) would
require disclosure regarding the independence of directors, including
whether each director and nominee for director of the registrant is
independent, as well as a description of any relationships not
disclosed under paragraph (a) of Item 404 that were considered when
determining whether each director and nominee for director is
independent.
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    \235\ These matters are currently required pursuant to various
provisions, including Item 7 of Schedule 14A and Items 306, 401(h),
(i) and (j), 402(j) and 404(b).
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A. Transactions With Related Persons

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

appropriate disclosure outcomes than application of the instructions
that we propose to eliminate.
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    \239\ It is possible that some registrants have been operating
under a misconception. The current $60,000 threshold is not, and the
proposed $120,000 threshold would not be, a bright line materiality
standard. The rule calls for, and would continue to call for, a
materiality analysis of transactions above the threshold in order to
determine if the related person has a direct or indirect material
interest.
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    In addition, the proposals would:
     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\
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    \240\ The ``related persons'' covered by the rules proposal are
discussed below in Section V.A.1.b.
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    As is currently the case, disclosure would be required for three
years in registration statements filed pursuant to the Securities Act
or the Exchange Act.\241\
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    \241\ However, if the disclosure were being incorporated by
reference into a registration statement on Form S-4, the additional
two years of disclosure would not be required. Proposed Instruction
1 to Item 404.
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    Finally, the rule proposals would include a technical modification.
Currently, Item 404(a) states that disclosure must be provided
regarding situations involving ``the registrant or any of its
subsidiaries.'' Because companies must include subsidiaries in making
materiality determinations in all circumstances, the reference to
``subsidiaries'' is superfluous, and we propose to eliminate it. This
proposal would not change the scope of disclosure required under the
Item.\242\
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    \242\ For the same reason, we are eliminating the references to
``subsidiaries'' in the ``compensation committee interlocks and
insider participation in compensation decisions'' disclosure
requirement in current Item 402(j). This proposal would not change
the scope of disclosure required under the rule. See proposed Item
407(e)(4).
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Request for Comment
     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.
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    \243\ This is the standard proposed for Item 404 of Regulation
S-B, which is discussed in Section V.E.1. below.
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     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