Regulation S-K

These Compliance & Disclosure Interpretations ("C&DIs") comprise the Division's interpretations of Regulation S-K. They replace the interpretations of Regulation S-K and Regulation S-B published in:

the July 1997 Manual of Publicly Available Telephone Interpretations;
the March 1999 Interim Supplement to the Manual of Publicly Available Telephone Interpretations;
the November 2000 Current Issues and Rulemaking Projects Outline;
the 2007 C&DIs on Items 201, 402, 403, 404 and 407; and
the March 2008 C&DIs on smaller reporting companies.

The bracketed date following each C&DI is the latest date of publication or revision. A number of new C&DIs have been added. For C&DIs relating to Items 201, 402, 403, 404 and 407, as well as to smaller reporting companies, unless the C&DI has been revised or is a new C&DI, the bracketed date is the date on which the C&DI was last published in the sources noted above. All other C&DIs have been reviewed and, if necessary, updated, and are now republished as of July 3, 2008.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 101. Regulation S-K – General Guidance

Section 102. Item 10 – General

Question 102.01

Question: Could a company with a fiscal year ended December 31, 2007 be both a "smaller reporting company," as defined in Item 10(f), and an "accelerated filer," as defined in Rule 12b-2 under the Exchange Act, for filings due in 2008, if it was an accelerated filer with respect to filings due in 2007 and had a public float of $60 million on the last business day of its second fiscal quarter of 2007?

Answer: Yes. A company must look to the definitions of "smaller reporting company" and "accelerated filer" to determine if it qualifies as a smaller reporting company and non-accelerated filer for each year. This company will qualify as a smaller reporting company for filings due in 2008 because fiscal year 2007 is the initial determination year for the company to qualify for smaller reporting company status, and it had less than $75 million in public float on the last business day of its second fiscal quarter. However, since the company was an accelerated filer with respect to filings due in 2007, it is required to have less than $50 million in public float on the last business day of its second fiscal quarter in 2007 to exit accelerated filer status in 2008, as provided in paragraph (3)(ii) of the definition of "accelerated filer" in Rule 12b-2. This company had a public float of $60 million on the last business day of its second fiscal quarter of 2007, and therefore is unable to transition to non-accelerated filer status. As this example illustrates, due to the application of the transition rules for accelerated filers, a company can be both an accelerated filer and a smaller reporting company at the same time. Such a company may use the scaled disclosure rules for smaller reporting companies in its annual report on Form 10-K, but the report is due 75 days after the end of its fiscal year and must include the Sarbanes-Oxley Section 404 auditor attestation report described in Item 308(b) of Regulation S-K. [July 3, 2008]

Question 102.02

Question: Will a company that does not qualify as a smaller reporting company for filings due in a particular year be able to qualify as a smaller reporting company if its public float falls below $75 million at the end of its second fiscal quarter in a future fiscal year?

Answer: Any reporting company that can calculate its public float and did not qualify as a smaller reporting company previously will not qualify as a smaller reporting company in the future unless its public float falls below $50 million on the last business day of its second fiscal quarter. This is provided for in Item 10(f)(2)(iii) of Regulation S-K and follows the rule for exiting accelerated filer status in Rule 12b-2 under the Exchange Act. Companies that cannot calculate their public float would need to fall below $40 million in annual revenues to qualify as smaller reporting companies in the future. [July 3, 2008]

Question 102.03

Question: Under the definition of "smaller reporting company" in Item 10(f) of Regulation S-K, does the corporate parent of a majority-owned subsidiary have to satisfy the public float or revenue requirements of the definition in order for the majority-owned subsidiary to qualify as a smaller reporting company?

Answer: Yes, the definition of "smaller reporting company" excludes a majority-owned subsidiary if its corporate parent does not also meet the requirements of a smaller reporting company. [July 3, 2008]

Question 102.04

Question: Under the definition of "smaller reporting company" in Item 10(f) of Regulation S-K, must the corporate parent of a majority-owned subsidiary be required to file reports under Section 13(a) or Section 15(d) of the Exchange Act in order for the majority-owned subsidiary to qualify as a smaller reporting company?

Section 103. Item 101 – Description of Business

Question 103.01

Question: Does Item 101 require a discussion of the entry into a new segment after the close of the fiscal year for which the Form 10-K is being prepared?

Section 104. Item 102 – Description of Property

Section 105. Item 103 – Legal Proceedings

Question 105.01

Question: Are costs anticipated to be incurred under the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. § 9601) (otherwise known as the "Superfund" law), pursuant to a remedial agreement entered into in the normal course of negotiation with the EPA, generally considered "sanctions" within Instruction 5(C) to Item 103?

Answer: No. The Division's former view that all environmental legal proceedings involving $100,000 or more instituted by a governmental authority are subject to the disclosure provisions of Instruction 5(C) to Item 103 of Regulation S-K, regardless of whether the money involved is characterized as damages (as in the Superfund cases) or fines, has been superseded by Footnote 30 of Release No. 33-6835 (May 18, 1989) and the letter to Thomas A. Cole (Jan. 17, 1989). Footnote 30 and the Cole letter clarify that, while there are many ways a Superfund "potential monetary sanction" may be triggered, including the stipulated penalty clause in a remedial agreement, the costs anticipated to be incurred under Superfund, pursuant to a remedial agreement entered into in the normal course of negotiation with the EPA, generally are not "sanctions" within Instruction 5(C) to Item 103. [July 3, 2008]

Question 105.02

Question: Does the reference in Instruction 5 to Item 103 to an administrative or judicial proceeding arising under "local provisions" require disclosure of environmental actions brought by a foreign government?

Answer: Yes. The reference in Instruction 5 to an administrative or judicial proceeding arising under "local provisions" is sufficiently broad to require disclosure of environmental actions brought by a foreign government. [July 3, 2008]

Question 105.03

Question: Should a proceeding against an officer of the registrant, which could require the registrant to indemnify the officer for damages, be considered a proceeding in which the officer has a material interest adverse to the registrant that should be disclosed pursuant to Instruction 4 to Item 103?

Answer: The mere possibility that a registrant may be required to indemnify an officer for a material claim would not trigger disclosure pursuant to Instruction 4 to Item 103. Under state corporation law, indemnification is potentially available to any officer in any suit or proceeding in which the officer is named by reason of the fact that the person is an officer of the registrant. Whether or not an officer's material interest is "adverse" to the registrant depends on the facts and circumstances of each proceeding. [July 3, 2008]

Section 106. Item 201 – Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters

Question 106.01

Question: Is the Item 201(d) disclosure required in Part II of Form 10-K, given that Item 5 of Form 10-K indicates that the registrant is required to furnish the information required under Item 201, or should the Item 201(d) disclosure be included (or incorporated by reference) in Part III of Form 10-K given that Item 12 indicates that the registrant is required to furnish the information required under Item 201(d)?

Answer: The Item 201(d) disclosure should be included in Part III, Item 12 of Form 10-K. An issuer may rely on General Instruction G.3 to Form 10-K to incorporate by reference the Item 201(d) disclosure from its proxy statement or information statement, even if the issuer did not submit a compensation plan for security holder action at its annual meeting of security holders. See American Bar Association (Jan. 30, 2004). [Mar. 13, 2007]

Question 106.02

Question: Is restricted stock that has been granted subject to forfeiture pursuant to an equity compensation plan reportable in the Item 201(d) Equity Compensation Plan Information table?

Answer: No. Once issued, the shares of restricted stock that have been granted subject to forfeiture are neither "to be issued upon exercise of outstanding options, warrants and rights" (column (a)) nor "available for future issuance" (column (c)). If the shares of restricted stock so granted are later forfeited, however, they would be reportable in column (c) until granted again. [Mar. 13, 2007]

Question 106.03

Question: Should shares that may be issued under performance share awards if specified targets are met and shares that are credited as phantom shares under a deferred compensation plan be reported in column (a) of the Equity Compensation Plan Information table as securities to be issued upon exercise of outstanding options, warrants and rights?

Answer: Yes. Shares that may be issued under performance share awards if specified targets are met (i.e., an award denominated in shares has been made, but no shares will be issued until the performance targets are met), and shares credited as phantom shares under a deferred compensation plan that will be issued as actual shares upon termination of employment, must be reported in column (a). A footnote to the table should describe the nature of the awards and explain that the weighted-average exercise price in column (b) does not take these awards into account. If the number of shares subject to these awards overstates expected dilution (such as where the award reflects the maximum number of shares to be awarded under best-case targets that are unlikely to be achieved), the footnote can address that situation. [Mar. 13, 2007]

Question 106.04

Question: A company maintains an employee stock purchase plan covered by Section 423 of the Internal Revenue Code, under which there are outstanding rights to purchase company common stock at a floating exercise price (85% of the lower of (i) market price at the start of the purchase period or (ii) market price at the future close of the purchase period). How should the company report the shares subject to these outstanding rights in the Equity Compensation Plan Information table?

Answer: Shares subject to these outstanding rights should be reported in column (c) of the Equity Compensation Plan Information table, together with other shares remaining issuable under the plan. A footnote should disclose the total number of shares remaining available, as well as the number of shares subject to purchase during any current purchase period. Shares subject to the outstanding rights should not be reported in column (a) as subject to outstanding options. [Mar. 13, 2007]

Question 106.05

Question: Column (a) of the Equity Compensation Plan Information table requires disclosure of the number of securities to be issued upon exercise of outstanding options, warrants and rights, and column (b) requires disclosure of the weighted-average exercise price of these outstanding instruments. If some of a company's outstanding rights can be exercised for no consideration, and therefore their inclusion substantially reduces the weighted-average exercise price, how does the company disclose this information in the table?

Answer: In this circumstance, the company should include footnote disclosure of this fact and the footnote should include the weighted-average exercise price of the outstanding instruments excluding those that can be exercised for no consideration. [Mar. 13, 2007]

Question 106.06

Question: May a registrant plot monthly or quarterly returns in the performance graph required by Item 201(e)?

Answer: A registrant may plot monthly or quarterly returns provided that each return is plotted at the same interval, and the annual changes in cumulative total return are reflected clearly. [Mar. 13, 2007]

Question 106.07

Question: How should a registrant that presents in the performance graph a self-constructed peer or market capitalization index weight the returns of the component entities of that index?

Answer: A registrant that presents a self-constructed peer or market capitalization index should weight the returns of the component entities of that index according to their market capitalization as of the beginning of each period for which a return is indicated. [Mar. 13, 2007]

Question 106.08

Question: May a registrant-constructed peer or market capitalization index exclude the registrant?

Question 106.09

Question: May issuers choose between using the price shown in the registration statement for an initial public offering, the opening price on the first trading day, or the closing market price on the first trading day when preparing the performance graph?

Answer: No. The issuer should use the closing market price at the end of the first trading day. [Mar. 13, 2007]

Question 106.10

Question: Is the performance graph required to be included in Form 10-K, given that Item 5 of Form 10-K indicates that the registrant is required to furnish the information required under Item 201?

Answer: No. Instruction 7 to Item 201(e) specifies that the performance graph need not be provided in any filings other than an annual report to security holders required by Exchange Act Rule 14a-3 or Exchange Act Rule 14c-3 that precedes or accompanies a registrant's proxy statement or information statement relating to an annual meeting of security holders at which directors are to be elected (or a special meeting or written consents in lieu of such meeting). [Mar. 13, 2007]

Question 106.11

Question: If a company includes the performance graph in its Form 10-K, can the company omit the performance graph from its annual report to shareholders required under Exchange Act Rule 14a-3 or Rule 14c-3?

Answer: The performance graph is required to be in the annual report to shareholders pursuant to Exchange Act Rule 14a-3 or Rule 14c-3, so unless the company is using a "Form 10-K wrap" approach to satisfy the requirements of Rule 14a-3 or Rule 14c-3, the inclusion of the performance graph in the Form 10-K would not satisfy these requirements. [Mar. 13, 2007]

Question 106.12

Question: May a registrant include the performance graph in the proxy statement?

Answer: Yes, provided that the performance graph is also included in the annual report that accompanies or precedes the proxy statement and therefore complies with Exchange Act Rules 14a-3 or 14c-3. [Mar. 13, 2007]

Section 107. Item 202 – Description of Registrant's Securities

Question 107.01

Question: Items 202(a)(1)(x) and (xi) require disclosure of certain restrictions on ownership of the registrant's securities. Are the purchase and sale restrictions imposed by Section 16 of the Exchange Act the types of restrictions required to be disclosed under these items?

Section 108. Item 301 – Selected Financial Data

Section 109. Item 302 – Supplementary Financial Information

Section 110. Item 303 – Management's Discussion and Analysis of Financial Condition and Results of Operations

Question 110.01

Question: Is a smaller reporting company that has not had revenues from operations in the fiscal periods for which financial statements are furnished in the disclosure document permitted to provide the "plan of operation" information previously required of similarly situated small business issuers by Item 303(a) of former Regulation S-B, in lieu of the "Management's Discussion and Analysis of Financial Condition and Results of Operations" required of all companies by Item 303 of Regulation S-K, as modified by paragraph (d) for smaller reporting companies?

Answer: No. The smaller reporting company must satisfy the requirements of Item 303 of Regulation S-K. It should be noted, however, that MD&A disclosure of a company without recent revenues frequently reads very similarly to the disclosure previously required of small business issuers under Item 303(a) of former Regulation S-B. [July 3, 2008]

Section 111. Item 304 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Section 112. Item 305 – Quantitative and Qualitative Disclosures about Market Risk

Question 112.01

Question: Is a registrant required to include Item 305 market risk disclosure in its Form 10-Q?

Answer: A registrant does not have to include Item 305 disclosure in its Form 10-Q unless there is a material change to the Item 305 information disclosed in its most recently filed Form 10-K. [July 3, 2008]

Section 113. Item 306 [Reserved]

Section 114. Item 307 – Disclosure Controls and Procedures

Section 115. Items 308 and 308T – Internal Control over Financial Reporting

Question 115.01

Question 115.02

Question: In annual reports for fiscal years ending on or after December 15, 2007 but before December 15, 2009, non-accelerated filers are required to provide management's report on internal control over financial reporting pursuant to Item 308T of Regulation S-K. The report is deemed not to be "filed" for purposes of Section 18 of the Exchange Act, unless the company specifically states that the report is to be considered "filed" under the Exchange Act or incorporates it by reference into a filing under the Securities Act or the Exchange Act. Does a non-accelerated filer's failure to provide management's report in its Form 10-K under Item 308T(a) affect its form eligibility or the ability to use Rule 144?

Answer: It is the Division's view that the failure to provide this management report renders the annual report materially deficient. As a result, if management did not complete the evaluation and provide the report as required by Item 308T(a), the company would not be timely or current in its Exchange Act reporting. This would result in the company not being eligible to file new Form S-3 or Form S-8 registration statements and the loss of the availability of Rule 144. Because the filing of the Form 10-K constitutes the Section 10(a)(3) update for any effective Forms S-3 or S-8, the company also would be required to suspend any sales under already effective registration statements.

However, if the company subsequently amends its Form 10-K to provide management's report on whether or not internal control is effective, the company can file new Forms S-8 and resume making sales under already effective Forms S-8, and shareholders can avail themselves of Rule 144 (assuming all other conditions to use of the form or rule are satisfied). This would be the case regardless of whether management reached an effective or ineffective conclusion about its internal control. Although amending the Form 10-K to provide management's report may result in the company becoming current, it would remain untimely and would not be eligible to file new Forms S-3. [July 3, 2008]

Section 116. Item 401 – Directors, Executive Officers, Promoters and Control Persons

Question 116.01

Question: Should the Item 401(b) information presented in the Form 10-K be furnished for current officers, rather than for those officers who held such positions during the last fiscal year?

Question 116.02

Question: Does Item 401(e) information with respect to executive officers need to be included in proxy statements if it is included separately in the Form 10-K?

Answer: No. Although Instruction 3 to Item 401(b) does not refer to Item 401(e), which requires disclosure about business experience, Item 401(e) information need not be included in the proxy statement if it is presented in the Form 10-K. [July 3, 2008]

Question 116.03

Question: Is Item 401(f) applicable to persons in the "significant employee" category of Item 401(c)?

Answer: Item 401(f) is not applicable to persons in the "significant employee" category of Item 401(c), unless such persons are de facto executive officers. [July 3, 2008]

Question 116.04

Question: Is Item 401(f)(1) disclosure required for legal proceedings in foreign countries?

Answer: Yes. Item 401(f)(1) requires disclosure regarding petitions filed under the "[f]ederal bankruptcy laws or any state insolvency law." This item should be interpreted to require disclosure regarding comparable events in foreign countries (except in the unusual situation where it is not material). For example, disclosure should be provided when a director of a U.S. public company is also the CEO of a non-U.S. company and a receiver is appointed for the non-U.S. company. [July 3, 2008]

Section 117. Item 402(a) – Executive Compensation; General

Question 117.01

Question: When a company that is in the process of restating its financial statements has not filed its Form 10-K for the fiscal year ended December 31, 2005, must the company comply with the 2006 Executive Compensation Rules when it ultimately files the Form 10-K for the fiscal year ended December 31, 2005?

Answer: The company is not required to comply with the 2006 Executive Compensation rules in the Form 10-K for the fiscal year ended December 31, 2005. [Jan. 24, 2007]

Question 117.02

Question: If a company files a preliminary proxy statement under Exchange Act Rule 14a-6 which omits the executive and director compensation disclosure required by Item 402 of Regulation S-K, would the staff request a revised preliminary proxy statement and deem that the 10-calendar day waiting period specified in Rule 14a-6 does not begin to run until the required information is filed?

Answer: Yes. However, given that the executive and director compensation rules were substantially revised in 2006, in a situation where a company that is complying with the 2006 rules for the first time files a preliminary proxy statement excluding the required executive and director compensation disclosure, the staff will not request a revised preliminary proxy statement nor deem the 10-calendar day waiting period specified in Rule 14a-6 to be tolled, so long as: (1) the omitted executive and director compensation disclosure is included in the definitive proxy statement; (2) the omitted disclosure does not relate to the matter or matters that caused the company to have to file preliminary proxy materials; and (3) the omitted disclosure is not otherwise made available to the public prior to the filing of the definitive proxy statement. [Feb. 12, 2007]

Section 118. Item 402(b) – Executive Compensation; Compensation Discussion and Analysis

Question 118.01

Question: Is the guidance regarding Compensation Discussion and Analysis disclosure concerning option grants that is provided in Section II.A.2 of Securities Act Release No. 8732A applicable to other forms of equity compensation?

Answer: The same disclosure provisions governing required disclosure about option grants also govern disclosure about restricted stock and other non-option equity awards. This includes the example of potential material information identified in Item 402(b)(2)(iv) of Regulation S-K, which indicates that it may be appropriate to discuss how the determination is made as to when awards are granted, including awards of equity-based compensation such as options. [Jan. 24, 2007]

Question 118.02

Question: In presenting Compensation Discussion and Analysis disclosure about prior option grant programs, plans or practices, are companies required to provide disclosures about programs, plans or practices that occurred outside the scope of the information contained in the tables and otherwise disclosed pursuant to Item 402 (including periods before and after the information contained in the tables and otherwise disclosed pursuant to Item 402)?

Answer: Yes, in certain cases, depending on a company's particular circumstances, disclosure may be required as contemplated by Instruction 2 to Item 402(b) of Regulation S-K. [Jan. 24, 2007]

Question 118.03

Question: Are companies required to include disclosure about programs, plans or practices relating to option grants in the Compensation Discussion and Analysis disclosure for their first fiscal year ending on or after December 15, 2006, or is this disclosure only required for future fiscal periods?

Answer: Companies are required to include disclosure about programs, plans or practices relating to option grants in the Compensation Discussion and Analysis disclosure for fiscal years ending on or after December 15, 2006, as well as any other periods where necessary as contemplated by Instruction 2 to Item 402(b) of Regulation S-K. [Jan. 24, 2007]

Question 118.04

Question: How does a company determine if it may omit disclosure of performance target levels or other factors or criteria under Instruction 4 to Item 402(b)?

Answer: A company should begin its analysis of whether it is required to disclose performance targets by addressing the threshold question of materiality in the context of the company's executive compensation policies or decisions. If performance targets are not material in this context, the company is not required to disclose the performance targets. Whether performance targets are material is a facts and circumstances issue, which a company must evaluate in good faith.

A company may distinguish between qualitative/subjective individual performance goals (e.g., effective leadership and communication) and quantitative/objective performance goals (e.g., specific revenue or earnings targets). There is no requirement that a company provide quantitative targets for what are inherently subjective or qualitative assessments – for example, how effectively the CEO demonstrated leadership.

When performance targets are a material element of a company's executive compensation policies or decisions, a company may omit targets involving confidential trade secrets or confidential commercial or financial information only if their disclosure would result in competitive harm. A company should use the same standard for evaluating whether target levels (and other factors or criteria) may be omitted as it would use when making a confidential treatment request under Securities Act Rule 406 or Exchange Act Rule 24b-2; however, no confidential treatment request is required to be submitted in connection with the omission of a performance target level or other factors or criteria.

To reach a conclusion that disclosure would result in competitive harm, a company must undertake a competitive harm analysis taking into account its specific facts and circumstances and the nature of the performance targets. In the context of the company's industry and competitive environment, the company must analyze whether a competitor or contractual counterparty could extract from the targets information regarding the company's business or business strategy that the competitor or counterparty could use to the company's detriment. A company must have a reasoned basis for concluding, after consideration of its specific facts and circumstances, that the disclosure of the targets would cause it competitive harm. The company must make its determination based on the established standards for what constitutes confidential commercial or financial information, the disclosure of which would cause competitive harm. These standards have largely been addressed in case law, including National Parks and Conservation Association v. Morton, 498 F.2d 765 (D.C. Cir. 1974); National Parks and Conservation Association v. Kleppe, 547 F.2d 673 (D.C. Cir. 1976); and Critical Mass Energy Project v. NRC, 931 F.2d 939 (D.C. Cir. 1991), vacated & reh'g en banc granted, 942 F.2d 799 (D.C. Cir. 1991), grant of summary judgment to agency aff'd en banc, 975 F.2d 871 (D.C. Cir. 1992). To the extent that a performance target level or other factor or criteria otherwise has been disclosed publicly, a company cannot rely on Instruction 4 to withhold the information.

The competitive harm standard is the only basis for omitting performance targets if they are a material element of the registrant's executive compensation policies or decisions.

Because Compensation Discussion and Analysis will be subject to staff review, a company may be required to demonstrate that withholding target information meets the confidential treatment standard, and will be required to disclose the information if that standard is not met. Finally, a company that relies on Instruction 4 to omit performance targets is required by the instruction to discuss how difficult it will be for the executive or how likely it will be for the company to achieve the undisclosed target level or other factor or criteria. [July 3, 2008]

Question 118.05

Question: Item 402(b)(xiv) provides, as an example of material information to be disclosed in the Compensation Discussion and Analysis, depending on the facts and circumstances, "[w]hether the registrant engaged in any benchmarking of total compensation, or any material element of compensation, identifying the benchmark and, if applicable, its components (including component companies)." What does "benchmarking" mean in this context?

Answer: In this context, benchmarking generally entails using compensation data about other companies as a reference point on which – either wholly or in part – to base, justify or provide a framework for a compensation decision. It would not include a situation in which a company reviews or considers a broad-based third-party survey for a more general purpose, such as to obtain a general understanding of current compensation practices. [July 3, 2008]

Question 118.06 [same as Question 133.08]

Question: Regarding the role of compensation consultants in determining or recommending the amount or form of executive and director compensation, on what basis should a company differentiate between the requirements of Item 407(e)(3)(iii) and Item 402(b)'s Compensation Disclosure and Analysis disclosure?

Answer: The information regarding "any role of compensation consultants in determining or recommending the amount or form of executive and director compensation" required by Item 407(e)(3)(iii) is to be provided as part of the company's Item 407(e)(3) compensation committee disclosure. See Release 33-8732A at Section V.D, Corporate Governance Disclosure. If a compensation consultant plays a material role in the company's compensation-setting practices and decisions, then the company should discuss that role in the Compensation Disclosure and Analysis section. [July 3, 2008]

Section 119. Item 402(c) – Executive Compensation; Summary Compensation Table

Question 119.01

Question: If a person that was not a named executive officer in fiscal years 1 and 2 became a named executive officer in fiscal year 3, must compensation information be disclosed in the Summary Compensation Table for that person for all three fiscal years?

Answer: No, the compensation information only for fiscal year 3 need be provided in the Summary Compensation Table. [Jan. 24, 2007]

Question 119.02

Question: Should a discretionary cash bonus that was not based on any performance criteria be reported in the Bonus column (column (d)) of the Summary Compensation Table pursuant to Item 402(c)(2)(iv) or in the Non-equity Incentive Plan Compensation column (column (g)) pursuant to Item 402(c)(2)(vii)?

Answer: The bonus should be reported in the Bonus column (column (d)). In order to be reported in the Non-equity Incentive Plan Compensation column (column (g)) pursuant to Item 402(c)(2)(vii), the bonus would have to be pursuant to a plan providing for compensation intended to serve as incentive for performance to occur over a specified period that does not fall within the scope of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment ("FAS 123R"). The outcome with respect to the relevant performance target must be substantially uncertain at the time the performance target is established and the target is communicated to the executives. The length of the performance period is not relevant to this analysis, so that a plan serving as an incentive for a period less than a year would be considered an incentive plan under Item 402(a)(6)(iii). Further, amounts earned under a plan that meets the definition of a non-equity incentive plan, but that permits the exercise of negative discretion in determining the amounts of bonuses, generally would still be reportable in the Non-equity Incentive Plan Compensation column (column (g)). The basis for the use of various targets and negative discretion may be material information to be disclosed in the Compensation Discussion and Analysis. If, in the exercise of discretion, an amount is paid over and above the amounts earned by meeting the performance measure in the non-equity incentive plan, that amount should be reported in the Bonus column (column (d)). [Jan. 24, 2007]

Question 119.03

Question: Instruction 2 to Item 402(c)(2)(iii) and (iv) provides that companies are to include in the Salary column (column (c)) or the Bonus column (column (d) any amount of salary or bonus forgone at the election of a named executive officer under which stock, equity-based, or other forms of non-cash compensation have been received instead by the named executive officer. In a situation where the value of the stock, equity-based or other form of non-cash compensation is the same as the amount of salary or bonus foregone at the election of the named executive officer, does this mean the amounts are only reported in the Salary or Bonus column and not in any other column of the Summary Compensation Table?

Answer: Yes, under Instruction 2 to Item 402(c)(2)(iii) and (iv) the amounts should be disclosed in the Salary or Bonus column, as applicable. The result would be different if the amount of salary or bonus foregone at the election of the named executive officer was less than the value of the equity-based compensation received instead of the salary or bonus, or if the agreement pursuant to which the named executive officer had the option to elect settlement in stock or equity-based compensation was within the scope of FAS123R (e.g., the right to stock settlement is embedded in the terms of the award). In the former case, the incremental value of an equity award would be reported in the Stock Awards or Option Awards columns, and in the latter case the award would be reported in the Stock Awards or Option Awards columns. In both of these special cases, the amounts reported in the Stock Awards and Option Awards columns would be the dollar amounts recognized for financial statement reporting purposes with respect to the applicable fiscal year, and footnote disclosure should be provided regarding the circumstances of the awards. Appropriate disclosure about equity-based compensation received instead of salary or bonus must be provided in the Grants of Plan-Based Awards Table, the Outstanding Equity Awards at Fiscal Year End Table and the Option Exercises and Stock Vested Table. [Aug. 8, 2007]

Question 119.04

Question: The Instruction to Item 402(c)(2)(v) and (vi) provides that a company disclose the assumptions made in the valuation for awards reported in the Option Awards column (column (e)) and the Stock Awards column (column (f)) by reference to a discussion of those assumptions in the registrant's financial statements, footnotes to the financial statements, or discussion in the Management's Discussion and Analysis. Is the disclosure of valuation assumptions limited to awards made in the covered fiscal year or does it include any award reported in column (e) or (f) even if granted in an earlier fiscal year?

Answer: The disclosure of valuation assumptions should relate to any award reported in the Option Awards column (column (e)) or the Stock Award column (column (f)). [Jan. 24, 2007]

Question 119.05

Question: If an equity award is made after the end of the fiscal year but relates to services performed in that completed fiscal year, when should that equity award be reported in the Summary Compensation Table and the Grants of Plan-Based Awards Table?

Answer: Under Item 402(c)(2)(v) and (vi), the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year must be reported in the Summary Compensation Table for stock and option awards. With respect to the Grants of the Plan-Based Awards Table, under Item 402(d)(1), information as to the awards is to be reported in the fiscal year in which the award was made. In preparing the Compensation Discussion and Analysis under Item 402(b), companies should consider the application of Instruction 2 to Item 402(b) with respect to awards granted after the end of the fiscal year but relating back to service in that completed fiscal year. [Jan. 24, 2007]

Question 119.06

Question: Instruction 3 to Item 402(c)(2)(viii) provides that where the amount of the change in the actuarial present value of the accumulated pension benefit computed pursuant to Item 402(c)(2)(viii)(A) is negative, the amount should be disclosed by footnote but should not be reflected in the sum reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column (column (h)). When a company aggregates all of the decreases and increases in the value of a named executive officer's individual pension plans, should the company subtract negative values from positive values or should any individual plan decreases be treated as a zero?

Answer: In applying this instruction, a company may subtract negative values when aggregating the changes in the actuarial present values of the accumulated benefits under the plans, and apply the "no negative number" position of the instruction for the final number after aggregating all plans. Under this approach, if one plan had a $500 increase and another plan had a $200 decrease, then the net change in the actuarial present value of the accumulated pension benefits would be $300. [Jan. 24, 2007]

Question 119.07

Question: Item 402(c)(2)(ix)(A) and Instruction 4 to that item require a company to report as "All Other Compensation" perquisites and personal benefits if the total amount exceeds $10,000, and to identify each such item by type, regardless of the amount. If the $10,000 threshold is otherwise exceeded, must a company list by type those perquisites and personal benefits as to which there was no aggregate incremental cost to the company, or as to which the executive officer fully reimbursed the company for such cost?

Answer: If a perquisite or other personal benefit has no aggregate incremental cost, it must still be separately identified by type. Any item for which an executive officer has actually fully reimbursed the company should not be considered a perquisite or other personal benefit and therefore need not be separately identified by type. In this regard, for example, if a company pays for country club annual dues as well as for meals and incidentals and an executive officer reimburses the cost of meals and incidentals, then the company need not report meals and incidentals as perquisites, although it would continue to report the country club annual dues. If there was no such reimbursement, then the company would need to also report the meals and incidentals as perquisites. [July 3, 2008]

Question 119.08

Question: Item 402(c)(2)(ix)(C) indicates that stock purchased at a discount needs to be disclosed unless that discount is available generally to all security holders or to all salaried employees. The compensation cost, if any, is computed in accordance with FAS 123R. Footnote 221 to Securities Act Release No. 8732A seems to indicate that sometimes under FAS 123R there is no compensation cost. Does the footnote indicate that 423 plans must be disclosed?

Answer: No. Typically 423 plans need to be broad based and non-discriminatory to qualify for preferential tax treatment, which would be within the exception, even if they require some minimum of work hours — such as 10 hours a week — in order to be in the plan or the discount is larger than the 5% example in the footnote. The footnote explains that even if there is some discount, there may not be compensation cost under the accounting standard. [Jan. 24, 2007]

Question 119.09

Question: Item 402(c)(2)(ix)(G) requires disclosure of the dollar value of any dividends when those amounts were not factored into the grant date fair value required to be reported in the Grants of Plan-Based Awards Table. With regard to the treatment of dividends, dividend equivalents or other earnings on equity awards, is disclosure required in the All Other Compensation column (column (i)) if disclosure was not previously provided in the Grants of Plan-Based Awards Table for that named executive officer?

Answer: The company should analyze whether the dividends, dividend equivalents or other earnings would have been factored into the grant date fair value in accordance with FAS 123R. In this regard, the disclosure turns on how the rights to the dividends are structured and whether or not that brings them within the scope of FAS 123R for the purpose of the grant date fair value calculation. [Jan. 24, 2007]

Question 119.10

Question: Are deferred compensation payouts, lump sum distributions under Section 401(k) plans and earnings on 401(k) plans required to be disclosed in the Summary Compensation Table?

Answer: Non-qualified deferred compensation payouts are not disclosed in the Summary Compensation Table, but are rather disclosed in the Aggregate Withdrawals/ Distributions column (column (e)) of the Nonqualified Deferred Compensation Table. Lump sum distributions from 401(k) plans are not disclosed in the Summary Compensation Table, because the compensation that was deferred into the 401(k) plan was already disclosed in the Summary Compensation Table, as would be any company matching contributions. Earnings on 401(k) plans are not disclosed in the Summary Compensation Table because the disclosure requirement only extends to above-market or preferential earnings on non-qualified deferred compensation. [Jan. 24, 2007]

Question 119.11

Question: An equity award subject to disclosure pursuant to Item 402(c)(2)(v) or (vi) may be disclosed as a negative number because the expense is reversed under FAS 123R, such as when an award is forfeited during the fiscal year, achievement of a performance-based condition becomes no longer probable, or when liability accounting applies to an award such as a cash-settled stock unit program and the stock price declines during the year. What portion of the award that was previously expensed and is reversed under FAS 123R may be deducted from the amount reported in, or shown as a negative number in, the Stock Awards or Option Awards column?

Answer: Only the previously expensed portions of awards that were previously reported in the Summary Compensation Table may be reversed in the Summary Compensation Table. Therefore, an expensed amount that relates to periods before effectiveness of the 2006 Executive Compensation rules or before the person became a named executive officer should not be deducted from the amount reported in, or shown as a negative number in, the Stock Awards or Option Awards column. [Aug. 8, 2007]

Question 119.12

Question: Is the interpretive position in Question 119.11 taken into account in determining whether an executive who was not previously in the Summary Compensation Table is a named executive officer under Item 402(a)(3)(iii) or Item 402(a)(3)(iv) for the last completed fiscal year? Specifically, can any amounts reversed under FAS 123R during the last completed fiscal year that were expensed in previous years be considered, although the previously expensed portions of the awards were not reported previously in the Summary Compensation Table?

Answer: Compensation for all executive officers should be computed on the same basis in order to determine the named executive officers. The reversal of a previously expensed amount that would have been reported if the executive had been included in the Summary Compensation Table for the prior year in which the award was expensed may be considered in determining whether the executive is a named executive officer under Item 402(a)(3)(iii) or Item 402(a)(3)(iv) for the last completed fiscal year. For example, during 2007, for both Executive A (who was in the Summary Compensation Table for 2006) and Executive B (who was not), the same amount of equity compensation that had been expensed in 2006 under FAS 123R was reversed. The amount of this reversal would be taken into account for both Executives A and B in determining whether they are among the company's named executive officers for 2007 under Item 402(a)(3)(iii) or Item 402(a)(3)(iv). [July 3, 2008]

Question 119.13

Question: Item 402(c)(2)(ix)(D) requires disclosure in the "All Other Compensation" column of the amount paid or accrued to any named executive officer pursuant to any plan or arrangement in connection with any termination of such executive officer's employment with the company or its subsidiaries, or a change in control of the company. For this purpose, what standard applies for determining whether such an amount is reportable because it is accrued?

Answer: Instruction 5 to Item 402(c)(2)(ix) states that for purposes of Item 402(c)(2)(ix)(D) an accrued amount is an amount for which payment has become due. If the named executive officer's performance necessary to earn an amount is complete, it is an amount that should be disclosed. For example, if the named executive officer has completed all performance to earn an amount, but payment is subject to a six-month deferral in order to comply with Internal Revenue Code Section 409A, the amount would be an accrued amount subject to Item 402(c)(2)(ix)(D) disclosure. In contrast, if an amount will be payable two years after a termination event if the named executive officer cooperates with (or complies with a covenant not to compete with) the company during that period, the amount is not reportable under Item 402(c)(2)(ix)(D) because the executive officer's performance is still necessary for the payment to become due. As noted in Footnote 217 to Securities Act Release No. 8732A, such amounts that are payable in the future, as well as amounts reportable under Item 402(c)(2)(ix)(D), are reportable under Item 402(j). [Aug. 8, 2007]

Question 119.14

Question: Where the instructions to the Summary Compensation Table requiring footnote disclosure do not specifically limit the footnote disclosure to compensation for the company's last fiscal year, as do Instructions 3 and 4 to Item 402(c)(2)(ix), must the footnote disclosure cover the other years reported in the Summary Compensation Table?

Answer: If the instruction does not specifically limit footnote disclosure to compensation for the company's last fiscal year, footnote disclosure for the other years reported in the Summary Compensation Table would be required only if it is material to an investor's understanding of the compensation reported in the Summary Compensation Table for the company's last fiscal year. [July 3, 2008]

Question 119.15

Question: The instruction to Item 402(c)(2)(v) and (vi) requires disclosure of assumptions made in the valuation by reference to a discussion of those assumptions in the registrant's financial statements, footnotes to the financial statements, or discussion in the Management's Discussion and Analysis section. To provide this assumption information for the amounts recognized during the company's most recent fiscal year, what financial statements (or associated footnotes) should be referenced?

Answer: For a stock or option award that was recognized during the company's most recent fiscal year, the required assumption information generally will be in the financial statements (or associated footnotes) for the year in which that award was granted. It is not sufficient to reference financial statements (or associated footnotes) that contain only assumptions for the company's grants during the most recent fiscal year if awards granted in prior fiscal years were recognized during the most recent fiscal year. [July 3, 2008]

Question 119.16

Question: May a company provide the assumption information required by the Instruction to Item 402(c)(2)(v) and (vi) for equity awards granted in the company's most recent fiscal year by reference to the Grants of Plan-Based Awards Table if the company chooses to report that assumption information in that table?

Answer: Yes. However, as noted in Question 119.15, the Summary Compensation Table must reference assumption information for each award that was recognized during the company's most recent fiscal year. [July 3, 2008]

Question 119.17

Question: In 2008, a company enters into a retention agreement in which it agrees to pay the CEO a cash retention bonus, conditioned on the CEO remaining employed by the company through December 31, 2010. The cash retention bonus is not a non-equity incentive plan award, as defined in Item 402(a)(6)(iii). When is the cash retention bonus reportable in the company's Summary Compensation Table? When should it be discussed in Compensation Discussion and Analysis?

Answer: The cash retention bonus is reportable in the Summary Compensation Table for the year in which the performance condition has been satisfied. The same analysis applies to any interest the company is obligated to pay on the cash retention bonus, assuming the interest is not payable unless and until the performance condition has been satisfied. Before the performance condition has been satisfied, Instruction 4 to Item 402(c) would not require it to be reported in the Summary Compensation Table as a bonus that has been earned but deferred, and the bonus would not be reportable in the Nonqualified Deferred Compensation Table. However, the company should discuss the cash retention bonus in its Compensation Discussion and Analysis for 2008 and subsequent years through completion of the performance necessary to earn it. [July 3, 2008]

Section 120. Item 402(d) – Executive Compensation; Grants of Plan-Based Awards Table

Question 120.01

Question: If an equity incentive plan award is denominated in dollars, but payable in stock, how is it disclosed in the Grants of Plan-Based Awards Table since the headings for equity-based awards (columns (f), (g) and (h)) only refer to numbers and not dollars?

Answer: The award should be disclosed in the Grants of Plan-Based Awards Table by including the dollar value and a footnote to explain that it will be paid out in stock in the form of whatever number of shares that amount translates into at the time of the payout. In this limited circumstance, and if all the awards in this column are structured in this manner, it is acceptable to change the captions for columns (f) through (h) to show "($)" instead of "(#)." [Aug. 8, 2007]

Question 120.02

Question: If all of the non-equity incentive plan awards were made for annual plans, where the awards have already been earned, may the company change the heading over columns (c), (d) and (e) of the Grants of Plan-Based Awards Table that refers to "Estimated future payouts under non-equity incentive plan awards?"

Answer: Yes, if the awards were made in the same year they were earned and the earned amounts are therefore disclosed in the Summary Compensation Table, the heading over columns (c), (d) and (e) may be changed to "Estimated possible payouts under non-equity incentive plan awards." [Jan. 24, 2007]

Question 120.03

Question: Should a company include in the Outstanding Equity Awards at Fiscal Year-End Table in-kind earnings on restricted stock awards that have earned share dividends or share dividend equivalents?

Answer: Yes. Outstanding in-kind earnings at the end of the fiscal year should be included in the table. However, in-kind earnings that vested during the fiscal year, or in-kind earnings that are already vested when the dividends are declared, instead should be reported in the Option Exercises and Stock Vested Table under Item 402(g) of Regulation S-K. [Jan. 24, 2007]

Question 120.04

Question: Instruction 3 to Item 402(f)(2) states that the issuer should report the market value of equity incentive plan awards using the closing market price at the end of the last completed fiscal year. The next sentence, however, states that the number of shares or units reported should be based on achieving threshold performance goals, "except that if the previous fiscal year's performance" has exceeded the threshold, disclosure is based on the next higher measure. Is the "previous fiscal year" the same year as the last completed fiscal year, or the year that preceded the last completed fiscal year?

Answer: For this purpose, the "previous fiscal year" means the same year as the "last completed fiscal year." [Aug. 8, 2007]

Section 121. Item 402(e) – Executive Compensation; Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

Section 122. Item 402(f) – Executive Compensation; Outstanding Equity Awards at Fiscal Year-End Table

Question 122.01

Question: A company has an equity incentive plan pursuant to which it grants awards that will vest, if at all, based on total shareholder return over a 3-year period. Awards were granted in 2005 ("2005 Awards") and will vest based on the company's total shareholder return from 1/1/05 through 12/31/07. 2006 was the second year of the 3-year performance period. Performance during 2005 was well above the maximum level. Performance during 2006 was below the threshold level. The combined performance for 2005 and 2006 would result in a payout at target if the performance period had ended on 12/31/06. Is it permissible to base disclosure on the actual multi-year performance to date (through the end of the last completed fiscal year)?

Answer: Yes. The number of shares or units reported in columns (d) or (i), and the payout value reported in column (j), should be based on achieving threshold performance goals, except that if performance during the last completed fiscal year (or, if the payout is based on performance to occur over more than one year, the last completed fiscal years over which performance is measured) has exceeded the threshold, the disclosure shall be based on the next higher performance measure (target or maximum) that exceeds the last completed fiscal year's performance (or, if the payout is based on performance to occur over more than one year, the last completed fiscal years over which performance is measured). [Aug. 8, 2007]

Question 122.02

Question: Instruction 2 to Item 402(f)(2) requires footnote disclosure of the vesting dates of the awards reported in the Outstanding Equity Awards at Fiscal Year-End Table. Can a company comply with this instruction by including a column in this table showing the grant date of each award reported and including a statement of the standard vesting schedule that applies to the reported awards?

Answer: Yes, provided, however, that if there is any different vesting schedule applicable to any of the awards, then the table would also need to include disclosure about any such vesting schedule. [July 3, 2008]

Section 123. Item 402(g) – Executive Compensation; Option Exercises and Stock Vested Table

Question 123.01

Question: When reporting on the exercise or settlement of a stock appreciation right in the Number of Shares Acquired on Exercise column (column (b)) of the Option Exercises and Stock Vested Table, should a company report the net number of shares received upon exercise, or the gross number of shares underlying the exercised stock appreciation right?

Answer: As would be the case with the cashless exercise of options, the total number of shares underlying the exercised stock appreciation right should be reported in column (b), rather than just the amount representing the increase of the stock price since the grant of the award. A footnote or narrative accompanying the table could explain and quantify the net number of shares received. [Jan. 24, 2007]

Section 124. Item 402(h) – Executive Compensation; Pension Benefits

Question 124.01

Question: Instruction 2 to Item 402(h)(2) indicates that the company must use the same assumptions used for financial reporting purposes under generally accepted accounting principles, except for the retirement age assumption, when computing the actuarial present value of a named executive officer's accumulated benefit under each pension plan. May the company deviate from the assumptions used for accounting purposes given the individual circumstances of the named executive officer or the plan?

Question 124.02

Question: Instruction 2 to Item 402(h)(2) specifies that in calculating the actuarial present value of a named executive officer's accumulated pension benefits, the assumed retirement age is to be the normal retirement age as defined in the plan, or, if not defined, the earliest time at which the named executive officer may retire without any benefit reduction. While many plans have a specifically defined retirement age, some plans also have a provision that allows participants to retire at an earlier age without any benefit reduction. In this case, which age should the company use in making its calculation?

Answer: When a plan has a stated "normal" retirement age and also a younger age at which retirement benefits may be received without any reduction in benefits, the younger age should be used for determining pension benefits. The older age may be included as an additional column. [Jan. 24, 2007]

Question 124.03

Question: How do you measure the actuarial present value of the accumulated benefit of a pension plan in the situation where a particular benefit is earned at a specified age? For instance, if a named executive officer at age 40 is granted an award if he stays with his company until age 60, how should the company measure this benefit when the executive is age 50 and the normal retirement age under the plan is age 65?

Answer: The computation should be based on the accumulated benefit as of the pension measurement date, assuming that the named executive continues to live and will work at the company until retirement and thus will reach age 60 and receive the award. [Jan. 24, 2007]

Question 124.04

Question: Should assumptions regarding pre-retirement decrements be factored into the calculation of the actuarial present value of a named executive officer's accumulated benefit under a pension plan?

Answer: For purposes of calculating the actuarial present value for the Pension Benefits Table, the registrant should assume that each named executive officer will live to and retire at the plan's normal retirement age (or the earlier retirement age if the named executive officer may retire with unreduced benefits) and ignore for the purposes of the calculations what actuaries refer to as pre-retirement decrements. Therefore, the assumptions used for financial statement reporting purposes that should be used for calculating the actuarial present value are the discount rate, the lump sum interest rate (if applicable), post-retirement mortality, and payment distribution assumptions. Any contingent benefits arising upon death, early retirement or other termination of employment events should be disclosed in the post-employment narrative disclosure required under Item 402(j) of Regulation S-K. [Jan. 24, 2007]

Question 124.05

Question: A cash balance pension plan is a defined benefit plan in which the retiree's benefits may be determined by the amount represented in a hypothetical "account" for that participant. The "accrued benefit" is the amount credited to a participant's cash balance account as of any date, which the participant has the right to receive as a lump sum upon termination of employment. Can a company report, as the present value of the accumulated benefit for a cash balance plan, the "accrued benefit"?

Answer: No. The same as for other defined benefit plans, the amount disclosable in the Pension Benefits Table as the present value of accumulated benefit for a cash balance plan is the actuarial present value of the named executive officer's accumulated benefit under the plan, computed as of the same plan measurement date used for purposes of the company's audited financial statements for the last completed fiscal year. [Aug. 8, 2007]

Section 125. Item 402(i) – Executive Compensation; Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans

Question 125.01

Question: The instruction to Item 402(i)(2) of Regulation S-K requires footnote disclosure quantifying the extent to which amounts reported in the table were reported as compensation in the Summary Compensation Table in the last completed fiscal year and in previous fiscal years. What should be noted by footnote when amounts were not previously reported (either because of the transition guidance in Securities Act Release No. 8732A or when a named executive officer appears in the table for the first time)?

Answer: The purpose of the instruction is to facilitate an understanding that non-qualified deferred compensation is reported elsewhere within the executive compensation disclosure over time. Amounts only need to be disclosed by footnote if they were actually previously reported in the Summary Compensation Table. [Jan. 24, 2007]

Question 125.02

Question: Item 402(i)(2)(iv) requires disclosure of the dollar amount of aggregate interest or other earnings accrued during the registrant's last fiscal year. What items, other than interest, are "earnings" for this purpose?

Answer: "Earnings" include dividends, stock price appreciation (or depreciation), and other similar items. The purpose of the table is to show changes in the aggregate account balance at fiscal year end for each named executive officer. Thus, "earnings" should encompass any increase or decrease in the account balance during the last completed fiscal year that is not attributable to contributions, withdrawals or distributions during the year. [Aug. 8, 2007]

Question 125.03

Question: Item 402(i)(1) calls for the Nonqualified Deferred Compensation Plan Table to provide the specified information "with respect to each defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified." Does this item mean that this information should be provided on a plan-by-plan basis?

Question 125.04

Question: Item 402(i)(2)(iii) calls for disclosure of aggregate company contributions to each nonqualified deferred compensation plan during the company's last fiscal year. For an excess plan related to a qualified plan, the contributions earned in 2008, which are reportable in the All Other Compensation column of the 2008 Summary Compensation Table, are not credited to the executive's account until January 2009. Are those contributions considered company contributions "during" 2008?

Section 126. Item 402(j) – Executive Compensation; Potential Payments Upon Termination or Change-in-Control

Question 126.01

Question: In the event that options are accelerated upon a termination or change-in- control, for purposes of Item 402(j) disclosure should the value of the accelerated options be calculated using the "spread" between exercise and market price (as of fiscal year end) or the FAS 123R value recognized in connection with the acceleration?

Answer: For purposes of Item 402(j), the company should use the "spread" to calculate the value of the award. Since Item 402(j) requires quantification of what a named executive officer would have received assuming the event took place on the last business day of the registrant's last completed fiscal year, disclosure of the "spread" at that date is consistent with Instruction 1 to 402(j), which prescribes using the closing market price per share of the registrant's securities on last business day of the registrant's last completed fiscal year. [Aug. 8, 2007]

Question 126.02

Question: A company's employee stock option plan provides for full and immediate vesting of all outstanding unvested awards upon a change-in-control of the company and this provision is included in each option recipient's award agreement (whether the recipient is an executive officer or an employee). Instruction 5 to Item 402(j) provides that a company need not provide information with respect to contracts, agreements, plans, or arrangements to the extent they are available generally to all salaried employees and do not discriminate in scope, terms, or operation, in favor of executive officers of the company. Can the company rely on Instruction 5 to omit disclosure of these awards when quantifying the estimated payments and benefits that would be provided to named executive officers upon a change-in-control?

Answer: No. The Instruction 5 standard that the "scope" of arrangements not discriminate in favor of executive officers would not be satisfied where the option awards to executives are in amounts greater than those provided to all salaried employees. [Aug. 8, 2007]

Section 127. Item 402(k) – Executive Compensation; Compensation of Directors

Question 127.01

Question: Is director compensation disclosure required under Item 402(k) of Regulation S-K for a person who served as a director for part of the last completed fiscal year, even if the person was no longer a director at the end of the last completed fiscal year?

Answer: Yes. If a person served as a director during any part of the last completed fiscal year the person must be included in the Director Compensation Table. [Jan. 24, 2007]

Question 127.02

Question: Is director compensation disclosure required under Item 402(k) of Regulation S-K for a person who served as a director during the last completed fiscal year but will not stand for re-election the next year?

Answer: Yes. If a person served as a director during any part of the last completed fiscal year the person must be included in the Director Compensation Table. [Jan. 24, 2007]

Question 127.03

Question: Does the Instruction to Item 402(k)(2)(iii) and (iv) require footnote disclosure, for each director, of the grant date fair value of each equity award outstanding or only of the awards granted during the company's last completed fiscal year?

Answer: Like the corresponding disclosure for named executive officers in the Grants of Plan-Based Awards Table, this Director Compensation Table requirement applies only to stock and option awards granted during the company's last completed fiscal year. [Aug. 8, 2007]

Question 127.04

Question: Does the Instruction to Item 402(k)(2)(iii) and (iv) requirement to provide footnote disclosure, for each director, of the aggregate number of stock awards and the aggregate number of option awards outstanding at fiscal year end include exercised options or vested stock awards?

Answer: No. Like the corresponding disclosure for named executive officers in the Outstanding Equity Awards at Fiscal Year-End Table, this Director Compensation Table requirement applies only to unexercised option awards (whether or not exercisable) and unvested stock awards (including unvested stock units). [Aug. 8, 2007]

Question 127.05

Question: Can a charitable matching program that is available to all employees be excluded from the disclosure required of "director legacy or charitable awards programs" under Item 402(k)(2)(vii)(G) based on the exclusion for "information regarding group life, health, hospitalization, or medical reimbursement plans that do not discriminate in scope, terms or operation, in favor of executive officers or directors of the registrant and that are available generally to all salaried employees" in the Item 402(a)(6)(ii) definition of "plan"?

Answer: No. A charitable matching program available to all employees must be included in the Director Compensation Table. The Director Compensation Table disclosure applies to "the annual costs of payments and promises of payments pursuant to director legacy programs and similar charitable award programs." Any company-sponsored charitable award program in which a director can participate would be a "similar charitable award program." [Aug. 8, 2007]

Section 128. Items 402(l) to (r) – Executive Compensation; Smaller Reporting Companies

Section 129. Item 403 – Security Ownership of Certain Beneficial Owners and Management

Question 129.01

Question: If a director's term will not continue beyond the annual meeting, must that director's equity security holdings be disclosed pursuant to Item 403(b)?

Answer: Item 403(b), by its terms, requires the disclosure of shareholdings of all directors named in the registrant's proxy statement, including directors' qualifying shares, even if the terms of some directors will not continue beyond the annual meeting. [Mar. 13, 2007]

Question 129.02

Question: Are phantom stock units held in a nonqualified deferred compensation plan reportable in the table required by Item 403(b)?

Answer: If the units could be settled in stock at the holder's election, so that if the holder were terminated currently he or she would get the underlying stock without the need to satisfy any additional vesting requirements, the registrant should report the total number of shares and percent of class beneficially owned, including the shares and percent of class beneficially owned due to the potential exercise of rights acquired under the phantom stock units. This is because the holder would have the right to acquire the underlying stock within 60 days (see Exchange Act Rule 13d-3). In addition to including the shares underlying the units in the total number of shares and percent of class beneficially owned, the phantom stock units also should be presented in a manner that distinguishes them from stock owned outright - e.g., pursuant to a clear and succinct footnote explanation. In contrast, if the phantom stock units can be settled in stock only at the company's discretion, they should not be reported in the total number of shares and percent of class beneficially owned, because the holder does not have a right to acquire the underlying stock within 60 days. Similarly, if the phantom stock units can be settled solely in cash, they should not be reported because the holder has no right to acquire the underlying stock. [Mar. 13, 2007]

Question 129.03

Question: If a named executive officer died since the beginning of the registrant's last fiscal year, must the deceased named executive officer be included in the Item 403(b) ownership table?

Answer: No. Although Item 403(b) requires disclosure for each of the named executive officers, as defined in Item 402(a)(3), a named executive officer who died since the beginning of the registrant's last fiscal year would not need to be included in the Item 403(b) ownership table. [Mar. 13, 2007]

Question 129.04

Question: Does the Item 403(b) requirement to indicate, by footnote or otherwise, the amount of shares that are pledged as security apply to a "negative pledge" of the company's stock by a director, nominee or named executive officer? (A "negative pledge" is a covenant granted by a borrower to a lender in which a promise is made not to convey the shares to a third party or to otherwise encumber them. Assuming a default by the borrower, the "negative pledge" would not transfer title by operation of law, but would instead require a foreclosure.)

Answer: Yes, because shares subject to a "negative pledge" may be subject to material risk or contingencies that do not apply to other shares beneficially owned by these persons, and such shares are pledged as security by operation of the negative pledge covenant. [Mar. 13, 2007]

Question 129.05

Question: Does the requirement in Item 403(c) to disclose "any arrangement . . . including any pledge . . . which may at a subsequent date result in a change in control of the registrant" apply to a "negative pledge" of the company's stock by a principal shareholder, as described in Question 129.04 above?

Answer: In the ordinary course, such an arrangement would not be disclosable under Item 403(c). However, the registrant should consider whether any circumstances, such as insolvency of the borrower or takeover activity with respect to the registrant, would render a change in control arising from such an arrangement foreseeable and, hence, disclosable under Item 403(c). [Mar. 13, 2007]

Section 130. Item 404 – Transactions with Related Persons, Promoters and Certain Control Persons

Question 130.01

Question: If a company with a class of securities registered under the Exchange Act that is current in its Exchange Act reports files a Form S-1 that does not incorporate information by reference, must Item 404(a) disclosure be provided for fiscal years ending before December 15, 2006 if the company already provided Item 404 disclosure for these years under the pre-2006 Item 404 requirements in a Commission filing?

Answer: No. Companies do not have to "restate" Item 404(a) disclosure under the 2006 Item 404 requirements if it was previously reported under the pre-2006 requirements. [Mar. 13, 2007]

Question 130.02

Question: If a company files a registration statement for an initial public offering on Form S-1, or files a Form 10 to register a class of securities under the Exchange Act, must the company provide Item 404(a) disclosure pursuant to the 2006 Item 404 requirements for fiscal years ending before December 15, 2006?

Answer: Yes. Disclosure must be provided in these filings pursuant to the 2006 Item 404 requirements for the period specified in Instruction 1 to Item 404. [Mar. 13, 2007]

Question 130.03

Question: Item 404(a) requires, in pertinent part, disclosure of any transaction since the beginning of the registrant's last fiscal year between the registrant and any 5 percent shareholder where the amount involved exceeds $120,000 and the 5 percent shareholder has a direct or indirect material interest in the transaction. Is disclosure required of such a transaction that occurred since the beginning of the registrant's last fiscal year, but prior to the date the person became a 5 percent shareholder?

Answer: Disclosure is required if the transaction: (a) was continuing (such as through the ongoing receipt of payments) after the date the person became a 5 percent shareholder; or (b) resulted in the person becoming a 5 percent shareholder. If the transaction concluded before the person became a 5 percent shareholder, disclosure would not be required. [Mar. 13, 2007]

Question 130.04

Question: How does a company value unexercised, in-the-money stock options for purposes of determining whether the $120,000 threshold of Item 404(a) has been met?

Answer: The value of unexercised, in-the-money options should be determined for Item 404(a) purposes by determining the difference between the fair market value of the securities underlying the options and the exercise or base price of the options. Use of the Black-Scholes or binomial option pricing method also would be appropriate, provided that such use and the underlying assumptions are clearly disclosed and the value thus calculated is greater than zero and is otherwise reasonably related to the unrealized gain. [Mar. 13, 2007]

Question 130.05

Question: Is the condition that loans be made on substantially the same terms as for "comparable loans with persons not related to the lender" in Instruction 4.c.ii. to Item 404(a) satisfied if a bank makes loans available on the same terms to all of its employees, the vast majority of whom are not "related persons" as defined in Item 404, but the same terms are not offered to non-employees?

Answer: No. The term "persons not related to the lender" means persons with no relationship at all with the lender other than the lending relationship, such as regular customers. Employees are considered related to the lender by virtue of their employment relationship. [Mar. 13, 2007]

Question 130.06

Question: Must a company include disclosure regarding policies for the review, approval or ratification of related person transactions under Item 404(b)(1) even when the company does not have to report any transactions under Item 404(a)?

Answer: Yes. Item 404(b)(1) requires disclosure regarding policies for the review, approval or ratification of the types of related person transactions that would be disclosed under Item 404(a). [Mar. 13, 2007]

Question 130.07

Question: Is a smaller reporting company required to describe its policies and procedures for review, approval or ratification of transactions with related persons as specified by Item 404(b) of Regulation S-K if a schedule or form being used for a filing requires the company to furnish the information required by Item 404(b)?

Answer: No. Smaller reporting companies are not required to furnish Item 404(b) disclosure in these circumstances. Smaller reporting companies comply with the requirements of Item 404 by furnishing the information called for by Item 404(d) of Regulation S-K, the paragraph of Item 404 labeled "Smaller reporting companies," which does not require Item 404(b) disclosure. [July 3, 2008]

Section 131. Item 405 – Compliance with Section 16(a) of the Exchange Act

Section 132. Item 406 – Code of Ethics

Section 133. Item 407 – Corporate Governance

Question 133.01

Question: If a non-listed issuer has independence definitions that are more stringent than those of a national securities exchange, may that issuer provide disclosure based on its own independence definitions in accordance with Item 407(a)(1)(i), rather than provide the disclosure required by Item 407(a)(1)(ii)?

Answer: The non-listed issuer must provide the disclosure required by Item 407(a)(1)(ii). If the non-listed issuer believes that its own independence definitions are more stringent than those of the exchange identified in the required Item 407(a)(1)(ii) disclosure, it may, in addition, disclose that belief and provide the disclosures called for by Item 407(a)(1)(i) based on its own definitions, provided that it also complies with Item 407(a)(2) regarding disclosure of its own definitions of independence. [Mar. 13, 2007]

Question 133.02

Question: May a company indicate that the nominating committee's processes, policies, or minimum director nominee qualifications are included in the company's governance policies posted on the company's website, rather than including descriptions of the nominating committee's processes, policies, or minimum nominee qualifications in the proxy statement?

Answer: No. Item 407(c)(2) requires that the descriptions of the processes, policies, and nominee qualifications be included in the proxy statement, and no mechanism for reference to website posting of this information is provided for with respect to the Item 407(c)(2) disclosure. [Mar. 13, 2007]

Question 133.03

Question: Item 407(c)(2)(vii) requires the identification of the category of persons or entities that recommended each nominee for director, other than executive officers or nominees that are directors who are standing for re-election. If a director who did not stand for election by shareholders last year (but rather had been named as a director by the board during the year) is to be nominated for election by shareholders for the first time, is disclosure under Item 407(c)(2)(vii) required for that nominee?

Answer: Yes. The nominee for director would not be considered as standing for "re-election"; therefore, disclosure of the category of persons or entities that recommended the nominee is required by Item 407(c)(2)(vii). [Mar. 13, 2007]

Question 133.04

Question: Does Item 407(d)(3)(i)(D) require the audit committee to state whether it recommended inclusion of the audited financial statements in the Form 10-K for periods prior to the last completed fiscal year?

Answer: No. Item 407(d)(3)(i)(D) requires the audit committee to state whether it recommended inclusion of the audited financial statements in the Form 10-K. This statement need not cover financial statements for periods prior to the last completed fiscal year. [Mar. 13, 2007]

Question 133.05

Question: Should all compensation consultants engaged by the company that played a role in determining or recommending the amount or form of executive or director compensation be disclosed, or only those that consulted with the board of directors or the compensation committee?

Answer: All compensation consultants with any role in determining or recommending the amount or form of executive or director compensation must be disclosed under Item 407(e)(3)(iii). [Mar. 13, 2007]

Question 133.06

Question: Is the consent of a compensation consultant required under Securities Act Rule 436 if a compensation consultant is identified in accordance with Item 407(e)(3)(iii) in a filing that is incorporated by reference into a Securities Act registration statement?

Answer: No. Item 407(e)(3) requires a "narrative description of the registrant's processes and procedures for the consideration and determination of executive and director compensation including … (iii) [a]ny role of compensation consultants in determining or recommending the amount or form of executive and director compensation." Identifying a compensation consultant and the role that the compensation consultant had in determining or recommending the amount or form of executive and director compensation does not result in the compensation consultant being deemed an "expert" for the purposes of the Securities Act, or mean that the compensation consultant has expertized any portion of the disclosure regarding executive and director compensation or compensation committee processes. Therefore, a consent would not be required. [Mar. 13, 2007]

Question 133.07

Question: Which names of directors must be included below the disclosure required in the Compensation Committee Report by Item 407(e)(5)?

Answer: Item 407(e)(5)(ii) requires that the name of each member of the compensation committee (or other board committee performing equivalent functions, or in the absence of any such committee, the entire board of directors) must appear below the required disclosure in the Compensation Committee Report. The members of the compensation committee (or the full board) who participated in the review, discussions and recommendation with respect to the Compensation Discussion and Analysis must be identified. New members who did not participate in such activities and departed members who are no longer directors need not be included. Members who resigned from the compensation committee during the course of the year, but remain directors of the issuer, may need to be named under the disclosure in the Compensation Committee Report pursuant to Item 407(e)(5)(ii). [Mar. 13, 2007]

Question 133.08 [same as Question 118.06]

Question 133.09

Question: When is a smaller reporting company required to provide the audit committee financial expert disclosure as required by Item 407(d)(5)?

Answer: While all smaller reporting companies are required to provide the audit committee report required by Item 407(d)(3), pursuant to Item 407(g), smaller reporting companies are not required to provide the audit committee financial expert disclosure required by Item 407(d)(5) until their first annual report after their initial registration statement under the Securities Act or Exchange Act becomes effective. The statement in the original version of the adopting release for Item 407(g) (Release No. 33-8876, Dec. 19, 2007) that smaller reporting companies are not required to provide an audit committee report was incorrect. [July 3, 2008]

Section 134. Item 501 – Forepart of Registration Statement and Outside Front Cover Page of Prospectus

Question 134.01

Question: Is Item 501(b)(8)(iii)'s requirement to disclose the presence or absence of arrangements to place funds in escrow applicable only when the best-efforts offering is conditioned on a minimum number of securities being sold?

Question 134.02

Question: When should the legend specified in Item 501(b)(10) be included on a prospectus?

Answer: The legend specified in Item 501(b)(10) should be printed on all preliminary prospectuses used before the effective date of the registration statement and, in accordance with Item 501(b)(11), in any prospectus contained in an effective registration statement omitting Rule 430A information that is used after effectiveness and prior to the pricing. [July 3, 2008]

Question 134.03

Question: How should the prospectus date and "Subject to Completion" legend required by Items 501(b)(9) and (10) of Regulation S-K be placed on the cover page of the prospectus?

Answer: The placement of the prospectus date and "Subject to Completion" legend on the prospectus cover page should be such that the information is presented in a clear, concise, and understandable manner. [July 3, 2008]

Section 135. Item 502 – Inside Front and Outside Back Cover Pages of Prospectus

Section 136. Item 503 – Prospectus Summary, Risk Factors and Ratio of Earnings to Fixed Charges

Question 136.01

Question: When is the ratio of earnings to fixed charges required in registration statements?

Answer: The ratio of earnings to fixed charges required by Item 503(d) is required for registration statements relating to both short and long term debt. However, if the ratio already is contained in a Form 10-K filed by the issuer, it can be incorporated by reference into the registration statement, provided the registration form permits such incorporation and the issuer is eligible to incorporate the information by reference. [July 3, 2008]

Section 137. Item 504 – Use of Proceeds

Section 138. Item 505 – Determination of Offering Price

Section 139. Item 506 – Dilution

Section 140. Item 507 – Selling Security Holders

Question 140.01

Question: Does the term "security holders" in Item 507 refer to beneficial holders?

Answer: Yes. The term "security holders," as used in Item 507, means beneficial holders, not nominee holders or other such holders of record. [July 3, 2008]

Question 140.02

Question: Must identification of an entity as a selling shareholder in the registration statement include disclosure of the persons who have sole or shared voting or investment power over the entity?

Answer: Yes. The company must identify in the registration statement the person or persons who have voting or investment control over the company's securities that the entity owns. Use Rule 13d-3 by analogy to make the determination. [July 3, 2008]

Section 141. Item 508 – Plan of Distribution

Question 141.01

Question: Does Item 508(a) of Regulation S-K, which calls for disclosure of the identity of "principal underwriters" and their material relationships with the registrant, require disclosure as to each member of the selling group?

Answer: No. The disclosure is limited to those underwriters who are in privity of contract with the issuer with respect to the offering. [July 3, 2008]

Section 142. Item 509 – Interests of Named Experts and Counsel

Section 143. Item 510 – Disclosure of Commission Position on Indemnification for Securities Act Liabilities

Section 144. Item 511 – Other Expenses of Issuance and Distribution

Section 145. Item 512 – Undertakings

Question 145.01

Question: Must a registration statement on Form S-8, covered by Rule 415, include all applicable undertakings in Item 512 of Regulation S-K, including specifically those in Items 512(a), (b) and (h)?

Answer: Yes. However, the Form S-8 does not have to include the undertakings contained in Items 512(a)(5)(i), 512(a)(5)(ii), and 512(a)(6). [July 3, 2008]

Question 145.02

Question: Should a Form S-3 for an automatic shelf registration statement include the Item 512(h) undertaking or the indemnification disclosure required by Item 510 of Regulation S-K?

Answer: A Form S-3 for an automatic shelf registration statement, other than for a dividend reinvestment plan, should include the Item 512(h) undertaking rather than the indemnification disclosure required by Item 510, even though the registrant will not request acceleration of effectiveness. For automatic shelf registration statements relating to dividend reinvestment plans, the Item 510 disclosure should be included in lieu of the Item 512(h) undertaking. [July 3, 2008]

Question 145.03

Question: Item 512(a) of Regulation S-K, which is applicable to Rule 415 offerings, sets forth three circumstances requiring a post-effective amendment: Section 10(a)(3) updating, fundamental changes and material changes to the plan of distribution. Can a Rule 424(b) supplement be used for these purposes if the offering is registered on Form S-3 or Form F-3?

Answer: Yes. In a Form S-3 or Form F-3, issuers may satisfy the Item 512(a) undertaking by incorporating by reference from Exchange Act reports containing the required information or by filing a Rule 424(b) prospectus. [July 3, 2008]

Section 146. Item 601 – Exhibits

Question 146.01

Question: Instruction 1 to Item 601(a) of Regulation S-K provides that when filing amendments to registration statements, a registrant need not include copies of exhibits which have been modified only to correct minor typographical errors or to put in pricing terms. May the incomplete exhibits already on file that do not reflect the pricing or typographical modifications noted above be incorporated by reference in any subsequent filing?

Answer: No. Instruction 1 also states that incomplete exhibits already on file that do not reflect these modifications may not be incorporated by reference in any subsequent filing. [July 3, 2008]

Question 146.02

Question: Under Item 601(a)(2), must the exhibit index for each year's Form 10-K list each of the exhibits required in the Form 10-K, even if some of the exhibits have previously been filed?

Answer: Yes. Of course, the previously filed exhibits may be incorporated by reference from the prior year's Form 10-K or another appropriate document. [July 3, 2008]

Question 146.03

Question: Must a Form 10-Q include the full exhibit index specified by Item 601(a)(2)?

Answer: No. The exhibit index in a Form 10-Q can be limited to those exhibits actually filed as part of, or incorporated by reference into, the Form 10-Q. [July 3, 2008]

Question 146.04

Question: If a registrant is party to an oral contract that would be required to be filed as an exhibit pursuant to Item 601(b)(10) if it were written, should the registrant provide a written description of the contract similar to that required for oral contracts or arrangements pursuant to Item 601(b)(10)(iii)?

Question 146.05

Question: If a company enters into a new material contract, when should the contract be filed as an exhibit to a Form 10-Q or Form 10-K?

Answer: Instruction 2 to Item 601(b)(10) indicates that Exhibit 10 material contracts need to be filed with the periodic report covering the period during which the contract is executed or becomes effective. [July 3, 2008]

Question 146.06

Question: A company entered into a material agreement. However, the agreement was no longer material to the company by the end of the reporting period during which the contract was entered into. Must the agreement be filed as an exhibit to the periodic report?

Answer: Yes. Item 601(a)(4) provides that if a material contract "is executed or becomes effective during the reporting period," then it shall be filed as an exhibit. [July 3, 2008]

Question 146.07

Question: When may consents that are filed with an Exchange Act document be incorporated by reference into a Securities Act registration statement?

Answer: Item 601(b)(23)(ii) of Regulation S-K and Securities Act Rule 439(a) permit the incorporation by reference of consents filed with Exchange Act reports only into an already effective Securities Act registration statement. Consents may not be incorporated by reference into a registration statement that becomes effective after the filing of the consent with an Exchange Act document. [July 3, 2008]

Question 146.08

Question: An issuer is filing a special financial report on Form 10-K. Must the issuer file with the report the certification required by Item 601(b)(31)?

Answer: Yes. However, the issuer may omit paragraphs 4 and 5 of the certification because the report will contain only audited financial statements and not Item 307 or Item 308 of Regulation S-K disclosures. [July 3, 2008]

Question 146.09

Question: Does Item 601(b)(10)(iii)(A) of Regulation S-K, which describes management contracts and compensatory plans, contracts and arrangements in which named executive officers participate that must be filed as exhibits to registration statements and reports, require a smaller reporting company to define the term "named executive officer" by referring to the definition of that term in Item 402(a)(3) of Regulation S-K instead of the definition of that term available to smaller reporting companies in Item 402(m)(2)?

Answer: No. If a smaller reporting company has chosen to use the definition of "named executive officer" in Item 402(m)(2) in its registration statement or report, by providing the disclosure permitted under Items 402(m) through 402(r) instead of the disclosure required under Items 402(a) through 402(k), the staff will interpret Item 601(b)(10)(iii)(A) to refer to the definition of "named executive officer" in Item 402(m)(2) and only require the filing as exhibits of plans, contracts and arrangements in which named executive officers as defined under Item 402(m)(2) participate. [July 3, 2008]

Question 146.10

Question: Should a copy of the employee benefit plan under which the registered securities will be issued be filed as an exhibit to the registration statement on Form S-8?

Question 146.11

Question: Does a written arrangement whereby officers are provided company cars and other perquisites have to be filed as a "material contract"?

Answer: If the perquisite is separately identified and quantified in the proxy statement, then the written arrangement pursuant to which the officer receives the perquisite need not be filed as a "material contract." [July 3, 2008]

Section 147. Item 701 – Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

Question 147.01

Question: Does Item 701(f) require a registrant to report how it anticipates using the proceeds of an offering?

Answer: No. The reporting of use of proceeds requires the reporting of actual expenditures of the funds. Merely earmarking funds for future use should not be reported. [July 3, 2008]

Section 148. Item 702 – Indemnification of Directors and Officers

Section 149. Item 703 – Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Question 149.01

Question: Item 703 requires tabular disclosure regarding any purchase made by or on behalf of the issuer or any affiliated purchaser of shares or other units of any class of the issuer's equity securities that are registered by the issuer under Exchange Act Section 12. In connection with an employee benefit plan, an employee exercises an option using a process known as "net" option exercise. Is this transaction a repurchase by the issuer that the issuer must disclose under Item 703?

Answer: No. If, however, any shares are withheld in addition to the shares necessary to pay taxes or satisfy the exercise price, the company must disclose the repurchase of the additional shares under Item 703. Similarly, if the option exercise price is paid with company stock that the option holder otherwise owns, the company must report the repurchase of the stock under Item 703. [July 3, 2008]

Question 149.02

Question: Is disclosure required by Item 703 of Regulation S-K if a holder of restricted stock subject to vesting conditions forfeits the stock upon failure to satisfy vesting condition if he or she was granted them for no consideration?

Section 150. Items 801 and 802 – Industry Guides

Section 151. Items 901 through 915 – Roll-up Transactions

Question 151.01

Question: Are the roll-up rules in the Item 900 Series of Regulation S-K applicable to transactions exempt from registration under the Securities Act?

Answer: Pursuant to Item 901(c)(2)(ii), a "roll-up transaction" does not include transactions in which the securities to be issued or exchanged are not required to be, and are not, registered under the Securities Act. The roll-up rules are not applicable except from an anti-fraud perspective. See Release No. 33-6922 (Oct. 30, 1991). [July 3, 2008]

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Section 201. Regulation S-K – General Guidance

Section 202. Item 10 – General

202.01 For purposes of the definition of the term "smaller reporting company" in Item 10(f)(1) of Regulation S-K, in calculating an issuer's revenues to determine the application of the definition of "smaller reporting company," when the issuer has a public float of zero and is seeking to determine whether it meets the terms of the definition on the basis of revenues, the issuer should include all revenues on a consolidated basis. As such, a holding company would meet the terms of the definition only if it has less than $50 million in consolidated revenues. [July 3, 2008]

Section 203. Item 101 – Description of Business

203.01 In the narrative description of business, a registrant is required to specify "the number of persons employed by the registrant." In industries where registrants' general practice is to hire independent contractors (sometimes called "contract employees" or "freelancers") rather than "employees" to perform the work of the company, this disclosure should indicate the number of persons retained as independent contractors, as well as the number of regular employees. [July 3, 2008]

Section 204. Item 102 – Description of Property

Section 205. Item 103 – Legal Proceedings

205.01 The bank subsidiary of a one bank holding company initiates a lawsuit to collect a debt that exceeds 10% of the current assets of the bank and its holding company parent. Due to the unusual size of the debt, Item 103 requires disclosure of the lawsuit, even though the collection of debts is a normal incident of the bank's business. [July 3, 2008]

205.02 Contrary to Release No. 33-5170 (July 19, 1971), it is no longer the practice of the Division to require registrants automatically to furnish, as supplemental information, either a description of civil rights litigation omitted from a newly-filed disclosure document or the reasons for the omission. [July 3, 2008]

Section 206. Item 201 – Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters

206.01 An equity compensation plan has received Bankruptcy Court approval, but not shareholder approval. Such a plan should be reported in the "not approved by security holders" category for the purposes of the Equity Compensation Plan Information table. A footnote may be added to disclose the Bankruptcy Court approval. [Mar. 13, 2007]

206.02 A compensation plan that permits awards to be settled in either cash or stock must be disclosed under Item 201(d). A plan that permits awards to be settled only in cash need not be disclosed under Item 201(d), because the purpose of Item 201(d) is to show dilution and cash-only plans are not dilutive. However, pursuant to Item 10 of Schedule 14A, if a company is seeking shareholder approval of any plan pursuant to which cash (or non-cash) compensation may be paid or distributed, the company is required to include in its proxy statement Item 201(d) disclosure with respect to its plans under which company equity securities are authorized for issuance. [Mar. 13, 2007]

206.03 Instruction 1 to Item 201(d) provides that no disclosure is required with respect to any employee benefit plan that is intended to meet the qualification requirements of Internal Revenue Code Section 401(a). The same treatment would apply to a foreign employee benefit plan that is similar in substance to a Section 401(a) qualified plan in terms of being broad-based, compensatory and non-discriminatory. The same analysis applies for purposes of determining whether a plan must be filed as an exhibit pursuant to Item 601(b)(10)(iii)(B) of Regulation S-K, based on the exclusion provided by Item 601(b)(10)(iii)(C)(4) of Regulation S-K. [Mar. 13, 2007] [same as C&DI 246.11]

206.04 A company has stock appreciation rights that are exercisable for an amount of its common stock with a value equal to the increase in the fair market value of the common stock from the date the stock appreciation rights were granted. For these instruments, the company may use the fair market value of its common stock at fiscal year end for the purposes of reporting the number of shares to be issued upon exercise of the stock appreciation rights pursuant to Item 201(d)(2)(i). The company should also describe this assumption in a footnote to the Equity Compensation Plan Information table. [Mar. 13, 2007]

206.05 As a general rule, when a registrant changes the entities comprising a self-constructed index from the index used in the prior year, the reasons for the change must be explained and the total return must be compared with that of both the newly constructed index and the prior index. See Item 201(e)(4) and Release No. 34-32723 (Aug. 6, 1993) at IV.B.1. Two limited exceptions are set forth in Release No. 34-32723. Presentation on the old basis is not required: (i) if an entity is omitted solely because it is no longer in the line of business or industry; or (ii) the changes in the composition of the index are the result of application of pre-established objective criteria. In these two cases, a specific description of, and the bases for, the change must be disclosed, including the names of the companies deleted from the new index. [Mar. 13, 2007]

206.06 If a company becomes listed on an exchange that is different from the exchange it was listed on in the prior year, the change needs to be reflected in the performance graph if the company also changes its broad market indices as a result. For example, if a company that had been listed on the American Stock Exchange becomes listed on a different exchange and now plans to use the S&P 500 as its broad market index rather than the American Stock Exchange Composite Index, the company must provide a narrative explanation of the change in indices and compare returns based upon the old and new index on the graph. [Mar. 13, 2007]

206.07 In lieu of data for the last trading day prior to the end of a given fiscal year, a registrant may use data for the last day in that year made available by a third-party index provider. [Mar. 13, 2007]

206.08 A registrant created by a spin-off may begin its Performance Graph presentation on the effective date of the registration of its common stock under Section 12 of the Exchange Act. [Mar. 13, 2007]

206.09 A registrant that spins off a portion of its business should treat that transaction as a special dividend, make the appropriate adjustments to its shareholder return data, and disclose the occurrence of the transaction and resultant adjustments in its performance graph. [Mar. 13, 2007]

206.10 A merger or other acquisition involving the registrant, where the registrant remains in existence and its common stock remains outstanding, does not change the presentation of the registrant's performance graph. [Mar. 13, 2007]

206.11 A registrant with several distinct lines of business may construct a composite peer group index composed of entities from different industry groups, representing each of the registrant's lines of business (with the lines of business weighted by revenues or assets). The basis and amount of the weighting should be disclosed. Alternatively, the registrant may plot a separate peer index line for each of its lines of business. [Mar. 13, 2007]

206.12 If a company selects its own peer group and subsequently changes the group, an additional line showing the newly selected index should be added to the performance graph. [Mar. 13, 2007]

206.13 Companies that have a short fiscal year (for example, following an initial public offering, as the result of a spin-off, or after emerging from bankruptcy) must do a stock performance graph for the short year unless the short year is 30 days or less. [Mar. 13, 2007]

206.14 A company is preparing its first proxy statement following its emergence from bankruptcy. The new class of stock that was issued under the bankruptcy plan started trading in Mar. 2006. The measurement period for the graph is from Mar. 2006 through December 2006. However, the company may plot the graph on a monthly basis and can continue the graph beyond December 2006 as long as the December 2006 plotting point is clearly shown. The same principle applies to initial public offerings and spin-off situations with a short fiscal year. [Mar. 13, 2007]

206.15 A "published industry or line-of-business index" is one that is "accessible to the registrant's security holders" and, if prepared by the registrant or an affiliate, is also "widely recognized and used." Certain guidance concerning the use of trade group indices and of composite indices composed of more than one published index is given in Release No. 34-32723 (Aug. 6, 1993) at Section IV.B.2. Self-constructed indices (which term includes those prepared by a third party for the registrant and which are not "published") are not prohibited or discouraged by Item 201(e), they just must be weighted by market capitalization (as are most published indices) and include identification of the component issuers. See Instruction 5 to Item 201(e). [Mar. 13, 2007]

Section 207. Item 202 – Description of Registrant's Securities

Section 208. Item 301 – Selected Financial Data

Section 209. Item 302 – Supplementary Financial Information

Section 210. Item 303 – Management's Discussion and Analysis of Financial Condition and Results of Operations

Section 211. Item 304 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

211.01 Item 304(a)(1)(iv) uses the phrase "the registrant's two most recent fiscal years and any subsequent interim period preceding such resignation, declination or dismissal," whereas Item 304(a)(1) uses the phrase, "the registrant's two most recent fiscal years or any subsequent interim period." The Division staff has been asked whether the period referenced in Item 304(a)(1)(iv) is coterminous with the period referenced in Item 304(a)(1), or instead refers to a period of such duration preceding the accountant's resignation or dismissal, as the language would literally suggest. The Division staff takes the position that Item 304(a)(1)(iv) refers to the time period preceding the resignation or dismissal. [July 3, 2008]

Section 212. Item 305 – Quantitative and Qualitative Disclosures About Market Risk

Section 213. Item 306 [Reserved]

Section 214. Item 307 – Disclosure Controls and Procedures

214.01 As discussed in Question and Answer 3 (FAQ 3) of "Management's Report on Internal Control over Financial Reporting and Certification of Disclosure Controls in Exchange Act Periodic Reports – Frequently Asked Questions (revised Sept. 24, 2007)," issued by the Office of the Chief Accountant and the Division of Corporation Finance, under limited and specified circumstances, the staff will not object to management excluding an acquired business from management's assessment of the registrant's internal control over financial reporting. FAQ 3 relates only to omitting an assessment of an acquired business's internal control over financial reporting from the assessment of the registrant's internal control over financial reporting. By its terms, it does not address management's evaluation of disclosure controls and procedures. In light of the overlap between a company's disclosure controls and procedures and its internal control over financial reporting, in those situations in which a registrant may properly rely on FAQ 3, management's evaluation of disclosure controls and procedures may exclude an assessment of those disclosure controls and procedures of the acquired entity that are subsumed by internal control over financial reporting. In addition, consistent with FAQ 3, we would expect the registrant to indicate the significance of the acquired business to the registrant's consolidated financial statements. [July 3, 2008]

214.02 A royalty trust attempted to limit its conclusion regarding the effectiveness of its disclosure controls and procedures by stating that it relied on the working interest owners for disclosure in the document. Although a royalty trust can explain its reliance on working interest owners, it cannot thereby limit the scope of its conclusion. [July 3, 2008]

Section 215. Items 308 and 308T – Internal Control over Financial Reporting

215.01 Notwithstanding the introductory note to Item 308T, which states that it applies only to annual reports, any Form 10-Q that is required to include Item 308T disclosure pursuant to Item 4T of Form 10-Q must include the disclosure required by Item 308T(b). Quarterly reports need not include Item 308T(a) disclosure. [July 3, 2008]

Section 216. Item 401 – Directors, Executive Officers, Promoters and Control Persons

216.01 Item 401(d) requires disclosure where a director's wife is the first cousin of an executive officer of the same company since the director and executive officer are related by marriage "not more remote than first cousin." [July 3, 2008]

216.02 A director of a public company is the general partner (and 50% owner) of limited partnership A which, in turn, is the general partner of limited partnership B, now in bankruptcy. Disclosure of the bankruptcy is required in the public company's filings under Item 401(f)(l), because the director's general partnership in, and percentage ownership of, A are evidence of control of A, the general partner of B. [July 3, 2008]

216.03 The president of a company about to go public is convicted within the past year of misdemeanor criminal offenses, involving two small checks of $30 and $50, respectively. Counsel argues that disclosure is not required under Item 401(f) because of the exclusion of Item 401(f)(2) for "traffic violations and other minor offenses." The Division staff disagrees, taking the position that such disclosure is "material to an evaluation of the ability or integrity of any . . . executive officer of the registrant" (emphasis added). [July 3, 2008]

216.04 Item 401(f) would require the disclosure by an issuer of an order temporarily restraining another corporation from pursuing a tender offer where a director of the issuer, who is the president of the other corporation, has been specifically named in the order. [July 3, 2008]

Section 217. Item 402(a) – Executive Compensation; General

217.01 Whether a spin-off is treated like the IPO of a new "spun-off" registrant for purposes of Item 402 disclosure depends on the particular facts and circumstances. When determining whether disclosure of compensation before the spin-off is necessary, the "spun-off" registrant should consider whether it was a reporting company or a separate division before the spin-off, as well as its continuity of management. For example, if a parent company spun off a subsidiary which conducted one line of the parent company's business, and before and after the spin-off the executive officers of the subsidiary: (1) were the same; (2) provided the same type of services to the subsidiary; and (3) provided no services to the parent, historical compensation disclosure likely would be required. In contrast, if a parent company spun off a newly formed subsidiary consisting of portions of several different parts of the parent's business and having new management, it is more likely that the spin-off could be treated as the IPO of a new "spun-off" registrant. [Jan. 24, 2007]

217.02 Following a merger among operating companies, there is no concept of "successor" compensation. Therefore, the surviving company in the merger need not report on compensation paid by predecessor corporations that disappeared in the merger. Similarly, a parent corporation would not pick up compensation paid to an employee of its subsidiary prior to the time the subsidiary became a subsidiary (i.e., when it was a target). Moreover, income paid by such predecessor companies need not be counted in computing whether an individual is a named executive officer of the surviving corporation. A different result may apply, however, in situations involving an amalgamation or combination of companies. A different result also applies where an operating company combines with a shell company, as defined in Securities Act Rule 405, as provided in Interpretive Response 217.12, below. [Aug. 8, 2007]

217.03 A subsidiary of a public company is going public. The officers of the subsidiary previously were officers of the parent, and in some cases all of the work that they did for the parent related to the subsidiary. The registration statement of the subsidiary would not be required to include compensation previously awarded by the parent corporation. The subsidiary would start reporting as of the IPO date. [Jan. 24, 2007]

217.04 Instruction 1 to Item 402(a)(3) states that the generally required compensation disclosure regarding highly compensated executive officers need not be set forth for an executive officer (other than the principal executive officer or principal financial officer) whose total compensation for the last fiscal year, reduced by the amount required to be disclosed by Item 402(c)(2)(viii), did not exceed $100,000. A reporting company that recently changed its fiscal year end from December 31st to June 30th is preparing its transition report for the 6-month period ended June 30th, having filed its Form 10-K for the fiscal year ended 6 months earlier on December 31st. The reporting company generally has a group of executive officers that earn in excess of $100,000 each year. In addition, during the 6-month period, the company made an acquisition that resulted in new executive officers that, on an annual basis, will earn more than $100,000. During the 6-month period, however, none of these existing or new officers earned more than $100,000 in total compensation. The company asked whether disclosure under Item 402 regarding these officers therefore would not be required in the report being prepared for the 6-month period. The Division staff advised that no disclosure need be provided with respect to executive officers that started employment with the company during the 6-month period and did not, during that period of employment, earn more than $100,000. With respect to executive officers that were employed by the company both during and before the 6-month period, however, Item 402 disclosure would have to be provided for those who earned in excess of $100,000 during the one-year period ending June 30th (the same ending date as the six-month period, but extending back over 6 months of the preceding fiscal year). [Jan. 24, 2007]

217.05 If a company changes its fiscal year, report compensation for the "stub period," and do not annualize or restate compensation. In addition, report compensation for the last three full fiscal years, in accordance with Item 402 of Regulation S-K. For example, in late 1997 a company changed its fiscal year end from June 30 to December 31. In the Summary Compensation Table, provide disclosure for each of the following four periods: July 1, 1997 to December 31, 1997; July 1, 1996 to June 30, 1997; July 1, 1995 to June 30, 1996; and July 1, 1994 to June 30, 1995. Continue providing such disclosure for four periods (three full fiscal years and the stub period) until there is disclosure for three full fiscal years after the stub period (December 31, 2000 in the example). If the company was not a reporting company and was to do an IPO in February 1998, it would furnish disclosure for both of the following periods in the Summary Compensation Table: July 1, 1997 to December 31, 1997; and July 1, 1996 to June 30, 1997. [Jan. 24, 2007]

217.06 Compensation of both incoming and departing executives should not be annualized. [Jan. 24, 2007]

217.07 A caller asked whether an executive officer, other than the principal executive officer or principal financial officer, could be considered a "named executive officer" if the executive officer became a non-executive employee during the last completed fiscal year and did not depart from the registrant. If an executive officer becomes a non-executive employee of a registrant during the preceding fiscal year, consider the compensation the person received during the entire fiscal year for purposes of determining whether the person is a named executive officer for that fiscal year. If the person thus would qualify as a named executive officer, disclose all of the person's compensation for the full fiscal year, i.e. compensation for when the person was an executive officer and for when the person was a non-executive employee. [Jan. 24, 2007]

217.08 A parent and its subsidiary are both Exchange Act reporting companies. Some of the executive officers of the parent may receive a portion of their compensation from the subsidiary corporation. The Division staff advised that if an executive spends 100% (or near 100%) of the executive's time for the subsidiary but is paid by the parent, then the compensation paid by the parent has to be reported in the executive compensation table of the subsidiary. However, if an allocation of the monies paid by the parent would be necessary because the executive officer splits time between the parent and the subsidiary, the payments allocable to services to the parent need not be included in the subsidiary's executive compensation table. In addition, in the event that the subsidiary pays a management fee to the parent for use of the executives, disclosure of the structure of the management agreement and fees would have to be reported under Item 404. Compensation paid by the subsidiary to executives of the parent company must be included in the parent's executive compensation table if such payments are paid directly by the subsidiary. If the payments are part of a management contract, disclosure of the structure of the management agreement and fees would have to be repo