Release No. 33-8732A Release No. 34-54302A Release No. IC-27444A

Securities and Exchange Commission

Executive Compensation and Related Person Disclosure
Section III.

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

As part of our broader effort to revise our executive and director compensation disclosure requirements, we proposed revisions to Item 1.01 of Form 8-K. This item requires real-time disclosure about an Exchange Act reporting companys entry into a material definitive agreement outside of the ordinary course of the companys business, as well as any material amendment to such an agreement. Our staffs experience since Item 1.01 became effective in 2004 suggests that this item has elicited executive compensation disclosure regarding types of matters that do not appear always to be unquestionably or presumptively material, which is the standard we set for the expanded Form 8-K disclosure events.³⁷⁶ We therefore proposed to revise Items 1.01 and 5.02 of Form 8-K to require real-time disclosure of employee compensation events that more clearly satisfy this standard. We are adopting the revisions substantially as proposed.

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

A. Items 1.01 and 5.02 of Form 8-K

Item 1.01 of Form 8-K requires an Exchange Act reporting company to disclose, within four business days, the companys entry into a material definitive agreement outside of its ordinary course of business, or any amendment of such agreement that is material to the company.When we initially proposed this item, several commenters stated that it would be difficult to determine, within the shortened Form 8-K filing period, whether a particular definitive agreement met the materiality threshold of Item 1.01, and whether the agreement was outside of the ordinary course of business.³⁷⁷ Some of these commenters suggested that we apply to Item 1.01 the standards used in pre-existing Item 601(b)(10) of Regulation S-K, which governs the filing as exhibits to Commission reports of material contracts entered into outside the ordinary course, because these standards had been in place for many years and were familiar to reporting companies.³⁷⁸

In response to the concerns raised by these comments, we adopted Item 1.01 of Form 8-K so that it uses the standards of Item 601(b)(10) to determine the types of agreements that are material to a company and not in the ordinary course of business. Item 601(b)(10) of Regulation S-K requires a company to file, as an exhibit to Securities Act and Exchange Act filings, material contracts that are not made in the ordinary course of business and are to be performed in whole or part at or after the filing of the registration statement or report, or were entered into not more than two years before the filing. Item 601(b)(10)(iii) refers specifically to employment compensation arrangements and established a companys obligation to file the following as exhibits:

• any management contract or any compensatory plan, contract or arrangement, including but not limited to plans relating to options, warrants or rights, pension, retirement or deferred compensation or bonus, incentive or profit sharing (or if not set forth in any formal document, a written description thereof) in which any director or any named executive officer (as defined by Item 402(a)(3) of Regulation S-K) participates;
• any other management contract or any other compensatory plan, contract, or arrangement in which any other executive officer of the company participates, unless immaterial in amount or significance; and
• any compensation plan, contract or arrangement adopted without the approval of security holders pursuant to which equity may be awarded, including, but not limited to, options, warrants or rights in which any employee (whether or not an executive officer of the company) participates unless immaterial in amount or significance.³⁷⁹

Therefore, entry into these types of contracts triggered the filing of a Form 8-K within four business days. Importantly, the requirement for directors and named executive officers does not include an exception for those that are immaterial in amount or significance. The incorporation of the Item 601(b)(10) standards into Item 1.01 of Form 8-K has therefore significantly affected executive compensation disclosure practices. Prior to the Form 8-K amendments in 2004, it was customary for a companys annual proxy statement to be the primary vehicle for disclosure of executive and director compensation information. However, Item 1.01 of Form 8-K as originally adopted has resulted in executive compensation disclosures that are much more frequent and accelerated than those included in a companys proxy statement. In addition, particularly because of the terms of Item 601(b)(10), Item 1.01 of Form 8-K triggered compensation disclosure of the types of matters that, in some cases, appear to have fallen short of the unquestionably or presumptively material standard associated with the expanded Form 8-K disclosure items. Companies and their counsel have raised concerns that the expanded Form 8-K requirements have resulted in real-time disclosure of compensation events that should be disclosed, if at all, in a companys proxy statement for its annual meeting or as an exhibit to the companys next periodic report, such as the Form 10-Q or Form 10-K.

As we stated in the Proposing Release, we believe that much of the disclosure regarding employment compensation matters required in real-time under the Form 8-K requirements is viewed by investors as material. However, we also believe it is appropriate to restore a more balanced approach to this aspect of Form 8-K, an approach which is designed to elicit unquestionably or presumptively material information on a real-time basis, but seeks to limit Form 8-K required disclosure of information below that threshold.

Accordingly, we are adopting amendments to Form 8-K that will uncouple Item 601(b)(10)(iii) of Regulation S-K from the current disclosure requirements of Form 8-K. As proposed, we are eliminating employment compensation arrangements from the scope of Item 1.01 altogether and expanding Item 5.02 to cover only those compensatory arrangements with executive officers and directors that we believe are unquestionably or presumptively material. Commenters generally supported these proposed amendments.³⁸⁰ We are adopting these amendments substantially as proposed.

1. Item 1.01- Entry into a Material Definitive Agreement

Specifically, we are deleting the last sentence of former Instruction 1 to Item 1.01 of Form 8-K, which references the portions of Item 601(b)(10) of Regulation S-K that specifically relate to management compensation and compensatory plans.In place of the deleted sentence, we are adding a sentence specifying that agreements involving the subject matter identified in Item 601(b)(10)(iii)(A) and (B) of Regulation S-K need not be disclosed under amended Item 1.01 of Form 8-K. This change also will apply to the disclosure of terminations of material definitive agreements under Item 1.02 of Form 8-K, which references the definition of material definitive agreement in Item 1.01 of Form 8-K.³⁸¹ Instead of being required to be disclosed based on the general requirements with regard to material definitive agreements in Item 1.01 and Item 1.02 of Form 8-K, employment compensation arrangements will now be covered under Item 5.02 of Form 8-K, as amended.

2. Item 5.02 - Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

Item 5.02 generally requires disclosure within four business days of the appointment or departure of directors and specified officers. In particular, Item 5.02(b) has required disclosure if a companys principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer, or any person performing similar functions, retires, resigns or is terminated from that positionand Item 5.02(c) has required disclosure if a company appoints a new principal executive officer, president, principal financial officer, principal accounting officer, principal operating officer, or any person performing similar functions. Item 5.02 has also required disclosure if a director retires, resigns, is removed, or declines to stand for re-election.³⁸² Before adopting todays amendments, the required disclosure under Item 5.02 included a brief description of the material terms of any employment agreement between the company and the officer and a description of disagreements, if any.

As proposed, we are modifying Item 5.02 to capture generally the information already required under that item, as well as additional information regarding material employment compensation arrangements involving named executive officers that, prior to todays amendments, would be called for under Item 1.01.

With respect to the additional disclosure that we are requiring for named executive officers under amended Item 5.02, one commenter noted that because the definition of named executive officer is determined with reference to a companys last completed fiscal year, greater clarity is needed to determine how the standard should be applied for current Form 8-K reporting throughout the year.³⁸³ The commenter suggested that companies might find it difficult to identify their named executive officers for purposes of real-time disclosure under Item 5.02 during the period following the completion of their last fiscal year but prior to preparing their proxy statements or Forms 10-K in the new fiscal year. Accordingly, we are including a new Instruction to Item 5.02 that will clarify that for purposes of this Item the named executive officers are the persons for whom disclosure was required in the most recent filing with the Commission that required disclosure under Item 402(c) of Regulation S-K or Item 402(b) of Regulation S-B, as applicable.³⁸⁴

In general, our revisions to Form 8-K will both modify the overall requirements for disclosure of employment compensation arrangements on Form 8-K and locate all such disclosure under a single item. We are accomplishing this by taking the following steps:

• Expanding the information regarding retirement, resignation or termination to include all persons falling within the definition of named executive officers for the companys previous fiscal year, whether or not included in the list specified in Item 5.02 prior to these amendments;³⁸⁵
• Expanding the disclosure items covered under Item 5.02 beyond employment agreements to require a brief description of any material plan, contract or arrangement to which a covered officer or director is a party or in which he or she participates that is entered into or materially amended in connection with any of the triggering events specified in Item 5.02(c) and (d), or any grant or award to any such covered person, or modification thereto, under any such plan, contract or arrangement in connection with any such event;³⁸⁶
• With respect to the principal executive officer, the principal financial officer, or persons falling within the definition of named executive officer for the companys previous fiscal year, expanding the disclosure items to include a brief description of any material new compensatory plan, contract or arrangement, or new grant or award thereunder (whether or not written), and any material amendment to any compensatory plan, contract or arrangement (or any modification to a grant or award thereunder), whether or not such occurrence is in connection with a triggering event specified in Item 5.02. Grants or awards or modifications thereto will not be required to be disclosed if they are consistent with the terms of previously disclosed plans or arrangements and they are disclosed the next time the company is required to provide new disclosure under Item 402 of Regulation S-K;³⁸⁷ and
• Adding a requirement for disclosure of salary or bonus for the most recent fiscal year that was not available at the latest practicable date in connection with disclosure under Item 402 of Regulation S-K.³⁸⁸ This disclosure will also require a new total compensation recalculation to reflect the new salary or bonus information.

In the case of each of these disclosure items for amended Item 5.02, we emphasize that we are requiring that a brief description of the specified matter be included. We have observed that in response to the requirements to disclose the entry into material definitive agreements under Item 1.01, some companies have included disclosure that resembles an updating of the disclosure required under former Item 402 of Regulation S-K. In the context of current disclosure under Form 8-K, we are seeking disclosure that informs investors of specified material events and developments. However, the information we are seeking does not require the information necessary to comply with Item 402.

In response to comments received,³⁸⁹ we have revised Instruction 2 to new Item 5.02(e) from the text we proposed and created a new Item 5.02(f), of Form 8-K, as described above. The revised Instruction 2 to Item 5.02(e) that we are adopting: (i) changes or eliminates prior references to original terms and uses instead the phrase previously disclosed terms, in order to minimize ambiguity; and (ii) clarifies that, for purposes of the Instruction, no distinction should be made between awards granted under cash or equity-based plans. New Item 5.02(f) responds to comments we received that our proposed Instruction 3 to 5.02(e) should be codified as a separate item because it called for disclosure (determining salary or bonus amounts for a completed fiscal year) that otherwise may not be required under Item 5.02(e).³⁹⁰

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

We are extending the safe harbors regarding Section 10(b) and Rule 10b-5 and Form S-3 eligibility in the event that a company fails to timely file reports required by Item 5.02(e) of Form 8-K.

In March 2004, we adopted a limited safe harbor from liability under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder for failure to timely file reports required by Form 8-K Items 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a) and 6.03. Because we believed that these items may require management to make rapid materiality and similar judgments within the condensed timeframe required for filing of a Form 8-K, we established a safe harbor that applies until the filing due date of the companys quarterly or annual report for the period in question. We concluded that the risk of liability under these provisions for the failure to timely file was disproportionate to the benefit of real-time disclosure and therefore justified the need for a limited safe harbor of a fixed duration. For the same reasons, we believe that the safe harbor should also extend to Item 5.02(e) of Form 8-K. We therefore are amending Exchange Act Rules 13a-11(c) and 15d-11(c) accordingly.

In addition, a company forfeits its eligibility to use Form S-3 if it fails to timely file all reports required under Exchange Act Section 13(a) or 15(d) during the 12 month period prior to filing of the registration statement.³⁹¹ For the same reasons, when adopting the expanded Form 8-K rules in 2004, we revised the Form S-3 eligibility requirements so that a company would not lose its eligibility to use Form S-3 registration statements if it failed to timely file reports required by the Form 8-K items to which the Section 10(b) and Rule 10b-5 safe harbor applies.³⁹² In particular, the burden resulting from a companys sudden loss of eligibility to use Form S-3 could be a disproportionately large negative consequence of an untimely Form 8-K filing under one of the specified items.³⁹³ We believe that this safe harbor should be extended to Item 5.02(e) of Form 8-K and, therefore, we are amending General Instruction I.A.3.(b) of Form S-3, which pertains to the eligibility requirements for use of Form S-3 to reflect this position.

C. General Instruction D to Form 8-K

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

D. Foreign Private Issuers

We are amending the exhibit instructions so that foreign private issuers will be required to file an employment or compensatory plan with management or directors (or portion of such plan) only when the foreign private issuer either is required to publicly file the plan (or portion of it) in its home country or if the foreign private issuer has otherwise publicly disclosed the plan.³⁹⁴

Under Item 6.B.1 of Form 20-F, a foreign private issuer must disclose the compensation of directors and management on an aggregate basis and, additionally, on an individual basis, unless individual disclosure is not required in the issuers home country and is not otherwise publicly disclosed by the foreign private issuer. Under the exhibit instructions prior to our amendments, management contracts or compensatory plans in which directors or members of management participate generally were required to be filed as exhibits, unless the foreign private issuer provided compensation information on an aggregate basis and not on an individual basis. Under those pre-amendment provisions, an issuer that provided any individualized compensation disclosure was required to file as an exhibit to Form 20-F management employment agreements that potentially relate to matters that have not otherwise been disclosed.

Our amendment of the exhibit instructions³⁹⁵ is intended to be consistent with the existing disclosure requirements under Form 20-F relating to executive compensation matters for foreign private issuers. In the same way that executive compensation disclosure under Form 20-F largely mirrors the disclosure that a foreign private issuer makes under home country requirements or voluntarily, so too the public filing of management employment agreements as an exhibit to Form 20-F under our amendments will mirror the public availability of such agreements under home country requirements or otherwise. In addition, we believe that the amendments may encourage foreign private issuers to provide more compensation disclosure in their filings with the Commission by eliminating privacy concerns associated with filing an individuals employment agreement when such agreement is not required to be made public by a home country exchange or securities regulator. As foreign disclosure related to executive remuneration varies in different countries but continues to improve,³⁹⁶ the revisions recognize that trend and provide for greater harmonization of international disclosure standards with respect to executive compensation in a manner consistent with other requirements of Form 20-F.

³⁷⁶ We stated in Section I of Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date, Release No 33-8400 (Mar. 16, 2004) [69 FR 15594] (the Form 8-K Adopting Release): The revisions that we adopt today will benefit markets by increasing the number of unquestionably or presumptively material events that must be disclosed currently.

³⁷⁷ See, e.g., letters on Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date, Release No. 33-8106 (June 17, 2002) [67 FR 42914] in File No. S7-22-02 from the Committee on Federal Regulation of Securities, Section of Business Law of the American Bar Association, dated September 12, 2002; Cleary, Gottlieb, Steen & Hamilton, dated August 26, 2002; Intel Corporation, dated August 26, 2002; Professor Joseph A. Grundfest, et al, dated October 3, 2002; Perkins Coie LLP, dated August 26, 2002; Shearman & Sterling, dated August 30, 2002; and Sullivan & Cromwell, dated August 26, 2002.

³⁷⁸ See, e.g., letter in File No. S7-22-02 from the Section of Business Law of the American Bar Association.

³⁷⁹ Item 601(b)(10)(iii) of Regulation S-K. We note the provision in Item 601(b)(10)(iii)(A) that carves out any plan, contract or arrangement in which named executive officers and directors do not participate that is immaterial in amount or significance. In 1980, the Commission adopted amendments to Regulation S-K that consolidated all of the exhibit requirements of various disclosure forms into a single item in Regulation S-K. Amendments Regarding Exhibit Requirements, Release No. 33-6230 (Aug. 27, 1980) [45 FR 58822], at Section II.B. This item was a forerunner of the current Item 601. As part of that 1980 adopting release, the definition of material contract contained in the new item was also revised in an effort to reduce the number of remunerative plans or arrangements that must be filed. Not long after, though, the staff discovered that rather than reduce the number of exhibits filed, the provision actually had the opposite effect. The staff found that the revised definition of material contract has resulted in registrants filing a large volume of varied remunerative contracts involving directors and executive officers, contracts which are not material and which would not have been filed under the previously existing material in amount or significance standard. Technical Amendment Regarding Exhibit Requirement, Release No. 33-6287 (Feb. 6, 1981) [46 FR 11952], at Section I. Therefore, in February 1981, the Commission added unless immaterial in amount or significance to the definition of material contracts as applied to remunerative plans, contracts or arrangements participated in by executives who are not named executive officers. Id. We reiterate that this phrase was intended to indicate that whether plans, contracts or arrangements in which executive officers other than named executive officers participate are required to be disclosed under Item 601(b)(10) must be determined on the basis of materiality.

³⁸⁰ See, e.g., letters from ABA; Chamber of Commerce; N. Ludgus; Committee on Securities Regulation of the Business Law Section of the New York State Bar Association; SCSGP; and Sullivan.

³⁸¹ Item 1.02(b) states: For purposes of this Item 1.02, the term material definitive agreement shall have the same meaning as set forth in Item 1.01(b).

³⁸² Items 5.02(a) and (b) of Form 8-K.

³⁸³ See letter from ABA.

³⁸⁴ Instruction 4 to Item 5.02.

³⁸⁵ Item 5.02(b) of Form 8-K will continue to cover the officers currently specified therein, whether or not named executive officers for the previous or current years, and all directors.

³⁸⁶ Items 5.02(c)(3) and (d)(5). Plans, contracts or arrangements (but not material amendments or grants or awards or modifications thereto) may be denoted by reference to the description in the companys most recent annual report on Form 10-K or proxy statement.

³⁸⁷ Item 5.02(e) and Instruction 2 to Item 5.02(e).

³⁸⁸ Item 5.02(f). See Section II.C.1.b. above for a discussion of the reporting delay that exists under the current disclosure rules when bonus and salary are not determinable at the most recent practicable date.

³⁸⁹ See letter from ABA.

³⁹⁰ See letter from ABA.

³⁹¹ General Instruction I.A.3 to Form S-3.

³⁹² Form 8-K Adopting Release, at Section II.E.

³⁹³ Id.

³⁹⁴ We are also making a similar revision to Item 601(b)(10)(iii)(C)(5) of Regulation S-K.

³⁹⁵ New Instruction 4(c)(v) to Exhibits to Form 20-F.

³⁹⁶ Many jurisdictions now require or encourage disclosure of executive compensation information. For example, enhanced disclosure of executive remuneration is included as part of the European Commissions 2003 Company Law Action Plan. See Guido Ferrarini and Niamh Moloney, Executive Remuneration in the EU: The Context for Reform, European Corporate Governance Institute, Law Working Paper N. 32/2005 (April 2005).