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Potential payments upon termination or change-in-control
Summary
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 Requires
narrative disclosure about
termination and change in control provisions,
including the following
- Estimated payments and benefits
- Whether lump sum or annual
- Duration of any obligations
- Who will provide payments and benefits
- Manner of determination
- Conditions to receipt of
payments or benefits
- E.g., non-compete / non-solicitation covenants
Must
cover
- Tax gross-up arrangements
- Including per IRC Section 280G
- Any enhancement or acceleration of pension
or deferred compensation benefits
- Health care benefits and perks
Must
quantify
- Based on reasonable estimates and
disclose any underlying assumptions
- Can use estimated ranges
- Should assume that the triggering event takes
place on the last business day of the companys last completed fiscal year and
that the price per share of the companys securities is the closing price on
that date
- Should quantify health care benefits based on the
assumptions the company uses for GAAP financial reporting purposes
- Perquisites may be excluded if aggregate amount
will be less than $10,000
Former
executives
- Where triggering event has occurred for named
executive officer (NEO), and such officer was not serving as NEO at end of last
completed fiscal year, disclosure may be limited to that triggering event
Non-discriminatory
arrangements
- No disclosure required for arrangements that do
not discriminate in favor of executive officers and that are generally available
to all salaried employees
Forward-looking
statements
- The estimates included in this disclosure will
constitute forward-looking statements entitled to the safe harbors for such
information
Cross-references
- Can refer to
the pension benefits table or
the deferred compensation table
and related
narrative disclosure
- If sufficiently disclosed therein
New
requirement per
SEC Release 33-8732
2006
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S-K 402(j)
Rule
- (j)(1)
Payment triggers
- (j)(2)
Estimated payments
- (j)(3)
How payments are determined
- (j)(4)
Conditions to payment (e.g., non-compete)
- (j)(5)
Other material factors
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Instructions
- Instr 1
Quantitative disclosures required
- Instr 2
Perquisites
- Instr 3
Pensions, deferred compensation
- Instr 4
Recent NEOs
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Instr 5
Items generally available to salaried employees
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SEC Releases
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Final
release 33-8732 Aug 2006
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SEC FAQs
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S-K
Item 402 FAQs
- These FAQs were last updated 8.08.07
- Supersede old S-K 402 FAQs in 1997 Telephone
Manual
and its March 1999 Supplement
- See S-K 402 FAQs
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Select Precedent Disclosures 2008
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 SEC
comment letters:
SEC staff review of 2007 executive pay disclosures
 Amazon.com
- 2007 Proxy Statement
- no arrangements for additional payments or
benefits in connection with termination of employment or change-in-control of
the company
- only potential benefit is accelerated vesting of
outstanding unvested equity awards in the event of a change of control of the
company
- Company
response
9.21.07
The Company believes that cross-referencing the dollar amounts that appear in footnotes to the Outstanding Equity Awards table satisfies the requirements of Item 402(j)(2), is consistent with well-established practice that generally allows disclosure obligations to be satisfied by cross-reference instead of by repetition and presents the required information in a context that is clear and concise.
- SEC
clearance letter 1.17.08
-
2008 Proxy Statement
pending
- April 2008
Select
Proxy and Other 1934 Act Filings
- Notable for plain English
- No employment contracts
- Disclosure includes total amount of payments upon
termination or change in control
- With and without amounts from accelerated vesting
of stock options
- Double trigger for severance benefits
- Retention agreements with John P. Mackey and
Glenda Chamberlain
- Concise presentation in single table for payments
under several different scenarios: voluntary / for cause; not for cause; change
in control
- Separate tables for termination with and without
change in control
- Read together with CD&A
disclosure on Severance and Change of Control Compensation page 44
- All executive officers are employed "at will"
- Executives must waive any money payable under
various retention agreements in order to collect benefits under company's
Executive Severance Plan
- No gross-ups of excise tax values under IRC
Section 4999
- Read together with
CD&A
disclosure on
Severance and Change-in-Control Benefits page 31
- Continuity Plan amended and restated in 2007
with double trigger severance benefits page 43
- Discretionary grant of other severance benefits page 43
- Narrative that precedes table provides notable
detail
on Quantification of Termination of Benefits page 45
- Separate table for each NEO, with column totals
- Separate table for each termination scenario
- However, column totals are not provided (and
would be helpful to reader)
- Reports potential payments and forfeitures under
various termination scenarios, highlighting forfeitures upon termination for
cause and voluntary termination
- Notable narrative and tabular disclosure of
termination payments 6 termination scenarios
- Very detailed disclosure on termination and
change-in-contol arrangements
- Narrative and tabular disclosures for various
scenarios
- Plan provisions generally applicable to all plan
participants, not just NEOs
- Employment and severance agreements are not used
frequently
- Read together with
CD&A
disclosure on
U.S. Retirement Plans and Other Benefits pages 34 -35
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Select Precedent Disclosures 2007
SEC_CODE_REF_0090001192884
Related Topics
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