SEC Amendments Will Enhance Disclosure of Equity Compensation Plans

Washington, DC, February 8, 2002 - The Securities and Exchange Commission has adopted amendments to the disclosure requirements for proxy statements and periodic reports under the Securities Exchange Act of 1934. These amendments were originally proposed for comment by the Commission a year ago. The revised rules require registrants to disclose in their proxy statements and annual reports filed on Form 10-K certain information related to each of their equity compensation plans, regardless of whether such plans are subject to security holder approval. The revised rules also require registrants to file with the Commission copies of such plans unless immaterial in amount or significance. The adopted rule amendments apply to annual reports filed on Form 10-K for fiscal years ending on or after March 15, 2002, and proxy and information statements for meetings of, or action by, security holders occurring on or after June 15, 2002.

Under the revised rules, registrants are required to include a new table in their annual reports on Form 10-K, as well as in their proxy statements in years when a compensation plan is submitted for security holder action. The table must contain information related to:

• the number of securities to be issued upon the exercise of outstanding options, warrants and rights;
• the weighted-average exercise price of outstanding options, warrants and rights; and
• the number of securities remaining available for future issuance under each plan.

The SEC release explains that requiring plan disclosure every year in the annual report on Form 10-K is the best way to promote consistency, clarity and relevant placement of the new information. Also requiring weighted-average exercise price disclosure will facilitate investor understanding of the dilutive effect of a registrant’s equity compensation program, and enhance the visibility of exercise price information.

The release notes that instead of requiring registrants to separately identify in the table each of its equity compensation plans, as was originally proposed, the revised rules permit registrants to aggregate plan disclosure in the table in two general categories:

• equity compensation plans approved by security holders; and
• equity compensation plans not approved by security holders.

The aggregate approach avoids requiring a plan-by-plan disclosure that would be costly and burdensome to implement and duplicative of some of the information required in registrants’ financial statements.

The revised rules require registrants to file as an exhibit to their annual report on Form 10-K any equity compensation plan that was adopted during the fiscal year without security holder approval in which any employee (whether or not an executive officer or director of the registrant) participates, unless immaterial in amount or significance. The release adds that this requirement is in conjunction with the registrant’s requirement to provide narrative disclosure of the “material features” of non-security holder-approved plans. The release explains that these measures are designed to ensure that investors have access to complete information about a registrant’s principal equity compensation plans.

The Institute filed comments on the proposed amendments in April 2001.