Item 201 of Regulation S-K — Market Price of and Dividends on the Registrant’s Common Equity and Related Shareholder Matters

Last Update: March 13, 2007

These interpretations replace the Item 201 of Regulation S-K interpretation, as well as certain of the Item 402 of Regulation S-K interpretations, in the July 1997 Manual of Publicly Available Telephone Interpretations. Some of the interpretations included herein were originally included in the Manual of Publicly Available Telephone Interpretations (as supplemented), and have been revised in some cases. The bracketed date following each interpretation is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 1. Item 201(a) — Market information

None

Section 2. Item 201(b) — Holders

None

Section 3. Item 201(c) — Dividends

None

Section 4. Item 201(d) — Securities authorized for issuance under equity compensation plans

Question 4.01

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 interpretive letter to American Bar Association (Jan. 30, 2004). [March 13, 2007]

Question 4.02

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. [March 13, 2007]

Question 4.03

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. [March 13, 2007]

Question 4.04

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. [March 13, 2007]

Question 4.05

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. [March 13, 2007]

Section 5. Item 201(e) – Performance graph

Question 5.01

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. [March 13, 2007]

Question 5.02

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. [March 13, 2007]

Question 5.03

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

Answer: Yes. [March 13, 2007]

Question 5.04

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. [March 13, 2007]

Question 5.05

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). [March 13, 2007]

Question 5.06

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. [March 13, 2007]

Question 5.07

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. [March 13, 2007]

INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS

Section 1. Item 201(a) — Market information

None

Section 2. Item 201(b) — Holders

None

Section 3. Item 201(c) — Dividends

None

Section 4. Item 201(d) — Securities authorized for issuance under equity compensation plans

4.01   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. [March 13, 2007]

4.02   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. [March 13, 2007]

4.03   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. [March 13, 2007]

4.04   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. [March 13, 2007]

Section 5. Item 201(e) – Performance graph

5.01   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. [March 13, 2007]

5.02   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. [March 13, 2007]

5.03   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. [March 13, 2007]

5.04   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. [March 13, 2007]

5.05   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. [March 13, 2007]

5.06   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. [March 13, 2007]

5.07   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. [March 13, 2007]

5.08   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. [March 13, 2007]

5.09   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. [March 13, 2007]

5.10   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 March 2006. The measurement period for the graph is from March 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. [March 13, 2007]

5.11   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). [March 13, 2007]

http://www.sec.gov/divisions/corpfin/guidance/execcomp201interp.htm