Practical Guidebook To The Executive Compensation . - K&L Gates

An electronic copy of the full release can be found . A copy of the release adopting the December 2006 changes is located at Appendix B-II. An electronic copy of the December 2006 release can be found f. A registrant that qualifies as a “smaller reporting company” may provide the scaleddisclosure called for by paragraphs (m) through (r) of Item 402 instead of paragraphs (a)through (k) and (s) of such Item. See Part T. Smaller Reporting Companies. A copy of the SEC’s Compliance & Disclosure Interpretations dated July 8, 2011 regardingForm 8-K is located at Appendix S-I. An electronic copy of the compliance & disclosure interpretations which is intended to beupdated from time to time can be found kinterp.htm. A copy of the SEC’s Compliance & Disclosure Interpretations dated July 8, 2011 regardingRegulation S-K, including Items 402 and 404, is located at Appendix B-III. An electronic copy of the compliance & disclosure interpretations which is intended to beupdated from time to time may be found gs-kinterp.htm. A summary of the results of the SEC’s review of the initial executive compensationdisclosures of 350 public companies under the rules is located at Appendix B-IV. A copy of the release adopting the December 2009 changes is located at Appendix B-V. An electronic copy of the December 2009 release can be found athttp://www.sec.gov/rules/final/2009/33-9089.pdf A copy of the release adopting the January 2011 “say on pay” rules is located at Appendix VI. An electronic copy of the January 2011 release can be found athttp://www.sec.gov/rules/final/2011/33-9178.pdf. A copy of the release adopting the June 2012 compensation committee and compensationadviser rules is located at Appendix B-VII. An electronic copy of the June 2012 release can be found B-3K&L GATES LLP

Practice PointersApproach of Rules The rules continue to require tabular disclosure to permit comparability from year to year andfrom company to company and also: confirm that all elements of compensation must be disclosed; provide a new format for the Summary Compensation Table that requires disclosure of asingle figure for total compensation; and require enhanced narrative disclosure comprising both a general discussion and analysisof compensation and specific material information regarding tabular items wherenecessary to an understanding of the tabular disclosure.Principles-Based Disclosure The rules are intended to be “principles based.” For example, the CD&A requirementidentifies the basic disclosure principles (e.g., explain all material elements of a company’scompensation of its named executive officers, including all material information that isnecessary to an understanding of its compensation policies and decisions regarding thenamed executive officers) and then provides illustrative examples for guidance in applyingthe principles. As situations inevitably arise that are not contemplated by the rules, companies shouldinterpret the rules in light of their underlying principles and should not attempt to avoiddisclosure of relevant information through narrowly construed interpretations of the rules. In an important speech entitled Principles Matter given on September 6, 2006, a copy ofwhich is located at Appendix B-VI, John W. White, the Director of the SEC’s Division ofCorporation Finance, noted that: The principles-based theme runs throughout the rules and as a concept runs deeper thanjust the places expressly labeled as such in the adopting release. The rules do not provide a specific rule for every possible situation, and companies aretherefore required to keep in mind the principles behind the required disclosures. One of the basic principles of the rules is that all material elements of a company’sexecutive compensation program must be disclosed (i.e., whether or not the rulesspecifically address a particular situation, if a disclosure is required to put into context acompany’s executive compensation program, the rules require that disclosure be made).B-4K&L GATES LLP

Risk Disclosure On December 16, 2009, the SEC adopted amendments to its executive compensation andcorporate governance disclosure requirements which among other things potentially require anew narrative disclosure that describes how a company’s overall compensation policies andpractices create incentives that affect the company’s risk and management of risk. Disclosure is required if a company determines its overall compensation policies(including non-executive compensation policies) create risks that are “reasonably likely”to have a “material adverse effect” on the company. See Part U. Risk Disclosure.SEC Review The SEC expects companies to understand the rules and apply them thoroughly so anycompany that waits until it receives staff comments to comply with the disclosurerequirements should be prepared to amend its filings if it does not materially comply with therules. See Shelley Parratt, Speech by SEC Staff: Executive Compensation Disclosure:Observations on the 2009 Proxy Season and Expectations for 2010 (Nov. 9, 2009), acopy of which is located at Appendix E-VII.Say-on-Pay On January 25, 2012, the SEC adopted rules implementing the Dodd-Frank Act’s say-onpay, say-on-frequency and “golden parachute” say-on-pay requirements. See Part V. Say-on-Pay.B-5K&L GATES LLP

APPENDIX B-IIISEC Compliance & Disclosure Interpretations RegardingRegulation S-K (July 8, 2011)

Compliance and Disclosure Interpretations: Regulation S-KPage 1 of 80Home Previous PageRegulation S-KLast Update: July 8, 2011These Compliance & Disclosure Interpretations ("C&DIs") comprise theDivision's interpretations of Regulation S-K. They replace theinterpretations of Regulation S-K and Regulation S-B published in: the July 1997 Manual of Publicly Available TelephoneInterpretations;the March 1999 Interim Supplement to the Manual of PubliclyAvailable Telephone Interpretations;the November 2000 Current Issues and Rulemaking ProjectsOutline;the 2007 C&DIs on Items 201, 402, 403, 404 and 407; andthe March 2008 C&DIs on smaller reporting companies.The bracketed date following each C&DI is the latest date of publicationor revision. A number of new C&DIs have been added. For C&DIs relatingto Items 201, 402, 403, 404 and 407, as well as to smaller reportingcompanies, unless the C&DI has been revised or is a new C&DI, thebracketed date is the date on which the C&DI was last published in thesources noted above. All other C&DIs have been reviewed and, ifnecessary, updated, and are now republished as of July 3, 2008.QUESTIONS AND ANSWERS OF GENERAL APPLICABILITYSection 101. Regulation S-K — General GuidanceNoneSection 102. Item 10 — GeneralQuestion 102.01Question: Could a company with a fiscal year ended December 31, 2007be 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, forfilings due in 2008, if it was an accelerated filer with respect to filings duein 2007 and had a public float of 60 million on the last business day of itssecond fiscal quarter of 2007?Answer: Yes. A company must look to the definitions of "smaller reportingcompany" and "accelerated filer" to determine if it qualifies as a smallerreporting company and non-accelerated filer for each year. This companywill qualify as a smaller reporting company for filings due in 2008 becausefiscal year 2007 is the initial determination year for the company to ce/regs-kinterp.htm1/7/2013

Compliance and Disclosure Interpretations: Regulation S-KPage 2 of 80for smaller reporting company status, and it had less than 75 million inpublic float on the last business day of its second fiscal quarter. However,since the company was an accelerated filer with respect to filings due in2007, it is required to have less than 50 million in public float on the lastbusiness day of its second fiscal quarter in 2007 to exit accelerated filerstatus 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 60million on the last business day of its second fiscal quarter of 2007, andtherefore is unable to transition to non-accelerated filer status. As thisexample illustrates, due to the application of the transition rules foraccelerated filers, a company can be both an accelerated filer and a smallerreporting company at the same time. Such a company may use the scaleddisclosure rules for smaller reporting companies in its annual report onForm 10-K, but the report is due 75 days after the end of its fiscal year andmust include the Sarbanes-Oxley Section 404 auditor attestation reportdescribed in Item 308(b) of Regulation S-K. [July 3, 2008]Question 102.02Question: Will a company that does not qualify as a smaller reportingcompany for filings due in a particular year be able to qualify as a smallerreporting company if its public float falls below 75 million at the end of itssecond fiscal quarter in a future fiscal year?Answer: Any reporting company that can calculate its public float and didnot qualify as a smaller reporting company previously will not qualify as asmaller reporting company in the future unless its public float falls below 50 million on the last business day of its second fiscal quarter. This isprovided for in Item 10(f)(2)(iii) of Regulation S-K and follows the rule forexiting 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 inthe future. [July 3, 2008]Question 102.03Question: Under the definition of "smaller reporting company" in Item 10(f) of Regulation S-K, does the corporate parent of a majority-ownedsubsidiary have to satisfy the public float or revenue requirements of thedefinition in order for the majority-owned subsidiary to qualify as a smallerreporting company?Answer: Yes, the definition of "smaller reporting company" excludes amajority-owned subsidiary if its corporate parent does not also meet therequirements of a smaller reporting company. [July 3, 2008]Question 102.04Question: Under the definition of "smaller reporting company" in Item 10(f) of Regulation S-K, must the corporate parent of a majority-ownedsubsidiary 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 asa smaller reporting company?Answer: No. [July 3, /regs-kinterp.htm1/7/2013

Compliance and Disclosure Interpretations: Regulation S-KPage 3 of 80Question 102.05Question: A registrant discloses a financial measure or information that isnot in accordance with GAAP or calculated exclusively from amountspresented in accordance with GAAP. In some circumstances, this financialinformation may have been prepared in accordance with guidance publishedby a government, governmental authority or self-regulatory organizationthat is applicable to the registrant, although the information is not requireddisclosure by the government, governmental authority or self-regulatoryorganization. Is this information considered to be a "non-GAAP financialmeasure" for purposes of Regulation G and Item 10 of Regulation S-K?Answer: Yes. Unless this information is required to be disclosed by asystem of regulation that is applicable to the registrant, it is considered tobe a "non-GAAP financial measure" under Regulation G and Item 10 ofRegulation S-K. Registrants that disclose such information must provide thedisclosures required by Regulation G or Item 10 of Regulation S-K, ifapplicable, including the quantitative reconciliation from the non-GAAPfinancial measure to the most comparable measure calculated inaccordance with GAAP. This reconciliation should be in sufficient detail toallow a reader to understand the nature of the reconciling items. [Apr. 24,2009]Section 103. Item 101 — Description of BusinessQuestion 103.01Question: Does Item 101 require a discussion of the entry into a newsegment after the close of the fiscal year for which the Form 10-K is beingprepared?Answer: No. [July 3, 2008]Section 104. Item 102 — Description of PropertyNoneSection 105. Item 103 — Legal ProceedingsQuestion 105.01Question: Are costs anticipated to be incurred under the ComprehensiveEnvironmental Response, Compensation, and Liability Act (42 U.S.C. §9601) (otherwise known as the "Superfund" law), pursuant to a remedialagreement 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 legalproceedings involving 100,000 or more instituted by a governmentalauthority are subject to the disclosure provisions of Instruction 5(C) to Item103 of Regulation S-K, regardless of whether the money involved ischaracterized as damages (as in the Superfund cases) or fines, has beensuperseded by Footnote 30 of Release No. 33-6835 (May 18, 1989) and theletter to Thomas A. Cole (Jan. 17, 1989). Footnote 30 and the Cole letterclarify that, while there are many ways a Superfund "potential nce/regs-kinterp.htm1/7/2013

Compliance and Disclosure Interpretations: Regulation S-KPage 4 of 80sanction" may be triggered, including the stipulated penalty clause in aremedial agreement, the costs anticipated to be incurred under Superfund,pursuant to a remedial agreement entered into in the normal course ofnegotiation with the EPA, generally are not "sanctions" within Instruction 5(C) to Item 103. [July 3, 2008]Question 105.02Question: Does the reference in Instruction 5 to Item 103 to anadministrative or judicial proceeding arising under "local provisions" requiredisclosure of environmental actions brought by a foreign government?Answer: Yes. The reference in Instruction 5 to an administrative or judicialproceeding arising under "local provisions" is sufficiently broad to requiredisclosure of environmental actions brought by a foreign government. [July3, 2008]Question 105.03Question: Should a proceeding against an officer of the registrant, whichcould require the registrant to indemnify the officer for damages, beconsidered a proceeding in which the officer has a material interest adverseto the registrant that should be disclosed pursuant to Instruction 4 to Item103?Answer: The mere possibility that a registrant may be required toindemnify an officer for a material claim would not trigger disclosurepursuant to Instruction 4 to Item 103. Under state corporation law,indemnification is potentially available to any officer in any suit orproceeding in which the officer is named by reason of the fact that theperson is an officer of the registrant. Whether or not an officer's materialinterest is "adverse" to the registrant depends on the facts andcircumstances of each proceeding. [July 3, 2008]Section 106. Item 201 — Market Price of and Dividends on theRegistrant's Common Equity and Related Stockholder MattersQuestion 106.01Question: 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 tofurnish the information required under Item 201, or should the Item 201(d)disclosure be included (or incorporated by reference) in Part III of Form 10K given that Item 12 indicates that the registrant is required to furnish theinformation required under Item 201(d)?Answer: The Item 201(d) disclosure should be included in Part III, Item 12of Form 10-K. An issuer may rely on General Instruction G.3 to Form 10-Kto incorporate by reference the Item 201(d) disclosure from its proxystatement or information statement, even if the issuer did not submit acompensation plan for security holder action at its annual meeting ofsecurity holders. See American Bar Association (Jan. 30, 2004). [Mar. 13,2007]Question e/regs-kinterp.htm1/7/2013

Compliance and Disclosure Interpretations: Regulation S-KPage 5 of 80Question: Is restricted stock that has been granted subject to forfeiturepursuant 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 beengranted subject to forfeiture are neither "to be issued upon exercise ofoutstanding options, warrants and rights" (column (a)) nor "available forfuture issuance" (column (c)). If the shares of restricted stock so grantedare later forfeited, however, they would be reportable in column (c) untilgranted again. [Mar. 13, 2007]Question 106.03Question: Should shares that may be issued under performance shareawards if specified targets are met and shares that are credited as phantomshares under a deferred compensation plan be reported in column (a) ofthe Equity Compensation Plan Information table as securities to be issuedupon exercise of outstanding options, warrants and rights?Answer: Yes. Shares that may be issued under performance share awardsif specified targets are met (i.e., an award denominated in shares has beenmade, but no shares will be issued until the performance targets are met),and shares credited as phantom shares under a deferred compensation planthat will be issued as actual shares upon termination of employment, mustbe reported in column (a). A footnote to the table should describe thenature of the awards and explain that the weighted-average exercise pricein column (b) does not take these awards into account. If the number ofshares subject to these awards overstates expected dilution (such as wherethe award reflects the maximum number of shares to be awarded underbest-case targets that are unlikely to be achieved), the footnote canaddress that situation. [Mar. 13, 2007]Question 106.04Question: A company maintains an employee stock purchase plan coveredby Section 423 of the Internal Revenue Code, under which there areoutstanding rights to purchase company common stock at a floatingexercise price (85% of the lower of (i) market price at the start of thepurchase period or (ii) market price at the future close of the purchaseperiod). How should the company report the shares subject to theseoutstanding rights in the Equity Compensation Plan Information table?Answer: Shares subject to these outstanding rights should be reported incolumn (c) of the Equity Compensation Plan Information table, togetherwith other shares remaining issuable under the plan. A footnote shoulddisclose the total number

Regulation S-K, Item 402 (Executive Compensation). (a) General. (2) All compensation covered. This Item requires clear, concise and understandable disclosure of all plan and non-plan compensation awarded to, earned by, or paid to the named executive officers designated under paragraph (a)(3) of this Item, and directors