By Cydney Posner

As expected, the SEC has just posted a brief set of FAQs related to the executive comp and related-person disclosure transition rules, focusing primarily upon early adoption. http://www.sec.gov/divisions/corpfin/faqs/execcompqa.pdf

Effective Date of the New Rules

  • The new rules became effective on November 7, 2006, and the release includes a detailed discussion of the compliance dates and transition rules. Early compliance is not permitted with regard to any of the new rules prior to November 7, 2006.
Early Compliance with the New Rules
  • A company with a September 30, 2006 fiscal year end filing its 2006 Form 10-K or IPO Form S-1 registration statement on December 14, 2006, may comply with either the new rules or the old rules.
  • Companies that early adopt must comply with all of the new rules in their Forms 10-K and S-1s, including Reg. S-K Items 402, 404 and 407.
  • The new rules’ transition provisions state that a company will not be required to restate compensation or related-person transaction disclosure for fiscal years for which the company previously was required to apply the old rules. As a result, an early adopter complying with the new rules for the first time would need to include a Summary Compensation Table under the new rules showing only the last year of compensation. For example, an early adopting company with a September 30 fiscal year end filing on December 14, 2006 would need to disclose in the SCT only compensation for 2006. For its 2007 Form 10-K, the company would be required to include disclosure in the SCT for both fiscal 2006 and 2007; it may not omit information that has already been disclosed in compliance with the new rules.
  • A company with a September 30 fiscal year end that files a Form S-1 for an IPO on March 15, 2007 would still be permitted to comply with the new rules or the old rules (because the new rules apply to disclosure for fiscal years ending on or after December 15, 2006).
  • A company with a December 31, 2006 fiscal year end that files a Form S-1 for an IPO on December 14, 2006 and complies with the old rules will be required to comply with the new rules in any pre-effective amendment to the registration statement it files after the end of its fiscal year. The SCT in the amendment would need to only contain one year of disclosure. If, however, the company had early adopted and voluntarily complied with the new rules for its 2005 disclosure, a pre-effective amendment filed after the end of its fiscal year must include disclosure for both fiscal 2005 and 2006 under the new rules. Both years would be required because registration statements for IPOs are required to contain only one year of compensation disclosure in the SCT unless the information for prior periods has previously been disclosed.

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