CHOATE HALL & STEWART LLP 1 New Rules for Proxy Statement Disclosures Presentation to The National Association of Stock Plan Professionals, Boston Chapter February 4, 2010 James W. Hackett, Jr. Arthur S. Meyers John R. Pitfield Choate, Hall & Stewart LLP © 2010, Choate, Hall & Stewart LLP

CHOATE HALL & STEWART LLP 2 Agenda 1.Overview of the Rule Changes 2.Relationship between Compensation Policies and Risk 3.Reporting of Equity Awards 4.Enhanced Disclosure About Directors and Director Nominees 5.Board Leadership Structure 6.Compensation Consultants 7.Report of Voting Results on Form 8-K 8.Other Items

CHOATE HALL & STEWART LLP 3 1. Overview of Rule Changes Final rules adopted December 16, 2009 Rule changes effective February 28, 2010 –Rules apply only to companies with a fiscal year end on or after December 20, 2009 –Rules apply to a preliminary proxy filed before February 28, 2010 if the final proxy is filed on or after February 28, 2010 Smaller reporting companies still unique –No change in that CD&A still not required –New rule regarding relationship between compensation policies and risk does not apply –Otherwise, new disclosure rules do apply to smaller reporting companies

CHOATE HALL & STEWART LLP 4 2. Relationship between Compensation Policies and Risk Content –Provides information about how a company’s overall compensation policies for its employees (not limited to NEOs) create incentives that can affect risk and management of that risk –Disclosure to be principles-based, similar to CD&A –Separately, must provide disclosure about Board’s role in the company’s risk oversight Exceptions to Rule –Disclosure only required if risks arising from compensation policies or practices are “reasonably likely to have a material adverse effect on the company” Adopting release explicitly states that a company may conclude that its compensation policies and practices are not reasonably likely to have a material adverse effect on the company –Smaller reporting companies are not required to provide this new disclosure related to compensation and risk

CHOATE HALL & STEWART LLP 5 2. Relationship between Compensation Policies and Risk (cont.) Approaches to Disclosure –Silence (based on the exception) –Disclosure focused on review process –Detailed disclosure Location of Disclosure –New section of proxy, separate from CD&A –Initially, commonly suggested to place with Corporate Governance section of proxy –However, in C&DI Q&A No. 128A.01, states that, although the new rules do not specify where the risk-related disclosure should be presented, to "ease investor understanding," the SEC Staff recommends that it be presented together with the company's other Item 402 (Executive Compensation) disclosures

CHOATE HALL & STEWART LLP 6 2. Relationship between Compensation Policies and Risk (cont.) Regardless of approach taken to disclosure, rules highlight the importance of developing (or refining) framework for risk analysis –Identify persons to lead the review –Is this already part of the internal audit function? –Make a list of plans and compensation policies –What are the plan metrics? –How are the metrics determined? –What role is there for subjectivity? –Assess the connection between the plans and policies and the underlying business risks that the Company faces –Overall pay mix –Performance goal setting –Performance period –Alignment of risk and reward –Plan administration and internal controls –Adequacy of plan documents

CHOATE HALL & STEWART LLP 7 2. Relationship between Compensation Policies and Risk (cont.) Framework for risk analysis (cont.) –Determine whether compensation policies or practices create risks that are reasonably likely to have a material adverse effect on the Company –Ensure in-house counsel / outside counsel involved –Consider role of existing controls and procedures –Document the results –Develop a response for any concerns –Report to the Board –Identified risks –Sources of risk –Recommendations on how to manage risk

CHOATE HALL & STEWART LLP 8 3. Reporting of Equity Awards Location –Summary Compensation Table –Director Compensation Table Content –Disclosure of stock awards and option awards revised to require disclosure of the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718 (formerly FAS 123R) –Change from prior rule that disclosed dollar amount recognized for financial statement reporting purposes for the fiscal year in accordance with FASB ASC Topic 718

CHOATE HALL & STEWART LLP 9 3. Reporting of Equity Awards (cont.) Things to Note –Rule change will require recomputing of prior years’ results for current NEO’s –Performance based awards to be reported based on probable outcome of the performance condition(s), with maximum payout disclosed in a footnote to the applicable table Trends in Disclosure –Increasing trend to highlighting direct compensation related to fiscal period, both in numbers of shares or units, and related monetary value of awards

CHOATE HALL & STEWART LLP Enhanced Disclosure About Directors and Director Nominees Location –General proxy statement disclosure (S-K Items 401 and 407) Content –Director experience New rule requires disclosure of the particular experience, qualifications, attributes or skills that led the board to conclude that each director and director nominee should serve as a director, in light of the company’s business and structure Disclosure required even for those not up for re- election If material, disclosure should cover more than prior 5 years In C&DI Q&A No , the Staff confirms that disclosure should be provided on an individual and not a group basis –Consider placing in the context of a director’s bio –Be specific to the director’s specific experience, qualifications, attributes or skills

CHOATE HALL & STEWART LLP Enhanced Disclosure About Directors and Director Nominees (cont.) Content (cont.) –Public company directorships New rule requires disclosure of any public company directorships held at any time during the past 5 years by a director or director nominee (previously only current directorships) –Legal proceedings New rules require disclosure of involvement by director or director nominee in material legal proceedings in prior 10 years (previously prior 5 years), with an expanded list of proceedings –Diversity New rules require disclosure of whether & how a nominating committee considers diversity in identifying nominees If nominating committee has a policy, disclosure required as to how the policy is implemented and how the board assesses the effectiveness of the policy

CHOATE HALL & STEWART LLP Board Leadership Structure Location –General proxy statement disclosure (S-K Item 407) –Consider including in general Corporate Governance section of proxy statement Content –Leadership Structure New rule requires disclosure of leadership structure of the company’s board –Does the same person serve as PEO and Chair? –If so, is there a lead independent director, and what is his or her role? –Why is the leadership structure appropriate given the company’s specific characteristics or circumstances? –Risk Oversight Role New rule requires disclosure of board’s role in company’s risk oversight

CHOATE HALL & STEWART LLP Compensation Consultants Location –General proxy statement disclosure (S-K Item 407) Content –Fee disclosure New rule requires additional disclosure of fees paid to consultants when they play any role in determining or recommending the amount or form of executive and director compensation if they also provide other services to the company and the fees for those other consulting services exceed $120,000 during the company’s fiscal year –Other services New rules also require disclosure regarding –Whether the decision to engage the compensation consultant for non-executive compensation consulting services was made or recommended by management –Whether the board has approved the non- executive compensation consulting services

CHOATE HALL & STEWART LLP Compensation Consultants (cont.) Exception to disclosure requirement –Fee and related disclosure is not required about consultants that work with management if the board has its own consultant –Services involving only broad-based non- discriminatory plans or the provision of information, such as surveys, that are not customized for the company or that are customized on parameters that are not developed by the consultant are not treated as executive compensation consulting services

CHOATE HALL & STEWART LLP Report of Voting Results on Form 8-K Location –Form 8-K, new Item 5.07 Content –Voting results from shareholder meeting (AGM or otherwise) to be disclosed on Form 8-K within 4 business days of the meeting –Previously, results were not required to be reported until the filing of the next Form 10-Q or Form 10-K –If final results are not available within 4 business days, a company must file the preliminary voting results and then file an amended Form 8-K within 4 business days after the final voting results are known

CHOATE HALL & STEWART LLP Other Items to Note for 2010 Proxy Season SEC may no longer give “futures” comments –November 2009 speech by Shelley Parratt, Deputy Director, Division of Corporate Finance CD&A areas of focus: –Analysis – the “how” and the “why” –Performance Targets Disclosure of historical financial targets Where omitted, provide meaningful specificity of how difficult or likely it would be for the company or executive to achieve the undisclosed target –Example: Discuss the correlation between historical and future achievement of the relevant performance metric –Benchmarking and Peer Groups Name the peer companies and how selected Disclose where actual awards fell relative to the benchmark

CHOATE HALL & STEWART LLP Other Items to Note for 2010 Proxy Season (cont.) No more broker discretionary voting in uncontested elections NYSE (technical) corporate governance changes SEC proposed rules re eProxy (technical) changes and shareholder access are still pending “Say on pay” is coming –2010 proxy may be the last year before a mandatory advisory vote on executive compensation (“say on pay”) –Companies should view their compensation disclosure accordingly

CHOATE HALL & STEWART LLP 18 Choate, Hall & Stewart LLP Two International Place Boston, MA James W. Hackett (617) ; Arthur S. Meyers (617) ; John R. Pitfield (617) ;