On January 17, 2006, the Securities & Exchange Commission voted unanimously to propose rules that would significantly expand and modify executive compensation disclosure in public companies’ proxy statements, annual reports and registration statements. These rules would represent the first major overhaul of executive compensation disclosure in 14 years and would, among other things, require companies to disclose total annual compensation and estimates of change of control and termination payments for the most highly paid executives.

Styled as a “principles-based” approach, as distinguished from the prescriptive rules-based approach that currently prevails, the proposed executive compensation amendments would appear to be a natural progression of the SEC’s focus on transparency following the adoption of the Sarbanes-Oxley Act. A principal objective is providing the investment community with complete compensation information that is capable of a better “apples-to-apples” comparison among companies.

The new rules would also affect disclosure of related party transactions, director independence and other corporate governance matters, and would revise the reporting of executive compensation arrangements in current reports on Form 8-K. Companies would be required to prepare most of these new disclosures using "plain English" principles.

The following outline summarizes the anticipated rule changes - however, the full text of the proposed fules are not ready yet. We will send you a subsequent alert when the proposed rules are available.

Executive Compensation

· Overview: Four Components of Executive Compensation Disclosure

> A new " Compensation Discussion and Analysis" section.

Three-year compensation information.

Outstanding equity interests disclosure.

Retirement plan and post-employment compensation disclosure.

· New Compensation Discussion and Analysis Section

> The n ew section is an overview describing objectives and implementation of the company’s executive compensation programs and the important factors underlying each of the company’s compensation policies and decisions; it would appear at the beginning of the executive compensation disclosure section.

Replaces the current Compensation Committee Report and stock performance graph.

Would be considered “filed,” not “furnished,” for purposes of federal securities law liability (the current Compensation Committee Report and stock performance graph are only considered to be “furnished”).

· Three-Year Compensation Information for Named Executive Officers

> Set forth primarily in a rearranged and revised Summary Compensation Table that would include: (1) “total compensation,” (2) the dollar value of all stock-based awards measured at grant date fair value (computed as provided in FAS 123 R), (3) the aggregate increase in actuarial value of pension plans accrued during the year, and (4) earnings on deferred compensation that are not tax qualified.

The threshold for disclosure of “perks” would be reduced to $10,000.

The Summary Compensation Table would be supplemented by (1) a performance-based awards table and (2) an other equity awards table.

· Disclosure Regarding Outstanding Equity Interests

> One table indicating year-end outstanding equity award holdings, their values and potential values that may be received in the future.

A second table disclosing amounts realized during the last fiscal year from these interests (e.g., due to exercise or vesting).

· Retirement Plan and Post-Employment Disclosure

A table of amounts payable as of the fiscal year end under defined benefit plans.

A second table setting forth non-qualified defined contribution plan and deferred compensation plan contributions, earnings, withdrawals and balances.

The new rules would require disclosure and quantified estimates of all payments due in the event of termination, change in control or change in responsibilities (including related assumptions, as necessary).

· New “Named Executive Officers” Definition would include the principal executive officer, the principal financial officer, and the three other most highly paid executive officers.

· New Narrative Disclosure to Accompany All Tables would be required to describe the material factors necessary to an understanding of the information provided in each table.

Director Compensation. The proposed rules would require companies to provide information regarding total compensation of directors for the last fiscal year in the form of a new Director Compensation Table, comparable to the revised Summary Compensation Table for named executive officers.

Director Independence. The proposed rules would require:

· Disclosure of whether each director and director nominee is independent;

· A description of the relationships considered in the determination of whether each director or director nominee is independent (unless those relationships are otherwise disclosed); and

· Disclosure of the names of committee members (audit, compensation or nominating) who are not independent.

Related Party Transactions

· Company policies and procedures for reviewing and approving related party transactions would be required to be disclosed.

· The threshold for disclosure of related party transactions would be increased to $120,000.

· The “related person” categories would be expanded.

Corporate Governance and Other Reporting Matters

· Consolidation and Expansion of Corporate Governance Disclosure: All rules regarding corporate governance would be consolidated in a new disclosure item, and compensation committee disclosure similar to the current audit and nominating committee disclosure would be required.

· Shares Pledged by Management would have to be disclosed.

· Form 8-K Amendments would require disclosure under a single item of (1) all resignations, terminations and appointments of directors and specified officers and (2) certain employment arrangements and material amendments relating to such arrangements for named executive officers only.

For more information on these developments, please visit the SEC’s website at http://www.sec.gov/news/press/2006-10.htm , or contact us.

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The information contained in this Legal Alert is not intended as legal advice or as an opinion on specific facts. For more information about these issues, please ask your existing firm contact, or:

In Atlanta (404-815-6500): Ben Barkley, Randy Eaddy, David Eaton, Neil Falis, Rey Pascual, Jennifer Schumacher, David Stockton or Bill Vesely.

In Washington: Mark Wincek at (202) 508-5800.

In North Carolina: Lois Colbert or Betty Wren at (704) 338-5000.

The invitation to contact these attorneys is not to be construed as a solicitation for legal work in any jurisdiction in which they are not admitted to practice. Any attorney/client relationship will be confirmed in writing. You can also contact us through our Web site at http://www.kilpatrickstockton.com/ .

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