On July 1, the Securities and Exchange Commission approved the NASDAQ Stock Market LLC’s proposed Rule 5250(b)(3) (Rule), which requires listed companies to publicly disclose the material terms of all agreements and arrangements between any director or nominee and any person or entity other than the company (Third Party) relating to compensation or other payment in connection with such person’s candidacy or service as a director. The Rule requires that such disclosure may be made either on the issuer’s website, which may include hyperlinking (as long as such website or hyperlink is continuously available), or in a proxy statement or information statement for any shareholders’ meeting at which directors are elected (or, if such company does not file proxy or information statements, on Form 10-K or Form 20-F).

Under the Rule, the terms “compensation” and “other payment” are intended to be construed broadly and apply to agreements and arrangements that provide for non-cash compensation and other payment obligations, such as health insurance premiums or indemnification. The issuer is not, however, required to disclose pursuant to the Rule agreements and arrangements that: (1) relate only to the reimbursement of expenses in connection with candidacy as a director; (2) existed prior to the nominee’s candidacy (including as an employee of the Third Party), so long as the nominee’s relationship with the Third Party has been publicly disclosed in a proxy or information statement or annual report; or (3) for purposes of the issuer’s initial disclosure obligation only (as opposed to the ongoing annual disclosure requirement discussed below), have been disclosed pursuant to Item 5(b) of Schedule 14A of the Securities Exchange Act of 1934 (Exchange Act) (i.e., by a party engaging in a proxy contest) or Item 5.02(d)(2) of Form 8-K in the issuer’s current fiscal year.

Issuers will have to disclose the agreements and arrangements in accordance with the Rule by no later than the date on which the issuer files or furnishes a proxy or information statement subject to Regulation 14A or 14C under the Exchange Act in connection with the issuer’s next shareholders’ meeting at which directors are elected (or, if the issuer does not file proxy or information statements, no later than when it files its Form 10-K or Form 20-F). The Rule also requires that issuers make such disclosure at least annually until the earlier of the resignation of the director or one year following the termination of the agreement or arrangement.

If an issuer discovers an agreement or arrangement that should have been disclosed pursuant to the Rule, it must promptly make the required disclosure by filing a Form 8-K or by issuing a press release. The Rule states that an issuer shall not be considered deficient with respect to such disclosure under the Rule if the issuer has undertaken reasonable efforts to identify all such agreements or arrangements, including asking each director or nominee in a manner designed to allow timely disclosure, and made such disclosure upon discovery of the agreement or arrangement.

Companies should consider updating their director and officer questionnaires to elicit the relevant information.

Rule 5250(b)(3) will become effective on July 31.

The SEC’s order approving the Rule can be found here.