---------------------------------------------------------------------------

    \201\ See, e.g., letters from Davis Polk, PGGM, and WorldatWork.
    \202\ See, e.g., letters from Davis Polk, Society of Corp. Sec.,
and Wachtell.
    \203\ See, e.g., letters from Compensia, Davis Polk,
McGuireWoods, PM&P, and Sullivan.
---------------------------------------------------------------------------

ii. Comments on the Elements of Compensation and Presentation of the
Proposed Item 402(t) Table
    As proposed, Item 402(t) would not have any de minimis exceptions
for compensation below a certain dollar threshold and would not require
disclosure of previously vested equity and pension benefits. Some
commentators urged that Item 402(t) should have de minimis exceptions,
like Item 402(j),\203\ because, in their view, the exclusion of such
immaterial amounts would not be inconsistent with Section 14A(b)(1)'s
requirement to

disclose the total amount of golden parachute compensation.\204\ In
addition, some commentators asserted that we should amend Item 402(j)
rather than propose a new Item 402(t).\205\
---------------------------------------------------------------------------

    \204\ See letter from Compensia.
    \205\ See, e.g., letters from Business Roundtable and Meridian.
---------------------------------------------------------------------------

    Most commentators agreed with the proposed approach to omit
previously vested equity and pension benefits from the table,\206\ as
including such amounts in the table could lead to confusion by
overstating the total compensation.\207\ Other commentators, however,
recommended that such compensation be disclosed in the table \208\ to
make the compensation disclosure more comprehensive.\209\
---------------------------------------------------------------------------

    \206\ See, e.g., letters from ABA, Center on Exec. Comp., Davis
Polk, FSR, ICGN, NACD, Pfizer, PM&P, Protective Life, and
WorldatWork.
    \207\ See letter from ABA.
    \208\ See, e.g., letters from Barnard, Glass Lewis, PGGM, and
Senator Levin.
    \209\ See, e.g., letter from Glass Lewis.
---------------------------------------------------------------------------

    A number of commentators also requested various other changes to
the proposed table. Some commentators argued that issuers should have
more flexibility in drafting the table to fit their individual
circumstances,\210\ or that issuers should be permitted to
differentiate between cash severance compensation and cash amounts for
outstanding awards that have been accelerated.\211\ With respect to
employment agreements, most commentators supported our proposed
approach to exclude disclosure of employment agreements from the Item
402(t) table,\212\ though some commentators argued that such employment
agreements should be quantified and included in the tabular disclosure
to provide more comprehensive disclosure.\213\ A number of commentators
supported the footnote identification of amounts of ``single-trigger''
and ``double-trigger'' \214\ compensation elements,\215\ with some
commentators recommending that the disclosure be included in the main
text rather than in footnotes if an issuer believes it would be useful
to the presentation.\216\ One commentator, however, indicated that
identification of single-trigger and double-trigger elements should not
be required as it believed this disclosure would not be useful to
investors.\217\
---------------------------------------------------------------------------

    \210\ See letter from ABA.
    \211\ See letter from Towers Watson.
    \212\ See, e.g., letters from ABA, Center on Exec. Comp.,
Compensia, Davis Polk, Frederic Cook, FSR, Hermes, and PGGM.
    \213\ See, e.g., letters from Glass Lewis, NACD, and PIRC.
    \214\ A ``double-trigger'' arrangement requires that the
executive's employment be terminated without cause or that the
executive resign for good reason within a limited period of time
after the change-in-control to trigger payment. A ``single-trigger''
arrangement does not require such a termination or resignation after
the change-in-control to trigger payment.
    \215\ See, e.g., letters from CalPERS, CII, FSR, Hermes, ICGN,
and PGGM.
    \216\ See, e.g., letters from ABA and NACD.
    \217\ See letter from Protective Life.
---------------------------------------------------------------------------

    We also requested comment with respect to the appropriate
measurement for issuer stock price for tabular disclosure in proxy
statements for mergers or similar transactions. A number of
commentators agreed with our proposed approach to calculate such
amounts based on the issuer's share price as of the latest practicable
date,\218\ though many other commentators suggested that the share
price contemplated by the deal should be used, if available,\219\ with
an alternative to use the average closing price over the first five
business days following public announcement of the transaction.\220\
One commentator expressed a concern that the share price as of the
latest practicable date could lead to potential gaming of the price by
issuers.\221\
---------------------------------------------------------------------------

    \218\ See, e.g., letters from ABA, Center on Exec. Comp., and
ICGN.
    \219\ See, e.g., letters from Davis Polk, PM&P, and Sullivan.
    \220\ See letter from PGGM.
    \221\ See letter from PGGM.
---------------------------------------------------------------------------

iii. Comments on Individuals Subject to Item 402(t) Disclosure
    Some commentators indicated that requiring disclosure under Item
402(t) of a broader group of individuals than is required by Exchange
Act Section 14A(b)(1) would be potentially confusing to investors \222\
as such disclosure goes beyond the requirements of Section 14A and
could lead to as many as three separate tables.\223\ Different
commentators supported disclosure of the broader group of individuals
\224\ in order to provide the full picture of compensation being
received in connection with the transaction.\225\
---------------------------------------------------------------------------

    \222\ See, e.g., letters from Center on Exec. Comp., Davis Polk,
FSR, NACD, Pfizer, PGGM, Protective Life, Towers Watson, Wachtell,
Lipton, Rosen & Katz (``Wachtell''), and WorldatWork.
    \223\ See letter from Davis Polk.
    \224\ See, e.g., letters from CalPERS, ICGN, PIRC, and Senator
Carl Levin (``Senator Levin'').
    \225\ See letter from PIRC.
---------------------------------------------------------------------------

    Most commentators supported the proposal that issuers would not be
required to include Item 402(t) information with respect to individuals
who would have been among the most highly compensated executive
officers but for the fact that they were not serving as an executive
officer at the end of the last completed fiscal year.\226\ One
commentator, however, argued that issuers should be permitted to
include disclosure of the compensation of such individuals to conform
to the presentation of compensation in prior filings and that we should
clarify that the named executive officers subject to Item 402(t) is
determined in the same manner as under Item 5.02(e) of Form 8-K.\227\
---------------------------------------------------------------------------

    \226\ See, e.g., letters from Davis Polk, ICGN, PGGM, and PM&P.
    \227\ See letter from ABA.
---------------------------------------------------------------------------

iv. Comments on Item 402(t) Disclosure in Annual Meeting Proxy
Statements
    In the Proposing Release, we did not propose requiring Item 402(t)
disclosure in annual meeting proxy statements. Most commentators agreed
that the proposed Item 402(t) narrative and tabular disclosure should
not be required in annual meeting proxy statements \228\ given the
costs and burdens this would impose on issuers.\229\ However, other
commentators recommended that such disclosure should be required in
annual meeting proxy statements,\230\ noting that such information
plays a key part in shareholder evaluation of an issuer's compensation
program.\231\
---------------------------------------------------------------------------

    \228\ See, e.g., letters from ABA, Center for Exec. Comp.,
Compensia, Davis Polk, Frederic Cook, FSR, Hermes Equity Ownership
Services (``Hermes''), ICGN, McGuireWoods, PGGM, PM&P, and
WorldatWork.
    \229\ See, e.g., letter from Frederic Cook.
    \230\ See, e.g., letters from AFSCME, Protective Life, and
Public Citizen.
    \231\ See letter from AFSCME.
---------------------------------------------------------------------------

c. Final Rule
    After considering comments, we are adopting Item 402(t) of
Regulation S-K as proposed, with some modifications, to require
disclosure of named executive officers' golden parachute arrangements
in both tabular and narrative formats.
i. Item 402(t) Table and Narrative Requirements
    We are adopting the following new table, as proposed:

                                                              Golden Parachute Compensation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Tax
                  Name                       Cash  ($)      Equity  ($)    Pension/NQDC    Perquisites/    reimbursement    Other  ($)      Total  ($)
                                                                                ($)        benefits  ($)        ($)
(a)                                                  (b)             (c)             (d)             (e)             (f)             (g)             (h)
--------------------------------------------------------------------------------------------------------------------------------------------------------
PEO.....................................  ..............  ..............  ..............  ..............  ..............  ..............  ..............
PFO.....................................  ..............  ..............  ..............  ..............  ..............  ..............  ..............
A.......................................  ..............  ..............  ..............  ..............  ..............  ..............  ..............
B.......................................  ..............  ..............  ..............  ..............  ..............  ..............  ..............
C.......................................  ..............  ..............  ..............  ..............  ..............  ..............  ..............
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The table presents quantitative disclosure of the individual
elements of compensation that an executive would receive that are based
on or otherwise relate to the merger, acquisition, or similar
transaction, and the total for each named executive officer.\232\ As
proposed and adopted, elements that will be separately quantified and
included in the total will be any cash severance payment (e.g., base
salary, bonus, and pro-rata non-equity incentive plan \233\
compensation payments) (column (b)); the dollar value of accelerated
stock awards, in-the-money option awards for which vesting would be
accelerated, and payments in cancellation of stock and option awards
(column (c)); pension and nonqualified deferred compensation benefit
enhancements (column (d)); perquisites and other personal benefits and
health and welfare benefits (column (e)); and tax reimbursements (e.g.,
Internal Revenue Code Section 280G tax gross-ups) (column (f)).
Consistent with the proposal, we are adopting an ``Other'' column of
the table for any additional elements of compensation not specifically
includable in the other columns of the table (column (g)). This column,
like the columns for the other elements, will require footnote
identification of each separate form of compensation reported. The
final column in the table requires disclosure, for each named executive
officer, of the aggregate total of all such compensation (column
(h)).\234\ We are adopting the table as proposed, with a requirement
for separate footnote identification of amounts attributable to
``single-trigger'' arrangements and amounts attributable to ``double-
trigger'' arrangements, so that shareholders can readily discern these
amounts.
---------------------------------------------------------------------------

    \232\ Item 402(t)(2) of Regulation S-K.
    \233\ As defined in Item 402(a)(6)(iii) of Regulation S-K.
    \234\ Exchange Act Section 14A(b)(1) requires disclosure of
``the aggregate total of all such compensation that may (and the
conditions upon which it may) be paid or become payable to or on
behalf of such executive officer.''
---------------------------------------------------------------------------

    As proposed and adopted, the tabular disclosure required by Item
402(t) requires quantification with respect to any agreements or
understandings, whether written or unwritten, between each named
executive officer and the acquiring company or the target company,
concerning any type of compensation, whether present, deferred or
contingent, that is based on or otherwise relates to an acquisition,
merger, consolidation, sale or other disposition of all or
substantially all assets. The table will quantify cash severance,
equity awards that are accelerated or cashed out, pension and
nonqualified deferred compensation enhancements, perquisites, and tax
reimbursements. In addition, the table requires disclosure and
quantification of the value of any other compensation related to the
transaction.\235\
---------------------------------------------------------------------------

    \235\ Consistent with our proposals, we have adopted Instruction
3 to Item 402(t)(2) to provide, like Instruction 1 to Item 402(j),
that in the event uncertainties exist as to the provision of
payments and benefits, or the amounts involved, the issuer is
required to make a reasonable estimate applicable to the payment or
benefit and disclose material assumptions underlying such estimate
in its disclosure. Unlike Item 402(j), Item 402(t) does not permit
the disclosure of an estimated range of payments.
---------------------------------------------------------------------------

    However, as adopted, Item 402(t) will require tabular and narrative
disclosure in a proxy statement soliciting shareholder approval of a
merger or similar transaction or a filing made with respect to a
similar transaction only of compensation that is based on or otherwise
relates to the subject transaction.\236\ We agree with commentators
that it would not be useful to shareholders to require disclosure of
amounts that would not be paid or payable in connection with the
transaction subject to shareholder approval.
---------------------------------------------------------------------------

    \236\ Instruction 1 to Item 402(t)(2).
---------------------------------------------------------------------------

    To implement the statutory mandate to disclose the conditions upon
which the compensation may be paid or become payable, as proposed and
adopted, Item 402(t) \237\ requires issuers to describe any material
conditions or obligations applicable to the receipt of payment,
including but not limited to non-compete, non-solicitation, non-
disparagement or confidentiality agreements, their duration, and
provisions regarding waiver or breach.\238\ We are also adopting a
requirement, as proposed, to provide a description of the specific
circumstances that would trigger payment,\239\ whether the payments
would or could be lump sum, or annual, and their duration, and by whom
the payments would be provided,\240\ and any material factors regarding
each agreement.\241\ These narrative items are modeled on the narrative
disclosure required with respect to termination and change-in-control
agreements.\242\
---------------------------------------------------------------------------

    \237\ Item 402(t)(3) of Regulation S-K.
    \238\ Item 402(t)(3)(iii) of Regulation S-K.
    \239\ Item 402(t)(3)(i) of Regulation S-K.
    \240\ Item 402(t)(3)(ii) of Regulation S-K.
    \241\ Item 402(t)(3) of Regulation S-K. Such material factors
would include, for example, provisions regarding modifications of
outstanding options to extend the vesting period or the post-
termination exercise period, or to lower the exercise price.
    \242\ Item 402(j) of Regulation S-K.
---------------------------------------------------------------------------

ii. Elements of Compensation and Presentation of Item 402(t) Table
    In response to commentators' requests for greater flexibility to
facilitate clear presentation, we note that under our final rule
issuers are permitted to add additional named executive officers, and
additional columns or rows to the tabular disclosure, such as to
disclose cash severance separately from other cash compensation or to
distinguish ``single-trigger'' and ``double-trigger'' arrangements, so
long as such disclosure is not misleading.
    As noted in the Proposing Release,\243\ we considered whether
making the disclosure requirements in Item 402(j) applicable to
transactions enumerated in Section 14A(b)(1), rather than adopting a
new disclosure item for purposes of Section 14A(b)(1), would be an
appropriate approach to satisfy the requirements of the Act. However,
certain elements required by Section

14A(b)(1) are not included in Item 402(j). Specifically, Item 402(j)
does not require disclosure about arrangements that do not discriminate
in scope, terms or operation in favor of executive officers and that
are available generally to all salaried employees,\244\ permits
exclusion of de minimis perquisites and other personal benefits,\245\
and does not require presentation of an aggregate total of all
compensation that is based on or otherwise relates to a
transaction.\246\
---------------------------------------------------------------------------

    \243\ See Section II.D.2 of the Proposing Release.
    \244\ Instruction 5 to Item 402(j).
    \245\ See Instruction 2 to Item 402(j), which permits exclusion
of perquisites and other personal benefits or property if the
aggregate amount of such compensation will be less than $10,000.
    \246\ As proposed, we are adopting conforming changes to Item
402(a)(6)(ii) [17 CFR 229.402(a)(6)(ii)] and Item 402(m)(5)(ii) [17
CFR 229.402(m)(5)(ii)] of Regulation S-K to clarify that information
regarding group life, health, hospitalization, or medical
reimbursement plans that do not discriminate in scope, terms or
operation, in favor of executive officers or directors of the
company and that are generally available to all salaried employees
must be included in disclosure pursuant to proposed Item 402(t).
---------------------------------------------------------------------------

    Despite the views of some commentators, we continue to believe that
Item 402(t) should not permit exclusion of de minimis perquisites and
other personal benefits because exclusion of these amounts would be
inconsistent with Section 14A(b)(1), which requires disclosure of ``the
aggregate total of all such compensation that may [* * *] be paid or
become payable [* * *].'' Moreover, we continue to believe that the
Section 14A(b)(1) requirement to disclose the information ``in a clear
and simple form'' is best satisfied through the use of tabular
disclosure, which Item 402(j) does not require.
    Item 402(t), like Item 402(j),\247\ does not require separate
disclosure or quantification with respect to compensation disclosed in
the Pension Benefits Table and Nonqualified Deferred Compensation
Table. Item 402(t), as proposed and adopted, also does not require
disclosure or quantification of previously vested equity awards because
these award amounts are vested without regard to the transaction. We
agree with the views expressed by some commentators that previously
vested equity awards are not compensation ``that is based on or
otherwise relates to'' the transaction. Similarly, after reviewing the
comments, we continue to believe that we should not require tabular
disclosure and quantification of compensation from bona fide post-
transaction employment agreements to be entered into in connection with
the merger or acquisition transaction. We agree with the views
expressed by many commentators that future employment arrangements are
not compensation ``that is based on or otherwise relates to'' the
transaction.\248\
---------------------------------------------------------------------------

    \247\ See Instruction 3 to Item 402(j).
    \248\ Information regarding such future employment agreements is
subject to disclosure pursuant to Item 5(a) and Item 5(b)(xii) of
Schedule 14A to the extent that such agreements constitute a
``substantial interest'' in the matter to be acted upon.
---------------------------------------------------------------------------

    Under the final rule, where Item 402(t) disclosure is included in
an annual meeting proxy statement,\249\ the price per share amount will
be calculated based on the closing market price per share of the
issuer's securities on the last business day of the issuer's last
completed fiscal year, as proposed,\250\ consistent with quantification
standards used in Item 402(j). However, in response to comments, we
have modified how the issuer stock price will be measured for
calculating dollar amounts for the tabular disclosure required by Item
402(t) in connection with a transactional filing. In a proxy statement
soliciting shareholder approval of a merger or similar transaction or a
filing made with respect to a similar transaction, Item 402(t)'s
tabular quantification of dollar amounts based on issuer stock price
will be based on the consideration per share, if such value is a fixed
dollar amount, or otherwise on the average closing price per share over
the first five business days following the first public announcement of
the transaction.\251\
---------------------------------------------------------------------------

    \249\ A company may choose to include the disclosure in the
annual meeting proxy statement in order for the Section 14A(a)(1)
shareholder vote to satisfy the exception from the merger proxy
separate vote. See Section II.D.4 below.
    \250\ Instruction 2 to Item 402(t)(2).
    \251\ Instruction 1 to Item 402(t)(2).
---------------------------------------------------------------------------

iii. Individuals Subject to Item 402(t) Disclosure
    We continue to believe that Item 402(t) disclosure should cover a
broader group of individuals than is required by Section 14A(b).
Because compensation arrangements may involve agreements or
understandings between the acquiring issuer and the named executive
officers of the target issuer, Item 402(t), as proposed and adopted,
requires disclosure of the full scope of golden parachute compensation
applicable to the transaction. We agree with commentators and continue
to believe that shareholders may find disclosure about these
arrangements that are not otherwise required to be disclosed by Section
14A(b) informative to their voting decisions.
    As both proposed and adopted, we have included an instruction
providing that Item 402(t) disclosure need not be provided for persons
who are named executive officers because they would have been among the
most highly compensated executive officers but for the fact that they
were not serving as an executive officer at the end of the last
completed fiscal year.\252\ However, in response to comments, we are
clarifying that where Item 402(t) disclosure is provided in a proxy
statement soliciting shareholder approval of a merger or similar
transaction or a filing made with respect to a similar transaction,
this instruction will be applied with respect to the named executive
officers for whom disclosure was required in the issuer's most recent
filing requiring Summary Compensation Table disclosure.\253\
---------------------------------------------------------------------------

    \252\ Instruction 1 to Item 402(t), which requires Item 402(t)
disclosure for individuals covered by Items 402(a)(3)(i), (ii) and
(iii), and for smaller reporting companies, the individuals covered
by Items 402(m)(2)(i) and (ii). Item 402(t) disclosure will not be
required for individuals for whom Item 402(t) disclosure otherwise
is required by Item 402(a)(3)(iv), and for smaller reporting
companies, by Item 402(m)(2)(iii).
    \253\ Instruction 1 to Item 402(t)(2) and Instruction 2 to Item
1011(b). This is similar to the approach used in Instruction 4 to
Item 5.02 of Form 8-K.
---------------------------------------------------------------------------

iv. Item 402(t) Disclosure in Annual Meeting Proxy Statements
    We are not requiring Item 402(t) disclosure in annual meeting proxy
statements. We agree with the views expressed by most commentators that
the proposed Item 402(t) narrative and tabular disclosure should not be
required in annual meeting proxy statements given the costs and burdens
this would impose on issuers. We believe that the requirements of Item
402(j) provide sufficient information to shareholders in that context,
and note that issuers may also include disclosure pursuant to Item
402(t) voluntarily if they believe it would permit shareholders to gain
a better understanding of their compensation programs.
    An issuer seeking to satisfy the exception from the separate merger
proxy shareholder vote under Section 14A(b)(2) and Rule 14a-21(c) by
including Item 402(t) disclosure in an annual meeting proxy statement
soliciting the shareholder vote required by Section 14A(a)(1) and Rule
14a-21(a) \254\ will be able to satisfy Item 402(j) disclosure
requirements with respect to a change-in-control of the issuer by
providing the disclosure required by Item 402(t).\255\ The issuer

must still include in an annual meeting proxy statement disclosure in
accordance with Item 402(j) about payments that may be made to named
executive officers upon termination of employment.
---------------------------------------------------------------------------

    \254\ This exception and the comments we received on the
exception are discussed in Section II.D.4 below.
    \255\ We note also that one example of material information to
be addressed in CD&A is the basis for selecting particular
termination or change-in-control events as triggering payment (e.g.,
the rationale for providing a single trigger for payment in the
event of a change-in-control). See Item 402(b)(2)(xi) of Regulation
S-K.
---------------------------------------------------------------------------

3. Amendments to Schedule 14A, Schedule 14C, Schedule 14D-9, Schedule
13E-3, Schedule TO, and Item 1011 of Regulation M-A
    We proposed amendments to require that the disclosure set forth in
Item 402(t) of Regulation S-K be included in merger proxies as well as
filings for other transactions not referenced in the Act. After
considering the comments received, we are adopting the amendments to
Schedule 14A, Schedule 14C, Schedule 14D-9, Schedule 13E-3, and Item
1011 of Regulation M-A as proposed with slight modifications to Item
1011 of Regulation M-A. We are also adopting an amendment to Schedule
TO to clarify that the Item 402(t) disclosure is not required in third-
party bidders' tender offer statements, so long as the transactions are
not also Rule 13e-3 going-private transactions.
a. Proposed Amendments
    We proposed amendments to Items 5(a) and (b) of Schedule 14A under
the Exchange Act, as well as conforming changes to Item 3 of Schedule
14C, Item 1011(b) of Regulation M-A, Item 15 of Schedule 13E-3 and Item
8 of Schedule 14D-9. These proposals were intended to implement the
disclosure requirements in Section 14A(b)(1) as well as to extend the
new disclosure requirements to similar transactions by requiring that
the disclosure set forth in Item 402(t) of Regulation S-K be included
in any proxy or consent solicitation material seeking shareholder
approval of an acquisition, merger, consolidation, or proposed sale or
other distribution of all or substantially all the assets of the
issuer. Our proposals would require such disclosure not only in a proxy
or consent solicitation relating to such a transaction, as required by
the Act, but also in the following:
     Information statements filed pursuant to Regulation 14C;
     Proxy or consent solicitations that do not contain merger
proposals but require disclosure of information under Item 14 of
Schedule 14A pursuant to Note A of Schedule 14A;
     Registration statements on Forms S-4 and F-4 containing
disclosure relating to mergers and similar transactions;
     Going private transactions on Schedule 13E-3; and
     Third-party tender offers on Schedule TO and Schedule 14D-
9 solicitation/recommendation statements.
    We also proposed amendments to Item 1011(b) of Regulation M-A that
would require the bidder \256\ in a third-party tender offer to provide
information in its Schedule TO about a target's golden parachute
arrangements only to the extent the bidder has made a reasonable
inquiry about the golden parachute arrangements and has knowledge of
such arrangements. In addition, we proposed exceptions to both the
disclosure requirement under Item 1011(b) for both bidders and targets
in third-party tender offers and filing persons in Rule 13e-3 going-
private transactions where the target or subject company is a foreign
private issuer, and to the disclosure obligation under Item 402(t) with
respect to agreements and understandings with senior management of
foreign private issuers where the target or acquirer is a foreign
private issuer.
---------------------------------------------------------------------------

    \256\ ``Bidder'' is defined in Rule 14d-1(g)(2) [17 CFR 240.14d-
1(g)(2)].
---------------------------------------------------------------------------

b. Comments on the Proposed Amendments
    Comments on the proposal were generally favorable. A number of
commentators expressed support for our proposed approach to require
disclosure of golden parachute arrangements in connection with other
transaction not specifically referenced in the Act.\257\ One
commentator objected that the proposal goes beyond the scope of the
statute by requiring disclosure of golden parachute compensation in
connection with tender and exchange offers.\258\ One commentator also
questioned whether such disclosure should be required in third-party
tender offers, given the difficulty bidders may face in obtaining
accurate information regarding a target company's golden parachute
arrangements.\259\ Commentators also supported excluding foreign
private issuers from Item 402(t) disclosure requirements for bidders
and target companies in third-party tender offers and filing persons in
Rule 13e-3 going-private transactions.\260\
---------------------------------------------------------------------------

    \257\ See, e.g., letters from ICGN and PGGM.
    \258\ See letter from Wachtell.
    \259\ See letter from ABA.
    \260\ See, e.g., letters from ABA, ICGN, and PGGM.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we are adopting the amendments to
Schedule 14A, Schedule 14C, Schedule 14D-9, Schedule 13E-3, and Item
1011 of Regulation M-A as proposed, with slight modifications to Item
1011 of Regulation M-A. We are also adopting an amendment to Schedule
TO to provide that bidders in third-party tender offers are not
required to provide the disclosure required by Item 1011(b) of
Regulation M-A.
    Issuers could structure transactions in a manner that avoids
implicating Section 14(a) of the Exchange Act (e.g., tender offers and
certain Rule 13e-3 going-private transactions), while still effectively
seeking the consent of shareholders with respect to their investment
decision (e.g., whether or not to tender their shares or approve a
going-private transaction, in instances where such going-private
transactions are not subject to Regulation 14A). For these reasons, we
continue to believe that requiring Item 402(t) disclosure in all such
transactions furthers the purposes of Section 14A(b) of the Exchange
Act and would minimize the regulatory disparity that might otherwise
result from treating such transactions differently. Thus, we are
adopting amendments that would require the Item 402(t) disclosure in
various transactions, whether a merger, acquisition, a Rule 13e-3
going-private transaction or a tender offer.\261\
---------------------------------------------------------------------------

    \261\ As adopted, companies filing solicitation/recommendation
statements on Schedule 14D-9 in connection with third-party tender
offers will be obligated to provide this additional disclosure. See
Item 8 of Schedule 14D-9. However, as explained below, bidders
filing offer statements on Schedule TO will not have a similar
obligation. See Item 11 of Schedule TO.
---------------------------------------------------------------------------

    In addition, we note that acquiring companies may solicit proxies
to approve the issuance of shares or a reverse stock split in order to
conduct a merger transaction, and that such proxy statements are
required to include disclosure of information required under Item 14 of
Schedule 14A pursuant to Note A of Schedule 14A. Thus, we are also
adopting amendments that would require the Item 402(t) disclosure in
those proxy statements that are required to include disclosure of
information required under Item 14 of Schedule 14A pursuant to Note A
of Schedule 14A.\262\ The shareholder advisory vote required by Section
14A(b)(2), however, will not be extended to transactions beyond those
specified in that section.
---------------------------------------------------------------------------

    \262\ See Item 5(a)(5) and Item 5(b)(3) of Schedule 14A, which
will require acquiring companies to include the Item 402(t)
disclosure with respect to each named executive officer of both the
acquiring issuer and the target issuer.
---------------------------------------------------------------------------

    We have revised the final rule in response to comments to provide
that

bidders in third-party tender offers will not be required to comply
with Item 1011(b), which calls for Item 402(t) disclosure. We are
persuaded that bidders may face difficulties in obtaining the
information necessary to provide such disclosure \263\ and that it is
not necessary to require a bidder to provide this information since the
target companies will be required to provide the Item 402(t) golden
parachute compensation disclosure in Schedule 14D-9 filed by the tenth
business day from the date the tender offers are first published, sent
or given to security holders.\264\ We believe this revision to the
proposal will alleviate a potential burden that bidders in third-party
tender offers may encounter while still accomplishing our goal of
minimizing the regulatory disparity that might otherwise result from
treating third-party tender offers differently than other transactions
described in this section by retaining the disclosure requirement in
Schedule 14D-9. However, we did not adopt a similar revision to the
proposed changes to Schedule 13E-3; therefore, the disclosure of golden
parachute arrangements will be required in third-party tender offers
that are also Rule 13e-3 going-private transactions.\265\ In light of
the revision to the proposal, we are not adopting the instruction to
Item 1011(b) of Regulation M-A that would have allowed bidders to
provide the disclosure only to the extent the information was known
after making a reasonable inquiry. Therefore, Item 1011(b), as adopted,
does not include the proposed instruction.
---------------------------------------------------------------------------

    \263\ See letter from ABA.
    \264\ We are adopting an amendment to Schedule TO to avoid
imposing on bidders the obligation to provide such disclosure. See
Item 11 of Schedule TO.
    \265\ See Item 15 of Schedule 13E-3.
---------------------------------------------------------------------------

    In addition, we are adopting as proposed an exception to the
disclosure requirement under Item 1011(b) for targets in third-party
tender offers and filing persons in Rule 13e-3 going-private
transactions where the target or subject company is a foreign private
issuer. Consistent with the proposal, we are also adopting an exception
to the disclosure obligation under Item 402(t) with respect to
agreements and understandings with senior management of foreign private
issuers where the target or acquirer is a foreign private issuer.\266\
We agree with commentators and believe such accommodations are
appropriate in light of our long-standing accommodation to foreign
private issuers regarding compensation disclosure.\267\
---------------------------------------------------------------------------

    \266\ Instruction 2 to Item 402(t).
    \267\ See, e.g., Item 402(a)(1) of Regulation S-K, and Items 6.B
and 6.E.2 of Form 20-F [17 CFR 249.220f].
---------------------------------------------------------------------------

4. Rule 14a-21(c)
    Section 14A(b)(2) generally requires a separate shareholder
advisory vote on golden parachute compensation arrangements required to
be disclosed under Section 14A(b)(1) in connection with mergers and
similar transactions. A separate shareholder advisory vote would not be
required on golden parachute compensation if disclosure of that
compensation had been included in the executive compensation disclosure
that was subject to a prior advisory vote of shareholders under Section
14A(a)(1) of the Exchange Act.
    We proposed Rule 14a-21(c) to implement these requirements. We are
adopting this rule substantially as proposed with some minor changes in
response to comments.
a. Proposed Rule
    Proposed Rule 14a-21(c) would require issuers to conduct a separate
shareholder advisory vote in proxy statements for meetings at which
shareholders are asked to approve an acquisition, merger,
consolidation, or proposed sale or other disposition of all or
substantially all assets, consistent with Section 14A(b)(2). This
shareholder advisory vote would be required only with respect to the
golden parachute agreements or understandings required to be disclosed
by Section 14A(b)(1), as disclosed pursuant to proposed Item 402(t) of
Regulation S-K. We proposed Rule 14a-21(c) to require a shareholder
advisory vote only on the golden parachute compensation agreements or
understandings for which Section 14A(b)(1) requires disclosure and
Section 14A(b)(2) requires a shareholder vote. Consistent with Section
14A(b)(2), as proposed, issuers would not be required to include in the
merger proxy a separate shareholder vote on golden parachute
compensation disclosed in accordance with Item 402(t) of Regulation S-K
if Item 402(t) disclosure of that compensation had been included in the
executive compensation disclosure that was subject to a prior vote of
shareholders under Section 14A(a)(1) of the Exchange Act and Rule 14a-
21(a).
b. Comments on the Proposed Amendments
    Comments on the proposal were generally positive. As noted above,
some commentators indicated that requiring disclosure under Item 402(t)
of a broader group of individuals than would be covered by the Rule
14a-21(c) shareholder advisory vote would be potentially confusing to
investors \268\ as such disclosure goes beyond the requirements of
Section 14A and could lead to as many as three separate tables.\269\
---------------------------------------------------------------------------

    \268\ See, e.g., letters from Center on Exec. Comp., Davis Polk,
FSR, NACD, Pfizer, PGGM, Protective Life, Towers Watson, Wachtell,
Lipton, Rosen & Katz (``Wachtell''), and WorldatWork.
    \269\ See letter from Davis Polk.
---------------------------------------------------------------------------

    Most commentators agreed with our proposed approach that if golden
parachute arrangements were modified or amended subsequent to being
subject to the annual shareholder vote under Rule 14a-21(a), a separate
shareholder vote in the merger proxy should be required to cover only
the changes to such arrangements,\270\ given that full disclosure of
the full set of arrangements will also be provided.\271\ Some
commentators, however, believed that in this circumstance the
subsequent vote should cover the entire set of golden parachute
arrangements, not just the changes, so that shareholders have the
opportunity to vote on the full complement of compensation that would
be payable.\272\
---------------------------------------------------------------------------

    \270\ See, e.g., letters from ABA, Frederic Cook, McGuireWoods,
NACD, PGGM, Protective Life, and WorldatWork.
    \271\ See, e.g., letter from ABA.
    \272\ See, e.g., letter from CII.
---------------------------------------------------------------------------

    In addition, some commentators recommended that certain changes to
golden parachute arrangements that were altered or amended subsequent
to being subject to the shareholder advisory vote under Rule 14a-21(a)
should be exempt from a separate shareholder advisory vote in a merger
proxy. In their view, there should be an exemption for certain routine,
non-substantive changes, such as where the same compensation
arrangements apply to new named executive officers who were not
included in the prior disclosure that was subject to the shareholder
vote,\273\ subsequent grants in the ordinary course of additional
awards subject to the same acceleration terms that applied to awards
covered by a previous vote,\274\ routine changes in salary subsequent
to the prior vote,\275\ and changes that result in a reduction in
compensation value.\276\ Other

commentators stated that there should be no exceptions and that a new
golden parachute vote should be required if there have been any changes
since the arrangements were subject to the Rule 14a-21(a) shareholder
advisory vote.\277\
---------------------------------------------------------------------------

    \273\ See, e.g., letters from McGuireWoods, PM&P, Protective
Life, Steve Quinlivan (``Quinlivan''), and Sullivan.
    \274\ See, e.g., letters from Business Roundtable, Compensia,
FSR, McGuireWoods, PM&P, Protective Life, Sullivan, and Wachtell.
    \275\ See letter from McGuireWoods.
    \276\ See, e.g., letters from Frederic Cook, Meridian, and
Protective Life.
    \277\ See, e.g., letters from Glass Lewis and PGGM.
---------------------------------------------------------------------------

c. Final Rule
    After considering the comments, we are adopting Rule 14a-21(c) as
proposed, with some modifications. Consistent with the proposal, our
rule does not require issuers to use any specific language or form of
resolution to be voted on by shareholders. In addition, we note that,
as provided in Section 14A(c), this shareholder vote will not be
binding on the issuer or its board of directors.
i. Scope of Rule 14a-21(c) Shareholder Advisory Vote
    Under Rule 14a-21(c), issuers will be required to provide a
separate shareholder advisory vote in proxy statements for meetings at
which shareholders are asked to approve an acquisition, merger,
consolidation, or proposed sale or other disposition of all or
substantially all assets, consistent with Section 14A(b)(2). However,
issuers are not required to provide a separate shareholder advisory
vote in proxy statements for meetings at which shareholders are asked
to approve other proposals, such as an increase in authorized shares or
a reverse stock split, which may be necessary for the issuer to
effectuate a transaction. A vote under Rule 14a-21(c) is required only
if the shareholders are voting to approve the transaction and the
transaction and golden parachute arrangements come within those covered
by Section 14A(b). Consistent with the proposal, this advisory vote
will be required only with respect to the golden parachute agreements
or understandings required to be disclosed by Section 14A(b)(1), as
disclosed pursuant to proposed Item 402(t) of Regulation S-K.
    Section 14A(b)(1) requires disclosure of any agreements or
understandings between the soliciting person and any named executive
officer of the issuer or any named executive officers of the acquiring
issuer, if the soliciting person is not the acquiring issuer. When a
target issuer conducts a proxy or consent solicitation to approve a
merger or similar transaction, golden parachute compensation agreements
or understandings between the acquiring issuer and the named executive
officers of the target issuer are not within the scope of disclosure
required by Section 14A(b)(1), and thus a shareholder vote to approve
arrangements between the soliciting target issuer's named executive
officers and the acquiring issuer is not required by Exchange Act
Section 14A(b)(2). Consequently, consistent with the proposal, Rule
14a-21(c) as adopted requires a shareholder advisory vote only on the
golden parachute compensation agreements or understandings for which
Section 14A(b)(1) requires disclosure and Section 14A(b)(2) requires a
shareholder vote. As described in Section II.D.2.c.iii above, however,
disclosure of all golden parachute arrangements will be required, even
though a vote on the arrangements will not be required.
ii. Exceptions to Rule 14a-21(c) Shareholder Advisory Vote
    Consistent with Section 14A(b)(2) and our proposal, issuers will
not be required to include in the merger proxy a separate shareholder
vote on the golden parachute compensation disclosed under Item 402(t)
of Regulation S-K if Item 402(t) disclosure of that compensation had
been included in the executive compensation disclosure that was subject
to a prior vote of shareholders under Section 14A(a)(1) of the Exchange
Act and Rule 14a-21(a). In this regard, we note that Section 14A(b)(2)
requires only that the golden parachute arrangements have been subject
to a prior shareholder vote under Section 14A(a)(1); such arrangements
need not have been approved by shareholders.
    For issuers to take advantage of this exception, however, the
executive compensation disclosure subject to the prior shareholder vote
must have included Item 402(t) disclosure of the same golden parachute
arrangements. Even if the annual meeting proxy statement provided some
disclosure with respect to golden parachute arrangements,\278\ the
annual meeting proxy statement must include the disclosure required by
Item 402(t) in order for the annual meeting shareholder vote under
Section 14A(a)(1) and Rule 14a-21(a) to satisfy the exception from the
merger proxy separate shareholder vote under Section 14A(b)(2) and Rule
14a-21(c). Consequently, we would expect that some issuers may
voluntarily include Item 402(t) disclosure with their other executive
compensation disclosure in annual meeting proxy statements soliciting
the shareholder vote required by Section 14A(a)(1) and Rule 14a-21(a)
so that this exception would be available to the issuer for a potential
subsequent merger or acquisition transaction. We also expect that some
issuers may choose to include the new disclosure for other reasons,
such as investor interest in the information.
---------------------------------------------------------------------------

    \278\ See CD&A and Item 402(j) of Regulation S-K, and for
smaller reporting companies see Item 402(q)(2) of Regulation S-K for
the disclosure requirements applicable to annual meeting proxy
statements.
---------------------------------------------------------------------------

    The exception will be available only to the extent the same golden
parachute arrangements previously subject to an annual meeting
shareholder vote remain in effect, and the terms of those arrangements
have not been modified subsequent to the Section 14A(a)(1) shareholder
vote. As proposed and adopted, if the disclosure pursuant to Item
402(t) has been updated to change only the value of the items in the
Golden Parachute Compensation Table to reflect price movements in the
issuer's securities, no new shareholder advisory vote under Section
14A(b)(1) will be required. New golden parachute arrangements, and any
revisions to golden parachute arrangements that were subject to a prior
Section 14A(a)(1) shareholder vote will be subject to the separate
merger proxy shareholder vote requirement of Section 14A(b)(2) and Rule
14a-21(c).\279\
---------------------------------------------------------------------------

    \279\ For example, we would view any change that would result in
an IRC Section 280G tax gross-up becoming payable as a change in
terms triggering such a separate vote, even if such tax gross-up
becomes payable only because of an increase in the issuer's share
price.
---------------------------------------------------------------------------

    Additionally, we agree with certain commentators \280\ that changes
that result only in a reduction in value of the total compensation
payable should not require a new shareholder vote. If the shareholders
have had an opportunity to vote on a more highly valued compensation
package, then we do not believe issuers should be required to provide a
separate vote on a change that results only in a compensation package
that has been reduced in value.
---------------------------------------------------------------------------

    \280\ See, e.g., letters from Frederic Cook, Meridian, and
Protective Life.
---------------------------------------------------------------------------

    We believe that the other examples of changes cited by
commentators, including changes in compensation because of a new named
executive officer, additional grants of equity compensation in the
ordinary course, and increases in salary, are significant changes to
the golden parachute compensation disclosure and, consistent with
Section 14A(b)(2), should be subject to a shareholder vote. Because a
shareholder vote would already have been obtained on portions of the
arrangements, however, only the new arrangements and revised terms of
the arrangements previously subject to a Section 14A(a)(1) shareholder
vote will be subject to the merger proxy separate

shareholder vote under Section 14A(b)(2) and Rule 14a-21(c).
    Consistent with the proposal, issuers providing for a shareholder
vote on new arrangements or revised terms will need to provide two
separate tables under Item 402(t) of Regulation S-K in merger proxy
statements.\281\ One table will disclose all golden parachute
compensation, including both arrangements and amounts previously
disclosed and subject to a say-on-pay vote under Section 14A(a)(1) and
Rule 14a-21(a) and the new arrangements or revised terms. The second
table will disclose only the new arrangements or revised terms subject
to the vote, so that shareholders can clearly see what is subject to
the shareholder vote under Section 14A(b)(2) and Rule 14a-21(c).
Similarly, in cases where Item 402(t) requires disclosure of
arrangements between an acquiring company and the named executive
officers of the soliciting target company, issuers will need to clarify
whether these agreements are included in the shareholder advisory vote
by providing a separate table of all agreements and understandings
subject to the shareholder advisory vote required by Section 14A(b)(2)
and Rule 14a-21(c), if different from the full scope of golden
parachute compensation subject to Item 402(t) disclosure.\282\
---------------------------------------------------------------------------

    \281\ See Instruction 6 to Item 402(t)(2) of Regulation S-K.
    \282\ Instruction 7 to Item 402(t)(2). As discussed above, such
agreements are not required to be subject to the Rule 14a-21(c)
shareholder advisory vote, but issuers may voluntarily subject them
to such a vote.
---------------------------------------------------------------------------

E. Treatment of Smaller Reporting Companies

    Section 951 of the Act establishes a new Section 14A(e) of the
Exchange Act, which provides that we may, by rule or order, exempt an
issuer or class of issuers from the requirements of Section 14A(a) and
(b). In determining whether to make an exemption under this subsection,
we are directed to take into account, among other considerations,
whether the requirements of Sections 14A(a) and 14A(b)
disproportionately burden small issuers.
    In the Proposing Release, we did not propose to exempt small
issuers or smaller reporting companies \283\ from the requirements of
Sections 14A(a) and 14A(b). Comments on this issue were mixed. Many
commentators agreed that the requirements of Section 14A should be
applied to all issuers and that there should be no exemptions for
smaller reporting companies,\284\ while a number of other commentators
asserted that smaller reporting companies should be exempt from the
requirements of Exchange Act Section 14A and our proposed rules.\285\
Among those opposed to applying the requirements to smaller reporting
companies, in addition to stating that these requirements would be a
burden to smaller reporting companies,\286\ some commentators asserted
that smaller reporting companies may feel compelled to include
additional disclosure beyond the scaled requirements otherwise
applicable to smaller reporting companies, including a CD&A, because of
such votes,\287\ which would impose significant burdens on these
issuers. One commentator urged that, if we do not exempt smaller
reporting companies, we should at least delay implementation of the
proposed rules for smaller reporting companies so that smaller
companies would have the opportunity to observe how larger companies
conduct the vote and respond to the disclosure requirements.\288\
---------------------------------------------------------------------------

    \283\ ``Smaller reporting company'' is defined in Rule 12b-2
under the Exchange Act.
    \284\ See, e.g., letters from AFSCME, Boston Common, CalPERS,
Calvert, CII, First Affirmative, Glass Lewis, ICGN, Merkl, PGGM,
Public Citizen, RAILPEN & USS, SBA of Florida, Senator Levin, Social
Investment, and Walden.
    \285\ See, e.g., letters from American Bankers Association
(``Am. Bankers''), Independent Community Bankers of America
(``ICBA''), NACD, Society of Corp. Sec., and Virginia Bankers
Association (``VBA'').
    \286\ See, e.g., letters from ABA, Am. Bankers, and VBA.
    \287\ See, e.g., letters from ABA and Society of Corp. Sec.
    \288\ See letter from ABA.
---------------------------------------------------------------------------

    After reviewing and considering these comments, we are adopting a
temporary exemption for smaller reporting companies so that these
issuers will not be required to conduct either a shareholder advisory
vote on executive compensation or a shareholder advisory vote on the
frequency of say-on-pay votes until the first annual or other meeting
of shareholders occurring on or after January 21, 2013.\289\ We do not
believe that smaller reporting companies should be permanently exempt
from the say-on-pay vote, frequency of say-on-pay votes and golden
parachute disclosure and vote because we believe investors have the
same interest in voting on the compensation of smaller reporting
companies and in clear and simple disclosure of golden parachute
compensation in connection with mergers and similar transactions as
they have for other issuers. However, after reviewing comments on the
potential burdens on smaller reporting companies, we believe it is
appropriate to provide additional time before smaller reporting
companies are required to conduct the shareholder advisory votes on
executive compensation and the frequency of say-on-pay votes.
---------------------------------------------------------------------------

    \289\ Rules 14a-21(a) and (b).
---------------------------------------------------------------------------

    We believe that a delayed effective date for the say-on-pay and
frequency votes for smaller reporting companies should allow those
companies to observe how the rules operate for other companies and
should allow them to better prepare for implementation of the rules. We
also believe that delayed implementation for these companies will allow
us to evaluate the implementation of the adopted rules by larger
companies and provide us with the additional opportunity to consider
whether adjustments to the rule would be appropriate for smaller
reporting companies before the rule becomes applicable to them. We
believe a temporary exemption by rule is appropriate, under the
exemptive authority granted by Section 14A(e) of the Exchange Act \290\
and also under the Commission's general exemptive authority pursuant to
Section 36(a)(1) of the Exchange Act, in the public interest and
consistent with the protection of investors.\291\
---------------------------------------------------------------------------

    \290\ Exchange Act Section 14A(e) provides that ``the Commission
may, by rule or order, exempt an issuer or class of issuers from the
requirement'' under Sections 14A(a) or 14A(b). Section 14A(e)
further provides that ``in determining whether to make an exemption
under this subsection, the Commission shall take into account, among
other considerations, whether the requirements under [Section 14A(a)
and 14A(b)] disproportionately burdens small issuers.'' In
considering whether to provide an exemption, the Commission
considered whether the requirements of Section 14A(a) and (b) as
applied to smaller reporting companies to conduct a shareholder
advisory vote on executive compensation and a shareholder advisory
vote on the frequency of say-on-pay votes could disproportionately
burden small issuers.
    \291\ 15 U.S.C. 78 mm(a)(1). Exchange Act Section 36(a)(1)
provides that ``the Commission, by rule, regulation, or order, may
conditionally or unconditionally exempt any person, security, or
transaction, or any class of persons, securities, or transactions,
from any provision or provisions of this title or of any rule or
regulation thereunder, to the extent that such exemption is
necessary or appropriate in the public interest, and is consistent
with the protection of investors.''
---------------------------------------------------------------------------

    This temporary exemption for smaller reporting companies does not
apply to the requirements of Section 14A(b)(2) and Rule 14a-21(c) to
provide a shareholder advisory vote on golden parachute compensation in
connection with mergers or other extraordinary transactions. We view
the temporary exemption as a transition matter that will facilitate
eventual compliance with the regular, periodic say-on-pay vote
requirement by smaller reporting

companies. We do not believe similar considerations support an
exemption for the shareholder advisory vote on golden parachute
arrangements in light of the extraordinary nature of the transactions
involved.
    We have also crafted our amendments to minimize the costs for
smaller reporting companies, while providing shareholders the
opportunity to express their views on the companies' compensation
arrangements. For example, once they fully apply to smaller reporting
companies, our amendments will provide shareholders of those companies
the same voting rights with respect to executive compensation as apply
to shareholders of other companies subject to the proxy rules. We do
not believe that Section 14A and our final rules, especially given the
temporary exemption, would unduly burden smaller reporting companies.
For example, our final rule does not alter the existing scaled
disclosure requirements set forth in Item 402 of Regulation S-K for
smaller reporting companies, which recognize that the compensation
arrangements of smaller reporting companies typically are less complex
than those of other public companies.\292\ Under the rules we adopt
today, we do not alter the provision in our rules that smaller
reporting companies are not required to provide a CD&A. Therefore, the
amendment to Item 402(b) of Regulation S-K will not apply to smaller
reporting companies, as such companies are not required to provide a
CD&A.
---------------------------------------------------------------------------

    \292\ See Executive Compensation and Related Person Disclosure,
Release No. 33-8732A (Aug. 29, 2006) [71 FR 53158] (hereinafter, the
``2006 Executive Compensation Release'') at Section II.D.1. The
scaled compensation disclosure requirements for smaller reporting
companies are set forth in Item 402(1) [17 CFR 229.402(l)] through
(r) [17 CFR 229.402(r)] of Regulation S-K.
---------------------------------------------------------------------------

    Our amendments will, however, require quantification of golden
parachute arrangements in merger proxies. Smaller reporting companies
are not required to provide this quantification under current Item
402(q) in annual meeting proxy statements, and are not required to do
so under our new rules unless they seek to qualify for the exception
for a shareholder advisory vote on golden parachute compensation in a
later merger transaction. Even though our rules impose additional
disclosure requirements relating to the shareholder advisory votes
required by Section 14A, we do not believe our rules will impose a
significant additional cost or disproportionate burden upon smaller
reporting companies. As noted above, smaller reporting companies tend
to have less complex compensation arrangements \293\ so the additional
disclosures should not add significantly to their disclosure burden. As
a result, we do not believe the rules we adopt today place a
disproportionate burden on smaller reporting companies.
---------------------------------------------------------------------------

    \293\ See 2006 Executive Compensation Release, supra note 292,
at Section II.D.1.
---------------------------------------------------------------------------

F. Transition Matters

    As noted above in Section I, Section 14A(a)(3) requires that both
the initial shareholder vote on executive compensation and the initial
vote on the frequency of votes on executive compensation be included in
proxy statements relating to an issuer's first annual or other meeting
of the shareholders occurring on or after January 21, 2011. Because
Section 14A(a) applies to shareholder meetings taking place on or after
January 21, 2011, any proxy statements, whether in preliminary or
definitive form, even if filed prior to this date, for meetings taking
place on or after January 21, 2011, must include the separate
resolutions for shareholders to approve executive compensation and the
frequency of say-on-pay votes required by Section 14A(a) without regard
to whether our rules to implement Section 14A(a) have become effective
by that time. To facilitate compliance with the new statute, we
addressed certain first year transition issues in the Proposing
Release. We are now extending those transition positions as described
below.
    Before effectiveness of the amendment to Rule 14a-6(a) adopted in
this release, Rule 14a-6 will continue to require the filing of a
preliminary proxy statement at least ten days before the proxy is sent
or mailed to shareholders unless the meeting relates only to the
matters specified by Rule 14a-6(a). Until the rules we are adopting to
implement Exchange Act Section 14A become effective, we will not object
if issuers do not file proxy material in preliminary form if the only
matters that would require a filing in preliminary form are the say-on-
pay vote and frequency of say-on-pay vote required by Section 14A(a).
    Before the amendment to Rule 14a-4 adopted in this release becomes
effective, Rule 14a-4 provides that persons solicited are to be
afforded the choice between approval or disapproval of, or abstention
with respect to, each matter to be voted on, other than elections of
directors. Until effectiveness of the amendment to Rule 14a-4 adopted
in this release, we will not object if the form of proxy for a
shareholder vote on the frequency of say-on-pay votes provides means
whereby the person solicited is afforded an opportunity to specify by
boxes a choice among 1, 2 or 3 years, or abstain. In addition, we
understand that, although some commentators indicated they are prepared
for the four-choice frequency vote, the systems of other proxy service
providers are currently set up to register at most three votes--for,
against, or abstain--and these providers may have short-term difficulty
in programming their systems to enable shareholders to vote among four
choices. As a result, because the preparedness of these providers may
vary significantly on a firm-by-firm basis, for any proxy materials
filed for meetings to be held on or before December 31, 2011, we will
not object if the form of proxy for a shareholder vote on the frequency
of say-on-pay votes provides means whereby the person solicited is
afforded an opportunity to specify by boxes a choice among 1, 2 or 3
years, and there is no discretionary authority to vote proxies on the
frequency of say-on-pay votes matter in the event the person solicited
does not select a choice among 1, 2 or 3 years.\294\
---------------------------------------------------------------------------

    \294\ See Shareholder Communications, Shareholder Participation
in the Corporate Electoral Process and Corporate Governance
Generally, Release No. 34-16356 (Nov. 21, 1979) [44 FR 68770].
---------------------------------------------------------------------------

    Issuers with outstanding indebtedness under the TARP are already
required to conduct an annual shareholder advisory vote on executive
compensation until the issuer has repaid all outstanding indebtedness
under the TARP. Because such issuers are subject to an annual
requirement to provide a say-on-pay vote, a requirement to provide a
vote on the frequency of such votes would impose unnecessary burdens on
issuers and shareholders, and our final rules provide an exemption from
such requirement. Until the rules we are adopting to implement Exchange
Act Section 14A become effective, we will not object if an issuer with
outstanding indebtedness under the TARP does not include a resolution
for a shareholder advisory vote on the frequency of say-on-pay votes in
its proxy statement for its annual meeting, provided it fully complies
with its say-on-pay voting obligations under EESA Section 111(e).
    Finally, as we discussed above, we are adopting a temporary
exemption for smaller reporting companies to defer application of the
requirements of Section 14A(a)(1) and (a)(2) and Rule 14a-21(a) and (b)
to conduct shareholder advisory votes on executive compensation and the
frequency of such votes. Until the rules we are adopting to implement
Exchange Act Section 14A

become effective, we will not object if a smaller reporting company
does not include a resolution for a shareholder advisory vote on say-
on-pay or the frequency of say-on-pay votes in its proxy statement for
its annual meeting. As with other issuers, smaller reporting companies
are required to conduct the shareholder advisory vote on golden
parachute compensation upon effectiveness of Rule 14a-21(c).

III. Paperwork Reduction Act

A. Background

    Certain provisions of the final amendments contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\295\ We published a notice requesting
comment on the collection of information requirements in the proposing
release for the rule amendments, and we submitted these requirements to
the Office of Management and Budget (``OMB'') for review in accordance
with the PRA.\296\ The title for the collection of information is:
---------------------------------------------------------------------------

    \295\ 44 U.S.C. 3501 et seq.
    \296\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    (1) ``Regulation 14A and Schedule 14A'' (OMB Control No. 3235-
0059);
    (2) ``Regulation 14C and Schedule 14C'' (OMB Control No. 3235-
0057);
    (3) ``Form 8-K'' (OMB Control No. 3235-0060);
    (4) ``Form 10'' (OMB Control No. 3235-0064);
    (5) ``Regulation S-K'' (OMB Control No. 3235-0071); \297\
---------------------------------------------------------------------------

    \297\ The paperwork burden from Regulation S-K is imposed
through the forms that are subject to the disclosures in Regulation
S-K and is reflected in the analysis of those forms. To avoid a
Paperwork Reduction Act inventory reflecting duplicative burdens,
for administrative convenience we estimate the burdens imposed by
Regulation S-K to be a total of one hour.
---------------------------------------------------------------------------

    (6) ``Schedule 14D-9'' (OMB Control No. 3235-0102);
    (7) ``Schedule 13E-3'' (OMB Control No. 3235-0007);
    (8) ``Schedule TO'' (OMB Control No. 3235-0515);
    (9) ``Form S-1'' (OMB Control No. 3235-0065);
    (10) ``Form S-4'' (OMB Control No. 3235-0324);
    (11) ``Form S-11'' (OMB Control No. 3235-0067);
    (12) ``Form F-4'' (OMB Control No. 3235-0325); and
    (13) ``Form N-2'' (OMB Control No. 3235-0026).
    The regulations, schedules, and forms were adopted under the
Securities Act and the Exchange Act, except for Form N-2, which we
adopted pursuant to the Securities Act and the Investment Company Act.
The regulations, forms, and schedules set forth the disclosure
requirements for periodic reports, current reports, registration
statements and proxy and information statements filed by companies to
help shareholders make informed voting decisions. The hours and costs
associated with preparing, filing and sending the form or schedule
constitute reporting and cost burdens imposed by each collection of
information. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a currently valid OMB control number.

B. Summary of the Final Rules

    As discussed in more detail above, we are adopting new Rule 14a-21
under the Exchange Act and new Item 24 of Schedule 14A. Rule 14a-21
will implement the requirements of Section 14A of the Exchange Act to
provide separate shareholder advisory votes on executive compensation,
the frequency of shareholder votes on executive compensation, and, in
connection with merger and similar transactions, golden parachute
compensation arrangements. New Item 24 of Schedule 14A will require
disclosure in proxy statements with respect to each of these
shareholder votes. New Rule 14a-21 and new Item 24 of Schedule 14A will
increase existing disclosure burdens for proxy statements by requiring:
     New disclosure about the requirement to provide separate
shareholder votes on executive compensation, the frequency of
shareholder votes on executive compensation and golden parachute
compensation arrangements in connection with merger transactions; and
     New disclosure of the general effect of the shareholder
advisory votes, such as whether such votes are non-binding.
    As discussed in more detail above, we are also adopting amendments
to Item 402(b) of Regulation S-K. The amendments to Item 402(b) of
Regulation S-K may increase existing disclosure burdens for proxy
statements by requiring:
     New disclosure of whether, and if so, how the issuer has
considered the results of the most recent shareholder vote on executive
compensation required by Section 14A of the Exchange Act in determining
compensation policies and decisions, and, if so, how that consideration
has affected the issuer's compensation decisions and policies.
    As discussed in more detail above, we are also adopting new Item
402(t) of Regulation S-K and amendments to Item 1011(b) of Regulation
M-A, Item 5 of Schedule 14A, Item 3 of Schedule 14C, Item 15 of
Schedule 13E-3, Item 11 of Schedule TO, and Item 8 of Schedule 14D-9.
These amendments, other than the amendment to Schedule TO, will
increase existing disclosure burdens for proxy statements, registration
statements on Form S-4 and F-4, solicitation/recommendation statements
on Schedule 14D-9, and going-private schedules by requiring:
     New tabular and narrative disclosure of understandings and
agreements of named executive officers with acquiring and target
companies in connection with merger, acquisition, Rule 13e-3 going-
private transactions, and tender offers,\298\ and disclosure of the
aggregate total of all compensation that may be paid or become payable
to each named executive officer.
---------------------------------------------------------------------------

    \298\ Companies filing solicitation/recommendation statements on
Schedule 14D-9 in connection with third-party tender offers will be
obligated to provide this additional disclosure. However, bidders
filing tender offer statements on Schedule TO will not have a
similar obligation.
---------------------------------------------------------------------------

    As discussed in more detail above, we are adopting amendments to
Form 8-K. The amendments to Form 8-K will increase existing disclosure
burdens for current reports on Form 8-K by requiring:
     New disclosure of the issuer's decision of how frequently
to provide a separate shareholder vote on executive compensation in
light of a shareholder advisory vote on the frequency of shareholder
votes on executive compensation conducted pursuant to Section 14A(a)(2)
of the Exchange Act.
    Together, new Rule 14a-21 and new Item 24 of Schedule 14A and the
amendments to Item 5 of Schedule 14A, Item 3 of Schedule 14C, Item 402
of Regulation S-K, Item 1011 of Regulation M-A, Item 15 of Schedule
13E-3, Item 11 of Schedule TO, and Item 8 of Schedule 14D-9 will
implement and supplement the requirements under Section 14A of the
Exchange Act and also will provide additional meaningful disclosure
regarding golden parachute arrangements and issuers' consideration of
the shareholder votes and the effect of such votes on issuers'
compensation policies and decisions. We believe these changes will
result in more meaningful disclosure for investors making voting or
investment decisions.
    We are adopting an amendment to Rule 14a-4, which relates to the
form of proxy that issuers are required to include with their proxy
materials, to require that issuers present four choices to their
shareholders in connection with the advisory vote on frequency. We are
also adopting an amendment to Rule

14a-6 to add the shareholder votes on executive compensation and the
frequency of shareholder votes on executive compensation required by
Section 14A(a), as well as any shareholder advisory vote on executive
compensation, to the list of items that do not trigger the filing of a
preliminary proxy statement. In addition, we are adopting an amendment
to Rule 14a-8, adding a note to Rule 14a-8(i)(10) to clarify the status
of shareholder proposals relating to the approval of executive
compensation or the frequency of shareholder votes approving executive
compensation. Finally, we are adopting conforming amendments to Item
402(a) and Item 402(m) of Regulation S-K, clarifying that the
disclosure required by proposed Item 402(t) includes information
regarding group life, health, hospitalization, or medical reimbursement
plans that do not discriminate in scope, terms or operation, in favor
of executive officers or directors of the registrant and that are
available generally to all salaried employees. Pursuant to these
conforming amendments, issuers may continue to omit such information in
connection with disclosure required by other portions of Item 402 of
Regulation S-K. The amendments to Rule 14a-4, Rule 14a-6, Rule 14a-8
under the Exchange Act and Item 402(a) and Item 402(m) of Regulation S-
K will not increase any existing disclosure burden. We believe these
amendments will merely clarify existing and new statutory requirements
or reduce burdens otherwise arising from our proposals. As a result,
these amendments will not affect any existing disclosure burden.
    Compliance with the proposed amendments by affected U.S. issuers
will be mandatory. Responses to the information collections will not be
kept confidential and there would be no mandatory retention period for
the information disclosed.

C. Summary of Comment Letters and Revisions to Proposals

    In the Proposing Release, we requested comment on the PRA analysis.
We did not receive any comments that addressed our overall burden
estimates for the proposed amendments, though our analysis was cited by
one commentator who discussed our cost-benefit analysis.\299\
---------------------------------------------------------------------------

    \299\ See letter from CCMC.
---------------------------------------------------------------------------

    We have made few substantive modifications to the proposed
amendments. We have adopted an amendment to Form 8-K to require the
disclosure we had proposed to require in Form 10-Q or Form 10-K.
Therefore, we have adjusted our estimates to reflect no changes to
Forms 10-Q and 10-K and to estimate the increased burdens for Form 8-K.
    We have also revised our amendments with respect to Schedule TO to
eliminate the proposed requirement for bidders in third-party tender
offers to provide Item 402(t) disclosure. We have adjusted our
estimates to reflect no changes to Schedule TO, as any increased burden
will be reflected in Schedule 13E-3 because Item 402(t) disclosure will
be required in any tender offer that is also a Rule 13e-3 going-private
transaction.

D. Revisions to PRA Reporting and Cost Burden Estimates

    We anticipate that the disclosure amendments will increase the
burdens and costs for companies that would be subject to the proposed
amendments. New Section 14A of the Exchange Act, as created by Section
951 of the Act, has already increased the burdens and costs for issuers
by requiring separate shareholder votes on executive compensation and
the frequency of shareholder votes on executive compensation. Section
14A also requires additional disclosure of golden parachute
arrangements in proxy solicitations to approve merger transactions and
a separate shareholder vote to approve such arrangements in certain
circumstances. Our amendments address the Act's requirements in the
context of disclosure under the Federal proxy rules, Regulation S-K and
related forms and schedules, thereby creating only an incremental
increase in the burdens and costs for such issuers. The amendments
specify how issuers are to comply with Section 14A of the Exchange Act
and require new disclosure with respect to comparable transactions.
    For purposes of the PRA, in the Proposing Release we estimated the
annual incremental paperwork burden for all companies to prepare the
disclosure that would be required under our proposals to be
approximately 25,192 hours of company personnel time and a cost of
approximately $8,141,200 for the services of outside professionals.
These estimates included the time and the cost of data gathering
systems and disclosure controls and procedures, the time and cost of
preparing and reviewing disclosure by in-house and outside counsel and
executive officers, and the time and cost of filing documents and
retaining records. In deriving our estimates, we recognize that the
burdens will likely vary among individual companies based on a number
of factors, including the size and complexity of their organizations,
the nature and complexity of their golden parachute compensation
arrangements, and the nature of their operations. We believe that some
companies will experience costs in excess of this average in the first
year of compliance with proposals and some companies may experience
less than the average costs. As discussed above, as a result of changes
to our proposed rules, we are slightly reducing the total PRA burden
and cost estimates that we originally submitted to the OMB in
connection with the proposed amendments. We estimate the annual
incremental paperwork burden for all companies to prepare the
disclosure that would be required under our rule amendments to be
approximately 24,942 hours of company personnel time and a cost of
approximately $7,841,200 for the services of outside professionals.
    We derived our new burden hour and cost estimates by estimating the
average number of hours it would take an issuer to prepare and review
the proposed disclosure requirements. These estimates represent the
average burden for all companies, both large and small. Our estimates
have been adjusted to reflect the fact that some of the amendments will
be required in some but not all of the above listed documents depending
upon the circumstances, and would not apply to all companies.
    With respect to reporting companies, the disclosure required by new
Item 402(t) of Regulation S-K will be required in merger proxy and
information statements, Forms S-4 and F-4, Schedule 13E-3 and certain
solicitation/recommendation statements. The disclosure required by new
Item 402(t) may also be included in annual meeting proxy statements on
a voluntary basis.
    The disclosure required by our amendments to Item 402(b) of
Regulation S-K will be required in proxy and information statements as
well as Forms 10, 10-K, S-1, S-4, S-11, and N-2. The proposed
amendments to CD&A will not be applicable to smaller reporting
companies because under current CD&A reporting requirements these
companies are not required to provide CD&A in their Commission filings.
Based on the number of proxy filings that were received in the 2009
fiscal year, we estimate that approximately 1,200 domestic companies
are smaller reporting companies that have a public float of less than
$75 million.

    In the Proposing Release, we based our annual burden estimates on
other assumptions. We have made some small adjustments to these
estimates to reflect the revisions we made to the amendments. First, we
continue to assume that the burden hours of the amendments will be
comparable to the burden hours related to similar disclosure
requirements under current reporting requirements, such as the
disclosure required by Item 402(j). Second, we continue to assume that
substantially all of the burdens associated with the amendments to Rule
14a-21 and Item 24 will be associated with Schedule 14A as this will be
the primary disclosure document in which these items will be prepared
and presented. In the case of our proposed amendments to Item 402(b)
and Item 402(t) of Regulation S-K, we continue to assume that the
burdens associated with the amendments will be associated with various
disclosure documents as these items will be included in a number of
forms and statements. We have noted an additional 1 hour for the
amendments to Form 8-K, and we are no longer proposing any amendments
that would alter the disclosure burden of Form 10-Q and Form 10-K.
    For each reporting company, we estimate that the amendments will
impose on average the following incremental burden hours:
     2 hours for the amendments to CD&A.
     1 hour for the amendments to Item 24 of Schedule 14A.
     1 hour for the amendments to Form 8-K.
     20 hours for new Item 402(t) of Regulation S-K.
1. Annual Meeting Proxy Statements
    For purposes of the PRA, in the case of reporting companies, we
estimate the annual incremental paperwork burden for annual meeting
proxy statements under the amendments will be approximately 1 hour per
form for companies that are smaller reporting companies, and 3 hours
per form for companies that are non-accelerated filers (and not smaller
reporting companies), accelerated filers, or large accelerated
filers.\300\ The estimated burden is smaller for smaller reporting
companies as such issuers are not required to include a CD&A.
---------------------------------------------------------------------------

    \300\ Our estimate for annual proxy statements is based upon an
estimated burden over a six-year period during which the shareholder
advisory votes required by Section 14A(a) would not occur annually.
We used a six-year period because issuers will conduct at least two
shareholder advisory votes on executive compensation and at least
one shareholder advisory vote on the frequency of such votes in this
time period. We then estimated an average annual burden based on the
average burden over the six-year period.
---------------------------------------------------------------------------

2. Exchange Act Current Reports
    For purposes of the PRA, we estimate the annual incremental
paperwork burden for Form 8-K under the amendments will be
approximately 1 hour per form. Our estimates below also account for the
fact that each issuer will only be required to include additional
disclosure in one amended Form 8-K each year the issuer conducts a
shareholder advisory vote on frequency.
3. Securities Act Registration Statements and Exchange Act Registration
Statements
    For purposes of the PRA, in the case of reporting companies, we
estimate the annual incremental paperwork burden for Securities Act and
Exchange Act registration statements under the amendments is
approximately 2 hours per form, which represents the additional burden
associated with our amendments to CD&A.\301\ In making our estimates,
we note that the additional burdens in CD&A only apply to issuers who
have conducted a prior shareholder advisory vote and would not apply,
for example, to issuers making an initial filing on Form S-1 or Form S-
11.
---------------------------------------------------------------------------

    \301\ We have assumed that the annual incremental paperwork
burden under the proposed amendments to Item 402(b) of Regulation S-
K would be included in the annual meeting proxy statement.
---------------------------------------------------------------------------

4. Merger Proxies, Tender Offer Documents and Schedule 13E-3
    For purposes of the PRA, in the case of reporting companies, we
estimate the annual incremental paperwork burden for merger proxy
statements, and registration statements on Form S-4 and F-4 to be 21
hours per form, as these forms will be required to include additional
disclosures under Item 24 of Schedule 14A and Item 402(t) of Regulation
S-K. We estimate the annual incremental paperwork burden for merger
information statements, and tender offer solicitation/recommendation
statements and Schedules 13E-3 to be 20 hours per form, as these forms
will be required to include Item 402(t) disclosure but will not be
required to include additional disclosure under Item 24 of Schedule
14A.
    The tables below illustrate the total annual compliance burden of
the collection of information in hours and in cost under the proposed
amendments for current reports; proxy and information statements; Form
10; registration statements on Forms S-1, S-4, F-4, S-11, and N-2; and
Regulation S-K.\302\ The burden estimates were calculated by
multiplying the estimated number of responses by the estimated average
amount of time it would take an issuer to prepare and review the
proposed disclosure requirements. For the Exchange Act report on Form
8-K, and the proxy statements we estimate that 75% of the burden of
preparation is carried by the company internally and that 25% of the
burden of preparation is carried by outside professionals retained by
the issuer at an average cost of $400 per hour.
---------------------------------------------------------------------------

    \302\ Figures in both tables have been rounded to the nearest
whole number.
---------------------------------------------------------------------------

    For registration statements on Forms S-1, S-4, F-4, S-11, and N-2,
and the Exchange Act registration statement on Form 10, we estimate
that 25% of the burden of preparation is carried by the issuer
internally and that 75% of the burden of preparation is carried by
outside professionals retained by the issuer at an average cost of $400
per hour. There is no change to the estimated burden of the collections
of information under Regulation S-K because the burdens that this
regulation imposes are reflected in our revised estimated for the
forms. The portion of the burden carried by outside professionals is
reflected as a cost, while the portion of the burden carried by the
issuer internally is reflected in hours.

                    Table 1--Incremental Paperwork Burden Under the Amendments For Current Reports; Proxy and Information Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Number of      Incremental        Total
                                                             responses     burden hours/    incremental    75%  Company         25%        Professional
                                                               \303\           form        burden hours                    Professional        costs
                                                                     (A)             (B)     (C)=(A)*(B)    (D)=(C)*0.75    (E)=(C)*0.25    (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
8-K \304\...............................................           7,212               1           7,212           5,409           1,803        $721,200
Form 10 \305\...........................................               9               2              18               4              14           5,600
DEF 14A \306\...........................................           7,212
Accel. Filers...........................................           6,112               3          18,336          13,752           4,584       1,833,600
SRC Filers..............................................           1,100               1           1,100             825             275         110,000
DEF 14C.................................................             582
Accel. Filers...........................................             482               2             964             723             241          96,400
SRC Filers..............................................             100               0               0               0               0               0
Reg. S-K................................................             N/A             N/A             N/A             N/A             N/A             N/A
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................  ..............  ..............          27,630          20,713  ..............       2,766,800
--------------------------------------------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------

    \303\ The number of responses reflected in the table equals the
actual number of forms and schedules filed with the Commission
during the 2009 calendar year, adjusted to reflect the estimated
number of forms and schedules that would be required to include
additional disclosure under our rules as proposed. As explained
below in notes 304 through 306, we have reduced the number of
estimated filings to reflect that the additional disclosure
requirements will only apply to a smaller number of the forms filed.
    \304\ We calculated the burden hours for Form 8-K based on the
number of proxy statements filed with the Commission during the 2009
calendar year. We assumed that there would be an aggregate equal
number of Forms 8-K to disclose the issuer's plans with respect to
the frequency vote as the number of proxy statements.
    \305\ The burden allocation for Form 10 uses a 25% internal to
75% outside professional allocation. We have reduced the number of
estimated Form 10 filings to reflect that approximately 95% of these
forms would not require additional disclosure, as new disclosure
required under Item 402 will only relate to issuers in spin-off
transactions that are disclosing compensation of public parent
companies that have conducted a prior shareholder vote on executive
compensation.
    \306\ The estimates for Schedule 14A and Schedule 14C are
separated to reflect our estimate of the burden hours and costs
related to the proposed amendments to CD&A which will be applicable
to companies that are large accelerated filers, accelerated filers,
and non-accelerated filers (that are not smaller reporting
companies), but will not be applicable to smaller reporting
companies.

 Table 2--Incremental Paperwork Burden Under the Amendments for Registration Statements, Merger Proxy and Information Statements, Tender Offer Documents
                                                                   and Schedules 13E-3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Number of      Incremental        Total
                                                             responses     burden hours/    incremental    25%  Company         75%        Professional
                                                               \307\           form        burden hours                    Professional        costs
                                                                     (A)             (B)     (C)=(A)*(B)    (D)=(C)*0.25    (E)=(C)*0.75    (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form S-1 \308\..........................................             485               2             970             243             727        $290,800
Form S-11...............................................              22               2              44              11              33          13,200
Form S-4 \309\..........................................             499              21          10,479           2,620           7,859       3,143,600
Form F-4................................................              27              21             567             142             425         170,000
DEFM 14A................................................             137              21           2,877             719           2,158         863,200
DEFM 14C \310\..........................................              14              20             280              70             210          84,000
Schedule 14D-9..........................................              77              20           1,540             385           1,155         462,000
Schedule 13E-3..........................................               5              20             100              25              75          30,000
Form N-2 \311\..........................................              29               2              58              14              44          17,600
Reg. S-K................................................             N/A             N/A             N/A             N/A             N/A             N/A
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................  ..............  ..............          16,915           4,229  ..............       5,074,400
--------------------------------------------------------------------------------------------------------------------------------------------------------

IV. Cost-Benefit Analysis

A. Introduction

    We are adopting amendments to implement and supplement the

provisions of the Dodd-Frank Act relating to shareholder approval of
executive compensation and disclosure and shareholder approval of
golden parachute compensation arrangements. Section 951 of the Dodd-
Frank Act amends the Exchange Act by adding new Section 14A. New
Section 14A(a)(1) requires companies to conduct a separate shareholder
advisory vote to approve the compensation of executives. Section
14A(a)(2) requires companies to conduct a separate shareholder advisory
vote to determine how often an issuer will conduct a shareholder
advisory vote on executive compensation. In addition, Section 14A(b)
requires companies soliciting votes to approve merger or acquisition
transactions to provide disclosure of certain ``golden parachute''
compensation arrangements and, when such arrangements have not been
included in the shareholder advisory vote on executive compensation, to
conduct a separate shareholder advisory vote to approve the golden
parachute compensation arrangements.\312\
---------------------------------------------------------------------------

    \307\ The number of responses reflected in the table equals the
actual number of forms and schedules filed with the Commission
during the 2009 calendar year, adjusted to reflect the estimated
number of forms and schedules that would be required to include
additional disclosure under our rules as proposed. As explained
below in notes 308 through 311, we have reduced the number of
estimated filings to reflect that the additional disclosure
requirements will only apply to a smaller number of the forms filed.
    \308\ We have reduced the number of estimated Form S-1 and Form
S-11 filings to reflect that approximately 60% of these forms will
not require additional disclosure, as new disclosure required under
Item 402 will only relate to issuers who are already public
companies and have conducted a prior shareholder vote on executive
compensation.
    \309\ We have reduced the number of estimated Form S-4 and Form
F-4 filings to reflect an approximate 75% of these forms which will
not relate to mergers or similar transactions but will be other
transactions (e.g., holding company formations and financings) to
which the amended rules will not apply.
    \310\ We have reduced the number of estimated DEFM 14C filings
to reflect an approximate 15% of these forms, which will not relate
to merger transactions but will involve dissolutions and similar
transactions.
    \311\ We have reduced the number of estimated Form N-2 filings
to reflect that 29 filings were made by business development
companies during calendar year 2009, because only business
development companies will be subject to the amended disclosure
required under Item 402 on Form N-2.
    \312\ According to the Dodd-Frank Wall Street Reform and
Consumer Protection Act Conference Report at page 872, Section 951
is ``designed to address shareholder rights and executive
compensation practices.''
---------------------------------------------------------------------------

    We are adopting new Rule 14a-21 to implement Section 14A(a)(1) by
providing separate shareholder advisory votes to approve executive
compensation, to approve the frequency of such votes on executive
compensation, and to approve golden parachute compensation arrangements
at shareholder meetings at which shareholders are asked to approve
merger transactions. In addition to the votes required by Section 14A,
we are also adopting a new Item 24 of Schedule 14A to elicit
disclosure, similar to our approach with respect to TARP companies
providing shareholder advisory votes on executive compensation,
regarding the effect of the shareholder votes required by Rule 14a-21,
including whether the votes are non-binding.
    New Item 402(t) of Regulation S-K implements and supplements the
statutory requirement in Section 14A(b)(1) to promulgate rules for the
clear and simple disclosure of golden parachute compensation
arrangements that the soliciting person has with its named executive
officers (if the acquiring issuer is not the soliciting person) or that
it has with the named executive officers of the acquiring issuer that
relate to the merger transaction. In addition, Item 402(t), will
supplement the requirements of Section 14A(b)(1) by requiring
disclosure of golden parachute compensation arrangements between the
acquiring company and the named executive officers of the target
company if the target company is the soliciting person.
    Our amendments to Item 5 of Schedule 14A and Item 3 of Schedule 14C
will require disclosure regarding golden parachute compensation
arrangements in accordance with Section 14A(b)(1) of the Exchange Act.
We are also adopting amendments to require that additional disclosure
regarding golden parachute compensation arrangements be included in
connection with other transactions. We are adopting amendments to
Regulation M-A, Schedule 14D-9, and Schedule 13E-3 that will require
additional disclosure regarding golden parachute compensation
arrangements in connection with Rule 13e-3 going-private transactions
and tender offers.\313\
---------------------------------------------------------------------------

    \313\ Companies filing solicitation/recommendation statements on
Schedule 14D-9 in connection with third-party tender offers will be
obligated to provide this additional disclosure. However, bidders
filing tender offer statements on Schedule TO will not have a
similar obligation.
---------------------------------------------------------------------------

    We are also adopting amendments to Item 402 of Regulation S-K to
require additional Compensation Discussion and Analysis disclosure
about the issuer's response to the shareholder vote on executive
compensation and to provide additional disclosure about golden
parachute compensation arrangements. We are also adopting amendments to
Form 8-K to require disclosure regarding the issuer's action as a
result of the shareholder advisory vote on the frequency of shareholder
votes on executive compensation.
    We are adopting an amendment to Rule 14a-4, which relates to the
form of proxy that issuers are required to include with their proxy
materials, to require that issuers present four choices to their
shareholders in connection with the advisory vote on frequency. We are
also adopting an amendment to Rule 14a-6 to add the shareholder votes
on executive compensation and the frequency of shareholder votes on
executive compensation required by Section 14A(a), as well as any
shareholder advisory vote on executive compensation, to the list of
items that do not trigger the filing of a preliminary proxy statement.
In addition, we are adopting an amendment to Rule 14a-8, adding a note
to Rule 14a-8(i)(10) to clarify the status of shareholder proposals
relating to the approval of executive compensation or the frequency of
shareholder votes approving executive compensation.
    The rules we are adopting, which implement the relevant provisions
of the Dodd-Frank Act, will directly affect most public companies as
well as potential private acquirers. Our amended rules implement the
shareholder advisory vote requirements of Section 14A, promulgate rules
for additional disclosure in accordance with Section 14A(b)(1), and
provide for additional disclosure, not required by Section 14A,
relating to the shareholder advisory votes. In addition, our amended
rules expand the required disclosure of Section 14A(b)(1) to require
disclosure of arrangements between additional parties, namely
agreements between the acquiring company and named executive officers
of the target company, and require disclosure with respect to
additional transactions, including certain tender offers and Rule 13e-3
going-private transactions. As discussed below, the enhanced disclosure
required by our amended rules regarding the shareholder approval of
executive compensation and companies' responses to shareholder votes
will provide shareholders and investors with timely information about
such votes that is consistent with the information required to be
provided under the Act and that enhance the operation of our rules
pursuant to the Act. The enhanced disclosure regarding golden parachute
compensation will provide a more complete picture of the compensation
to shareholders as they consider voting and investment decisions
relating to mergers and similar transactions.
    We are sensitive to the costs and benefits imposed by the rule and
form amendments we are adopting. The discussion below focuses on the
costs and benefits of the amendments made by the Commission to
implement the Act within its permitted discretion, rather than the
costs and benefits of the Act itself.

B. Comments on the Cost-Benefit Analysis

    In the Proposing Release, we requested qualitative and quantitative
feedback on the nature of the benefits and costs described and any
benefits and costs we may have overlooked. We received one comment
letter relating to the cost-benefit analysis in the Proposing
Release.\314\ The commentator asserted that we had underestimated the
costs and burdens involved because we did not take into account the
following additional categories of costs: Costs

associated with proxy advisory firms and the potential for companies to
retain additional consulting services relating to their compensation
decisions and say-on-pay votes, additional costs associated with
submitting no-action letter requests under Rule 14a-8, and increased
costs due to increased demand for proxy solicitation and other
shareholder communications services.\315\
---------------------------------------------------------------------------

    \314\ See letter from CCMC.
    \315\ See letter from CCMC. See also Section IV.D below for
additional discussion.
---------------------------------------------------------------------------

C. Benefits

    The amended rules we are adopting today are intended to implement
and supplement the requirements of Section 14A of the Exchange Act as
set forth in Section 951 of the Dodd-Frank Act. Our amended rules not
only implement the shareholder advisory votes required by Section 14A,
but also require additional disclosure addressing whether, and if so,
how issuers have considered these required shareholder advisory votes,
and if so, how such votes have affected the companies' compensation
policies and decisions.
    We believe the enhanced disclosures about the results of the
shareholder advisory vote on the frequency of the approval of executive
compensation will provide timely information to shareholders about the
issuer's plans for future shareholder advisory votes. The enhanced
disclosure and amendments to the CD&A requirements in Item 402(b) of
Regulation S-K about whether, and if so, how an issuer has considered
the results of a shareholder vote to approve executive compensation
and, if so, how that consideration has affected its compensation
policies and decisions will benefit shareholders and other market
participants by providing potentially useful information for voting and
investment decisions.
    Our amended rules will also specify how the shareholder advisory
votes required by Section 14A(a) relate to existing shareholder
advisory votes required for issuers with outstanding indebtedness under
TARP. In our view, because of the similarity of the separate annual
say-on-pay vote requirements, a company with indebtedness under TARP
need only provide one annual shareholder advisory vote. As we have
discussed above, we have indicated that the annual shareholder advisory
vote under EESA would fulfill the requirements for the shareholder vote
pursuant to Section 14A(a)(1) and Rule 14a-21(a). We believe this
benefits such companies by reducing confusion and burdens of the two
requirements by specifying that two separate annual shareholder votes
are not required. In addition, because issuers with indebtedness under
TARP must conduct an annual shareholder advisory vote on executive
compensation, we have adopted an exemption from the frequency vote
required by Section 14A(a)(2) and Rule 14a-21(b) until the issuer
repays all indebtedness under TARP. We believe this benefits such
issuers and their shareholders by avoiding the cost and confusion of
conducting a vote on the frequency of a shareholder advisory vote when
the frequency of such a vote is mandated by another requirement.
    After reviewing the comments we have received, we are also adopting
a temporary exemption for smaller reporting companies that will delay
the implementation of the shareholder advisory votes on say-on-pay and
frequency required by Section 14A(a) and Rule 14a-21(a) and (b) for a
two-year period. We believe that a delayed effective date for the say-
on-pay and frequency votes will benefit smaller reporting companies by
allowing these companies to observe how the rules operate for other
companies by preparing them for implementation of the rules. We believe
that delayed implementation for these companies will also allow us to
evaluate the implementation of the adopted rules by larger companies
and provide us with the additional opportunity to consider whether
adjustments to the rule would be appropriate for smaller reporting
companies before the rule becomes applicable to them.
    In these amended rules, we also provide guidance for issuers and
shareholders regarding the interaction of the shareholder advisory
votes required by Section 14A and shareholder proposals under Rule 14a-
8 by adding a note to Rule 14a-8(i)(10). The note we are adopting will
reduce potential confusion among shareholders and issuers with respect
to what may be excluded under our rules in light of the new
requirements under Section 14A, while preserving the ability of
shareholders to make proposals relating to executive compensation.
    New Item 402(t) of Regulation S-K will require narrative and
tabular disclosure of golden parachute compensation arrangements in the
clear and simple form required by Section 14A(b)(1) of the Exchange
Act. Because Section 14A(b)(1) requires that disclosure not only be in
a clear and simple form, but also that it include an aggregate total of
all golden parachute compensation for each named executive officer, we
have adopted Item 402(t) to require that such disclosure appear in a
table. The tabular format is designed to provide investors with clear
disclosure about golden parachute compensation that is comparable
across different issuers and transactions and make the information more
accessible. In addition to the tabular disclosure, we are also adopting
amendments to require narrative disclosure to provide additional
context and disclosure not suitable to the tabular format. Our approach
is similar to the existing approach to executive compensation
disclosure in Item 402 of Regulation S-K and provides a focused manner
in which to present and quantify golden parachute compensation.
Narrative disclosure supplements the tables by providing additional
context and discussion of the numbers presented in the table. We
believe that the combination of narrative and tabular disclosure will
provide the clearest picture of the full scope of golden parachute
compensation in the clear and simple format required by Section
14A(b)(1).
    Because Section 14A(b)(1)'s disclosure requirements are limited to
agreements or understandings between the person conducting the
solicitation and any named executive officers of the issuer or any
named executive officers of the acquiring issuer if the person
conducting the solicitation is not the acquiring issuer, we have
formulated Item 402(t) to require disclosure, in addition to the
disclosure mandated by Section 14A(b)(1), of agreements or
understandings between the acquiring company and the named executive
officers of the target company. Item 402(t) requires disclosure of all
golden parachute compensation relating to the merger among the target
and acquiring companies and the named executive officers of each in
order to cover the full scope of golden parachute compensation
applicable to the transaction. By providing disclosure of the full
scope of golden parachute compensation, we believe issuers will provide
more detailed, comprehensive, and useful information to shareholders to
consider when making their voting or investment decisions.
    Likewise, additional disclosure on golden parachute compensation,
without regard to whether the transaction is structured as a merger, a
tender offer,\316\ or a Rule 13e-3 going-private transaction that is
not subject to Regulation 14A, will benefit

shareholders and other market participants by allowing them to timely
and more accurately assess the transaction and evaluate with greater
acuity the golden parachute compensation that named executive officers
could expect to receive and the related potential interests such
officers might have in pursuing and/or supporting a change in control
transaction. While our existing disclosure requirements include much of
this disclosure, the specificity and narrative and tabular format of
Item 402(t) will allow for a clear presentation of the full scope of
the information. Furthermore, by standardizing disclosure of golden
parachute compensation arrangements across different transaction
structures, our amended rules will enable shareholders to compare more
easily such compensation among various types of change in control
transactions and structures. In addition, our amended rules will also
enable the shareholders of the acquirer to timely and more accurately
assess the cost of the acquisition transaction in proxy statements for
which additional disclosure is required pursuant to Note A of Schedule
14A where acquirer shareholders do not vote on the merger transaction
but vote to approve another proposal such as the issuance of shares or
a stock split.
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    \316\ Companies filing solicitation/recommendation statements on
Schedule 14D-9 in connection with third-party tender offers will be
obligated to provide this additional disclosure. However, bidders
filing tender offer statements on Schedule TO will not have a
similar obligation.
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    We have adopted such disclosure requirements in both tabular and
narrative formats, with disclosure of aggregate total compensation, in
accordance with the requirement of Section 14A(b)(1) that such
disclosure be in a clear and simple form. To the extent investors
expect to see information about all of the economic benefits that may
accrue to an executive in one location of the proxy statement
(including golden parachute arrangements and other compensation, such
as future employment contracts), the benefit of this disclosure may be
limited since the information about other executive compensation that
may be disclosed in proxy materials does not need to be included in
tabular format pursuant to Item 402(t) of Regulation S-K.
    Our amended rules will also benefit issuers by specifying how they
must comply with the requirements of Exchange Act Section 14A in the
context of the Federal proxy rules. The amended rules will eliminate
uncertainty that may exist among issuers and other market participants,
if we did not propose any rules, regarding what is necessary under the
Commission's proxy rules when conducting a shareholder vote required
under Exchange Act Section 14A. The amended rules specify how the
statutory requirements operate in connection with the Federal proxy
rules and accordingly, we believe the amended rules promote better
compliance with the requirements of Exchange Act Section 14A and reduce
the amount of management time and financial resources necessary to
ensure that issuers comply with their obligations under both Exchange
Act Section 14A and the Federal proxy rules. This will benefit issuers,
their shareholders and other market participants.

D. Costs

    We recognize that the amendments we are adopting will impose new
disclosure requirements on companies and are likely to result in costs
related to information collection.\317\ The amendments we are adopting
that require the disclosure of executive compensation in a tabular
format are likely to result in certain costs. We expect these costs,
however, to be limited since much of the compensation required to be
disclosed under our amended rules is currently required to be disclosed
in narrative format in the existing disclosure regime.
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    \317\ We estimate the annual incremental paperwork burden for
all companies to prepare the disclosure that would be required under
both Exchange Act Section 14A and our rule amendments to be
approximately 24,942 hours of company personnel time and a cost of
approximately $7,841,200 for the services of outside professionals.
As noted above in the Comments on the Cost-Benefit Analysis section,
we received one comment letter relating to the cost-benefit analysis
that asserted that the PRA numbers cited in the Proposing Release
underestimated the costs and burdens involved. See letter from CCMC.
We acknowledge that the PRA estimates do not reflect the full
magnitude of the economic costs involved, but are estimates of the
collection of information burden and cost for the limited purpose of
the PRA. In addition to costs arising from our rule amendments, the
PRA estimates include collection of information-related costs
arising from new Exchange Act Section 14A.
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    Our analysis of the costs of the amendments we are adopting today
relates to the incremental direct and indirect costs arising from the
requirements in our rule amendments. The analysis below does not
reflect any additional direct or indirect costs arising from new
Exchange Act Section 14A, including the shareholder advisory votes on
say-on-pay, frequency, and golden parachute compensation, and any
likely additional costs which would be incurred because of these votes.
As noted above, one commentator asserted that we had underestimated the
costs and burdens involved because we did not take into account the
following additional categories of costs: Costs associated with proxy
advisory firms and the potential for companies to retain additional
consulting services relating to their compensation decisions and say-
on-pay votes, additional costs associated with submitting no-action
letter requests under Rule 14a-8, and increased costs due to increased
demand for proxy solicitation and other shareholder communications
services.\318\ We do not believe the additional costs described by the
commentator will arise as a result of our amendments today as these
items relate to increased costs resulting from the requirements of
Section 14A, including the say-on-pay vote, the frequency vote, and the
shareholder advisory vote on golden parachute compensation. With
respect to costs associated with submitting no-action letter requests
and Rule 14a-8, we note that Section 14A(c)(4) specifically provides
that the Section 14A shareholder advisory votes may not be construed
``to restrict or limit the ability of shareholders to make proposals
for inclusion in proxy materials related to executive compensation.''
\319\ Although our new rules include a note advising of one
circumstance when a shareholder proposal may be excluded, the rules do
not impose any new obligations with respect to Rule 14a-8.
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    \318\ See letter from CCMC.
    \319\ Exchange Act Section 14A(c)(4).
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    We are adopting new Item 402(t) to implement the requirement of
Section 14A(b)(1) of the Exchange Act that we promulgate rules for
disclosure of golden parachute compensation arrangements in a clear and
simple form, which we believe is best provided in both narrative and
tabular format. In addition to the required disclosure under Section
14A(b)(1), we are also expanding the disclosure to cover agreements
between the acquiring company and the named executive officers of a
target company in a merger or similar transaction. Though this
additional disclosure will result in certain additional costs for
issuers preparing a merger proxy, we believe that the additional
disclosure is appropriate in order to provide shareholders information
about the full scope of golden parachute compensation applicable to the
transaction. If the disclosure provided by the issuer is not presented
in a clear manner, the disclosure of golden parachute compensation for
both target and acquirer executives in target and acquirer proxy
statements may be confusing to investors. In addition, because parties
often have to rely on each other for the other side's information, this
reliance may add to

the costs of mergers that are ultimately born by shareholders. There
may also be certain indirect costs to issuers and shareholders as a
result of our rule amendments, as the additional disclosure of golden
parachute compensation may result in increased transactional expenses
in the form of additional advisers and consultants, increased time to
prepare disclosure documents, and increased time and expense to
negotiate compensation arrangements.
    Furthermore, companies engaging in or subject to a Rule 13e-3
going-private transaction and companies preparing solicitation/
recommendation statements given their status as targets in third-party
tender offers may face increased costs because of the required
disclosure of golden parachute compensation arrangements, including the
required table and aggregate totals. In addition, companies soliciting
proxies or consents for transactions for which additional disclosure is
required pursuant to Note A of Schedule 14A may face increased costs as
well due to the additional disclosure requirements of Item 5 of
Schedule 14A. We have adopted these disclosure requirements that go
beyond the requirements of Section 14A(b)(1) because we believe the
rules will reduce the regulatory disparity that might otherwise result
from treating such transactions differently from mergers. In response
to commentators, however, we have eliminated the proposed requirement
for bidders in third-party tender offers to provide Item 402(t)
disclosure. We believe this change is appropriate given that target
companies that are the subject of third-party tender offers will
provide the 402(t) disclosure in their Schedules 14D-9 within ten days
after the commencement of the offers. We also believe this change
addresses the concern expressed by one of the commentators that third-
party bidders, particularly in non-negotiated transactions, may not
have access to reliable information about the golden parachute
arrangements between target companies and their named executive
officers. By retaining the disclosure requirement in Schedule 14D-9, we
are still able to minimize the regulatory disparity that might
otherwise result from treating third-party tender offers differently
than other transactions.
    As noted above, there may also be additional indirect costs
relating to such increased disclosure, as well as costs associated with
obtaining compensation information from the other parties involved in a
transaction in order to fulfill the issuer's disclosure obligations.
    The expanded Compensation Discussion and Analysis disclosure may
also result in costs associated with drafting disclosure that addresses
whether, and if so, how the results of a shareholder vote on executive
compensation were considered in determining the issuer's compensation
policies and decisions and any resultant effect on those compensation
policies and decisions. Similarly, the revisions to the current
reporting requirements on Form 8-K may result in costs associated with
assessing the results of a shareholder vote on the frequency of
shareholder votes to approve executive compensation and drafting the
additional disclosure regarding the company's plans to conduct votes in
the future. Some of these costs could include the cost of hiring
additional advisors, such as attorneys, to assist in the analysis and
drafting.
    We believe that these costs will not be unduly burdensome given
that much of the disclosure is covered by our pre-existing disclosure
requirements, even though we are adopting rules that require that such
disclosure be included in both narrative and tabular format. The
amendments we adopt exceed the pre-existing narrative requirements, as
we are adopting tabular disclosure with an aggregate total and no de
minimis threshold for perquisites. We expect that there will be
incremental costs associated with drafting the additional disclosure,
but that much of the information would be readily obtainable by the
parties given existing disclosure requirements and as part of the due
diligence process prior to drafting the transaction documents.
    In addition to the direct costs associated with the required
disclosure, the amended rules might create additional indirect costs
for private companies that may be engaged in takeovers of public
companies. We do not expect, however, the specific and detailed
disclosure and the shareholder advisory vote regarding golden
parachutes to diminish the number of takeover transactions.
    The note to Rule 14a-8(i)(10) we are adopting may also impose
certain costs on shareholders as it would permit issuers to exclude
certain shareholder proposals that would otherwise not be excludable