a nominating group should be jointly and severally liable to the
company for material misstatements or omissions provided to the company
about the group or its members.\751\ Another commenter, noting
investors' concerns about exposure to joint liability from
participating with other investors to nominate a candidate, requested
that the Commission add additional commentary about the limits of joint
liability for unapproved statements of other members of a nominating

group.\752\ One commenter suggested that a nominating shareholder or
group should be required to indemnify the company for any costs
incurred in connection with any misstatements or omissions in the
information provided to the company for inclusion in the company's
proxy materials.\753\
---------------------------------------------------------------------------

    \749\ See letter from CII.
    \750\ See letter from Protective.
    \751\ See letter from Verizon.
    \752\ See letter from Universities Superannuation.
    \753\ See letter from Verizon.
---------------------------------------------------------------------------

    We are adopting Rule 14a-9(c) largely as proposed, but with
specific references to statements made in the Schedule 14N and other
related communications and a clarification that the rule would apply
where a nominee is submitted pursuant to a foreign law provision in
addition to a State law provision or the company's governing documents.
New Rule 14a-9(c) provides that ``no nominee, nominating shareholder or
nominating shareholder group, or any member thereof, shall cause to be
included in a registrant's proxy materials, either pursuant to the
Federal proxy rules, an applicable state or foreign law provision, or a
registrant's governing documents as they relate to including
shareholder nominees for director in registrant proxy materials,
include in a notice on Schedule 14N, or include in any other related
communication, any statement which, at the time and in the light of the
circumstances under which it is made, is false or misleading with
respect to any material fact, or which omits to state any material fact
necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier
communication with respect to a solicitation for the same meeting or
subject matter which has become false or misleading.'' The changes to
the rule text are intended to clarify that a nominating shareholder or
group would be liable for statements it makes regarding the nomination,
regardless of whether those statements ultimately appear in the
company's proxy statement, as we consider any statements that are made
in the Schedule 14N or in other communications to be part of the
solicitation by the nominating shareholder or group. Consistent with
this view, the Schedule 14N filing (as well as any other related
communications) would be considering soliciting materials for purposes
of Section 14(a) liability.
    Under the Proposal, the rule also included express language
providing that the company would not be responsible for information
that is provided by the nominating shareholder or group under Rule 14a-
11 and then repeated by the company in its proxy statement, except
where the company knows or has reason to know that the information is
false or misleading.\754\ A similar provision was proposed in Rule 14a-
19 with regard to information provided by the nominating shareholder or
group in connection with a nomination made pursuant to an applicable
State law provision or a company's governing documents.\755\
---------------------------------------------------------------------------

    \754\ See proposed Rule 14a-11(e).
    \755\ See Note to proposed Rule 14a-19.
---------------------------------------------------------------------------

    A number of commenters opposed the ``knows or has reason to know''
standard.\756\ Many commenters argued generally that because the
Commission's Proposal would eliminate the board's involvement in
selecting the shareholder nominees and prevent a company from excluding
any information from its proxy materials, the company should not be
liable for information provided by the nominating shareholder, group,
or nominee.\757\ Commenters further noted that companies would not have
adequate time or sufficient means to investigate the statements made by
the nominating shareholder, group, or nominee.\758\ Therefore, these
commenters argued that it would be inappropriate to shift onto
companies any liability for statements made by a nominating
shareholder, group, or nominee or impose a duty to investigate or
otherwise confirm the accuracy of the information provided by a
nominating shareholder, group, or nominee.\759\ One commenter predicted
that if a company is liable for information provided by a nominating
shareholder or group and included in a company's proxy materials
pursuant to Rule 14a-11, an applicable State law provision, or a
provision in a company's governing documents, it would challenge in
court any information provided by a nominating shareholder, group, or
nominee that it suspects is materially false or misleading.\760\ The
commenter asserted that this type of expensive and time-consuming
litigation likely would undermine the Commission's goals for the rule.
Some commenters believed that the appropriate standard would be the
standard in Rule 14a-8(l)(2) and Rule 14a-7(a)(2)(i): ``the company is
not responsible for the contents of [the shareholder proponent's]
proposal or supporting statement.''\761\ Other commenters recommended
generally that the Commission allow companies to provide certain
disclaimers in their proxy materials regarding the statements provided
by the nominating shareholder or group,\762\ with one commenter
suggesting that companies also should be able to set the nominating
shareholder's or group's statements apart from their own statements by
using different fonts, colors, graphics or other visual devices.\763\
---------------------------------------------------------------------------

    \756\ See letters from ABA; Alaska Air; American Bankers
Association; Ameriprise; BorgWarner; BRT; Caterpillar; Cleary; DTE
Energy; ExxonMobil; Honeywell; ICI; Protective; S. Quinlivan; Seven
Law Firms; Sidley Austin; Society of Corporate Secretaries; Southern
Company; UnitedHealth; Verizon.
    \757\ See letters from American Bankers Association; Ameriprise;
BorgWarner; BRT; Caterpillar; ExxonMobil; Honeywell; S. Quinlivan;
UnitedHealth; Verizon.
    \758\ See letters from Alaska Air; BorgWarner; BRT; DTE Energy;
Protective; Seven Law Firms; Society of Corporate Secretaries.
    \759\ See letters from Alaska Air; BorgWarner; BRT; DTE Energy;
Protective; Seven Law Firms; Sidley Austin; Society of Corporate
Secretaries; Southern Company; United Health; Verizon.
    \760\ See letter from ABA.
    \761\ See letters from ABA; BorgWarner; BRT; Caterpillar;
Society of Corporate Secretaries; Southern Company.
    \762\ See letters from Alaska Air; BorgWarner; BRT; ICI;
Protective.
    \763\ See letter from BRT.
---------------------------------------------------------------------------

    Two commenters addressed the issue of a company's liability for
disclosure provided by a nominating shareholder or group that is
determined to be materially false or misleading after the proxy
materials have been sent.\764\ One commenter stated that companies
should not have liability for failing to correct or recirculate proxy
materials if, after the company mails its proxy materials, it is
notified (or learns) that the information provided by a nominating
shareholder or group is (or has become) materially false or
misleading.\765\ The commenter noted that the burden of updating and
correcting information provided by a nominating shareholder or group
should be solely the obligation of that shareholder or group. Another
commenter provided similar views, noting that ``[i]n situations where
the registrant's changes have not been permitted, and certainly after
the proxy materials have been published, we think the burden [of
correcting or recirculating proxy materials] should be on the
nominating shareholder and that the exception imposing liability on the
registrant should not apply.'' \766\ One commenter recommended that if
Rule 14a-11 is adopted, the rule should state that liability is only
attached when ``the company knows or is grossly negligent in not
knowing that the information is false or misleading.'' \767\ Another
commenter asked that the company be liable for false and misleading

information provided by a nominating shareholder or group only if it
knew the information was false or misleading.\768\
---------------------------------------------------------------------------

    \764\ See letters from ABA; Sidley Austin.
    \765\ See letter from ABA.
    \766\ Letter from Sidley Austin.
    \767\ See letter from Ameriprise.
    \768\ See letter from ICI.
---------------------------------------------------------------------------

    After considering the comments, we are adopting the proposed
provision stating that companies will not be responsible for
information that is provided by the nominating shareholder or group
under Rule 14a-11 and then repeated by the company in its proxy
statement. This is the same standard used in Rule 14a-8. We modified
the proposed provision in response to commenters to remove the
reference to information that the company knows or has reason to know
is false or misleading. We believe that the standard that currently is
used in Rule 14a-8 is well understood and that it would add unnecessary
confusion and create significant uncertainty for companies to alter the
standard in the context of Rule 14a-11. Using the Rule 14a-8 standard
also is consistent with our revision to Rule 14a-11 to remove as a
basis for exclusion of a nominee that information in the Schedule 14N
is false or misleading. Accordingly, the final rule contains express
language providing that the company will not be responsible for
information that is provided by the nominating shareholder or group
under Rule 14a-11 and then reproduced by the company in its proxy
statement.\769\ A similar provision is included in an instruction to
new Rule 14a-18 with regard to information that is provided by the
nominating shareholder or group in connection with a nomination made
pursuant to an applicable state or foreign law provision, or the
company's governing documents.\770\
---------------------------------------------------------------------------

    \769\ See Rule 14a-11(f).
    \770\ See Instruction to new Rule 14a-18. See also Note to
proposed Rule 14a-19.
---------------------------------------------------------------------------

    As noted above, commenters raised concerns about correcting or
recirculating proxy materials and potential liability for failing to
correct or recirculate proxy materials after learning that material a
nominating shareholder or group provided is false or misleading. As
discussed above, under the rules as adopted, a company will not be
responsible for any information that is provided by the nominating
shareholder or group under Rule 14a-11 and then reproduced by the
company in its proxy statement--the nominating shareholder or group
will have liability for that information. Accordingly, a company will
not be required to recirculate or correct proxy materials if it learns
that the materials provided to shareholders included false or
misleading information from the nominating shareholder or group.
    Under the Proposal, any information provided to the company in the
notice from the nominating shareholder or group under Rule 14a-11 (and,
as required, filed with the Commission by the nominating shareholder or
group) and then included in the company's proxy materials would not be
incorporated by reference into any filing under the Securities Act, the
Exchange Act, or the Investment Company Act unless the company
determines to incorporate that information by reference specifically
into that filing.\771\ A similar provision was proposed regarding
information provided by the nominating shareholder or group in
connection with a nomination made pursuant to an applicable State law
provision or a company's governing documents.\772\
---------------------------------------------------------------------------

    \771\ See the Instruction to proposed Item 7(e) of Schedule 14A;
Instruction to proposed Item 22(b)(18) of Schedule 14A.
    \772\ See the Instruction to proposed Item 7(f) of Schedule 14A;
Instruction to proposed Item 22(b)(19) of Schedule 14A.
---------------------------------------------------------------------------

    Those commenting on this provision stated that information provided
by a nominating shareholder, group, or nominee should not be deemed to
be incorporated by reference into Securities Act, Exchange Act or
Investment Company Act filings,\773\ but if it is, it should be treated
as the responsibility of the nominating shareholder, group, or nominee
rather than the company.\774\
---------------------------------------------------------------------------

    \773\ See letters from ABA; CII; Protective.
    \774\ See letters from ABA; Protective.
---------------------------------------------------------------------------

    We are adopting this provision as proposed.\775\ To the extent the
company does specifically incorporate the information by reference or
otherwise adopt the information as its own, however, we will consider
the company's disclosure of that information as the company's own
statements for purposes of the anti-fraud and civil liability
provisions of the Securities Act, the Exchange Act, or the Investment
Company Act, as applicable.
---------------------------------------------------------------------------

    \775\ See the Instruction to Item 7(e) of Schedule 14A and
Instruction to Item 22(b)(18) of Schedule 14A with regard to
information provided in connection with a Rule 14a-11 nomination.
See the Instruction to Item 7(f) of Schedule 14A and Instruction to
Item 22(b)(19) of Schedule 14A with regard to information provided
in connection with a nomination made pursuant to applicable State
law or a company's governing documents.
---------------------------------------------------------------------------

III. Paperwork Reduction Act

A. Background

    Certain provisions of the final rules contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995.\776\ We published a notice requesting comment on
the collection of information requirements in the Proposing Release for
the rules, and we submitted these requirements to the Office of
Management and Budget for review in accordance with the PRA.\777\ The
titles for the collections of information are:
---------------------------------------------------------------------------

    \776\ 44 U.S.C. 3501 et seq.
    \777\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    (1) ``Proxy Statements--Regulation 14A and Schedule 14A'' (OMB
Control No. 3235-0059);
    (2) ``Information Statements--Regulation 14C and Schedule 14C''
(OMB Control No. 3235-0057);
    (3) ``Form ID'' (OMB Control No. 3235-0328);
    (4) ``Schedule 14N'';
    (5) ``Securities Ownership--Regulation 13D and 13G (Commission
Rules 13d-1 through 13d-7 and Schedules 13D and 13G)'' (OMB Control No.
3235-0145);
    (6) ``Form 8-K'' (OMB Control No. 3235-0060); and
    (7) ``Rule 20a-1 under the Investment Company Act of 1940,
Solicitations of Proxies, Consents, and Authorizations'' (OMB Control
No. 3235-0158).
    These regulations, rules and forms were adopted pursuant to the
Exchange Act and the Investment Company Act, among other statutes, and
set forth the disclosure requirements for securities ownership reports
filed by investors, proxy and information statements,\778\ and current
reports filed by companies to provide investors with the information
they need to make informed voting or investing decisions. The hours and
costs associated with preparing, filing, and sending these schedules
and forms 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. Compliance
with the rules is mandatory. Responses to the

information collection will not be kept confidential and there is no
mandatory retention period for the information disclosed.
---------------------------------------------------------------------------

    \778\ The proxy rules apply only to domestic companies with
securities registered under Section 12 of the Exchange Act and to
investment companies registered under the Investment Company Act.
The number of annual reports by reporting companies may differ from
the number of proxy and information statements filed with the
Commission in any given year. This is because some companies are
subject to reporting requirements by virtue of Section 15(d) of the
Exchange Act, and therefore are not covered by the proxy rules.
Also, some companies are subject to the proxy rules only because
they have a class of debt registered under Section 12. These
companies generally are not required to hold annual meetings for the
election of directors. In addition, companies that are not listed on
a national securities exchange or national securities association
may not hold annual meetings and therefore would not be required to
file a proxy or information statement.
---------------------------------------------------------------------------

B. Summary of the Final Rules and Amendments

    As discussed above in more detail, the final rules provide
shareholders with two ways to more fully exercise their traditional
State law rights to nominate and elect directors. First, new Exchange
Act Rule 14a-11 will, under certain circumstances, require companies to
include in their proxy materials shareholder nominees for director
submitted by long-term shareholders or groups of shareholders with
significant holdings. Rule 14a-11 will apply to all reporting companies
subject to the Exchange Act proxy rules, with a few exceptions. Rule
14a-11 will apply only when applicable state or foreign law or a
company's governing documents do not prohibit shareholders from
nominating a candidate for election as a director. Further, Rule 14a-11
will not apply to companies subject to the proxy rules solely because
they have a class of debt securities registered under Section 12 of the
Exchange Act. Rule 14a-11 will apply to smaller reporting companies,
but on a delayed basis. Consistent with the Proposal, companies are not
able to ``opt out'' of the rule in favor of a different framework for
including shareholder director nominees in company proxy materials. In
addition, as was proposed, the rule will apply regardless of whether
any specified event has occurred to trigger the rule and regardless of
whether the company is subject to a concurrent proxy contest.
    A nominating shareholder or group seeking to use Rule 14a-11 to
require a company to include a nominee or nominees in the company's
proxy materials will be required to meet certain conditions, including
an ownership threshold and holding period and filing a Schedule 14N to
provide required disclosures and certifications. Under the rule, a
company will not be required to include a shareholder nominee or
nominees for director in the company's proxy materials where the
nominating shareholder or group holds the securities with the purpose,
or with the effect, of changing control of the company or to gain a
number of seats on the board of directors that exceeds the maximum
number of nominees that the company could be required to include under
Rule 14a-11. A company also will not be required to include a nominee
submitted pursuant to Rule 14a-11 who does not meet the requirements of
the rule. For example, a company would not be required to include a
nominee if that nominee's candidacy, or if elected, board membership,
would violate applicable Federal law, State law, foreign law, or the
rules of a national securities exchange or a national securities
association (other than the rules related to director independence) and
such violation could not be cured during the time period provided in
the rule.\779\
---------------------------------------------------------------------------

    \779\ For an additional discussion of the Rule 14a-11
eligibility requirements, see Section II.B.4 above.
---------------------------------------------------------------------------

    Second, the new amendment to Exchange Act Rule 14a-8(i)(8) \780\
will preclude a company from relying on Rule 14a-8(i)(8) to exclude
from its proxy materials shareholder proposals by qualifying
shareholders seeking to establish procedures under a company's
governing documents for the inclusion of one or more shareholder
nominees in a company's proxy materials including, for example,
proposals to allow lower ownership thresholds or higher numbers of
shareholder director nominees.\781\
---------------------------------------------------------------------------

    \780\ Exchange Act Rule 14a-8 requires a company to include a
shareholder proposal in its Schedule 14A unless the shareholder has
not complied with the procedural requirements in Rule 14a-8 or the
proposal falls within one of the 13 substantive bases for exclusion
in Rule 14a-8, including Rule 14a-8(i)(8).
    \781\ In this regard, we note that to the extent that a
shareholder proposal seeks to establish a procedure for the
inclusion of shareholder nominees for director in a company's proxy
materials, generally any such proposal adopted by shareholders would
not affect the availability of Rule 14a-11. To the extent that a
proposal seeks to restrict shareholder reliance on Rule 14a-11, the
proposal would be subject to exclusion pursuant to Rule 14a-8(i)(2)
because it would cause the company to violate Federal law or
pursuant to Rule 14a-8(i)(3) because the proposal would be contrary
to the proxy rules.
---------------------------------------------------------------------------

    In connection with Rule 14a-11 and the amendment to Rule 14a-
8(i)(8), we also are adopting new rules that will require a notice to
be filed with the Commission on new Schedule 14N, and transmitted to
the company, when a shareholder seeks to submit a nomination to a
company pursuant to Rule 14a-11 or pursuant to applicable state or
foreign law provision or the company's governing documents.\782\ The
Schedule 14N will require a nominating shareholder or group to provide
disclosure similar to the disclosure currently required in a contested
election. The company will be required to include the disclosure
provided by the nominating shareholder or group in its proxy materials.
Thus, the new rules will require a company to provide additional
disclosure on Schedules 14A and 14C,\783\ as well as Form 8-K, and a
nominating shareholder or group to provide disclosure on new Schedule
14N.
---------------------------------------------------------------------------

    \782\ See Sections II.B.8 and II.C.5 above.
    \783\ Schedule 14A prescribes the information that a company
with a class of securities registered under Exchange Act Section 12,
or a person soliciting shareholders of such a company, must include
in its proxy statement to provide shareholders with material
information relating to voting decisions.
    Schedule 14C prescribes the information that a company with a
class of securities registered under Exchange Act Section 12 must
include in its information statement in advance of a shareholders'
meeting when it is not soliciting proxies from its shareholders,
including when it takes corporate action by written authorization or
consent of shareholders.
    Investment Company Act Rule 20a1 requires registered investment
companies to comply with Exchange Act Regulation 14A or 14C, as
applicable. The annual responses to Investment Company Act Rule 20a-
1 reflect the number of proxy and information statements that are
filed by registered investment companies.
---------------------------------------------------------------------------

    When filed in connection with Rule 14a-11, Schedule 14N requires
disclosure about the amount and percentage of securities entitled to be
voted on the election of directors by the nominating shareholder or
group and the length of ownership of such securities. Schedule 14N also
requires disclosure similar to the disclosure currently required for a
contested election and disclosure of whether the nominee satisfies the
company's director qualifications.\784\ Schedule 14N also requires a
certification that the nominating shareholder or group is not holding
any of the company's securities with the purpose, or with the effect,
of changing control of the company or to gain a number of seats on the
board of directors that exceeds the maximum number of nominees that the
company could be required to include under Rule 14a-11. A nominating
shareholder or group also will be required to certify that the
nominating shareholder or group and the nominee satisfy the applicable
requirements of Rule 14a-11.
---------------------------------------------------------------------------

    \784\ See Item 5 of Schedule 14N.
---------------------------------------------------------------------------

    When a Schedule 14N is filed in connection with a nomination
pursuant to an applicable state or foreign law provision or a company's
governing documents providing for the inclusion of one or more
shareholder director nominees in company proxy materials, the Schedule
14N requires similar, but more limited, disclosures than a Schedule 14N
filed in connection with a nomination pursuant to Rule 14a-11.\785\ In
addition, a nominating shareholder or group filing a Schedule 14N in
connection with a nomination submitted for inclusion in a company's
proxy materials pursuant to applicable state or foreign law or a
company's governing documents will be required to provide a more
limited certification

than is required for a nomination pursuant to Rule 14a-11.\786\
---------------------------------------------------------------------------

    \785\ See Item 6 of Schedule 14N.
    \786\ See Item 8(b) of Schedule 14N.
---------------------------------------------------------------------------

    We also are adopting two new exemptions from the proxy rules for
solicitations by a shareholder or group in connection with a nomination
pursuant to Rule 14a-11.\787\ The first exemption addresses written and
oral solicitations by shareholders that are seeking to form a
nominating shareholder group, provided that certain requirements are
met.\788\ The second new exemption will apply to written and oral
solicitations by or on behalf of a nominating shareholder or group that
has met the requirements of Rule 14a-11 in favor of shareholder
nominees or for or against company nominees.\789\ Each of these new
exemptions requires the shareholder or group soliciting in connection
with a nomination pursuant to Rule 14a-11 to file under cover of
Schedule 14N any written materials published, sent or given to
shareholders no later than the date such materials are first published,
sent or given to shareholders. In addition, persons relying on Rule
14a-2(b)(7) to commence oral solicitations must file a notice of such
solicitation under cover of Schedule 14N.
---------------------------------------------------------------------------

    \787\ For further discussion of these exemptions, see Section
II.B.10 above.
    \788\ See new Rule 14a-2(b)(7).
    \789\ See new Rule 14a-2(b)(8).
---------------------------------------------------------------------------

C. Summary of Comment Letters and Revisions to Proposal

    We requested comment on the PRA analysis in the Proposing Release.
Three commenters addressed our estimate of 30 burden hours for a
company that is associated with including a nominee in its proxy
materials.\790\ According to a survey that BRT conducted, two
commenters noted that if a company determines that it will include a
shareholder nominee, the costs of preparing a written notice to the
nominating shareholder or group, as well as including in the company's
proxy materials the name of, and other disclosures concerning, the
nominee, and preparing the company's own statement regarding the
shareholder nominee would require a total of an average of 99 hours of
company personnel time and outside costs of $1,159,073 per company for
each shareholder nominee.\791\ One commenter asserted that we
underestimated the burden associated with these three actions because
our estimate did not account for the fact that a company or its
corporate governance committee is likely to undertake a lengthy process
before determining whether to support the candidate.\792\ This
commenter asserted that our estimate began only once a company has
already determined to include the nominee, and did not account for the
amount of time necessary for a company to fully and completely evaluate
shareholder nominees. This would include, for example, determinations
about the nominee's eligibility, investigation and verification of
information provided by the nominee, research into the nominee's
background, analysis of the relative merits of the shareholder nominee
as compared to management's own nominees, multiple meetings of the
relevant board committees, and analysis of whether a nomination would
conflict with any Federal law, State law or director qualification
standards.
---------------------------------------------------------------------------

    \790\ See letters from BRT; S&C Society of Corporate
Secretaries. In response to these comments, we have increased some
of our burden estimates. See footnotes 815 and 817 below.
    \791\ See letters from BRT; Society of Corporate Secretaries.
    \792\ See letter from S&C.
---------------------------------------------------------------------------

    The commenter asserted that our burden estimate of 65 hours for a
company that determines not to include a nominee in its proxy materials
does not account for ``significant'' costs and the ``enormous'' amount
of time that management and the board will likely spend on the proxy
contest itself.\793\ The commenter also indicated that our estimates
did not account for the burdens on registered investment companies as a
result of their unique circumstances. The commenter noted that
subjecting registered investment companies to Rule 14a-11 will result
in significant administrative burdens on open-end funds and fund
complexes, and increased costs. This commenter, however, did not
provide alternative cost estimates. Another commenter questioned our
assumption that the cost of submitting a no-action request pursuant to
Rule 14a-11 is comparable to that of a no-action request submitted
pursuant to Rule 14a-8.\794\ This commenter argued that due to the
fundamental issues at stake, boards will likely expend significantly
more resources to challenge shareholder nominees and elect their own
nominees than they will to oppose a shareholder proposal submitted
pursuant to Rule 14a-8.
---------------------------------------------------------------------------

    \793\ Id.
    \794\ See letter from BRT.
---------------------------------------------------------------------------

    One commenter submitted the results of a survey it conducted in
which the participants predicted that, on average, 15% of companies
listed on U.S. exchanges could expect to face a shareholder director
nomination under Rule 14a-11 in 2011.\795\ As explained in greater
detail below, we believe the actual number of shareholders or groups of
shareholders that will seek to use Rule 14a-11 may be much smaller.
While we note that there are inherent uncertainties involved in
providing this estimate, we estimate for purposes of the PRA
requirements, based on available data on the number of contested
elections, that 45 companies other than registered investment companies
and six registered investment companies with shareholders eligible to
submit nominees pursuant to Rule 14a-11 will receive such a nomination
each year.
---------------------------------------------------------------------------

    \795\ See letter from Altman. The survey had 47 participants
that were primarily issuers. The median forecast of this survey was
10%. The survey was based on the eligibility criteria contained in
the Proposing Release.
---------------------------------------------------------------------------

D. Revisions to PRA Reporting and Cost Burden Estimates

    As discussed above, the rules we are adopting include several
substantive modifications to the Proposal; however, the Schedule 14N
disclosure requirements we are adopting are substantially similar to
the proposed disclosure requirements. In addition to the disclosure we
proposed to be included in Schedule 14N, the schedule also will require
disclosure of whether the shareholder nominee satisfies the company's
director qualifications.\796\ As discussed more fully below, we are
revising our estimates in response to commenters' suggestions and the
modifications to the Proposal that we are adopting in the final rules.
The burden estimates discussed below relate to the hours and costs
associated with preparing, filing and sending the above schedules and
forms, and constitute estimates of reporting and cost burdens imposed
by each collection of information.
---------------------------------------------------------------------------

    \796\ See Item 5(e) of Schedule 14N.
---------------------------------------------------------------------------

    For purposes of the PRA, we estimate the total annual incremental
paperwork burden resulting from new Rule 14a-11 and the related rule
changes for reporting companies (other than registered investment
companies) and registered investment companies to be approximately
4,113 hours of internal company or management time and a cost of
approximately $548,200 for the services of outside professionals.\797\
For purposes of the PRA, we estimate the

total annual incremental paperwork burden to nominating shareholders
and groups from Schedule 14N to be approximately 7,870 hours of
shareholder personnel time, and $1,049,300 for services of outside
professionals. As discussed further below, these total costs include
all additional disclosure burdens associated with the final rules,
including burdens related to the notice and disclosure requirements.
The total costs described above also include the burden hours resulting
from the new exemptions for solicitations by nominating shareholders or
groups in connection with a nomination pursuant to Rule 14a-11.\798\ As
noted above, smaller reporting companies will not be subject to Rule
14a-11 until three years after the effective date of the rule. For
purposes of the PRA, we have calculated the burden estimates as if the
rule has been fully phased in for all companies.
---------------------------------------------------------------------------

    \797\ For convenience, the estimated PRA hour burdens have been
rounded to the nearest whole number. We estimate an hourly cost of
$400 for the service of outside professionals based on our
consultations with several registrants and law firms and other
persons who regularly assist registrants in preparing and filing
proxy statements and related disclosures with the Commission.
    \798\ See new Rules 14a-2(b)(7) and 14a-2(b)(8).
---------------------------------------------------------------------------

    As amended, Rule 14a-8(i)(8) will no longer permit companies to
exclude, under that basis, shareholder proposals that seek to establish
a procedure under a company's governing documents for the inclusion of
one or more shareholder director nominees in the company's proxy
materials. For purposes of the PRA, we estimate the total annual
incremental paperwork burden resulting from the amendment to Rule 14a-
8(i)(8) and the related rule changes for reporting companies (other
than registered investment companies), registered investment companies,
and shareholders to be approximately 17,994 hours of internal company
or shareholder time and a cost of approximately $2,399,200 for the
services of outside professionals.\799\
---------------------------------------------------------------------------

    \799\ This corresponds to 6,510 hours of shareholder time and
$868,000 for the shareholders' use of outside professionals and
11,484 hours of company time and $1,531,200 for the company's use of
outside professionals.
---------------------------------------------------------------------------

1. Rule 14a-11
    New Rule 14a-11 will require any company subject to the rule to
include disclosure about a nominating shareholder's or group's nominee
or nominees for election as director in the company's proxy statement,
and the name of the nominee or nominees on the company's proxy card,
when the conditions of the rule are met. The rule will not apply if the
company is subject to the proxy rules solely as a result of having a
class of debt registered under Section 12 of the Exchange Act or if
State law, foreign law or a company's governing documents prohibit
shareholders from nominating a candidate or candidates for election as
director. A nominating shareholder or group will be required to file
Schedule 14N to disclose information about the nominating shareholder
or group and the nominee or nominees, and the company will be required
to include certain information regarding the nominating shareholder or
group and nominee or nominees in the company's proxy statement unless
the company determines that it is not required to include the nominee
or nominees in its proxy materials.\800\ A nominating shareholder or
group also will be afforded the opportunity to include in the company's
proxy statement a statement of support for its nominee or nominees not
to exceed 500 words per nominee. The nominee or nominees also will be
included on the company's form of proxy in accordance with Exchange Act
Rule 14a-4.
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    \800\ The burdens associated with Schedule 14N are discussed
below.
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    Under the final rule, shareholders or groups owning at least 3% of
the voting power of a company's securities entitled to be voted on the
election of directors for at least three years as of the date of filing
their notice on Schedule 14N with the Commission, and transmitting the
notice to the company, will be eligible to submit a nominee for
election as director to be included in the company's proxy
materials,\801\ provided certain other eligibility requirements are met
\802\ and subject to certain limitations on the overall number of
shareholder nominees for director.
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    \801\ See Section II.B.4.b. above for a discussion of how voting
power is determined.
    \802\ The eligibility requirements are provided in Rule 14a-
11(b). As discussed in more detail in Section II.B.4., a nominating
shareholder or group must not be holding the securities used to meet
the ownership threshold with the purpose, or with the effect, of
changing the control of the company or to gain a number of seats on
the board of directors that exceeds the maximum number of nominees
that the company could be required to include under Rule 14a-11. A
nominating shareholder or group also must provide certain statements
and disclosure regarding its ownership and the nominee or nominees
must meet the applicable eligibility requirements.
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    In the Proposing Release, we estimated that 208 companies with
eligible shareholders would receive nominations pursuant to Rule 14a-
11. That number was based in part on data, which we used to estimate
that approximately 4,163 reporting companies (other than registered
investment companies) would have at least one shareholder who met the
eligibility criteria set forth in the Proposing Release. We then
estimated that 5% of those companies would receive a nomination from an
eligible shareholder or group of shareholders, resulting in 208
companies receiving nominations pursuant to Rule 14a-11 annually.\803\
In the Proposing Release, we also estimated that 61, or 5%, of 1,225
registered investment companies responding to Rule 20a-1 each year
would receive shareholder nominations for inclusion in their proxy
materials. After further consideration, we believe that a better
indicator of how many shareholders might submit a nomination is the
number of contested elections and board-related shareholder proposals
that have been submitted to companies.\804\ We believe starting with
this number is better because it indicates shareholders or groups of
shareholders who have shown an interest in using currently available
means under our rules to influence governance matters. The number of
contested elections and board-related shareholder proposals, however,
does not reflect the additional eligibility requirements that are being
adopted in new Rule 14a-11. For example, Rule 14a-11 requires that a
shareholder or group of shareholders satisfy an ownership threshold of
at least 3% of the company's voting power; that amount of securities
must have been held continuously for at least three years as of the
date the nominating shareholder or group submits notice of its intent
to use Rule 14a-11; and the nominating shareholder or group must
execute a certification that it is not holding the securities with the
purpose, or with the effect, of changing control of the company or to
gain a number of board seats that exceeds the maximum number of
nominees that the company could be required to include under Rule 14a-
11. As a result of the additional eligibility requirements and
certifications required by Rule 14a-11, we believe it is reasonable to

significantly reduce the number of contested elections and board-
related shareholder proposals for purposes of estimating the number of
shareholders or groups of shareholders who may submit a nomination
pursuant to Rule 14a-11. For purposes of this analysis, we estimate
that 45 companies other than registered investment companies will
receive nominees from shareholders \805\ for inclusion in their proxy
materials.\806\ We further estimate that six registered investment
companies will receive nominees from shareholders pursuant to Rule 14a-
11 annually.\807\
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    \803\ If we used the same data for estimating the number of
nominees that would be submitted pursuant to the final rules as
adopted, there would be approximately 2,117 companies with at least
one shareholder eligible to submit a nomination. If we were to
assume that 5% of those companies with at least one shareholder
eligible to submit a nomination would receive a nomination, then we
would estimate that 106 companies would receive a nomination each
year.
    \804\ In this regard, we note that it is estimated that there
were 57 contested solicitations in 2009. See Georgeson, 2009 Annual
Corporate Governance Review Executive Summary (available at http://
www.georgeson.com/usa/acgr09.php) and footnote 828 below. In
addition, approximately 118 Rule 14a-8 shareholder proposals related
to board issues were submitted to shareholders for a vote in the
2008-2009 proxy season. Board related proposals include proposals to
have an independent chairman of the board, proposals to allow for
cumulative voting and proposals to require a majority vote to elect
directors. See RiskMetrics 2009 Proxy Season Scorecard, May 15,
2009. We believe these actions related to contested solicitations or
board issues, 175 in total, provide useful information about the
degree of interest in using Rule 14a-11.
    \805\ We further estimate that 75% of the 45 submissions, or 34,
will be made by groups of shareholders, and the remaining 11 will be
made by individuals. See the discussion below regarding the
estimated increase in Schedule 13G filings.
    \806\ For the reasons noted above, we discounted the 175
contested elections and board-related shareholder proposals by
approximately 75% to reflect the much more stringent eligibility
requirements under new Rule 14a-11 as compared to Rule 14a-8. The 45
filings that we estimate for purposes of the PRA are equal to 2.1%
of the 2,117 companies we estimate to have at least one eligible
shareholder meeting the ownership requirements of the rule.
    \807\ In this regard, we estimate that there were 11 contested
elections in 2009, based on the number of EDGAR filings on form-type
PREC14A with respect to unique investment companies in 2009. In
addition, the average number of no-action letters issued by the
staff regarding proposals seeking to amend a registered investment
company's bylaws to provide for shareholder director nominations
received in calendar years 2007, 2008 and 2009, rounded to the
nearest whole number greater than zero, is one. We estimate that
investment companies currently receive as many proposals regarding
nomination procedures or disclosures as there are contested
elections and no-action letters issued by the staff, resulting in a
total of 24 contested elections and board-related shareholder
proposals per year. For reasons similar to those articulated above
for non-investment companies, we believe these actions related to
contested solicitation or board issues, 24 in total, provide useful
information about the degree of interest in using Rule 14a-11.
However, as discussed above, Rule 14a-11 contains different
eligibility requirements than our current rules that will likely
result in fewer companies receiving nominations submitted pursuant
to the rule. Similar to non-investment companies, we believe it is
reasonable to discount the 24 contested elections and board-related
shareholder proposals by approximately 75%, resulting in six
investment companies receiving nominations pursuant to Rule 14a-11.
We further estimate that 75% of the submissions, or five, will be
made by groups of shareholders and the remaining one will be made by
an individual. See the discussion below regarding the estimated
increase in Schedule 13G filings.
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    We estimate for PRA purposes that each company that receives
nominees pursuant to Rule 14a-11 will receive two nominees from one
shareholder or group. The median board size based on a 2007 sample of
public companies was nine.\808\ Approximately 60% of the boards sampled
had between nine and 19 directors. In the case of registered investment
companies, we estimate that the median board size is eight.\809\ Thus,
although some shareholders or groups could seek to include fewer than
two nominees and others would be permitted to include more than two
nominees, depending on the size of the board, we assume for purposes of
the PRA that each shareholder or group would submit two nominees. As a
result, for reporting companies, we estimate up to 211 total company
burden hours per company (which is the sum of the bullets below doubled
where appropriate to reflect two nominees) which corresponds to 158
hours (211 x 0.75) of company time, and a cost of approximately $21,100
(211 x 0.25 x $400) for the services of outside professionals. In each
case, this estimate includes:
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    \808\ According to information from RiskMetrics, based on a
sample of 1,431 public companies the median board size in 2007 was
9, with boards ranging in size from 4 to 23 members. Approximately
40% of the boards in the sample had 8 or fewer directors,
approximately 60% had between 9 and 19 directors, and less than 1%
had 20 or more directors.
    \809\ See Investment Company Institute and Independent Directors
Council, Overview of Fund Governance Practices 1994-2006, at 6-7
(November 2007), available at http://www.ici.org/pdf/rpt_07_fund_
gov_practices.pdf (noting that the median number of independent
directors per fund complex in 2006 was six and that independent
directors held 75% or more of board seats in 88% of fund complexes).
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     If the company determines that it will include a
shareholder nominee, the company's preparation of a written notice to
the nominating shareholder or group (five burden hours per notice);
     The company's inclusion in its proxy statement and form of
proxy of the name of, and other related disclosures concerning, a
person or persons nominated by a shareholder or shareholder group (five
burden hours per nominee); \810\
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    \810\ The requirement is in amended Rule 14a-4.
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     The company's preparation of its own statement regarding
the shareholder nominee or nominees (40 burden hours per nominee); and
     If a company determines that it may exclude a shareholder
nominee submitted pursuant to the new rule, the company's preparation
of a written notice to the nominating shareholder or group followed by
written notice of the basis for its determination to exclude the
nominee to the Commission staff (116 burden hours per notice).\811\
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    \811\ As discussed below, for companies that exclude a nominee
but do not request no-action relief, we estimate this burden to be
100 hours.
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    For purposes of this PRA analysis, we assume that approximately 41
(or 90% of 45) reporting companies (other than registered investment
companies) and 5 (or 90% of 6) registered investment companies that
receive a shareholder nominee for director will be required to include
the nominee in their proxy materials. In the other 10% of cases, we
assume that the company will be able to exclude the shareholder nominee
(after providing notice of its reasons to the Commission). If a company
determines to include a shareholder nominee, it must provide written
notice to the nominating shareholder or group. We estimate the burden
associated with preparing this notice to be five hours. For reporting
companies (other than registered investment companies), this will
result in 205 aggregate burden hours (41 companies x 5 hours/company),
which corresponds to 154 burden hours of company time (41 companies x 5
hours/company x 0.75) and $20,500 in services of outside professionals
(41 companies x 5 hours/company x 0.25 x $400). For registered
investment companies, this will result in 25 aggregate burden hours (5
companies x 5 hours/company), which corresponds to 19 burden hours of
company time (5 companies x 5 hours/company x 0.75), and $2,500 for
services of outside professionals (5 companies x 5 hours/company x 0.25
x $400).
    We estimate the annual disclosure burden for companies to include
nominees and related disclosure in their proxy statements and on their
form of proxy to be 5 burden hours per nominee, for a total of 410
aggregate burden hours (41 responses x 5 hours/response times; 2
nominees) for reporting companies (other than registered investment
companies), and 50 aggregate burden hours (5 responses x 5 hours/
response x 2 nominees) for registered investment companies. For
reporting companies (other than registered investment companies), this
corresponds to 308 burden hours of company time, and $41,000 for
services of outside professionals.\812\ For registered investment
companies, this corresponds to 38 hours of company time, and $5,000 for
services of outside professionals.\813\
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    \812\ The calculations for these numbers are: 410 burden hours x
0.75 = 308 burden hours of company time and 410 burden hours x 0.25
x $400 = $41,000 for services of outside professionals.
    \813\ The calculations for these numbers are: 50 burden hours x
0.75 = 38 hours of company time and 50 burden hours x 0.25 x $400 =
$5,000 for services of outside professionals.
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    We estimate that 41 reporting companies (other than registered
investment companies) and 5 registered investment companies will
include a statement with regard to the shareholder nominees.\814\ We
anticipate that the

burden to include a statement will include time spent to research the
nominee's background, determinations about the nominee's eligibility,
investigation and verification of information provided by the nominee,
analysis of the relative merits of the shareholder nominee as compared
to management's own nominees, multiple meetings of the relevant board
committees, analysis of whether a nomination will conflict with any
Federal law, State law or director qualification standards, preparation
of the statement, and company time for review of the statement by,
among others, the nominating committee and legal counsel. In the
Proposing Release we estimated that this burden will be approximately
20 hours per nominee. Based on comments received, however, we believe
it is appropriate to increase this estimate to 40 hours per
nominee.\815\ For reporting companies (other than registered investment
companies), this will result in 3,280 aggregate burden hours (41
statements x 40 hours/statement x 2 nominees). This corresponds to
2,460 hours of company time (41 statements x 40 hours/statement x 2
nominees x 0.75) and $328,000 for services of outside professionals (41
statements x 40 hours/statement x 2 nominees x 0.25 x $400) for
reporting companies (other than registered investment companies). For
registered investment companies, this will result in 400 aggregate
burden hours (5 statements x 40 hours/statement x 2 nominees). This
corresponds to 300 hours of company time (5 statements x 40 hours/
statement x 2 nominees x 0.75) and $40,000 for services of outside
professionals (5 statements x 40 hours/statement x 2 nominees x 0.25 x
$400).
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    \814\ We assume that each company that includes a shareholder
nominee in its proxy materials would include such a statement.
    \815\ In its comment letter and based on its survey of its
members, BRT estimated that the preparation of a notice to the
nominating shareholder, inclusion of related disclosure in the
company's proxy materials, and preparation of its own statement
regarding the shareholder nominee will require an average of 99
hours of personnel time. In the Proposing Release, we estimated the
burden for these three actions to be 30 hours. We note that the
survey conducted by the BRT provides useful information regarding
the amount of personnel time that a company will spend responding to
a Rule 14a-11 nomination; however, the survey represents a limited
number of companies. While we are persuaded that the burden to
companies of preparing a statement with regard to the shareholder
nominee may require more than the 20 hours we estimated in the
Proposing Release, we believe that 99 hours may represent the high
end of the range. In light of this information, we believe it is
appropriate to increase our estimate and we believe it is adequate
to double our estimate of this component from 20 to 40 hours to
reflect the average burden across all companies. Thus, we estimate
that the internal burden associated with these three actions would
be 50 hours.
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    Further, for purposes of this analysis, we assume that
approximately 9 (or 20% of 45) reporting companies (other than
registered investment companies) and 1 (or 20% of 6) registered
investment companies that receive a shareholder nominee for director
for inclusion in their proxy materials will make a determination that
they are not required to include a nominee in their proxy materials
because the requirements of Rule 14a-11 are not met and will file a
notice of intent to exclude that nominee.\816\ We further estimate that
3 (or 33% of 9) of those reporting companies (other than registered
investment companies) will not seek no-action relief from the
Commission and will only provide the required notice to the nominating
shareholder or group and the Commission. We estimate that the remaining
6 reporting companies other than registered investment companies and
the one registered investment company that makes a determination that
it is not required to include a nominee in its proxy materials will
seek no-action relief in order to exclude the nomination. We estimate
that the burden hours associated with preparing and submitting the
company's notice to the nominating shareholder or group and the
Commission regarding its intent to exclude a shareholder nominee that
includes a request for no-action relief would be 116 hours per
notice.\817\ We estimate that the burden hours associated with
preparing and submitting the company's notice to the nominating
shareholder or group and the Commission regarding its intent to exclude
a shareholder nominee and its reasons for doing so would be 100
hours.\818\ One commenter questioned our assumption that submitting a
request to the staff to exclude a shareholder nominee will be
comparable to preparing a no-action request to exclude a proposal under
Rule 14a-8.\819\ This commenter argued that due to the fundamental
issues at stake, boards are likely to expend significant resources to
challenge shareholder nominees and elect their own nominees. We
recognize the possibility that companies might expend greater resources
in opposing a shareholder nominee than a shareholder proposal. We
believe, however, that some of the resources to oppose a shareholder
nominee will be allocated to the use of other means outside of the
required disclosure in the proxy statement (e.g., ``fight letters'') so
we have not factored that into our collection of information estimate.
We believe that a portion of the burden associated with this will be
reflected in the company's preparation of its own statement regarding
the shareholder nominee, rather than in the preparation of a no-action
request, and accordingly, as discussed above, we have increased our
estimate of the associated burden from 20 to 40 hours. Although we have
increased the burden to the company associated with preparing its own
statement, we are not persuaded that also increasing the burden
associated with preparing a request to exclude the nominee will be an
accurate estimate. We are, however, as discussed above, increasing to
116 hours our estimate for preparing a notice of intent to exclude

the nominee and request no-action relief based on 2009 data received
from commenters.\820\
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    \816\ With respect to companies other than registered investment
companies, we assume that 6 of these submissions ultimately would be
excludable under the rule.
    \817\ This estimate is based on data provided by the BRT in its
comment letter dated August 17, 2009. In its letter, the BRT
provided data from a survey of its own members indicating that the
average burden associated with preparing and submitting a single no-
action request to the Commission staff in connection with a
shareholder proposal is approximately 47 hours and associated costs
of $47,784. Although the letter did not specify as much, assuming
these costs correspond to legal fees, which we estimate at an hourly
cost of $400, we estimate that this cost is equivalent to
approximately 120 hours ($47,784/$400). We note that this estimate
is higher than the 65 hours we estimated in the Proposing Release,
where we relied on 2003 data provided by the American Society of
Corporate Secretaries indicating 30 hours and associated costs of
$13,896, or 35 hours ($13,896/$400). The BRT survey also indicated
that if a company opposes a shareholder nominee, it would incur an
additional average of 302 hours of company time. This would be in
addition to its estimate of 99 hours for the actions described
above. As noted above, the survey conducted by the BRT provides
useful estimates for us to consider, but the survey represents a
limited number of companies. In addition, it is unclear whether the
302 hours is inclusive of the no-action process. We believe this
estimate is high and believe the revised number discussed below is a
better estimate because it attempts to reflect the burden across all
companies. For purposes of the PRA, we assume that submitting the
notice and reasons for excluding a shareholder nominee to the staff
will be comparable to preparing a no-action request to exclude a
proposal under Rule 14a-8. While it appears, based on commenters'
estimates, that associated costs may have increased since 2003,
based on estimates provided by other commenters on the costs of
preparing and submitting a no-action request (see, e.g., letter from
S&C), we believe an average of the two estimates provides a more
representative estimate of the spectrum of reporting companies, as
opposed to those who participated in the BRT survey. Thus, we
estimate that the burden to submit the notice and reasons for
excluding a shareholder nominee and request no-action relief, would
be approximately 116 hours ([167 hrs + 65 hrs]/2).
    \818\ We believe that even if a company is not seeking no-action
relief the company will still spend significant time preparing its
notice to exclude the nominee. Because the notice will be required
to include the reasons that the nominee is being excluded, we
believe that the burden will be similar to, though not quite as
extensive as, preparing a request for no-action relief.
    \819\ See letter from BRT.
    \820\ Our prior estimate of 65 hours in the Proposing Release
was based on 2003 data.
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    In the case of reporting companies (other than registered
investment companies) that have determined they may exclude a nominee
and seek no-action relief from the staff, we estimate that this will
result in an aggregate burden of 696 hours (6 notices x 116 hours/
notice), corresponding to 522 hours of company time (6 notices x 116
hours/notice x 0.75) and $69,600 for the services of outside
professionals (6 notices x 116 hours/notice x 0.25 x $400). In the case
of registered investment companies that have determined they may
exclude a nominee and seeking no-action relief from the staff, we
estimate that this will result in 116 aggregate burden hours (1 notice
x 116 hours/notice), which will correspond to 87 hours of company time
(1 notice x 116 hours/notice x 0.75) and $11,600 for the services of
outside professionals (1 notice x 116 hours/notice x 0.25 x $400). For
companies (other than registered investment companies) that have
determined they may exclude a nomination but not to seek no-action
relief from the staff, we estimate that this will result in an
aggregate burden of 300 hours (3 notices x 100 hours/notice),
corresponding to 225 hours of company time (3 notices x 100 hours/
notice x 0.75) and $30,000 for the services of outside professionals (3
notices x 100 hours/notice x 0.25 x $400).\821\ These burdens would be
added to the PRA burdens of Schedules 14A and 14C or, in the case of
registered investment companies, Rule 20a-1.
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    \821\ As discussed above, we estimate that only one registered
investment company will make a determination that it is not required
to include a nominee in its proxy material and that this company
will seek no-action relief.
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    We also estimate that the annual burden for the nominating
shareholder's or group's participation in the no-action process\822\
available pursuant to Rule 14a-11 would average 60 hours per
nomination.\823\ For nominating shareholders or groups of reporting
companies (other than registered investment companies), this will
result in 360 total burden hours (6 responses x 60 hours/response).
This will correspond to 270 hours of shareholder time (6 responses x 60
hours/response x 0.75) and $36,000 for services of outside
professionals (6 responses x 60 hours/response x 0.25 x $400). For
nominating shareholders or groups of registered investment companies,
this will result in 60 total burden hours (1 response x 60 hours/
response). This will correspond to 45 hours of shareholder time (1
response x 60 hours/response x 0.75) and $6,000 for services of outside
professionals (1 response x 60 hours/response x 0.25 x $400). This
burden would be added to the PRA burden of Schedule 14N.
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    \822\ There is no corresponding burden for shareholders or
groups whose nomination is excluded by the company, and the company
does not seek no-action relief. If the shareholder objects to the
exclusion, there is no requirement that the shareholder seek redress
from the staff or the Commission. As a result, we have not provided
an estimated burden.
    \823\ As noted in footnote 817, we estimate that the average
burden to a company associated with preparing and submitting a no-
action request to the staff is approximately 116 burden hours. We
believe that the average burden for a shareholder proponent to
respond to a company's no-action request is likely to be less than a
company's burden to prepare the request; therefore, we estimate it
will take approximately half the time (or 60 burden hours) for a
nominating shareholder or group to respond to a company's notice to
the Commission of its intent to exclude.
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    We also are adopting two new exemptions from the proxy rules for
solicitations by shareholders or groups in connection with a nomination
pursuant to Rule 14a-11. The first exemption addresses written and oral
solicitations by shareholders that are seeking to form a nominating
shareholder group, provided that certain requirements are met.\824\
Solicitations made in reliance on this exemption would be required to
be filed under cover of Schedule 14N with the appropriate box marked on
the cover page. As discussed above, we estimate that 34 of the
submissions made to companies (other than registered investment
companies) pursuant to Rule 14a-11 will be by groups of shareholders
formed for purposes of satisfying the eligibility requirements of the
rule. We estimate that 31 (90% of 34) of these groups will avail
themselves of Rule 14a-2(b)(7). In the case of reporting companies
(other than registered investment companies), this will result in an
aggregate burden of 31 hours (31 solicitations x 1 hour/solicitation),
which corresponds to 23 hours of shareholder time (31 solicitations x 1
hour/solicitation x 0.75) and $3,100 for the services of outside
professionals (31 solicitations x 1 hour/solicitation x 0.25 x $400).
In the case of registered investment companies, we estimate that five
of the submissions made pursuant to Rule 14a-11 will be by groups of
shareholders formed for purposes of satisfying the eligibility
requirements of the rule. We estimate that all of these groups will
avail themselves of Rule 14a-2(b)(7) (90% of 5 rounds up to 5). This
will result in an aggregate burden of 5 hours (5 solicitations x 1
hour/solicitation), which corresponds to 4 hours of shareholder time (5
solicitations x 1 hour/solicitation x 0.75) and $500 for the services
of outside professionals (5 solicitations x 1 hour/solicitation x 0.25
x $400). These burden hours would be added to the PRA burden of
Schedule 14N.
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    \824\ See new Rule 14a-2(b)(7).
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    The second new exemption will apply to written and oral
solicitations by or on behalf of a nominating shareholder or group that
has met the requirements of Rule 14a-11 in favor of shareholder
nominees or for or against company nominees.\825\ Although nominating
shareholders or groups will not be required to engage in written
solicitations, if the nominating shareholder or group does so, the
exemption will require inclusion in any written soliciting materials
filed under cover of Schedule 14N of a legend advising shareholders to
look at the company's proxy statement when available and advising
shareholders how to find the company's proxy statement. For purposes of
this analysis, we assume that 50% of nominating shareholders or groups
ultimately included in a company's proxy statement will solicit in
favor of their nominee or nominees outside the company's proxy
statement. In the case of reporting companies (other than registered
investment companies), this will result in an aggregate burden of 20
hours (20 solicitations x 1 hour/solicitation), which corresponds to 15
hours of shareholder time (20 solicitations x 1 hour/solicitation x
0.75) and $2,000 for services of outside professionals (20
solicitations x 1 hour/solicitation x 0.25 x $400). These burden hours
would be added to the PRA burden of Schedule 14N. In the case of
registered investment companies, this will result in an aggregate
burden of 3 hours (3 solicitations x 1 hour/solicitation), which
corresponds to 2 hours of shareholder time (3 solicitations x 1 hour/
solicitation x 0.75) and $300 for services of outside professionals (3
solicitations x 1 hour/solicitation x 0.25 x $400). These burden hours
would be added to the PRA burden of Schedule 14N.
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    \825\ See new Rule 14a-2(b)(8).
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2. Amendment to Rule 14a-8(i)(8)
    Under our amendment to Rule 14a-8(i)(8), the election exclusion, a
company will no longer be able to rely on this basis to exclude a
shareholder proposal that seeks to establish a procedure under a
company's governing

documents for the inclusion of one or more shareholder director
nominees in the company's proxy materials. The shareholder proposal
will have to meet the procedural requirements of Rule 14a-8 and not be
subject to one of the substantive exclusions other than the election
exclusion (e.g., the proposal could be excluded if the shareholder
proponent did not meet the ownership threshold under Rule 14a-8).
    Historically, shareholders have made relatively few proposals
relating to shareholder access to a company's proxy materials. The
staff received 368 no-action requests from companies seeking to exclude
shareholder proposals during the 2006-2007 fiscal year. Of these
requests, only three (or approximately one percent) related to
proposals for bylaw amendments providing for shareholder nominees to
appear in the company's proxy materials. During the 2007-2008 fiscal
year, the staff received 423 no-action requests to exclude shareholder
proposals pursuant to Rule 14a-8. Of these no-action requests, six (or
approximately two percent) related to proposals for bylaw amendments
providing for shareholder nominees to appear in the company's proxy
materials. During the 2008-2009 fiscal year, the staff received 365 no-
action requests to exclude shareholder proposals pursuant to Rule 14a-
8. Of these requests, seven related to shareholders' ability to have
their nominee included in a company's proxy materials. One such request
sought to exclude a proposal to directly amend a company's governing
documents to permit shareholder director nominations; the remaining six
no-action requests related to proposals requesting that the company
reincorporate in North Dakota where the relevant state corporate law
gives qualified shareholders the right to submit director nominees for
inclusion in the company's proxy materials.\826\ Although these
reincorporation proposals did not seek to amend the companies' bylaws,
by seeking reincorporation into North Dakota it appears they sought the
ability for shareholders to have nominees included in a company's proxy
materials. As of July 23, 2010, during the 2009-2010 fiscal year, the
staff has received 353 no-action requests to exclude shareholder
proposals pursuant to Rule 14a-8, none of which related to
shareholders' ability to have their nominee included in a company's
proxy materials. While we believe that these proposals are helpful in
gauging the level of shareholder interest in nominating directors,
because our amendment to Rule 14a-8(i)(8) narrows the scope of the
exclusion and no longer permits companies to exclude certain proposals
that are excludable under current Rule 14a-8(i)(8), and Rule 14a-11 as
adopted includes meaningful eligibility standards, we believe there may
be an increase in the number of shareholder proposals seeking to
establish procedures under a company's governing documents for the
inclusion of one or more shareholder nominees in a company's proxy
materials to allow, for example, lower ownership thresholds or higher
numbers of shareholder director nominees.
---------------------------------------------------------------------------

    \826\ See North Dakota Publicly Traded Corporations Act, N.D.
Cent. Code Sec.  10-35-08 (2009).
---------------------------------------------------------------------------

    While the number of no-action requests the staff has received in
the past is a useful starting point for the PRA analysis, other data
also is helpful to gauge shareholder interest in nominating directors
and to predict the anticipated impact on the number of proposals
submitted pursuant to Rule 14a-8 that seek to establish procedures
under a company's governing documents for the inclusion of one or more
shareholder nominees in a company's proxy materials that otherwise
would be excludable under current Rule 14a-8(i)(8). For example, based
on publicly available information, from 2001 to 2005, there were, on
average, 14 contested elections per year.\827\ It is estimated that in
2009 there were at least 57 contested elections,\828\ and in 2008 it is
estimated that there were at least 50 contested elections.\829\ For
purposes of the PRA, we believe that as a result of the amendment to
Rule 14a-8(i)(8), shareholders may submit at least as many shareholder
proposals to establish procedures under a company's governing documents
for the inclusion of shareholder nominees for director in company proxy
materials as there are contested elections. We believe that if
shareholders are willing under the current proxy rules to put forth the
expense and effort to wage a contest to put forth their own nominees in
57 instances, there may be a similar number of proposals submitted to
companies pursuant to Rule 14a-8, as amended, because companies will no
longer be permitted to exclude some proposals that currently are
excludable under Rule 14a-8(i)(8). We also believe that some
shareholders that have submitted proposals in the past with regard to
other board issues will submit proposals seeking to establish
procedures under a company's governing documents for the inclusion of
shareholder nominees for director in company proxy materials. As noted
in the Proposing Release, according to information from RiskMetrics,
approximately 118 Rule 14a-8 shareholder proposals regarding board
issues were submitted to shareholders for a vote in the 2008-2009 proxy
season.\830\ For purposes of the PRA, we estimate that approximately
half of these shareholders may submit a proposal regarding procedures
for the inclusion of shareholder nominees for director in company proxy
materials, resulting in up to 59 proposals in lieu of proposals related
to other board issues.\831\
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    \827\ See Lucian A. Bebchuk, The Myth of the Shareholder
Franchise, 93 Va. L. Rev. 675, 683 (2007) (``Bebchuk (2007)'')
(citing data from proxy solicitation firm Georgeson Shareholder).
See footnote 314 in the Proposing Release.
    \828\ See Georgeson, 2009 Annual Corporate Governance Review
(stating that as of the end of September 2009 it had tracked 57
formal proxy contests); see also RiskMetrics Group, 2009 Postseason
Report Summary, A New Voice in Governance: Global Policymakers Shape
the Road to Reform, October 2009, available at http://
www.riskmetrics.com/docs/2009-postseason-report (noting that during
the 2009 proxy season there were at least 39 proxy contests, and 36
negotiated settlements prior to a shareholder vote).
    \829\ See letter from BRT (citing data from Georgeson, ``2008
Annual Corporate Governance Review''). See also RiskMetrics Group,
2008 Postseason Report Summary, Weathering the Storm: Investors
Respond to the Global Credit Crisis, October 2008, available at
http://www.riskmetrics.com/docs/2008postseason_review_summary.
    \830\ See footnote 804 above.
    \831\ We note that we used this estimate in the Proposing
Release and did not receive comment on it. See Section IV.C.2. of
the Proposing Release. We acknowledge the possibility that the
number of Rule 14a-8 proposals relating to director nomination
procedures may decrease with shareholders' ability to submit a
nominee for inclusion in company proxy materials pursuant to Rule
14a-11, but we believe that any decrease may be countered by an
increase in shareholder proposals to establish company-specific
requirements that are different than Rule 14a-11.
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    In the case of reporting companies (other than registered
investment companies), we believe that the amendment to Rule 14a-
8(i)(8) may result in an increase of up to 64 (57 + 7 2009 shareholder
proposals) proposals annually from 2009, and a total of 123 proposals
(59 proposals + 57 + 7) to companies per year regarding procedures for
the inclusion of shareholder nominees for director in company proxy
materials.\832\ We

estimate the annual incremental burden for the shareholder to prepare
the proposal to be 10 burden hours per proposal, for a total of 640
burden hours (64 proposals x 10 hours/proposal). This will correspond
to 480 hours of shareholder time (64 proposals x 10 hours/proposal x
0.75) and $64,000 for the services of outside professionals (64
proposals x 10 hours/proposal x 0.25 x $400).\833\
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    \832\ The increase is calculated by adding the number of proxy
contests in 2009 (57) plus the number of no-action requests received
in 2009 regarding proposals seeking to amend a company's bylaws to
provide for shareholder director nominations (seven). We have not
included an estimated 59 proposals in this increase because we
believe they will be submitted in lieu of other types of proposals
(a shareholder is limited to submitting one shareholder proposal to
each company).
    \833\ We note that this calculation is for incremental, not
total, costs. One commenter estimated that the average approximate
total cost for shareholders to include a Rule 14a-8 proposal was
$30,000. See letter from CalPERS. Assuming these costs correspond to
legal fees, which we estimate at an hourly cost of $400, we estimate
that this cost will be equivalent to approximately 75 hours.
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    We recognize that a company that receives a shareholder proposal
has no obligation to submit a no-action request to the staff under Rule
14a-8. We anticipate that because the proposals that would be submitted
pursuant to amended Rule 14a-8 could affect the composition of the
company's board of directors, nearly all companies receiving such
proposals would submit a written statement of its reasons for excluding
the proposal to the staff. We estimate that there will be a total of
123 proposals per year regarding procedures for the inclusion of
shareholder nominees in the company's proxy statement. This number
includes the 64 (57 + 7) new proposals plus the 59 proposals submitted
in lieu of other proposals. Thus, we estimate that 90% of the estimated
123 companies receiving proposals seeking to establish procedures under
a company's governing documents for the inclusion of one or more
shareholder nominees in a company's proxy materials will submit a
written statement of their reasons for excluding the proposal to the
staff and would seek no-action relief.
    We estimate that companies would determine that they could exclude,
and would seek staff concurrence through the no-action letter process
for, 110 proposals (123 proposals x 90%) per proxy season. We estimate
that the annual burden for the company's submission of a notice of its
intent to exclude the proposal and its reasons for doing so would
average 116 hours per proposal, for a total of 12,760 burden hours (110
proposals x 116 hours/proposal) for reporting companies (other than
registered investment companies). This will correspond to 9,570 hours
of company time (110 proposals x 116 hours/proposal x 0.75) and
$1,276,000 for the services of outside professionals (110 proposals x
116 hours/proposal x 0.25 x $400).
    We also estimate that the annual burden for the proponent's
participation in the Rule 14a-8 no-action process would average 60
hours per proposal, for a total of 6,600 burden hours (110 proposals x
60 hours/proposal).\834\ This will correspond to 4,950 hours of
shareholder time (110 proposals x 60 hours/proposal x 0.75) and
$660,000 for services of outside professionals (110 proposals x 60
hours/proposal x 0.25 x $400). These burdens would be added to the PRA
burden of Schedules 14A and 14C.
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    \834\ As noted in footnote 817 above, we estimate that the
average burden to a company associated with preparing and submitting
a no-action request to the staff was approximately 116 burden hours.
As noted above in footnote 823, we estimate 60 burden hours for a
shareholder proponent to respond to a company's notice of intent to
exclude and request for no-action relief to the Commission. In this
regard, we also estimate that the average incremental burden for a
shareholder proponent to submit a shareholder proposal would be 10
hours. We note that one commenter estimated that the average
approximate cost to shareholders of submitting a proposal is
$30,000. See letter from CalPERS. We note that this commenter's
estimate corresponds to the burden to shareholders of submitting a
proposal, whereas our estimate of 60 burden hours corresponds to the
burden to shareholders in responding to a company's no-action
request.
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    In the case of registered investment companies, we anticipate that
the amendment to Rule 14a-8(i)(8) will result in an increase of 12
proposals annually, and a total of 24 proposals regarding procedures
for the inclusion of shareholder nominees for director in company proxy
materials to companies per year.\835\ We estimate the annual
incremental burden for the shareholder proponent to prepare the
proposal to be 10 hours per proposal, for a total of 120 burden hours
(12 proposals x 10 hours/proposal). This would correspond to 90 hours
of shareholder time (12 proposals x 10 hours/proposal x 0.75) and
$12,000 for the services of outside professionals (12 proposals x 10
hours/proposal x 0.25 x $400).
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    \835\ The increase is estimated based on the number of
registered investment company proxy contests in calendar year 2009
(11) plus the average number of no-action letters issued by the
staff regarding proposals seeking to amend a registered investment
company's bylaws to provide for shareholder director nominations
received in calendar years 2007, 2008, and 2009 rounded to the
nearest whole number greater than zero (1). In addition, we estimate
that investment companies currently receive as many proposals
regarding nomination procedures or disclosures as there are
contested elections and no-action letters issued by the staff,
resulting in a total of an estimated 24 proposals regarding
nomination procedures or disclosures related to director nominations
to companies per year.
---------------------------------------------------------------------------

    Similar to reporting companies other than investment companies, we
assume that 90% of registered investment companies that receive a
shareholder proposal seeking to establish procedures under a company's
governing documents for the inclusion of one or more shareholder
nominees in a company's proxy materials will determine that they may
exclude the proposal from their proxy materials and request concurrence
through the no-action letter process (so registered investment
companies will seek to exclude 22 such proposals per proxy season).
Also similar to reporting companies other than registered investment
companies, we assume that the annual burden for the company's
submission of a notice of its intent to exclude the proposal and its
reasons for doing so would average 116 hours per proposal, for a total
of 2,552 burden hours for registered investment companies (22 proposals
x 116 hours/proposal). This corresponds to 1,914 hours of company time
(22 proposals x 116 hours/proposal x 0.75) and $255,200 for the
services of outside professionals (22 proposals x 116 hours/proposal x
0.25 x $400). We also estimate that the annual burden for the
proponent's participation in the Rule 14a-8 no-action process would
average 60 hours per proposal, for a total of 1,320 burden hours (22
proposals x 60 hours/proposal). This corresponds to 990 hours of
shareholder time (22 proposals x 60 hours/proposal x 0.75) and $132,000
for the services of outside professionals (22 proposals x 60 hours/
proposal x 0.25 x $400). These burdens would be added to the PRA burden
of Rule 20a-1.
3. Schedule 14N and Exchange Act Rule 14a-18
    Rule 14n-1 establishes a new filing requirement for the nominating
shareholder or group, under which the nominating shareholder or group
will be required to file notice of its intent to include a shareholder
nominee or nominees for director pursuant to Rule 14a-11, applicable
State law provisions, or a company's governing documents, as well as
disclosure about the nominating shareholder or group and nominee or
nominees on new Schedule 14N. New Schedule 14N was modeled after
Schedule 13G, but with more extensive disclosure requirements than
Schedule 13G. Schedule 14N will require, among other items, disclosure
about the amount and percentage of securities owned by the nominating
shareholder or group, the length of ownership of such amount, and a
written statement that the nominating shareholder or group will
continue to hold the securities through the date of the meeting.

    In addition, Schedule 14N will contain the disclosure required to
be included in the nominating shareholder's or group's notice to the
company of its intent to require that the company include the
shareholder's or group's nominee in the company's proxy materials
pursuant to Rule 14a-11 or pursuant to applicable state or foreign law
provisions or a company's governing documents. With regard to the
latter, we are seeking to assure that nominating shareholders or groups
that submit a shareholder nomination for inclusion in a company's proxy
materials pursuant to applicable state or foreign law provisions or the
company's governing documents also provide disclosure similar to the
disclosure required in a contested election to give shareholders the
information needed to make an informed voting decision.
    Schedule 14N will require disclosures regarding the nature and
extent of the relationships between the nominating shareholder or
group, the nominee and the company or any affiliate of the company.
Pursuant to Items 7(e)-(f) of Schedule 14A and, in the case of an
investment company, Items 22(b)(18)-(19) of Schedule 14A, the company
will be required to include certain information set forth in the
shareholder's notice on Schedule 14N in its proxy materials. A
nominating shareholder or group filing a Schedule 14N to provide
disclosure when submitting a nominee for inclusion in a company's proxy
materials pursuant to applicable state or foreign law provisions or the
company's governing documents will not be required to provide certain
statements and certifications required for nominating shareholders or
groups using Rule 14a-11.
    We estimate that compliance with the Schedule 14N requirements will
result in a burden greater than Schedule 13G \836\ but less than a
Schedule 14A.\837\ Therefore, we estimate that compliance with Schedule
14N will result in 47 hours per response per nominee submitted pursuant
to Rule 14a-11.\838\ We also note that the burden associated with
filing a Schedule 14N in connection with a nomination made pursuant to
an applicable state or foreign law provision or the company's governing
documents may be slightly less than a nomination made pursuant to Rule
14a-11 because certain disclosures, statements, and certifications will
not be required (including a statement that the nominating shareholder
will continue to own the amount of securities through the date of the
meeting, disclosure about the nominating shareholder's or group's
intent with respect to continued ownership of the securities after the
election, the certifications that will be required to use Rule 14a-11
(such as the certification concerning lack of intent to change control
or to gain a number of seats on the board that exceeds the maximum
number of nominees that the company could be required to include under
Rule 14a-11, or the certifications that the nominating shareholder or
group and the nominee satisfy the requirements of Rule 14a-11), and a
supporting statement from the nominating shareholder or group.
Therefore, we estimate that compliance with Schedule 14N when a
shareholder or group submits a nominee or nominees to a company
pursuant to an applicable state or foreign law provision or the
company's governing documents will result in 40 hours per response per
nominee.
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    \836\ We currently estimate the burden per response for
preparing a Schedule 13G filing to be 12.4 hours.
    \837\ We currently estimate the burden per response for
preparing a Schedule 14A filing to be 101.5 hours and a Schedule 14C
to be 102.62 hours.
    \838\ We estimate that the burden of preparing the information
in Schedule 14N for a nominating shareholder or group would be \1/3\
of the disclosures typically required by a Schedule 14A filing,
which results in approximately 34 burden hours. For purposes of this
analysis, we estimate that the 34 burden hours will be added to the
12.4 hours associated with filing a Schedule 13G, resulting in a
total of approximately 47 burden hours. We estimate that 75% of the
burden of preparation of Schedule 14N will be borne internally by
the nominating shareholder or group, and that 25% will be carried by
outside professionals. We believe the nominating shareholder or
group will work with their nominee to prepare the disclosure and
then have it reviewed by outside professionals.
---------------------------------------------------------------------------

    For purposes of the PRA, we estimate the total annual incremental
burden for nominating shareholders or groups to prepare the disclosure
that will be required under this portion of the final rules to be
approximately 7,870 hours of shareholder time, and $1,049,300 for the
services of outside professionals.\839\ This estimate includes the
nominating shareholder's or group's preparation and filing of the
notice and required disclosure and, as applicable, certifications on
Schedule 14N and filings related to new Rules 14a-2(b)(7) and 14a-
2(b)(8).
---------------------------------------------------------------------------

    \839\ This figure represents the aggregate burden hours
attributed to Schedule 14N and is the sum of the burden associated
with Schedules 14N submitted pursuant to Rule 14a-11, applicable
state or foreign law provisions, and a company's governing
documents.
---------------------------------------------------------------------------

    We do not expect that every shareholder that meets the eligibility
threshold to submit a nominee for inclusion in a company's proxy
materials pursuant to Rule 14a-11, an applicable state or foreign law
provision, or a company's governing documents will do so. As discussed
above, we estimate that 45 reporting companies (other than registered
investment companies) and 6 registered investment companies will
receive notices of intent to submit nominees pursuant to Rule 14a-11.
We anticipate that some companies will receive nominees from more than
one shareholder or group, though, as discussed above, for purposes of
PRA estimates, we assume companies with an eligible shareholder would
receive two nominees from only one shareholder or group.
    We estimate that compliance with the requirements of Schedule 14N
submitted pursuant to Rule 14a-11 will require 4,230 burden hours (45
notices x 47 hours/notice x 2 nominees/shareholder) in aggregate each
year for nominating shareholders or groups of reporting companies
(other than registered investment companies), which corresponds to
3,173 hours of shareholder time (45 notices x 47 hours/notice x 2
nominees/shareholder x 0.75) and costs of $423,000 (45 notices x 47
hours/notice x 2 nominees/shareholder x 0.25 x $400) for the services
of outside professionals. In the case of registered investment
companies, we estimate that a nominating shareholder's or group's
compliance with the requirements of Schedule 14N will require 564
burden hours (6 responses x 47 hours/response x 2 nominees) in
aggregate each year, which corresponds to 423 hours of shareholder time
(6 responses x 47 hours/response x 2 nominees x 0.75) and costs of
$56,400 for the services of outside professionals (6 responses x 47
hours/response x 2 nominees x 0.25 x $400). Therefore, we estimate a
total of 4,794 burden hours for all reporting companies, including
investment companies, broken down into 3,596 hours of shareholder time
and $479,400 for services of outside professionals.
    We assume that all nominating shareholders or groups will prepare a
statement of support for the nominee or nominees, and we estimate the
disclosure burden for the nominating shareholder or group to prepare a
statement of support for its nominee or nominees to be approximately 10
burden hours per nominee. In the case of companies other than
registered investment companies, this results in an aggregate burden of
900 (45 statements x 10 hours/statement x 2 nominees/shareholder),
which corresponds to 675 hours of shareholder time (45 statements x 10
hours/statement x 2 nominees/shareholder x 0.75) and $90,000 for
services of outside professionals (45 statements x 10 hours/

statement x 2 nominees/shareholder x 0.25 x $400) for shareholders of
reporting companies (other than registered investment companies). For
registered investment companies, this will result in an aggregate
burden of 120 (6 statements x 10 hours/statement x 2 nominees/
shareholder), which corresponds to 90 hours of shareholder time (6
statements x 10 hours/statement x 2 nominees/shareholder x 0.75) and
$12,000 for services of outside professionals (6 statements x 10 hours/
statement x 2 nominees/shareholder x 0.25 x $400). Therefore, we
estimate a total of 1,020 burden hours for all reporting companies,
including investment companies, broken down into 765 hours of
shareholder time and $102,000 for services of outside professionals.
    When a nominating shareholder or group submits a nominee or
nominees to a company pursuant to an applicable state or foreign law
provision or the company's governing documents, the nominating
shareholder or group will be required to file a Schedule 14N to provide
disclosure about the nominating shareholder or group and the nominee or
nominees. As discussed, a company will be required to include certain
disclosures about the nominating shareholder or group and the nominee
or nominees in its proxy statement. As noted above, we estimate that
the burden associated with filing a Schedule 14N in connection with a
nomination made pursuant to an applicable state or foreign law
provision or a company's governing documents is 40 hours per nominee.
We also estimate that approximately 30 nominating shareholders or
groups of reporting companies (other than registered investment
companies) will submit a nomination pursuant to an applicable state or
foreign law provision or a company's governing documents.\840\ Thus, we
estimate compliance with the requirements of Schedule 14N for
nominating shareholders or groups submitting nominations pursuant to an
applicable state or foreign law provision or the company's governing
documents would result in 2,400 aggregate burden hours (30 notices x 40
hours/notice x 2 nominees/shareholder) each year for nominating
shareholders or groups of reporting companies (other than registered
investment companies), broken down into 1,800 hours of shareholder time
(30 notices x 40 hours/notice x 2 nominees/shareholder x 0.75) and
costs of $240,000 for the services of outside professionals (30 notices
x 40 hours/notice x 2 nominees/shareholder x 0.25 x $400). In the case
of registered investment companies, we estimate that approximately 12
nominating shareholders or groups will submit a nomination pursuant to
an applicable state or foreign law provision or a company's governing
documents.\841\ We estimate that a nominating shareholder's or group's
compliance with the requirements of Schedule 14N would result in 960
aggregate burden hours (12 notices x 40 hours/notice x 2 nominees/
shareholder) each year, which corresponds to 720 hours of shareholder
time (12 notices x 40 hours/notice x 2 nominees/shareholder x 0.75) and
costs of $96,000 for the services of outside professionals (12 notices
x 40 hours/notice x 2 nominees/shareholder x 0.25 x $400). Therefore,
we estimate that the total burden hours would be 3,360 for all
reporting companies, including investment companies, broken down into
2,520 hours of shareholder time and $336,000 for services of outside
professionals.
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    \840\ As discussed above, according to information from
RiskMetrics, approximately 118 Rule 14a-8 shareholder proposals
regarding board issues were submitted to shareholders for a vote in
the 2008-2009 proxy season. See footnote 804. We believe this data
is a useful starting point for estimating the number of shareholders
who may avail themselves of our new rules, including the use of
Schedule 14N. Also as discussed above, we estimate that
approximately half of these shareholders may submit a proposal
pursuant to Rule 14a-8 regarding procedures for the inclusion of
shareholder nominees for director in company proxy materials,
resulting in 59 proposals. We believe the number of shareholders
submitting nominees pursuant to a state or foreign law provision
will be lower than the number of shareholders submitting proposals
pursuant to Rule 14a-8. As a result, we estimate that approximately
30 shareholder proponents will submit nominations pursuant to
applicable state or foreign law provisions or a company's governing
documents.
    \841\ We estimate that approximately half of the 24 shareholders
submitting proposals to registered investment companies regarding
the inclusion of one or more shareholder nominees for director in
company proxy materials will make submissions pursuant to applicable
state or foreign law provisions or a company's governing documents.
As a result, we estimate that approximately 12 shareholder
proponents will submit to registered investment companies
nominations pursuant to applicable state or foreign law provisions
or a company's governing documents.
---------------------------------------------------------------------------

    We assume that all nominating shareholders or groups that submit a
nominee or nominees pursuant to an applicable state or foreign law
provision or a company's governing documents will prepare a statement
of support for the nominee or nominees,\842\ and we estimate the
disclosure burden for the nominating shareholder or group to prepare a
statement of support for its nominee or nominees to be approximately 10
burden hours per nominee. This results in an aggregate burden of 600
hours (30 statements x 10 hours/statement x 2 nominees/shareholder) for
shareholders of reporting companies (other than registered investment
companies), which corresponds to 450 hours of shareholder time (30
statements x 10 hours/statement x 2 nominees/shareholder x 0.75) and
$60,000 for services of outside professionals (30 statements x 10
hours/statement x 2 nominees/shareholder x 0.25 x $400). For registered
investment companies, this results in an aggregate burden of 240 hours
(12 statements x 10 hours/statement x 2 nominees/shareholder), which
corresponds to 180 hours of shareholder time (12 statements x 10 hours/
statement x 2 nominees/shareholder x 0.75) and $24,000 for services of
outside professionals (12 statements x 10 hours/statement x 2 nominees/
shareholder x 0.25 x $400). This results in a total of 840 burden
hours, broken down into 630 hours of shareholder time and $84,000 for
the services of outside professionals.
---------------------------------------------------------------------------

    \842\ We are assuming for PRA purposes that any applicable state
or foreign law provision or company's governing documents will allow
for inclusion of such a statement by the nominating shareholder or
group.
---------------------------------------------------------------------------

4. Amendments to Exchange Act Form 8-K
    Under Rule 14a-11, a nominating shareholder or group will be
required to file with the Commission, and transmit to the company, a
notice on Schedule 14N of its intent to require the company to include
the nominating shareholder's or group's nominee in the company's proxy
materials. The nominating shareholder or group must file and transmit
the notice on Schedule 14N no earlier than 150, and no later than 120,
calendar days before the anniversary of the date that the company
mailed its proxy materials for the prior year's annual meeting. If the
company did not hold an annual meeting during the prior year, or if the
date of the meeting has changed more than 30 days from the prior year,
then the nominating shareholder or group will be required to provide
notice a reasonable time before the company mails its proxy materials,
as specified by the company in a Form 8-K filed pursuant to new Item
5.08 of Form 8-K. The final rules also require a registered investment
company that is a series company to file a Form 8-K disclosing the
total number of the company's shares that are entitled to vote for the
election of directors at the annual meeting of shareholders (or, in
lieu of such an annual meeting, a special meeting of shareholders) as
of

the end of the most recent calendar quarter.\843\
---------------------------------------------------------------------------

    \843\ The amendment to Rule 14a-8(i)(8) is not expected to
impact Form 8-K, so the burden estimates solely reflect the burden
changes resulting from new Item 5.08, including when a nomination is
submitted pursuant to a company's governing documents or pursuant to
applicable State law.
---------------------------------------------------------------------------

    For purposes of the PRA, we estimate that approximately 4% of
reporting companies (other than registered investment companies) will
be required to file a Form 8-K because the company did not hold an
annual meeting during the prior year, or the date of the meeting has
changed by more than 30 days from the prior year.\844\ Based on our
estimate that there are approximately 11,000 reporting companies (other
than registered investment companies), this corresponds to 440
companies that will be required to file a Form 8-K. In accordance with
our current estimate of the burden of preparing a Form 8-K, we estimate
5 burden hours to prepare, review and file the Form 8-K, for a total
burden of 2,200 hours (440 filings x 5 hours/filing). This total burden
corresponds to 1,650 hours of company time (440 filings x 5 hours/
filing x 0.75) and $220,000 for services of outside professionals (440
filings x 5 hours/filing x 0.25 x $400).
---------------------------------------------------------------------------

    \844\ Based on information obtained in 2003 from the Investor
Responsibility Research Center, 3.75% of companies (other than
registered investment companies) did not hold an annual meeting
during the prior year or the date of the meeting changed by more
than 30 days from the prior year. See also footnote 195 in the 2003
Proposal.
---------------------------------------------------------------------------

    In the case of registered investment companies, we estimate that,
similar to reporting companies other than registered investment
companies, 4% of registered closed-end management investment companies
subject to Rule 14a-11 that are traded on an exchange would be required
to file a Form 8-K because the company did not hold an annual meeting
during the prior year or the date of the meeting has changed by more
than 30 days from the prior year.\845\ We estimate that approximately
625 of the 1,225 registered investment companies responding to
Investment Company Act Rule 20a-1 are closed-end funds that are traded
on an exchange, resulting in 25 closed-end funds that will be required
to file Form 8-K for these purposes (625 registered closed-end
management investment companies x 0.04).\846\ However, we estimate that
few, if any, registered open-end management investment companies
regularly hold annual meetings. Therefore, we estimate that 600
registered investment companies are not closed-end investment companies
and will be required to file Form 8-K. This results in a total of 625
registered investment companies required to file Form 8-K (25 closed-
end management investment companies + 600 other registered investment
companies) and 3,125 burden hours (625 filings x 5 hours/filing). This
total burden corresponds to 2,344 hours of company time (625 filings x
5 hours/filing x 0.75) and $312,500 for services of outside
professionals (625 filings x 5 hours/filing x 0.25 x $400).\847\ Adding
the totals for reporting companies (other than registered investment
companies) and registered investment companies results in a total
burden of 5,325, which corresponds to 3,994 hours of company time and
$532,500 for services of outside professionals. This includes the
requirement for a registered investment company that is a series
company to file a Form 8-K disclosing the total number of the company's
shares that are entitled to vote for the election of directors at the
annual meeting of shareholders (or, in lieu of such an annual meeting,
a special meeting of shareholders) as of the end of the most recent
calendar quarter.
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    \845\ We believe that the percentage for registered closed-end
investment companies will be similar to other reporting companies
because such investment companies are traded on an exchange and are
required to hold annual meetings of shareholders.
    \846\ We estimate that 1,225 registered investment companies
hold annual meetings each year based on the number of responses to
Rule 20a-1. Based on data provided by Lipper, the Commission
estimates that approximately 625 registered closed-end management
investment companies are traded on an exchange.
    \847\ Consistent with the current estimates for Form 8-K, we
estimate that that 75% of the burden of preparation of Form 8-K is
carried by the company and that 25% of the burden of preparation of
Form 8-K is carried by outside professionals at an average cost of
$400 per hour. The burden includes disclosure of the date by which a
nominating shareholder or group must submit the notice required by
Rule 14a-11(c) as well as disclosure of net assets, outstanding
shares, and voting.
---------------------------------------------------------------------------

5. Schedule 13G Filings
    Shareholders will be permitted to aggregate holdings for purposes
of meeting the eligibility threshold in Rule 14a-11 and therefore we
anticipate that some groups of shareholders may beneficially own in the
aggregate more than 5% of a voting class of an equity security
registered pursuant to Section 12. In these circumstances, nominating
shareholders will need to consider whether they have formed a group
under Exchange Act Section 13(d)(3) and Rule 13d-5(b)(1) that is
required to file beneficial ownership reports.\848\ To the extent
nominating shareholder groups exceed the 5% threshold and file a
Schedule 13G, this will result in an increased number of Schedule 13G
filings. With respect to reporting companies other than registered
investment companies, we estimate that 25% (11) of the nominees
submitted pursuant to Rule 14a-11 will be from shareholders who
individually meet the eligibility thresholds (25% of 45), and 75% (34)
will be from shareholder groups (75% of 45). We estimate that 75% of
the 34 groups formed will exceed the 5% threshold and will file a
Schedule 13G. As a result, we estimate that an additional 26 Schedule
13G filings will be made annually. The total burden associated with
this increase in the number of filings is 322 burden hours (26
additional Schedule 13Gs x 12.4 hours/schedule). This burden
corresponds to 81 hours of shareholder time (26 additional Schedule
13Gs x 12.4 hours/Schedule x 0.25) and $96,720 for services of outside
professionals (26 additional Schedule 13Gs x 12.4 hours/Schedule x 0.75
x $400).
---------------------------------------------------------------------------

    \848\ We recognize that each shareholder group will need to
analyze its own facts and circumstances in order to determine
whether it is required to file a Schedule 13G; however, we expect
that most groups will file a Schedule 13G.
---------------------------------------------------------------------------

    With respect to registered investment companies, we estimate that
approximately 3 (50% of 6) of the shareholder nominees will be
submitted by shareholders of closed-end funds whose shareholders are
required to file beneficial ownership reports under the Exchange
Act.\849\ We estimate that 25% (1) of the nominees for director of
closed-end funds submitted pursuant to Rule 14a-11 will be from
shareholders who individually meet the eligibility thresholds (25% of
3), and 75% (2) will be from shareholder groups (75% of 3). We estimate
that 75% of the two groups formed to nominate directors of closed-end
funds will exceed the 5% threshold and file a Schedule 13G. As a
result, we estimate that an additional 2 Schedule 13G filings will be
made annually (75% of two groups rounds up to two). The total burden
associated with this increase in the number of filings is approximately
25 burden hours (2 additional Schedule 13Gs x 12.4 hours/schedule).
This burden corresponds to 6 hours of shareholder time (2 additional
Schedule 13Gs x 12.4 hours/schedule x 0.25) and $7,440 for services of
outside

professionals (2 additional Schedule 13Gs x 12.4 hours/schedule x 0.75
x $400).
---------------------------------------------------------------------------

    \849\ Under Section 13(d) of the Exchange Act, only holders of
equity securities of closed-end funds are required to file
beneficial ownership reports with the Commission. Holders of open-
end funds are not subject to this requirement. Previously, we
estimated that approximately 625 (or slightly over 50%) of the 1,225
registered investment companies responding to Investment Company Act
Rule 20a-1 are closed-end funds that are traded on an exchange. We
estimate that the percentage of the shareholder nominees that will
be submitted by shareholders of closed-end funds will be
approximately equal to the percentage of closed-end funds that are
traded on an exchange.
---------------------------------------------------------------------------

    Adding the totals for reporting companies (other than registered
investment companies) and registered investment companies results in a
total burden of 347 hours, which corresponds to 87 hours of shareholder
time and $104,160 for services of outside professionals.
6. Form ID Filings
    Under Rule 14n-1 and Rule 14a-11, a shareholder who submits a
nominee or nominees for inclusion in the company's proxy statement must
provide notice on Schedule 14N to the company of its intent to require
that the company include the nominee or nominees in the company's proxy
materials. The notice on Schedule 14N must be filed with the Commission
on the date the notice is transmitted to the company. We anticipate
that some shareholders who submit a nominee or nominees for inclusion
in a company's proxy materials will not previously have filed an
electronic submission with the Commission and will file a Form ID. Form
ID is the application form for access codes to permit filing on EDGAR.
The final rules are not changing the form itself, but we anticipate
that the number of Form ID filings may increase due to shareholders
filing Schedule 14N when submitting a nominee or nominees to a company
for inclusion in its proxy materials pursuant to Rule 14a-11,
applicable state or foreign law provisions, or a company's governing
documents. We estimate that 90% of the shareholders who submit a
nominee or nominees for inclusion in a company's proxy materials will
not have filed previously an electronic submission with the Commission
and will be required to file a Form ID. As noted above, we estimate
that approximately 45 reporting companies (other than registered
investment companies) and 6 registered investment companies will
receive shareholder nominations submitted pursuant to Rule 14a-11. This
corresponds to 46 additional Form ID filings (90% of 51). In addition,
as noted above, we estimate that approximately 30 reporting companies
(other than registered investment companies) and 12 registered
investment companies will receive shareholder nominations submitted
pursuant to an applicable state or foreign law provision or a company's
governing documents. This corresponds to an additional 38 Form ID
filings (90% of 42). As a result, the additional annual burden would be
13 hours (84 filings x 0.15 hours/filing).\850\ For purposes of the
PRA, we estimate that the additional burden cost resulting from the new
rules will be zero because we estimate that 100% of the burden will be
borne internally by the nominating shareholder or group.
---------------------------------------------------------------------------

    \850\ We currently estimate the burden associated with Form ID
is 0.15 hours per response.
---------------------------------------------------------------------------

E. Revisions to PRA Reporting and Cost Burden Estimates

    Table 1 below illustrates the incremental annual compliance burden
of the collection of information in hours and in cost for securities
ownership reports filed by investors, proxy and information statements,
and current reports under the Exchange Act. The burden was calculated
by multiplying the estimated number of responses by the estimated
average number of hours each entity spends completing the form. We
estimate that 75% of the burden of preparation of the proxy and
information statement and current reports is carried by the company
internally, while 25% of the burden of preparation is carried by
outside professionals at an average cost of $400 per hour. We estimate
that 75% of the burden of preparation of Schedule 14N, any soliciting
materials with regard to formation of a nominating shareholder group,
and any soliciting materials regarding the nomination will be carried
by the nominating shareholder or group internally and that 25% of the
burden of preparation will be carried by outside professionals retained
by the nominating shareholder or group. We estimate that 25% of the
burden of preparation of Schedule 13G (for nominating shareholder
groups that beneficially own more than 5% of a voting class of any
equity security registered pursuant to Section 12) will be carried by
the nominating shareholder or group internally and that 75% of the
burden of preparation will be carried by outside professionals retained
by the nominating shareholder or group. The portion of the burden
carried by outside professionals is reflected as a cost, while the
portion of the burden carried internally by the company and nominating
shareholder or group is reflected in hours.

                                                Table 1--Calculation of Incremental PRA Burden Estimates*
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 Current      Proposed     Current    Increase in    Proposed      Current     Increase in    Proposed
                                                  annual       annual       burden       burden       burden    professional  professional  professional
                                                responses    responses      hours        hours        hours         costs         costs         costs
                                                       (A)          (B)          (C)          (D)          (E)           (F)           (G)             =
                                                                                =                                         F
                                                                                C                                         +
                                                                                +                                         G
                                                                                D
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sch 14A......................................        7,300        7,300      671,970       16,370      688,340    79,214,887     2,182,590    81,397,477
Sch 14C......................................          680          680      631,152        1,819      632,971     7,393,639       242,510     7,636,149
Sch 14N......................................            0          162            0        7,870        7,870             0     1,049,300     1,049,300
Form 8-K.....................................      115,795      116,860      493,436        3,994      497,430    65,791,500       532,500    66,324,000
Form ID......................................       65,700       65,784        9,855           13        9,868             0             0             0
Sch 13G......................................       12,500       12,528       35,577           87       35,664    42,694,200       104,160    42,798,360
Rule 20a-1...................................        1,225        1,225      142,958        3,438      146,396    20,090,000       458,300    20,548,300
                                              ----------------------------------------------------------------------------------------------------------
    Total....................................  ...........  ...........  ...........       33,591  ...........  ............     4,569,360  ............
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The incremental burden estimate for Rule 20a-1 includes the disclosure that would be required on Schedule 14A and 14C, discussed above, with respect
  to funds.

IV. Cost-Benefit Analysis

A. Background

    The Commission is adopting new rules that, under certain
circumstances, will require companies to include in their proxy
materials shareholder nominees for director, as well as other
disclosure regarding those nominees and the nominating shareholder or
group. In addition, the new rules will require companies, under certain
circumstances, to include in their proxy materials a shareholder
proposal that seeks to establish a procedure in the company's governing
documents for the inclusion of shareholder director nominees in the
company's proxy materials. As a result, a company's proxy materials may
be required, under certain circumstances, to provide shareholders with
information about, and the ability to vote for, a shareholder nominee
for director. The new rules will therefore facilitate shareholders'
ability to exercise their traditional State law rights to nominate and
elect directors by improving the disclosure provided in connection with
corporate proxy solicitations and communication between shareholders in
the proxy process.
    We requested comment on all aspects of the cost-benefit analysis
contained in the Proposing Release, including identification of any
additional costs and benefits. We have considered these comments
carefully and made responsive changes to the rules in order to minimize
the potential costs. Below we consider the benefits and costs of the
economic effects of the new rules and discuss the comments we received,
as applicable.

B. Summary of Rules

    Rule 14a-11 will require companies to include shareholder
nominations for director and disclosure about the nominating
shareholder or group and the nominee in a company's proxy materials if,
among other things, the nominating shareholder or group held, as of the
date of the shareholder notice on Schedule 14N, either individually or
in the aggregate, at least 3% of the voting power of the company's
securities that are entitled to be voted on the election of directors
at the annual meeting of shareholders (or, in lieu of such an annual
meeting, a special meeting of shareholders) or on a written consent in
lieu of such meeting and has held the qualifying amount of securities
used to satisfy the ownership threshold continuously for at least three
years as of the date of the shareholder notice on Schedule 14N (in the
case of a shareholder group, each member of the group must have held
the amount of securities that are used to satisfy the ownership
threshold for at least three years as of the date of the shareholder
notice on Schedule 14N). The nominating shareholder or group also will
be required to hold the shares through the date of the meeting. A
nominating shareholder or group that includes a nominee or nominees in
a company's proxy materials pursuant to Rule 14a-11 will be required to
provide in its notice on Schedule 14N filed with the Commission and
transmitted to the company disclosures similar to the disclosures
required in a traditional contested election. Pursuant to Item 7(e) of
Schedule 14A (and, in the case of registered investment companies and
business development companies, Item 22(b)(18) of Schedule 14A), the
company will be required to include in its proxy materials certain
disclosure provided by the nominating shareholder or group in its
notice on Schedule 14N. In addition, the new rules will enable
shareholders to engage in limited solicitations to form nominating
shareholder groups and engage in solicitations in support of their
nominee or nominees without disseminating a proxy statement.\851\
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    \851\ See Rules 14a-2(b)(7) and 14a-2(b)(8).
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    The Commission also is adopting an amendment to Rule 14a-8 to
narrow the exclusion in paragraph (i)(8) of the rule, which addresses
director elections. Under the amendment, a company will not be
permitted to rely on Rule 14a-8(i)(8) to omit from its proxy materials
a shareholder proposal that seeks to establish a procedure in the
company's governing documents for the inclusion of shareholder nominees
for director in the company's proxy materials. The current procedural
requirements for submitting a shareholder proposal pursuant to Rule
14a-8 will remain the same. No additional disclosures will be required
from any shareholder that submits such a proposal; however, a
nominating shareholder or group that includes a nominee or nominees in
a company's proxy materials pursuant to an applicable state or foreign
law provision or the company's governing documents will be required to
file with the Commission and transmit to the company, in its notice on
Schedule 14N, disclosures similar to the disclosures required in a
traditional contested election. Pursuant to Item 7(f) of Schedule 14A
(and, in the case of registered investment companies and business
development companies, Item 22(b)(19) of Schedule 14A), the company
will be required to include in its proxy materials certain disclosures