Section 111(e) of the Emergency Economic Stabilization Act of 2008 (EESA) requires every recipient under the Troubled Relief Asset Program (TARP) to provide its shareholders with an advisory vote on the compensation paid to the company's named executive officers. TARP recipients are required to seek such approval as long as any obligation remains outstanding under the TARP. Under EESA, Congress delegated authority to the Securities and Exchange Commission to adopt rules to implement this shareholder vote requirement.

On January 12, 2010, the SEC adopted final rules amending its proxy disclosure rules to implement this "say-on-pay" approval requirement. Each TARP recipient must seek shareholder approval of the compensation paid to its named executive officers, as described in its proxy statement. For public reporting companies other than smaller reporting companies, this disclosure includes the Compensation Discussion & Analysis (CD&A), the compensation tables, and any related material. For smaller reporting companies, which are not required to provide a CD&A, the proposal must seek approval of the compensation disclosures of the named executive officers as required by the scaled compensation disclosure rules applicable to such companies.  In this shareholder advisory vote proposal, the company needs to explain why it is seeking this separate shareholder vote on executive compensation and describe the effect of the vote on the company, such as whether the vote is nonbinding. The final rules also clarify that this vote is required only in connection with proxies solicited for an annual meeting (or special meeting in lieu of an annual meeting) at which directors are to be elected. 

The most significant change between the final rule and the July 2009 proposing release is that the SEC removed the requirement for a TARP recipient to file a preliminary proxy statement with respect to any such "say-on-pay" proposal. The SEC's proxy rules require a company to file a preliminary proxy statement in certain circumstances at least 10 calendar days before mailing a definitive proxy statement to its shareholders. This requirement provides the SEC with an opportunity, in advance of the distribution to shareholders, to review and comment on a proxy statement that includes proposals other than those that regularly arise. However, a proxy statement that includes only regular items, such as the election of directors and the ratification of the selection of auditors, is not subject to this preliminary proxy statement filing requirement. In the final rules, the SEC agreed with commenters that this EESA-required "say-on-pay" proposal is similar to the other items that do not require a preliminary proxy statement filing and that the burdens of requiring such a filing on TARP recipients (timing constraints and added costs) outweigh the benefits.

The effective date of these new rules is February 18, 2010.

For more information on these rules or other securities matters, please contact Justin P. Klein at 215.864.8606 or; Mary J. Mullany at 215.864.8631 or; or Gerald J. Guarcini at 215.864.8625 or

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