Release No. 33-8732A Release No. 34-54302A Release No. IC-27444A

Securities and Exchange Commission

Executive Compensation and Related Person Disclosure
Section V.B.

V. Certain Relationships and Related Transactions Disclosure

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B. Procedures for Approval of Related Person Transactions

We are adopting a new requirement for disclosure of the policies and procedures established by the company and its board of directors regarding related person transactions substantially as proposed. State corporate law and increasingly robust corporate governance practices support or provide for such procedures in connection with transactions involving conflicts of interest.⁴⁶⁵ We believe that this type of information may be material to investors, and our amendments therefore require disclosure of policies and procedures regarding related person transactions under paragraph (b) of Item 404, as amended.

Specifically, the amendments require a description of the companys policies and procedures for the review, approval or ratification of transactions with related persons that are reportable under paragraph (a) of Item 404. The description must include the material features of these policies and procedures that are necessary to understand them. While the material features of such policies and procedures will vary depending on the particular circumstances, examples of such features may include, in given cases, among other things:

• The types of transactions that are covered by such policies and procedures, and the standards to be applied pursuant to such policies and procedures;
• The persons or groups of persons on the board of directors or otherwise who are responsible for applying such policies and procedures; and
• Whether such policies and procedures are in writing and, if not, how such policies and procedures are evidenced.

Item 404(b) requires identification of any transactions required to be reported under paragraph (a) of Item 404 where the companys policies and procedures do not require review, approval or ratification or where such policies and procedures have not been followed.

One commenter expressed concern that it is not reasonable or customary for a companys related person transaction policy to extend to transactions occurring before an individual becomes affiliated with a company.⁴⁶⁶ In response, we have added an instruction indicating that disclosure need not be provided pursuant to paragraph (b) of Item 404 regarding any transaction that occurred at a time before the related person had the relationship that would trigger disclosure under Item 404(a)(5), if the transaction did not continue after the related person had that relationship.⁴⁶⁷

⁴⁶⁵ Del. Code Ann. tit. 8, §144 (2004). See also NYSE, Inc. Listed Company Manual Section 307.00 and NASD Manual, Marketplace Rules 4350(h) and 4360(i).

⁴⁶⁶ See letter from NYCBA.

⁴⁶⁷ See Instruction to Item 404(b). For example, disclosure would not be required under Item 404(b) in a companys Form 10-K for the fiscal year ended December 31, 2005 of a transaction that occurred in March 2005 between the company and an immediate family member of a person who later became a director of the company in August 2005. However, disclosure would be required under Item 404(a)(5) in this circumstance. This Instruction to Item 404(b) does not apply to transactions of significant shareholders of the company, because Item 404(a)(5) does not require disclosure of transactions with significant shareholders that are completed before they become significant shareholders.