S-K 404(a) requires disclosures about

• Transactions of all types in excess of $120,000
• In which the reporting company is a participant
• In which a direct or indirect material interest is held
  by a related person

Related persons include

• Directors
• Executive officers
• Board nominees
  (if included in a proxy statement)
• 5% beneficial owners
• Immediate family members of the foregoing

Immediate family members include

• Children and stepchildren
• Parents and stepparents
• Spouses
• Siblings
• Parents and siblings in-law
• Any person sharing the household
  (other than tenants and employees)

Transaction includes

• Any financial arrangement or relationship
  (including any indebtedness or guarantee)
• Any series of similar arrangements or relationships

Participant is not defined

• Thus, much less formal arrangements in which the
  company and the related person both played roles may be
  subject to disclosure under Item 404(a)
• E.g, it is not necessary that the company or a subsidiary be a party to any contract with the related person

Materiality is an overriding requirement

• SEC commentary endorses the proposition that a transaction might exceed $120,000, but that disclosure
  would not be required
• Instead of a bright-line test of $120,000, the SEC states that the requirement of disclosure is dependent on the materiality of any direct or indirect interest held by the related person
• 2006 amendment, however, deleted two instructions to old Item 404 that had enforced the principle that the dollar test is not a bright line

Exceptions include

• Compensation otherwise reported
• Certain ordinary course debt
  (such as debt arising from ordinary business travel and expense payments)
• Accommodations for disclosures of loans provided by financial institutions to related persons
• Section 16(b) short-swing profit liability
• Interests arising only as a director of another entity or as a holder of less than 10% equity interest in such an entity
• Transactions where rates are determined by competitive
  bidding
• Benefits received pro rata by all holders of a class of equity securities (e.g., dividends)

S-K 404(a) was substantially revised in 2006

• Per SEC Release 33-8732  2006
• Final release commentary Rel 33-8732 §V.E.1
• Broadened disclosure requirements by using
  a more principles-based approach
• Eliminates some bright line instructions
  previously contained in Item 404(a)

Interplay with S-K 402

• Final release commentary  33-8732 §II.C.7

Final release commentary Rel 33-8732 §V.A.1

Final release commentary Rel 33-8732 §V.A.3

In the case of transactions involving indebtedness

• If the lender is a bank, savings and loan association or broker dealer extending credit under Federal Reserve
  Regulation T, and the loans are not disclosed as nonaccrual, past due, restructured or potential problems, disclosure may be limited to a statement, if correct, that the loans were made in the ordinary course of business, were made on substantially the same terms as those prevailing at the time for comparable loans, and did not involve more than the normal risk of collectibility or present other unfavorable features

S-K Item 404 Interpretations

• General 404(a) Interpretations
• Specific 404(a) Interpretations

• Last updated 8.8.07

• Replace prior S-K 404 interpretations in July 1997 Manual of Publicly Available Telephone Interpretations and its March 1999 supplement

• See S-K 404 Interpretations

Law Firm Commentary

• Perkins Coie reference chart  3.20.07

10-K

Form 10

S-1  Item 11(l)  as to (e)(4)

S-3

S-4  Item 18(a)(7)(ii)

S-11

Final release 33-8732  Aug 2006

• Final release commentary Rel 33-8732 §V.A

Proposal release 33-8655  Jan 2006

Executive Compensation Disclosure