Anthony, Linder & Cacomanolis, PLLC

Item 404(b) requires the disclosure of any transactions required to be reported under Item 404(a) since the beginning of the company’s last fiscal year where a company’s policies and procedures did not require review, approval or ratification of the transaction, or where the policies and procedures were not followed.. Item 404(c) requires the company to disclose the same information as to any person who acquired control of a company that was a shell, or that was part of a group of two or more persons that agree to act together for the purpose of acquiring, holding, voting or disposing of equity securities of the shell company. #SecuritiesLawBlog #SEC #ALCLAW

Under Item 404, the amount involved or dollar value of a transaction includes: (i) in the case of a lease or other transaction providing for periodic payments or installments, the aggregate of all periodic payments or installments due on or after the beginning of the company’s last fiscal year, including any optional payments due during or at the conclusion of the lease or other transaction; and (ii) in the case of a debt transaction, the largest aggregate amount of all indebtedness outstanding at any time since the beginning of the company’s last fiscal year and all amounts of interest payable on it during the last fiscal year. #SecuritiesLawBlog #SEC #ALCLAW

Item 404 defines a “transaction” to include, but not be limited to, any financial transaction, arrangement or relationship, or any series of transactions, arrangements or relationships. #SecuritiesLawBlog #SEC #ALCLAW

Item 404 does not define, provide instructions on, or otherwise give guidance as to the meaning of “participant” in a related party transaction and as such we must look to the rule release, SEC enforcement actions and other judicial proceedings. The word “participant” was intentionally used, as opposed to “party to” a transaction to broadly encompass subsidiaries and activities in support of a transaction, whether or not the company is a party. #SecuritiesLawBlog #SEC #ALCLAW

Item 404 defines a “related person” as any person in the following categories when a related party transaction occurred or existed: (i) any 5% or greater shareholder; or (ii) any immediate family member of a 5% or greater shareholder (immediate family member includes the same as listed above). SEC C&DI clarifies that if the transaction occurs prior to the person becoming a 5% shareholder it does not need to be disclosed unless: (i) the transaction is continuing (such as through ongoing payments) after the person becomes a 5% shareholder; or (ii) results in the person becoming a 5% shareholder. #SecuritiesLawBlog #SEC #ALCLAW

SEC interpretations specifically require disclosure of an agreement by the company with a related person to repurchase shares from the related party’s estate with the proceeds of a life insurance policy paid for the by company where the value of the repurchase would be in excess of $120,000. #SecuritiesLawBlog #SEC #ALCLAW

Item 404(a) requires disclosure of any transaction, since the beginning of the company’s last fiscal year, or any currently proposed transaction, in which the company was or is to be a participant and the amount involved exceeds $120,000, and in which any related person had or will have a direct or indirect material interest. As discussed below, the term “participant” is broadly interpreted and is not limited to being an actual party to a transaction. #SecuritiesLawBlog #SEC #ALCLAW

Item 404 of Regulation S-K sets forth the related party disclosure obligations for domestic companies that must be included in various periodic reports and registration statements under the Securities Exchange Act and in registration statements under the Securities Act. Foreign private issuers can comply with Item 404 by providing the information required by Item 7.B of Form 20-F plus any additional information required by its home jurisdiction. #SecuritiesLawBlog #SEC #ALCLAW

About a year ago, the SEC brought several enforcement proceedings targeting shortcomings in related party transactions disclosures, including by Lyft. The action provides a reminder that Item 404(a) is broadly construed to require a description of transactions since the beginning of the registrant’s last fiscal year in excess of $120,000 in which it was or is to be a participant, and in which a related person had or will have a direct or indirect material interest. #SecuritiesLawBlog #SEC #ALCLAW

Primary Trading Market means that at least 55% of the trading in the subject class of securities on a worldwide basis took place in, on or through the facilities of a securities market or markets in a single foreign jurisdiction or in no more than two foreign jurisdictions during the issuer’s most recently completed fiscal year. #SecuritiesLawBlog #FPIs #ALCLAW