[Title 17 CFR 228.404]
[Code of Federal Regulations (annual edition) - April 1, 2007 Edition]
[Title 17 - COMMODITY AND SECURITIES EXCHANGES]
[Chapter II - SECURITIES AND EXCHANGE COMMISSION]
[Part 228 - INTEGRATED DISCLOSURE SYSTEM FOR SMALL]
[Subpart A - Regulation S-B]
[Sec. 228.404 - (Item 404) Transactions with related persons, promoters and certain control persons.]
[From the U.S. Government Printing Office]


17COMMODITY AND SECURITIES EXCHANGES22007-04-012007-04-01false228.404Sec. 228.404COMMODITY AND SECURITIES EXCHANGESSECURITIES AND EXCHANGE COMMISSIONINTEGRATED DISCLOSURE SYSTEM FOR SMALLRegulation S-B
Sec. 228.404  (Item 404) Transactions with related persons, promoters and certain control persons.

    (a) Transactions with related persons. Describe any transaction, 
since the beginning of the small business issuer's last fiscal year, or 
any currently proposed transaction, in which the small business issuer 
was or is to be a participant and the amount involved exceeds the lesser 
of $120,000 or one percent of the average of the small business issuer's 
total assets at year-end for the last three completed fiscal years, and 
in which any related person had or will have a direct or indirect 
material interest. Disclose the following information regarding the 
transaction:
    (1) The name of the related person and the basis on which the person 
is a related person.
    (2) The related person's interest in the transaction with the small 
business issuer, including the related person's position(s) or 
relationship(s) with, or ownership in, a firm, corporation, or other 
entity that is a party to, or has an interest in, the transaction.
    (3) The approximate dollar value of the amount involved in the 
transaction.
    (4) The approximate dollar value of the amount of the related 
person's interest in the transaction, which shall be computed without 
regard to the amount of profit or loss.
    (5) In the case of indebtedness, disclosure of the amount involved 
in the transaction shall include the largest aggregate amount of 
principal outstanding during the period for which disclosure is 
provided, the amount thereof outstanding as of the latest practicable 
date, the amount of principal paid during the periods for which 
disclosure is provided, the amount of interest paid during the period 
for which disclosure is provided, and the rate or amount of interest 
payable on the indebtedness.
    (6) Any other information regarding the transaction or the related 
person in the context of the transaction that is material to investors 
in light of the circumstances of the particular transaction.

    Instructions to Item 404(a).
    1. For the purposes of paragraph (a) of this Item, the term related 
person means:
    a. Any person who was in any of the following categories at any time 
during the specified period for which disclosure under paragraph (a) of 
this Item is required:
    i. Any director or executive officer of the small business issuer;
    ii. Any nominee for director, when the information called for by 
paragraph (a) of this Item is being presented in a proxy or information 
statement relating to the election of that nominee for director; or
    iii. Any immediate family member of a director or executive officer 
of the small business issuer, or of any nominee for director when the 
information called for by paragraph (a) of this Item is being presented 
in a proxy or information statement relating to the election of that 
nominee for director, which means any child, stepchild, parent, 
stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, 
daughter-in-law, brother-in-law, or sister-in-law of such director, 
executive officer or nominee for director, and any person (other than a 
tenant or employee) sharing the household of such director, executive 
officer or nominee for director; and
    b. Any person who was in any of the following categories when a 
transaction in which such person had a direct or indirect material 
interest occurred or existed:
    i. A security holder covered by Item 403(a) (Sec. 228.403(a)); or
    ii. Any immediate family member of any such security holder, which 
means any child, stepchild, parent, stepparent, spouse, sibling, mother-
in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or 
sister-in-law of such security holder, and any person (other than a 
tenant or employee) sharing the household of such security holder.
    2. For purposes of paragraph (a) of this Item, a transaction 
includes, but is not limited to, any financial transaction, arrangement 
or relationship (including any indebtedness or guarantee of 
indebtedness) or any series of similar transactions, arrangements or 
relationships.
    3. The amount involved in the transaction shall be computed by 
determining the dollar value of the amount involved in the transaction 
in question, which shall include:
    a. In the case of any lease or other transaction providing for 
periodic payments or installments, the aggregate amount of all periodic 
payments or installments due on or after the beginning of the small 
business issuer's last fiscal year, including any required or optional 
payments due during or at

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the conclusion of the lease or other transaction providing for periodic 
payments or installments; and
    b. In the case of indebtedness, the largest aggregate amount of all 
indebtedness outstanding at any time since the beginning of the small 
business issuer's last fiscal year and all amounts of interest payable 
on it during the last fiscal year.
    4. In the case of a transaction involving indebtedness:
    a. The following items of indebtedness may be excluded from the 
calculation of the amount of indebtedness and need not be disclosed: 
amounts due from the related person for purchases of goods and services 
subject to usual trade terms, for ordinary business travel and expense 
payments and for other transactions in the ordinary course of business;
    b. Disclosure need not be provided of any indebtedness transaction 
for the related persons specified in Instruction 1.b. to paragraph (a) 
of this Item; and
    c. If the lender is a bank, savings and loan association, or broker-
dealer extending credit under Federal Reserve Regulation T (12 CFR part 
220) and the loans are not disclosed as nonaccrual, past due, 
restructured or potential problems (see Item III.C.1. and 2. of Industry 
Guide 3, Statistical Disclosure by Bank Holding Companies (17 CFR 
229.802(c))), disclosure under paragraph (a) of this Item may consist of 
a statement, if such is the case, that the loans to such persons:
    i. Were made in the ordinary course of business;
    ii. Were made on substantially the same terms, including interest 
rates and collateral, as those prevailing at the time for comparable 
loans with persons not related to the lender; and
    iii. Did not involve more than the normal risk of collectibility or 
present other unfavorable features.
    5.a. Disclosure of an employment relationship or transaction 
involving an executive officer and any related compensation solely 
resulting from that employment relationship or transaction need not be 
provided pursuant to paragraph (a) of this Item if:
    i. The compensation arising from the relationship or transaction is 
reported pursuant to Item 402 (Sec. 228.402); or
    ii. The executive officer is not an immediate family member (as 
specified in Instruction 1 to paragraph (a) of this Item) and such 
compensation would have been reported under Item 402 (Sec. 228.402) as 
compensation earned for services to the small business issuer if the 
executive officer was a named executive officer as that term is defined 
in Item 402(a)(2) (Sec. 228.402(a)(2)), and such compensation had been 
approved, or recommended to the board of directors of the small business 
issuer for approval, by the compensation committee of the board of 
directors (or group of independent directors performing a similar 
function) of the small business issuer.
    b. Disclosure of compensation to a director need not be provided 
pursuant to paragraph (a) of this Item if the compensation is reported 
pursuant to Item 402(f) (Sec. 228.402(f)).
    6. A person who has a position or relationship with a firm, 
corporation, or other entity that engages in a transaction with the 
small business issuer shall not be deemed to have an indirect material 
interest within the meaning of paragraph (a) of this Item where:
    a. The interest arises only:
    i. From such person's position as a director of another corporation 
or organization that is a party to the transaction; or
    ii. From the direct or indirect ownership by such person and all 
other persons specified in Instruction 1 to paragraph (a) of this Item, 
in the aggregate, of less than a ten percent equity interest in another 
person (other than a partnership) which is a party to the transaction; 
or
    iii. From both such position and ownership; or
    b. The interest arises only from such person's position as a limited 
partner in a partnership in which the person and all other persons 
specified in Instruction 1 to paragraph (a) of this Item, have an 
interest of less than ten percent, and the person is not a general 
partner of and does not hold another position in the partnership.
    7. Disclosure need not be provided pursuant to paragraph (a) of this 
Item if:
    a. The transaction is one where the rates or charges involved in the 
transaction are determined by competitive bids, or the transaction 
involves the rendering of services as a common or contract carrier, or 
public utility, at rates or charges fixed in conformity with law or 
governmental authority;
    b. The transaction involves services as a bank depositary of funds, 
transfer agent, registrar, trustee under a trust indenture, or similar 
services; or
    c. The interest of the related person arises solely from the 
ownership of a class of equity securities of the small business issuer 
and all holders of that class of equity securities of the small business 
issuer received the same benefit on a pro rata basis.
    8. Include information for any material underwriting discounts and 
commissions upon the sale of securities by the small business issuer 
where any of the specified persons was or is to be a principal 
underwriter or is a controlling person or member of a firm that was or 
is to be a principal underwriter.
    9. Information shall be given for the period specified in paragraph 
(a) of this Item and, in addition, for the fiscal year preceding the 
small business issuer's last fiscal year.

    (b) Parents. List all parents of the small business issuer showing 
the basis

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of control and as to each parent, the percentage of voting securities 
owned or other basis of control by its immediate parent, if any.
    (c) Promoters and control persons. (1) Small business issuers that 
had a promoter at any time during the past five fiscal years shall:
    (i) State the names of the promoter(s), the nature and amount of 
anything of value (including money, property, contracts, options or 
rights of any kind) received or to be received by each promoter, 
directly or indirectly, from the small business issuer and the nature 
and amount of any assets, services or other consideration therefore 
received or to be received by the small business issuer; and
    (ii) As to any assets acquired or to be acquired by the small 
business issuer from a promoter, state the amount at which the assets 
were acquired or are to be acquired and the principle followed or to be 
followed in determining such amount, and identify the persons making the 
determination and their relationship, if any, with the small business 
issuer or any promoter. If the assets were acquired by the promoter 
within two years prior to their transfer to the small business issuer, 
also state the cost thereof to the promoter.
    (2) Small business issuers shall provide the disclosure required by 
paragraphs (c)(1)(i) and (c)(1)(ii) of this Item as to any person who 
acquired control of a small business issuer that is a shell company, or 
any person that is part of a group, consisting of two or more persons 
that agree to act together for the purpose of acquiring, holding, voting 
or disposing of equity securities of a small business issuer, that 
acquired control of a small business issuer that is a shell company. For 
purposes of this Item, shell company has the same meaning as in Rule 405 
under the Securities Act (17 CFR 230.405) and Rule 12b-2 under the 
Exchange Act (17 CFR 240.12b-2).

[71 FR 53234, Sept. 8, 2006]