Further to last week’s Society Alert report regarding the SEC’s approval of the NYSE’s proposed amendments to its shareholder approval requirements relating to certain "related party" equity issuances, which amend Sections 312.03, 312.04, and 314.00 of the NYSE Listed Company Manual, NYSE listed companies should note the changes to Section 314.00 on Related Party Transactions and review their related party transactions policies and procedures (wherever they appear) to ensure they align with the more stringent scope and governance requirements.
Section 314.00 now defines “related party transaction” as those transactions required to be disclosed under Regulation S-K Item 404; however, the provision deviates from Item 404 by eliminating the application of the $120,000 transaction value threshold for transactions that require board/committee approval, but retaining Item 404’s materiality qualifier:
For purposes of this rule, the term "related party transaction" refers to transactions required to be disclosed pursuant to Item 404 of Regulation S-K under the Securities Exchange Act (but without applying the transaction value threshold of that provision).
In addition, the amended provision expressly requires prior review of related party transactions by the audit committee or another independent body of the board, and requires the audit committee or other independent body of the board to prohibit the transaction if it determines it to be inconsistent with the interests of the company and its shareholders.
The Manual also notes: “The Exchange will continue to review proxy statements and other SEC filings disclosing related party transactions and where such situations continue year after year, the Exchange will remind the listed company of its obligation, on a continuing basis, to evaluate each related party transaction and determine whether or not it should be permitted to continue.”
See Davis Polk’s memo: “New NYSE Rules Ease Shareholder Approval Requirements, but May Expand Audit Committee Role” and additional information & resources on our NYSE and Related Party Transactions pages.
This post first appeared in the weekly Society Alert!