October 2002
The Sarbanes-Oxley Act was signed into law by President Bush on
July 30, 2002. Although inspired by the corrupt accounting and corporate
practices of companies such as Andersen, Enron, WorldCom and the other
headline grabbers, it is important to realize that this law applies to
all public companies � whether public REITs, hotel, restaurant, timeshare,
sports, entertainment, and franchise companies or any other entity with
a class of securities registered with the SEC. Moreover, the Act has broad
implications for directors, officers and significant shareholders of public
hospitality companies.
Some provisions of the Act, such as certification requirements for quarterly
and annual public reports, have received extensive coverage. However, there
are a number of other requirements that will have an impact on hospitality
companies, their officers and directors. Among them are:
Strict Prohibitions on Any Loans to Directors and Officers.
The Act prohibits a public company from advancing any funds to any
director or officer, with very limited exceptions. Under the new
regimen, even charging a personal item on a company credit card and then
paying the company back would seem to be prohibited.
Accelerated Reporting of Securities Transactions.
The Act requires insiders (officers, directors and 10% shareholders)
to report purchases and sales of stock within 2 days, and includes, for
the first time, options and other derivative securities. Prior law
required disclosure 10 days after the end of the month in which the purchase
or sale occurred, and longer for certain derivatives.
Disgorgement of Equity Compensation.
The Act requires officers and directors to return any equity or stock-based
compensation received in the year a company restates its financial statements
based on misconduct.
Blackout Periods.
Officers and directors are now subject to extended blackout periods
(periods when an officer or director may not buy or sell shares of company
stock).
In addition, the SEC recently adopted rules which will impact larger,
publicly held hospitality companies. These include accelerated quarterly
and annual financial reporting, new certification requirements by principal
executive and financial officers, and other changes.
Robert
Braun is a member of JMBM's Global Hospitality Group and Corporate Department.
Robert's hospitality practice focuses on mergers and acquisitions, capital
raising, management and franchise agreements and other business agreements,
including technology related arrangements.
To discuss these matters with Robert, or for more detailed analysis
of the Sarbanes-Oxley Act, please contact Robert E. Braun at 310.785.5331
or [email protected]. |
The Global Hospitality Group® is a registered trademark
of Jeffer, Mangels, Butler & Marmaro LLP
©2002 Jeffer, Mangels, Butler & Marmaro LLP |