August 9, 2012

Congress Requires More Iran-Related Business Disclosures in ’34 Act Reports

Here’s news from Jonathan Newton of Baker & McKenzie:

Last week, both houses of Congress passed a new Iran sanctions bill, the “Iran Threat Reduction and Syrian Human Rights Act” (HR 1905), which is now headed to the President for his signature. This law once enacted is likely to have a significant impact on transactions with Iran, including companies in their ’34 Act disclosures.

Prohibited Transactions

Under this new law, the U.S. government – within 60 days of its passage – must prohibit non-US foreign entities that are owned or controlled by US Persons from knowingly engaging in any dealings, directly or indirectly, with the Iranian government and with “any person subject to the jurisdiction of the Government of Iran” that are prohibited as to U.S. Persons, and would make U.S. parent companies subject to civil penalties for violations of this new prohibition by their owned/controlled entities. We interpret the language highlighted in the previous sentence to effectively prohibit transactions with Iran itself, as any person or entity within Iran would presumably be subject to the jurisdiction of the Iranian government.

Although we would have to see OFAC implementing regulations to understand the precise scope of the prohibition, this change would essentially convert the Iran sanctions program into something resembling the Cuba embargo, under which both US companies and their owned/controlled foreign subsidiaries are prohibited from doing business with the Cuba. In such case, the foreign subsidiaries of US companies would likely be subject to the same kinds of prohibitions on doing business with Iran as the US parent company itself.

The legislation allows for a 180 day grace period (before the civil penalties would apply) for US companies to end their owned/controlled entities doing business with Iran or to divest themselves from such entities. Implementing regulations will hopefully clarify whether a non-U.S. subsidiary’s termination of Iran-related business within 180 days of H.R. 1905’s enactment would remove potential liability for the U.S. parent company.

Required Disclosures

Effective 180 days after enactment, ’34 Act reporting companies will be required to publicly disclose specific information about relevant Iran-related activities in annual and quarterly reports filed with the SEC. They will have an obligation to determine whether they or any affiliates have knowingly:

– engaged in any sanctionable activity under the ISA;
– engaged in any activities targeted by the Iranian Financial Sanctions Regulations (“IFSR”);
– engaged in the transfer of goods or technologies or the provision of services to Iran or Iranian parties to commit serious human rights abuses against the people of Iran; or
– conducted transactions with blocked persons (“Specially Designated Nationals”) designated for (i) involvement in activities related to terrorism or the proliferation of weapons of mass destruction or (ii) being part of the Government of Iran (including owned or controlled entities), except in the latter case for transactions authorized by the Office of Foreign Assets Control in the Treasury Department.

These companies will be required to describe in detail each activity listed above, which disclosure must include, at a minimum: (i) the nature and extent of the activity, (ii) the gross revenues/net profits, if any, attributable to the activity, and (iii) whether the company or any affiliate intends to continue the activity. To the extent a company includes such disclosure in its annual or quarterly report, the Act will also require it to submit a separate report with the same information to the SEC. The Act requires the SEC to promptly forward reports about such Iran-related activities to the President and Congress for further investigation and to post such reports on the SEC’s website.

Head’s Up: NYSE More Closely Screening Terms of New Preferred Stock

Here’s news – and analysis – from Mark W. Jones of Troutman Sanders:

In connection with a recent offering, we have learned that the NYSE is reviewing the terms of preferred stock being submitted for listing more closely. The NYSE told us that it has concluded that many series of preferred stock have, in the past, been listed without complying as fully with its listing standards as the NYSE would like. In light of that, NYSE is now scrutinizing new series of preferred more closely to ensure better compliance.

From a practitioner’s point of view, we think there are at least two morals to this story for those seeking to list preferred stock:

1. Use of a recently NYSE-listed precedent does not mean that NYSE will currently view your terms as compliant. In our deal, the NYSE objected to several terms – even though our preferred is substantively identical to a series listed by NYSE in late May 2012.

2. It is necessary to a smooth listing to submit draft terms to the NYSE for review as early as possible. Our NYSE listing rep did review the entirety of our articles and insisted on several (relatively minor) changes relating to voting rights across classes and contingent board rights.

The Latest Developments in Non-Profit Executive Pay

In this podcast, Christina Young and Sandra Pace of Steven Hall & Partners discuss how setting executive pay in the non-profit world differs from doing so for public companies, including:

– How do non-profit boards set pay compared to public company boards?
– What are some of the challenges non-profit boards face in developing peer groups in order to gather comparable compensation data?
– What practice pointers do you have for non-profit directors making compensation decisions?

– Broc Romanek