September 27, 2012

Webcast: “Ten Hottest Topics for the Conflict Mineral Rules”

Tune in today to the webcast – “Getting Beyond Denial: Conflict Mineral Rules More Important (And Apply Sooner) Than You Thought” – to hear the panel address these 10 questions (the panelists will not rehash the new rules; read these memos for that):

1. “Product” Determination: A key element in Step 1 in the conflict minerals disclosure process requires issuers to determine whether it manufactures or contracts to manufactures products. Is it clear what a product is? For instance, what product is a cable television company selling? The entertainment or the set top box leased to customers? How about an airline? Use of seat?

2. Examples of Product Manufacturing: There has been a number of interesting fact patterns regarding whether a company is manufacturing a product. For instance, does a company that assembles products, such as a computer systems integrator that sets up a network with off-the-shelf components, “manufacture” a product?

3. Degree of Influence for “Contract to Manufacture”: There have also been a number of questions regarding when a company has the degree of influence necessary to trigger the “contract to manufacture” provision in the rule. For instance, if a manufacturer sets performance requirements for the components it buys that will naturally require certain materials to be used in the product, is that enough? And what if you sell a product that includes your intellectual property, such as a Mickey Mouse doll that includes a voice recording supplied by the company?

4. Tricky “Functionality” Conclusions: Is it possible to conclude that the packaging used for a product is not “necessary to the functionality or production” of the product? For instance, are the cans used for soft drinks necessary to the functionality of the drink? How about the tin boxes that certain cookies are delivered in?

5. Various Approaches to Preparation: What steps should companies take now to prepare for reporting on 2013? Should they send letters to suppliers now? If so, will they need to resend letters next year? And what should companies be asking suppliers to disclose to the company? Does the answer to this question depend on the conflict mineral involved?

6. Differences in Approach By Industry: What is the approach to preparation in particular industries? Includes discussion of electrical, gold industries.

7. Changes to Sourcing Policies: The SEC’s adopting release for the new rules states that “[a]n issuer’s policies with respect to sourcing of conflict minerals will generally form a part of the issuer’s reasonable country origin inquiry.” Are companies changing sourcing policies to assist with compliance with the new rules? For instance, are companies restricting sourcing from the covered countries? Or, if a company sources from a covered country should it only source from large mining companies, as opposed to artisanal mining sources?

8. Whether Audit is Required (and How): Have companies started to consider what auditor they will use, if an audit is required? The SEC made it clear that a company’s existing financial statement auditor can be used, but is that a good or bad idea? Are there auditor independence considerations?

9. Disclosure Issues: Is there any part of the required disclosures in the Form SD that will be most problematic for companies to make? And what happens if an issuer does not file its Form SD? Or if it files the Form SD late? Does it impact Form S-3 eligibility?

10. Possibility of Lawsuit to Stay Rules: What’s the possibility that a lawsuit will be filed that will block the effectiveness of the new rules? If so, how will that process work?

Please take a moment to participate in this “Quick Survey on Conflict Minerals.” And check out this LA Times article – and this WSJ piece – on the subject…

JOBS Act: Draft Registration Statements To Be Filed on EDGAR Starting Monday

Yesterday, the SEC announced that draft registration statements can be filed on Edgar starting Monday, October 1st using submission form types DRS and DRS/A. This is a significant logistical development for those emerging growth companies and foreign private issuers that qualify for a confidential SEC Staff review. These companies can choose to continue to use the SEC’s secure email system for an unspecified period of transition time rather than use Edgar. The SEC will announce later when use of Edgar for draft registration statements will be mandatory.

Yesterday, the SEC posted this 32-page guide – mainly consisting of screen shots – on how to file draft registration statements on Edgar.

Hot Off the Press! Nasdaq’s Compensation Committee Proposal

Yesterday, I blogged about the NYSE proposal – 58 pages – implementing the Rule 10C-1 requirements for compensation committees was posted. Then later in the day, I updated the blog to note that Nasdaq’s proposal – 97 pages – was posted yesterday morning. Folks have 21 days to comment once the proposals are published in the Federal Register. We’ll be posting the inevitable slew of memos in’s “Compensation Committees” Practice Area.

What You Need to Do Now: These soon-to-be-adopted new rules will be a hot topic during our “7th Annual Proxy Disclosure Conference”” (and the combined “Say-on-Pay Workshop”) coming up in just over a week – October 8-9th in New Orleans and via Live Nationwide Video Webcast. If you haven’t been to our Conferences before, give it a try – particularly this year when New Orleans needs the tourism dollars. Here are the agendas for the combined conferences. Register Now.

– Broc Romanek