SEC Adopts New Form SD for Specialized Dislosure Report

The SEC has approved new rules on August 22 to implement Sections 1502 and 1504 of the Dodd-Frank Act and govern disclosure about an issuer's use of conflict minerals that originate in the Democratic Republic of Congo or an adjoining country and disclosure of payments by resource extraction issuers made to the U.S. or foreign governments.  Companies are required to provide this disclosure on a new form to be filed with the SEC called Form SD.  The new rules become effective 60 days after publication in the Federal Register.

Dodd-Frank directed the SEC to issue rules requiring certain companies to disclose their use of conflict minerals that include tantalum, tin, gold, or tungsten if those minerals are “necessary to the functionality or production of a product” manufactured by those companies.  If a company that files annual reports under the 1934 Act knows or has reason to believe that the minerals may have originated in the covered countries, or knows or has reason to believe that the minerals may not be from scrap or recycled sources, it must conduct due diligence on the source and chain of custody of its conflict minerals and file a conflict minerals report as an exhibit to the Form SD. The conflict minerals report must be provided on company Web sites and the Internet address must be provided on Form SD.

Dodd-Frank also directed the SEC to issue rules requiring the disclosure of certain payments made to the federal government or foreign governments by companies engaged in the development of oil, natural gas, or minerals.  Under new 1934 Act Section 13(q), the types of payments related to commercial development activities that need to be disclosed include: 

• Taxes
• Royalties
• Fees (including license fees)
• Production Entitlements
• Bonuses
• Dividends
• Infrastructure Improvements

The new disclosure requirements apply to domestic and foreign issuers and to smaller reporting companies that meet the definition of resource extraction issuer.  In all, approximately 1,100 issuers will be affected.  A resource extraction issuer would be required to file Form SD no later than 150 days after the end of its fiscal year beginning with fiscal years ending after September 30, 2013.  For the first report, issuers may provide a partial report which includes only those payments made after 9/30/13. 

The SEC intends new Form SD to be used equally for the two separate disclosure requirements (relating to conflict minerals and resource extraction payments) and potentially others that would benefit from placement in a specialized disclosure form.  The final rules will require resource extraction issuers to include a brief statement in the body of Form SD and to present the detailed payment information in an exhibit to the form using the XBRL interactive data standard.  Because the XBRL exhibit will be automatically rendered into a readable form available on EDGAR, the SEC is not requiring a separate HTML or ASCII exhibit in addition to the XBRL exhibit.

Initial Drafts Included as Exhibits to IPO Registration Statements

Summit Midstream Partners, LP, an "emerging growth company" as defined in the Jumpstart our Business Startups (JOBS) Act enacted on April 5, 2012, filed a public Form S-1 on August 21 for an underwritten initial public offering.  Included as Exhibits 99.1 and 99.2 are the two draft registration statements that Summit submitted confidentially to the SEC on May 11 and July 17 pursuant to Section 106(a) of the JOBS Act.

Emerging growth companies can pre-file confidential registration statements to begin the SEC review process without publicly revealing sensitive commercial and financial information to their competitors, provided that the draft and all amendments thereto shall be publicly filed with the SEC not later than 21 days before the date on which the company conducts a road show, as such term is defined in Rule 433(h)(4) under the Securities Act. 

Summit is the 14th IPO registrant to provide such drafts as exhibits to the public filing.  Other emerging growth company filers to do so include:

FleetMatics Group plc Form F-1 on 8/20/2012
Santander Mexico Financial Group F-1 on 8/17/2012
Regulus Therapeutics Inc. S-1 on 8/17/2012
Trulia, Inc. S-1 on 8/17/2012
Manchester United plc F-1 on 7/3/2012

Exhibit 99.1 to the Regulus S-1 includes the cover letter from the company's legal counsel at Cooley LLP, and the Manchester United F-1 exhibit includes the cover letter from Latham & Watkins.

Issuers Using Social Media Platform to Sell Stock Directly to Customers

Concurrently with a contemplated $17 million underwritten initial public offering (Form S-1, SEC file no. 333-181594), Professional Diversity Network, Inc. has registered $1 million common shares for a directed share offering under a newly established Customer Stock Ownership Plan, or “CSOP™” that is primarily designed for its members and other individual investors using the proprietary web and social media platform of LOYAL3 Labs, Inc. and brokerage and other services of LOYAL3 Securities, Inc. 

Professional Diversity Network develops and operates online networks that seek to connect talent with opportunity within the context of a common culture or affinity.  Investors can purchase shares online in the IPO CSOP through the issuer's website or on Facebook using a patent-pending platform and proprietary algorithms developed and administered by LOYAL3 Securities.  To participate in the IPO CSOP, investors are required to agree to receive fully electronic communications relating to the IPO CSOP and the shares acquired in the IPO CSOP and held with LOYAL3 Securities after the consummation of the IPO.  

Professional Diversity would be the second public company to offer shares on the new platform.  On May 22, 2012, Fifth & Pacific Companies, Inc., formerly  Liz Claiborne, Inc., filed a Form S-3ASR (333-181590) to offer approximately $6 million worth of common shares pursuant to a  CSOP™  or direct stock purchase and dividend reinvestment plan.  LOYAL3 Securities, Inc., a broker-dealer, acts as the shareholder's broker and agent in all CSOP transactions and investors open a brokerage account with LOYAL3 Securities to participate in the plan.  The CSOP may also include various customer reward and recognition programs to be offered at the full discretion of the issuer.