SEC Adopts Final Rule Pursuant to the DoddFrank Act for Disclosing the Use of Conflict
Minerals
September 12, 2012
On August 22, 2012, the Securities and Exchange Commission (“SEC”) adopted a new rule
pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring publiccompanies to make disclosures of “conflict minerals” in their products.1 The rule is designed toreduce the funding of armed groups engaged in conflict in the Democratic Republic of Congo(“DRC”) by mandating additional disclosure requirements on the use and source of certain
minerals whose exploitation and trade Congress believed are contributing to significant humanrights abuses in the DRC.

COMPANIES COVERED BY THE RULE
Any reporting company that files reports with the SEC under Sections 13(a) and 15(d) of the
Securities Exchange Act of 1934 (“Exchange Act”), including foreign private issuers, emerging
growth companies and smaller reporting companies. It appears that voluntary filers are notsubject to the rule.

COMPLIANCE DATE
Reporting companies must comply with the rule for the calendar year beginning January 1,
2013, with the first reports due May 31, 2014.

“CONFLICT MINERALS”“Conflict minerals” include columbite-tantalite (also known as coltan), cassiterite, gold,
wolframite, tantalum, tin, and tungsten.


Columbite-tantalite is the metal ore from which tantalum is extracted. Tantalum is used inelectronic components, including mobile telephones, computers, videogame consoles,
and digital cameras, and as an alloy for making carbide tools and jet engine components.

Cassiterite is the metal ore that is most commonly used to produce tin. Tin is used inalloys, tin plating, and solders for joining pipes and electronic circuits.

Gold is used for making jewelry and is used in electronic, communications, andaerospace equipment.

1 Final rule: Conflict Minerals, Release No. 34-67716 (August 22, 2012), available at

http://www.sec.gov/rules/final/2012/34-67716.pdf.

Memorandum – September 12, 2012



Wolframite is the metal ore that is used to produce tungsten. Tungsten is used for metal
wires, electrodes, and contacts in lighting, electronic, electrical, heating, and welding
applications.

Based on the many uses of these minerals, the SEC has indicated that it expects the rule to apply
to approximately 6,000 reporting companies.

APPLICATION OF THE RULE
The SEC adopted a three-step process to determine the conflict mineral disclosure requirements
and procedures for reporting companies covered by the rule, which is summarized below. In
addition, attached as Appendix A is a flow chart summary of the application of the ruleprepared by the SEC and included in the adopting release.

STEP 1 – DETERMINE WHETHER CONFLICT MINERALS ARE NECESSARY TO THE
FUNCTIONALITY OR PRODUCTION OF A PRODUCT
A reporting company is required to file a new Form SD report for a given calendar year by May
31 of the following year if it determines that conflict minerals are necessary to the functionality
or production of a product it manufactured or contracted to be manufactured in the applicable
calendar year, including conflict minerals contained in a component of a product. The rule
exempts any conflict minerals that were smelted, refined or already removed from a covered
country (as defined below) prior to January 31, 2013.
“Manufactured or Contracted to be Manufactured”
The SEC chose not to define “manufacture” for purposes of the rule as it believed thatthe term is generally understood. The rule, however, does not treat a company thatmines conflict minerals as manufacturing those minerals unless the company also
engages in manufacturing.



Whether a company is considered to have “contracted to manufacture” a product(including a component of a product) depends on the degree of influence it exercises
over the materials, parts, ingredients, or components to be included in the applicableproduct. A company will not be viewed as contracting to manufacture a product if its
actions involve no more than:(i)

specifying or negotiating contractual terms with a manufacturer that do
not directly relate to the manufacturing of the product; or(ii)affixing its brand, marks, logo, or label to a generic product manufactured
by a third party; or(iii)

servicing, maintaining, or repairing a product manufactured by a third
party.

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Memorandum – September 12, 2012

“Necessary to the Functionality or Production of a Product”
The SEC did not define but rather provided guidance on when a conflict mineral isnecessary to the functionality or production of a product. Under this guidance, acompany should base this determination on the applicable facts and circumstances andconsider:(i)whether a conflict mineral is contained in and intentionally added to the
product or any component of the product and is not a naturally-occurringby-product;(ii)

whether a conflict mineral is necessary to the product’s generally
expected function, use, or purpose; or(iii)

if a conflict mineral is incorporated for purposes of ornamentation,
decoration or embellishment, whether the primary purpose of the
product is ornamentation or decoration.



The rule does not include a de minimis threshold based on the amount of conflictminerals used in a particular product.



The inclusion of a conflict mineral in the manufacturing process but not in the final
product, or in a tool or machine used to produce a product, are not considered necessary
to the functionality or production of a product and therefore not covered by the rule.

If a reporting company determines that no conflict minerals are necessary to the functionality or
production of any product it manufactured or contracted to be manufactured during the period
in question, it would not be required to move to Step 2 below, take any action or submit any
disclosures pursuant to the final rule.

STEP 2 – COUNTRY OF ORIGIN INQUIRY
If a reporting company determines that conflict minerals are necessary to the functionality or
production of a product it manufactured or contracted to be manufactured, it must thenconduct in good faith a reasonable country of origin inquiry to determine whether any of thenecessary conflict minerals originated in the DRC or an adjoining country (the “covered
countries”) 2 or are from recycled or scrap resources.
The adopting release indicates that this inquiry depends on the particular facts andcircumstances and the rule does not prescribe any required elements or bright-line test. The
inquiry standard may be satisfied if the company seeks and obtains reasonably reliable
representations indicating the facility at which the necessary conflict minerals were processedand demonstrating that those conflict minerals did not originate in the covered countries orcame from recycled or scrap sources. The inquiry standard does not require a company todetermine to a certainty that all its conflict materials did not originate in the covered countries
or came from recycled or scrap sources.
2 The countries adjoining the DRC are Angola, Burundi, Central African Republic, the Republic of theCongo, Rwanda, South Sudan, Tanzania, Uganda, and Zambia.

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Memorandum – September 12, 2012



Representations may come directly from the facility or indirectly through the company’s
immediate suppliers, but the company must have reason to believe these representations
are true given the facts and circumstances surrounding those representations.



Conflict minerals are considered to be from recycled or scrap sources if they are fromrecycled metals, which are reclaimed end-user or post-consumer products, or scrap
processed metals created during product manufacturing.

If, as the result of such inquiry, the company:
determines that the necessary conflict minerals did not originate in a covered country or
has no reason to believe that its necessary conflict minerals may have originated in acovered country, ordetermines or reasonably believes that the necessary conflict minerals came fromrecycled or scrap sources,

then it must disclose, on its publicly available Internet website and in a Form SD report to be
filed not later than May 31 of the following calendar year (commencing with May 31, 2014), its
determination and briefly describe the reasonable country of origin inquiry it undertook in
making its determination and the results of the inquiry it performed. If the company cannot
make this determination, it is required to move to Step 3 below.

STEP 3 – SOURCE AND CHAIN OF CUSTODY DILIGENCE; CONFLICT MINERALS REPORT
Source and Chain of Custody Diligence
If the reporting company, based on its reasonable country of origin inquiry, knows that any of
its necessary conflict minerals originated in a covered country and are not from recycled or
scrap sources, or has reason to believe that its necessary conflict minerals may have originatedin a covered country and has reason to believe that they may not be from recycled or scrap
sources, the company must exercise due diligence on the source and chain of custody of suchnecessary conflict minerals in conformity with a nationally or internationally recognized due
diligence framework, if such a framework is available for the conflict mineral.
While the rule does not mandate a particular framework, the SEC notes that the only
nationally or internationally recognized due diligence framework currently available isthe due diligence guidance approved by the Organisation for Economic Co-operation
and Development (“OECD”).3

3 See OECD, OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-

Affected and High-Risk Areas (2011), available at
http://www.oecd.org/daf/internationalinvestment/guidelinesformultinationalenterprises/46740847.pdf.

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Memorandum – September 12, 2012

A company is also required to use a recognized due diligence framework with respect torecycled or scrap conflict minerals. The SEC is not aware of a framework for recycled or
scrap conflict minerals other than for gold.4

In circumstances where a nationally or internationally recognized due diligenceframework becomes available for a conflict mineral for which no nationally orinternationally recognized due diligence framework previously existed, reporting
companies will be required to utilize that framework. Otherwise, due diligence must be
conducted without the benefit of a nationally or internationally recognized framework.

If, as a result of the required due diligence investigation, the company determines that its
necessary conflict minerals did not originate in a covered country or that its necessary conflictminerals did come from recycled or scrap sources, the reporting company must disclose, on its
publicly available Internet website and in a Form SD report, its determination and briefly
describe the reasonable country of origin inquiry and the due diligence efforts it undertook in
making its determination. Otherwise, the reporting company must file a Conflict Minerals
Report as an exhibit to its Form SD report as described below.
Conflict Minerals Report
If, as a result of the company’s due diligence investigation, it either (i) determines that its
necessary conflict minerals did originate in a covered country and did not come from recycled
or scrap sources or (ii) cannot determine the source of its conflict minerals, then the company isrequired to file a Conflict Minerals Report as an exhibit to its Form SD report.
The Conflict Minerals Report is required to include the following information:
 A description of the measures the company has taken to exercise due diligence on thesource and chain of custody of those conflict minerals.
 A description of the company’s products manufactured or contracted to be
manufactured containing necessary conflict minerals that are not “DRC conflict free,”5
the facilities used to process the necessary conflict minerals in those products, the4 See OECD, OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-

Affected and High-Risk Areas: Supplement on Gold (2012), available at
http://www.oecd.org/corporate/guidelinesformultinationalenterprises/FINAL%20Supplement%20o
n%20Gold.pdf.
5 The rule provides that “DRC conflict free” means that a product does not contain conflict minerals

necessary to the functionality or production of that product that directly or indirectly finance or benefit
armed groups in a covered country. Conflict minerals that a company obtains from recycled or scrap
sources are considered DRC conflict free. The rule defines an armed group as an armed group that is
identified as a perpetrator of serious human rights abuses in the annual Country Reports on Human
Rights Practices under sections 116(d) and 502B(b) of the Foreign Assistance Act of 1961 (22 U.S.C.
2151n(d) and 2304(b)) relating to a covered country.

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Memorandum – September 12, 2012

country of origin of the necessary conflict minerals in those products, and the efforts todetermine the mine or location of origin with the greatest possible specificity.
 A copy of a report prepared by an independent private sector auditor that expresses anopinion or conclusion as to whether the design of the due diligence measures as set
forth in the Conflict Minerals Report is in conformity with, in all material respects, thecriteria set forth in the due diligence framework used by the company, and whether thecompany’s description of the due diligence measures it performed is consistent with thedue diligence process that the company undertook.
DRC Conflict Undeterminable
If a company is unable to determine, after exercising due diligence as required by the rule,whether or not a product it manufactured or contracted to manufacture qualifies as DRC
conflict free, it may avail itself of a transition period for a “DRC conflict undeterminable”
product.


The transition period is two years for all reporting companies and four years for smallerreporting companies.



During the transition period, reporting companies will temporarily not be required toobtain an independent private sector audit of their Conflict Minerals Report with respect
to those minerals that are DRC conflict undeterminable.



A company that avails itself of this designation must still file a Conflict Minerals Report
describing its due diligence, and must additionally describe the steps it has taken or will
take, if any, to mitigate the risk that its necessary conflict minerals benefit armed groups,
including any steps to improve its due diligence.

DISCLOSURE LIABILITY
Conflict minerals information provided on a Form SD report, including the Conflict Minerals
Report and the independent auditors reports, will be considered “filed” with the SEC andtherefore will be subject to liability under Section 18 of the Exchange Act. Section 18 of the
Exchange Act creates liability for “[a]ny person who shall make or cause to be made any
statement in any application, report, or document … which statement was at the time and in thelight of the circumstances under which it was made false or misleading with respect to any
material fact, shall be liable…” Section 18 provides for a private right of action to investors who
can prove they were harmed by relying on the misstatement. Section 18, however, does notcreate strict liability for filed information and provides that a company will not be liable for
misstatements in a filed document if it can establish that it “acted in good faith and had noknowledge that such statement was false or misleading.”
The information provided on a Form SD report, including the Conflict Minerals Report and the
independent auditors reports, would not be deemed to be incorporated by reference into areporting company’s filings under the Securities Act of 1933 unless it specifically elects to do so.
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Memorandum – September 12, 2012

Unlike a reporting company’s Annual Report on Form 10-K or Quarterly Report on Form 10-Q,
the disclosures in a Form SD report would not be subject to officer certifications.

CONCLUSION
The rule is complicated and different than any other rule under the federal securities laws.
There are many provisions of the rule where the SEC has elected to allow reporting companies
to make their own determinations as to interpretation and application and, as a result, we
believe that industry specific practices will develop on how to comply with the rule. Given thatthe first reporting period commences on January 1, 2013, we recommend that companies make adetermination as to the rule’s applicability based on their specific facts and circumstances
utilizing a broad based team consisting of internal procurement, legal and financial teams,
outside legal counsel and other consultants and professionals.
This memorandum is for general information purposes and should not be regarded as legal advice. Pleasecontact your relationship partner if we can be of assistance regarding these important developments. The
names and office locations of all of our partners, as well as our recent memoranda, can be obtained fromour website, www.simpsonthacher.com.
The contents of this publication are for informational purposes only. Neither this publication nor the lawyers who authored it are
rendering legal or other professional advice or opinions on specific facts or matters, nor does the distribution of this publication to
any person constitute the establishment of an attorney-client relationship. Simpson Thacher & Bartlett LLP assumes no liability inconnection with the use of this publication.

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Memorandum – September 12, 2012

Appendix A
START
Does the issuer file reports with
the SEC under Sections 13(a) or
15(d) of the Exchange Act?

YES

YES

Does the issuer manufacture orcontract to manufacture products?

Are conflict minerals necessary to
the functionality or production of the
product manufactured or contracted
to be manufactured?

NO
NO
Rule does not apply.

END

NO
YES

Were the conflict minerals outside
the supply chain prior to January 31,
2013?

NO, if potentially
scrap or recycled

NO, if newlymined
Based on a reasonable country oforigin inquiry (RCOI), does theissuer know or have reason tobelieve that the conflict minerals
may have originated in the DRC oran adjoining country (the covered
countries)?

YES

Based on the RCOI, does theissuer know or reasonably believethat the conflict minerals comefrom crap or recycled?

NO

NO
YES
File a Form SD that discloses theissuer's determination and briefly
describes the RCOI and theresults of the inquiry.
END

Exercise due diligence on the source and chain ofcustody of its conflict minerals following a nationally orinternationally recognized due diligence framework, if
such framework is available for a specific conflictmineral.

YES

In exercising this due diligence does the issuer
determine the conflict minerals are not from the covered
countries or are from scrap or recycled?

File a Form SD that discloses the issuer’s
determination and briefly describes the RCOI
and due diligence measures taken and theresults thereof.
END

NO
File a Form SD with a Conflict Minerals Report as an
exhibit which includes a description of the measures theissuer has taken to exercise due diligence.

NO

Is it less than two years after
effectiveness of the rule (four years
for Smaller Reporting Companies)?

In exercising the due diligence, was the issuer able todetermine whether the conflict minerals financed or
benefitted armed groups?

NO
YES
The Conflict Minerals Report must also include an independent private sector audit
report, which expresses an opinion or conclusion as to whether the design of theissuer's due diligence measures is in conformity with the criteria set forth in the due
diligence framework and whether the description of the issuer’s due diligencemeasures is consistent with the process undertaken by the issuer. Also, include a
description of the products that have not been found to be DRC Conflict Free, thefacilities used to process the necessary conflict minerals in those products, the country,of origin of the minerals and the efforts to determine the mine or location of origin of
those minerals with the greatest possible specificity.

YES

The Conflict Minerals Reportmust also include a descriptionof products that are “DRC
Conflict Undeterminable” andthe steps taken or that will betaken, if any, since the end of
the period covered in the last
Conflict Minerals Report tomitigate the risk that thenecessary conflict minerals
benefit armed groups,
including any steps to improve
due diligence. No audit isrequired.

END

END

Source: Securities and Exchange Commission, Conflict Minerals, Release No. 34-67716 (August 22, 2012)

Memorandum – September 12, 2012

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