Exhibit 1.01
EZchip Semiconductor Ltd
Conflict Minerals Report
For The Year Ended December 31, 2014
Statements in this Conflict Minerals Report, which express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements, including statements related to our compliance efforts and expected actions identified under the “Steps to Be Taken to Mitigate Risk and Maturing Due Diligence Program and “Continuous Improvement Efforts to Mitigate Risk” sections of this report. These forward-looking statements are subject to various risks, uncertainties and assumptions, including, among other things, our customers’ requirements to use certain suppliers, our suppliers’ responsiveness and cooperation with our due diligence efforts, our ability to implement improvements in our conflict minerals program and our ability to identify and mitigate related risks in our supply chain. If one or more of these or other risks materialize, actual results may vary materially from those expressed. For a more complete discussion of these and other risk factors, see our other filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 20-F for the year ended December 31, 2014. We caution that undue reliance should not be placed on these forward-looking statements, which speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, except to the extent required by applicable law.
This is the Conflict Minerals Report for EZchip Semiconductor Ltd. (“EZchip”) filed with the SEC pursuant to Rule 13p-1 under the Securities Exchange Act of 1934 (the “Rule”) for the reporting period from January 1, 2014 to December 31, 2014. The Rule was adopted by the SEC to implement reporting and disclosure requirements related to Conflict Minerals as directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The Rule imposes certain reporting obligations on SEC registrants whose manufactured products contain Conflict Minerals which are necessary to the functionality or production of their products. “Conflict Minerals” are defined as cassiterite, columbite-tantalite, gold, wolframite, and their derivatives, which are limited to tin, tantalum, tungsten and gold for the purpose of this assessment.
If a registrant can establish that the Conflict Minerals in its products originated from sources other than the Democratic Republic of the Congo (DRC) or an adjoining country (the “Covered Countries”), or from recycled and scrap sources, the registrant must submit a specialized disclosure report under Form SD that describes the steps that the registrant took to determine the origin of the Conflict Minerals in its products.
If a registrant has reason to believe that any of the Conflict Minerals in its supply chain may have originated in a Covered Country, or if the registrant is unable to determine the country of origin of those Conflict Minerals, then the registrant must exercise due diligence on the Conflict Minerals’ source and chain of custody, and the registrant must annually submit a Conflict Minerals Report to the SEC that includes a description of those due diligence measures.
The report presented herein is not audited by an independent private sector auditor as the Rule provides that if a registrant’s products are “DRC conflict undeterminable” in 2014, then such audit is not required.
This report has been prepared by EZchip. The information includes the activities of all of its subsidiaries that are required to be consolidated.
EZchip is a fabless semiconductor company that provides high-performance data-path processing solutions for a wide range of applications for carrier, cloud and data center networks. EZchip’s broad portfolio of solutions includes network processors, multicore processors, intelligent network adapters and high-performance appliances with a comprehensive software ecosystem, which scale to terabit performance levels. EZchip’s processing solutions excel at providing high performance and exceptional flexibility coupled with superior integration and power efficiency.
EZchip’s principal hardware product line is network processor chips. EZchip also offers evaluation boards and network-processor systems based on each of its network processors.
While EZchip designs and markets its products and conducts test development in-house, it does not manufacture, assemble, package and production test its products, and it relies on third-party contractors to perform these services. Materials used in manufacturing at these third-party contractors are purchased directly by the third-party contractor.
The products manufactured for EZchip are highly complex, typically containing thousands of parts from many suppliers. EZchip has relationships with a network of suppliers and there are generally multiple tiers between the Conflict Minerals and EZchip’s direct suppliers. Therefore, EZchip must rely on its direct suppliers to work with their upstream suppliers in order to provide EZchip with accurate information about the origin of the Conflict Minerals contained in components it purchases.
The methods we used to try to determine the origin of conflict minerals in our products included:
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sending letters to our direct suppliers, explaining the rule and referring the suppliers to online training materials and instructions;
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soliciting survey responses from relevant suppliers of components of our products, using the standard Conflict Minerals Reporting Template designed by the Conflict-Free Sourcing Initiative (CFSI); and
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reviewing responses that we received from our suppliers and following up on inconsistent, incomplete, and evident inaccurate responses.
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Reasonable Country of Origin Inquiry (RCOI) and RCOI conclusion
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EZchip conducted an analysis of its products and found that the use of Conflict Minerals is necessary to the functionality or production of the products manufactured for EZchip by its third-party contractors. Accordingly, EZchip conducted a Reasonable Country of Origin Inquiry (“RCOI”) to determine whether any of the necessary Conflict Minerals originated in Covered Countries.
Description of the RCOI procedure
EZchip sent letters to all its principal direct suppliers to explain the Rule and to refer such suppliers to online training materials and instructions. EZchip asked for information from its direct suppliers using the Conflict Minerals Reporting Template, an industry-standard template for Conflict Minerals reporting designed by the Electronic Industry Citizenship Coalition® (EICC®) and The Global e-Sustainability Initiative (GeSI), and received responses from substantially all its principal direct suppliers.
As of the date of this report, EZchip does not have sufficient information from its principal direct suppliers or other sources to determine the country or countries of origin of the Conflict Minerals used in its products or the facilities used to process those Conflict Minerals. EZchip therefore concluded that its supply chain remains “DRC Conflict Undeterminable”. EZchip reached this conclusion because it was unable to determine the origin of all of the Conflict Minerals used in its products.
6.1 Conflict Minerals Policy
EZchip has adopted a Conflict Minerals policy which is posted on its website at is publicly available on its website at http://www.ezchip.com/a conflict minerals policy.htm.
6.2 Due Diligence Process
EZchip’s due diligence processes and efforts have been developed in conjunction with the Organization for Economic Co-operation and Development (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance).
EZchip’s Conflict Minerals due diligence process included the review of the Company's Conflict Minerals Policy, establishment of governance structures with cross functional team members and senior executives, communication to suppliers, due diligence compliance processes and record keeping.
During the reporting period for this Report, EZchip’s due diligence measures included:
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Conducting a supply-chain survey with direct suppliers of materials containing Conflict Minerals using the EICC/GeSI Conflict Minerals Reporting Template (“EICC/GeSI Templates”) to identify the smelters and refiners; and
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Comparing the smelters and refiners identified in the supply-chain survey against the list of smelter facilities which have been identified as “conflict free” by programs such as the EICC/GeSI Conflict Free Smelter Program for Conflict Minerals.
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Based on the results of the assessment described above, EZchip followed-up with the suppliers surveyed, to the extent possible, on missing and inconsistent information.
6.3 Maintain Records
EZchip has established its due diligence compliance process and set forth documentation and record maintenance mechanisms to ensure the retention of relevant documentation in a structured electronic database.
6.4 Steps to be taken to mitigate risk and maturing due diligence program
In the next compliance period, EZchip intends to enhance supplier communication to improve due diligence data accuracy and completion.
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Identify and Assess Risk in the Supply Chain
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Because of the size, the breadth and complexity of EZchip’s products, it is difficult to identify entities downstream from its direct suppliers. EZchip is relying on its direct suppliers (several of which are SEC-reporting companies and are subject to these same SEC reporting requirements) to provide it with information about the source of Conflict Minerals contained in the components supplied to EZchip. EZchip’s direct suppliers are similarly reliant upon information provided by their suppliers.
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Carry Out Independent Third Party Audit of Supply Chain Due Diligence at Identified Point in the Supply Chain
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EZchip does not have a direct relationship with smelters and refiners of Conflict Minerals, nor does it perform direct audits of these entities that provide its supply chain with Conflict Minerals. Therefore, EZchip’s direct and/or upstream suppliers are in a better position to identify smelters and refiners within the supply chain. As a result, EZchip’s due diligence efforts rely on cross-industry initiatives such as those led by the EICC and GeSI, as well as the use of the CFS list to validate smelters.
Despite having conducted a good faith RCOI inquiry and due diligence process, we do not currently have sufficient information from our suppliers or other sources to determine the country of origin of all the conflict minerals used in our products or identify the facilities used to process those conflict minerals.
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Continuous Improvement Efforts to Mitigate Risk |
We recognize that we have ongoing obligations under the reporting requirements of Rule 13p-1 and our Conflict Minerals Policy, and will seek to take additional steps in 2015 to continue and improve our good faith RCOI and due diligence processes. We expect to take the following steps, among others, to improve our due diligence measures and to further mitigate the risk that the Subject Minerals contained in our products are financing conflict in the Covered Countries:
10.1 continue to conduct and report annually on supply chain due diligence for the applicable Conflict Minerals;
10.2 continue to examine the implementation of new terms and conditions in supplier contracts that stipulate responses to conflict mineral related inquires;
10.3 continue to request assistance from our customers to encourage cooperation with our good faith RCOI in situations where our customers require us to source materials and components from specific suppliers;
10.4 provide education to our employees who are involved with Conflict Minerals on both the supplier and customer sides of our business;
10.5 educate our direct suppliers about our reporting obligations imposed by Form SD and the SEC regarding Conflict Minerals; and
10.6 attempt to validate supplier responses using information collected via independent conflict free smelter validation programs such as the EICC/GeSI Conflict Free Smelter program.
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