CTEA August Meeting 12 August 2014

Brad Heath

CEO, VirTex Enterprises

Conflict Minerals

Update

What are Conflict Minerals and Why Should I Care?

Overview of Original Conflict Minerals Legislation

Legal Updates

Compliance Updates

Regulatory Developments

Industry Task Force Info

IPC Data Exchange Standards

Software Tools and Resources

Whats Next?

Agenda

Global concern over the mining of high value minerals and its use in financing conflicts in the Democratic Republic of Congo

There is substantial evidence that monies collected from the mining of these minerals finds its way to the groups involved in extensive human rights violations including kidnapping, torture, murder, rape and the use of child labor.

NGOs have successfully lobbied government entities to limit and control the purchasing and use of these conflict minerals by tracking them to the original sources the mines and smelters

Conflict Minerals and the DRC

Great infographic Available from Venkel

http://www.venkel.com/compliance/infographics/conflict-

minerals-infographic

These materials are used in many places

throughout the electronics supply chain

Obvious Sources are in Electronics

components, but just like ROHS, there are

many other places that materials like Tin

can be used.

3TG Defined

Source AIAG Conflict Minerals Update 2014

Tin Usage in Automobiles

Source AIAG Conflict Minerals Update 2014

Tungsten and Gold Usage in

Automobiles

Source AIAG Conflict Minerals Update 2014

Tantalum Usage in Automobiles

Section 1502 of the Dodd-Frank Act amends the Securities and Exchange Act of 1934 to add Section 13(p). The SEC has promulgated Rule 13(p)-1.

Applies to:

all Exchange Act filers

domestic and foreign issuers

Filings made on new Form SD:

calendar year reporting for ALL filers, regardless of fiscal year end

first Form SD due May 31, 2014 (for YE 2013)

due annually on May 31 thereafter

deemed filed but not CEO/CFO certified

Dodd Frank Requirements

Companies must disclose their use of the 3TG minerals if those minerals are:

necessary to the functionality or production of a product manufactured or contracted to be manufactured by the company.

Companies must have actual influence over the manufacturing process for the conflict mineral rules to apply.

Dodd Frank Requirements

SEC Flow Chart (from the SECs Release No. 34-67716)

Dodd Frank Requirements

1) Establish strong company management systems

Identify a lead for conflict minerals reporting

Understand how to use the Conflict Minerals Reporting Template

(CMRT) or equivalent

Develop and document a conflict minerals policy and incorporate

into terms and conditions

2) Identify and assess risk in the supply chain

Conduct a reasonable country of origin inquiry

Evaluate supplier responses

OECG Guidance

3) Design and implement a strategy to respond to identified risks

Escalation process

Risk mitigation process

4) Third party audit of smelters/refiners due diligence practices

Obtain list of conflict free smelters at

http://www.conflictfreesourcing.org

5) Report annually on supply chain due diligence

Respond to customer requests for conflict minerals information

OECG Guidance

Source: Fern Abrams IPC Update at Semicon 2014

April 14, 2014 the US Court of Appeals struck down the part of the rule that would have compelled companies to disclose the possible use of DRC-sourced conflict minerals on their websites

May 15, 2014 the Court of Appeals denied the NAMs request for a stay of the conflict minerals disclosure rule

On May 29, 2014 Amnesty International and the SEC petitioned the U.S. Court of Appeals for the D.C. Circuit to rehear the case en banc

Legal Challenge Update

Source: Fern Abrams IPC Update at Semicon 2014

Approximately 1,300 forms were filed by June 15

300 filed as conflict free

Mainly based on RCOI

Small number of suppliers

Limited use of conflict minerals

1,000 filed as conflict undeterminable

Four companies had audits (not required for conflict undeterminable status)

SEC had originally estimated 5,000 filers

Compliance Update

Compliance Update

Source: Fern Abrams IPC Update at Semicon 2014

On May 30, 2014 an unnamed SEC staffer verbally communicated to an attorney for the SPI that chemical compounds manufactured from tin, tantalum, and tungsten are not in the scope of the conflict minerals rule

Alloys that contain the 3T remain subject to the rule

Gold plating chemicals would need to be evaluated by the issuer on a case-by-case basis unless future clarifications from SEC address gold

Not available in writing

Regulatory Developments

Source: Fern Abrams IPC Update at Semicon 2014

On May 30, 2014 an unnamed SEC staffer verbally communicated to an attorney for the SPI that chemical compounds manufactured from tin, tantalum, and tungsten are not in the scope of the conflict minerals rule

Alloys that contain the 3T remain subject to the rule

Gold plating chemicals would need to be evaluated by the issuer on a case-by-case basis unless future clarifications from SEC address gold

Not available in writing

Regulatory Developments

Source: Fern Abrams IPC Update at Semicon 2014

System for a voluntary EU responsible importer self-certification

EU accompanying measures to promote responsible sourcing

EU to publish an annual list of responsible smelters and refiners

Member State authorities will implement the requirements

Scope

3TG minerals & metals (tin, tantalum, tungsten, gold)

Global: all conflict affected regions, not limited to DRC region

Focus on upstream part of the supply chain, especially smelters / refiners

EU Commission Proposal

Source: Fern Abrams IPC Update at Semicon 2014

Public procurement incentives for companies selling products containing 3TG

Financial support for

SMEs to carry out due diligence

The OECD for capacity building and outreach activities

Visible recognition for the efforts of EU companies who source responsibly from conflict-affected countries

Policy dialogues and diplomatic outreach with governments in extraction, processing and consuming countries to encourage a broader use of due diligence

Raw materials diplomacy including in the context of multi-stakeholder due diligence initiatives

Development cooperation with the countries concerned

Support by EU Member States through their own policies and instruments

EU Commission Proposal

Source: Fern Abrams IPC Update at Semicon 2014

EU proposal is different from DF with respect to:

Global scope, not only DRC region

Voluntary self-certification, at least for first 3 years

Focus on upstream actors (smelters) instead of stock listed companies

Tries to include incentives for sourcing responsibly from conflict regions

Both

Build on the OECD due diligence framework

Limit metals to 3TG only (for now)

Use public pressure via NGOs, media, etc. to support scrutiny

EU Proposal vs Dodd Frank

Automotive Industry Action Group (AIAG)

Association Connecting Electronic Industries

(IPC)

Electronic Industry Citizenship Coalition (EICC)

Global e-Sustainability Initiative (GeSI)

Conflict Free Sourcing Inititative (CFSI)

Industry Groups

IPC-1755 Conflict Minerals Data Exchange Standard:

Defines what data is to be collected and shared

Defines the language (XML) for sharing data

IPC-1755 is NOT a reporting form

Independent third-party providers develop tools (i.e. forms) compatible with IPC-1755

Ex. CFSI Template, iPoint Conflict Minerals Platform

Data can be easily exchanged among all tools that support IPC-1755

Some tools provide sophisticated data management

Tools can also interface with internal company systems

Visit http://www.ipc.org/1755 to download the standard

IPC 1755 Data Exchange

Vendors Developing Software Conflict Minerals Tools

AIAG/iPoint

Papros/MRPRO

BomCheck

PTC

Dassault Systems

Total Parts Plus

CFSI Template

Silicone Experts

Foresite

Software Tools