<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ________.
COMMISSION FILE NUMBER: 1-5740
DIODES INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-2039518
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) No.)
3050 EAST HILLCREST DRIVE
WESTLAKE VILLAGE, CALIFORNIA 91362
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (805) 446-4800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
The number of shares of the registrant's Common Stock outstanding as of June
30, 1995, was 5,421,124 including 717,115 shares of treasury stock.
<PAGE> 2
DIODES INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 1995 and December 31, 1994 3-4
Consolidated Statements of Income for the three months and six
months ended June 30, 1995 and June 30, 1994 5
Consolidated Statements of Cash Flows for the six months ended June
30, 1995 and June 30, 1994 6
Notes to Consolidated Condensed Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations for the three months and six months ended June
30, 1995 and June 30, 1994 8-15
PART II - OTHER INFORMATION
Items 1 through 6 16-17
Signature 18
Index to Exhibits 19
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL INFORMATION
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 348,568 $ 1,733,078
Accounts receivable
Customers 9,312,866 6,020,277
Other 380,401 244,416
------------ ------------
9,693,267 6,264,693
Less allowance for doubtful receivables 188,197 169,898
------------ ------------
9,505,070 6,094,795
Inventories
Finished Goods 9,807,948 6,435,332
Work-in-process 338,915 158,900
Raw materials 386,386 420,694
------------ ------------
10,533,249 7,014,926
Deferred income taxes 815,052 815,052
Prepaid expenses and other 107,977 220,128
------------ ------------
Total current assets 21,309,916 15,877,979
PROPERTY, PLANT, AND EQUIPMENT - at cost, net 1,626,471 1,595,941
OTHER ASSETS 70,290 71,169
------------ ------------
TOTAL ASSETS $ 23,006,677 $ 17,545,089
============ ============
</TABLE>
3
<PAGE> 4
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 2,337,825 $ 0
Trade accounts payable 4,488,805 3,543,496
Accrued liabilities 2,523,114 1,710,687
Income taxes payable 325,522 1,173,209
Current portion of long term debt 41,078 40,208
------------ ------------
Total current liabilities 9,716,344 6,467,600
LONG TERM OBLIGATION, less current maturities 277,840 293,526
DEFERRED COMPENSATION PAYABLE -- 13,710
STOCKHOLDERS' EQUITY
Preferred stock - par value $1.00 per share;
1,000,000 shares authorized; 169,629
shares issued at December 31, 1994 and
June 30, 1995. 169,629 169,629
Common stock - par value $66 2/3 per share;
9,000,000 shares authorized; 5,343,124 and 5,421,124
shares issued at December 31, 1994 and June 30, 1995,
respectively. 3,614,503 3,562,499
Additional paid-in capital 4,877,322 4,791,826
Retained earnings 6,133,272 4,028,532
------------ ------------
14,794,726 12,552,486
Less:
Treasury stock - 717,115 Common shares, at cost 1,782,233 1,782,233
------------ ------------
Total stockholders' equity 13,012,493 10,770,253
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,006,677 $ 17,545,089
============ ============
</TABLE>
4
<PAGE> 5
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
1995 1994 1995 1994
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $14,539,476 $9,445,106 $28,778,054 $18,225,285
Cost of goods sold 10,401,033 6,817,913 20,696,650 13,175,265
----------- ---------- ----------- -----------
Gross profit 4,138,443 2,627,193 8,081,404 5,050,020
Selling, general and
administrative expenses 2,442,365 1,825,300 4,879,591 3,519,240
----------- ---------- ----------- -----------
Income from operations 1,696,078 801,893 3,201,813 1,530,780
Other income (expense)
Interest income 8,284 9,015 18,992 16,304
Interest expense (36,146) (13,547) (43,301) (47,404)
Commissions and other 123,377 100,554 195,753 233,472
----------- ---------- ----------- -----------
95,515 96,022 171,444 202,372
INCOME BEFORE INCOME TAXES 1,791,593 897,915 3,373,257 1,733,152
Provision for income taxes 669,615 327,651 1,268,515 667,680
----------- ---------- ----------- -----------
NET INCOME $ 1,121,978 $ 570,264 $ 2,104,742 $ 1,065,472
=========== ========== =========== ===========
EARNINGS PER SHARE
PRIMARY $ 0.22 $ 0.11 $ 0.41 $ 0.21
FULLY-DILUTED $ 0.21 $ 0.11 $ 0.40 $ 0.21
=========== ========== =========== ===========
Weighted average shares outstanding
Primary 5,182,041 5,154,285 5,157,221 5,139,477
Fully-diluted 5,232,808 5,154,285 5,221,289 5,153,565
=========== ========== =========== ===========
</TABLE>
5
<PAGE> 6
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,105,000 $ 1,065,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 141,000 96,000
Increase in allowance for doubtful accounts 18,000 12,000
Equity in Joint Venture earnings -- (71,000)
(Gain) on sale of property, plant and equipment, net (73,000) (1,000)
(Increase) decrease in operating assets:
Accounts receivable (3,428,000) (1,466,000)
Inventories (3,518,000) 1,817,000
Prepaid expenses and other 112,000 168,000
Other 1,000 (74,000)
(Decrease) increase in operating liabilities:
Trade accounts payable 946,000 688,000
Accrued liabilities (34,000) 634,000
Deferred compensation payable (14,000) (21,000)
------------ ------------
Net cash provided (used) by operations (3,744,000) 2,847,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (247,000) (342,000)
Proceeds from sale of equipment 147,000 1,000
------------ ------------
Net cash (used) by investing activities (100,000) (341,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (payments) on line of credit, net 2,338,000 (2,000,000)
Proceeds from issuance of stock 138,000 81,000
Repayments of long-term obligations (16,000) (73,000)
------------ ------------
Net cash provided (used) by financing activities 2,460,000 (1,992,000)
------------ ------------
INCREASE (DECREASE) IN CASH (1,384,000) $ 514,000
CASH AT BEGINNING OF PERIOD $ 1,733,000 $ 802,000
------------ ------------
CASH AT END OF PERIOD $ 349,000 $ 1,316,000
============ ============
</TABLE>
6
<PAGE> 7
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - Basis of Presentation
The accompanying unaudited consolidated, condensed financial
statements have been prepared in accordance with the instruction to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation of the financial position and results of operations have
been included. Operating results for interim periods are not necessarily
indicative of the results that may be expected for the full year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report in Form 10-K for the calendar
year ended December 31, 1994.
NOTE B - Income Taxes
Effective January 1, 1993, the Company adopted Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." This pronouncement requires that taxes be
provided based upon the tax rate at which the items of income and expense are
expected to be settled in the Company's tax return.
SFAS No. 109 requires the recognition of deferred tax assets
and liabilities for both the expected future tax impact of differences between
the financial statement and tax basis of assets and liabilities, and for the
expected future tax benefit to be derived from tax loss carryforwards. SFAS
No. 109 additionally requires the establishment of a valuation allowance to
reflect the likelihood of realization of deferred tax assets.
Accordingly, the Company has recorded a net deferred tax asset
resulting from net deductible temporary differences in the amount of $815,052.
This deferred tax asset results primarily from inventory reserves and expense
accruals which are not currently deductible for federal income tax purposes.
7
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Net sales for the three months and six months ended June 30,
1995 were, respectively, $5.1 million or 53.9% and $10.6 million or 57.9%
higher than during the comparable periods in 1994. These increases can be
attributed in large part to a restructured sales force with a more pro-active
selling philosophy, the Company's marketing agreement with INTERMETALL
Halbleiterwerk der Deutscher ITT Industries GmbG ("ITT"), whereby (with the
exception of one value-added reseller) the Company is the exclusive marketing
channel for ITT's discrete semiconductors in North America, and strong industry
demand. Also important in the growth of net sales were the introduction of a
new product offering in late 1994, and the Company's ongoing program to build
customer loyalty through superior customer service. Essential to the Company's
recent growth has been the ability to procure ever increasing numbers of
high-quality components at competitive prices; in addition to working closely
with its existing suppliers, the Company has continued its program of
aggressively seeking new sourcing opportunities.
Gross margins for the three months and six months ended June
30, 1995 were, respectively, 28.5% and 28.1%, versus 27.8% and 27.7% in the
comparable periods in 1994. This improvement in margins is reflective of the
continued rise in demand for the Company's products. In addition, selling,
general and administrative expenses ("SG&A") decreased as a percentage of net
sales. When compared to the respective three month and six month periods ended
June 30, 1994; (i) income from operations in 1995 increased 111.5% and 109.2%;
(ii) other income decreased 0.5% and 15.3%; (iii) pre-tax income increased
99.5% and 94.6%; and (iv) net income increased 96.7% and 97.5%. The Company
maintained adequate working capital to support its continued growth in net
sales.
Reliance on Foreign Sources. For the past several years,
nearly all of the Company's net sales (like those of most other companies in
the industry) have been derived from products purchased from overseas suppliers
or from U.S. companies whose products are manufactured overseas. The Company
anticipates that this dependence on foreign sources of its products will
continue for the foreseeable future.
Foreign sourcing exposes the Company to certain risks common
to companies doing business overseas: these risks include the difficulty and
expense of maintaining foreign sourcing channels, cultural and institutional
barriers to trade, fluctuations in currency exchange rates, political
instability, transportation delays, expropriation, tariffs, import and export
controls (including export licenses and changes in the allocation of quotas),
and other U.S. and foreign regulations that may apply to the export and import
of the Company's products, and which could have a material adverse effect on
the Company. The Company attempts to reduce the risk of doing
8
<PAGE> 9
business in foreign countries by, among other things, contracting in U.S.
dollars, and when possible, maintaining multiple sourcing of product groups
from several countries.
Volatility of Demand, Availability of Parts and Relationship
with Suppliers. The main consumers of discrete semiconductor parts are the
computer, subassembly, telecommunication, and consumer electronic industries,
which are characterized by volatile customer demand. In recent years,
competition within these industries, rapid technological advances, frequent
introduction of new products and product enhancements (including smaller and
more portable electronic products), and high consumer demand have been
principally responsible for a significant increase in the demand of discrete
semiconductor parts. As a result, there has been and continues to be
significant competition for the world wide availability of discrete
semiconductor parts.
The Company attempts to meet the volatility of demand for
discrete semiconductor parts by (i) aggressively identifying new sources of
products, (ii) forming joint ventures and alliances with manufacturers and
distributors, and (iii) having a geographically diverse mix of manufacturers
and suppliers, located in Taiwan, China, Germany, Japan, France, the
Philippines, India, Thailand and the United States. Within the last two years,
the Company has observed that the demand for semiconductor parts has been
stronger than the supply and, therefore, has had to decline some orders because
of the limited availability of these products.
The Company purchases products from over 20 suppliers. Some
of the Company's major suppliers are ITT, Lite On Power Semiconductor
Corporation ("LPSC"), and Shen Jiang Corporation. For the first six months of
1995, products purchased from these suppliers accounted for approximately
40.9%, 18.5%, and 5.2%, respectively, of the Company's net sales.
The Company has several supply agreements, some short-term,
others long-term, but believes that its success depends, in large part, on
maintaining its established working relationships, as well as on developing new
relationships with suppliers for its existing and future product lines.
Further, although the Company believes that there exist alternative sources for
the products of any of its suppliers, the loss of any one of its principal
suppliers or the loss of several suppliers in a short period of time could have
a materially adverse effect on the Company. The Company understands that ITT
is having discussions with various parties to sell ITT's semiconductor and
discrete division, either as an entire group, or as separate divisions.
Currently, it cannot be determined whether such a sale will occur or what the
effect of such a sale might be. In any event, the Company will continue its
efforts to develop long term relations with current suppliers as well as
aggressively search for new sourcing opportunities to reduce reliance on a
limited number of suppliers and to support growing customer demand.
In June 1995, the Company entered into product
sourcing/compensation trade agreements with Shanghai Kai Hong Electronics Co.,
Ltd. (Kai Hong), a Shanghai, China company, to secure various discrete
semiconductor products. The Company agreed to provide Kai Hong with up to
$2.85 million in assistance toward the production of various discrete
semiconductor products in Shanghai, China, with some production lines expected
to commence production in the latter half
9
<PAGE> 10
of 1995. The Company expects additional products from such production lines to
be available in the second half of 1996.
In another June 1995 agreement, the Company further
strengthened its marketing agreement with LPSC: the Company is now the
exclusive reseller, with the exception of a few house accounts, for LPSC in
North America. LPSC, a manufacturer of discrete components, has since 1991
been a major shareholder of the Company's common stock, and it is currently the
Company's second largest supplier.
In both the Kai Hong and LPSC agreements, the Company has
sought to enhance its ability to procure - in a timely fashion and at
reasonable cost - the products its customers need. The Company believes that
these agreements will significantly enhance its competitiveness, strengthen its
product sourcing, and contribute to its long-term growth. Copies of the Kai
Hong and LPSC agreements have been filed as exhibits to the Quarterly Report on
Form 10-Q. See "Item 6. Exhibits and Reports on Form 8-K."
The following discussion explains in greater detail the
consolidated operating results and financial condition of the Company. This
discussion should be read in conjunction with the consolidated financial
statements and notes thereto appearing elsewhere in this quarterly report.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net Sales $ 14,539,476 $ 9,445,106
- ---------
</TABLE>
The Company's 1995 comparative increase in net sales of
approximately $5.1 million, or 53.9%, was primarily a result of a restructured
sales force with a more pro-active selling philosophy, the Company's ongoing
marketing agreement with ITT Germany, the introduction of the new product line
of small signal transistors, and increased demand for discrete semiconductors,
as well as improved customer service and the addition of established
relationships with major users of discrete components.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Gross Profit $ 4,138,443 $ 2,627,193
- ------------
Gross Margin Percentage 28.5% 27.8%
- -----------------------
</TABLE>
The Company's gross profit for the three months ended June 30,
1995, increased approximately $1.5 million or 57.5%, primarily due to the 53.9%
increase in net sales. The gross margin percentage increased 2.3%, resulting
from increased product demand and improvements in service to its customers.
10
<PAGE> 11
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
SG&A $ 2,442,365 $ 1,825,300
- ----
</TABLE>
The Company's SG&A for the three months ended June 30, 1995,
increased approximately 33.8%, while net sales increased 53.9% compared to the
same period last year. This $617,000 increase was primarily attributable to
increased commissions paid to outside sales representatives and distributors,
an increase in overall wages and benefits, and consulting and programming fees
associated with the implementation of a new management information computer
system. The total SG&A as a percentage of net sales actually decreased from
19.3% in 1994, to 16.8% in 1995, a 13.1% decrease.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Income from Operations $ 1,696,078 $ 801,893
- ----------------------
</TABLE>
The Company's fiscal 1995 comparative increase in operating
profit of approximately $894,000, or 111.5%, is primarily the net result of the
Company's significant increase in net sales and gross profit, as well as
continued efforts to control SG&A, which resulted in a decrease in SG&A as a
percentage of net sales.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Interest Income $ 8,284 $ 9,015
- ---------------
Interest Expense $ 36,146 $ 13,547
- ----------------
</TABLE>
The Company's interest income for the three months ended June
30, 1995, decreased 8.1% compared to the same period last year as the Company
maintained adequate working cash.
The Company's interest expense for the three months
ended June 30, 1995 increased approximately $23,000, primarily as a result of
an increase in the Company's usage of its revolving line of credit to $2.3
million.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Other Income $ 123,377 $ 100,554
- ------------
</TABLE>
The Company's other income for the three months ended June 30,
1995, increased approximately $23,000, or 22.7% compared to other income for
the same period in 1994. This increase in other income is primarily attributed
to increased sales commissions paid.
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<PAGE> 12
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Pre-tax Income $ 1,791,593 $ 897,915
- --------------
</TABLE>
The Company's pre-tax income for the three months ended June
30, 1995, increased approximately $894,000 or 99.5%, primarily due to the 53.9%
increase in net sales, combined with a 13.1% decrease in SG&A as a percentage
of net sales.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Provision for income taxes $ 669,615 $ 327,651
- --------------------------
</TABLE>
The Company's provision for income taxes for the three months
ended June 30, 1995, amounts to 37.4% of income before taxes, as compared to
36.5% for the three months ended June 30, 1994. The provision includes an
estimate of income tax in the United States, Taiwan, and California.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net Income $1,121,978 $570,264
- ----------
Primary Earnings Per Share $ 0.22 $ 0.11
- --------------------------
</TABLE>
The Company's net income for the three months ended June 30,
1995, increased 96.7% or approximately $552,000 compared to the same period in
1994. Primary earnings per share increased 100% for the three months ended
June 30, 1995, compared to the three months ended June 30,1994. Increases in
both net income and primary earnings per share are primarily attributable to a
53.9% increase in net sales, and a 2.3% increase in gross margin, combined with
an 13.1% decrease in SG&A as a percentage of net sales.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net Sales $ 28,778,054 $ 18,225,285
- ---------
</TABLE>
The Company's 1995 comparative increase in net sales of
approximately $10.6 million, or 57.9%, was primarily a result of a restructured
sales force with a more pro-active selling philosophy, the Company's ongoing
marketing agreement with ITT Germany, the introduction of the new product line
of small signal transistors, and increased demand for discrete semiconductors,
as well as improved customer service and the addition of established
relationships with major users of discrete components.
12
<PAGE> 13
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Gross Profit $ 8,081,404 $ 5,050,020
- ------------
Gross Margin Percentage 28.1% 27.7%
- -----------------------
</TABLE>
The Company's gross profit for the six months ended June 30,
1995, increased approximately $3.0 million or 60%, primarily due to the 57.9%
increase in net sales. The gross margin percentage increased 1.3%, resulting
from increased product demand and improvements in service to its customers.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
SG&A $ 4,879,591 $ 3,519,240
- ----
</TABLE>
The Company's SG&A for the six months ended June 30, 1995,
increased approximately 38.7%, while net sales increased 57.9% compared to the
same period last year. This $1.4 million increase was primarily attributable to
increased commissions paid to outside sales representatives and distributors,
an increase in overall wages and benefits, and consulting and programming fees
associated with the implementation of a new management information computer
system. The total SG&A as a percentage of net sales actually decreased from
19.3% in 1994, to 17.0% in 1995, a 12.2% decrease.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Income from Operations $ 3,201,813 $ 1,530,780
- ----------------------
</TABLE>
The Company's fiscal 1995 comparative increase in operating
profit of approximately $1.7 million, or 109.2%, is primarily the net result of
the Company's significant increase in net sales and gross profit, as well as
continued efforts to control SG&A, which resulted in a decrease in SG&A as a
percentage of net sales.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Interest Income $ 18,992 $ 16,304
- ---------------
Interest Expense $ 43,301 $ 47,404
- ----------------
</TABLE>
The Company's interest income for the six months ended June
30, 1995, increased 16.5% compared to the same period last year as the Company
maintained adequate working cash.
The Company's interest expense for the six months ended
June 30, 1995 decreased approximately 8.7%, primarily as a result of a decline
in the Company's usage of its revolving line of credit.
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<PAGE> 14
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Other Income $ 195,753 $ 233,472
- ------------
</TABLE>
The Company's other income for the six months ended June 30,
1995, decreased approximately $38,000, or 16.2% compared to other income for
the same period in 1994. This decrease in other income is primarily attributed
to 1994 having a $47,000 gain from the recovery of a loss incurred in 1993 on a
joint venture that was subsequently terminated in 1994. For more information
on the "Seefull" joint venture, see the Company's 1994 Form 8-K, filed with the
Securities and Exchange Commission on July 1, 1994.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Pre-tax Income $ 3,373,257 $ 1,733,152
- --------------
</TABLE>
The Company's pre-tax income for the six months ended June 30,
1995, increased approximately $1.6 million or 94.6%, primarily due to the 57.9%
increase in net sales, combined with a 12.2% decrease in SG&A as a percentage
of net sales.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Provision for income taxes $ 1,268,515 $ 667,680
- --------------------------
</TABLE>
The Company's provision for income taxes for the six months
ended June 30, 1995, amounts to 37.6% of income before taxes, as compared to
38.5% for the six months ended June 30, 1994. The provision includes an
estimate of income tax in the United States, Taiwan, and California.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net Income $ 2,104,742 $ 1,065,472
- ----------
Primary Earnings Per Share $ 0.41 $ 0.21
- --------------------------
</TABLE>
The Company's net income for the six months ended June 30,
1995, increased 97.5% or approximately $1.0 million compared to the same period
in 1994. Primary earnings per share increased 95.2% for the six months ended
June 30, 1995, compared to the six months ended June 30,1994. Increases in
both net income and primary earnings per share are primarily attributable to a
57.9% increase in net sales, and a 1.3% increase in gross margin, combined with
a 12.2% decrease in SG&A as a percentage of net sales.
LIQUIDITY AND CAPITAL RESOURCES
The ratio of the Company's current assets to current
liabilities on June 30, 1995, was 2.19 to 1 compared to a ratio of 2.46 to 1 as
of December 31, 1994. The Company anticipates it will continue to utilize its
line of credit to support an increase in net sales over 1994. The Company
14
<PAGE> 15
maintains a $4.0 million line of credit, of which it has utilized $288,000 at
June 30, 1995. The Company believes that the availability of this credit line,
together with internally generated funds, will be sufficient to meet the
Company's currently foreseeable operating cash requirements. The Company
believes that such strong cash position will be sufficient for anticipated
growth, however, the Company continues to evaluate its cash position and may
seek to increase its line of credit. The Company's total working capital
increased to $11.6 million as of June 30, 1995, from $9.4 million as of
December 31, 1994, primarily as a result of the 57.9% increase in net sales and
related positive cash flow in 1995. Notes payable increased to $2.3 million to
fund a 50.2% increase in inventories, supporting the 57.9% increase in net
sales. Accounts receivable also increased 56% as a result of the net sales
increase.
To ensure that the Company can secure reliable and cost
effective sourcing to support and better position itself for growth, the
Company is continuously evaluating additional sources of products. The Company
believes its financial position will provide sufficient funds should an
appropriate investment opportunity arise. This will also help the Company
improve customer satisfaction and increase product market penetration. The
Company's debt to equity ratio decreased to 0.77 at June 30, 1995, from 0.63 at
December 31, 1994. The Company anticipates this ratio may increase as the
Company continues to use its line of credit to support forecasted sales growth.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no matters to be reported under this heading.
ITEM 2. CHANGES IN SECURITIES
There are no matters to be reported under this heading.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There are no matters to be reported under this heading.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company submitted to a vote of its security holders at an
annual meeting of shareholders on June 30, 1995 for the election of members of
the Board of Directors. The directors were each elected to serve until the
1996 annual meeting or until their successors are elected and have qualified.
The results of the tabulation for each nominee for director of the Company is
as follows:
<TABLE>
<S> <C> <C>
Michael R. Giordano, For: 4,388,417
Director Withheld: 5,030
David Lin, For: 4,388,417
Director Withheld: 5,030
M.K. Lu, For: 4,372,817
Director Withheld: 20,630
Shing Mao, For: 4,375,917
Director Withheld: 17,530
Michael A. Rosenberg, For: 4,372,817
Director Withheld: 20,630
Leonard M. Silverman, For: 4,386,017
Director Withheld: 7,430
</TABLE>
continued on next page
16
<PAGE> 17
continued from previous page
<TABLE>
<S> <C> <C>
Raymond Soong, For: 4,388,417
Director Withheld: 5,030
</TABLE>
ITEM 5. OTHER INFORMATION
There are no matters to be reported under this heading.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 - Computation of Earnings Per Share
Exhibit 10.2 - Kai Hong Compensation Trade Agreement
for SOT-23 Product
Exhibit 10.3 - Kai Hong Compensation Trade Agreement
for MELF Product
Exhibit 10.4 - Lite On Power Semiconductor
Corporation Distributorship Agreement
(b) Reports on Form 8-K
None
17
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
DIODES INCORPORATED (Registrant)
/s/ Joseph Liu
- ---------------------------
JOSEPH LIU July 26, 1995
Vice President, Secretary
and Chief Financial Officer
(Principal Financial and Accounting Officer)
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<S> <C> <C>
EXHIBIT - 10.1 Computation Of Earnings Per Share
for the three months and six months ended
June 30, 1995 and June 30, 1994 Page 20
EXHIBIT - 10.2 Kai Hong Compensation Trade Agreement for
SOT-23 Product Page 21
EXHIBIT - 10.3 Kai Hong Compensation Trade Agreement for
MELF Product Page 25
EXHIBIT - 10.4 Lite On Power Semiconductor Corporation
Distributorship Agreement Page 29
EXHIBIT - 27 Financial Data Schedule Page 41
</TABLE>
19
<PAGE> 1
DIODES INCORPORATED AND SUBSIDIARIES
EXHIBIT - 10.1
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ----------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average number of common
shares outstanding 4,649,174 4,552,730 4,637,655 4,540,786
Weighted average number of preferred
shares outstanding 169,629 169,629 169,629 169,629
Assumed exercise of stock options 363,238 431,926 349,937 429,062
5,182,041 5,154,285 5,157,221 5,139,477
----------- ----------- ----------- -----------
Net income $ 1,121,978 $ 570,264 $ 2,104,742 $ 1,065,472
=========== =========== =========== ===========
Primary earnings per share $ 0.22 $ 0.11 $ 0.41 $ 0.21
=========== =========== =========== ===========
FULLY-DILUTED
Weighted average number of common
shares outstanding 4,649,174 4,552,730 4,637,655 4,540,786
Weighted average number of preferred
shares outstanding 169,629 169,629 169,629 169,629
Assumed exercise of stock options 414,005 431,926 414,005 443,150
----------- ----------- ----------- -----------
5,232,808 5,154,285 5,221,289 5,153,565
Net income $ 1,121,978 $ 570,264 $ 2,104,742 $ 1,065,472
=========== =========== =========== ===========
Fully diluted earnings per share $ 0.21 $ 0.11 $ 0.40 $ 0.21
=========== =========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 10.2
COMPENSATION TRADE AGREEMENT FOR SOT-23 PRODUCT
(TRANSLATED FROM CHINESE)
This Agreement is made between Diodes Incorporated (hereafter referred
to as Diodes), located at 3050 East Hillcrest Drive, Westlake Village,
California 91361-3154, U.S.A. and Shanghai Kai Hong Electronics Co., Ltd.
(hereafter referred to as Kai Hong), located at No. 61 Xinnan Road, Xinqiao
Town, Songjian, Shanghai, China 201612. Owing to the market demand, the
parties hereby agree to cooperate in the production of SOT-23 products (1)
(hereafter referred to as Products) under the terms and conditions below:
I. Way of Cooperation:
1. The parties agree to set up a SOT-23 Products production line
in Shanghai. (2)
2. Diodes shall invest capital for acquisition of equipment and
Kai Hong shall invest capital for the acquisition of
equipment, for the construction of a factory building, for
technical training and for working capital. (Total investment
by Diodes shall not exceed US$2.5 million.) (3)
3. Kai Hong is responsible for start up and will take charge of
management and production. The capital invested by Diodes
will be repaid by means of Products exported on compensation
trade basis.
II. Contents of Compensation Trade:
1. Diodes shall assist in securing qualified chip suppliers and
provide product specifications to entrust Kai Hong to produce
SOT-23 Products to export to Diodes. For the payment of
production to Kai Hong , Diodes shall deduct a portion to
repay Diodes' investment. (5)
2. Kai Hong guarantees to sell its monthly production of Products
to Diodes. Any excess Products shall be handled subject to
mutual negotiation, which may include domestic sale and
export. (4)
3. The fall-off and scrap parts shall be kept in good custody.
The quantity shall be onfirmed by both parties before
disposal.
4. Kai Hong shall adopt rigid production management. Except for
reasonable production consumption if there is a loss of
finished Products and Work-In-Progress Products, Kai Hong
agrees to make up the monthly capacity under the agreement.
If there is a cost variable due to such a loss, it shall not
be included when reviewing the cost structure. Kai Hong shall
agree to take effective action to prevent such a loss within
three months of learning of it.
* CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
1
<PAGE> 2
II. Quality Standard:
1. The chips provided by suppliers recommended by Diodes shall
comply with requirements of Kai Hong quality and production
requirements.
2. Kai Hong shall carry out the production upon the request of
Diodes. The yield for initial production will be mutually
agreed upon and a review shall be conducted once each half
year for adjustment subject to actual condition. (6)
3. The finished Products delivered to Diodes shall comply with
the quality standard and product specifications defined by
Diodes.
IV. Supply, Production, Product Packaging and Delivery Terms:
1. SUPPLY: The purchase of chips shall be of good quality and
reasonable cost under mutual agreement. During the initial
period of production, Kai Hong shall purchase chips from
qualified suppliers that have been recommended by Diodes for
smooth production. Unless supplies are interrupted due to
force majeure, Diodes shall be responsible for the
compensation of loss caused to Kai Hong during the period of
production interrupted for the labor and depreciation cost.
During the first year, Kai Hong and Diodes should jointly
develop more qualified chip suppliers. After one year of
formal production, Kai Hong shall be responsible for the
purchase of chips while Diodes may continue to help Kai Hong
secure the chips sourcing necessary for monthly production.
Mutual consent is required of both parties for a change or
increase of chip suppliers.(7)
2. PRODUCTION: Upon receipt of chips, Kai Hong shall commence
production immediately, and the production cycle shall be
about 30 days.
3. PACKAGING: 3000 pieces/reel, 5 reels/box, 12 boxes/carton
V. Means of Investment and Final Account of Production Compensation:
1. Upon the execution of this agreement, the purchase of
equipment shall be commenced based on the suppliers and
specifications confirmed between both parties. The purchase
of equipment necessary for the company shall be handled by Kai
Hong. Diodes shall remit its investment to Kai Hong's bank
account to maintain timely payment according to the equipment
payment schedule.
2. SOT-23 produced by Kai Hong shall be priced competitively for
export to Diodes (based on MMBT 3094/3906) of which a portion
is compensation expense (as reimbursement on loan and
interest) and actual remaining payment shall be made by Diodes
to Kai Hong within 30 days by T/T in US$. Actual export price
shall be reviewed once ever half year by both parties. (5)
3. The feasibility study of this item shall be acknowledged by
the parties with their signature affixed. The offset price
shall be adjusted when key material price has a major change
(defined as +/- 3%).
2
<PAGE> 3
4. The interest on the capital to be invested by Diodes shall be
calculated based on the actual interest rate charged by
Diodes' bank. Interest will start from the date Kai Hong
received the remittance. The quantity of product by
compensation trade will be made over 58 months. (8)
5. The freight charges from the shipment of chips to Kai Hong
will be charged to Kai Hong's account and the freight charge
occurring from the shipment of Product to Diodes from Kai
Hong will be charged to Diodes.
6. When there is significant change to the specification of
SOT-23 Products and/or related Products, the export price and
compensation expense will be changed by to mutual agreement.
7. All Product will meet Diodes quality requirements and
standards as shown on Appendix.
8. Should Kai Hong liquidate or be closed due to other cause(s)
prior to Diodes' loan and interest being fully repaid, Diodes
shall have the ownership of the equipment equivalent to the
sum not repaid and have the highest priority of debt claim
against the bank with relation to Kai Hong.
9. During the effective period of this agreement, each party
shall obtain the other party's written consent prior to
speaking with a third party regarding additional investment
plan(s) for same or similar Products. Both parties agree that
the other party shall have the right of first refusal under
the same terms and conditions.
10. The agreement shall remain valid until the end of December 31,
2000, or until the date the Products have been delivered as
previously agreed. Kai Hong agrees to give Diodes the
priority of the purchase of additional product for an
additional five years, since the expiration of this agreement,
and the selling price will be reduced from then current market
price. During the extension period, Item V.9 and V.10 herein
will remain valid while other items shall be invalid. (9)
11. During this period of agreement, if there is any dispute
between the parties, it shall be amicably settled by the
parties.
* ( ) All footnotes are herein incorporated in Attachment 1.
DIODES INCORPORATED Shanghai Kai Hong Electronics Co., Ltd.
/s/ David Lin /s/ J.Y. Xing
- ------------------------ ------------------------
David Lin, President J. Y. Xing, Chairman of the Board and
President
Date: June 9, 1995 Date: June 9, 1995
3
<PAGE> 4
ATTACHMENT 1
* CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
4
<PAGE> 1
EXHIBIT 10.3
COMPENSATION TRADE AGREEMENT FOR MELF PRODUCT
(TRANSLATED FROM CHINESE)
This Agreement is made between Diodes Incorporated (hereafter referred
to as Diodes), located at 3050 East Hillcrest Drive, Westlake Village,
California 91361-3154, U.S.A. and Shanghai Kai Hong Electronics Co., Ltd.
(hereafter referred to as Kai Hong), located at No. 61 Xinnan Road, Xinqiao
Town, Songjian, Shanghai, China 201612. Owing to the market demand, the
parties hereby agree to cooperate in the production of MELF products (hereafter
referred to as Products) under the terms and conditions below:
I. Terms and Conditions:
1. MELF Production investment will be in two stages, as specified
in Attachment 1, Item 1.
2. To repay Diodes' Investment, Diodes shall deduct a portion for
the payment of Products to Kai Hong (See Attachment 1, Item
3B). Diodes shall purchase Product from Kai Hong as per the
agreed upon quantities.
A. Diodes shall purchase all Product produced by Kai
Hong as long as they meet specification and Quality
requirements.
B. This agreement is valid for two (2) years. Diodes
shall purchase all Kai Hong's MELF Production.
(After the expiration of this agreement, Diodes and
Kai Hong shall renegotiate the purchase agreement.
Diodes has the right of first refusal to purchase
the Product under the same terms and conditions
with a third party).
C. Within the first two (2) years, Diodes agrees to
purchase the total quantity as specified in the
Attachment 1, Item 2. For any quantities over above
this specified quantity, the price can be
re-negotiated between both parties. At this time,
each party has the right to chose a new partner.
However, Diodes has the right of first refusal under
the same terms and conditions to either retain the
partnership or purchase the Product.
D. Under this agreement, the sales price for the MELF
Product shall be as specified in Attachment 1, Item 3.
II. Technical Support
1. Diodes will provide technical support for manufacturing,
quality control, production control, and administration to
assist Kai Hong in establishing the production line. Kai Hong
agrees to reimburse all the expenses to Diodes for the actual
incurred cost. (The standard for the reimbursement to be
agreed by both parties). Kai Hong agrees to pay a one time
technical assistance fee to Diodes for the amount as specified
in the Attachment 1, Item 4, to Diodes, in U.S. currency cash,
within the first month of production.
* CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
1
<PAGE> 2
2. Kai Hong agrees to purchase all chips and essential raw
materials from Diodes or it's subsidiary. Kai Hong agrees to
purchase necessary raw materials from the suppliers that have
been pre-qualified in writing by Diodes. To assure quality,
Diodes' written consent is required before Kai Hong can make
any changes on its raw material suppliers. For those raw
materials which are not available in China, Kai Hong can
purchase directly from qualified suppliers overseas or through
Diodes or it's subsidiary.
III. Payment Terms
1. Both parties agree to be treated under the same terms and
conditions for Kai Hong's payment to Diodes or it's subsidiary
for the raw material purchase, and Diodes' payment to Kai Hong
for Product.
2. Diodes and Kai Hong agree to re-evaluate the transfer prices
within the first three months of formal production, in the
event of unforeseen variables.
IV. Responsibilities
1. Under this agreement, Kai Hong agrees to sell 100% of MELF
Products to Diodes, and not to sale to any other parties. In
order not to damage Diodes profitability, Kai Hong agrees not
to negotiate with any third party, directly or through it's
subsidiary, to manufacture the same or similar Product. Kai
Hong agrees that all fall-off and scrap parts shall be kept in
good custody, and the quantity shall be confirmed by both
parties before disposal.
2. Kai Hong shall pay to Diodes a compensation amount for it's
loss which may be caused by either the Products being sold to
(or carried out) a third party or the engineering drawing,
production processes, or equipment's leak to a third party.
3. Diodes agrees to pay Kai Hong a compensation amount in the
event that Diodes fails to purchase the Minimum quantities as
specified in Attachment 1, Item3.
4. If either Diodes or Kai Hong are required to pay a
compensation amount to the other party, the amount shall be
determined at 40% of other party's total loss.
5. Quality Standard: Both parties to define.
6. The price for raw materials which Kai Hong will purchase from
Diodes, and the price that Diodes will purchase from Kai Hong
shall be fixed as mutually agreed. Each party is responsible
for it's own Profit and Loss. However, in the event the raw
material costs or the market price for the Product changes
dramatically, the parties may re-evaluate the situation and
re-define the prices amicably.
7. If due to increased market demand, Diodes requests increased
expansion, Kai Hong shall agree in principle. If, at that
time, Kai Hong has difficulty providing the additional capital
requirement, both parties shall re-negotiate the detailed
arrangement.
8. This agreement becomes effective from the date signed by
authorized person executed hereunder.
2
<PAGE> 3
DIODES INCORPORATED SHANGHAI KAI HONG ELECTRONICS., LTD.
/s/ David Lin /s/ J.Y. Xing
- ------------------------ ----------------------
David Lin, President J.Y. Xing, Chairman of the Board and
President
Date: June 9, 1995 Date: June 9, 1995
3
<PAGE> 4
COMPENSATION TRADE AGREEMENT FOR MELF PRODUCT
ATTACHMENT 1
* CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
4
<PAGE> 1
EXHIBIT 10.4
DISTRIBUTORSHIP AGREEMENT
BY
LITE ON POWER SEMICONDUCTOR
A CORPORATION OF TAIWAN, REPUBLIC OF CHINA
AND
DIODES INCORPORATED
A DELAWARE CORPORATION
* CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
CHAPTER I: SUBJECT MATTER OF THE AGREEMENT
Article 1: Appointment and Territory
Article 2: Products
Article 3: Legal Status of DIODES
CHAPTER II: DUTIES OF DIODES
Article 4: Promotion
Article 5: Publicity and Trade Shows
Article 6: Trade Secrets
Article 7: Subagents
Article 8: Prohibition to Sell Outside the Territory
Article 9: Fair Competition
Article 10: Assistance to be Provided by DIODES
Article 11: Minimum Stock
Article 12: Trademarks and Trade Names
CHAPTER III: DUTIES OF LPSC
Article 13: Source of Supply
Article 14: Technical Assistance
Article 15: Sales Literature
Article 16: Direct Sales
Article 17: House Accounts During the Term of this Agreement
Article 18: Warranty
CHAPTER IV: TERMS OF AGREEMENT
Article 19: Duration
Article 20: Early Termination
Article 21: Termination by Registered Letter
Article 22: Repurchase Option
CHAPTER V: PRICES AND PAYMENT
Article 23: Prices and Conditions of Sale
Article 24: Acceptance of Orders
Article 25: Payment
CHAPTER VI: FINAL PROVISIONS
Article 26: Assignment
Article 27: Applicable Law
Article 28: Disputes
Article 29: Amendment
Article 30: Relationship of the Parties
Article 31: Waiver
Article 32: Confidentiality
Article 33: Entire Agreement
ADDENDUM I LPSC House Accounts in North America
</TABLE>
<PAGE> 3
AGREEMENT
This agreement (the "Agreement") is entered into on the date set forth
hereinbelow by and between LITE ON POWER SEMICONDUCTOR, a corporation of
Taiwan, Republic of China, with its principal place of business at 28-1 Wu Shin
Street, Ta Wu Lung Industrial, Keelung, Taiwan (hereinafter "LPSC"), and DIODES
INCORPORATED, a Delaware corporation, with its principal offices located at
3050 East Hillcrest Drive, Westlake Village, California 91362-3154, United
States of America, and its subsidiary in Taiwan, R.O.C. (hereinafter "DIODES").
CHAPTER I. SUBJECT MATTER OF THE AGREEMENT
ARTICLE 1: APPOINTMENT AND TERRITORY
Except as otherwise provided hereinafter, LPSC hereby appoints DIODES
as its exclusive reseller for the TERRITORY of North America subject to the
terms and conditions set forth herein, with the exception of the HOUSE ACCOUNTS
set forth in Article 16: House Accounts, During the Term of this Agreement.
LPSC shall not make sales (direct or indirect) of the PRODUCTS to any party
within the TERRITORY without the express written consent of DIODES.
ARTICLE 2: PRODUCTS
The products covered by this Agreement ("PRODUCTS") comprise LPSC's
complete line of semiconductors. The list of PRODUCTS may be added to, or some
of the PRODUCTS may be discontinued by LPSC, after first consulting with
DIODES, and upon one hundred twenty (120) days prior written notice by LPSC to
DIODES. Upon delivery to DIODES of written notice of discontinuation of
PRODUCTS, LPSC will honor last orders by DIODES for PRODUCTS so discontinued up
to a maximum quantity equal to LPSC's deliveries of such discontinued PRODUCTS
in the one (1) year period preceding the date of notice of discontinuation.
ARTICLE 3: LEGAL STATUS OF DIODES
DIODES shall buy from LPSC, and shall sell the PRODUCTS to DIODES'
customers for DIODES' own account, and in connection therewith DIODES shall act
as an independent contractor and trader in its dealings both with LPSC and with
DIODES' customers.
DIODES shall establish its own sales policies (which shall not be
inconsistent with LPSC's overall sales policies as disclosed by LPSC to DIODES
in writing), prices, terms, and conditions of sale and shall be responsible for
its own invoicing and collection, all with a view to promoting the sale of the
PRODUCTS, and establishing and maintaining the highest possible commercial
reputation for the PRODUCTS.
1
<PAGE> 4
CHAPTER II. DUTIES OF DIODES
ARTICLE 4: PROMOTION
DIODES shall devote its best efforts to promoting distribution and
sale of the PRODUCTS in the TERRITORY. DIODES shall exercise the due diligence
of a responsible businessman to safeguard the interests of LPSC and shall keep
LPSC regularly informed of DIODES' activities as well as of the market
conditions with the TERRITORY.
ARTICLE 5: PUBLICITY AND TRADE SHOWS
DIODES shall advertise the PRODUCTS in the TERRITORY and shall
represent LPSC and the PRODUCTS at trade shows and exhibitions conducted in the
TERRITORY in a businesslike manner. Except as may otherwise be agreed by the
parties in writing, all costs of such activities shall be paid by DIODES.
ARTICLE 6: TRADE SECRETS
DIODES shall not, even after the expiration or termination of this
Agreement, use or communicate to third parties any trade secrets about LPSC or
the PRODUCTS or any confidential trade or business information about LPSC
acquired by DIODES during the term of this Agreement.
ARTICLE 7: SUBAGENTS
LPSC understands and acknowledges that DIODES has already established
a network of manufacturers' representatives and distributors throughout the
TERRITORY, and LPSC further understands and agrees that sales by DIODES of the
PRODUCTS pursuant to this Agreement may be made by DIODES with the assistance
of such manufacturers' representatives and to such distributors.
ARTICLE 8: PROHIBITION OF SALES OUTSIDE THE TERRITORY
DIODES shall not seek customers, or establish or maintain any branch
or distribution depot, at locations outside the TERRITORY without the written
approval of LPSC. The foregoing notwithstanding, LPSC understands and
acknowledges that DIODES has a subsidiary company and branch office in Taipei,
Taiwan, and is engaged in business, including sales of the PRODUCTS in other
locations in the Far East, including Hong Kong, China, Korea, and Singapore.
LPSC agrees that DIODES may engage in sales of the PRODUCTS, and may maintain
such facilities, in the Far East during the term of this Agreement.
ARTICLE 9: FAIR COMPETITION
In performing their obligations under this Agreement, DIODES and LPSC
shall comply with the rules of Fair Competition.
2
<PAGE> 5
ARTICLE 10: ASSISTANCE TO BE PROVIDED BY DIODES
DIODES shall inform LPSC of all acts of unfair competition in respect
to the PRODUCTS, and all infringement of patents and similar rights of LPSC,
which come to the attention of DIODES during the term of this Agreement. To
the best of its abilities, DIODES shall assist LPSC in protecting itself
against such acts and infringements.
ARTICLE 11: MINIMUM STOCK
DIODES shall maintain, at its own cost, a sufficient stock of the
PRODUCTS to adequately perform its duties under this Agreement.
ARTICLE 12: TRADEMARKS AND TRADE NAMES
DIODES shall not use, or permit to be used by any person under its
control, any of the trademarks, trade names, or service marks owned by LPSC, or
any of LPSC's affiliated companies, without the written consent of LPSC.
Prior to the use of any such trademark, service mark, or trade name,
DIODES shall deliver to LPSC, for approval, a sample of each document
displaying such trademark, service mark, or trade name. Should no objection be
received by DIODES to any such document within thirty (30) days after delivery
thereof to LPSC, it shall be conclusively presumed that LPSC consents to the
use by DIODES of such document.
Upon termination or expiration of this Agreement, DIODES shall
forthwith terminate further use of such trademarks, service marks, or trade
names, and shall not make further reference to same.
Furthermore, upon termination or expiration of this Agreement, and
upon receipt by DIODES from LPSC of a written request to do so, DIODES shall
deliver to LPSC, without cost, all printed matter in the possession of DIODES,
displaying such trademarks, service marks, or trade names.
Where the PRODUCTS are covered by patents or trademarks, or
applications therefor, DIODES shall inform LPSC immediately of any infringement
or possible infringement thereof known to DIODES, and furnish LPSC with such
assistance as DIODES reasonably can in any prosecution of such infringement
which LPSC may thereafter institute.
CHAPTER III. DUTIES OF LPSC
ARTICLE 13: SOURCE OF SUPPLY
LPSC shall exercise its best efforts to devote sufficient
manufacturing capability to fulfill Diodes forecast and purchase orders. The
parties shall work together to establish forecasts that are
3
<PAGE> 6
commercially reasonable from the point of view of Diodes ability to market the
products WITHIN THE TERRITORY and LPSC's manufacturing capability.
ARTICLE 14: TECHNICAL ASSISTANCE
LPSC shall provide such technical assistance as DIODES deems
appropriate, including, where necessary, the training of DIODES' technical
personnel at a location designated by LPSC, in accordance with and subject to
further arrangements to be agreed upon by the parties if and when such need
arises. Transportation, accommodation, and daily allowances for DIODES'
personnel shall be borne by DIODES, and other costs related to the training
shall be apportioned between the parties on an equitable basis by mutual
agreement.
ARTICLE 15: SALES LITERATURE
LPSC shall furnish DIODES, free of charge, sufficient quantities of
available sales literature, pamphlets, catalogues, samples, and other
merchandising aids available to LPSC for DIODES' local sales promotion and
advertising purposes. Upon expiration/termination of this Agreement for
whatever reason, DIODES shall return to LPSC, at DIODES' expense, all items
furnished to DIODES hereunder then in its possession or under its control. The
total cost of the literature furnished by LPSC to Diodes shall not exceed .5%
of the annual orders placed by Diodes.
ARTICLE 16: DIRECT SALES
Notwithstanding the provisions of Article 1, above, LPSC shall have
the right to maintain resale arrangements in North America with the following
companies, and with no
others:______________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
LPSC shall terminate, as soon as is reasonably practical, its other
distributors in the TERRITORY. DIODES and LPSC shall negotiate in good faith
the purchase by DIODES, in whole or in part, of the inventory of such
distributors.
ARTICLE 17: HOUSE ACCOUNTS
During the term of this Agreement, LPSC may continue to make direct
sales to certain high-volume original equipment manufacturers (hereinafter
called "HOUSE ACCOUNTS") as agreed upon by the parties and set forth in
Addendum I attached hereto. DIODES shall not make direct or indirect sales of
PRODUCTS to any HOUSE ACCOUNT without the prior written consent of LPSC.
Should LPSC desire to add a high-volume original equipment manufacturer to the
list of HOUSE ACCOUNTS, it shall notify DIODES of this desire. An account
shall not be added to the list of HOUSE ACCOUNTS without DIODES' consent, which
shall not be unreasonably withheld.
4
<PAGE> 7
In making the decision whether to consent to the addition of an original
equipment manufacturer to the list of HOUSE ACCOUNTS, DIODES shall proceed in a
commercially reasonable manner taking into account whether it has had any
contact or made any attempts to sell PRODUCTS to that particular manufacturer.
The parties agree to discuss and negotiate in good faith any additions to the
HOUSE ACCOUNT list.
ARTICLE 18: WARRANTY
LPSC hereby warrants that all PRODUCTS shall be free from defects in
material and workmanship for a period of one (1) year from the date the end
user installs the PRODUCT in its merchandise. In no event shall this warranty
extend for more than twenty-four (24) months after the invoice date reflecting
the sale of the PRODUCTS to DIODES. In the event of the discovery of a defect,
LPSC shall deliver replacement PRODUCTS, at no charge to DIODES. LPSC shall
also reimburse DIODES for any labor charges expended by DIODES in effecting the
replacement. LPSC shall indemnify and hold DIODES harmless from any and all
damages, including attorney's fees and costs incurred as a result of a
defective PRODUCT.
In the event DIODES in any way enlarges LPSC's warranty as set forth
herein, the liability for such enlargement shall be exclusively DIODES.
CHAPTER IV. TERMS OF AGREEMENT
ARTICLE 19: DURATION
This Agreement shall become effective upon its signing by both parties
and shall remain in force, without prejudice to any other provision contained
herein, for an initial period through and including June 12, 1997. If not
terminated in writing by registered mail at least ninety (90) days prior to the
end of said initial period, this Agreement shall automatically continue in
force thereafter subject, however, to termination by either party at any time
by delivery to the other party by registered mail of ninety (90) days' written
notice.
ARTICLE 20: EARLY TERMINATION
Either party may terminate this Agreement immediately by delivery of
written notice of termination to the other party at any time at the address set
forth in the first paragraph of this Agreement in the event that:
(i) The other party files for protection, or is named as
debtor, in any bankruptcy, insolvency, receivership, or similar
proceedings, or makes an assignment for the benefit of creditors, or
if any proceedings are instituted for the liquidation or winding up of
such other party's business.
(ii) The other party commits a breach of any of its
obligations arising hereunder, and upon being put on notice of such
breach, fails to rectify such breach within a reasonable grace period
which, unless stipulated otherwise by the notifying party, shall not
exceed ten
5
<PAGE> 8
(10) business days. Such obligations shall be deemed to include
DIODES' obligations defined and set forth in Article 4 hereinabove.
(iii) A change in ownership of the other party's business
occurs. As used herein, the term "change in ownership" shall mean the
change in the beneficial ownership of at least fifty-one percent (51%)
of the outstanding voting stock of a party.
ARTICLE 21: TERMINATION BY REGISTERED LETTER
Notice of termination by either party hereto shall be given by
registered letter to the addresses set forth in the first paragraph of this
Agreement.
ARTICLE 22: REPURCHASE OPTION
Upon termination of this Agreement by LPSC, whether by expiration
pursuant to the terms of Article 18 or Early Termination pursuant to the
provisions of Article 19, DIODES shall have the option to require LPSC to
repurchase all or any part of DIODES inventory of PRODUCTS on the effective
date of such expiration or termination. This right may be exercised by DIODES
by giving written notice to LPSC of the requirement for LPSC to repurchase the
inventory and setting forth which of the PRODUCTS and quantities thereof DIODES
will require be repurchased. The purchase price under this provision shall be
equal to the original factory invoice price for the PRODUCTS to be repurchased.
DIODES shall have no such option if it causes this Agreement to terminate.
CHAPTER V: PRICES AND PAYMENT
ARTICLE 23: PRICES AND CONDITIONS OF SALE
The prices at and pursuant to which LPSC will sell the PRODUCTS to
DIODES shall be established from time to time by LPSC and shall be subject to
revision by LPSC at any time. LPSC agrees, however, to give DIODES ninety (90)
days written notice of price change for such of the PRODUCTS for which DIODES
has previously given LPSC a monthly three-month rolling purchase forecast.
LPSC agrees to price the PRODUCTS sold to DIODES at a level equal to or lower
than the price offered by LPSC to its other resellers, worldwide, for similar
quantities and terms. DIODES shall have the right to review LPSC's customer
records to verify that this "most favored distributor" clause is being honored.
ARTICLE 24: ACCEPTANCE OF ORDERS
LPSC shall have the right to accept or reject any order placed by
DIODES so long as it gives written notice of rejection to DIODES within
forty-eight (48) hours after receipt of DIODES' order.
6
<PAGE> 9
ARTICLE 25: PAYMENT
Payment is due net thirty (30) days after delivery to DIODES. Payment
of invoices by DIODES to LPSC shall be made by check or other appropriate means
as mutually agreed upon.
DIODES shall not be entitled to withhold or set-off any payment to
LPSC for whatever reason. All payments of invoices shall be made in the
currency of LPSC's registered office, unless otherwise stated by LPSC on its
order confirmation form.
CHAPTER VI. FINAL PROVISIONS
ARTICLE 26: ASSIGNMENT
This Agreement shall not be assignable by either party without the
written consent of the other party, except that LPSC may assign this Agreement
to another company of the LITE ON GROUP or to any person, firm, or corporation
that may purchase or take assignment of the business relating to the PRODUCTS
covered hereby, and provided further that such purchaser or assignee shall
assume the obligations of LPSC hereunder.
ARTICLE 27: APPLICABLE LAW
This Agreement shall be governed and construed in all respects
according to the laws of the State of California. If any provision of this
Agreement shall be declared invalid or unenforceable for any reason, this
ruling shall not affect the validity of the rest of the Agreement. The other
parts of the Agreement shall remain in effect as if the Agreement had been
executed without the invalid part. The parties hereby declare that they intend
and desire that the remaining parts of the Agreement continue to be effective
without any part or parts that have been declared invalid.
ARTICLE 28: DISPUTES
The parties agree that they will act in good faith to resolve any
dispute under this Agreement by mutual negotiation and discussion prior to
invoking any other right or remedy hereunder.
In the event any dispute arises out of the enforcement,
interpretation, performance, or breach of any party under this Agreement, which
cannot be amicably resolved, the parties shall promptly submit such dispute to
arbitration before a single arbitrator in Los Angeles County, California, in
accordance with and under the then current provisions of the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrability
of any such dispute, claim, or controversy shall be determined by the
arbitrator. Such arbitration shall be the sole and exclusive forum for
bringing any such dispute, claim, or controversy. The cost of the arbitration
and any proceeding in court to confirm or vacate any arbitration award
(including, without limitation, actual attorney's fees, costs, any fees paid to
the American Arbitration Association, and fees paid to the arbitrator) shall be
awarded to the prevailing party and against the unsuccessful party. This
arbitration clause shall survive the termination of this Agreement.
7
<PAGE> 10
ARTICLE 29: AMENDMENT
This Agreement may not be amended, supplemented, or modified and no
provision hereof may be waived unless such amendment, supplement, modification,
or waiver is in writing and signed by the party to be bound thereby.
ARTICLE 30: RELATIONSHIP OF THE PARTIES
Nothing contained in this Agreement and no action taken by any party
to this Agreement shall be deemed to constitute any party or any such party's
employees, agents, or representatives, to be the employee, agent, or
representative of the other party or shall be deemed to create any partnership,
joint venture, association, or syndicate among or between any of the parties or
shall be deemed to confer on any party any express or implied authority to
incur any obligation or liability on behalf of the other party.
ARTICLE 31: WAIVER
The failure of either party at any time to require performance by the
other party of any obligation hereunder shall in no way affect its right to
require performance at any time thereafter. No waiver by either party of the
breach of any provision hereof shall constitute a waiver of any subsequent
breach of that provision or the breach of any other provision.
ARTICLE 32: CONFIDENTIALITY
In order to achieve the purposes of this Agreement, DIODES may
disclose to LPSC certain confidential information. LPSC agrees that it shall
keep all such information confidential and exercise the same degree of care to
avoid unauthorized disclosure of such information as it uses in protecting its
own trade secret and confidential information.
ARTICLE 33: ENTIRE AGREEMENT
This Agreement shall constitute the entire agreement of the parties
hereto and shall supersede any and all prior agreements between DIODES and LPSC
and its or their respective predecessors, relating to the subject matter
hereof. This Agreement shall be subject to modification only by a duly
executed written agreement between the parties.
The foregoing is hereby agreed to by the parties and signed by their
respective duly authorized officers as of this 12th day of June in the year
1995.
FOR AND ON BEHALF OF LPSC
Signature: /s/ M.K. Lu
----------------------
M.K. LU
Title: President
8
<PAGE> 11
FOR AND ON BEHALF OF DIODES
Signature: /s/ David Lin
----------------------
DAVID LIN
Title: President and Chief Executive Officer
9
<PAGE> 12
ADDENDUM I
LPSC'S HOUSE ACCOUNTS IN NORTH AMERICA
* CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 348,568
<SECURITIES> 0
<RECEIVABLES> 9,693,267
<ALLOWANCES> 188,197
<INVENTORY> 10,533,249
<CURRENT-ASSETS> 21,309,916
<PP&E> 1,626,471
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,006,677
<CURRENT-LIABILITIES> 9,716,344
<BONDS> 277,840
<COMMON> 3,614,503
169,629
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,006,677
<SALES> 28,778,054
<TOTAL-REVENUES> 28,778,054
<CGS> 20,696,650
<TOTAL-COSTS> 4,879,591
<OTHER-EXPENSES> (171,444)
<LOSS-PROVISION> 188,197
<INTEREST-EXPENSE> (43,301)
<INCOME-PRETAX> 3,373,257
<INCOME-TAX> 1,268,515
<INCOME-CONTINUING> 3,201,813
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,104,742
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.40
</TABLE>
