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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to ________.
COMMISSION FILE NUMBER: 1-5740
DIODES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 95-2039518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3050 EAST HILLCREST DRIVE
WESTLAKE VILLAGE, CALIFORNIA 91362
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 446-4800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, PAR VALUE $0.66 2/3 AMERICAN STOCK EXCHANGE
(Title of each class) (Name of each exchange
on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the 2,723,919 shares of Common Stock held by
non-affiliates of the registrant, based on the closing price of the Common
Stock on the American Stock Exchange on March 22, 1996 of $9.00 per share, was
approximately $24,515,271.
The number of shares of the registrant's Common Stock outstanding as of March
22, 1996, was 5,675,794 including 717,115 shares of treasury stock.
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DIODES INCORPORATED
TABLE OF CONTENTS
<TABLE>
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Page
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PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . 11
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . 11
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . 19
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . 19
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . 28
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . 30
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . 31
Cautionary Statement for Purposes of the "Safe Harbor" Provision of the Private Securities Litigation
Reform Act of 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
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PART I
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
Diodes Incorporated (the "Company") was formed in 1959 under
the laws of Delaware. The Company is a supplier of discrete semiconductors.
In addition to the Company's corporate headquarters and marketing facility in
Westlake Village, California, the Company's wholly-owned subsidiary, Diodes
Incorporated Taiwan Company, Ltd. ("Diodes-Taiwan"), maintains an engineering,
manufacturing, purchasing, and sales facility in Taipei, Taiwan.
The Company, following a restructuring in 1990, has grown
rapidly as a supplier of discrete semiconductors. In 1990, the Company
installed new management and raised additional capital from the private sale of
1,000,000 shares of the Company's Common Stock to Silitek Corporation
("Silitek"), a Taiwanese company engaged in the manufacture and sale of
electronic components and equipment, including semiconductor rectifiers.
Silitek also acquired 945,800 shares of Common Stock from Microsemi Corporation
in 1990. Following such purchase of the Company's Common Stock, Silitek owned
46% of the total outstanding shares of Common Stock of the Company. Silitek
transferred such Common Stock ownership interest in 1991 to Lite-On Power
Semiconductor Corporation ("LPSC"), a wholly-owned, Taiwanese subsidiary of
Silitek. LPSC continues to be a major shareholder of the Company, owning
1,995,093 shares of the Company's Common Stock, or 40.2% of the total shares
outstanding of the Company's Common Stock as of December 31, 1995.
In 1992, the Company signed a marketing agreement with
Intermetall, Halbleiterwerk der Deutsche, ITT Industries GmbH ("ITT") of
Freiburg, Germany, to distribute ITT's complete line of discrete semiconductors
in North America, including Canada and Mexico. Under this agreement, except
for ITT's direct distributors and one value-added reseller, the Company is the
exclusive marketing channel for these products in North America. During the
business association with ITT, and after aggressive sales efforts, the Company
achieved its first $5 million quarter of net sales, in the fourth quarter of
1992.
In 1993, in order to accommodate a growing product demand and
further emphasis on customer service and product quality, the Company relocated
to its current headquarters in Westlake Village, California, a suburb of Los
Angeles. In addition to office space, the building includes a large warehouse
and an on-site testing facility. Also in May 1993, the Company sold 384,616
shares of previously unissued securities of the Company in a private placement
to LPSC for a total sales price of $400,000. The shares were transferred on
May 4, 1993 after receipt of the requisite approvals. As a result of such
sale, LPSC acquired 214,987 shares of Common Stock and 169,629 shares of the
Company's Class A Preferred Stock ("Preferred Stock"). The Preferred Stock has
voting rights and are convertible into Common Stock on a one share for one
share basis on or after May 4, 1994. LPSC converted the Preferred Stock in
July 1995.
The net proceeds to the Company from this private placement
transaction has been used to fund a joint venture with LPSC to set up and
operate a new semiconductor rectifier manufacturing facility in mainland China,
through a corporation organized under the laws of Shanghai, China, Shanghai
Seefull Electronics, Ltd. ("Seefull"). The Company and LPSC each owned 50% of
the outstanding Common Stock of Seefull, for an equity investment of $400,000
each.
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In 1994, based upon mutual agreement between the Company and
LPSC, it was determined to be in the best interest of both parties, for LPSC to
continue the expansion plans of the Seefull operations with 100% funding by
LPSC, thereby availing the Company's capital for additional investment
opportunities. As a result, effective July 1, 1994, a "Stock Purchase and
Termination of Joint Shareholder Agreement" was entered into, whereby the
Seefull joint venture was terminated and the Company's original $400,000
investment was returned in cash to the Company.
The Company's success in business development, which has led
to a substantial increase in net sales generated in 1995, can be attributed
primarily to the Company's continued efforts to improve the level of sales and
customer support by restructuring its sales force, focusing on a more
pro-active selling philosophy, and improving the level of communication,
cooperation, planning and control within the Company.
The growth in net sales in 1995 was aided by a healthy market
for the Company's products and by an aggressive marketing program in which the
Company has sought to emphasize quality, reliability, and customer service.
The Company has also benefited from a growing reputation as a supplier that can
be relied upon to deliver quality products to specification, and in a timely
fashion.
In November 1995, the Company obtained a new $14 million
credit facility -- consisting of a $4 million term loan, to be used in
financing additional sourcing agreements; and a $10 million line of credit, to
be used in expanding the Company's inventory, and to provide additional working
capital. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" for a
description of the Company's credit facility.
With the new management installed and the additional capital
received from the private sale of 1,000,000 shares of Common Stock to Silitek
in 1990, combined with the increased available line of credit, increased sales
force, the ITT marketing agreement, and three additional regional offices in
the United States, net sales have grown from $14.7 million in 1991 to $58.2
million in 1995. Net income has also increased substantially from $264,000 in
1991, to $4.7 million in the fiscal year ended December 31, 1995.
A recent report from the Semiconductor Industry Association
that book-to-bill ratios (the dollar value of new orders scheduled versus the
dollar value of orders shipped) throughout the industry fell in early 1996,
reaching a 5 year low in February, indicates a softening of the market. The
Company has experienced a similar softening in its book-to-bill ratio in the
past few months and although the Company's book-to-bill ratio seems to be
recovering slightly, there can be no assurance that the Company's historical
book-to-bill ratio will be indicative of future performance.
The Company is engaged in an ongoing marketing program to
develop strategic alliances with manufacturers under terms that will provide
the Company access to the products its customers need.
Three alliances, in particular, are part of this marketing
effort:
1. A sourcing agreement (June 1995) with Shanghai Kai Hong Electronics Co.,
Ltd. ("Kai Hong") that will give the Company additional SOT-23 capacity. The
Company will provide Kai Hong with $2 million in assistance toward the
construction of a new facility for the manufacture of SOT-23s. The total cost
of plant and equipment is estimated at $4 million. On March 18, 1996 this
sourcing agreement was changed to a joint venture, providing the opportunity to
substantially increase the capacity and capital in several phases. See "Item
1. Business -- New Developments." The
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Company will have a 70% controlling interest, and will be responsible for
production and management. The Company's involvement will assure it a new
source of surface-mount products for which there currently is an increasing
demand and that currently are in short supply world-wide. See Note 4 of "Notes
to Consolidated Financial Statements."
2. A marketing agreement with LPSC that will provide customers with access to
additional high-quality components, further strengthening the Company's
relationship with LPSC. The Company is now the exclusive reseller (with the
exception of a few house accounts) for LPSC in North America.
3. A recently-announced agreement with FabTech, Inc. (FabTech), a subsidiary
of LPSC, whereby the Company will gain a new supply of processed wafers used in
the manufacture of various types of discrete semiconductors. See "Item 1.
Business -- New Developments".
These alliances are part of the Company's long-term strategic
plan to expand its product line while maintaining profitability.
Also in 1995, the Company announced that one of its major
suppliers, ITT, had reached a preliminary agreement regarding the sale of ITT's
semiconductor operation ("ITT Semiconductors"). Although the sale was not
consummated, and ITT Semiconductors remains for sale, the Company believes that
such a transaction should not involve significant changes and that customer
commitments will continue to be honored.
BUSINESS OF COMPANY
The Company is engaged in the manufacture, sale, and
distribution of discrete semiconductors, providing product to a broad customer
base in electronic related industries, such as manufacturers of automotive,
computer and telecommunication products. For the fiscal years ended December
31, 1995, 1994, and 1993, the sale of such products represented 100 percent of
the Company's net sales. The Company intends to continue this practice.
Semiconductors come in two basic configurations: discretes
and integrated circuits. Discretes are fixed-function components such as
diodes, small-signal transistors, and bridge rectifiers. Far more complex in
terms of function are integrated circuits. These integrated circuits are
multi-function devices of the sort found in computer memory boards and central
processing units.
Integrated circuits, characterized by rapid changes in both
production and application, and the desire to put ever-more intelligence into
ever-smaller packages, have required the development of manufacturing
techniques that are sophisticated and expensive.
In contrast, there is little that is proprietary about the
manufacturing of discrete components. Here technologies are neither new nor
rapidly evolving. Success, therefore, is highly dependent upon the ability to
produce large numbers of inexpensive components of consistent high quality, and
with low overhead.
Discretes, which effectively tie integrated circuits to their
surrounding environments and enable them to work, come in hundreds of
permutations and vary according to voltage, current, power handling capability,
and switching speed.
In a standard industry classification, those discrete
semiconductors operating at less than 1 watt are referred to as low-power
semiconductors, while those operating at greater
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than 1 watt are termed power semiconductors. Both types of semiconductors are
found in a wide assortment of commercial instrumentation and communication
equipment, in consumer products like televisions and telephones, and in
automotive, computer and industrial electronic products.
During the fiscal year ended December 31, 1995, the Company
sold its products to approximately 400 direct customers, and to distributors
who sell to approximately 4,200 additional indirect customers.
All of the products and materials used by the Company in its
operations are available both domestically and at the offshore locations where
some of the manufacturing is performed at Diodes-Taiwan. During most of 1995,
both the Company and its industry experienced unprecedented demand for discrete
semiconductor products. This demand for discrete semiconductor products has
largely been fueled by corresponding demands in the personal computer and
telecommunication industries, and there can be no assurance this demand will
continue. In general, the Company maintains sufficient inventories of standard
products to permit rapid delivery of customers' orders where required, and
continuously coordinates with vendors to support future product demand. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
All of the Company's inventory is composed of discrete
semiconductors which are standardized in electronic related industries.
Finished goods inventory turns over approximately four times annually. The
Company has no special inventory or working capital requirements that are not
in the ordinary course of business. Unless arrangements are otherwise
specially made, invoices to customers are payable net 30 days. Company policy
is to hold shipments to customers who are more than 60 days in arrears.
BACKLOG
The amount of backlog to be shipped during any period is
dependent upon various factors and all orders are subject to cancellation or
modification, usually without penalty to the customer. Accordingly, the amount
of backlog at any date is not necessarily indicative of actual shipments.
Backlog of orders scheduled to ship within six months were approximately $12.0
million on December 31, 1995, compared to approximately $8.8 million on
December 31, 1994, and $6.5 million on December 31, 1993. Historically, the
Company has booked and shipped greater than two times its scheduled backlog,
but given the implications of a recent report from the Semiconductor Industry
Association that book-to-bill ratios throughout the industry fell in January,
there can be no assurance that the Company's book-to-bill ratio will continue
its historical trend.
NEW DEVELOPMENTS
In February 1996, the Company announced an agreement with
FabTech, Inc. whereby Diodes will gain a new supply of processed wafers used in
the manufacture of several types of discrete semiconductors. The Company will
provide FabTech with approximately $2.5 million in working capital to be used
in upgrading, reconfiguring, and starting up operations at an existing wafer
fabrication facility located in the AT&T building in Lee's Summit, Missouri.
FabTech is a newly-created subsidiary of LPSC.
The Company expects to begin receiving wafers from FabTech by
the third quarter of 1996. Given current levels of pricing and demand, it is
anticipated that FabTech production will contribute substantially to Diodes'
net sales in 1997, with further increases in subsequent years.
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Output from the facility will include wafers used in the production of Schottky
barrier diodes, fast recovery epitaxial diodes (FREDs), and other widely used
value-added products. Schottky barrier diodes, currently in short supply
world-wide, are employed in the manufacture of the power supplies found in
personal computers, telecommunications devices and myriad other applications
where high frequency, low forward voltage and fast recovery are required.
In March 1996, the Company entered into the Kai Hong joint
venture for the development of additional manufacturing capacity in Shanghai.
The joint venture, originally signed as a compensation trade agreement in June
1995, allows for the manufacturing and sales of diodes and associated
electronic components. The Company will have a 70% controlling interest, will
be responsible for production and management, and will receive 100% of the
production, mainly in SOT-23 packaged components. The venture parties have
agreed to make significant equity contribution to the joint venture and
anticipate that a portion of the cost of developing the project will be debt
financed. The capital contribution will be made in several phases over 3
years. The project will be implemented in phases according to market demand.
These alliances, among others, assist the Company in its
long-term strategic plan to enhance its ability to acquire -- in a timely
fashion and at reasonable cost -- the products that its customers need, while
maintaining profitability.
MARKETING AND SALES
The discrete semiconductor components market is served by
numerous semiconductor manufacturers and distributors. Some of the larger
companies include Motorola, National Semiconductor, International Rectifier,
and General Instruments, many of whom have greater financial, marketing, brand
name and other resources than the Company. Over the years, there has been a
decrease in the number of companies emphasizing discrete components as their
primary marketing effort. With fewer service-oriented sources of discrete
components available to original equipment manufacturers ("OEMs"), the Company
has been able to make gains in market share.
The Company sells both through manufacturers' representatives
and through distributors. The Company's in-house sales team, aided by the
sales force of approximately 30 independent manufacturers' sales
representatives located throughout the United States, supplies more than 200
OEM accounts. The Company's products include catalog items and units designed
to specific customer requirements. The Company further supplies approximately
40 stocking distributors, who collectively reach over 4,200 customers on the
Company's behalf. At December 31, 1995, OEM customers accounted for
approximately 60% of the Company's net sales. Customers ranged from Fortune
500 companies to small, privately-held OEMs.
Through continuous sales and customer service efforts, the
Company further developed significant business relationships with companies who
are considered leaders in their respective market segments, such as automotive,
telecommunications, personal computers, computer peripherals and industrial.
The Company's marketing efforts have also benefited from an ongoing program to
develop strategic alliances with manufacturers, such as FabTech and Kai Hong,
under terms that will provide the Company access to the products its customers
need.
The Company's products are sold in the United States, Canada,
Mexico, the Pacific Rim and Europe, both directly to end users and through
electronic component distributors. During the past four years, the Company has
pursued an aggressive program to improve product quality and customer service
in order to support more broad-based, strategic accounts.
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Through Diodes-Taiwan, the Company employs a general manager
who acts as the Pacific Rim purchasing liaison with respect to product
procurement from other vendors located in the Far East. Diodes-Taiwan also
manufactures product for sale to the Company as well as for other customers.
In addition, Diodes-Taiwan generates sales in Taiwan and other Asian countries.
See Note 13 of "Notes to Consolidated Financial Statements."
COMPETITION
Competition in the semiconductor marketplace, in which the
Company competes, is intense. Competitiveness in sales of the Company's
products is determined by the price and quality of the product and the ability
of the Company to provide delivery in keeping with the customers' needs. The
Company believes itself to be well equipped to be competitive in respect to
these requirements. Although technology in the semiconductor industry is ever
changing, the products sold by the Company are mature products. Because of
this, the Company is not expecting to experience much further technological
change within its current product line, nor does it believe its products will
become obsolete in the foreseeable future. See "Cautionary Statement for
Purposes of the 'Safe Harbor' Provision of the Private Securities Litigation
Reform Act of 1995."
MANUFACTURING AND SIGNIFICANT VENDORS
All of the materials used by the Company in its operations are
available both domestically and at the off-shore locations where manufacturing
is performed. The two largest suppliers of products to the Company are LPSC,
an affiliate of the Company based in Taiwan, and ITT, based in Freiburg,
Germany. During the year ended December 31, 1995, approximately 50% of
purchases were from these two vendors. See Notes 11 and 12 of "Notes to
Consolidated Financial Statements," included herein, for a description of the
major vendors and the relationship between LPSC and the Company. 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 short-term, materially adverse effect on the Company.
DEPENDENCE ON INDIVIDUAL CUSTOMERS
The Company is not dependent on any one major customer to
support its level of net sales. For the fiscal year ended December 31, 1995,
there was not one customer that accounted for more than 6% of the Company's net
sales. The twenty largest customers of the Company accounted, in total, for
approximately 46% of the Company's net sales during such period.
PATENTS
The Company holds one patent but believes this to be of no
material value to the Company's business as a whole.
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GOVERNMENTAL REGULATION
The Company is aware of no facts indicating the need for
governmental approval of any of its principal products or services. The
Company also does not believe itself to be affected substantially by any
existing or probable governmental regulations on its business. See "Item 1.
Business -- Financial Information About Foreign and Domestic Operations and
Export Sales."
RESEARCH AND DEVELOPMENT
All research and development expenses relating to products
supplied by vendors to the Company during the last two fiscal years have been
borne by such vendors.
ENVIRONMENTAL REGULATIONS
Compliance with laws and regulations relating to protection of
the environment has not had, nor is it expected to have, a material adverse
affect on the Company.
EMPLOYEES
As of December 31, 1995, the Company employed a total of 51
full-time employees in the United States: 13 in sales, 21 in customer support,
and 17 in operations and administration. Diodes-Taiwan employed an additional
61 employees in its Taiwan office: 43 in manufacturing, 3 in sales, and 15 in
purchasing, quality control, and administration. None of the Company's
employees is subject to a collective bargaining agreement. The Company
considers its relations with its employees to be good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
With respect to foreign operations see Notes 1, 12 and 13 of
"Notes to Consolidated Financial Statements".
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 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.
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ITEM 2. PROPERTIES
The Company's primary physical properties during the year
ended December 31, 1995, were as follows:
1. Industrial building located at 3050 East Hillcrest Drive, Westlake
Village, California 91362. This building, consisting of 30,800 square
feet, is the Company's corporate headquarters and product distribution
center. The Company is primary lessee under a lease that will expire
December 14, 1998. The Company has two five-year options to extend
the term of the lease.
2. Industrial premises consisting of approximately 9,000 square feet
and located at 5Fl. 501-16 Chung-Cheng Road, Hsin-Tien City, Taipei,
Taiwan, Republic of China. These premises, owned by Diodes-Taiwan, are
used as a manufacturing facility. The facility is subject to a
mortgage held by Chang-Hwa Commercial Bank, which matures on November
11, 2003, and is secured by land and buildings.
3. Industrial premises consisting of approximately 7,000 square feet
and located at 2Fl. 501-15 Chung-Cheng Road, Hsin-Tien City, Taipei,
Taiwan, Republic of China. These premises, owned by Diodes-Taiwan are
used as sales and administrative offices. The facility is subject to a
mortgage held by Chang-Hwa Commercial Bank, which matures on February
27, 2003, and is secured by land and buildings.
4. Regional sales office located at 400 West Maple, Suite 300,
Birmingham, Michigan 48009. These premises are leased at less than
$1,000 per month.
5. Regional sales office located at 39 Carrington Street, Lincoln,
Rhode Island 02865. These premises are leased at less than $1,000 per
month.
6. Regional sales office located at 923-D Merchants Walk NW,
Huntsville, Alabama 35801. These premises are leased at less than
$1,000 per month.
7. Industrial building located at Xinqiao Town, Song Jian County,
Shanghai, Peoples Republic of China. This building, consisting of
approximately 20,000 square feet, is the corporate headquarters and
product distribution and manufacturing facility for the newly formed
Kai Hong joint venture. The building is owned by the joint venture
company.
The Company believes its current facilities are adequate for
the foreseeable future. See Note 14 of "Notes to Consolidated Financial
Statements."
ITEM 3. LEGAL PROCEEDINGS
The Company is, from time to time, involved in litigation
incidental to the conduct of its business. The Company does not believe that
any currently pending litigation, to which it is a party, will have a material
adverse affect on its financial condition or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders by the
Company during the last three months of the year ending December 31, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is listed and traded on the
American Stock Exchange ("AMEX") (Symbol "DIO"). The following Table 1 shows
the range of high and low sales prices per share for the Company's Common Stock
for each fiscal quarter from March 31, 1994 as reported by AMEX.
TABLE 1
<TABLE>
<CAPTION>
CALENDAR QUARTER SALE PRICE OF
ENDED COMMON STOCK
---------------- -------------------------
HIGH LOW
------- -------
<S> <C> <C>
March 31, 1994 . . . . . . . $ 9 7/8 $ 4 7/8
June 30, 1994 . . . . . . . . 9 7/8 6 5/8
September 30, 1994 . . . . . 8 3/8 4 3/8
December 31, 1994 . . . . . . 7 3/8 4 3/4
March 31, 1995 . . . . . . . $ 7 1/4 $ 4 7/8
June 30, 1995 . . . . . . . . 11 7/8 5
September 30, 1995 . . . . . 19 5/8 11 7/8
December 31, 1995 . . . . . . 15 3/4 10 1/2
</TABLE>
On March 22, 1996, the closing sale price of the Company's
Common Stock on AMEX was $9.00. Shareholders are urged to obtain current
market quotations for the Common Stock. As of March 22, 1995, there were 1,150
stockholders of record of the Company's Common Stock.
No dividends have been declared during the past three years
and the Company does not expect to declare dividends in the foreseeable future.
The payment of dividends is within the discretion of the Company's Board of
Directors, and will depend upon, among other things, the Company's earnings,
financial condition and capital requirements and general business conditions.
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ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the fiscal years ended December
31, 1995, 1994, 1993, 1992 and 1991 is set forth in Table 2 and is qualified in
its entirety by, and should be read in conjunction with, the other information
and financial statements appearing elsewhere herein (in 000's except per share
data).
TABLE 2
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $58,190 $38,275 $26,403 $18,430 $14,700
Gross profit 16,463 10,697 7,143 5,005 4,415
Income from operations 6,941 3,134 1,219 392 365
Interest expense, net 144 6 75 55 43
Provision (benefit) for income taxes (1) 2,610 1,202 (363) 170 94
Net income 4,700 2,363 1,587 405 265
Earnings per share (2) $0.90 $0.46 $0.34 $0.09 $0.06
Common and common equivalent shares
outstanding 5,221 5,137 4,724 4,300 4,294
Total assets $29,363 $17,545 $13,727 $10,304 $8,628
Stockholders' equity 16,499 10,770 7,996 6,010 5,605
Working capital 13,263 9,411 6,606 5,354 4,749
</TABLE>
(1) See Note 9 of "Notes to Consolidated Financial Statements"
included herein.
(2) See Note 1 of "Notes to Consolidated Financial Statements"
included herein.
No cash dividends were paid during the years 1991-1995.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's 52.0% increase in net sales in 1995 was
primarily attributed to a healthy market for the discrete semiconductors and an
aggressive marketing program in which the Company has sought to emphasize
quality, reliability, and customer services, as well as the maturation and
further cultivation of existing relationships with major users of discrete
components. The Company's gross profit margin increased, primarily due to a
rise in demand for the Company's products, while selling, general and
administrative expenses decreased as a percentage of net sales due to improved
cost controls, resulting in an approximately 121.5% increase in income from
operations. Interest expense increased $138,000 as the Company used
approximately $3.9 million of a new $14 million credit facility -- consisting
of a $4 million term loan, to be used in financing additional sourcing
agreements; and a $10 million line of credit, to be used in expanding the
Company's inventory and to provide additional working capital. Net income and
earnings per share in 1995 increased approximately 99.0% and 95.7%,
respectively. The weighted average shares outstanding increased approximately
1.6% due to stock options exercised and a higher stock price throughout most of
1995.
RESULTS OF OPERATIONS
The following Table 3 sets forth, for the periods indicated,
the percentage which certain items in the statement of income bear to net sales
and the percentage dollar increase (decrease) of such items from period to
period.
TABLE 3
<TABLE>
<CAPTION>
PERCENT OF NET SALES
---------------------------------------------
YEAR ENDED DECEMBER 31, PERCENTAGE DOLLAR INCREASE (DECREASE)
--------------------------------------------- ----------------------------------------------
1995 1994 1993 1992 1991 '94 TO '95 '93 TO '94 '92 TO '93 '91 TO '92
----- ----- ----- ----- ----- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 52.0 % 45.0 % 43.3 % 25.4 %
Cost of goods
sold (71.7) (72.1) (72.9) (72.8) (70.0) 51.3 43.2 43.5 30.5
----- ----- ----- ----- ----- ----- ----- ------ ------
Gross profit 28.3 27.9 27.1 27.2 30.0 53.9 49.8 42.7 13.4
Operating
expenses (16.4) (19.8) (22.4) (25.0) (27.6) 25.9 27.7 28.4 13.9
----- ----- ----- ----- ----- ----- ----- ------ ------
Income from
operations 11.9 8.2 4.6 2.1 2.5 121.5 157.1 211.0 7.4
Interest
expense, net (0.2) (0.0) (0.3) (0.3) (0.3) 2,300.0 (92.0) 36.4 27.9
Other income
(expense) 0.9 1.1 0.3 0.8 (0.2) 17.6 446.3 (47.0) (659.3)
----- ----- ----- ----- ----- ----- ----- ------ ------
Income before
taxes 12.6 9.3 4.6 2.6 2.0 105.1 191.3 150.8 65.4
Income taxes
(benefit) 4.5 3.1 (1.4) 0.5 0.2 117.1 (431.1) (537.3) 176.7
----- ----- ----- ----- ----- ----- ----- ------ ------
Net income 8.1 6.2 6.0 2.2 1.8 99.0 48.9 291.9 52.8
===== ===== ===== ===== ===== ===== ===== ====== ======
</TABLE>
13
<PAGE> 14
The following discussion explains in greater detail the
consolidated financial condition of the Company. This discussion should be
read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere in this Annual Report.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net Sales $ 58,190,000 $ 38,275,000 $ 26,403,000
</TABLE>
The Company's fiscal 1995 comparative increase in net sales of
approximately $19.9 million, or 52.0%, was the result of a healthy market for
the discrete semiconductors, an aggressive marketing program in which the
Company sought to emphasize quality, reliability, and customer service, and the
maturation and further cultivation of existing relationships with major users
of discrete components.
A recent report from the Semiconductor Industry Association
that book-to-bill ratios (the dollar value of new orders scheduled versus the
dollar value of orders shipped) throughout the industry fell in early 1996,
reaching a 5 year low in February, there can be no assurance that the growth in
the Company's net sales in 1996 will match that of 1995. See "Item 1.
Business -- Business Development." In the fourth quarter of 1995, the Company
experienced a slowing of orders, primarily due to a slow down in the personal
computer and related industries, and although the Company's book-to-bill ratio
seems to be recovering, there can be no assurance that past performance will be
indicative of future performance.
The Company believes that the slowdown is primarily due to
continued inventory pressures and may remain soft for the next few months as
computer and related industries, among others, work off their inventories.
Although the Company has to date, observed a decline in its net sales in the
first quarter of 1996 as compared to the first quarter of 1995, the Company is
optimistic that the slowdown is only temporary. Industry estimates indicate
that, although the 1996 growth rates will not match those of 1995, the industry
will experience moderate growth in sales and profits. The Company's goal is to
equal or exceed the industry's average performance.
The Company's fiscal 1994 comparative increase in net sales of
approximately $11.9 million, or 45.0%, was a result of $4.3 million in net
sales from 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. See "Item 1. Business -- Business Development."
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Gross Profit $16,463,000 $10,697,000 $7,143,000
Gross Margin Percentage 28.3% 27.9% 27.1%
</TABLE>
The Company's gross profit in fiscal 1995 increased
approximately $5.8 million or 53.9%, primarily due to the 52.0% increase in net
sales. The gross margin percentage was comparable to that of 1994, increasing
0.4 percentage points.
The Company's gross profit in fiscal 1994 increased
approximately $3.6 million or 49.8%, primarily due to the 45.0% increase in net
sales. The gross margin percentage increased 0.8 percentage points, resulting
from increased product demand and improvements in service to its customers.
14
<PAGE> 15
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Selling, General and Administrative
Expenses ("SG&A") $ 9,522,000 $ 7,563,000 $ 5,924,000
</TABLE>
The Company's SG&A for the fiscal year ended December 31, 1995
increased approximately 25.9%, while net sales increased 52.0%. This
approximately $2.0 million increase was primarily attributable to increased
commissions paid to outside sales representatives and distributors of
approximately $1.0 million, or 66.1%, and an increase in overall wages and
benefits of approximately $544,000, or 18.9%. The total SG&A as a percentage
of net sales decreased from 19.8% in 1994 to 16.4% in 1995, as a result of
improved cost controls.
The Company's SG&A for the fiscal year ended December 31, 1994
increased approximately 27.7%, while net sales increased 45.0%. This $1.6
million increase was primarily attributable to increased commissions paid to
outside sales representatives and distributors of approximately $450,000, an
increase in overall wages and benefits of approximately $560,000 or 22.2%, and
approximately $180,000 in 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 decreased from 22.4% in 1993, to 19.8% in 1994, as
a result of improved cost controls.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income from Operations $ 6,941,000 $ 3,134,000 $ 1,219,000
</TABLE>
The Company's fiscal 1995 comparative increase in operating
profit of approximately $3.8 million, or 121.5%, is primarily the net result of
the Company's increase in net sales and gross profit as well as a 3.4
percentage point decrease in SG&A as a percentage of net sales.
The Company's fiscal 1994 comparative increase in operating
profit of approximately $1.9 million, or 157.1%, is primarily the net result of
the Company's increase in net sales and gross profit as well as a 2.6
percentage point decrease in SG&A as a percentage of net sales.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest Expense $ 190,000 $ 63,000 $ 128,000
Interest Income $ 46,000 $ 57,000 $ 53,000
</TABLE>
The Company's interest expense for 1995 increased $127,000,
primarily as a result of an increase in the Company's usage of its revolving
line of credit to expand the Company's inventory and finance additional
sourcing agreements. See "Item 1. Business -- Business Development." The
Company's interest income for the year ended 1995 remained relatively unchanged
compared to 1994 as the Company maintained adequate working cash.
The Company's interest expense for 1994 decreased $65,000, or
50.8%, primarily as a result of a decline in the Company's usage of its
revolving line of credit to expand the Company's inventory. The Company's
interest income for the year ended 1994 remained relatively unchanged compared
to 1993 as the Company maintained adequate working cash and used excess cash to
completely pay down the line of credit.
15
<PAGE> 16
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Other Income $ 513,000 $ 437,000 $ 80,000
</TABLE>
The Company's other income for 1995 increased approximately
$76,000, or 17.6% compared to other income in 1994. The Company's other income
for 1994 increased $357,000, or 446.3% compared to other income in 1993. These
increases in other income are primarily attributed to commissions increasing
from $279,000 in 1994 to $297,000 in 1995.
In 1993, a joint venture loss of $71,000 represented the
Company's equity portion of Seefull's net loss for 1993 whereby the original
$400,000 investment in joint venture decreased to $329,000 as of December 31,
1993. In 1994, a joint venture gain of $71,000 represented the recovery of the
1993 loss pursuant to the "Stock Purchase and Termination of Joint Shareholder
Agreement", whereby the Seefull joint venture was terminated and the Company's
original $400,000 investment was returned in cash to the Company. See "Item 1.
Business -- Business Development." The commissions income item represents the
commissions earned by the Company's Taiwan subsidiary on drop shipment sales in
Asia. Beginning in 1993, additional commissions were earned by assisting ITT
in servicing various ITT house accounts.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net Income $ 4,700,000 $ 2,363,000 $ 1,587,000
Earnings Per Share $ 0.90 $ 0.46 $ 0.34
</TABLE>
The Company's net income for the year ended December 31, 1995
increased 99.0% or approximately $2.3 million, and earnings per share increased
to $0.90 for the year ended December 31, 1995, compared to $0.46 for 1994.
These increases were primarily due to the 52.0% increase in net sales and the
decrease in SG&A as a percentage of net sales.
The Company's net income for the year ended December 31, 1994
increased 48.9% or approximately $776,000. Earnings per share increased to
$0.46 for the year ended December 31, 1994, compared to $0.34 for 1993 and
$0.09 for 1992. Net income for 1994 includes an aggregate income tax benefit
derived from an adjustment to a valuation allowance on a deferred tax asset of
less than $0.02 per share, compared to $0.18 per share in 1993. The $0.18 per
share tax benefit in 1993 consisted of $0.10 per share related to a valuation
allowance adjustment of deferred tax assets, and an additional $0.08 per share
benefit for net operating loss carryforward and other tax adjustments. Without
the income tax benefits in 1993 and 1994, the 1994 earnings per share would
have increased 175.0% from $0.16 per share to $0.44 per share.
Inflation and changing prices did not have a material effect
on net sales or net income in fiscal years 1995, 1994 or 1993. The uncertainty
of exchange rates, notably the Japanese Yen and German Deutsche Mark, induced
price pressure on some of the products, and the Company is working closely with
its suppliers and customers to maintain reasonable profit margins.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operating activities in 1995 was $4.8 million,
down from cash provided by operating activities of $3.0 million in 1994 and
cash used by operating activities of $880,000 in 1993. The primary use of cash
flows in 1995 was a $9.3 million, or 132.3%, increase in inventories. The
Company believes that this level of inventory is necessary to effectively
service current and new customers as well as provide for managed growth. In
1994, the Company utilized positive cash flow provided by operating activities
to pay down its line of credit to zero. The line of credit was established on
July 1, 1992 and was collateralized by the Company's accounts receivable. The
ratio of the Company's current assets to current liabilities on December 31,
1995, was 2.1 to 1 compared to a ratio of 2.5:1 and 2.2:1 as of December 31,
1994 and 1993, respectively.
Cash used by investing activities was $2.1 million in 1995,
compared to $109,000 in 1994 and $880,000 in 1993. The Company is providing
capital to Kai Hong - for the construction of a new facility for the
manufacture of SOT-23s; and to FabTech (beginning in early 1996) - to be used
in upgrading, reconfiguring, and starting up operations at an existing wafer
fabrication facility. The Company will have a 70% controlling interest in the
Kai Hong joint venture, will be responsible for production and management, and
will receive 100% of the production. The venture parties have agreed to make
significant equity contributions to the joint venture and anticipate that a
portion of the cost of developing the project will be debt financed. The
capital contribution will be made in several phases over 3 years. As of
December 31, 1995, the Company has contributed $1,878,000 to the venture. Both
alliances are indicative of the Company's desire to participate in the sourcing
of advanced-technology discrete components, and to enhance its ability to
procure products in a timely fashion and at reasonable cost. In 1993 the
Company participated in the Seefull joint venture, with the original investment
of $400,000 returned to the Company in 1994.
Cash provided by financing activities was $5.6 million in
1995, compared to a use of $2.0 million in 1994 and $1.2 million in 1993. The
Company increased its credit facility to $14 million: this consists of a $4
million term loan, to be used in financing additional sourcing agreements; and
a $10 million line of credit, to be used in expanding the Company's inventory,
and to provide additional working capital. The Company anticipates it will
continue to utilize such credit facility to support its operations. The
Company believes that the continued availability of this credit facility,
together with internally generated funds, will be sufficient to meet the
Company's currently foreseeable operating cash requirements. The Company's cash
balance at year ended December 31, 1995 decreased approximately $1.3 million
from the 1994 level as the Company will continue to minimize its cash balances
to manage interest expense.
Accounts receivable increased 31.2% on a 52.0% increase in net
sales as the Company has been able to, through refined customer service and
credit review, improve collections on customer receivables. The Company's
inventories have increased 132.3% primarily to support the 52.0% increase in
net sales, and the Company's commitment to provide timely delivery of product
to customers.
The Company's total working capital increased 41.5% to $13.3
million as of December 31, 1995, from $9.4 million as of December 31, 1994,
primarily as a result of the 52.0% increase in net sales and 99.0% increase in
net income in 1995. The Company believes that such strong working capital
position will be sufficient for growth opportunities.
As of December 31, 1995, the Company has no material plans or
commitments for capital expenditures other than disclosed in the Kai Hong and
FabTech agreements filed herein. See "Item 1. Business -- New Developments."
However, 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 and thereby, assist the Company in improving
customer satisfaction and in maintaining or increasing
17
<PAGE> 18
product market penetration. The Company's debt to equity ratio increased to
0.78 at December 31, 1995, from 0.63 at December 31, 1994. The Company
anticipates this ratio may increase as the Company continues to use its credit
facilities to fund additional sourcing opportunities.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K" for the Company's Consolidated Financial Statements filed
as part of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following Table 4 sets forth information as to the names,
ages, positions and offices held with the Company, or principal occupations
during the past five years, and, where applicable, the terms of office as
directors of all the Company's directors and executive officers. The term of
office of each director expires with the annual meeting of shareholders or when
a successor is elected and qualified.
TABLE 4
<TABLE>
<CAPTION>
DIRECTOR
OFFICERS AND DIRECTORS AGE POSITION WITH THE COMPANY SINCE (1)
- ----------------------- --- ------------------------- ---------
<S> <C> <C> <C>
Raymond Soong (2) . . . . . . . . 54 Chairman of the Board 1993
David Lin (3) . . . . . . . . . . 49 President and Chief Executive Officer; 1991
Director
Michael R. Giordano (4) . . . . . 49 Director 1990
M.K. Lu (5) . . . . . . . . . . . 48 Director 1995
Shing Mao (6) . . . . . . . . . . 60 Director 1990
Michael A. Rosenberg (7) . . . . 67 Director 1989
Leonard M. Silverman (8) . . . . 56 Director 1995
Pedro Morillas (9) . . . . . . . 50 Executive Vice President N/A
Joseph Liu (10) . . . . . . . . . 54 Vice President-Operations, Chief N/A
Financial Officer and Secretary
</TABLE>
(footnotes continued on following page)
19
<PAGE> 20
(footnotes continued from previous page)
(1) Directors are elected at each annual meeting of shareholders.
(2) Mr. Soong has been the Chairman of the Board of Silitek since 1990 and
has been Chairman of the Board of LPSC since 1992. See "Item 12.
Security Ownership of Certain Beneficial Owners and Management" and
"Item 13. Certain Relationships and Related Transactions" for a
discussion of the relationship between Silitek, LPSC and the Company.
Since 1995, Mr. Soong has also been a director of FabTech, with whom
the Company entered into an agreement with in February 1996, whereby
Diodes will gain a new supply of processed wafers used in the
manufacture of several types of discrete semiconductors. FabTech is a
newly-created subsidiary of LPSC. Mr. Soong is a graduate of the
National Taipei Institute of Technology's Electronic Engineering
Department. After serving as a senior engineer for RCA and as a chief
engineer for Texas Instruments, Mr. Soong, together with several of
his coworkers, founded Taiwan Liton Electronic Co. Ltd., a Taiwan
corporation ("Taiwan Liton"), in 1975. Taiwan Liton, which
manufactures electronic components and subsystems, is an affiliate of
Silitek through common control, and its stock is listed on the Taipei
Stock Exchange. Mr. Soong is also Chairman of the Board of Taiwan
Liton, and the newly formed Kai Hong joint venture.
(3) Since 1991, Mr. Lin has served as a director of the Company. Mr. Lin
has served as President and Chief Executive Officer of the Company
since March 1993. Mr. Lin is also President of Silitek and had served
as Executive Vice President of Silitek since 1990, prior to becoming
President. See "Item 12. Security Ownership of Certain Beneficial
Owners and Management" and "Item 13. Certain Relationships and Related
Transactions" for a discussion of the relationship between Silitek,
LPSC and the Company. Mr. Lin was previously President of Texas
Instruments Asia, Limited, in Taiwan from 1982 to 1990. Mr. Lin has
been a director of LPSC since 1991 and a director of Maxi Switch, Inc.,
since 1990. Mr. Lin is also a director of the newly formed Kai Hong
joint venture.
(4) Mr. Giordano joined the investment banking firm of PaineWebber
Incorporated as a Senior Vice President-Investments, when PaineWebber
acquired his previous firm, Kidder Peabody and Company, Inc. Mr.
Giordano advises corporations, foundations, trusts, and municipal
governments in investments and finance. Mr. Giordano was with Kidder
Peabody since 1979. Formerly a captain and pilot in the USAF, Mr.
Giordano received his Bachelors of Science degree in Aerospace
Engineering from California State Polytechnic University and his
Masters degree in Business Administration (Management and Finance) from
the University of Utah. Mr. Giordano also did post graduate work in
International Investments at Babson College.
(5) Since 1991, Mr. Lu has been President and a director of LPSC. From
1983 to 1990, Mr. Lu was General Manager/Vice President of Silitek.
See "Item 12. Security Ownership of Certain Beneficial Owners and
Management" and "Item 13. Certain Relationships and Related
Transactions" for a discussion of the relationship between Silitek,
LPSC and the Company. Since 1995, Mr. Lu has also been a director of
FabTech. Mr. Lu earned his Bachelor of E.E. at Tatung Institute of
Technology and is a graduate of the Institute of Administration at
National Chengchi University. Mr. Lu is also a present member of the
Chinese Management Association and the Chinese Association for
Advancement of Management. Mr. Lu is also a director of the newly
formed Kai Hong joint venture.
(footnotes continued on following page)
20
<PAGE> 21
(footnotes continued from previous page)
(6) From 1988 to present, Dr. Mao has been Chairman of the Board of
Lite-On, Inc., a California corporation located in Milpitas, California
("Lite-On Milpitas"), a wholly owned subsidiary of Taiwan Liton. See
"Item 12. Security Ownership of Certain Beneficial Owners and
Management" and "Item 13. Certain Relationships and Related
Transactions" for a discussion of the relationship between Silitek,
LPSC and the Company. Dr. Mao has been a director of Dyna Investment
Co., Ltd. of Taiwan, a venture capital company, and a director of LPSC,
both since 1989. Since 1995, Dr. Mao has also been a director of
FabTech. Before joining Lite-On, Dr. Mao served in a variety of
management positions with Raytheom Company for four years, with Texas
Instruments for 11 years, and with UTL Corporation (later acquired by
Boeing Aircraft Company) for seven years. Dr. Mao earned his Ph.D.
degree in electrical engineering at Stanford University in 1963.
(7) From 1992 to present, Mr. Rosenberg serves as an independent consultant
to Vishay Company, a Fortune 500 Company. Vishay is a major
international passive component manufacturer with 50 operating plants
located in 11 countries. Until 1991, Mr. Rosenberg was President,
Principal Operating Officer a director of SFE Technologies. Prior to
that, Mr. Rosenberg served since 1970 as Vice President Technology.
SFE Technologies, with principal offices in San Fernando, California,
was a manufacturer of electronic components.
(8) From 1984 to present, Dr. Leonard Silverman has been the Dean of
Engineering at the University of Southern California ("USC"), and has
been employed by USC since 1968. Dr. Silverman is internationally
known for his pioneering work in the theory and application of
multi-variable control systems and signal processing and has more than
100 publications to his credit. Dr. Silverman has been honored as a
Fellow of the IEEE, as a Distinguished Member of the IEEE Control
Society, and has received a Centennial Medal of the IEEE. He has also
received election to the National Academy of Engineering, one of the
highest honors that can be bestowed on an engineer. Dean Silverman
also serves on the Board of Directors for Advanced Micro Devices, as
well as for the Colachis Foundation, the Lord Foundation, and the M.C.
Gill Foundation. Dr. Silverman earned his A.B., B.S., M.S. and Ph.D.
degrees in electrical engineering at Columbia University during the
period 1961 through 1966.
(9) Mr. Morillas joined the Company in 1993. Prior to becoming Executive
Vice President of the Company, Mr. Morillas was associated with
National Semiconductor for over 10 years, most recently as Vice
President, Asia Marketing, in Hong Kong for four years. Mr. Morillas is
a director of the newly formed Kai Hong joint venture.
(10) Mr. Liu has served as Vice President, Operations of the Company since
1994 and Chief Financial Officer and Secretary since 1990. Mr. Liu has
been the Company's Vice President, Administration from 1990 to 1994.
Prior to joining the Company, Mr. Liu held various management
positions with Texas Instruments ("TI"), Dallas, since 1971, including
Planning Manager, Financial Planning Manager, Treasury Manager, Cost
Accounting Manager and General Accounting Manager with TI Taiwan, Ltd.
in Taipei; from 1981-1986 as Controller with TI Asia in Singapore and
Hong Kong; from 1986-1989 as Financial Planning Manager, TI Latin
America Division (for TI Argentina, TI Brazil, and TI Mexico) in Dallas
and from 1989-1990 Chief Coordinator of Strategic Business Systems for
TI Asia Pacific Division in Dallas. Mr. Liu is a director of the newly
formed Kai Hong joint venture.
21
<PAGE> 22
There are no family relationships among any of the directors
or executive officers of the Company and, except as set forth above, as of the
date hereof, no directorships are held by any director in a company which has a
class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1943, as amended (the "Exchange Act"), or subject to the
requirements of Section 15(d) of the Exchange Act, or any company registered as
an investment company under the Investment Company Act of 1940. None of the
directors, nominees for director, or executive officers were selected pursuant
to any arrangement or understanding, other than with the directors and
executive officers of the Company acting within their capacity as such.
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16(a)
Under Section 16(a) of the Exchange Act, the Company's
directors, executive officers and any persons holding ten percent or more of
the Common Stock are required to report their ownership of Company stock and
any changes in that ownership to the Securities and Exchange Commission (the
"SEC") and to furnish the Company with copies of such reports. Specific due
dates for these reports have been established and the Company is required to
report any failure to file on a timely basis by such persons. Based solely
upon a review of copies of reports filed with the SEC during the fiscal year
ended December 31, 1995, all reporting persons filed reports on a timely basis.
22
<PAGE> 23
ITEM 11. EXECUTIVE COMPENSATION
The following Table 5 sets forth certain summary information
concerning compensation paid or accrued by the Company with respect to the
Company's Chief Executive Officer (who has served in such capacity at any time
during the last fiscal year) and each of the two other executive officers of
the Company (determined as of the end of the last fiscal year) (the "Named
Executives") for each of the fiscal years ended December 31, 1995, 1994 and
1993:
TABLE 5
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
------------------------------------ ------------------------ ----------
Other Securities All
Name and Annual Restricted Underlying Other
Principal Compen- Stock Option LTIP Compen-
Position Year Salary($) Bonus($) sation($) Awards($) SARs(#) Payouts($) sation($)
- --------------- ----- --------- -------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DAVID LIN 1995 --(1) -- -- -- -- -- --
President and 1994 --(1) -- -- -- -- -- --
Chief Executive 1993 --(1) -- -- -- 70,000(2) -- --
Officer
PEDRO MORILLAS 1995 128,003 146,481 --(3) -- -- -- --
Executive 1994 125,169 71,504 --(3) -- -- -- --
Vice President 1993 96,062(4) 14,836 --(3) -- 50,000(5) -- --
JOSEPH LIU 1995 115,564 73,240 --(6) -- -- -- --
Vice President- 1994 115,560 45,300 --(6) -- 40,000(7) -- --
Operations, 1993 115,776 13,094 -- -- 20,000(8) -- --
Chief Financial
Officer and
Secretary
</TABLE>
(1) Mr. Lin receives no direct cash compensation from the Company, other
than issuance of the Company's stock options. However, Mr. Lin
receives cash compensation directly from Silitek for his services as
President of Silitek, which, through its subsidiary LPSC, supplies a
significant volume of the semiconductors products distributed by the
Company. As disclosed elsewhere in this Form 10-K, Silitek is also
the beneficial owner of 1,995,093 shares of the Company's Common
Stock.
(2) These options were granted pursuant to the Company's 1993
Non-Qualified Stock Option Plan ("1993 NQO Plan") at an exercise price
of $1.875. The 1993 NQO Plan became effective retroactively to July
6, 1993, upon approval by the shareholders at the Company's 1994
annual meeting. The 1993 NQO Plan provides for the issuance of up to
1,000,000 shares of the Company's authorized but unissued Common
Stock. Options granted shall terminate and be of no force and effect
with respect to any shares not previously taken up by optionee upon
the expiration of ten years from the date of grant. An unexercised
option is normally exercisable for 90 days after termination of
employment, other than by death or
(footnotes continued on following page)
23
<PAGE> 24
(footnotes continued from previous page)
retirement. In the event of death, unmatured options are accelerated
to maturity. The Stock Option Committee, which administers the 1993
NQO Plan, has full discretion to determine whether or not options
granted under the 1993 NQO Plan shall have a right to relinquish up to
one-half of an unexercised position of an option for an amount of cash,
if concurrently, the holder of the option exercises a portion of the
option and purchases a number of shares of stock at least equal to the
number of shares which could have been purchased under the portion of
the option relinquished ("SAR"). However, the Board has expressly
stated that it has not and does not intend to grant such SAR. The
shares to be issued upon exercise of options under the 1993 NQO Plan
require a three-year vesting period. The option price is 100% of the
fair market value of such shares on the date the option is granted.
Options expire ten years from the grant of the option.
(3) Mr. Morillas receives the benefit of a Company-owned automobile and a
life insurance premium; the aggregate value is less than 10% of his
total annual salary and is not included in this total. Effective
September 1, 1994, the Company implemented a Deferred Profit Sharing
Plan ("401(k) Plan") whereby employees shall be permitted to make
elective deferrals in any amount from 2% to 15% of their compensation.
The Company contributes an additional and discretionary 50% of the
employee's contribution, not to exceed 3% of the employee's
compensation. Under the Company's 401(k) Plan, the employee then
directs funds into selected investments. Mr. Morillas participates in
the 401(k) Plan and the Company's discretionary contribution is 3% of
his compensation from September 1, 1994. In addition, Mr. Morillas
receives the benefit of the Company's group health insurance plan,
which is partially funded by the Company; the value of such benefit is
less than 10% of his salary and is not included in this total. Mr.
Morillas also received a one time moving expense in 1993 of $12,400 in
connection with his and his family's move to the Los Angeles area,
which is less than 10% of his salary and is not included in the 1993
total.
(4) Such compensation was paid from the date of commencement of Mr.
Morillas' employment on March 16, 1993 through December 31, 1993.
(5) Mr. Morillas' options were issued pursuant to the Company's 1993
Incentive Stock Option Plan ("1993 ISO Plan") at an exercise price of
$1.875 and are exercisable annually in three equal amounts over a
three year vesting period. The 1993 ISO Plan provides for the
issuance of up to 1,000,000 shares of the Company's authorized but
unissued Common Stock. Options granted under the 1993 ISO Plan are
not transferable, except by will or the laws of descent or
distribution. An vested but unexercised option is normally exercisable
for 90 days after termination of employment, other than by death or
retirement. In the event of death, unmatured options are accelerated
to maturity. An option granted under the 1993 ISO Plan may not be
priced at less than 100% of fair market value on the date of grant and
expires 10 years from the date of grant.
(6) Mr. Liu receives the benefit of a Company-owned automobile and a life
insurance premium; the aggregate value is less than 10% of his total
annual salary and is not included in this total. Mr. Liu participates
in the Company's 401(k) Plan and the Company's contribution is 3% of
his compensation from September 1, 1994. In addition, Mr. Liu
receives the benefit of the Company's group health insurance plan,
which is funded by the Company, the value of such benefit
is less than 10% of his salary and is not included in this total.
(7) Mr. Liu's options granted in 1994 were issued pursuant to the Company's
1993 ISO Plan at an exercise price of $7.875 and become exercisable
with respect to 50% of the options on June 17, 1995 and the remaining
50% of the options on June 17, 1996.
(Footnotes continued on following page)
24
<PAGE> 25
(footnotes continued from previous page)
(8) The options granted to Mr. Liu in 1993 were issued pursuant to the
Company's 1993 ISO Plan at an exercise price of $1.875. All 20,000
stock options were immediately exercisable upon their grant on July 6,
1993.
STOCK OPTIONS
The following Table 6 contains information concerning the
grant of stock options during fiscal year ended December 31, 1995 to the Named
Executives:
TABLE 6
OPTION/SAR GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
Individual Grants for Option Term (1)
------------------------------------------------------------------------------------------ ------------------------------
Number of Percent
Securities of Total
Underlying Options/SARs
Options/SARs Granted to Exercise or
Granted Employees Base Price Expiration
Name (#) in FY 1995 ($/Sh) Date 5%($) 10%($)
---- ----------------- ---------- --------------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
DAVID LIN -- -- -- -- -- --
PEDRO MORILLAS -- -- -- -- -- --
JOSEPH LIU -- -- -- -- -- --
</TABLE>
(1) The Potential Realizable Value is the product of (a) the difference
between (i) the product of the closing sale price per share at the
date of grant and the sum of (A) 1 plus (B) the assumed rate of
appreciation of the Common Stock compounded annually over the term of
the option and (ii) the per share exercise price of the option and (b)
the number of shares of Common Stock underlying the option at December
31, 1995. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises
are dependent upon a variety of factors, including market conditions
and the price performance of the Common Stock. There can be no
assurance that the rate of appreciation presented in this table can be
achieved.
25
<PAGE> 26
OPTION EXERCISES AND HOLDINGS
The following Table 7 contains information with respect to the
Named Executives concerning the exercise of options during the fiscal year
ended December 31, 1995 and unexercised options held by the Named Executives as
of December 31, 1995:
TABLE 7
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised "In-the-Money" Options/SAR
Acquired Value Options/SAR's at 12/31/95(#) at 12/31/95 ($) (1)
on Exercise Realized ---------------------------- ------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
DAVID LIN 23,000 212,750 23,667 23,333 204,128 201,247
PEDRO MORILLAS 16,667 189,576 -- 16,667 -- 143,753
JOSEPH LIU 15,000 176,250 40,000 20,000 225,000 52,500
</TABLE>
(1) Value of unexercised "in-the-money" options is the difference
between the closing sale price of the Company's Common Stock on
December 29, 1995 ($10.50 per share) and the exercise price of the
option, multiplied by the number of shares subject to the option.
COMPENSATION OF DIRECTORS
All directors each receive $750 for each board meeting attended
during the year ended December 31, 1995. No additional amounts are paid to
directors for committee participation or special assignments. Both employee and
non-employee directors are eligible to receive grants of stock options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN
CONTROL ARRANGEMENTS
Effective March 16, 1993, the Company entered into an
employment agreement with Pedro Morillas, the Company's Executive Vice
President. Under such employment agreement, Mr. Morillas is entitled to, among
other things, (i) receive an annual base salary and performance bonus subject
to the determination and evaluation of the Company's Compensation Committee on
a yearly basis, (ii) participate in all plans sponsored by the Company for
employees in general, (iii) usage of a Company car, and (iv) receive an option
to purchase from the Company up to 50,000 shares of the Company's Common Stock
at $1.875 per share (exercisable in three equal installments commencing June
10, 1994 and expiring on the tenth anniversary of the date of grant).
26
<PAGE> 27
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No person who served as a member of the Company's Compensation
Committee during the 1995 fiscal year has ever been an officer or employee of
the Company or any of its subsidiaries.
David Lin, the President, Chief Executive Officer and Director
of the Company, during fiscal year 1995, was President and a director of
Silitek. Silitek's entire Board of Directors participated in compensation
decisions for Silitek in the absence of its Compensation Committee during
fiscal year 1995.
Silitek controls LPSC, its subsidiary. LPSC is the record
owner of 40.2% of the Company's issued and outstanding Common Stock, excluding
Treasury Stock, and as of March 22, 1996, continues to be the record owner of
40.2% of all of the Company's issued and outstanding securities, excluding
Treasury Stock. Thus, since LPSC is a controlled subsidiary of Silitek,
Silitek is the beneficial owner of 40.2% of the Company's outstanding voting
securities. However, although Silitek could be considered the ultimate
beneficial owner of all of the Company's securities held of record by LPSC,
Silitek has disclaimed beneficial ownership of the 1,995,093 shares of Common
Stock held by LPSC. See "Item 12. Security Ownership of Certain Beneficial
Owners and Management" and "Item 13. Certain Relationships and Related
Transactions" for a discussion of the relationship between Silitek, LPSC and
the Company.
During the years ended December 31, 1995 and 1994,
approximately 13% and 18%, respectively, of the purchases of products for
resale by the Company, amounting to approximately $6,512,000 and $5,048,000,
respectively, were from LPSC. These products, which were also available
generally from other sources, were purchased in transactions negotiated at
prices competitive with prices charged by other vendors of similar products in
similar quantities. There are no special or exclusive trading agreements or
understandings between the Company and LPSC, other than the Company's marketing
agreement with LPSC. See "Item 1. Business -- Business Development."
27
<PAGE> 28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following Table 8 sets forth the number of shares and the
percentage of outstanding Common Stock as of March 22, 1996 by each person
known to the Company to be the beneficial owner of more than five percent of
the outstanding shares of Common Stock, by each executive officer and director,
and by all directors and officers as a group.
TABLE 8
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS NATURE OF
OF BENEFICIAL BENEFICIAL
OWNER(1) OWNERSHIP(2) TITLE OF CLASS PERCENT OF CLASS(3)
---------------- ------------ -------------- -------------------
<S> <C> <C> <C>
Silitek Corporation 1,995,093(4) Common Stock 40.2%
Raymond Soong, Chairman 66,667(5) Common Stock 1.3%
of the Board
David Lin, 23,667(6) Common Stock *
President, Chief
Executive Officer,
Director
Michael R. Giordano, 21,000(7) Common Stock *
Director
M.K. Lu, 0 -- *
Director
Shing Mao, 63,333(8) Common Stock 1.3%
Director
Michael A. Rosenberg, 15,000(9) Common Stock *
Director
Leonard M. Silverman, 0 -- *
Director
Pedro Morillas, Executive 0 -- *
Vice President
Joseph Liu, 50,000(10) Common Stock 1.0%
Vice President -
Operations, Chief
Financial Officer and
Secretary
Directors and Executive 239,667(11) Common Stock 4.8%
Officers as a group
(9 persons)
</TABLE>
* Less than 1%.
(footnotes continued on following page)
28
<PAGE> 29
(footnotes continued from previous page)
(1) The address of Silitek is 10 FL. NO. 25, Sec. 1, Tung Hua S. Rd.,
Taipei, Taiwan, Republic of China. The address of the directors and
executive officers of the Company is 3050 E. Hillcrest Drive, Westlake
Village, California 91362.
(2) The named shareholder has sole voting power and investment power with
respect to the shares listed, except as indicated.
(3) Shares which the person (or group) has the right to acquire within 60
days after March 24, 1996 are deemed to be outstanding in calculating
the percentage ownership of the person (or group) but are not deemed
to be outstanding as to any other person or group. Percent of class
total does not take into account 717,115 shares held as treasury
stock.
(4) Includes 1,995,093 shares of Common Stock to which Silitek disclaims
beneficial ownership. LPSC, which holds 1,995,093 shares of Common
Stock, as the record holder, is a controlled subsidiary of Silitek.
The address of LPSC is 28-1 Wu Shin St., Ta Wu Lung Industrial Zone,
Keelung, Taiwan, Republic of China.
The 1,995,093 shares of Common Stock to which Silitek disclaims
beneficial ownership and which are held in name by LPSC included (less
stock sales); (a) 1,945,800 shares of Common Stock transferred to LPSC
from Silitek during the year ended December 31, 1991 in connection
with a consolidation of the semiconductor rectifier activities of
Silitek into its LPSC subsidiary; (b) 214,987 shares of Common Stock
and; (c) 169,629 shares of Preferred Stock which are convertible into
Common Stock on a one share to one share basis, acquired in May 1993
pursuant to a private placement transaction with the Company. Silitek
purchased the 214,987 shares of Common Stock and the 169,629 shares of
Preferred Stock for investment purposes for its own benefit. On July
12, 1995, LPSC converted its 169,629 shares of Preferred Stock into
169,629 shares of Common Stock. Silitek intends to continue to review
its investment in the Common Stock with the view to maximizing its
investment. Future actions by Silitek, if any, will be made in light
of the then current financial conditions of Silitek, LPSC and the
Company, prevailing market prices, and other factors deemed relevant
by Silitek.
(5) Represents 66,667 shares of Common Stock which Mr. Soong has the right
to acquire within 60 days of March 22, 1996, by the exercise of vested
stock options.
(6) Represents 23,667 shares of Common Stock which Mr. Lin has the right
to acquire within 60 days of March 22, 1996 by the exercise of vested
stock options.
(7) Represents 1,000 shares of Common Stock held in the name of
PaineWebber Trust for the IRA of Mr. Giordano and 20,000 shares of
Common Stock which Mr. Giordano has the right to acquire within 60
days of March 22, 1996 by the exercise of vested stock options.
(8) Represents 63,333 shares of Common Stock which Dr. Mao has the right
to acquire within 60 days of March 22, 1996 by the exercise of vested
stock options.
(9) Represents 15,000 shares of Common Stock which Mr. Rosenberg has the
right to acquire within 60 days of March 22, 1996 by the exercise of
vested stock options.
(footnotes continued on following page)
29
<PAGE> 30
(footnotes continued from previous page)
(10) Includes 40,000 shares of Common Stock which Mr. Liu has the right to
acquire within 60 days of March 22, 1996 by the exercise of vested
stock options.
(11) Includes 228,667 shares which the Directors and Officers have the
right to acquire within 60 days of March 22, 1996 by the exercise of
vested stock options.
Other than as disclosed in the foregoing table, to the
knowledge of the Company, no other person (other than Cede & Co., a depository
company) owns of record or beneficially more than 5 percent of the issued and
outstanding Common Stock of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
LPSC is the record owner of 40.2% of the Company's issued and
outstanding Common Stock, excluding treasury stock, at December 31, 1995, and
as of March 22, 1996, continues to be the record owner of 40.2% of all of the
Company's issued and outstanding securities, excluding treasury stock. Thus,
since LPSC is a controlled subsidiary of Silitek, Silitek is the beneficial
owner of 40.2% of the Company's outstanding voting securities. However,
although Silitek could be considered the ultimate beneficial owner of all of
the Company's securities held of record by LPSC, Silitek has disclaimed
beneficial ownership of the 1,995,093 shares of Common Stock. See "Item 12.
Security Ownership of Certain Beneficial Owners and Management" and "Item 13.
Certain Relationships and Related Transactions" for a discussion of the
relationship between Silitek, LPSC and the Company.
During the years ended December 31, 1995 and 1994,
approximately 13% and 18%, respectively, of the purchases of products for
resale by the Company, amounting to approximately $6,512,000 and $5,048,000,
respectively, were from LPSC. These products, which were also available
generally from other sources, were purchased in transactions negotiated at
prices competitive with prices charged by other vendors of similar products in
similar quantities. There are no special or exclusive trading agreements or
understandings between the Company and LPSC.
David Lin, who has been a director of the Company since 1991
and effective March 16, 1993 became President and Chief Executive Officer of
the Company, is also the President and a director of Silitek and his salary is
fully paid by Silitek. See "Item 11. Executive Compensation." Mr. Lin is also
a director of the newly formed Kai Hong joint venture.
Raymond Soong, who became a director and Chairman of the Board
of the Company effective March 16, 1993, is also the Chairman of the Board of
Silitek, LPSC, Taiwan Liton, and the newly formed Kai Hong joint venture.
Silitek is affiliated through common ownership and control
with Taiwan Liton, and both companies are members of the Lite-On Group of
companies in Taiwan. Both Silitek and Taiwan Liton are public corporations in
Taiwan with stock registered on the Taipei Stock Exchange. Taiwan Liton owns
100% of the voting shares of Lite-On Milpitas. Dr. Shing Mao, who is a
director of the Company, is Chairman of the Board of Lite-On Milpitas. Dr. Mao
is also a director of LPSC, and since 1995, has also been a director of
FabTech, with whom the Company entered into an agreement with in January 1996,
whereby Diodes will gain a new supply of processed wafers used
30
<PAGE> 31
in the manufacture of several types of discrete semiconductors. FabTech is a
newly-created subsidiary of LPSC.
During 1995, Mr. Michael R. Giordano, a member of the
Company's Board of Directors and Senior Vice President-Investments at the
investment banking firm of PaineWebber, Inc., assisted members of the Board of
Directors and Executive Officers of the Company in stock option exercises and
subsequent stock sales of the Company's Common Stock. Mr. Giordano also
assisted LPSC in stock transactions. Compensation received by Mr. Giordano for
services rendered to the Company and LPSC was approximately $17,000.
Mr. M.K. Lu, who has been a director of the Company since
1995, is also the President and a director of LPSC since 1991. From 1983 to
1990, Mr. Lu was General Manager/Vice President of Silitek. Mr. Lu is also a
director of the newly formed Kai Hong joint venture.
Mr. Joseph Liu, Vice President, Operations, Chief Financial
Officer and Secretary of the Company, is also a director of the newly formed
Kai Hong joint venture.
Mr. Pedro Morillas, Executive Vice President of the Company is
also a director of the newly formed Kai Hong joint venture.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) FINANCIAL STATEMENT SCHEDULES
(1) Financial statements:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheet at December 31, 1995 and 1994 F-2 to F-3
Consolidated Statement of Income for the Years Ended December 31, 1995, 1994, and
1993 F-4
Consolidated Statement of Stockholders' Equity for the Years Ended December 31,
1995, 1994, 1993 F-5
Consolidated Statement of Cash Flows for the Years Ended December 31, 1995, 1994,
and 1993 F-6
Notes to Consolidated Financial Statements F-7 to F-15
</TABLE>
31
<PAGE> 32
(2) Schedules:
<TABLE>
<S> <C>
Report of Independent Accountants on Financial Statements and Schedules S-1
Schedule II -- Valuation and Qualifying Account S-2
</TABLE>
(b) EXHIBITS
See the Index to Exhibits at page 35 of this Annual
Report on Form 10-K for exhibits filed or
incorporated by reference
(c) REPORTS ON FORM 8-K
None.
32
<PAGE> 33
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISION OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company has decided to take advantage of the new "Safe
Harbor" provision of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). In that connection, this annual report of Form 10-K includes
forward looking statements concerning the Company. The forward looking
statements are made pursuant to the Reform Act.
There are many factors that could cause the events in such
forward looking statements to not occur, including but not limited to general
or specific economic conditions, the ability and willingness of the Company's
customers to purchase products provided by the Company, the perceived absolute
or relative overall value of these products by the purchasers, including the
features, quality, and price in comparison to other competitive products, the
level of availability of products and substitutes and the ability and
willingness of purchasers to acquire new or advanced products, and pricing,
purchasing, financing, operational, advertising and promotional decisions by
intermediaries in the distribution channels which could affect the supply of or
end-user demands for the Company's products, the amount and rate of growth and
the Company's selling, general and administrative expenses, difficulties in
obtaining materials, supplies and equipment, difficulties for delays in the
development, production, testing and marketing of products including, but not
limited to, failure to ship new products and technologies when anticipated, the
failure of customers to accept these products or technologies when planned, and
defects in products, any failure of economies to develop when planned, the
acquisition of fixed assets and other assets, including inventories and
receivables, the making or incurring of any expenditures, the effects of and
changes in trade, monetary and fiscal policies, laws and regulations, other
activities of governments, agencies and similar organizations and social and
economic conditions, such as trade restriction or prohibition, inflation and
monetary fluctuation, import and other charges or taxes, the ability or
inability of the Company to obtain or hedge against foreign currency, foreign
exchange rates and fluctuations in those rates, intergovernmental disputes as
well as actions affecting frequency, use and availability, spectrum
authorizations and licensing, the costs and other effects of legal
investigations, claims and changes in those items, developments or assertions
by or against the Company relating to intellectual property rights, adaptations
of new, or changes in, accounting policies and practices in the application of
such policies and practices and the effects of changes within the Company's
organization or in compensation benefit plans, and activities of parties with
which the Company has an agreement or understanding, including any issues
affecting any investment or joint venture in which the Company has an
investment, and the amount, and the cost of financing which the Company has,
and any changes to that financing.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
<TABLE>
<S> <C>
/s/ David Lin March 22, 1996
- -------------------------------------------
DAVID LIN
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Joseph Liu March 22, 1996
- -------------------------------------------
JOSEPH LIU
Vice President, Secretary
and Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant, and in the
capacities indicated, on March 22, 1996.
<TABLE>
<S> <C>
/s/ Raymond Soong /s/ David Lin
- ------------------------------------------- -------------------------------------------
RAYMOND SOONG DAVID LIN
Chairman of the Board of Directors Director
/s/ Michael R. Giordano /s/ M.K. Lu
- ---------------------------------- -------------------------------------------
MICHAEL R. GIORDANO M.K. LU
Director Director
/s/ Shing Mao /s/ Michael A. Rosenberg
- ------------------------------------------- -------------------------------------------
SHING MAO MICHAEL A. ROSENBERG
Director Director
/s/ Leonard M. Silverman
- ----------------------------------
LEONARD M. SILVERMAN
Director
</TABLE>
34
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Number Description Page Number
------ ----------- -----------
<S> <C> <C>
3.1 Certificate of Incorporation of Diodes Incorporated (the "Company") dated July 29,
1968 (1)
3.2 Amended By-laws of the Company dated August 14, 1987 (2)
10.1 Stock Purchase and Termination of Joint Shareholder Agreement (3)
10.2 1994 Credit Facility Agreement between the Company and Wells Fargo Bank, National
Association (4)
10.3 * Company's 401(k) Plan - Adoption Agreement (5)
10.4 * Company's 401(k) Plan - Basic Plan Documentation #03 (5)
10.5 * Employment Agreement between the Company and Pedro Morillas (6)
10.6 * Company's Incentive Bonus Plan (7)
10.7 * Company's 1982 Incentive Stock Option Plan (7)
10.8 * Company's 1984 Non-Qualified Stock Option Plan (7)
10.9 * Company's 1994 Non-Qualified Stock Option Plan (7)
10.10 * Company's 1993 Incentive Stock Option Plan (5)
10.11 $6.0 Million Revolving Line of Credit Note (8)
10.12 Credit Agreement between Wells Fargo Bank and the Company dated November 1, 1995 (8)
10.13 Kai Hong Compensation Trade Agreement for SOT-23 Product (9)
10.14 Kai Hong Compensation Trade Agreement for MELF Product (10)
10.15 Lite-On Power Semiconductor Corporation Distributorship Agreement (11)
10.16 Loan Agreement between the Company and FabTech Incorporated
10.17 Kai Hong Joint Venture Agreement between the Company and Mrs. J.H. Xing
11 Statement regarding Computation of Per Share Earnings
</TABLE>
(index continued on following page)
35
<PAGE> 36
(index continued from previous page)
<TABLE>
<S> <C> <C>
21 Subsidiaries of the registrant
23.1 Consent of Independent Public Accountants
27 Financial Data Schedule
</TABLE>
(1) Previously filed as Exhibit 3 to Form 10-K filed with the Commission for
fiscal year ended April 30, 1981, which is hereby incorporated by
reference.
(2) Previously filed as Exhibit 3 to Form 10-K filed with the Commission for
fiscal year ended April 30, 1988, which is hereby incorporated by
reference.
(3) Previously filed with the Company's Form 8-K, filed on July 1, 1994,
which is hereby incorporated by reference.
(4) Previously filed as Exhibit 10.4 to Form 10-KSB/A filed with the
Commission for fiscal year ended December 31, 1993, which is hereby
incorporated by reference.
(5) Previously filed with Company's Form 10-K, filed on March 31, 1995,
which is hereby incorporated by reference.
(6) Previously filed as Exhibit 10.6 to Form 10-KSB filed with the
Commission on August 2, 1994, for the fiscal year ended
December 31, 1993, which is hereby incorporated by reference.
(7) Previously filed with Company's Form S-8, filed on May 9, 1994, which is
hereby incorporated by reference.
(8) Previously filed with Company's Form 10-Q, filed on November 14, 1995,
which is hereby incorporated by reference.
(9) Previously filed as Exhibit 10.2 to Form 10-Q/A, filed with the
Commission on October 27, 1995, which is hereby incorporated by reference.
(10) Previously filed as Exhibit 10.3 to Form 10-Q/A, filed with the
Commission on October 27, 1995, which is hereby incorporated by reference.
(11) Previously filed as Exhibit 10.4 to Form 10-Q, filed with the Commission
on July 27, 1995, which is hereby incorporated by reference.
* Constitute management contract, compensatory plans and arrangements
which are required to be filed pursuant to Item 601 of Regulation S-K.
36
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Diodes Incorporated and Subsidiaries
We have audited the accompanying consolidated balance sheet of Diodes
Incorporated (a Delaware corporation) and Subsidiaries, as of December 31, 1995
and 1994 and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Diodes
Incorporated and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and cash flows for the years then
ended, in conformity with generally accepted accounting principles.
MOSS ADAMS LLP
/s/ Moss Adams
Los Angeles, California
February 16, 1996
(Except for Note 4,
as to which the date
is March 18, 1996)
F-1
<PAGE> 38
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
---------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 478,000 $ 1,733,000
Accounts receivable
Customers 7,794,000 5,862,000
Related party 233,000 158,000
Other 194,000 245,000
---------------- -----------------
8,221,000 6,265,000
Allowance for doubtful accounts 177,000 170,000
---------------- -----------------
8,044,000 6,095,000
Inventories 16,295,000 7,015,000
Deferred income taxes 893,000 815,000
Prepaid expenses and other 173,000 220,000
---------------- -----------------
Total current assets 25,883,000 15,878,000
PROPERTY, PLANT AND EQUIPMENT, at cost, net
of accumulated depreciation and amortization 1,527,000 1,596,000
INVESTMENT IN JOINT VENTURE 1,878,000 -
OTHER ASSETS 75,000 71,000
---------------- -----------------
Total assets $ 29,363,000 $ 17,545,000
================ =================
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-2
<PAGE> 39
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1995 1994
---------------- -----------------
<S> <C> <C>
CURRENT LIABILITIES
Due to bank $ 3,916,000 $ -
Accounts payable
Trade 5,454,000 3,543,000
Related party 621,000 334,000
Accrued liabilities 1,954,000 1,377,000
Income taxes payable 637,000 1,173,000
Current portion of long-term debt 38,000 40,000
---------------- -----------------
Total current liabilities 12,620,000 6,467,000
LONG-TERM DEBT, net of current portion 244,000 294,000
DEFERRED COMPENSATION PAYABLE - 14,000
COMMITMENTS
STOCKHOLDERS' EQUITY
Class A convertible preferred stock -
par value $1.00 per share;
1,000,000 shares authorized; 169,629 shares
issued and outstanding in 1994 - 170,000
Common stock - par value $.66 2/3 per share;
9,000,000 shares authorized; 5,675,619 shares in 1995 and
5,343,124 shares in 1994 issued and outstanding 3,784,000 3,562,000
Additional paid-in capital 5,768,000 4,791,000
Retained earnings 8,729,000 4,029,000
---------------- -----------------
18,281,000 12,552,000
Less: Treasury stock - 717,115 shares of
common stock, at cost 1,782,000 1,782,000
---------------- -----------------
16,499,000 10,770,000
---------------- -----------------
Total liabilities and stockholders' equity $ 29,363,000 $ 17,545,000
================ =================
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-3
<PAGE> 40
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ---------------- ----------------
<S> <C> <C> <C>
NET SALES $ 58,190,000 $ 38,275,000 $ 26,403,000
COST OF GOODS SOLD 41,727,000 27,578,000 19,260,000
--------------- -------------- ---------------
Gross profit 16,463,000 10,697,000 7,143,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 9,522,000 7,563,000 5,924,000
--------------- -------------- ---------------
Income from operations 6,941,000 3,134,000 1,219,000
OTHER INCOME (EXPENSES)
Interest income 46,000 57,000 53,000
Interest expense (190,000) (63,000) (128,000)
Equity earnings in joint venture - 71,000 (71,000)
Commissions and other 513,000 366,000 151,000
--------------- -------------- ---------------
Income before income taxes 7,310,000 3,565,000 1,224,000
INCOME TAX BENEFIT (PROVISION) (2,610,000) (1,202,000) 363,000
-------------- ------------- ---------------
NET INCOME $ 4,700,000 $ 2,363,000 $ 1,587,000
=============== ============== ===============
EARNINGS PER SHARE $ .90 $ .46 $ .34
=============== ============== ===============
Number of shares used in computation 5,220,196 5,136,510 4,723,809
=============== ============== ===============
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-4
<PAGE> 41
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------------------- ------------------------------------------------------------
Additional Common
Shares in paid-in Retained stock
Shares Amount Shares treasury Amount capital earnings treasury
-------- --------- --------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1992 - $ - 5,016,867 717,115 $3,345,000 $4,369,000 $ 79,000 $1,782,000
Preferred stock issued 169,629 170,000 - - - - - -
Common stock issued - - 229,090 - 152,000 76,000 - -
Net income for the year
ended December 31, 1993 - - - - - - 1,587,000 -
-------- --------- --------- ------- ---------- ---------- ---------- ----------
BALANCE,
December 31, 1993 169,629 170,000 5,245,957 717,115 3,497,000 4,445,000 1,666,000 1,782,000
Exercise of stock options,
including $250,000 income
tax benefit - - 97,167 - 65,000 346,000 - -
Net income for the year
ended December 31, 1994 - - - - - - 2,363,000 -
-------- --------- --------- ------- ---------- ---------- ---------- ----------
BALANCE,
December 31, 1994 169,629 170,000 5,343,124 717,115 3,562,000 4,791,000 4,029,000 1,782,000
Exercise of stock options,
including $684,000 income - - 162,766 - 109,000 920,000 - -
tax benefit
Re-issuance of lost shares - - 100 - - - - -
Preferred
stock converted (169,629) (170,000) 169,629 - 113,000 57,000 - -
Net income for the year
ended December 31, 1995 - - - - - - 4,700,000 -
-------- --------- --------- ------- ---------- ---------- ---------- ----------
BALANCE,
December 31, 1995 - $ - 5,675,619 717,115 $3,784,000 $5,768,000 $8,729,000 $1,782,000
======== ========= ========= ======= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-5
<PAGE> 42
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,700,000 $ 2,363,000 $ 1,587,000
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 339,000 328,000 249,000
Loss (earnings) from joint venture - (71,000) 71,000
Gain on sale of property, plant and equipment (67,000) (8,000) (6,000)
Changes in operating assets and liabilities
Accounts receivable (1,949,000) (1,603,000) (1,488,000)
Inventories (9,280,000) (1,198,000) (1,397,000)
Prepaid taxes, expenses and other (31,000) (177,000) (516,000)
Other assets (4,000) (48,000) 17,000
Accounts payable 2,198,000 1,532,000 439,000
Accrued liabilities 577,000 561,000 212,000
Income taxes payable (1,220,000) 1,390,000 (11,000)
Deferred compensation payable (14,000) (71,000) (37,000)
------------ ------------ ------------
Net cash provided (used) by operating activities (4,751,000) 2,998,000 (880,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Liquidation (investment) in subsidiary - 400,000 (400,000)
Investment in Joint Venture (1,878,000) - -
Purchases of property, plant and equipment (348,000) (522,000) (493,000)
Proceeds from sales of property, plant and equipment 145,000 13,000 13,000
------------ ------------ ------------
Net cash used by investing activities (2,081,000) (109,000) (880,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on line of credit, net 3,916,000 (2,000,000) 1,000,000
Net proceeds from the issuance of capital stock 1,713,000 162,000 398,000
Repayments of long-term debt (52,000) (119,000) (165,000)
------------ ------------ ------------
Net cash provided (used) by financing activities 5,577,000 (1,957,000) 1,233,000
------------ ------------ ------------
INCREASE (DECREASE) IN CASH (1,255,000) 932,000 (527,000)
CASH, beginning of year 1,733,000 801,000 1,328,000
------------ ------------ ------------
CASH, end of year $ 478,000 $ 1,733,000 $ 801,000
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (received) during the year for:
Interest $ 169,000 $ 73,000 $ 119,000
============ ============ ============
Income taxes $ 1,344,000 $ (114,000) $ 352,000
============ ============ ============
Non-Cash Financing Activity
Tax Benefit related to exercise of stock options credited
to paid-in capital $ 684,000 $ 250,000 $ -
============ ============ ============
</TABLE>
The accompanying notes are an
integral part of these financial statements
F-6
<PAGE> 43
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Diodes, Inc., and its subsidiary
distributes diodes and semi-conductors. The products are sold to electronics
manufacturers primarily throughout North America.
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiary,
Diodes Taiwan Co., Ltd. (a foreign subsidiary). All significant intercompany
balances and transactions have been eliminated.
INVENTORIES - Inventories are stated at the lower of cost or
market. Cost is determined principally by the first- in, first-out basis.
DEPRECIATION AND AMORTIZATION - Property, plant and equipment
are depreciated using straight-line and accelerated methods over the estimated
useful lives, which range from 30 to 53 years for buildings and 1 to 10 years
for machinery and equipment. Leasehold improvements are amortized using the
straight-line method over 1 to 5 years.
INCOME TAXES - Income taxes are accounted for using an asset
and liability approach whereby deferred tax assets and liabilities are recorded
for the differences in the financial reporting bases and tax bases of the
Company's assets and liabilities. Income taxes are further explained in Note
10.
CONCENTRATION OF CREDIT RISK - Financial instruments which
potentially subject the Company to concentrations of credit risk include trade
receivables. Credit risk is limited by the dispersion of the Company's
customers over various geographic areas, operating primarily in the electronics
manufacturing and distribution industries. The Company performs on-going
credit evaluations of its customers and generally requires no collateral from
its customers. Historically, credit losses have not been significant.
The Company and its subsidiaries maintain cash balances at
financial institutions in the United States and Taiwan. Accounts at each
institution in the United States are insured by the Federal Deposit Insurance
Corporation up to $100,000. Accounts at each institution in Taiwan are insured
by the Central Deposit Insurance Company up to NT$1,000,000.
FOREIGN OPERATIONS - Through its subsidiary, Diodes Taiwan
Co., Ltd., the Company maintains operations in Taiwan for which the functional
currency is the U.S. dollar. Assets and liabilities of its foreign operations
are not hedged and therefore are subject to fluctuations in the currency
exchange rate between the U.S. and NT dollar.
Monetary assets and liabilities are translated at the year-end
exchange rate. Non-monetary assets and liabilities are converted at historical
rates. Income and expense accounts are translated using an average exchange
rate for the year, except that cost of goods sold and depreciation expense are
remeasured using historical rates. Included in net income are translation
losses of approximately $66,000 and $84,000 for the years ended December 31,
1995 and 1994, respectively and translation gains of approximately $14,000 for
the year ended December 31, 1993.
F-7
<PAGE> 44
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
EARNINGS PER SHARE - Earnings per share are based upon the
weighted average number of shares of common stock and common stock equivalents
outstanding, net of common stock held in treasury. Fully diluted earnings per
share do not materially differ from primary earnings per share.
INVESTMENT IN JOINT VENTURES - The Company's investment in
Seefull Electronic Co., Ltd. was accounted for using the equity method of
accounting. During 1994, the joint venture was liquidated (Note 4). In June
1995, the Company entered into a product sourcing and compensation trade
agreement with Shanghai Kai Hong Electronics Co., Ltd. (Kai Hong). On March
18, 1996, the sourcing agreement was changed to a joint venture (Note 4). The
method to be used to account for the joint venture investment in future periods
has not yet been determined.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
STOCK-BASED COMPENSATION-The Financial Accounting Standards
Board has recently issued Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock-Based Compensation. This standard will become
effective for the year ending December 31, 1996, although earlier application
is permitted. The Company has determined that it will implement the new
standard in 1996. Under SFAS 123, a fair value method is used to determine
compensation cost for stock options or similar equity instruments.
Compensation is measured at the grant date and is recognized over the service
or vesting period. Under the current accounting standard, compensation cost is
the excess, if any, of the quoted market price of the stock at a measurement
date over the amount that must be paid to acquire the stock.
The new standard would allow the Company to continue to account
for stock-based compensation under the current standard, with disclosure of the
effects of the new standard, or adopt a fair value based method of accounting.
The Company has not yet decided which method will be utilized, nor has it
determined the impact, if any, that adoption of the new standard will have on
the financial condition and results of operations. However, management
believes the effect of the new accounting standard will not be significant.
NOTE 2 - INVENTORIES
<TABLE>
<CAPTION>
December 31,
------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
Finished goods $ 15,602,000 $ 6,435,000
Work-in-progress 367,000 159,000
Raw materials 326,000 421,000
----------------- -----------------
$ 16,295,000 $ 7,015,000
================= =================
</TABLE>
F-8
<PAGE> 45
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
Building $ 468,000 $ 468,000
Leasehold improvements 140,000 128,000
Machinery and equipment 1,806,000 1,563,000
----------------- -----------------
2,414,000 2,159,000
Less accumulated depreciation
and amortization 1,210,000 886,000
----------------- -----------------
1,204,000 1,273,000
Land 323,000 323,000
----------------- -----------------
$ 1,527,000 $ 1,596,000
================= =================
</TABLE>
NOTE 4 - JOINT VENTURES
KAI HONG - In June 1995, the Company entered into a product sourcing
and compensation trade agreement with Shanghai Kai Hong Electronics Company,
Ltd. (Kai Hong), an entity in Shanghai, China. Initially, the agreement with
Kai Hong was structured as a trade agreement whereby the Company was to make
cash and other forms of advances for the development of a production facility.
Effective March 18, 1996, a joint venture partnership was established between
the Company and the original owner of Kai Hong. The Company will have a 70%
controlling interest in the joint venture, will be responsible for production
and management, and will receive 100% of the production, mainly in SOT-23
packaging. The venture parties have agreed to make significant equity
contributions to the joint venture and anticipate that a portion of the cost of
developing the project will be debt financed. The capital contribution will be
made in several phases over 3 years. As of December 31, 1995, the Company has
contributed $1,878,000 to the venture.
SEEFULL - In February 1993, under a Joint Shareholder Agreement (the
JV agreement), the Company and Lite-On Power Semiconductor (Note 12) each
purchased 50% of the common stock of Shanghai Seefull Electronic Co., Ltd.
(Seefull) for $400,000. During 1994, Lite-On Power Semiconductor purchased the
Company's share of Seefull for $400,000 cash, and the JV agreement was
terminated.
F-9
<PAGE> 46
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - REVOLVING LINE OF CREDIT
The Company has an unsecured credit agreement with a bank providing a
working capital line of credit up to $10 million and a term commitment note
providing up to $4 million for plant expansion and advances to vendors.
Interest on borrowings is payable monthly at the bank's prime lending rate, and
the Company may fix amounts greater than $250,000 for a thirty day period. The
interest rate on fixed portions is determined by a variable index. The
agreement has certain covenants and restrictions which, among other matters
requires the maintenance of certain financial ratios and operating results, as
defined in the agreement. The Company was in compliance as of December 31,
1995.
The line of credit expires November 1, 1996. The line contains a
sublimit of $4.5 million for issuance of commercial letters of credit. During
1995 average borrowings on the line of credit were $2,080,000, and maximum
borrowings outstanding were $5,349,000. The weighted average interest rate on
outstanding borrowings was 7.5% at December 31, 1995 and 8% for the year ended
December 31, 1995.
The term commitment expires November 1, 1996 at which time it converts
to a fixed amount due in equal monthly installments with remaining balances
payable in full November 1, 2001. During 1995, there were no borrowings on the
term commitment.
NOTE 6 - ACCRUED LIABILITIES
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
Employee compensation and payroll taxes $ 839,000 $ 483,000
Sales commissions 486,000 255,000
Current portion of deferred
compensation payable - 44,000
Other 629,000 595,000
--------------- ---------------
$ 1,954,000 $ 1,377,000
=============== ===============
</TABLE>
NOTE 7 - LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
LOAN PAYABLE to bank secured by buildings and land, with
monthly principal payments of NT$84,000
(approximately $3,200 U.S.), plus interest at $ 281,000 $ 331,000
7% per annum.
OTHER 1,000 3,000
--------------- ---------------
282,000 334,000
Current portion 38,000 40,000
--------------- ---------------
Long-term portion $ 244,000 $ 294,000
=============== ===============
</TABLE>
F-10
<PAGE> 47
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT (Continued)
The aggregate maturities of long-term debt for future year ending December 31
are as follows:
<TABLE>
<S> <C>
1996 $ 38,000
1997 40,000
1998 40,000
1999 40,000
2000 40,000
Thereafter 84,000
---------------
$ 282,000
===============
</TABLE>
NOTE 8 - DEFERRED COMPENSATION PAYABLE
Deferred compensation payable to a former officer was paid in monthly
installments of principal, plus interest calculated at 9%, through December
1995. The Company recorded the present value of the deferred compensation
liability, which at December 31, 1994 and 1993 was approximately $44,000 and
$84,000, respectively.
NOTE 9 - INCOME TAXES
The components of the income tax provisions are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1995 1994 1993
-------------- ------------ -------------
<S> <C> <C> <C>
Current
Federal $ 1,720,000 $ 988,000 $ 12,000
Taiwanese 450,000 189,000 51,000
State 518,000 346,000 50,000
-------------- ------------ ------------
2,688,000 1,523,000 113,000
Deferred tax benefit (78,000) (321,000) (476,000)
-------------- ------------ ------------
$ 2,610,000 $ 1,202,000 $ (363,000)
============== ============ ============
</TABLE>
A reconciliation between the effective tax rate and the statutory
federal tax rate for the years ended December 31, 1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------ --------------------- ----------------------
Percent Percent Percent
of pretax of pretax of pretax
Amount earnings Amount earnings Amount earnings
---------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Federal tax at 34% $2,485,000 34.0% $1,212,000 34.0% $ 416,000 34.0%
State franchise tax,
net of federal benefit 449,000 6.1 228,000 6.4 75,000 6.1
Foreign income tax at
lower rates (248,000) (3.4) (82,000) (2.3) (5,000) (.4)
Recognition of net operating
loss carryforward - - - - (120,000) (9.8)
Inventory liquidation - - - - (301,000) (24.6)
Net change in deferred tax
asset valuation allowance - - (162,000) (4.5) (476,000) (38.9)
Other (76,000) (1.0) 6,000 .1 48,000 3.9
---------- ---- ---------- ---- --------- -----
Income tax provision (benefit) $2,610,000 35.7% $1,202,000 33.7% $(363,000) (29.7)%
========== ==== ========== ==== ========= =====
</TABLE>
F-11
<PAGE> 48
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (Continued)
At December 31, 1995 and 1994, the Company's deferred tax asset is comprised of
the following items:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Inventory cost $ 737,000 $ 433,000
Accrued expenses 74,000 261,000
Miscellaneous 82,000 121,000
-------------- --------------
$ 893,000 $ 815,000
============== ==============
</TABLE>
NOTE 10 - STOCK OPTION PLANS
The Company has stock option plans for directors, officers,
and employees, which provide for nonqualified and incentive stock options. The
Board of Directors determines the option price (not to be less than fair market
value for the incentive options) at the date of grant. The options generally
expire ten years from the date of grant and are exercisable over the period
stated in each option. At December 31, 1995, options for 431,567 shares were
exercisable and 2,655,000 shares were available for future grants under the
plans.
<TABLE>
<CAPTION>
Outstanding Options
----------------------------------------------------
Price Per Share
---------------------------------
Weighted
Number Range Average
------------ --------------- -------------
<S> <C> <C> <C>
Balance, January 1, 1992 514,000 $ .875 - 4.25 $ 2.34
Granted 400,000 1.88 1.88
Exercised (12,500) 1.50 1.50
Canceled (335,000) .875 - 4.25 2.86
------------- -------------- ---------
Balance, December 31, 1993 566,500 .875 - 3.88 1.72
Granted 65,000 7.88 7.88
Exercised (97,167) .875 - 3.88 1.68
------------- -------------- ---------
Balance, December 31, 1994 534,333 .875 - $7.88 2.48
Granted 60,000 11.25 11.25
Exercised (162,766) 1.00 - 2.63 1.66
------------- -------------- ---------
Balance, December 31, 1995 431,567 $ 0.88-11.25 $ 3.84
============= ============= =========
</TABLE>
The Company also has an incentive bonus plan which reserves
200,000 shares of stock for issuance to key employees. As of December 31,
1995, 124,000 shares remain available for issuance under this plan.
F-12
<PAGE> 49
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - MAJOR SUPPLIERS
The Company purchases a significant amount of its inventory
from two suppliers, one of which is a related party (Note 12). During 1995,
1994, and 1993, purchases from these suppliers amounted to approximately 50%,
59%, and 67%, respectively, of total inventory purchases. There are a limited
number of suppliers for these materials.
NOTE 12 - RELATED PARTY TRANSACTIONS
The Company's major stockholder is Lite-On Power Semiconductor
Corporation (LPSC), a Taiwan corporation. LPSC owns approximately 40% of the
Company's common stock. The Company's subsidiary, Diodes Taiwan Co. Ltd., buys
product from and sells product to LPSC. Transactions with LPSC for the years
ended December 31 and outstanding balances as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
<S> <C> <C>
NET SALES $ 1,998,000 $ 948,000
=============== ==============
PURCHASES $ 6,512,000 $ 5,048,000
=============== ==============
ACCOUNTS RECEIVABLE $ 233,000 $ 158,000
=============== ==============
ACCOUNTS PAYABLE $ 621,000 $ 334,000
=============== ==============
</TABLE>
During 1995, LPSC converted its 169,629 shares of preferred stock, $1
par value, on a 1 for 1 basis, to common stock, $.66 2/3 par value. The
difference between the par value of the preferred shares and that of the common
shares has been recorded as additional paid in-capital.
F-13
<PAGE> 50
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - OPERATIONS BY GEOGRAPHIC AREAS
Information about the Company's operations in the United
States and Taiwan is presented below. The Taiwan operations consist primarily
of purchasing inventory units for transfer to the United States operations.
Items are transferred at prices to recover costs plus an appropriate mark up
for profit. Inter-geographic revenues and assets have been eliminated to
arrive at the consolidated amounts. Identifiable assets are total assets which
are identified with the operations in the respective country.
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ----------------- ----------------
<S> <C> <C> <C>
Net sales - unconsolidated entities
United States $ 52,742,000 $ 35,177,000 $ 24,685,000
Taiwan 5,448,000 3,098,000 1,718,000
----------------- ----------------- ----------------
$ 58,190,000 $ 38,275,000 $ 26,403,000
================= ================= ================
Inter-geographic net sales
United States $ 2,370,000 $ 1,477,000 $ 987,000
Taiwan 12,407,000 7,809,000 7,064,000
----------------- ----------------- ----------------
$ 14,777,000 $ 9,286,000 $ 8,051,000
================= ================= ================
Total net sales
United States $ 55,112,000 $ 36,654,000 $ 25,672,000
Taiwan 17,855,000 10,907,000 8,782,000
Less inter-geographic
net sales (14,777,000) (9,286,000) (8,051,000)
----------------- ----------------- ----------------
$ 58,190,000 $ 38,275,000 $ 26,403,000
================= ================= ================
Income from operations
United States $ 5,536,000 $ 2,542,000 $ 1,202,000
Taiwan 1,405,000 592,000 17,000
----------------- ----------------- ----------------
$ 6,941,000 $ 3,134,000 $ 1,219,000
================= ================= ================
Identifiable assets
United States $ 26,015,000 $ 14,230,000 $ 11,202,000
Taiwan 3,348,000 3,315,000 2,525,000
----------------- ----------------- ----------------
Total identifiable assets $ 29,363,000 $ 17,545,000 $ 13,727,000
================= ================= ================
</TABLE>
F-14
<PAGE> 51
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - COMMITMENTS
In October 1993, the Company entered into an operating lease
for a facility under an agreement which expires in December 1998. Rental
expense amounted to approximately $140,000, $132,000, and $126,000 for the
years ended December 31, 1995, 1994 and 1993 respectively.
Future minimum payments under the noncancellable operating
lease for future years ending December 31 are as follows:
<TABLE>
<S> <C>
1996 $ 129,000
1997 135,000
1998 145,000
---------------
$ 409,000
===============
</TABLE>
NOTE 15 - EMPLOYEE BENEFIT PLAN
In 1994 the Company adopted a 401(k) profit sharing plan (the
Plan) for the benefit of qualified employees. Employees who participate may
elect to make salary deferral contributions to the Plan. The Company may make
a discretionary matching contribution of $1 for every $2 contributed by the
participant. The Company's contribution is limited to 3% of the employee's
compensation. For the years ended December 31, 1995 and 1994, the Company
contributed approximately $79,000 and $18,000 respectively to the Plan.
NOTE 16 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------
March 31 June 30 Sept 30 Dec 31
-------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
FISCAL 1995
Net Sales $ 14,239,000 $ 14,539,000 $ 15,356,000 $ 14,056,000
Gross Profit 3,943,000 4,138,000 4,432,000 3,950,000
Net Income 983,000 1,122,000 1,261,000 1,334,000
Earnings Per Share .19 .22 .24 .25
FISCAL 1994
Net Sales $8,780,000 $9,445,000 $9,887,000 $ 10,163,000
Gross Profit 2,423,000 2,627,000 2,809,000 2,838,000
Net Income 495,000 570,000 639,000 659,000
Earnings Per Share .10 .11 .12 .13
</TABLE>
F-15
<PAGE> 52
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
Diodes Incorporated and Subsidiaries
Our audits of the consolidated financial statements of Diodes Incorporated and
Subsidiaries referred to in our report dated February 16, 1996 appearing in
item 8 in this Annual Report on Form 10-K also included an audit of the
financial statement schedule listed in item 14(a) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
MOSS ADAMS LLP
/s/ Moss Adams
February 16, 1996
(Except for Note 4,
as to which the date
is March 18, 1996)
S-1
<PAGE> 53
DIODES INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL A COL B COL C COL D COL E
- ---------------------------- --------------- --------------- ---------------- ------------
Additions
Balance at charged to
beginning of costs & Balance at
Description period expenses Deductions end of period
- ---------------------------- --------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31,
1995 - Allowance for
doubtful accounts $ 170,000 $ 58,000 $ (90,000) $ 138,000
=============== =============== =============== ==============
Year ended December 31,
1994 - Allowance for
doubtful accounts $ 61,000 $ 138,000 $ (29,000) $ 170,000
=============== =============== =============== ==============
Year ended December 31,
1993 - Allowance for
doubtful accounts $ 42,000 $ 48,000 $ (29,000) $ 61,000
=============== =============== =============== ==============
</TABLE>
S-2
<PAGE> 1
EXHIBIT 10.16
LOAN AGREEMENT
This Agreement (the "Agreement") is entered into as of February 15,
1996 by and between FabTech, Inc., a Delaware corporation (the "COMPANY"), and
Diodes Incorporated, a Delaware corporation (the "LENDER"), upon the basis of
the following facts and understandings of the parties:
A. The Lender agrees to lend to the Company Two Million Five
Hundred Thousand Dollars ($2,500,000) in accordance with the terms and
conditions of this Agreement.
B. The Company wishes to borrow Two Million Five Hundred Thousand
Dollars ($2,500,000) from the Lender in accordance with the terms and
conditions of this Agreement.
C. The Company is willing to undertake certain obligations,
including a wafer production commitment, which are expressly set forth in this
Agreement (without accepting any other obligations whether express or implied).
A G R E E M E N T
NOW, THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. PROMISSORY NOTE. Subject to the covenants,
conditions and other provisions of this Agreement, the Lender agrees to lend to
the Company up to Two Million Five Hundred Thousand Dollars ($2,500,000)
pursuant a secured promissory note in substantially the form attached hereto as
Exhibit A (the "NOTE"), which is incorporated herein by this reference, receipt
of which amount is hereby acknowledged by the Company. All indebtedness
outstanding under the Note shall mature no later than, and shall be payable on
demand at any time following, February 14, 2001, as set forth in the Note;
provided, however, the Company shall be entitled to prepay all or any portion
of the principal and interest due on the Note, as of the date of such
prepayment, without penalty. Any prepayment shall be applied first against
outstanding interest and then against the outstanding principal balance.
Payment of principal and interest shall be made in lawful money of the United
States to the holder of this Note at the Company's principal offices or, at the
option of the Lender, at such other place in the United States as the Lender
shall have designated to the Company in writing.
2. INTEREST.
Interest will accrue on the unpaid outstanding
principal under the Note at Cost of Funds Rate. The term "Cost of Funds Rate"
shall mean the same rate of interest payable from time to time by the Lender
for borrowed money for working capital purposes to its principal institutional
lender. The Lender shall notify the Company in writing of any change in the
Cost of Funds Rate within ten (10) days thereof; provided, however, that the
failure to so notify the Company shall not affect the Cost of Funds Rate. On
the effective date of this Agreement, the Cost of Funds Rate is * (*% as of
February 15, 1996) plus * (*%). All computations of interest shall be made on
the basis of a year containing a total of 360 days and shall be computed daily
for the actual number of calendar days during which any principal owed on the
Note remains outstanding by dividing the applicable interest rate by 360 and
multiplying that number by the unpaid principal balance at the end of each day.
* CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 2
All agreements between the Company and the Lender expressly are limited so that
in no event whatsoever (whether by reason of the advancement of funds
hereunder, acceleration of maturity of the unpaid principal balance or
otherwise) shall the amount paid or agreed to be paid by the Company to the
Lender for the use of funds advanced hereunder exceed the highest rate
prescribed by law. If fulfillment of any provision hereof at the time
performance of such provision becomes due involves exceeding such highest rate
prescribed by law, then such obligation shall be reduced to such highest rate
prescribed by law. If by any circumstance the Lender shall be deemed to have
received as interest an amount which exceeds the highest rate prescribed by
law, any amount which may be deemed excessive interest shall be applied to the
reduction of the unpaid principal balance and not to the payment of interest.
The terms and provisions of this paragraph shall control all other terms and
provisions contained in this Agreement.
3. CONDITIONS PRECEDENT.
(a) CONDITIONS PRECEDENT TO EFFECTIVENESS. The
obligations of the Lender to the Company in connection with this Agreement,
including without limitation the obligation of the Lender to lend the principal
to be subject to the Note, are subject to the following conditions precedent:
(i) The Company shall have executed
and delivered (or cause to be executed and delivered) to the Lender this
Agreement and the Note;
(ii) No Event of Default and no
event which after the giving of notice or the lapse of time would constitute an
Event of Default shall have occurred and be continuing;
(iii) Each and every representation
and warranty by the Company contained in this Agreement shall be true and
correct as of the advance of funds pursuant to this Agreement;
(iv) The Company shall have executed
and delivered to the Lender a Security Agreement (the "Security Agreement") and
Financing Statement on Form UCC-1 (the "UCC-1") in substantially the forms
attached hereto as Exhibits B and C, respectively.
4. ACKNOWLEDGMENTS. The Company acknowledges and agrees
that as of the date of this Agreement:
(a) All of the Company's indebtedness to the
Lender under the Note will be due and payable on demand at any time following
November 30, 2000 unless the date for payment is accelerated pursuant to any
other provision of this Agreement or the Note;
(b) The Company is voluntarily undertaking the
obligations under this Agreement and the other documents executed in connection
herewith with full awareness of their significance and risks, and the Company's
management has read and understands this Agreement and each of the exhibits
attached hereto and has had an opportunity to discuss this Agreement and each
such exhibit with independent legal counsel. The Company is not relying upon
any representation, understanding or obligation of the Lender which is not
expressly stated in this Agreement or such other documents; and
(c) Nothing in this Agreement shall be construed
to create any obligation of the Lender to any person other than the Company.
5. REPRESENTATIONS AND WARRANTIES. In order to induce
the Lender to execute this Agreement and to make the advances of any funds
pursuant to this Agreement, the Company represents and warrants to the Lender
as follows:
(a) The recitals herein are true and correct and
are incorporated herein by this reference;
<PAGE> 3
(b) The Company is a corporation which is duly
organized and validly existing in good standing under the laws of the State of
Delaware, and the Company is duly qualified to transact business in each
jurisdiction in which the character of its properties or the nature of the
activities conducted by it makes such qualification necessary. The Company has
full power, authority and legal right to execute, deliver and perform this
Agreement, the Note, the Security Agreement, the UCC-1 and all other
instruments and contracts executed or delivered (or to be executed and
delivered) pursuant to this Agreement, to incur the indebtedness represented by
the Note to the Lender, to own its properties and to carry on its business as
it is now being conducted;
(c) The execution, delivery and performance by
the Company of this Agreement, the Note, the Security Agreement, the UCC-1 and
all other instruments and contracts executed or delivered (or to be executed or
delivered) by the Company in connection with or pursuant to this Agreement, the
consummation of the transactions and contracts required or contemplated by this
Agreement, and the performance by the Company of its obligations in connection
with this Agreement and said instruments and contracts, each (i) have been duly
authorized by all necessary corporate action, (ii) require no registrations
with or approvals of any person not heretofore obtained, and (iii) do not
violate or contravene or conflict with the Company's Certificate of
Incorporation and Bylaws, any law, any order or regulation of any court or any
governmental authority, official or agency, or any contract, indenture or other
instrument to which the Company is a party or by which it or any of its
property may be bound;
(d) The Company has paid all taxes required to be
paid (and all assessments of which it has notice or knowledge) to the extent
such taxes (or assessments) have become due and payable;
(e) Upon execution and delivery by the Company to
the Lender, this Agreement and the Note, the Security Agreement, the UCC-1 and
all other instruments and contracts executed or delivered (or to be executed
and delivered) by the Company in connection with or pursuant to this Agreement
will each be and remain the valid, binding and legally enforceable obligation
of the party or parties executing the same; and
(f) No Event of Default, nor any event which with
the lapse of time or the giving of notice would constitute an event of default
under any agreement to which the Company is currently a party or by which the
Company or any of its property is currently bound, has occurred or is occurring
or will exist immediately after the execution and delivery of this Agreement or
the advance of any funds by the Lender to the Company hereunder.
6. COVENANTS. The Company hereby covenants and agrees
that, except as the Lender may in its discretion otherwise consent to in
writing, so long as this Agreement continues in effect and until the full and
final payment of all indebtedness and performance of all obligations of the
Company to the Lender:
(a) PAYMENT ON LOANS. The Company shall promptly
pay all amounts owing under the Note and all other indebtedness owing to the
Lender in connection with this Agreement or any other contract, note or
instrument at the time and place and in the manner prescribed;
(b) NOTICES. The Company shall hereafter give
immediate telephonic and written notice to the Lender of the following:
(i) The occurrence of any Event of
Default hereafter or the occurrence of any event hereafter which upon the
giving of notice or the lapse of time, or both, would constitute an Event of
Default;
(ii) Any matter which has resulted
or might result in a materially adverse change in the financial condition,
operations of the Company; and
(c) BORROWINGS. The Company shall not create,
assume, incur, permit to exist, or in any manner be or become liable for
(directly or indirectly) any indebtedness of itself or any other person,
without the prior written permission of the Lender, other than:
<PAGE> 4
(i) indebtedness of the Company to
the Lender;
(ii) indebtedness subordinated to
all indebtedness of the Company to the Lender. The Lender shall have no
obligation under any circumstances to permit the Company to grant any security
interest on any of its property in favor of any subordinated creditors;
(iii) indebtedness to banks,
insurance companies, lease financing institutions or other institutional
lenders approved by the Company's Board of Directors;
(iv) indebtedness to trade creditors
which is necessary to (and incurred in the ordinary course of) the Company's
business; or
(v) indebtedness for taxes which
the Company is contesting in good faith.
(d) SALE OF RECEIVABLES. The Company shall not
sell, transfer or discount any receivables, accounts or instruments for less
than the face amount or value thereof, on credit or for any amount with
recourse to the Company.
(e) FURTHER ASSURANCES. The Company shall at all
times and from time to time do and perform all acts and things which the Lender
deems necessary or appropriate in order to carry out the provisions of this
Agreement.
(f) COLLATERAL. Debtor hereby agrees (a) to
perform all acts that may be necessary to maintain, preserve, protect and
perfect the Collateral (as defined in the Security Agreement), the Lien (as
defined in the Security Agreement) granted to the Lender in the Security
Agreement and the first priority of such Lien, except for Permitted Liens (as
defined in the Security Agreement); (b) not to use or permit any Collateral to
be used (i) in violation of any provision of the Security Agreement, (ii) in
violation of any applicable law, rule or regulation, (c) to pay promptly when
due all taxes and other governmental charges, all liens and all other charges
now or hereafter imposed upon or affecting any Collateral; (d) without 30 days'
written notice to the Lender, (i) not to change Company's name or place of
business (or, if Company has more than one place of business, its chief
executive office), or the office in which Company's records relating to
Collateral are kept, (e) to procure, execute and deliver from time to time any
endorsements, assignments, financing statement and other writings reasonably
deemed necessary or appropriate by the Lender to perfect, maintain and protect
its lien under the Security Agreement and the priority thereof and to deliver
promptly to the Lender all originals of Collateral consisting of instruments;
(f) to appear in and defend any action or proceeding which may affect its title
to or the Lender's interest in the Collateral; (g) if the Lender gives value to
enable Debtor to acquire rights in or the use of any Collateral, to use such
value for such purpose; (h) to keep separate, accurate and complete records of
the Collateral and to provide the Lender with such records and such other
reports and information relating to the Collateral as the Lender may reasonably
request from time to time, but not more than once per month; (i) not to
surrender or lose possession of (other than to the Lender), sell, encumber,
lease, rent, or otherwise dispose of or transfer any Collateral or right or
interest therein, and to keep the Collateral free of all liens except Permitted
Liens; and (j) to collect, enforce and receive delivery of the accounts
receivable in accordance with past practice until otherwise notified by the
Lender.
7. PRODUCTION AGREEMENT.
(a) PRODUCTION AGREEMENT. The Company agrees to sell to
the Lender, and Lender agrees to purchase on a monthly basis, finished Schottky
and other wafers; provided, however, that in no event shall the Company be
required to sell to the Lender, nor shall the Lender be required to purchase
from the Company, in any month greater than the lower of (i) * (*%) of the
aggregate number of Schottky and other wafers manufactured by the Company or
(ii) * wafers per month; provided that in no event shall the number of wafers
purchased by the Lender, after both parties shall have reached their respective
full capacities, be less than * wafers per month. These
<PAGE> 5
quantities can be modified as mutually agreed by the Lender and the Company
from time to time to reflect the manufacturing capacities of both parties. Any
such modification will take effect after documented in writing and signed by an
authorized officer of each company. The companies will develop and document a
methodology which will include a six month rolling forecast, limitations on the
amount any monthly forecast can change from the previous month's forecast, and
other factors related to the successful operation this business. The price for
the Schottky and other wafers shall not exceed the lowest price of wafers with
like starting material and processed in a substantially similar manner sold by
the Company to any other customer during any month. For each wafer accepted by
the Lender, * dollars ($*) shall be credited first against the interest and
then the principal of the amount advanced as of the day the wafers are accepted
by the Lender at the Lenders facility, if Lender elects to receive such wafers
inside the United States, or the date they are shipped, if Lender elects to
receive such wafers outside the United States.
(b) RIGHT OF FIRST REFUSAL. In the event that the
Company receives an offer from a third party to enter into a wafer financing
agreement, it shall give the Lender written notice of such offer, describing
the terms of the offer. The Lender shall within thirty (30) days from the date
of receipt of any such notice agree to enter into a new financing agreement
upon the terms specified in such notice by giving written notice to the
Company.
(c) TERM OF PRODUCTION AGREEMENT. The term of the
Production Agreement shall be five (5) years from the date set forth above.
The Lender shall have the right to renew the Production Agreement for an
additional five-year term on the terms set forth herein.
(d) SURVIVAL OF PROVISIONS. The rights and obligations
of the parties pursuant to Section 7 shall survive the termination of this
Agreement.
8. DEFAULT.
(a) EVENTS OF DEFAULT. Each and every one of the
following described events shall constitute an "EVENT OF DEFAULT" under this
Agreement and a default under the Note:
(i) The Company fails to make any
payment of principal or interest when due, and such failure shall continue
unremedied for a period of ten (10) days; or
(ii) The Company (i) commences any
proceeding or other action relating to it in bankruptcy or seek reorganization,
dissolution, liquidation, winding-up, or any other relief under the US
Bankruptcy Code, as amended (the "Bankruptcy Code"), or (ii) makes a general
assignment for the benefit of creditors; or
(iii) Any proceedings are commenced
or any other action is taken against the Company in bankruptcy or seeking
reorganization, liquidation, dissolution, winding-up, or for any other relief
under the Bankruptcy Code, as amended; and any such event continues for thirty
(30) days undismissed or undischarged; or
(iv) A default by the Company under
the terms of any agreement or instrument, including this Agreement, pursuant to
which the Company has incurred debt from any person or entity, including from
the Lender; or
(v) The Company suffers in the
Lender's judgment any material adverse changes in the condition of its
business; or
<PAGE> 6
(vi) The Company furnished to the
Lender pursuant hereto and in connection herewith any information which proves
to be materially incorrect or misleading; or
(vii) A default by the Company under
the terms of the Security Agreement; or
(viii) Any judgment or order for the
payment of money in excess of ten thousand dollars ($10,000) shall be rendered
against the Company and shall remain unsatisfied or unstayed for a period of
forty-five (45) days; or
(ix) The Security Agreement or the
UCC-1 shall cease for any reason to be in full force and effect or shall cease
to be effective to grant the Lender a perfected first priority security
interest in the Collateral.
(b) RIGHTS OF THE LENDER UPON EVENT OF DEFAULT.
(i) GENERAL. Upon the occurrence
of any Event of Default, the Lender may at any time [but in no event earlier
than 30 days after notifying the Company in writing about the occurrence of the
Event of Default at the Lender's option by written notice to the Company (i)
declare all sums of principal and accrued interest outstanding under the Note
to be immediately due and payable without presentment, protest, further demand
or notice of dishonor, all of which are expressly waived by the Company; and
(ii) exercise its rights under the Securities Agreement. The Company will
reimburse the Lender for any costs and expenses, including reasonable
attorneys' fees, incurred in connection with the enforcement of its rights
under the Note.
Any payment of principal that is not made when due, by
acceleration or otherwise, shall bear interest after the due date and until
paid at an annual rate of * plus * percent (*%). Notwithstanding anything to
the contrary in this Agreement, no rate of interest required under this
Agreement shall exceed the maximum legal rate permitted under applicable law.
(ii) RIGHTS OF OFFSET UPON DEFAULT.
Upon the occurrence of any Event of Default, the Lender shall be entitled to
offset any monies due and payable under the Production Agreement to the Company
by the Lender against any amounts due pursuant to the Note.
9. MISCELLANEOUS.
(a) WAIVERS, ETC.
(i) The Lender and the Company
expressly acknowledge and agree that each party has relied on its own
information and completed investigation as to all matters agreed, represented,
warranted or acknowledged herein, and each party has no desire for further
information and for further investigation prior to entering into this
Agreement. Neither party has expressly or implied relied on any representation,
agreement or understanding of the other party or any of its agents, except as
expressly stated in this Agreement.
(ii) If the Lender permits actions
inconsistent with the terms of this Agreement or the Note it does so without
waiving its right to insist on the Company's full performance under this
Agreement or the Note. No waiver of any Event of Default shall be implied from
any failure of the Lender to take, or any delay by the Lender in taking action
with respect to any such Event of Default or from any previous waiver of any
similar or unrelated Event of Default. A waiver must be made in writing and
shall be limited to the express written terms of such waiver.
<PAGE> 7
(iii) Each party to this Agreement
that has been or continues to be represented by Wilson, Sonsini, Goodrich &
Rosati, P.C., counsel to the Company, hereby acknowledges that Rule 3-310 of
the Rules of Professional Conduct promulgated by the State Bar of California
requires an attorney to avoid representations in which the attorney has or had
a relationship with another party interested in the representation without the
informed written consent of all parties affected. By executing this Agreement,
each such party gives such party's informed written consent to the
representation of the Company by Wilson, Sonsini, Goodrich & Rosati, P.C., in
connection with this Agreement and the transactions contemplated hereby.
(b) NO THIRD PARTY BENEFICIARIES. This Agreement
shall be binding upon the parties hereto and their respective successors and
assigns. This Agreement is made and entered into for the sole protection and
benefit of the parties hereto and their respective permitted successors and
assigns, and no other person or entity shall be a third party beneficiary of,
or have any direct or indirect cause of action or claim in connection with,
this Agreement or any other contract between the Company and the Lender to
which it is not a named and signing party. The Company shall not assign or
transfer any of its rights under this Agreement without the Lender's prior
written consent, and any such assignment or transfer without such consent shall
be void.
(c) CALIFORNIA LAW GOVERNS. This Agreement shall
be governed by and construed in accordance with California law as applied to
contracts executed and to be performed wholly in California. The parties
expressly stipulate that any litigation under this Note shall be brought in the
State courts of the County of Los Angeles, California and in the United States
District Court for the Southern District of California. The parties agree to
submit to the jurisdiction and venue of those courts.
(d) TIME OF ESSENCE. Time is of the essence in
every provision of this Agreement and the other contracts, notes and
instruments referred to in this Agreement.
(e) ENFORCEABILITY. If any provision of this
Agreement shall for any reason be determined by a court of competent
jurisdiction to be unenforceable in any respect, such unenforceability shall
not affect any other provision thereof, and this Agreement shall be construed
as if such unenforceable provision had not been contained therein.
(f) ENFORCEMENT. If any party shall bring or
participate in any successful legal action or proceeding to enforce, defend or
construe any provision of this Agreement, then the prevailing party shall
recover from the other party (or parties) to such action or proceeding all
legal expenses and costs (including reasonable attorneys' fees) which the
prevailing party may suffer or incur in connection with such action or
proceeding.
(g) DESCRIPTIVE HEADINGS. The descriptive
headings which are used in this Agreement are for convenience only and shall
not affect the meaning of any provision of this Agreement.
(h) COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts together shall constitute one and the same instrument.
This Agreement shall become effective upon the execution and delivery of a
counterpart hereof by each of the parties hereto.
(i) AMENDMENTS, INTERPRETATION. This Agreement
contains (or incorporates) the entire agreement of the parties hereto with
respect to the matters discussed herein, and may be modified or amended only by
written instrument executed by each of the parties hereto.
(j) NOTICES. All notices given under this
Agreement or any related document shall be delivered or transmitted to the
addresses below or to such other address in the State of California as a party
may designate by written notice to the other party:
<PAGE> 8
"LENDER" DIODES INCORPORATED
3050 E. Hillcrest Drive, Suite 200
Westlake Village, CA 91362-3154
"COMPANY" FABTECH, INC.
777 N. Blue Parkway
Lee's Summit, MO 64086-5709
with copy to:
WILSON, SONSINI, GOODRICH & ROSATI
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Richard C. DeGolia, Esq.
All such notices shall be deemed to have been given at the time of actual
delivery, or on the first business day after date of mailing, when sent by
first class, express, certified or registered mail, postage prepaid.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first above written.
"COMPANY" FABTECH, INC.
By: /s/ Walter Buchanan
Title: President
"LENDER" DIODES INCORPORATED
By: /s/ David Lin
Title: President & Chief Executive
Officer
* CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 9
EXHIBIT A
$2,500,000 February 15, 1996
FABTECH, INC.
SECURED PROMISSORY NOTE
FABTECH, Inc., a Delaware corporation (the "COMPANY"), for value
received, promises to pay to Diodes Incorporated, a Delaware corporation (the
"LENDER"), the principal sum of Two Million Five Hundred Thousand Dollars
($2,500,000), plus interest thereon to be computed on such amount from the date
of disbursement until paid. Interest shall accrue on the unpaid balance at the
Cost of Funds Rate. The term "Cost of Funds Rate" shall mean the same daily
rate of interest payable from time to time by the Lender for borrowed money for
working capital purposes to its principal institutional lender. The Cost of
Funds Rate shall be determined by the Lender, which determination shall be
final and binding on the Company in the absence of manifest error. The Lender
shall notify the Company in writing of any change in the Cost of Funds Rate
within ten (10) days thereof; provided, however, that the failure to so notify
the Company shall not affect the Cost of Funds Rate. On the effective date of
this Agreement, the Cost of Funds Rate is * (*% as of February 15, 1996) plus *
percent (*%). All principal and interest shall be due and payable on demand at
any time following February 14, 2001.
All computations of interest shall be made on the basis of a year
containing a total of 360 days and shall be computed daily for the actual
number of calendar days during which any principal owed on this Note remains
outstanding by dividing the applicable interest rate by 360 and multiplying
that number by the unpaid principal balance at the end of each day.
Payment of principal and interest shall be made in lawful money of the
United States to the holder of this Note at the Company's principal offices or,
at the option of the Lender, at such other place in the United States as such
Lender shall have designated to the Company in writing.
The following is a statement of the other terms and conditions to
which this Note is subject and to which the Lender, by the acceptance of this
Note, agrees:
1. Prepayment
The Company shall have the right to prepay without penalty, in
whole or in part, the unpaid principal and interest due on this Note as of the
date of such prepayment. Any prepayment shall be applied first against
outstanding interest and then against the outstanding principal balance.
* CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 10
2. Events of Default
If one or more of the following events (herein called "Events
of Default") shall have occurred and be continuing:
(a) The Company fails to make any payment of
principal or interest when due, and such failure shall continue unremedied for
a period of ten (10) days; or
(b) The Company (i) commences any proceeding or
other action relating to it in bankruptcy or seek reorganization, dissolution,
liquidation, winding-up, or any other relief under the U.S. Bankruptcy Code, as
amended (the "Bankruptcy Code"), or (ii) makes a general assignment for the
benefit of creditors; or
(c) Any proceedings are commenced or any other
action is taken against the Company in bankruptcy or seeking reorganization,
liquidation, dissolution, winding-up, or for any other relief under the
Bankruptcy Code, as amended; and any such event continues for thirty (30) days
undismissed or undischarged; or
(d) A default by the Company under the terms of
any agreement or instrument pursuant to which the Company has incurred debt
from person or entity, including from Lender; or
(e) The Company suffers in the Lender's judgment
any material adverse changes in the condition of its business; or
(f) The Company furnished to the Lender pursuant
hereto any in connection herewith any information which proves to be materially
incorrect of misleading; or
(g) A default by the Company under the Security
Agreement dated February 15, 1996, between the Company and the Lender; or
(h) The Company shall fail to perform any of its
obligations hereunder; or
(I) Any judgment or order for the payment of
money in excess of ten thousand dollars ($10,000.00) shall be rendered against
the Company and shall remain unsatisfied or unstayed for a period of forty-five
(45) days; or
(j) The Security Agreement or the UCC-1 shall
cease for any reason to be in full force and effect or shall cease to be
effective to grant the Lender a perfected first priority security interest in
the accounts receivable;
then the Lender may at any time, but in no event earlier than 30 days after
notifying the Company in writing about the occurrence of the Event of Default,
at such Lender's option by written notice to the Company declare all sums of
principal and accrued interest outstanding hereunder to be
<PAGE> 11
immediately due and payable without presentment, protest, further demand or
notice of dishonor, all of which are expressly waived by the Company. The
Company hereby agrees to reimburse the Lender for any costs and expenses,
including reasonable attorneys' fees, incurred in connection with the
enforcement of its rights under this Note.
(k) All agreements between the Company and the
Lender expressly are limited so that in no event whatsoever (whether by reason
of the advancement of funds hereunder, acceleration of maturity of the unpaid
principal balance or otherwise) shall the amount paid or agreed to be paid by
the Company to the Lender for the use of funds advanced hereunder exceed the
highest rate prescribed by law. If fulfillment of any provision hereof at the
time performance of such provision becomes due involves exceeding such highest
rate prescribed by law, then such obligation shall be reduced to such highest
rate prescribed by law. If by any circumstance the Lender shall be deemed to
have received as interest an amount which exceeds the highest rate prescribed
by law, any amount which may be deemed excessive interest shall be applied to
the reduction of the unpaid principal balance and not to the payment of
interest. The terms and provisions of this paragraph shall control all other
terms and provisions contained in this Note.
3. Waiver
If the Lender permits actions inconsistent with the terms of
this Note it does so without waiving its right to insist on the Company's full
performance under this Note. No waiver of any Event of Default shall be
implied from any failure of the Lender to take, or any delay by the Lender in
taking, action with respect to any such Event of Default or from any previous
waiver of any similar or unrelated Event of Default. A waiver must be made in
writing and shall be limited to the express written terms of such waiver.
4. Notices
All notices and other communications required or permitted
hereunder shall be in writing shall be mailed by first- class mail, postage
prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to
the Lender at such Lender's address as set forth herein, or at such other
address as the Lender shall have furnished to the Company in writing, or (b) if
to the Company at 777 N. Blue Parkway, Suite 350, Lee's Summit, Missouri,
64086-5709 addressed to the attention of the President, or at such other
address as the Company shall have furnished to the Lender.
5. Governing Law
This Note and the obligations of the Company hereunder shall
be governed by and construed in accordance with the laws of the State of
California applicable to contracts made and to be performed wholly within that
State. The parties expressly stipulate that any litigation under this Note
shall be brought in the State courts of the County of Los Angeles, California
and in the United States District Court for the Southern District of
California. The parties agree to submit to the jurisdiction and venue of those
courts.
<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its name this 15th day of February, 1996.
FABTECH, INC.
By: /s/ Walter Buchanan
Title: President
AGREED TO AND ACCEPTED:
DIODES INCORPORATED
By: /s/ David Lin
Title: President & Chief Executive Officer
* CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
<PAGE> 13
EXHIBIT B
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of February 15, 1996, is
executed by FABTECH, INC., a Delaware corporation (the "Company"), in favor of
DIODES INCORPORATED, a Delaware corporation (the "Lender").
RECITALS
A. Pursuant to the terms of a Loan Agreement, dated as
of February 15, 1996 (the "Loan Agreement"), between the Company and the
Lender, the Company has executed a Secured Promissory Note, dated as of
February 15, 1996 (the "Note"), in favor of the Lender.
B. The Loan Agreement and the Note provide that the
Company's obligations to the Company will be secured by this Security Agreement
executed by the Company in favor of the Lender.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company hereby agrees with the Lender as follows:
1. Definitions and Interpretation. When used in this
Security Agreement, capitalized terms not otherwise defined shall have the
respective meanings set forth in Attachment 1 hereto which is incorporated
herein by this reference. Unless otherwise defined herein, all terms defined
in the UCC shall have the respective meanings given to those terms in the UCC.
2. Grant of Security Interest. As security for the
Obligations, the Company hereby pledges and assigns to the Lender and grants to
the Lender a security interest in all right, title and interests of the Company
in and to the Collateral.
3. Representations and Warranties. The Company
represents and warrants to the Lender that (a) the Company is the owner of the
Collateral (or, in the case of after-acquired Collateral, at the time the
Company acquires rights in the Collateral, will be the owner thereof) and that
no other Person has (or, in the case of after-acquired Collateral, at the time
the Company acquires rights therein, will have) any right, title, claim or
interest (by way of Lien or otherwise) in, against or to the Collateral, other
than Permitted Liens; (b) the Lender has (or in the case of after-acquired
Collateral, at the time the Company acquires rights therein, will have) a first
priority perfected security interest in the Collateral, except for Permitted
Liens; and (c) each Receivable is genuine and enforceable against the party
obligated to pay the same.
<PAGE> 14
4. Certain Covenants. While any amount is outstanding
under the Note, without the prior written consent of the Lender:
<PAGE> 15
5. Covenants Relating to Collateral. The Company hereby
agrees (a) to perform all acts that may be necessary to maintain, preserve,
protect and perfect the Collateral, the Lien granted to the Lender therein and
the first priority of such Lien, except for Permitted Liens; (b) not to use or
permit any Collateral to be used (i) in violation of any provision of any
Transaction Document, (ii) in violation of any applicable law, rule or
regulation; (c) to pay promptly when due all taxes and other governmental
charges, all Liens and all other charges now or hereafter imposed upon or
affecting any Collateral; (d) without 30 days' written notice to the Lender,
(i) not to change the Company's name or place of business (or, if the Company
has more than one place of business, its chief executive office), or the office
in which the Company's records relating to Receivables are kept, (ii) not to
keep Receivables at any location other than its chief executive office, (e) to
procure, execute and deliver from time to time any endorsements, assignments,
financing statements and other writings reasonably deemed necessary or
appropriate by the Lender to perfect, maintain and protect its Lien hereunder
and the priority thereof and to deliver promptly to the Lender all originals of
Collateral; (f) to appear in and defend any action or proceeding which may
affect its title to or the Lender's interest in the Collateral; (g) if the
Lender gives value to enable the Company to acquire rights in or the use of any
Collateral, to use such value for such purpose; (h) to keep separate, accurate
and complete records of the Collateral and to provide the Lender with such
records and such other reports and information relating to the Collateral as
the Lender may reasonably request from time to time, but in no event more often
than once per moth; (i) not to surrender or lose possession of (other than to
the Lender), sell, encumber, or otherwise dispose of or transfer any Collateral
or right or interest therein, and to keep the Collateral free of all Liens
except Permitted Liens; and (j) to collect, enforce and receive delivery of the
Receivables in accordance with past practice until otherwise notified by the
Lender.
6. Authorized Action by Agent. The Company hereby
irrevocably appoints the Lender as its attorney-in-fact and agrees that the
Lender may perform (but the Lender shall not be obligated to and shall incur no
liability to the Company or any third party for failure so to do) any act which
the Company is obligated by this Security Agreement to perform, and to exercise
such rights and powers as the Company might exercise with respect to the
Collateral, including the right to (a) collect by legal proceedings or
otherwise and endorse, receive and receipt for all dividends, interest,
payments, proceeds and other sums and property now or hereafter payable on or
on account of the Collateral; (b) enter into any extension, reorganization,
deposit, merger, consolidation or other agreement pertaining to, or deposit,
surrender, accept, hold or apply other property in exchange for the Collateral;
(c) insure, process and preserve the Collateral; (d) make any compromise or
settlement, and take any action it deems advisable, with respect to the
Collateral; (e) pay any indebtedness of the Company relating to the Collateral;
and (f) execute UCC financing statements and other documents, instruments and
agreements required hereunder; provided, however, that the Lender shall not
exercise any such powers prior to the occurrence of an Event of Default and
shall only exercise such powers during the continuance of an Event of Default.
The Company agrees to reimburse the Lender upon demand for any reasonable costs
and expenses, including attorneys' fees, the Lender may incur while acting as
the Company's attorney-in-fact hereunder, all of which costs and expenses are
included in the Obligations. It is further agreed and understood between the
parties hereto that such care as the Lender gives to the safekeeping of its own
property of like kind shall constitute reasonable care of the Collateral when
in the Lender's possession; provided, however, that the Lender shall not be
required to make any presentment, demand or protest, or give any notice and
need not take any action to preserve any rights against any prior party or any
other person in connection with the Obligations or with respect to the
Collateral.
7. Default and Remedies. The Company shall be deemed in
default under this Security Agreement upon the occurrence and during the
continuance of an Event of Default (as defined in the Note). Upon the
occurrence and during the continuance of any such Event of Default, the Lender
shall have the rights of a
15
<PAGE> 16
secured creditor under the UCC, all rights granted by this Security Agreement
and by law, including the right to: (a) require the Company to make the
Collateral available to the Lender at a place to be designated by the Lender;
and (b) prior to the disposition of the Collateral, store, process, it or
otherwise prepare it for disposition in any manner and to the extent the Lender
deems appropriate. The Company hereby agrees that thirty (30) days' notice of
any intended sale or disposition of any Collateral is reasonable.
8. Miscellaneous.
(a) Notices. Except as otherwise provided herein, all
notices, requests, demands, consents, instructions or other communications to
or upon the Company or the Lender under this Security Agreement shall be by
telecopy or in writing and telecopied, mailed or delivered to each party at
telecopier number or its address set forth below (or to such other telecopy
number or address as the recipient of any notice shall have notified the other
in writing). All such notices and communications shall be effective (a) when
sent by Federal Express or other overnight service of recognized standing, on
the business day following the deposit with such service; (b) when mailed, by
registered or certified mail, first class postage prepaid and addressed as
aforesaid through the United States Postal Service, upon receipt; (c) when
delivered by hand, upon delivery; and (d) when telecopied, upon confirmation of
receipt.
Lender: DIODES INCORPORATED
3050 East Hillcrest Drive
Westlake Village, CA 91362
Attn: Joseph Liu
Telephone No.: (805) 446-4800
Telecopier No.: (805) 374-1255
Company: FABTECH, INC.
777 N. Blue Parkway, Suite 350
Lee's Summit, MO 64086-5709
Attn: Walter Buchanan
Telephone No.: (816) 251-8800
Telecopier No.: (816) 251-8850
(b) Nonwaiver. No failure or delay on the Lender's part
in exercising any right hereunder shall operate as a waiver thereof or of any
other right nor shall any single or partial exercise of any such right preclude
any other further exercise thereof or of any other right.
(c) Amendments and Waivers. This Security Agreement may
not be amended or modified, nor may any of its terms be waived, except by
written instruments signed by the Company and the Lender. Each waiver or
consent under any provision hereof shall be effective only in the specific
instances for the purpose for which given.
(d) Assignments. This Security Agreement shall be
binding upon and inure to the benefit of the Lender and the Company and their
respective successors and assigns; provided, however, that the Company may not
sell, assign or delegate rights and obligations hereunder without the prior
written consent of the Lender.
16
<PAGE> 17
(e) Cumulative Rights, etc. The rights, powers and
remedies of the Lender under this Security Agreement shall be in addition to
all rights, powers and remedies given to the Lender by virtue of any applicable
law, rule or regulation of any governmental authority, any Transaction Document
or any other agreement, all of which rights, powers, and remedies shall be
cumulative and may be exercised successively or concurrently without impairing
the Lender's rights hereunder. The Company waives any right to require the
Lender to proceed against any Person or to exhaust any Collateral or to pursue
any remedy in the Lender's power.
(f) Partial Invalidity. If at any time any provision of
this Security Agreement is or becomes illegal, invalid or unenforceable in any
respect under the law or any jurisdiction, neither the legality, validity or
enforceability of the remaining provisions of this Security Agreement nor the
legality, validity or enforceability of such provision under the law of any
other jurisdiction shall in any way be affected or impaired thereby.
(g) Expenses. The Company shall pay on demand all
reasonable fees and expenses, including reasonable attorneys' fees and
expenses, incurred by the Lender in connection with custody, preservation or
sale of, or other realization on, any of the Collateral or the enforcement or
attempt to enforce any of the Obligations which is not performed as and when
required by this Security Agreement.
(h) Construction. Each of this Security Agreement and
the other Transaction Documents is the result of negotiations among, and has
been reviewed by, the Company, the Lender and their respective counsel.
Accordingly, this Security Agreement and the other Transaction Documents shall
be deemed to be the product of all parties hereto, and no ambiguity shall be
construed in favor of or against the Company or the Lender.
(i) Entire Agreement. This Security Agreement and each
of the other Transaction Documents, taken together, constitute and contain the
entire agreement of the Company and the Lender and supersede any and all prior
agreements, negotiations, correspondence, understandings and communications
among the parties, whether written or oral, respecting the subject matter
hereof.
(j) Governing Law. This Security Agreement shall be
governed by and construed in accordance with the laws of the State of
California without reference to conflicts of law rules (except to the extent
governed by the UCC).
(k) Jury Trial. EACH OF THE COMPANY AND THE LENDER, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS SECURITY
AGREEMENT.
IN WITNESS WHEREOF, the Company has caused this Security
Agreement to be executed as of the day and year first above written.
FABTECH, INC.
By: /s/ Walter Buchanan
Name: Walter Buchanan
Title: President
AGREED:
17
<PAGE> 18
DIODES, INCORPORATED
By: /s/ David Lin
Name: David Lin
Title: President & Chief Executive Officer
18
<PAGE> 19
ATTACHMENT 1
TO SECURITY AGREEMENT
As used in the Security Agreement of which this Attachment 1
is a part, the following capitalized terms shall have the following respective
meanings:
"Collateral" shall mean and include all right, title and
interest of the Company now owned or hereafter acquired in and to the
following:
(a) All accounts, chattel paper, contract rights and
rights to the payment of money (collectively, the "Receivables");
(b) All proceeds of the foregoing (including, without
limitation, whatever is receivable or received when Collateral or proceeds is
sold, collected, exchanged, returned, substituted or otherwise disposed of,
whether such disposition is voluntary or involuntary, including rights to
payment and return premiums and insurance proceeds under insurance with respect
to any Collateral, and all rights to payment with respect to any cause of
action affecting or relating to the Collateral).
"Lien" shall mean, with respect to any property, any security
interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or
on such property or the income therefrom, including, without limitation, the
interest of a vendor or lessor under a conditional sale agreement, capital
lease or other title retention agreement, or any agreement to provide any of
the foregoing, and the filing of any financing statement or similar instrument
under the UCC or comparable law of any jurisdiction.
"Obligations" shall mean and include all loans, advances,
debts, liabilities and obligations, howsoever arising, owed by the Company to
the Lender of every kind and description (whether or not evidenced by any note
or instrument and whether or not for the payment of money), direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising, including, without limitation, obligations arising under or pursuant
to the terms of the Note and the other Transaction Documents, including all
interest, fees, charges, expenses, attorneys' fees and accountants' fees
chargeable to and payable by the Company hereunder and thereunder.
"Permitted Liens" shall mean and include:
(a) Liens for taxes or other governmental charges not at
the time delinquent or thereafter payable without penalty or being contested in
good faith, provided provision is made to the reasonable satisfaction of the
Lender for the eventual payment thereof if subsequently found payable;
(b) Liens of carriers, warehousemen, mechanics,
materialmen, vendors, and landlords incurred in the ordinary course of business
for sums not overdue or being contested in good faith, provided provision is
made to the reasonable satisfaction of the Lender for the eventual payment
thereof if subsequently found payable;
(c) Deposits under workers' compensation, unemployment
insurance and social security laws or to secure the performance of bids,
tenders, contracts (other than for the repayment of borrowed money) or leases,
or to secure statutory obligations of surety or appeal bonds or to secure
indemnity, performance or other similar bonds in the ordinary course of
business;
(d) Liens securing obligations under a capital lease if
such lease is permitted under this Security Agreement and such Liens do not
extend to property other than the property leased under such capital lease;
19
<PAGE> 20
(e) Easements, reservations, rights of way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property in a manner not materially or adversely
affecting the value or use of such property; and
(f) Liens in favor of the Lender.
"Person" shall mean and include an individual, a partnership,
a corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a governmental authority.
"Receivables" shall have the meaning given to that term in the
definition of "Collateral" set forth in this Attachment 1.
"Transaction Documents" shall mean this Security Agreement,
the Note, the Loan Agreement dated as of February 15, 1996, between the Company
and the Lender, and all other documents or agreements executed in connection
with the foregoing.
"UCC" shall mean the Uniform Commercial Code as in effect in
the State of California from time to time.
20
<PAGE> 21
EXHIBIT C
UNIFORM COMMERCIAL CODE-FINANCING STATEMENT-FORM UCC-1
IMPORTANT-READ INSTRUCTIONS ON BACK BEFORE FILLING OUT FORM
STATE OF MISSOURI
<TABLE>
<S> <C> <C>
This FINANCING STATEMENT is presented to a Filing Officer for No. of Additional Sheets 3. - To be Recorded in Book_____
filing pursuant to the Uniform Commercial Code: Sheets Presented: 1 Real Estate Records Page:_____
</TABLE>
<TABLE>
<S> <C> <C>
1. Debtor(s) (Last Name First) and Address(es): 2. Secured Party(ies): Name(s) Address(es): 4. For Filing Officer use only:
</TABLE>
FABTECH, INC. DIODES INCORPORATED
777 N. BLUE PARKWAY, SUITE 350 3050 EAST HILLCREST DRIVE
LEE'S SUMMIT, MO 64086-5709 WESTLAKE VILLAGE, CA 91362
5. This Financing Statement Covers the Following Types (or Items) of Property:
THE PROPERTY OF DEBTOR DESCRIBED ON "SCHEDULE 1"
ATTACHED HERETO, WHICH IS MADE A PART HEREOF BY
THIS REFERENCE.
X Products of the Collateral are
Also Covered
6. Description of Real Estate: 7. Name(s) of Record Owner(s):
8. Assignee(s) of Secured Party
and Address:
This statement is signed by the Secured Party instead of the Debtor to perfect
a security interest in collateral:
<TABLE>
<S> <C>
(Please - already subject to a security interest in another jurisdiction when it was brought into this state,
check or when the debtor's location was changed to this state.
appro- - which is proceeds of the original collateral described above in which a security interest
priate was perfected. Proceeds should be described above.
box) - as to which the filing has lapsed.
- acquired after a change of name, identity or corporate structure of the debtor.
</TABLE>
FABTECH, INC. DIODES INCORPORATED
BY /s/ Walter Buchanan BY /s/ David Lin
SIGNATURE(S) OF DEBTOR(S) SIGNATURE(S) OF SECURED PARTY(IES)
21
<PAGE> 1
Exhibit 10.17
Exhibit 10.17, Kai Hong Joint Venture Agreement, constitutes a fair
and accurate English translation of the exhibit.
DIODES INCORPORATED (Registrant)
/s/ JOSEPH LIU March 22, 1996
Vice President, Operations,
Secretary, and Chief Financial Officer
(Principal Financial and Accounting Officer)
1
<PAGE> 2
EXHIBIT 10.17
JOINT VENTURE AGREEMENT
BETWEEN
MRS. J.H. XING
AND
DIODES INCORPORATED
MARCH 18, 1996
* CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION
2
<PAGE> 3
TABLE OF CONTENTS
JOINT VENTURE AGREEMENT
<TABLE>
<S> <C>
ARTICLE I
Summary ........................................................................... Page 1
ARTICLE II
Parties............................................................................ Page 1
1. Formation of Joint Venture................................................. Page 1
ARTICLE III
Purpose and Scope.................................................................. Page 2
2. The Company................................................................ Page 2
3. Scope...................................................................... Page 2
4. Scale...................................................................... Page 2
ARTICLE IV
Total Investment and Investment Ratio.............................................. Page 2
5. Total Investment Amount.................................................... Page 2
6. Registered Capital......................................................... Page 2
7. Percent of Ownership....................................................... Page 2
8. Remitting of Registered Capital............................................ Page 2
9. Transfer of Whole or Partial Investment.................................... Page 3
10. Sell Whole or Partial Ownership............................................ Page 3
11. Involuntary Takeover....................................................... Page 3
11.1 Positive Retained Earnings (f1 ratio)............................. Page 3
11.2 Negative earnings................................................. Page 4
12. Consecutive years losses................................................... Page 4
ARTICLE V
Shanghai Kai Hong Electronic Co., Ltd.
Capital Investment Increase........................................................ Page 4
13. Registered Capital......................................................... Page 4
14. Increased Investment....................................................... Page 5
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI
15. Responsibility............................................................. Page 5
Party A's Responsibility................................................... Page 5
1. Remit Registered Capital.......................................... Page 6
2. Obtain License.................................................... Page 6
3. Provide utilities................................................. Page 6
4. Foreign Employees Documentation................................... Page 6
5. Miscellaneous..................................................... Page 6
Party B's Responsibility................................................... Page 6
1. Remit Registered Capital.......................................... Page 6
2. Export............................................................ Page 6
3. Technical and Management.......................................... Page 6
4. Miscellaneous..................................................... Page 6
5. Guarantee for Loan................................................ Page 7
1. For Company................................................ Page 7
2. For Party A................................................ Page 7
ARTICLE VII
Sales of Product................................................................... Page 7
16. Export of Product.......................................................... Page 7
17. Sales Price................................................................ Page 7
ARTICLE VIII
Board of Directors................................................................. Page 7
18. Establishment Date......................................................... Page 7
19. Members.................................................................... Page 7
20. Authority.................................................................. Page 8
21. Meetings................................................................... Page 8
22. Decision or Resolution..................................................... Page 8
ARTICLE IX
Management and Operations.......................................................... Page 8
23. General Manager............................................................ Page 8
24. Acting General Manager..................................................... Page 9
25. Dismissal of Key Employee.................................................. Page 9
ARTICLE X
Distribution of Profit and Risk.................................................... Page 9
26. Profit/Loss................................................................ Page 9
27. Distribution of Profit..................................................... Page 9
</TABLE>
4
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE XI
Term............................................................................... Page 10
28. Term....................................................................... Page 10
29. Extension of Business Period............................................... Page 10
ARTICLE XII
Liquidation........................................................................ Page 10
30. Liquidate.................................................................. Page 10
ARTICLE XIII
Amendment, Changes or Termination.................................................. Page 11
31. Written Approval........................................................... Page 11
32. Circumstances Beyond Control............................................... Page 11
33. Non-Performance............................................................ Page 11
ARTICLE XIV
Contempt Party's Responsibility.................................................... Page 12
34. Delinquent in Registered Capital........................................... Page 12
35. Failure to Function........................................................ Page 12
ARTICLE XV
Force Majeure...................................................................... Page 12
36. Acts of God, Force Majeure................................................. Page 12
ARTICLE XVI
Governing Law...................................................................... Page 13
37. Obligation................................................................. Page 13
ARTICLE XVII
Arbitration........................................................................ Page 13
38. Place and Applicable Rules................................................. Page 13
39. Entire Agreement........................................................... Page 13
ARTICLE XVIII
40. Original Agreement in Chinese.............................................. Page 13
ARTICLE XIX
Miscellaneous...................................................................... Page 14
41. Original Government Approval Authority..................................... Page 14
42. Equal Power................................................................ Page 14
43. Original Documents......................................................... Page 14
44. Number of Copies........................................................... Page 14
45. Agreement Signed........................................................... Page 14
</TABLE>
Dated March 18, 1996
5
<PAGE> 6
JOINT VENTURE AGREEMENT
ARTICLE I
SUMMARY
To satisfy market demand for certain electronic components and manufacturing
management requirements, Diodes Incorporated and Mrs. J. H. Xing (the original
sole investor of Shanghai Kai Hong Electronic Company, Ltd.), based on fair and
mutual benefit principle agree to execute this agreement (the "Agreement") and
establish a joint venture to capitalize and operate Shanghai Kai Hong
Electronics Company, Ltd. (the "Company"). The Company's address shall be:
Xinqiao Town, Song Jian County, Shanghai, the People's Republic of China.
ARTICLE II
PARTIES
1. Formation of the Company: The partners of the Joint Venture are:
Party A: Overseas Chinese, Mrs. J. H. Xing (the original sole
investor of
Shanghai Kai Hong Electronic Company, Ltd.)
Address: 97-12 63rd Drive, Apt. 10D
Rego Park, New York 11374 U. S. A.
Party B: Diodes, Incorporated, a U. S. A. Corporation
Address: 3050 Hillcrest, Suite 200
Westlake Village, California 91362-3254 U.S.A.
6
<PAGE> 7
ARTICLE III
PURPOSE AND SCOPE
2. The Company, based on the good intention of both parties, will develop
and use advanced manufacturing techniques and modern management
concepts in its business operations to achieve maximum profitability.
3. Scope: To manufacture and sell diodes and associated electronic
components, surface mount devices (SMD) SOT-23 transistors and other
electronic components and packages.
4. Scale: Company's manufacturing capability will be developed in
different phases according to market demand.
ARTICLE IV
TOTAL INVESTMENT AND INVESTMENT RATIO
5. Total investment amount: U. S. Dollar * (U. S. $*).
6. Registered Capital: U. S. Dollar * (U. S. $*).
7. Party A's paid in capital shall be U. S. Dollar * (U. S. $*), and
shall have thirty percent (30%) ownership of the Company, Party B's
paid in capital shall be U. S. Dollar * (U. S. $*), and shall have
seventy percent (70%) ownership of the Company.
8. Party A and Party B shall remit the registered capital in stages
according to the ratio set forth above. Within the first three (3)
months of the Company obtaining its business license, both parties
should remit up to fifteen percent (15%) of the
7
<PAGE> 8
registered capital. The balance shall be paid in several phases
within the next three (3) years in intervals agreed upon by the
parties in the form of U. S. currency, equipment or building and
utilities.
9. Neither party may transfer its interest in the Company to a third
party without the written consent of the other party, and the Chinese
authorities approval. Any such transfer shall be subject to the
non-transferring party's right of first refusal to acquire the
interest of the transferring party, on the same terms and conditions
as the proposed transfer.
10. If Party B offers to sell its whole or partial ownership in the
Company to Party A, and Party A desires to purchase such interest,
Party B agrees to allow Party A to pay the mutually agreed sales price
during a period which shall be no less than three (3) years and not
greater than five (5) years. The interest rate shall be calculated
according to the most favorable interest rate available to U. S.
currency loan at the time of the sale.
11. At any time during the first ten (10) years of this agreement, if
Party B finds it difficult to work with Party A, then Party B shall
have the right to purchase Party A's whole or a portion of its
ownership interest in the Company.
11.1 If the Company's Retained Earnings at that time is positive,
the purchase price shall be calculated as follows:
The Company's net worth x Party A's share ratio x
f1 (f1 is a factor).
f1: For the first and second year of the joint venture
agreement, f1 is *. For the third and fourth year
of the joint venture agreement, f1 is *. For the
fifth and sixth year of the joint venture agreement,
f1 is *. For the seventh through tenth year of the
joint venture agreement, f1 is *.
8
<PAGE> 9
11.2 If the Company's retained earnings at the time of the conflict
is negative, then the payments should be equal to the original
value of Party A's investment. The Company's loss will be
Party B's responsibility.
This clause is valid for ten (10) years from effective date of this
agreement. It will become invalid thereafter.
12. If during the initial ten (10) years of this agreement, the Company
has two (2) consecutive years in which it posts losses, Party A has
the right to sell its all or a portion of its interest in the Company
to Party B. The sales price in such an event will be equivalent to the
Company's net worth prior to its loses times Party A's share ratio.
However, in no event shall the purchase price be below Party A's
original capital investment.
This clause is valid for ten (10) years from the date of this
agreement, it will become invalid thereafter.
ARTICLE V
SHANGHAI KAI HONG ELECTRONIC CO., LTD.
CAPITAL INVESTMENT INCREASE
13. Prior to the establishment of this joint venture, Shanghai Kai Hong
Electronic Co., Ltd.'s original Registered Capital was U. S. Dollar *
(U. S. $*), which consists of U. S. Dollar * (U. S. $*) for Diodes
products and U. S. Dollar * (U. S. $*) for MELF and SOT-23
semi-conductor packages.
In order to fulfill Party B's Securities & Exchange Commission (SEC)
obligations in the U.S.A., it is necessary for the company to have a
clear financial reporting system for the Company. Party A agrees to
transfer its original investment of
9
<PAGE> 10
U. S. Dollar * (U. S. $*), with its associated asset, liability, and
shareholders equity out of Kai Hong.
Once the assets, liability, and shareholder equity which were related
to the diodes products were transferred out of the old Kai Hong
Company, it will no longer have any association with the new Kai Hong
Company.
All of the original investment of U. S. Dollar *(U. S. $*) and its
associated assets, liability, and shareholder equity which were
related to the MELF and SOT-23 product are to remain in the Company
(New Kai Hong).
All the expenses relating to the preparation of product and training
of employees prior to the initial sales shall be designated as
start-up capital and amortized accordingly.
14. The Shanghai Kai Hong Electronic Co., Ltd. increased investment is
U.S. Dollar * (U. S. $*).
ARTICLE VI
RESPONSIBILITY
15. Party A and Party B shall have the following responsibilities:
Party A's responsibilities:
1. Remit the Registered Capital according to Article IV, Item 7.
Party A may require Party B to provide a guarantee for a loan
to provide Party A's capital. The amount of this loan shall
not exceed * (*) of Party A's Registered Capital
investment. Party A agrees to pledge a pro rata share of its
ownership interest in the Company as collateral to Party B.
10
<PAGE> 11
The loan shall be due and payable to the lender within *
(*) years. Should Party A become delinquent in excess of six
(6) months of the scheduled payments of principal and/or
interest, Party A agrees to transfer a pro rata share of its
ownership interest in the Company to Party B to compensate
Party B for any losses Party B suffers as a result of its
guarantee of the loan.
2. Obtain the license for the Company's building and the approval
use of the land for the Company from the appropriate Chinese
authorities.
3. To provide adequate water, electricity, compressed air, and
plating facility.
4. Assist foreign employees in obtaining necessary entry visa,
work permit, and travel documentation in the People's Republic
of China.
5. To fulfill any reasonable requests made by the Company.
Party B's responsibilities:
1. Remit in the Registered Capital according to Article IV,
Item 7.
2. Export all Company products for sales to worldwide markets,
currently 100% export.
3. Provide technical, quality, manufacturing, financial and
control, administration, and train local management personnel.
4. To fulfill any reasonable requests made by the Company.
5. If necessary, provide a guarantee for the following:
11
<PAGE> 12
1. A loan to the Company from a bank which is authorized
by the People's Republic of China in an amount up to
the amount allowed by local government regulations.
2. Provide necessary guarantee for a loan to Party A as
specified above in Party A's Responsibilities - 1.
ARTICLE VII
SALES OF PRODUCT
16. It is currently agreed that One Hundred Percent (100%) of Company's
product will be purchased by and exported by Party B.
17. The sales price for the Company's products shall be established based
on the manufacturing cost plus reasonable profit margin, but in no
event higher than a price which is competitive within the worldwide
market.
ARTICLE VIII
BOARD OF DIRECTORS
18. The Company shall be formally established as of the date of issuance
of its business license by the People's Republic of China.
19. The Board shall consist of seven (7) members, two (2) of which shall
be appointed by Party A and five (5) of which shall be appointed by
Party B. The Chairman of the Board shall be appointed by Party B.
The Deputy Chairman of the Board shall be appointed by Party A. The
appointment of each member of the Board of Directors shall be for a
period of four (4) years, and renewable by corresponding party.
12
<PAGE> 13
20. The Board of Directors shall be the highest authority in the Company,
and shall make all major decisions for the Company.
21. The Board shall meet at least once a year. Meetings may be called by
the Chairman of the Board who shall host the meeting. The minutes of
each Board meeting shall be taken and properly retained by the
Company's secretary. A quorum shall consist of two-thirds (2/3) of
the Board members, any decisions or consent shall be invalid without
two-thirds (2/3) of the Board members present at the meeting. If any
Board member (including the Chairman of the Board) cannot be present,
he/she may designate another Board member to take his/her place by
signing a written Proxy. The Proxy shall be interpreted as physical
presence of the absent member and the designed member may cast the
vote of the absent member. Any member absent without designating
another member will be deemed as having waived his/her right to vote.
22. Any decision or resolution of the Board meeting is deemed to be valid
only if approved by greater than one-half (1/2) of the members who
are present in the meeting.
ARTICLE IX
MANAGEMENT AND OPERATIONS
23. The Company shall have an appropriate management organization. Party B
shall be responsible for the Company's production and management. The
Board will hire a General Manager and an Assistant General Manager for
a term of two (2) years, renewable upon approval of the Board. The
General Manager and Assistant General Manager shall be prohibited from
participating in any other organization which is in competition with
this company.
13
<PAGE> 14
24. The General Manager shall execute all decisions made by the Board of
Directors, and shall manage the Company's daily operation. The
Assistant General Manager shall assist the General Manager in his/her
daily duties. During the General Manager's absence, the Assistant
General Manager or other managers who are assigned by the General
Manager, shall act in his/her capacity. The Company shall establish
the following departments: Manufacturing, Sales, Administration,
Financial and Control, and others which are deemed to be necessary.
Department Managers are responsible for each department's duties as
designated by the General Manager and Assistant General Manager, and
shall report to the General Manager.
25. If the General Manager, the Assistant General Manager, or other
administrative personnel is not performing his/her duties, or
receiving payments from outside sources that are deemed to be
inappropriate, or is showing favoritism, the Board shall have the
authority to terminate that Manager.
ARTICLE X
DISTRIBUTION OF PROFIT AND LOSES
26. Party A and Party B will allocate the Company's profit and losses in
direct relations to their investment ratios.
27. The Company shall distribute its profit once every year. During the
first two (2) months of each accounting year, the General Manager will
present the previous year balance sheet, profit and loss statements,
fixed asset list, and profit allocation proposal to the local
government body for review and approval; it then shall present to the
Board of Directors for review and approval. The profit distribution
plan and the amount for each party shall be announced by March 15. In
14
<PAGE> 15
consideration of the Company's long term growth, the Board of
Directors may pass a resolution to temporarily suspend the profit
distribution. The reinvestment of the retained earnings shall
increase both party's paid in capital on a pro rata basis.
ARTICLE XI
TERM
28. This joint venture period is thirty (30) years, from the date the
business license is obtained.
29. To extend the Company period, The Board of Directors may extend the
term of the joint venture by resolution passed at least one (1) year
before its maturity and submit its written consent to the appropriate
government body for review and approval. Upon official approval, the
Company shall apply the amendment of business registration from the
government body.
ARTICLE XII
LIQUIDATION
30. Upon maturity or dissolution, the Company should liquidate according
to the rules and regulations provided by "Shanghai Foreign Investment
Business Liquidation Law". The liquidated asset, after made tax
payments, and satisfying all liabilities, shall be distributed to
Party A and Party B according to the capital ratio. Upon
liquidation, the Company shall report to the appropriate government
body, and apply for cancellation of registration and return the
business license, and make the necessary announcement to the public.
15
<PAGE> 16
ARTICLE XIII
AMENDMENT, CHANGES OR TERMINATION OF THE AGREEMENT
31. Any amendment, changes, or termination of this agreement shall be
approved in writing by both Party A and Party B and approved by the
appropriate government body.
32. If circumstances beyond either party's control result in operating
losses for seven consecutive years, the Board of Directors may adopt a
resolution to terminate this agreement and request the approval from
the appropriate government body.
33. Failure of either party to perform its responsibilities as specified
in this Agreement or Company's By-laws, or material violation of this
Agreement or Company's By-laws, which results in the Company's
inability to perform its business as specified in this agreement shall
be deemed to be in default. The party who is abiding of this
agreement may ask the party who is in default for compensation and
also has the right to obtain from the government body authorization to
terminate this agreement. If both parties agree to continue this
Company, the parties who are in default shall compensate the Company
for its economic losses.
16
<PAGE> 17
ARTICLE XIV
CONTEMPT PARTY'S RESPONSIBILITY
34. If either Party A or Party B fails to submit its portion of the
Registered Capital as specified herein, the delinquent party shall be
penalized for each month of such failure. The party in violation
shall pay to the other party an amount equal to three percent (3%) of
the amount due. If the capital contribution is overdue more than
three (3) months (including the scheduled payment plus the penalty),
the party who is abiding has the right to cease this agreement, and
ask the party in violation for compensation for all financial losses
resulting from the violation.
35. Party who fails to function properly which results in whole or in
partial, of this agreement or its attachments cannot be performed,
shall be responsible for entire loss. This party shall compensate the
other party for all its economic losses. If both parties are at
fault, the damages shall be apportioned in accordance to the amount of
each party's fault.
ARTICLE XV
FORCE MAJEURE
36. If one party cannot perform its obligations under this agreed because
of acts of God (i.e., earthquakes, typhoon, floods, or war, etc.), or
incidents of force majeure, the party so affected shall immediately
inform the other party and shall provide the proof of the event of
force majeure within the fifteen (15) day of each event. This proof
document shall be issued by authorized institution. Depending on the
impact on this agreement, the parties may negotiate and decide to
waive the requirement to perform any or all the requirements of this
agreement.
17
<PAGE> 18
ARTICLE XVI
GOVERNING LAW
37. This agreement and the obligation of the parties hereunder shall be
interpreted, construed, and enforced in accordance with the People's
Republic of China's, laws, rules, and regulations.
ARTICLE XVII
ARBITRATION
38. Any of the dispute arising out of the execution, interpretation or
performance of this agreement or associated with this agreement, shall
be resolved through negotiation in good faith. Should the negotiation
not resolve the dispute, it shall be submitted to arbitration.
Arbitration proceedings are to be held in Shanghai by the People's
Republic of China International Economic Trading Arbitration
Committee, Shanghai Branch, in accordance with "the rules of the
People's Republic of China International Economic Trading Arbitration
Committee", and shall apply the law of the People's Republic of
China's and generally accepted international practices. The decision
of the arbitration shall be final and binding to each of the parties.
39. During the arbitration period other than the issue that is in dispute,
the rest of this agreement shall continue in full force and effect.
ARTICLE XVIII
LANGUAGE
40. The original of this Agreement is in Chinese. Its English
translation shall be of equal validity. Any dispute will be resolved
according to the Chinese version.
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<PAGE> 19
ARTICLE XIX
MISCELLANEOUS
41. This agreement and its attachment, the Product Sales Agreement and the
Equipment Purchase Agreement, shall be submitted to Xinqiao Town, Song
Jian County, Shanghai, the People's Republic of China's government
for approval and shall be effective from the date of approval.
42. The attachment to this agreement are binding and shall have the same
force and effect as this Agreement.
43. Either Party A or Party B can use the telex or fax communication
system to give notices, however the original documents shall be
forwarded to the addressee by the addresser when either party's rights
and obligation are involved. The address of each party listed above
in this agreement shall be the official address.
44. This agreement consists of five (5) originals, Party A and Party B
each has two (2) sets, the other set is to be submitted to the
government party.
45. This agreement signed March 18, 1996 by authorized persons in
Shanghai.
Party A: Party B:
Overseas Chinese Diodes, Incorporated
Mrs. J. H. Xing U. S. A. Corporation
/s/ J.H. Xing /s/ David Lin
19
<PAGE> 1
Exhibit 11
DIODES INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
PRIMARY 1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Net income for primary earnings
per share $ 4,700,000 $ 2,363,000 $ 1,587,000
=============== =============== ===============
Weighted average number of
common shares outstanding
during the year 4,881,125 4,752,883 4,558,630
Add common equivalent shares
upon exercise of stock options 339,071 383,627 165,179
--------------- --------------- ---------------
Weighted average number of
shares used in calculations of
primary earnings per share 5,220,196 5,136,510 4,723,809
=============== =============== ===============
Primary earnings per share $ .90 $ .46 $ .34
=============== =============== ===============
FULLY DILUTED
Weighted average number of
shares used in calculating primary
earnings per share 5,220,196 5,136,510 4,723,809
Add additional shares issuable
upon exercise of stock options 326 * 86,640
--------------- --------------- ---------------
Weighted average number of
shares used in calculation of
fully diluted earnings per share 5,220,522 5,136,510 4,810,449
=============== =============== ===============
Fully diluted earnings per share $ .90 $ .46 $ .33
=============== =============== ===============
</TABLE>
*No effect given to common stock equivalents as their effect would be
anti-dilutive.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. Diodes Taiwan Company, Limited, a corporation organized and
existing under the laws of the Republic of China (Taiwan) with principal
offices located at 5 Fl., 510-16 Chung-Cheng Road, Hsin-Tien City, Taipei,
Taiwan, Republic of China. This subsidiary does business under its own
name. This is a wholly-owned subsidiary of Diodes Incorporated.
2. NAE, Inc., a corporation organized and existing the laws of
the Commonwealth of Massachusetts, with principal offices located at 3050 E.
Hillcrest Drive, Westlake Village, California 91362. Business operations of
this subsidiary have been suspended since 1989. This is a wholly-owned
subsidiary of Diodes Incorporated.
22
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-78716) of Diodes Incorporated of our report dated
February 16, 1996 appearing in item 8 in this Annual Report on Form 10-K. We
also consent to the incorporation by reference of our report on the financial
statement schedule, which appears at page S-1 of this Form 10-K.
MOSS ADAMS LLP
/s/ Moss Adams
Los Angeles, California
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1,000
<CASH> 478
<SECURITIES> 0
<RECEIVABLES> 8,221
<ALLOWANCES> 177
<INVENTORY> 16,295
<CURRENT-ASSETS> 25,883
<PP&E> 1,527
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,363
<CURRENT-LIABILITIES> 12,620
<BONDS> 0
0
0
<COMMON> 3,784
<OTHER-SE> 12,715
<TOTAL-LIABILITY-AND-EQUITY> 29,363
<SALES> 58,190
<TOTAL-REVENUES> 58,190
<CGS> 41,727
<TOTAL-COSTS> 41,727
<OTHER-EXPENSES> 9,522
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,310
<INCOME-TAX> 2,610
<INCOME-CONTINUING> 6,941
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,700
<EPS-PRIMARY> .90
<EPS-DILUTED> .90
</TABLE>
