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EXHIBIT 99.17
November 28, 2000
Independent Committee of the Board of Directors of
Diodes Incorporated
Gentlemen:
Duff & Phelps, LLC ("Duff & Phelps") has been engaged by the
Independent Committee of the Board of Directors of Diodes Incorporated ("Diodes"
or the "Company") as independent financial advisor. Specifically, Duff & Phelps
has been engaged to provide an opinion (the "Opinion") as to whether the
Proposed Transaction (as defined below) is fair to the Company and its
shareholders from a financial point of view.
Diodes is a leading manufacturer of discrete semiconductors that are used by the
electronics, automotive, computing and telecommunications industries in North
America and Asia. Diodes' largest shareholder is Lite-On Power Semiconductor
Corporation ("LPSC"), a unit of the Lite-On Group of the Republic of China. The
Lite-On Group, a Taiwanese consortium with worldwide sales exceeding $4.5
billion, is a leading manufacturer of semiconductors, computer peripherals and
communication products. Pursuant to the Stock Purchase Agreement dated November
28, 2000, by and among Diodes, LPSC and FabTech, Inc. ("FabTech"), Diodes
proposes to acquire all of FabTech's issued and outstanding capital stock, which
is currently held by LPSC, for a purchase price of up to $55 million, consisting
of the "Initial Purchase Price" and the "Earnout," each as defined below (the
"Proposed Transaction").
The Initial Purchase Price is equal to the amount, if any, by which $25 million
exceeds the sum of the following two components:
1. The outstanding principal balance and accrued interest of FabTech's
indebtedness to Diodes, LPSC and Citibank, on the closing date of
the Proposed Transaction; and,
2. Any liabilities of FabTech as of the closing date of the Proposed
Transaction, except liabilities disclosed or reserved against on
FabTech's October 31, 2000 balance sheet and other than liabilities
which arise in the ordinary course of business.
The Earnout of up to $30 million will be determined over the fiscal years ending
December 31, 2001 through December 31, 2004, and will be calculated in
accordance with the following table, based upon FabTech's actual earnings before
interest and taxes (EBIT) as a percent of the EBIT forecast prepared by FabTech
management. The Earnout will be payable in cash on or before March 31 following
the close of each fiscal year.
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<TABLE>
<CAPTION>
Percent of EBIT Forecast Realized
Fiscal EBIT --------------------------------------------
Year Forecast 130% 100% 70% 40%
---- -------- ------ ------ ------ -----
Earnout Amount
--------------------------------------------
<S> <C> <C> <C> <C> <C>
2001 $7,326 $ 4,000 $ 2,667 $ 1,333 $0
2002 11,887 6,500 4,333 2,167 0
2003 15,622 9,000 6,000 3,000 0
2004 19,110 10,500 7,000 3,500 0
------ ----- ----- -----
$30,000 $20,000 $10,000 $0
======= ======= ======= =====
</TABLE>
The Earnout for each year will be computed in increments of 1% on EBIT levels
achieved between 40% and 130% of FabTech management's EBIT forecasts.
Accordingly, the Earnout will increase from $0 at 40% of the EBIT forecast, to
$20.0 million at 100% of FabTech's EBIT forecast. These increments will continue
up to a maximum of 130% of FabTech's EBIT forecast at which point the cumulative
Earnout payments would total $30.0 million. The Earnout with respect to any
fiscal year will be reduced by the Management Incentive (as defined below) for
that year, and will be computed based upon FabTech's actual EBIT for that year,
without any deduction (or credit) due to any shortfall (or overage) in any prior
or subsequent year. A portion of the Earnout for each fiscal year shall be
deemed to be imputed interest at a rate equal to the lowest applicable federal
rate for the 3-month period ending on the last day of the calendar month in
which the closing date occurs. For the Earnout payable with respect to 2001,
2002 or 2003, the applicable short-term federal rate shall be used. For the
Earnout payable with respect to any subsequent year, the applicable mid-term
federal rate shall be used.
In the event the Earnout payable with respect to any year is less than the
Management Incentive, LPSC shall indemnify Diodes for the amount by which the
Management Incentive exceeds the Earnout for such fiscal year.
Pursuant to the Proposed Transaction, FabTech has entered into a management
incentive agreement with certain members of FabTech's management team (the
"Management Incentive Agreements") pursuant to which FabTech is obligated to pay
such members, as mutually agreed upon by LPSC and Diodes, a management incentive
pool (the "Management Incentive") which will consist of (i) an amount equal to
$975,000 to be paid on or before June 30, 2001, to be recorded on FabTech's
income statement as an expense and accrued liability in the month the management
incentive agreement is signed; plus (ii) $1.5 million to be paid in four equal
annual installments of $375,000 payable on each of March 31, 2002, 2003, 2004
and 2005; plus (iii) an amount based on FabTech's EBIT that shall not exceed
$50,000 in 2001, $175,000 in 2002, $300,000 in 2003 and $375,000 in 2004,
payable on each March 31, 2002, 2003, 2004 and 2005.
In contemplation of the Proposed Transaction, LPSC has entered into a Volume
Purchase Agreement with FabTech, dated October 25, 2000, which specifies LPSC's
obligation to purchase from FabTech, and FabTech's obligation to manufacture and
sell to LPSC, certain minimum unit volumes of products for each of the four
years ending December 31, 2001 to 2004. The purchase price for these purchases
is the best price offered by FabTech to its commercial accounts purchasing
comparable quantities of products. In the event FabTech offers special discounts
or other short-term promotional pricing for specific products, LPSC shall have
first and equal opportunity to purchase FabTech products under such promotions
and at the promotional prices. Further, LPSC has agreed not to compete, directly
or indirectly, with the schottky wafer business of FabTech for a four-year
period.
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For purposes of our Opinion and in connection with our review of the Proposed
Transaction, we have, among other things:
1. Met with various members of FabTech's management to discuss the history,
current operations and future outlook of FabTech as well as the Proposed
Transaction.
2. Met with the Independent Committee of the Board of Directors of Diodes to
discuss the Proposed Transaction.
3. Held discussions with various members of Diodes' management, including: C.H.
Chen, Chief Executive Officer; Carl Wertz, Chief Financial Officer; Mark
King, Vice President, Sales & Marketing; Larry Katz, Financial Analyst; and,
Michael R. Giordano, member of the Board of Directors.
4. Toured FabTech's facilities in Lee's Summit, Missouri, in April 2000 and
August 2000.
5. Reviewed FabTech's financial statements including: audited financial
statements from 1996 through 1999; interim unaudited financial statements
for the nine months ended September 30, 2000; and, current financial
projections for 2000 through 2005, as prepared by FabTech management.
6. Reviewed FabTech's presentation to Diodes' management, dated July 10, 2000,
and FabTech's management report to LPSC for July 2000.
7. Reviewed FabTech's board minutes for the last three years, as well as
FabTech's articles of incorporation and bylaws.
8. Reviewed FabTech's loan agreements with Diodes and LPSC.
9. Reviewed the Stock Purchase Agreement by and among Diodes, LPSC and FabTech,
dated November 28, 2000.
10. Reviewed the Volume Purchase Agreement between LPSC and FabTech, dated
October 25, 2000, as well as the Management Incentive Agreements between
FabTech and certain members of its management team.
11. Reviewed applicable industry and economic information.
12. Identified comparable public companies to FabTech and reviewed their SEC
filings, analyst reports and historical stock prices.
13. Performed such other review and analyses as we deemed necessary.
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Our Opinion is based upon an analysis of the foregoing in light of our
assessment of the general, economic and financial market conditions as they can
be evaluated by us as of the date hereof. Events occurring after the date hereof
could materially affect the assumptions used in preparing our Opinion. We have
not undertaken to reaffirm or revise the Opinion or otherwise comment upon any
events occurring after the date hereof.
In connection with our Opinion, with your permission and without any independent
verification, we have relied on the accuracy and completeness of all the
financial and other information reviewed by us, furnished, or otherwise
communicated to us by FabTech or obtained by us from publicly available sources.
Any inaccuracies in the information on which we relied could materially affect
our Opinion. Duff & Phelps has previously served as financial advisor to the
Company.
In rendering our Opinion, we have assumed that the Proposed Transaction occurs
on terms that are described in the Stock Purchase Agreement dated November 28,
2000. Nonetheless, it should be recognized that we are not making any
recommendation as to whether Diodes' Independent Committee of the Board of
Directors should vote in favor of the Proposed Transaction.
This Opinion is for the information of the Independent Committee of the Board of
Directors of Diodes and is not to be used, circulated, quoted or otherwise
referred to for any other purpose, except in each case with our prior written
consent which shall not be unreasonably withheld.
Based upon the foregoing, it is our Opinion that consideration to be paid by the
Company in the Proposed Transaction is fair to the Company and its shareholders
from a financial point of view.
Respectfully submitted,
/s/ Duff Phelps, LLC
Duff & Phelps, LLC
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