Business Context and Reporting Period
Company: Diodes Incorporated
Filing Type: Form 8-K (Current Report)
Date of Report: December 1, 2000
Event: Acquisition of FabTech, Inc., a 5-inch silicon wafer foundry specializing in Schottky products, to advance Diodes' strategy of vertical integration and proprietary product development.
Key Financial Metrics and Transaction Terms
- Purchase Price: Approximately $6 million in cash plus an earnout of up to $30 million contingent on meeting specified earnings targets over four years.
- Assumed Debt: FabTech is obligated to repay approximately $19 million in aggregate debt:
- $13.6 million to Lite-On Power Semiconductor Corporation (LPSC) (LIBOR + 1%, due March 31, 2002).
- $2.6 million to Diodes Inc. (LIBOR + 1.1%, due February 28, 2001).
- $3.0 million to a financial institution (repaid December 4, 2000 via capital contribution).
- Financing: Diodes amended its credit facility with Union Bank of California to include:
- $10 million term loan for the acquisition.
- $9.0 million working capital line.
- Up to $7.6 million in term commitment notes for equipment.
- Interest rate: LIBOR + 1.5%.
- Operational Costs: FabTech leases its facility for an annual base rent of approximately $1.4 million (10-year term).
Material Changes and Strategic Impact
The acquisition represents a material shift toward vertical integration. FabTech, formerly owned by AT&T and now with 210 employees, will supply wafers for Diodes' internal manufacturing in China and sell to trade customers. A Volume Purchase Agreement obligates LPSC (which owns ~38% of Diodes) to purchase at least 90% of its Schottky wafers from FabTech, provided pricing and quality are competitive.
Outlook, Risks, and Contingencies
- Management Incentives: Officers and key employees are eligible for bonuses based on four-year earnings targets and severance payments if terminated without cause.
- Covenants: The new credit facility includes restrictive covenants requiring Diodes to maintain specific senior funded debt to EBITDA ratios and minimum fixed charge coverage ratios.
- Financial Reporting: Pro forma financial information and required financial statements are not included in this filing and will be submitted via amendment within 60 days.
- Valuation: The Board approved the transaction based on a fairness opinion from Duff & Phelps, LLP, stating the consideration is fair from a financial point of view.
Investor Verification Checklist
- Verify the pro forma financial impact of the $19 million assumed debt and $6 million cash outlay once the amendment is filed.
- Monitor FabTech's ability to meet the earnings targets required to trigger the $30 million earnout.
- Review the Volume Purchase Agreement terms to ensure LPSC's commitment to purchase 90% of wafers remains viable if market pricing shifts.
- Assess Diodes' compliance with the new debt covenants (EBITDA and fixed charge coverage) under the amended Union Bank facility.