þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010 |
Or |
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from _______ to ________. |
Delaware | 95-2039518 | |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification Number) |
15660 Dallas Parkway, Suite 850
Dallas, Texas |
75248 | |
(Address of principal executive offices) | (Zip code) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
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EX-10.1 | ||||||||
EX-10.2 | ||||||||
EX-10.3 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
- 3 -
- 4 -
- 5 -
- 6 -
- 7 -
- 8 -
- 9 -
- 10 -
- 11 -
- 12 -
- 13 -
- 14 -
- 15 -
- 16 -
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- 18 -
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- 20 -
- 21 -
- 22 -
- 23 -
- 24 -
- 25 -
- 26 -
- 27 -
- 28 -
- 29 -
March 31,
December 31,
2010
2009
(Unaudited)
$
247,795
$
241,953
237,825
296,600
105,077
99,074
93,977
89,652
8,294
7,834
11,400
11,591
704,368
746,704
173,979
162,988
65,908
68,075
32,163
34,892
5,450
5,324
$
981,868
$
1,017,983
Table of Contents
CONSOLIDATED CONDENSED BALANCE SHEETS
(cont)
(In thousands, except share data)
Table of Contents
Three Months Ended
March 31,
2010
2009
$
136,847
$
78,050
89,064
63,557
47,783
14,493
21,419
16,056
6,376
5,275
1,128
1,091
99
28,923
22,521
18,860
(8,028
)
1,312
1,757
(1,982
)
(2,048
)
(1,834
)
(2,209
)
2,648
263
144
(2,237
)
19,004
(10,265
)
3,324
397
15,680
(10,662
)
(722
)
(104
)
$
14,958
$
(10,766
)
$
0.34
$
(0.26
)
$
0.33
$
(0.26
)
43,767
41,146
45,323
41,146
Table of Contents
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Table of Contents
(Unaudited)
Table of Contents
Three Months Ended
March 31,
2010
2009
$
15,680
$
(10,662
)
(8,080
)
(2,421
)
(2,693
)
(7,241
)
1,564
4,907
(18,760
)
722
104
$
4,185
$
(18,864
)
Table of Contents
Description
Level 1
Level 2
Level 3
Total
$
$
$
217,753
$
217,753
20,072
20,072
$
$
$
237,825
$
237,825
Table of Contents
Cumulative
Cumulative
Unrealized
Unrealized
As of March 31, 2010
Cost Basis
Gains
Losses
Fair Value
$
237,825
$
$
(20,072
)
$
217,753
20,072
20,072
$
237,825
$
20,072
$
(20,072
)
$
237,825
% of FFELP guaranty
Par Value
% of Total
$
155,000
65.2
%
30,525
12.8
%
22,250
9.4
%
29,350
12.3
%
700
0.3
%
$
237,825
100.0
%
March 31,
December 31,
2010
2009
$
37,203
$
33,280
23,870
24,029
32,904
32,343
$
93,977
$
89,652
Table of Contents
$
68,075
(2,167
)
$
65,908
$
48,646
(11,379
)
(7,531
)
29,736
3,162
(735
)
2,427
$
32,163
Table of Contents
Three Months Ended
March 31,
2010
2009
$
93
$
81
2,864
2,087
324
261
$
3,281
$
2,429
Weighted
Weighted
Average
Average
Remaining
Aggregate
Exercise
Contractual
Intrinsic
Stock Options
Shares (000)
Price
Term (yrs)
Value ($000)
3,980
$
12.50
5.2
$
34,989
2
20.50
(105
)
8.25
1,431
3,877
$
12.62
5.0
$
39,992
3,056
$
10.67
4.0
$
36,630
Table of Contents
Weighted-
Average
Aggregate
Grant-Date
Intrinsic
Share Grants
Shares (000)
Fair Value
Value ($000)
714
$
20.64
$
14,579
10
20.50
(8
)
23.44
161
(14
)
21.58
702
$
20.60
$
15,743
Three Months Ended
North
March 31, 2010
Asia
America
Europe
Consolidated
$
109,061
$
32,601
$
39,872
$
181,534
(9,535
)
(11,097
)
(24,055
)
(44,687
)
$
99,526
$
21,504
$
15,817
$
136,847
$
111,248
$
29,706
$
33,025
$
173,979
$
407,208
$
273,267
$
301,393
$
981,868
Three Months Ended
North
March 31, 2009
Asia
America
Europe
Consolidated
$
99,081
$
16,996
$
19,296
$
135,373
(41,083
)
(5,149
)
(11,091
)
(57,323
)
$
57,998
$
11,847
$
8,205
$
78,050
$
100,477
$
31,227
$
36,728
$
168,432
$
288,972
$
419,081
$
151,034
$
859,087
Table of Contents
Net Sales
for the Three Months
Percentage of
Ended March 31,
Net Sales
2010
2009
2010
2009
$
42,059
$
22,894
30.7
%
29.3
%
33,003
21,443
24.1
%
27.5
%
29,205
13,958
21.3
%
17.9
%
8,330
4,994
6.1
%
6.4
%
7,031
4,463
5.1
%
5.7
%
5,351
3,780
3.9
%
4.8
%
4,858
2,070
3.5
%
2.7
%
7,010
4,448
5.1
%
5.7
%
$
136,847
$
78,050
100.0
%
100.0
%
Liability
Liability
Liability
Equity
Component
Component
Component
Component
Principal
Net Carrying
Unamortized
Carrying
Amount
Amount
Discount
Amount
$
135,078
$
123,166
$
11,912
$
35,572
Three Months Ended
March 31,
2010
2009
$
760
$
996
1,834
2,209
138
179
$
2,732
$
3,384
Table of Contents
Defined Benefit Plan
$
117,539
78
1,613
6,789
(793
)
(7,344
)
$
117,882
$
88,235
3,989
(793
)
(4,001
)
$
87,430
$
(30,452
)
5.7
%
6.8
%
Table of Contents
Three Months Ended
March 31,
2010
2009
$
2,488
$
1,394
$
9,265
$
5,568
Three Months Ended
March 31,
2010
2009
$
3,613
$
2,406
$
2,626
$
1,049
Table of Contents
March 31,
2010
$
2,090
6,736
$
8,826
$
8,035
5,193
$
13,228
Table of Contents
Item 2
- Managements Discussion and Analysis of Financial Condition and Results of Operations
Net sales for the three months ended March 31, 2010 was $136.8 million, an increase of
$58.8 million, or 75.3%, over the same period last year, and a sequential increase of 5%
over the $130.3 million in the fourth quarter of 2009;
Gross profit for the three months ended March 31, 2010 was $47.8 million, an increase of
$33.3 million, or 229.7%, over the same period last year, and a sequential increase of 14%
over the $41.8 million in the fourth quarter of 2009;
Gross profit margin for the three months ended March 31, 2010 was 34.9%, a 1,630 basis
point increase over the same period last year, and a 280 basis point increase over the
forth quarter of 2009; and
Net income attributable to common stockholders was $15.0 million, or $0.33 per diluted
share, compared to the same period last year, which had a net loss of $10.8 million, or
$(0.26) per share, and fourth quarter 2009 net income of $16.3 million, or $0.36 per
diluted share.
Continue to rapidly introduce innovative discrete and analog semiconductor products;
Expand our available market opportunities;
Maintain intense customer focus;
Enhance cost competitiveness; and
Pursue selective strategic acquisitions.
Table of Contents
We have experienced substantial pressure from our customers to reduce the selling price
for our products, and we expect future improvements in net income to result primarily from
increases in sales volume and improvements in product mix as well as manufacturing cost
reductions in order to offset any reduced average selling prices (ASP) of our products.
For 2010, we expect to see increased demand for our products as compared to 2009, and we
anticipate continued improvement in order rates.
For the three months ended March 31, 2010, our original equipment manufacturers (OEM)
and electronic manufacturing services (EMS) customers together accounted for
approximately 44% of our net sales, while our global network of distributors accounted for
approximately 56% of our net sales.
Net sales for the three months ended March 31, 2010 was $136.8 million compared to $78.1
million in the same period last year. This increase in net sales mainly reflects the
increase in demand for our products in all geographic regions led primarily by North
America and Europe.
Our gross profit margin was 34.9% for the three months ended March 31, 2010, compared to
18.6% in the same period last year. Our gross margin percentage increased over the same
period last year due to higher capacity utilization of our manufacturing and wafer
fabrication facilities. Future gross profit margins will depend primarily on our product
mix, manufacturing cost savings, and the demand for our products.
For the three months ended March 31, 2010, our capital expenditures were approximately
18.0% of our net sales, which is an increase from our historical 10% to 12% model.
Although the first quarter of 2010 was higher than our historical percentages, we expect
capital expenditures for fiscal 2010 to be within our historical 10% to 12% of net sales.
For the three months ended March 31, 2010, the percentage of our net sales derived from
our Asian subsidiaries was 72.7%, compared to 74.3% in the same period last year, due
primarily to improvements in North America and Europe. We expect our net sales to the Asian
market to increase as a percentage of our total net sales as a result of our customers
continuing to shift their manufacturing of electronic products to Asia. In addition,
Europe accounted for approximately 11.0% of our revenues for the three months ended March
31, 2010, compared to 10.5% in the same period last year.
As of March 31, 2010, we had invested approximately $234.6 million in our Asian
manufacturing facilities. For the three months ended March 31, 2010, we invested
approximately $20.6 million in these manufacturing facilities, and we expect to continue to
invest in our manufacturing facilities, although the amount to be invested will depend on
product demand and new product developments.
We have increased our investment in research and development from $5.3 million, or 6.8%
of net sales, for the three months ended March 31, 2009 to $6.4 million, or 4.7% of net
sales, for the three months ended March 31, 2010. For the remainder of 2010, we expect
research and development to increase in absolute dollars but remain comparable as a
percentage of net sales.
Table of Contents
Percent of Net Sales
Percentage Dollar
Three months ended March 31,
Increase (Decrease)
2010
2009
09
to 10
100.0
%
100.0
%
75.3
(65.1
)
(81.4
)
40.1
34.9
18.6
229.7
(21.1
)
(28.9
)
28.4
13.8
(10.3
)
334.9
1.0
2.3
(25.3
)
(2.9
)
(5.5
)
(10.4
)
1.9
0.3
906.5
13.8
(13.2
)
285.1
2.4
0.5
737.3
11.4
(13.7
)
247.1
(0.5
)
(0.1
)
594.2
10.9
(13.8
)
238.9
2010
2009
$
136,847
$
78,050
2010
2009
$
89,064
$
63,557
$
47,783
$
14,493
34.9
%
18.6
%
Table of Contents
2010
2009
$
21,419
$
16,056
2010
2009
$
6,376
$
5,275
2010
2009
$
1,128
$
1,091
2010
2009
$
1,312
$
1,757
2010
2009
$
1,982
$
2,048
2010
2009
$
1,834
$
2,209
2010
2009
$
2,647
$
(
263
)
Table of Contents
2010
2009
$
3,324
$
397
2010
2009
$
722
$
104
Table of Contents
Table of Contents
Table of Contents
Ø
The success of our business depends on the strength of the global economy and the
stability of the financial markets, and any weaknesses in these areas may have a material
adverse effect on our revenues, results of operations and financial condition.
Ø
During times of difficult market conditions, our fixed costs combined with lower
revenues may have a negative impact on our results of operations and financial condition.
Ø
Downturns in the highly cyclical semiconductor industry or changes in end-market demand
could adversely affect our results of operations and financial condition.
Ø
The semiconductor business is highly competitive, and increased competition may harm our
business, results of operations and financial condition.
Ø
We receive a significant portion of our net sales from a single customer. In addition,
this customer is also our largest external supplier and is a related party. The loss of
this customer or supplier could harm our business, results of operations and financial
condition.
Ø
Delays in initiation of production at facilities, implementing new production techniques
or resolving problems associated with technical equipment malfunctions could adversely
affect our manufacturing efficiencies, results of operations and financial condition.
Ø
We are and will continue to be under continuous pressure from our customers and
competitors to reduce the price of our products, which could adversely affect our growth
and profit margins.
Ø
Our customers require our products to undergo a lengthy and expensive qualification
process without any assurance of product sales, which could adversely effect on our
revenues, results of operations and financial condition.
Ø
Our customer orders are subject to cancellation or modification usually with no penalty.
High volumes of order cancellation or reductions in quantities ordered could adversely
affect our results of operations and financial condition.
Ø
Production at our manufacturing facilities could be disrupted for a variety of reasons,
which could prevent us from producing enough of our products to maintain our sales and
satisfy our customers demands and could adversely affect our results of operations and
financial condition.
Table of Contents
Ø
New technologies could result in the development of new products by our competitors and
a decrease in demand for our products, and we may not be able to develop new products to
satisfy changes in demand, which adversely affect our net sale, market share, results of
operations and financial condition.
Ø
We may be adversely affected by any disruption in our information technology systems,
which could adversely affect our cash flows, results of operations and financial condition.
Ø
We may be subject to claims of infringement of third-party intellectual property rights
or demands that we license third-party technology, which could result in significant
expense and reduction in our intellectual property rights.
Ø
We depend on third-party suppliers for timely deliveries of raw materials, parts and
equipment, as well as finished products from other manufacturers, and our reputation with
customers, results of operations and financial condition could be adversely affected if we
are unable to obtain adequate supplies in a timely manner.
Ø
If we do not succeed in continuing to vertically integrate our business, we will not
realize the cost and other efficiencies we anticipate, which could adversely affect our
ability to compete, profit margins, results of operations and financial condition.
Ø
Part of our growth strategy involves identifying and acquiring companies with
complementary product lines or customers. We may be unable to identify suitable acquisition
candidates or consummate desired acquisitions and, if we do make any acquisitions, we may
be unable to successfully integrate any acquired companies with our operations, which could
adversely affect our business, results of operations and financial condition.
Ø
We are subject to many environmental laws and regulations that could result in
significant expenses and could adversely affect on our business, results of operations and
financial condition.
Ø
Our products may be found to be defective and, as a result, product liability claims may
be asserted against us, which may harm our business, reputation with our customers, results
of operations and financial condition.
Ø
We may fail to attract or retain the qualified technical, sales, marketing and
management personnel required to operate our business successfully, which could adversely
affect on our business, results of operations and financial condition.
Ø
We may not be able to maintain our growth or achieve future growth and such growth may
place a strain on our management and on our systems and resources, which could adversely
affect on our business, results of operations and financial condition.
Ø
Obsolete inventories as a result of changes in demand for our products and change in
life cycles of our products could adversely affect on our business, results of operations
and financial condition.
Ø
If OEMs do not design our products into their applications, a portion of our net sales may be adversely affected.
Ø
We are subject to interest rate risk that could have an adverse effect on our cost of working capital and interest expenses.
Ø
We had a significant amount of debt following the offering of convertible notes. Our
substantial indebtedness could adversely affect our business, results of operations,
financial condition and our ability to meet our payment obligations under the notes and or
other debt.
Ø
Restrictions in our credit facilities may limit our business and financial activities,
including our ability to obtain additional capital in the future.
Ø
Our Auction Rate Securities (ARS) are currently illiquid, and UBS AG may not honor its
part of the settlement agreement with us to purchase our entire ARS portfolio at any time
beginning from June 30, 2010 to July 2, 2012 at par value.
Ø
UBS BANK USA (UBS Bank) may demand full or partial repayment of our no net cost loan
with the UBS Bank at any time at UBS Banks sole option and without cause, and UBS
Financial Services Inc. may be unable to provide us any alternative financing on
substantially same terms and conditions as those of the no net cost loan.
Ø
The value of our benefit plan assets and liabilities is based on estimates and
assumptions, which may prove inaccurate and the actual amount of expenses recorded in the
consolidated financial statements could differ materially from the assumptions used.
Table of Contents
Ø
Due to the recent fluctuations in the United Kingdoms equity markets and bond markets,
changes in actuarial assumptions for our defined benefit plan could increase the volatility
of the plans asset value, require us to increase cash contributions to the plan and have a
negative impact on our results of operations and financial condition.
Ø
There are risks associated with previous and future acquisitions. We may ultimately not
be successful in overcoming these risks or any other problems encountered in connection
with acquisitions.
Ø
If we fail to maintain an effective system of internal controls or discover material
weaknesses in our internal control over financial reporting, we may not be able to report
our financial results accurately or detect fraud, which could harm our business and the
trading price of our Common Stock.
Ø
Terrorist attacks, or threats or occurrences of other terrorist activities, whether in
the United States or internationally, may affect the markets in which our Common Stock
trades, the markets in which we operate and our results of operations and financial
condition.
Ø
Our international operations subject us to risks that could adversely affect our
operations.
Ø
We have significant operations and assets in China, Taiwan, Hong Kong and England and,
as a result, will be subject to risks inherent in doing business in those jurisdictions,
which may adversely affect our financial performance.
Ø
A slowdown in the Chinese economy could limit the growth in demand for electronic
devices containing our products, which would have a material adverse effect on our
business, results of operations and prospects.
Ø
Economic regulation in China could materially and adversely affect our business, results
of operations and prospects.
Ø
We could be adversely affected by violations of the United States Foreign Corrupt
Practices Act and similar worldwide anti-bribery laws.
Ø
We are subject to foreign currency risk as a result of our international operations.
Ø
We may not continue to receive preferential tax treatment in Asia, thereby increasing
our income tax expense and reducing our net income.
Ø
The distribution of any earnings of our foreign subsidiaries to the United States may be
subject to U.S. income taxes, thus reducing our net income.
Ø
Variations in our quarterly operating results may cause our stock price to be volatile.
Ø
We may enter into future acquisitions and take certain actions in connection with such
acquisitions that could adversely affect the price of our Common Stock.
Ø
Our directors, executive officers and significant stockholders hold a substantial
portion of our Common Stock, which may lead to conflicts with other stockholders over
corporate transactions and other corporate matters.
Ø
We were formed in 1959, and our early corporate records are incomplete. As a result, we
may have difficulty in assessing and defending against claims relating to rights to our
Common Stock purporting to arise during periods for which our records are incomplete.
Ø
Conversion of our convertible senior notes will dilute the ownership interest of
existing stockholders, including stockholders who had previously converted their notes.
Ø
Non-cash tender offers, debt equity swaps or equity exchanges to consummate our business
activities are likely to have the effect of diluting the ownership interest of existing
stockholders, including qualified stockholders who receive shares of our Common Stock in
such business activities.
Table of Contents
Ø
The repurchase rights and the increased conversion rate triggered by a make-whole
fundamental change could discourage a potential acquirer.
Ø
Anti-takeover effects of certain provisions of Delaware law and our Certificate of
Incorporation and Bylaws, may hinder a take-over attempt.
Ø
Section 203 of Delaware General Corporation Law may deter a take-over attempt.
Ø
Certificate of Incorporation and Bylaw Provisions may deter a take-over attempt.
Table of Contents
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
recorded, processed, summarized and reported within the time period specified in
the Commissions rules and forms; and
accumulated and communicated to our management, including the Chief Executive
Officer and the Chief Financial Officer, to allow timely decisions required
disclosure.
Table of Contents
- 30 -
- 31 -
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Defaults Upon Senior Securities
Item 4.
(Removed and Reserved)
Item 5.
Other Information
Table of Contents
Item 6.
Exhibits
Number
Description
Form
Date of First Filing
Exhibit Number
Filed Herewith
Certificate of Incorporation, as amended
S-3
September 8, 2005
3.1
Amended By-laws of the Company dated July 19, 2007
8-K
July 23, 2007
3.1
Form of Certificate for Common Stock, par value
$0.66 2/3 per share
S-3
August 25, 2005
4.1
Form of 2.25% Convertible Senior Notes due 2026
S-3
October 4, 2006
4.1
Form of Indenture for the 2.25% Convertible Senior
Notes due 2026
S-3
October 4, 2006
4.3
Amendment, dated March 31, 2010, to the Credit
Agreement among the Company, Diodes Zetex Limited
and Bank of America, N.A.
10-Q
10.1
X
Construction Project Contract between Shanghai Kai
Hong Technology Electronic Co., Ltd. and Shanghai
Yuan Howe Electronic Co., Ltd.
10-Q
10.2
X
Third Floor of the Accommodation Building Lease
Agreement, dated April 12, 2010, between Shanghai
Kai Hong Technology Co., Ltd. and Shanghai Ding
Hong Electronic Co., Ltd.
10-Q
10.3
X
Certification Pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
X
Certification Pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
X
Certification Pursuant to 18 U.S.C. adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
X
Certification Pursuant to 18 U.S.C. adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
X
Table of Contents
- 32 -
DIODES INCORPORATED (Registrant)
By:
/s/ Richard D. White
RICHARD D. WHITE
May 7, 2010
Chief Financial Officer, Treasurer and Secretary
(Duly Authorized Officer and Principal Financial
and Chief Accounting Officer)
Very truly yours,
BANK OF AMERICA, N.A., individually as the sole Lender and as Administrative Agent |
||||
By: | /s/ Charles Dale | |||
Charles Dale | ||||
Senior Vice President | ||||
BORROWERS: DIODES INCORPORATED |
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By: | /s/ Richard D. White | |||
Richard D. White | ||||
Chief Financial Officer | ||||
DIODES ZETEX LIMITED
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By: | /s/ Richard D. White | |||
Richard D. White | ||||
Director | ||||
GUARANTORS:
DIODES FABTECH INC. |
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By: | /s/ Richard D. White | |||
Richard D. White | ||||
Director | ||||
DIODES INVESTMENT COMPANY
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By: | /s/ Richard D. White | |||
Richard D. White | ||||
Director |
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DIODES Shanghai | |
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18#, San Zhuang Road, Song Jiang Export Processing Zone, Song Jiang, Shanghai, China
Tel: (0086-21)57647888 Fax: (0086-21)57640431 Zip Code: 201612 |
1.1 The name of the project: |
The Expansion Project for the Electric Power of the 3200KWA High and Low Voltage Power Distribution
House (the Project).
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Premise of the Project: |
Ground floor, Building #2, Shanghai Kai Hong Technology Electronic Co., Ltd.
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Scope of the Contract: |
Application with the in-charge Power Supply Bureau, design, manufacture and installation of the high
and low voltage power distribution cabinet, construction of the power supply house and the examination and acceptance with
the Power Supply Bureau.
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Form of Contract: |
Turnkey contracted by Party B
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1.2 Commencement Date of the Project: |
Party B shall commence the work upon the receipt of the advance
payment paid by Party A.
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Completion Date of the Project: |
The Project shall be completed by Party B within 60 days after the
receipt of the advance payment paid by Party A (i.e., Commencement
Date).
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Duration of the Project (in calendar day): |
60 days
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1.3 The total amount of the contact: |
RMB 5,700,000.00.
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2.1 |
The delivery date of the blueprint: The blueprint for the power distribution project and the
construction project shall be delivered to Party A by Party B no later than 18 November 2009.
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3.1 |
The name and title (Position) of the Representative of Party A: Mr. Wu Guorui (Facility Manager of Party A).
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3.2 |
Authority Conferred to Party As Representative by Party A: Project supervision, equipment
installation, quality examination and provision of the overall design requirement for the
Project.
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3.3 |
Personnel appointed by the Representative of Party A: Mr. He Wenquan, in charge of the
construction of the Project; and Ms. Qian huiping, in charge of the power distribution
project.
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5.1 |
Time for Party B to Provide construction design (or construction plan) and the Progress Plan:
The day after Party B has received the advance payment from Party A.
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7.1 Total Advance Payment: |
(1) Party A shall pay Party B RMB 2,200,000.00 as the Project fund for
external line upon the execution of this Contract; and
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(2) Party A shall pay Party B 60% of the price for
transformation equipment, RMB 2,10,000,000.00, upon the execution of
this Contract.
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7.2 Amount and Payment of the Project Funds: |
(1) Party A shall pay Party B with RMB 875,000.00
prior to the equipment were transported to the Project premises;
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(2) Party A shall pay Party
B with RMB 325,000.00 after the Project is duly examined
and accepted and the electricity power can be transmitted;
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(3) The guarantee fee of
RMB 200,000.00 would be paid to Party B by Party A only
after the Project is duly examined and accepted and the
guarantee period of 1 year has expired.
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10.1 |
Time for Party B to Provide the Examination Materials for the Project Completion: The Project
Quality Report shall be provided by Party B upon the Project completion and prior to the
electricity power is supplied by Power Supply Bureau.
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11.1 |
Scope of the Guarantee: High and low power distribution cabinets, transformers.
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11.2 |
Guarantee Period: 1 year. Party B provides Party A a one-year guarantee on the quality of the Project.
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12.1 |
Dispute Resolution: Any dispute arising from the performance of this Contract shall be
resolved by both parties through friendly negotiation in a timely manner. Where such
negotiation is not available, the dispute can be submitted to Shanghai Arbitration Committee
upon the agreement of both parties. (Should no arbitration institution be set out in the
Contract and the parties are not able to reach any written arbitration agreement, a lawsuit
can be raised at the Peoples Court).
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13.1 |
Treatment for Breach of Contract: Party B shall compensate Party A should Party B is not able
to complete the Project in accordance with the timeframe set out in this Contract.
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13.2 |
The Amount of Compensation: Party B shall pay Party A 0.1% of the Contract amount as
compensation for each day of delay.
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Party A (Signature/Stamp) : | Party B (Signature/Stamp) : | |||||||
By:
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/s/ Justin Kong
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By:
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/s/ Jian Ya Xing
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No. 1, Lane 18, SanZhuang Road, | No. 8, Lane 18, SanZhuang Road, | |||||||
Songjiang Export Zone, Shanghai | Songjiang Export Zone, Shanghai | |||||||
Peoples Republic of China | Peoples Republic of China | |||||||
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Date :
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Date:
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Agreement Effective Date: December 31, 2009 |
Place:
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1.1 |
Accommodation Building shall mean a five-story dormitory building located on the lot 375 of
Song Jiang, Shanghai.
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1.2 |
Lease Area A shall mean those ten (10) rooms, a recreational room and a laundry room on the
third floor of the Accommodation Building with a total area of 668 square meters.
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1.3 |
Lease Area B shall mean those other ten (10) rooms, a recreational room and a laundry room
on the third floor of the Accommodation Building with a total area of 668 square meters.
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1.4 |
Lease Period shall mean that based on the terms of this Lease Agreement, the lease period
in which DSH has the right to use Lease Area A and Lease Area B, and Ding Hong is entitled to
receive rents from DSH for DSHs use of Lease Area A and Lease Area B.
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1.5 |
Third Floor shall mean the third floor of the Accommodation Building of both Lease Area A
and Lease Area B, which include twenty (20) rooms, two recreational rooms and two laundry
rooms with a total area of 1,336 square meters. A floor layout of the Third Floor is attached
with this Lease Agreement as
Exhibit A
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2.1 |
Third Floor of the Accommodation Building shall be delivered to DSH in full compliance with
the requirements of
Exhibit B
of the Lease Agreement for building repair, decoration
and facilities maintenance requirements. Ding Hong agrees that the
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building repair cost, decoration cost and the facilities maintenance cost for the Third Floor
of the Accommodation Building shall be paid at Ding Hongs own expenses.
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2.2 |
Ding Hong promises that the construction and building quality of the Accommodation Building
shall be in compliance with all the relevant quality standards. Ding Hong shall obtain from
all necessary government authority checked and accepted inspection certificates. Ding Hong
guarantees the quality of the facilities of the Accommodation Building and the quality of the
equipments in each room. Ding Hong further guarantees the quality of the materials used in
making the facilities in the Accommodation Building shall meet DSHs and relevant inspections
requirements.
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3.1 |
For Lease Area A, the
Parties agree that the Lease Period shall be
5 (five)
years,
commencing on
January 25, 2010
until
January 24, 2015
; for Lease Area B, the
Parties agree that the Lease Period shall be from
March 25,
2010
until
January 24,
2015
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3.2 |
The Parties agree that the Lease Periods for Lease Area A and Lease Area B shall be
automatically renewed unless DSH gives prior written notice of termination not less than
thirty (30) days before the expiration of each Lease Period for either Lease Area A or Lease
Area B, but the Lease Period for both Lease Area A and Lease Area B must be renegotiated and
adjust accordingly. During the Lease Period or any renewal period, Ding Hong shall not
terminate this Lease Agreement without DSHs written approval. For the renewed lease period,
the lease price per square meter for the Third Floor as set forth in Article 4 of the Lease
Agreement shall be adjusted on the basis of the market price at the time of renewal and after
consultation between the Parties.
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3.3 |
If during the Lease Period or the renewed lease period, Ding Hong receives from a third party
a bona fide, legally binding offer to lease the portion of the Third Floor not already leased
by DSH, Ding Hong shall notify DSH of this fact. The notice shall specify all the terms of
the bona fide third party offer. DSH shall then have thirty (30) days to lease that portion
of the Third Floor specified in the third partys bona fide offer for the rent and related
details set forth in this Lease Agreement. Ding Hong shall not lease any portion of the Third
Floor to any third party until the thirty (30) days has expired without DSH exercising its
right of first refusal. Any other terms not specified in this Lease Agreement regarding the
Third Floor, both Parties shall negotiate and sign a supplemental agreement for these
unspecified terms. Such signed supplemental agreement shall constitute a part of the entire
Lease Agreement and shall have the same effectiveness as the entire Lease Agreement.
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4.1 |
For the Third Floor, the Parties agree that the monthly lease price for the Third Floor shall
be Renminbi (RMB) 29.80 per square meter. Lease Area As monthly lease shall be RMB
19906.40, and Lease Area Bs monthly lease shall also be RMB 19906.40.
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5.1 |
DSH shall pay Ding Hong a security deposit amount of RMB
39,812.80
within thirty (30)
days of the Effective Date of the Lease Agreement.
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6.1 |
For the Third Floor, DSH shall pay the Rental in RMB to the RMB bank account as designated by
Ding Hong before the first day of every month.
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7.1 |
If either Party terminates the Lease Agreement prior to the expiration of the Lease Periods
without the consent from the other Party, the Party that terminates the Lease Agreement shall
pay damages to the other Party to compensate for such Partys actual loss. The amount of
damages shall include, but not be limited to, the reasonable profits, out-of-pocket costs,
legal service fees, Court fees, arbitration fees, accounting fees and removal or relocation
fees.
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8.1 |
During the term of the Lease Agreement, Ding Hong shall purchase and maintain insurance
coverage to cover any and all casualty damage to the Accommodation Building, and shall be
responsible for repairing all structural damages to the Accommodation Building that are not
the result of improper use by DSH. DSH shall be responsible for all repair costs arising from
improper building usage by DSH. If Ding Hong cannot obtain building insurance, DSH will need
to obtain insurance for the Third Floor, and Ding Hong will reimburse DSH for all costs of
such insurance coverage.
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8.2 |
Ding Hong shall be entitled to inspect the Accommodation Building at reasonable intervals and
upon reasonable notice to DSH. DSH shall provide assistance to allow such inspections.
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9.1 |
If Ding Hong breaches Articles 2, 3, 10 and any of its warranties set forth in this Lease
Agreement, Ding Hong shall compensate DSH for all of DSHs losses and damages including
consequential, special, punitive and incidental damages.
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9.2 |
DSH shall not:
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(1) |
sub-lease the Third Floor or exchange the use of the Third Floor
with any third party without Ding Hongs prior written consent.
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(2) |
alter the structure of the Third Floor or damage the Accommodation
Building without Ding Hongs prior
written consent.
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(3) |
change the lease purpose stipulated by the competent authorities without Ding Hongs
consent.
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10.1 |
Ding Hong hereby warrants that if the Accommodation Building is sold to any third party
during the Lease Period or any renewed lease period, such third party shall be required to
fulfill all obligations of Ding Hong under the Lease Agreement. If said third party fails to
carry out the Lease Agreement, Ding Hong shall compensate DSH for all of DSHs losses and
damages including consequential, special, punitive and incidental damages.
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10.2 |
In case Ding Hong mortgages the Accommodation Building to the third party, any loss suffered
by DSH shall be paid by Ding Hong.
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11.1. |
The definition of Force Majeure
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11.2. |
Consequences of Force Majeure
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12.1 |
The Lease Agreement shall become effective after the legal representatives or authorized
representatives of both Parties affix their signatures and company seals on the Lease
Agreement.
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13.1 |
The Lease Agreement is made and executed in Chinese and English, both versions having equal
validity except as prohibited by law.
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14.1 |
Friendly consultations
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14.2 |
Arbitration
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14.3 |
Continuance of performance
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14.4 |
Separability
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15.1 |
The validity, interpretation and implementation of the Lease Agreement and the settlement of
Disputes shall be governed by relevant laws of the Peoples Republic of China and regulations
that are officially promulgated and publicly available.
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16.1 |
Ding Hong acknowledges that DSH is a corporation with substantial presence and affiliation in
the United States and, as such, is subject to the provisions of the Foreign Corrupt Practices
Act of 1977 of the United States of America, 15 U.S.C. §§ 78dd-1, et seq., which prohibits the
making of corrupt payments (the FCPA). Under the FCPA, it is unlawful to pay or to offer to
pay anything of value to foreign government officials, or employees, or political parties or
candidates, or to persons or entities who will offer or give such payments to any of the
foregoing in order to obtain or retain business or to secure an improper commercial advantage.
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16.2 |
Ding Hong further acknowledges that it is familiar with the provisions of the FCPA and hereby
agrees that Ding Hong shall take or permit no action which will either constitute a violation
under, or cause DSH to be in violation of, the provisions of the FCPA.
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17.1 |
Any amendment to this Lease Agreement shall be in writing and duly signed by both Parties.
Such amendment shall constitute a part of the entire Lease Agreement.
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17.2 |
Both Parties acknowledge that they are aware of their respective rights, obligations and
liabilities and will perform their obligations under the Lease Agreement in accordance with
the provisions of the Lease Agreement. If one Party violates the Lease Agreement, the other
Party shall be entitled to claim damages in accordance with the Lease Agreement.
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17.3 |
Any notice or written communication requited or permitted by this Lease Agreement shall be
made in writing in Chinese and English and sent by courier service. The date of receipt of a
notice or communication shall be deemed to be seven (7) days after the letter is deposited
with the courier service provided the deposit is evidenced by a confirmation receipt. All
notice and communications shall be sent to the appropriate address set forth below, until the
same is changed by notice given in writing to the other Party.
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17.4 |
This Lease Agreement comprises the entire understanding between the Parties with respect to
its subject matters and supersedes any previous or contemporaneous communications,
representations, or agreements, whether oral or written. For purposes of construction, this
Lease Agreement will be deemed to have been drafted by both Parties. No modification of this
Lease Agreement will be binding on either Party unless in writing and signed by an authorized
representative of each Party.
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Shanghai Kai Hong Technology Co., Ltd. | Shanghai Ding Hong Electronic Co., Ltd. |
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By:
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/s/ Justin Kong
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By:
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/s/ Jian Ya Xing
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Authorized Representative | Authorized Representative |
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Date:
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Date:
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/s/ Keh-Shew Lu | ||||
Keh-Shew Lu | ||||
President and Chief Executive Officer
Date: May 7, 2010 |
/s/ Richard D. White | ||||
Richard D. White | ||||
Chief Financial Officer
Date: May 7, 2010 |
Very truly yours,
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/s/ Keh-Shew Lu | ||||
Keh-Shew Lu | ||||
President and Chief Executive Officer
Date: May 7, 2010 |
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Very truly yours,
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/s/ Richard D. White | ||||
Richard D. White | ||||
Chief Financial Officer
Date: May 7, 2010 |
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