DEF 14A

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No. )

 

Filed by the Registrant Filed by a Party other than the Registrant

Check the appropriate box:

 

 

Preliminary Proxy Statement

 

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

 

Definitive Proxy Statement

 

 

Definitive Additional Materials

 

 

Soliciting Material under § 240.14a-12

DIODES INCORPORATED

(Name of registrant as specified in its charter)

(Name of person(s) filing proxy statement, if other than the registrant)

Payment of Filing Fee (Check the appropriate box):

 

 

No fee required

 

Fee paid previously with preliminary materials

 

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a6(i)(1) and 0-11

 

 


 

DIODES INCORPORATED

Notice of Annual Meeting of Stockholders

To Be Held May 25, 2022

Notice is hereby given that the annual meeting (the “Meeting”) of the stockholders of Diodes Incorporated (the “Company”) will be held online via live audio webcast at www.proxydocs.com/DIOD on Wednesday, May 25, 2022, at 6:00 p.m. (Central Time). Due to the continued public health impact of the Coronavirus outbreak and out of an abundance of caution to support the health and well-being of our employees, stockholders, and communities, the Meeting will be conducted completely virtually, via a live audio webcast; there will be no physical meeting location. Even though our Meeting is being held virtually, stockholders will still have the ability to participate in, hear others, and ask questions during the Meeting. The Meeting is being held for the following purposes:

1.
Election of Directors. To elect seven persons to the Board of Directors of the Company, each to serve until the next annual meeting of stockholders and until their respective successors have been elected and qualified. The Board of Directors’ nominees are: Angie Chen Button, Warren Chen, Michael R. Giordano, Keh-Shew Lu, Peter M. Menard, Christina Wen-Chi Sung and Michael K.C. Tsai.
2.
Approval of the 2022 Equity Incentive Plan. To approve the 2022 Equity Incentive Plan.
3.
Approval of Executive Compensation. To approve, on an advisory basis, the Company’s executive compensation.
4.
Ratification of Appointment of Independent Registered Public Accounting Firm. To ratify the appointment of Moss Adams LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022.
5.
Other Business. To transact such other business as properly may come before the Meeting or any adjournment or postponement thereof.

It is possible that an adjournment or postponement may be necessary that makes us unable to hold the Meeting on the date as planned. If such an adjournment or postponement is made, the Company will notify stockholders through the issuance of a press release and the filing of definitive additional soliciting material with the Securities and Exchange Commission.

Only persons who were stockholders of record at the close of business on March 28, 2022 are entitled to notice of and to vote either by proxy or at the Meeting or any adjournment or postponement thereof.

The proxy statement, which accompanies this Notice, contains additional information regarding the proposals to be considered at the Meeting, and stockholders are encouraged to read it in its entirety.

The Company has elected to provide access to our proxy materials by notifying you of the availability of our proxy statement and our fiscal 2021 Annual Report to Stockholders over the Internet at www.proxydocs.com/DIOD. Stockholders may also obtain a printed copy of the proxy materials free of charge by following the instructions provided in the Notice of Internet Availability of Proxy Materials that will be first mailed to stockholders on or about April 14, 2022 or in the enclosed proxy statement.

As set forth in the enclosed proxy statement, proxies are being solicited by and on behalf of the Board of Directors of the Company. All proposals set forth above are proposals of the Board of Directors.

Whether or not you plan to participate in the virtual Meeting, YOUR VOTE IS IMPORTANT. Please follow the instructions enclosed to ensure that your shares are voted. If you participate in the Meeting, you may revoke your proxy at any time prior to its exercise at the Meeting.

Dated at Plano, Texas, this 14th day of April, 2022.

By Order of the Board of Directors,

DIODES INCORPORATED

https://cdn.kscope.io/03b7da8a6f66f016e3eff3fe7560bfad-img9518078_0.jpg 

Richard D. White,
Secretary

IF YOU PLAN TO ATTEND THE MEETING

 

If you plan to attend the Meeting online you must be registered no later than 5:00 p.m. Central Time on May 23, 2022. To register go to www.proxydocs.com/DIOD. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the Meeting and will also permit you to submit questions during the Meeting and in advance. Please be sure to follow instructions found on your proxy card and subsequent instructions that will be delivered to you via email. You will be able to listen, vote, and submit questions from any remote location that has Internet connectivity. Technical assistance is available as part of the instructions.

 

 


 

TABLE OF CONTENTS

 

Page

General Information

 

1

Matters to be Considered at the Meeting

 

1

Voting Recommendations of the Board

 

1

Voting Shares Held in “Street Name”

 

1

Internet Access to Proxy Materials

 

1

How to Vote

 

2

How to Change or Revoke Your Vote

 

3

Meeting Admission

 

3

Voting Rights

 

3

Procedures for Stockholder Nominations and Proposals

 

5

Cost of Proxy Solicitation

 

5

Other Business

 

5

Security Ownership of Certain Beneficial Owners and Management

 

6

Proposal One – Election of Directors

 

8

Board Diversity

 

9

Corporate Governance

 

13

Committees of the Board

 

13

Meetings of the Board and Committees

 

14

Board Leadership Structure

 

14

Nominating Procedures and Criteria and Board Diversity

 

15

Director Resignation Policy

 

16

Communications with Directors

 

16

Compensation of Directors

 

17

Compensation Committee Interlocks and Insider Participation

 

18

Corporate Policies

 

18

Corporate Sustainability

 

20

Executive Officers of the Company

 

28

Report of the Audit Committee

 

30

Code of Ethics

 

31

Certain Relationships and Related Person Transactions

 

31

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

32

Proposal Two - Approval of 2022 Equity Incentive Plan

 

33

Summary

 

33

Number of Shares Requested to be Approved for the 2022 Plan

 

33

Why the 2022 Plan is Important to Our Future Success

 

35

Highlights of Material Differences between the 2022 Plan and the 2013 Plan

 

36

Text of the 2022 Plan

 

38

Key Features of the 2022 Plan

 

38

Description of the 2022 Plan

 

38

Certain Federal Income Tax Information

 

42

New Plan Benefits

 

44

Required Vote

 

45

Proposal Three - Approval of Executive Compensation

 

46

Compensation Discussion and Analysis

 

47

Introduction

 

47

Executive Summary

 

47

Overview of Compensation Program

 

49

Pay for Performance

 

52

Principal Components of Compensation

 

54

Compensation Review Process

 

61

Additional Benefits and Perquisites

 

62

Best Practices

 

63

Compensation Risk Assessment

 

63

Post-Termination and Change-In-Control Payments

 

64

Tax and Accounting Considerations

 

65

Report of the Compensation Committee on Executive Compensation

 

66

Executive Compensation

 

67

Summary Compensation Table

 

67

Grants of Plan-Based Awards

 

68

CEO Pay Ratio

 

68

Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table

 

69

Outstanding Equity Awards at Fiscal Year-End

 

72

 

 


 

Option Exercises and Stock Vested

 

73

Equity Compensation Plan Information

 

73

Nonqualified Deferred Compensation

 

74

Potential Payments Upon Termination or Change in Control

 

74

Proposal Four - Ratification of the Appointment of Independent Registered Public Accounting Firm

 

79

Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees

 

79

Proposals of Stockholders and Stockholder Nominations for 2023 Annual Meeting

 

81

Annual Report and Form 10-K

 

82

Appendix A

 

83

Meeting Location

 

Back Cover

 

 


 

DIODES INCORPORATED

4949 Hedgcoxe Road, Suite 200

Plano, Texas 75024

(972) 987-3900

PROXY STATEMENT

ANNUAL MEETING: MAY 25, 2022

GENERAL INFORMATION

This proxy statement (“Proxy Statement”) is furnished in connection with the solicitation of proxies by the Board of Directors (the “Board”) of Diodes Incorporated (the “Company”) for use at the annual meeting (the “Meeting”) of the stockholders of the Company to be held online via live audio webcast at www.proxydocs.com/DIOD on Wednesday, May 25, 2022, at 6:00 p.m. (Central Time), and at any adjournment or postponement thereof. Only stockholders of record at the close of business on March 28, 2022 (the “Record Date”) are entitled to notice of and to vote by proxy or at the Meeting or any adjournment or postponement thereof.

Matters to be Considered at the Meeting

The matters to be considered and voted upon at the Meeting will be:

1.
Election of Directors. To elect seven persons to the Board of Directors of the Company, each to serve until the next annual meeting of stockholders and until their respective successors have been elected and qualified. The Board of Directors’ nominees are: Angie Chen Button, Warren Chen, Michael R. Giordano, Keh-Shew Lu, Peter M. Menard, Christina Wen-Chi Sung and Michael K.C. Tsai.
2.
Approval of the 2022 Equity Incentive Plan. To approve the 2022 Equity Incentive Plan.
3.
Approval of Executive Compensation. To approve, on an advisory basis, the Company’s executive compensation.
4.
Ratification of Appointment of Independent Registered Public Accounting Firm. To ratify the appointment of Moss Adams LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022.
5.
Other Business. To transact such other business as properly may come before the Meeting or any adjournment or postponement thereof.

Voting Recommendations of the Board

Our Board recommends that you vote your shares “FOR” each of the nominees to the Board, "FOR" the approval of the 2022 Equity Incentive Plan, “FOR” the approval of executive compensation and “FOR” the ratification of the appointment of Moss Adams LLP.

Voting Shares Held in “Street Name”

Brokerage firms who are members of the New York Stock Exchange cannot vote your shares held in street name in the election of directors or on executive compensation, if you fail to instruct the organization how to vote such shares. Therefore, it is very important that you provide instructions on how to vote any shares beneficially owned by you in street name.

Internet Access to Proxy Materials

Under rules adopted by the Securities and Exchange Commission (the “SEC”), the Company has elected to provide access to our proxy materials over the Internet at www.proxydocs.com/DIOD. Stockholders will not receive printed copies of the

1 Diodes Incorporated


 

proxy materials unless they have requested us to provide proxy materials in printed form. On or about April 14, 2022, a Notice of Internet Availability of Proxy Materials (the “Notice”) will be first sent to our stockholders of record and beneficial owners. All stockholders receiving the Notice can request a printed copy of the proxy materials.

The Notice provides you with instructions regarding how to:

View our proxy materials for the Meeting on the Internet;
Request a printed copy of the proxy materials; and
Instruct us to send future proxy materials to you by mail or electronically by email on an ongoing basis.

Choosing to receive future proxy materials by email will save us the cost of printing and mailing documents to you and will reduce the impact of our annual meetings on the environment. If you choose to receive future proxy materials by email, you will receive an email next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by email will remain in effect until you terminate it, and it is your responsibility to notify us of any change to your email address given to us.

The proxy materials include:

Notice of Annual Meeting of Stockholders;
This Proxy Statement; and
The 2021 Annual Report to Stockholders, which includes our audited consolidated financial statements.

If you request printed copies of the proxy materials by mail, these materials will also include a proxy card.

How to Vote

Stockholder of Record. If your shares are registered directly in your name with our transfer agent, Continental Stock Transfer & Trust Company, you are considered the stockholder of record with respect to those shares, and the Notice was sent directly to you by the Company. If you are a stockholder of record, you may attend the Meeting and vote in person via the Internet at www.proxydocs.com/DIOD.

If you do not wish to attend the Meeting and vote online during the Meeting, you may vote by proxy. There are three ways to vote by proxy. You may submit a proxy by telephone by calling (855) 686-4804 and following the instructions provided. You may submit a proxy over the Internet at www.proxypush.com/diod by following the instructions provided. If you request and receive a printed copy of the proxy materials by mail, you can submit a proxy by signing and dating the enclosed proxy card and either mailing it in the postage-paid envelope provided to the address stated on the proxy card or transmitting it by facsimile to the Inspector of Elections at (972) 731-3510.

Telephone and Internet voting facilities for stockholders will be available 24 hours a day and will close at 5:00 p.m. (Central Time) on May 23, 2022. If a proxy is properly submitted and is not revoked, the proxy will be voted at the Meeting in accordance with the stockholder’s instructions indicated on the proxy. If no instructions are indicated on the proxy with respect to any matter, the proxy will be voted on such matter as follows: “FOR” the election of the Board’s nominees, "FOR" the approval of the 2022 Equity Incentive Plan, “FOR” the approval of executive compensation, “FOR” ratification of the appointment of Moss Adams LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2022, and in accordance with the recommendations of the Board as to any other matter that may properly be brought before the Meeting or any adjournment or postponement thereof.

Beneficial Owner of Shares Held in Street Name. If your shares are held in an account at a brokerage firm, bank, broker-dealer, or other similar organization, then you are the beneficial owner of shares held in “street name,” and the Notice was forwarded to you by that organization. The organization holding your shares is considered the stockholder of record for purposes of voting at the Meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares held in your account by following the instructions they provided. If you wish to attend the Meeting and vote

2 Diodes Incorporated


 

during the Meeting in person via the Internet, you must obtain a proxy executed in your favor from the organization that holds your shares.

Even if you plan to attend the Meeting, the Company recommends that you also submit your proxy or voting instructions so that your vote will be counted if you later decide not to attend the Meeting.

How to Change or Revoke Your Vote

You may change your vote at any time before the vote at the Meeting. If you are a stockholder of record, you may change your vote by submitting a proxy over the Internet or telephone on a later date (only your last Internet or telephone proxy will be counted), or by filing a written revocation, or a duly executed proxy card bearing a later date, with the Company’s Secretary at the Meeting or at our offices located at 4949 Hedgcoxe Road, Suite 200, Plano, Texas 75024 provided that any such written revocation or duly executed proxy card bearing a later date must be received at such offices no later than May 23, 2022. You may also change your vote by attending the Meeting and voting in person via the Internet. Attending the Meeting will not automatically revoke a previously granted proxy unless you vote at the Meeting or file a written revocation with the Company’s Secretary at or before the Meeting.

If you are a beneficial owner of shares held in street name, you may change your vote by submitting new voting instructions to the brokerage firm, bank, broker-dealer or other organization holding your shares by following the instructions they provided or, if you obtained a proxy in your favor from that organization, by attending the Meeting and voting in person via the Internet.

Meeting Admission

Due to concerns around the continued presence of COVID-19 in the United States and globally, this year our Meeting will be a completely virtual meeting, which will be conducted via live audio webcast at www.proxydocs.com/DIOD. You are entitled to participate in the Meeting only if you were a holder of Diodes’ Common Stock at the close of business on March 28, 2022, which is the record date for the Meeting, or if you hold a valid proxy. If you plan to attend the Meeting online you must be registered no later than 5:00 p.m. (Central Time) on May 23, 2022. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the Meeting and will also permit you to submit questions during the Meeting and in advance. Please be sure to follow instructions found on your proxy card and subsequent instructions that will be delivered to you via email. You will be able to participate in, hear others and ask questions from any remote location that has Internet connectivity. Technical assistance is available as part of the instructions.

Voting Rights

The authorized capital of the Company consists of (i) 70,000,000 shares of Common Stock, par value $0.66-2/3 per share (“Common Stock”), of which 45,231,784 shares were issued and outstanding on the Record Date, and (ii) 1,000,000 shares of Preferred Stock, par value $1.00 per share (“Preferred Stock”), none of which were issued and outstanding on the Record Date.

A majority of the shares of Common Stock issued and outstanding and entitled to vote at the Meeting, present either in person via the Internet or by proxy, constitutes a quorum for the conduct of business at the Meeting. Votes withheld, abstentions and “broker non-votes” (as defined below) will be counted for the purpose of determining the presence of a quorum.

Each stockholder is entitled to one vote, in person via the Internet or by proxy, for each share of Common Stock standing in his or her name on the books of the Company at the close of business on the Record Date on any matter submitted to the stockholders, except that in connection with the election of directors, each stockholder has the right to cumulate votes. Cumulative voting entitles a stockholder to give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of shares of Common Stock owned by such stockholder, or to distribute such stockholder’s votes on the same principle among as many candidates and in such manner as the stockholder shall desire.

3 Diodes Incorporated


 

If you are a stockholder of record and wish to exercise cumulative voting rights, you must submit a proxy by mail or attend the Meeting and vote in person via the Internet. Your proxy card or ballot must specify how you want to allocate your votes among the nominees. Telephone and Internet voting facilities do not accommodate cumulative voting. If you hold your shares in street name, contact your brokerage firm, bank, broker-dealer, or other similar organization for directions on how to exercise cumulative voting rights using their voting instruction card, or to request a legal proxy so that you can vote your shares directly. Discretionary authority to cumulate votes is hereby solicited by the Board. If you return a signed proxy card or submit voting instructions in writing without providing instructions about cumulative voting, or if you submit a proxy by telephone or in person via the Internet, you will confer on the designated Proxyholders named below discretionary authority to exercise cumulative voting. If they elect to do so, they will be authorized, in their discretion, to cast your votes for some or all of the nominees in the manner recommended by the Board or otherwise in the discretion of the Proxyholders. However, they will not cast any of your votes for a nominee as to whom you have instructed them on your proxy card, voting instruction card or otherwise to withhold a vote. If you do not wish to grant the Proxyholders authority to cumulate your votes in the election of directors, you must explicitly state that objection on your proxy card or voting instruction card, as applicable.

 

For Proposal 1, our Bylaws provide that, in the election of directors, the candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected; provided, however, that the Board has adopted a policy requiring that in an uncontested election (such as the election held at this Meeting), each nominee will submit an irrevocable resignation promptly following the election if he or she fails to receive a majority of votes cast. An uncontested election means that there are as many candidates standing for election as there are vacancies on the Board. A majority of votes cast means that the number of shares cast “FOR” a director’s election exceeds the number of votes “WITHHELD.” Abstentions and broker non‑votes are not considered a vote cast and, therefore, will have no effect with respect to the election of directors other than to reduce the number of affirmative votes required to elect a director. “Broker non‑votes” are shares of stock held in record name by brokers or nominees for which instructions have not been received from the beneficial owners or persons entitled to vote and the broker or nominee does not have discretionary voting power under applicable rules or the instrument under which it serves in such capacity. See “Proposal One – Election of Directors” and “Corporate Governance – Director Resignation Policy.”

Proposals 2, 3 and 4 require the affirmative vote of the holders of a majority of the outstanding shares of Common Stock present, in person via the Internet or by proxy, and entitled to vote on the proposal at the Meeting. Abstentions will be included in the number of votes present and entitled to vote on these proposals and, accordingly, will have the effect of a vote “AGAINST” the proposal. Broker non-votes with respect to these proposals will not be counted as shares present and entitled to vote on these proposals and, accordingly, will not have any effect with respect to the approval of these proposals (other than to reduce the number of affirmative votes required to approve the proposal). The vote with respect to executive compensation is not binding on the Company, the Board or the Compensation Committee of the Board (the “Compensation Committee”). However, the Board and the Compensation Committee will review the result of this vote and take it into consideration when making future decisions regarding executive compensation. Although the appointment of Moss Adams LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022 is not required to be submitted to a vote of stockholders, the Audit Committee believes that it is appropriate as a matter of policy to request that the stockholders ratify the appointment of the Company’s independent registered public accounting firm. If the stockholders do not ratify the appointment, which requires the affirmative vote of a majority of the outstanding shares of Common Stock present, in person via the Internet or by proxy, and entitled to vote on the proposal at the Meeting, the Board will consider the selection of another independent registered public accounting firm.

Of the shares of Common Stock outstanding on the Record Date, 1,142,277 shares (or approximately 2.6%) were beneficially owned by directors and executive officers of the Company. Each of the directors and executive officers have informed the Company that they will vote “FOR” the election of the Board’s nominees named herein, "FOR" the approval of the 2022 Equity Incentive Plan, “FOR” the approval of executive compensation and “FOR” ratification of the appointment of Moss Adams LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022.

4 Diodes Incorporated


 

Organizations holding Common Stock in “street name” that are members of a stock exchange are required by the rules of the applicable stock exchange to transmit the proxy materials to the beneficial owner of the Common Stock and to solicit voting instructions with respect to the matters submitted to the stockholders. If the organization has not received instructions from the beneficial owner by the date specified in the statement accompanying such proxy materials, the organization may give or authorize the giving of a proxy to vote the Common Stock in its discretion as to “routine” matters, but not as to “non-routine” matters. When an organization is unable to vote a client’s shares on a proposal, the missing votes are referred to as “broker non-votes.” If you hold Common Stock in “street name” and you fail to instruct the organization that holds your shares as to how to vote such shares, that organization may, in its discretion, vote such Common Stock “FOR” ratification of the appointment of Moss Adams LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022, which is considered a routine matter, but not with respect to the election of the nominees to the Board, the approval of the 2022 Equity Incentive Plan, or the advisory vote on executive compensation, which are considered non-routine matters.

Procedures for Stockholder Nominations and Proposals

Under the Company’s Bylaws, any stockholder generally may submit proposals or nominate one or more persons for election as directors by following the procedures described in this Proxy Statement under “Proposals of Stockholders and Stockholder Nominations for 2023 Annual Meeting.” No notice of a stockholder proposal or nomination was timely received in connection with the Meeting.

Cost of Proxy Solicitation

This proxy solicitation is made by the Board, and the Company will bear the costs of this solicitation, including the expense of preparing, assembling, printing and mailing this Proxy Statement and any other material used in this proxy solicitation. If it should appear desirable to do so to ensure adequate representation at the Meeting, officers and regular employees may communicate with stockholders of record, beneficial owners, banks, brokerage houses, custodians, nominees and others, by telephone, facsimile transmissions, email or in person via the Internet to request that the proxies be furnished. No additional compensation will be paid for these services to officers or employees of the Company. The Company will reimburse banks, brokerage houses, and other custodians, nominees and fiduciaries, for their reasonable expenses in forwarding proxy materials to their principals. The Company has not engaged a proxy solicitor at this time, but the Board may determine it is necessary to employ an outside firm to assist in the solicitation process. If so, the Company will pay the proxy solicitor its reasonable and customary fees, estimated not to exceed $15,000 plus reasonable out-of-pocket expenses.

Other Business

As of the date of this Proxy Statement, the Board knows of no business to be presented for consideration at the Meeting other than as stated in the Notice of Annual Meeting of Stockholders. However, if any other matters properly come before the Meeting, including a motion to adjourn the Meeting to another time or place in order to solicit additional proxies in favor of the recommendations of the Board, the designated proxyholders, Dr. Keh-Shew Lu, the Company’s Chairman, President and Chief Executive Officer, and Brett Whitmire, the Company’s Chief Financial Officer (the “Proxyholders”), will vote the shares represented by the proxies on such matters in accordance with the recommendation of the Board, and authority to do so is included in the proxy. Such authorization includes authority to appoint a substitute nominee or nominees to the Board’s nominees identified herein where death, illness or other circumstances arise which prevent any such nominee from serving in such position and to vote such proxy for such substitute nominee.

 

5 Diodes Incorporated


 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of Common Stock as of the Record Date by each person known to the Company to be the beneficial owner of five percent (5%) or more of the outstanding shares of Common Stock (other than depositories).

 

Name and Address of Beneficial Owner

Amount and Nature of
Beneficial Ownership
(1)

 

Percent of Class (2)

BlackRock, Inc. (“BlackRock”)
55 East 52nd Street
New York, New York 10022

                              6,947,644

(3)

15.4%

The Vanguard Group (“Vanguard”)
100 Vanguard Blvd.
Malvern, Pennsylvania 19355

                              4,962,444

(4)

11.0%

 

(1) The named stockholder has sole voting power and investment power with respect to the shares listed, except as indicated below.

(2) Based on 45,231,784 shares outstanding as of the Record Date.

(3) Based solely on information provided by BlackRock in Schedule 13G/A filed with the SEC on January 27, 2022, reporting beneficial ownership of the Company’s Common Stock. According to the Schedule 13G/A, BlackRock has sole voting power with respect to 6,894,219 shares, has sole dispositive power with respect to 6,947,644 shares and has neither shared voting power nor shared dispositive power with respect to any shares.

(4) Based solely on information provided by Vanguard in Schedule 13G/A filed with the SEC on February 9, 2022, reporting beneficial ownership of the Company’s Common Stock. According to the Schedule 13G/A, Vanguard has shared voting power with respect to 71,946 shares, has sole dispositive power with respect to 4,850,559 shares and has shared dispositive power with respect to 111,885 shares.

The following table sets forth the beneficial ownership of Common Stock of the Company as of the Record Date by (i) each director and nominee of the Company, (ii) each Named Executive Officer (“NEO”) of the Company (as defined below), and (iii) all directors, nominees and executive officers of the Company as a group.

 

Name of Beneficial Owner

Common Stock Underlying Options or Restricted Stock Units (1)

Common
 Stock

Amount and Nature
of Beneficial
Ownership
(2)

 

Percent of Class (3) (4)

Directors and Nominee

 

 

 

 

 

Angie Chen Button

                           630

                             —

                                  630

 

*

C.H. Chen

                      10,913

                    100,429

                           111,342

(1)

*

Warren Chen

                        1,530

                           900

                               2,430

(1)

*

Michael R. Giordano

                        3,605

                      78,905

                             82,510

(1)

*

Keh-Shew Lu (5)

                        2,937

                    684,966

                           687,903

(1)(6)(8)

1.5%

Peter M. Menard

                        3,605

                        6,125

                               9,730

(1)

*

Christina Wen-Chi Sung

                        3,605

                      10,425

                             14,030

(1)

*

Michael K.C. Tsai

                        3,605

                      39,450

                             43,055

(1)

*

Named Executive Officers

 

 

 

 

 

Brett R. Whitmire

                             —

                      15,404

                             15,404

(1)(8)

*

Julie Holland

                             —

                      26,077

                             26,077

(1)(8)

*

Francis Tang

                             —

                      24,271

                             24,271

(1)(8)

*

Gary Yu

                             —

                      16,407

                             16,407

(1)(8)

*

All directors and executive officers of the Company as a group (15 individuals including those named above)

                      30,430

                 1,090,473

                        1,120,903

(7)

2.6%

* Indicates less than 1%.

(1) Consists of shares of Common Stock that the named individual has the right to acquire within sixty (60) days after the Record Date by exercising stock options or the vesting of restricted stock units (“RSUs”) or performance stock units (“PSUs”). For further discussion on the Company’s use of equity awards, see “Compensation Discussion and Analysis – Principal Components of Compensation - Long-Term Incentive (LTI) Plan.”

(2) The named stockholder has sole voting power and investment power with respect to the shares listed, except as indicated and subject to community property laws where applicable.

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(3) Under Rule 13d-3 of the Securities Exchange Act of 1934 (the “Act”), certain shares may be deemed to be beneficially owned by more than one person (for example, if a person shares the power to vote or the power to dispose of the shares). In addition, under Rule 13d-3(d)(1) of the Exchange Act, shares which the person (or group) has the right to acquire within sixty (60) days after the Record Date are deemed to be outstanding in calculating the beneficial ownership and the percentage ownership of the person (or group) but are not deemed to be outstanding as to any other person or group. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership of voting power with respect to the number of shares of Common Stock actually outstanding at the Record Date.

(4) Percent of Class is based on 45,231,784 shares of the Common Stock of the Company outstanding as of the Record Date.

(5) Dr. Lu is Chairman of the Board, President and the Chief Executive Officer of the Company, and a NEO.

(6) Includes 70,465 shares of Common stock held in the name of the Lu Family Revocable Trust, 46,150 shares of Common Stock held in the name of an UTMA (Custodial) Trust, and 285,801 shares held in the name of the Lu Grandchildren’s Trust. Dr. Lu is a co-trustee of the Lu Family Revocable Trust, the UTMA (Custodial) Trust and the Lu Grandchildren’s Trust. Dr. Lu has voting and investment authority over these shares.

(7) Includes 30,430 shares that all directors and executive officers of the Company have the right to acquire within sixty (60) days after the Record Date, by exercising stock options or the vesting of RSUs, but excludes an additional 584,604 shares that all directors and executive officers of the Company will have the right to acquire upon the exercise of stock options or the vesting of RSUs and PSUs, which may vest in installments more than sixty (60) days after the Record Date.

(8) Does not include 32,000, 7,600, 7,600, 8,500 and 9,200 shares of Common Stock subject to PSUs granted February 1, 2022 to Messrs. Lu, Whitmire, Tang, Yu and Ms. Holland, respectively, that vest only if (i) the Company achieves a targeted Non-GAAP operating income for 2022 through 2024 and (ii) the executive continues to provide services to the Company.

Does not include 32,000, 7,600, 7,600, 8,500 and 9,200 shares of Common Stock subject to PSUs granted February 8, 2021 to Messrs. Lu, Whitmire, Tang, Yu and Ms. Holland, respectively, that vest only if (i) the Company achieves a targeted Non-GAAP operating income for 2021 through 2023 and (ii) the executive continues to provide services to the Company.

Does not include does not include 53,100, 10,800, 15,300 and 15,300 shares of Common Stock subject to PSUs granted February 19, 2020 to Messrs. Lu, Whitmire, Tang and Ms. Holland, respectively, that vest only if (i) the Company achieves a targeted Non-GAAP operating income for 2021 through 2023 and (ii) the executive continues to provide services to the Company.

Does not include 32,000, 7,600, 7,600, 8,500 and 9,200 shares of Common Stock subject to RSUs granted on February 1, 2022 to Messrs. Lu, Whitmire, Tang, Yu and Ms. Holland, respectively, that vest in four equal annual installments on February 1, 2023, 2024, 2025 and 2026, if the executive continues to provide services to the Company.

Does not include 5,000 shares of Common Stock subject to RSUs granted on May 24, 2021 to Dr. Lu that vest in four equal installments on May 26, 2022, 2023, 2024 and 2025, if the executive continues to provide services to the Company.

Does not include 24,000, 5,700, 5,700, 6,375 and 6,900 shares of Common Stock subject to RSUs granted on February 8, 2021 to Messrs. Lu, Whitmire, Tang, Yu and Ms. Holland, respectively, that in three equal installments on February 24, 2023, 2023 and 2025, if the executive continues to provide services to the Company.

Does not include 6,000 shares of Common Stock subject to RSUs granted on July 1, 2020 to Mr. Yu that vest in three equal installments on July 1, 2022, 2023 and 2024, if the executive continues to provide services to the Company.

Does not include 5,063 shares of Common Stock subject to RSUs granted on May 18, 2020 to Dr. Lu that vest in three equal installments on May 18, 2022, 2023 and 2024, if the executive continues to provide services to the Company.

Does not include 2,000 shares of Common Stock subject to RSUs granted on July 1, 2019 to Mr. Yu that vest in two equal installments on July 1, 2022 and 2023, if the executive continues to provide services to the Company.

Does not include 26,550, 5,400, 7,650 and 7,650 shares of Common Stock subject to RSUs granted on February 19, 2020 to Messrs. Lu, Whitmire, Tang and Ms. Holland, respectively, that vest in two equal installments on February 19, 2023 and 2024, if the executive continues to provide services to the Company.

Does not include 14,750, 3,000, 4,250 and 4,250 shares of Common Stock subject to RSUs granted on February 21, 2019 to Messrs. Lu, Whitmire, Tang and Ms. Holland, respectively, that vest in two equal installments on February 21, 2023 and 2024, if the executive continues to provide services to the Company.

Does not include 600 and1,000 shares of Common Stock subject to RSUs granted on July 2, 2018 to Messrs. Whitmire and Yu, respectively, that vest on July 2, 2022, if the executive continues to provide services to the Company.

For further discussion on the operating income performance goal and service condition related to these grants, see “Compensation Discussion and Analysis – Principal Components of Compensation - Long-Term Incentive (LTI) Plan.”

 

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PROPOSAL ONE

ELECTION OF DIRECTORS

The Company’s Bylaws provide that the number of directors shall be determined from time to time by the Board, but may not be less than five nor more than seventeen. Currently, the Board consists of eight members. Mr. C.H. Chen will not be standing for reelection at the Meeting and, accordingly the Board has reduced the number of directors to seven as of the commencement of the Meeting. The Company’s Bylaws further provide for the election of each director at each annual meeting of stockholders.

The persons nominated have been nominated for election to the Board to serve until the next annual meeting of stockholders and until their respective successors have been elected and qualified. All nominees are currently directors of the Company, and all nominees have indicated their willingness to serve. Unless otherwise instructed, proxies will be voted in such a way as to elect as many of these nominees as possible under applicable voting rules. In the event that any of the nominees should be unable or unwilling to serve as a director, proxies will be voted for the election of such substitute nominees, if any, as shall be designated by the Board. The Board has no reason to believe that any nominee will be unable or unwilling to serve.

The Company’s Corporate Governance Guidelines provides that a member of the Board will not be eligible to stand for re-election to the Board after attaining the age of 75 provided that the Board may waive the requirement for up to five years for any director. Prior to the date of this Proxy Statement, Mr. Keh-Shew Lu and Mr. Michael R. Giordano attained the age of 75, and the Board waived this requirement to allow them to be eligible to stand for re-election to the Board at the Meeting.

The seven nominees who receive the highest number of affirmative votes will be elected. The Board has adopted a policy requiring that in an uncontested election (such as the election held at the Meeting), each nominee will submit an irrevocable resignation promptly following the election if he or she fails to receive a majority of votes cast. An uncontested election means that there are as many candidates standing for election as there are vacancies on the Board. A majority of votes cast means that the number of shares cast “FOR” a director’s election exceeds the number of votes “WITHHELD.” See “Corporate Governance – Director Resignation Policy.”

None of the nominees were selected pursuant to any arrangement or understanding, other than that with the directors of the Company acting within their capacity as such. There are no family relationships among the directors of the Company as of the date hereof, and, except as set forth below, as of the date hereof, no directorships are now, or in the past five years have been, held by any director in a company that has a class of securities registered pursuant to Section 12 of 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.

The following table and discussion sets forth certain biographical information concerning the nominees of the Company as of the Record Date:

 

Nominees

Age

Position with the Company

Director Since

Keh-Shew Lu

75

Chairman of the Board, President and Chief Executive Officer, and Director

2001

Michael K.C. Tsai

68

Lead Director

2010

Angie Chen Button

68

Director

2021

Warren Chen

72

Director

2020

Michael R. Giordano

75

Director

1990

Peter M. Menard

68

Director

2018

Christina Wen-Chi Sung

68

Director

2017

 

 

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Board Diversity

In accordance with Nasdaq Listing Rule 5605(f), the following chart sets forth certain self-identified personal demographic characteristics of the nominees.

 

Total Number of Director Nominees

7

 

Female

 

Male

 

Part I. Gender Identity

 

 

 

 

Directors

2

 

5

 

 

 

 

 

 

Part II. Demographic Background

 

 

 

 

Asian

2

 

3

 

White

 

2

 

 

Keh-Shew Lu

Chairman, President, and Chief Executive Officer

Member, Risk Oversight Committee

 

Dr. Lu was elected Chairman of the Board in May 2020 and appointed President and Chief Executive Officer of the Company in June 2005 after serving on the Board since 2001. Dr. Lu is also a board member of Lite-On Technology Corporation and Nuvoton Technology Corporation, two publicly held companies. Dr. Lu is the founding Chairman of the Asian American Citizen’s Council. From 2001 to 2005, Dr. Lu was a partner of the WK Technology Venture Fund. From 1998 to 2001, Dr. Lu served as Senior Vice President and General Manager of Worldwide Mixed-Signal and Logic Products of Texas Instruments (“TI”). His responsibilities included all aspects of the analog, mixed-signal and logic products for TI’s worldwide business, including design, process and product development, manufacturing and marketing. From 1996 to 1998, Dr. Lu was the manager of TI’s worldwide memory business. In addition, he served as the President of TI Asia from 1994 to 1997 where he supervised all of TI activities in Asia, excluding Japan. Dr. Lu holds a bachelor’s degree in Electrical Engineering from the National Cheng Kung University in Taiwan, and a master’s degree and a doctorate in Electrical Engineering from Texas Tech University.

 

Having worked in the semiconductor industry for more than 40 years and, particularly, having served in various managerial and senior executive capacities at TI, Dr. Lu possesses a wealth of semiconductor management experience. Dr. Lu is also an experienced board leader and member, having served for many years on behalf of several public and private companies.

 

Michael K.C. Tsai

Lead Director

Chair, Compensation Committee

Chair, Governance and Stockholder Relations Committee

 

Mr. Tsai joined and co-founded Powerchip Semiconductor Corp. in 1994, and with the company’s growth has held various positions as Senior VP, President, and Vice Chairman. He has acted as Chairman of the Board of several companies that Powerchip held equity positions in: Nexchip Semiconductor Corp., a joint venture in China, since April 2020; AP Memory Technology Corp. since 2017; Maxchip Electronics Corp. from 2008 to April 2019; Zentel Electronics Corp. from 2010 to 2016; and uPI Semiconductor Corp. from 2007 to 2011. He was also the Chairman of the Board and the Chief Executive Officer of Elitegroup Computer Systems, Inc. from 1991 to 1994; a partner of Tailink Venture Corp. from 1990 to 1994; the President and Chief Executive Officer of Esprit Systems, Inc. from 1989 to 1990; and held numerous executive positions in sales, marketing, planning, and general management with the Acer Group from 1978 to 1988. He has further been a director on the board of the Taiwan Semiconductor Industry Association since 2000 through the present. Mr. Tsai began his career as an electronic design engineer with Tatung Corp. in 1977. Mr. Tsai received his bachelor’s degree in Control Engineering and Computer Science from National Chiao-Tung University in Taiwan in 1975.

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Mr. Tsai’s decades of experience serving on the boards of numerous technology and semiconductor companies, and holding various management positions in companies in the technology and semiconductor industry, provide an insightful view of the semiconductor industry to the Board. Mr. Tsai also brings a range of boardroom experience and corporate governance knowledge to further strengthen the operation of the Board.

 

Angie Chen Button

Director

Member, Audit Committee

Member, Governance and Stockholder Relations Committee

 

Ms. Button has served as a representative in the State of Texas House of Representatives since 2009. The only Asian American Woman legislator in Texas, she currently chairs the International Relations and Economic Development Committee, and has previously served as Chair of the Urban Affairs Committee, as Chair of the Economic and Small Business Development Committee, as Vice Chair of the Technology Committee, sat on the Appropriations (Budget) Committee, and has sat and currently serves on the Ways and Means (Taxation) Committee. A CPA, Ms. Button worked for Texas Instruments for over 30 years in various auditing, finance, business development, procurement, and international marketing positions. She also served on the Audit Committee of the Dallas Area Rapid Transit Board. During 2021, Texas Monthly named Ms. Button as a “Top 10 Best Legislator” and the Texas Association for the Education of Young Children awarded her as its “Elected Official of the Year.” As a state representative, she brings experience and connections in dealing with government officials and business leaders, including promoting international business and trade.

 

Ms. Button received her bachelor’s degree in Accounting from National Taiwan University in 1976, her master’s degree in Public Finance from National Chengchi University in 1978, and her master’s degree in Management Science from University of Texas at Dallas in 1980. Ms. Button is a co-founder of the DFW Asian American Citizens Council. Ms. Button is not related to Mr. C.H. Chen or Mr. Warren Chen.

Warren Chen

Director

Member, Compensation Committee

Member, Governance and Stockholder Relations Committee

Member, Risk Oversight Committee

 

Mr. Warren Chen has been a member of the Board of Lite-On Technology Corp. (“LTC”) since 2002 and was promoted to President of the Lite-On Group in 2010. He was named Vice Chairman and Group CEO of LTC since 2014 and stepped down on July 31, 2020. He joined the Lite-On Group in 1983 and has served in positions of increasing responsibility, including as Group Deputy CEO and Core Investment CEO from 2006 to 2010, Deputy CEO of LTC from 2000 to 2006, President of Taiwan Lite-On Electronics Inc. from 1992 to 2000, Senior Vice President of Lite-On Inc. and Production Manager of Compound Semi, Inc. (CA). Prior to joining the Lite-On Group, from 1975 to 1983, Mr. Warren Chen served as

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manufacturing superintendent for TI Taiwan. Mr. Warren Chen holds a bachelor’s degree in Chemical Engineering from Chinese Culture University. See “Certain Relationships and Related Person Transactions – Relationships and Transactions.”

 

Mr. Warren Chen’s approximately 45 years of management experience in the electronics industry and the global supply chain provides the Board with perspective on the future trends and challenges in the semiconductor industry. Mr. Warren Chen is not related to Ms. Angie Chen Button or Mr. C.H. Chen.

 

Michael R. Giordano

Director

Chair, Audit Committee (Audit Committee Financial Expert)

 

Mr. Giordano, CIMA, retired October 6, 2021 as Associate Director, Senior Wealth Strategy Associate at the private-banking firm of UBS Financial Services, Inc., having previously served as Senior Vice President-Investment Consulting from when UBS AG acquired PaineWebber, Inc. in 2000 until 2017. PaineWebber, Inc. had acquired his previous employer, Kidder Peabody and Co., Inc., by whom he was employed since 1979. Mr. Giordano advised corporations, foundations, trusts, and municipal governments in investments and finance. Mr. Giordano has served as a board member of Rosalind Inc., a private San Diego genomic analysis company, since July 2017. He currently serves as board advisor to MetaMedia Technology, an entertainment distribution company, since December 2020. He served as Chairman of the Board and the Chief Executive Officer of the Leo D. Fields Co. from 1980 to 1990, when GWC Holdings acquired it. From 2001 to 2003, he served as a board member of Professional Business Bank, a publicly traded corporation. Formerly a Captain and pilot in the United States Air Force, Mr. Giordano received his bachelor’s degree in Aerospace Engineering from California State Polytechnic University and his master’s degree in Business Administration from the University of Utah. Mr. Giordano also completed post-graduate work in International Investments at Babson College and is certified by the Investment Management Consultants Association. He is also certified by the John E. Anderson Graduate School of Management, University of California at Los Angeles as a Corporate Director, having demonstrated understanding of directorship and corporate governance.

 

Mr. Giordano is an experienced leader who has worked in the financial sector for more than 42 years and possesses the skills necessary to lead the Company’s Audit Committee. Having been with UBS Financial Services, Inc. (and its predecessors) since 1979, he has advised numerous public, private, profit, and non-profit organizations in investments and finance. Mr. Giordano’s experience provides the Board with knowledge in financial and accounting matters.

 

Peter M. Menard

Director

Member, Audit Committee

Member, Governance and Stockholder Relations Committee

 

Mr. Menard practiced securities law from 1979 until 2018. From 1998 until his retirement in 2018, Mr. Menard was a partner with the international law firm of Sheppard, Mullin, Richter & Hampton, LLP where his principal areas of practice were corporate governance, securities law compliance, and corporate transactions. He has been a member of the Executive Committee of the Business Law Section of the California Lawyers Association (“BLS”), a Chair of the Corporations Committee of the BLS, Chair of the Business & Corporations Section of the Los Angeles County Bar Association, and an adjunct professor at University of Southern California Gould School of Law where he taught a course in securities regulation. Mr. Menard is a member of the Board of Directors and a member of the Governance Committee and the Audit Committee of Huntington Medical Research Institutes. He received a bachelor’s degree in Mathematics from Santa Clara University in 1974 and a master’s degree in Mathematics in 1976 and J.D. in 1979 from the University of Michigan.

 

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Mr. Menard has more than 40 years of experience representing publicly traded companies. He brings extensive experience in corporate governance, securities law compliance, corporate social responsibility, shareholder engagement, financial reporting, and executive compensation. He has served of the Board of Directors of multiple nonprofit entities.

 

Christina Wen-Chi Sung

Director

Member, Audit Committee

Member, Compensation Committee

 

Ms. Sung served as the Chairman of the Taipei Financial Center Corporation, the management company for Taipei 101, the world’s tallest green building, from 2012 to 2015. She previously served as a Director for Arcadyan Technology Corporation from 2012 to 2014 and Independent Director for Lite-On IT Corporation from 2009 to 2013. She was also the head of the HSBC Asset Management Group (Taiwan) from 2004 to 2006 and the co-CEO of JP Morgan Chase (Taiwan) in 2003. Ms. Sung has over 20 years of experience working in the financial investment industry in Taiwan, during which she has earned numerous accolades, including: inclusion in the 2019 Most Influential Corporate Directors list by WomenInc. Magazine, the 2003 Most Influential Business Woman of the Year by Taiwan Commonwealth Magazine, the 2002 Montblanc Business Woman of the Year, the 1998 Best CEO of the Securities Industry in Taiwan by the Securities and Futures Development Foundation Golden Goblet Awards, and 1998 Outstanding Business Woman in Taiwan by the Chinese Business Woman’s Association.

 

Ms. Sung brings extensive directorship and business experience to the Board, and she continues to serve on multiple nonprofit boards, including as a director of Feng Chia University. After retiring from Taipei 101, she founded Social Welfare and Social Enterprise Revolving Trust (“SERT”) at the end of 2015, which is aimed at providing financial support and management to non-profit organizations and social enterprises in Taiwan. SERT has been awarded by the government for two consecutive years for its special contribution to the related sector. Ms. Sung received her bachelor’s degree in English language and literature from Soochow University in 1976 and her master’s degree in Executive Management of Business Administration from National Cheng-chi University in 2003.

THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE SEVEN NOMINEES TO THE BOARD SET FORTH ABOVE.

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CORPORATE GOVERNANCE

COMMITTEES OF THE BOARD

The Board has four standing committees: the Audit Committee, the Compensation Committee, the Governance and Stockholder Relations Committee and the Risk Oversight Committee (the “Committees”). Each Committee consists of three or more directors who serve at the discretion of the Board. The Board usually makes Committee and Committee chair assignments annually at its meeting immediately following the Company’s annual meeting of stockholders. The current composition of each Committee is as follows:

 

Directors

Audit Committee

Compensation Committee

Governance and Stockholder Relations Committee

Risk Oversight Committee

Keh-Shew Lu

 

 

 

Member

C. H. Chen (1)(3)

 

 

 

Chair

Angie Chen Button (1)

Member

 

Member

 

Warren Chen (1)

 

Member

Member

Member

Michael R. Giordano (1)

Chair (2)

 

 

 

Peter M. Menard (1)

Member

 

Member

 

Christina Wen-Chi Sung (1)

Member

Member

 

 

Michael K.C. Tsai (1)

 

Chair

Chair

 

 

(1) Independent director (as determined by the Board under the rules of The NASDAQ Stock Market LLC (“Nasdaq”) and, in the case of members of the Audit Committee, the rules of the SEC).

(2) Qualifies as an “audit committee financial expert” as that term is defined in Item 407(d)(5) of Regulation S-K promulgated under the Exchange Act.

(3) Mr. C.H. Chen is not standing for reelection at the Meeting.

 

Director Independence

The Board has determined that seven of the eight current directors (all directors other than Dr. Lu, our Chairman, President and Chief Executive Officer) are “independent directors” as shown in the above table, and as the term “independent director” is defined under the rules of Nasdaq. The Board also has determined that each member of its Audit Committee, Compensation Committee and Governance and Stockholder Relations Committee meets the applicable independence requirements prescribed by Nasdaq and the SEC.

In making its independence determinations with regard to Dr. Lu, the Board considered the relationships described under “Certain Relationships and Related Person Transactions – Relationships and Transactions.”

Audit Committee

The Audit Committee makes recommendations to the Board regarding the engagement of the Company’s independent registered public accounting firm, reviews the plan, scope and results of the audit, reviews the Company’s policies and procedures with the Company’s management concerning internal accounting and financial controls, and reviews changes in accounting policy and the scope of non-audit services which may be performed by the Company’s independent registered public accounting firm. The Audit Committee also monitors policies to prohibit unethical, questionable or illegal activities by the Company’s employees. The “Audit Committee Report” section of this Proxy Statement describes in more detail the Audit Committee’s responsibilities, particularly with regard to the Company’s financial statements and its interactions with the Company’s independent registered public accounting firm.

The Board has determined that each member of the Audit Committee is “independent” as that term is defined under the rules of Nasdaq and the SEC, and is able to read and understand fundamental financial statements. The Board also has determined that Mr. Giordano qualifies as an “audit committee financial expert” as defined under the rules of the SEC.

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Compensation Committee

The Compensation Committee makes recommendations to the Board regarding compensation, benefits and incentive arrangements for the Chief Executive Officer and other officers and key employees of the Company. The Compensation Committee will administer the 2022 Equity Incentive Plan and also administers the 2013 Equity Incentive Plan (the “2013 Plan”), the 2001 Omnibus Equity Incentive Plan (the “2001 Incentive Plan”), the Company’s 401(k) profit sharing plan (the “401(k) Plan”) and the Company’s nonqualified deferred compensation plan. The Board has determined that each member of the Compensation Committee is “independent” as that term is defined under the rules of Nasdaq.

Governance and Stockholder Relations Committee

The principal purposes of the Governance and Stockholder Relations Committee (the “Governance Committee”) are to help ensure that the Board (i) identifies individuals qualified to become members of the Board, consistent with criteria approved by the Board, and (ii) selects the nominees for election at the next annual meeting of stockholders. The Board has determined that each member of the Governance Committee is “independent” as that term is defined under the rules of Nasdaq.

Risk Oversight Committee

The Risk Oversight Committee assists the Board in overseeing the Company’s risk management process by (i) overseeing the Company’s efforts to align its management of risks with its strategic objectives, (ii) overseeing the establishment and implementation of a risk oversight framework, and (iii) reviewing the effectiveness of the risk oversight framework in the identification, assessment, monitoring, management and disclosure of significant risks. The Risk Oversight Committee’s oversight provides reasonable assurance that processes are in place to identify, assess, monitor, manage and disclose risks that may have a material adverse effect on the achievement of the Company’s strategic objectives.

Charters of the Committees

All four Committees operate pursuant to written charters, current copies of which are available on the Company’s website, at www.diodes.com, in the “Investors – Corporate Governance” section.

MEETINGS OF THE BOARD AND COMMITTEES

The following table represents the number of meetings and actions taken by written consent of the Board and the Committees in 2021:

 

 

Meetings Held

Action by
Written Consent

Board

4

7

Audit Committee

5

1

Compensation Committee

2

3

Governance and Stockholder Relations Committee

2

2

Risk Oversight Committee

2

All current directors attended at least 75% of the total number of meetings of the Board and Committees on which each served held during the period he or she served in 2021.

It is the policy of the Company to require Board members to attend the annual meetings of stockholders, if practicable. Each director attended the 2021 annual meeting of stockholders.

BOARD LEADERSHIP STRUCTURE

The Chairman of the Board conducts each Board meeting and sets the agenda of each Board meeting after consulting with the Vice Chairman of the Board, the independent lead director ("Lead Directory") and members of the Board. The Chairman of the Board also has the responsibility to establish effective communications with the Company’s stakeholders, including stockholders, customers, employees, communities, suppliers, creditors, governments and corporate partners. The Vice Chairman of the Board has the responsibility to assist the Chairman of the Board in fulfilling these responsibilities.

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The Board determined that the appointment of a Lead Director would be appropriate in order to strengthen Board oversight, share certain responsibilities, and facilitate communication, between our Chairman and our independent directors, and continue to follow best practices in corporate governance. The duties of the Lead Director are to preside at executive sessions of the independent directors, serve as principal liaison between the independent directors and the Chairman, work with the Chairman to set and approve the schedule and agenda for meetings of the Board and its committees, direct the retention of advisors and consultants who report directly to the Board, serve as liaison for consultation and communication with stockholders, oversee the annual evaluation of our Board and its committees and evaluate, in cooperation with the Compensation Committee and all members of the Board, the Chief Executive Officer's performance.

NOMINATING PROCEDURES AND CRITERIA AND BOARD DIVERSITY

Among its functions, the Governance Committee considers and approves nominees for election to the Board. In addition to the candidates proposed by the Board or identified by the Governance Committee, the Governance Committee considers candidates for director suggested by stockholders provided such recommendations are made in accordance with the procedures set forth under “Proposals of Stockholders and Stockholder Nominations for 2023 Annual Meeting.” Stockholder nominations that comply with these procedures and meet the criteria outlined below will receive the same consideration that the Governance Committee’s nominees receive.

Essential criteria for all candidates considered by the Governance Committee include the following:

integrity and a commitment to ethical behavior;
personal maturity and leadership skills in industry, education, the professions, or government;
independence of thought and willingness to deal directly with difficult issues;
fulfillment of the broadest definition of diversity, seeking diversity of thought; and
broad business or professional experience, with an understanding of business and financial affairs, and the complexities of business organizations.

In evaluating candidates for certain Board positions, the Governance Committee evaluates additional criteria, including the following:

technical expertise in engineering, chemistry, solid state physics or electronics;
senior management experience and expertise, especially from leadership roles in semiconductor, information technology or electronics corporations;
financial or accounting expertise, generally and as necessary to fulfill the financial requirements of the SEC and Nasdaq regulations;
leadership experience in other industries to help the Company better understand the care-abouts in key, targeted industries; and
experience in investment banking, commercial lending or other financing activities.

In selecting nominees for the Board, the Governance Committee evaluates the general and relevant specialized criteria set forth above prior to commencement of the recruitment process, determines whether a nominee fulfills the independence requirements of the SEC and Nasdaq, evaluates recommendations received from other existing members of the Board, reviews the education of the nominee, evaluates the quality of experience and achievement of the nominee, reviews the nominee’s current or past membership on other companies’ boards, determines that the nominee has the ability and the willingness to spend the necessary time required to function effectively as a director (except in extraordinary circumstances, no director shall serve on the board of more than four other public companies), and determines that the nominee has a genuine interest in representing the stockholders and the interests of the Company overall.

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If the Governance Committee is evaluating a nominee for re-election, the Governance Committee will review the nominee’s performance, including the following: availability for and attendance at meetings; contribution to Board processes such as information gathering and decision making; accessibility for communication with other directors and management; participation in Committee activities; depth of knowledge of the Company and its industry; the Company’s performance during the nominee’s previous term, in light of the role played by the Board and the nominee in guiding management; and any specialized expertise or experience that has contributed or may contribute to the functioning of the Board or the success of the Company.

The Governance Committee believes that the Board should include individuals with a broad range of relevant professional expertise, experience and education and reflect the diversity and cultural and geographical perspectives of the Company’s employees, customers and suppliers.

The Governance Committee, as well as the full Board, has recommended the Board’s nominees for election at the Meeting. Stockholders have not proposed any candidates for election at the Meeting.

DIRECTOR RESIGNATION POLICY

Under the Company’s director resignation policy, promptly following the receipt of the final report from the Inspector of Elections relating to an election of directors of the Company (other than elections in which the number of nominees exceeds the number of directors to be elected), any nominee who receives a greater number of votes “WITHHELD” from his or her election than votes “FOR” his or her election, will tender his or her resignation for consideration by the Board. Subject to certain conditions, the Governance Committee will meet to consider the tendered resignation and make a recommendation to the Board concerning the action, if any, to be taken with respect to the director’s resignation.

The Board will consider and act upon the Governance Committee’s recommendation within 90 days of certification of the vote at the Meeting. In considering the director’s resignation, the Governance Committee and the Board will consider all factors they deem relevant, including, without limitation, the underlying reason for the vote result, if known, the director’s contributions to the Company during his or her tenure, and the director’s qualifications. The Board may accept the resignation, refuse the resignation, or refuse the resignation subject to such conditions designed to cure the underlying cause as the Board may impose. Within four business days of the decision regarding the tendered resignation, the Company will file with the SEC a report on Form 8-K disclosing the decision with respect to the resignation, describing the deliberative process and, if applicable, the specific reasons for rejecting the tendered resignation.

COMMUNICATIONS WITH DIRECTORS

You may communicate with the chair of our Audit Committee, our Compensation Committee, our Governance Committee or our Risk Oversight Committee or with our independent directors individually or as a group, by writing to any such person or group c/o Corporate Secretary, Diodes Incorporated, 4949 Hedgcoxe Road, Suite 200, Plano, Texas 75024.

Communications are distributed to the Board, or to any individual director, depending on the facts and circumstances set forth in the communication. In that regard, the Board has requested that certain items that are unrelated to the duties and responsibilities of the Board be excluded, including, but not limited to, the following: junk mail and mass mailings; product complaints; product inquiries; new product suggestions; résumés and other forms of job inquiries; surveys; and business solicitations or advertisements. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will not be distributed, provided that any communication that is not distributed will be made available to any independent director upon request.

Communications that include information that would be better addressed by the Company’s ethics and compliance hotline, which reports to the Audit Committee at (855) 316-2192, will be delivered to the Audit Committee.

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COMPENSATION OF DIRECTORS

The following table sets forth the compensation of each director, who is not a NEO, for service in 2021:

 

Name
(a)

 

Fees
Earned or
Paid in
Cash
($)
(b)

 

 

RSUs
($)
 (1) (2)
(c)

 

 

Stock
Options
($)
(1)
(d)

 

Non-Equity
Incentive Plan
Compensation
($)
(e)

 

Changes in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(f)

 

All Other
Compensation
($)
(g)

 

Total
($)
(h)

 

C.H. Chen (3)

 

 

92,100

 

 

 

319,983

 

 

 

 

 

 

 

412,083

 

Angie Chen Button

 

 

61,450

 

 

 

189,731

 

 

 

 

 

 

 

251,181

 

Warren Chen

 

 

80,000

 

 

 

189,731

 

 

 

 

 

 

 

269,731

 

Michael R. Giordano

 

 

100,000

 

 

 

189,731

 

 

 

 

 

 

 

289,731

 

Peter M. Menard

 

 

90,000

 

 

 

189,731

 

 

 

 

 

 

 

279,731

 

Christina Wen-Chi Sung

 

 

100,000

 

 

 

189,731

 

 

 

 

 

 

 

289,731

 

Michael K.C. Tsai

 

 

100,000

 

 

 

189,731

 

 

 

 

 

 

 

289,731

 

 

(1) These amounts reflect the value determined by the Company for financial accounting purposes for these awards and do not reflect whether each director has actually realized a financial benefit from the awards. The value of the equity awards in column (c) and (d) is based on the grant date fair value calculated in accordance with the amount recognized for financial statement reporting purposes. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Amounts reported for RSUs are calculated by multiplying the number of shares subject to the award by the closing price of the Company’s Common Stock on the grant date. See Note 14, Share-Based Compensation, to the Company’s audited financial statements for the fiscal year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on February 18, 2022, for a further discussion of the relevant valuation assumptions used in calculating grant date fair value. All equity awards vest in four equal annual installments.

(2) Under the Company’s 2021 director compensation arrangements, each non-employee director listed in the table above was granted an award under the 2013 Equity Incentive Plan of 2,520 RSUs on January 29, 2021, except Mr. C.H. Chen, who was granted an award 4,250 RSUs. The per-share closing price of our Common Stock on January 29, 2021 was $70.79.

(3) Mr. C.H. Chen is not standing for reelection at the Meeting.

 

The following table shows the aggregate number of shares underlying outstanding RSUs and outstanding stock options held by non-employee directors as of December 31, 2021:

 

Name

 

RSUs (#)

 

Stock Options (#)

C.H. Chen (3)

 

                   23,200

 

Angie Chen Button

 

                      2,520

 

Warren Chen

 

                      5,220

 

Michael R. Giordano

 

                      8,295

 

Peter M. Menard

 

                      8,295

 

Christina Wen-Chi Sung

 

                      8,295

 

 Michael K.C. Tsai

 

                      8,295

 

Since 2007, each non-employee director of the Company has received a quarterly retainer of $20,000, the Chairman of the Audit Committee has received an additional $5,000 quarterly retainer, and each other member of the Audit Committee has received an additional $2,500 quarterly retainer. Beginning in 2022 the quarterly retainers for the Chairman of the Audit Committee and the Lead Director will be adjusted from $5,000 to $10,000.

In addition, the following amounts of RSUs, which vest in four equal annual installments commencing on the first anniversary of the date of grant, have historically been granted to each non-employee director on an annual basis: Vice Chairman: 14,700 shares; and all other directors: 4,300 shares. During 2021 the Board decreased the RSU grant amount and the following amounts of RSUs were granted, which vest in four equal annual installments commencing on the first anniversary of the date of grant: Vice Chairman: 4,250 shares; and all other directors: 2,520 shares. The Board may in its

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discretion modify such director compensation arrangements in the future. For additional information see, “Certain Relationships and Related Person Transactions – Relationships and Transactions.”

 

Compensation Committee Interlocks and Insider Participation

During 2021, the Compensation Committee consisted of three directors: Michael K.C. Tsai (Chairman), Warren Chen and Christina Wen-Chi Sung. During 2021, no executive officer of the Company served on the compensation committee (or equivalent) of the board of directors of another entity whose executive officer(s) served on the Company’s Compensation Committee or Board.

 

CORPORATE POLICIES

Anti-Hedging Policy

The Company’s insider trading policy prohibits all executive officers and directors of the Company from engaging in any hedging or monetization transactions involving the Company’s securities, including zero cost collars, forward sale contracts, and trading in options, puts, calls, or other derivative instruments related to the Company’s Common Stock. To the best of the Company’s knowledge, no executive officers or directors of the Company currently are parties to a hedge with respect to any shares of Common Stock of the Company.

Anti-Pledging Policy

The Company’s insider trading policy prohibits executive officers and directors from pledging the Company’s securities. Acquiring Company shares on margin also is prohibited. To the best of the Company’s knowledge, no executive officers or directors of the Company currently are parties to a pledge of any shares of the Common Stock of the Company.

Short-Selling Policy

Directors and executive officers are prohibited from selling the Company’s equity securities “short” (i.e., the sale of a security that is not owned and must be borrowed to complete the sale) or “selling short against the box” (i.e., the sale of a security that is currently owned but is not delivered against such sale within twenty days thereafter, or is not within five days after such sale deposited in the mails or other usual channels of transportation and the sale is completed with borrowed shares). To the best of the Company’s knowledge, no executive officers or directors of the Company currently are parties to any short-selling transactions with respect to any shares of Common Stock of the Company.

Stock Ownership Policy

Stock Ownership Policy for Directors. The Company’s stock ownership policy provides that all non-employee directors are required to acquire (and thereafter throughout the term of appointment maintain ownership of) a minimum number of shares of Common Stock with a value equal to three times the annual retainer received by them as directors within five years of the later of (1) the adoption of this stock ownership policy, or (2) their respective appointment or initial election. All of the directors are currently or are expected to be in compliance with our stock ownership policy in accordance with the time frame requirements.

Stock Ownership Policy for Executive Officers. The Company’s stock ownership policy provides that all individuals holding the positions with the Company listed below are required to acquire (and thereafter throughout the term of employment maintain ownership of) a minimum number of shares of Common Stock with a value equal to the multiple of such executive officer’s annual base salary (excluding bonus) within five years of the later of (1) the adoption of this stock ownership policy, or (2) their respective appointment (other than a newly-appointed Chief Executive Officer, who has seven years to comply), as follows:

 

Position

Multiple of Salary

Chief Executive Officer of the Company

Six times annual base salary (excluding bonus)

Senior Vice President or Vice President

Two times annual base salary (excluding bonus)

 

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All of the executive officers are currently or are expected to be in compliance with our stock ownership policy in accordance to the time frame requirements.

For purposes of this stock ownership policy, stock ownership includes any shares owned by an executive officer or director or his or her immediate family members or held by him or her as part of a tax or estate plan in which the executive officer or director retains beneficial ownership. The value of shares held is calculated once per year, on the last business day of the fiscal year. For purposes of determining compliance with this stock ownership policy, “value” means an assumed per share value based on the closing price of Common Stock on the last business day of the fiscal year. An executive officer or director subject to this stock ownership policy is not required to acquire shares of Common Stock in accordance with this policy if acquisition at such time would result in a violation of the Company’s insider trading policy, in which event the executive officer or director is required to comply with this stock ownership policy as soon as reasonably feasible thereafter. A hardship exception is available at the discretion of the Compensation Committee, but no exceptions have been solicited or granted to date.

If any executive officer or director is determined to own less than the minimum number of shares of Common Stock, such executive officer or director shall have the two open periods after the two subsequent “Blackout Periods” to obtain the minimum number of shares of Common Stock. Blackout Period is (i) a period starting on the fifteenth day of the third month in the first calendar quarter and the period starting on the first day of the third month in the second, third and fourth calendar quarters (i.e. March 15, June 1, September 1, December 1) and ending two business days after earnings for that quarter have been publicly released (trading of the Company’s securities can begin on the third day after announcement); and (ii) any other period of significant corporate activity designated from time to time by the Company.

Stock Retention Policy

In addition to the stock ownership policy described above, under which each executive officer or director must maintain a certain multiple of his or her annual base salary or annual retainer throughout the term of employment or appointment, each executive officer or director who acquires shares of our Common Stock through the exercise of a stock option is required to retain 33% of the “net” shares acquired (i.e., net of the tax impact of the stock option exercise) until the earlier to occur of the first anniversary of the date of exercise or the date the individual ceases to be an executive officer or director. This stock retention policy applies to all stock option grants awarded to executive `

In the event the Company is required to restate any interim or annual financial statement filed with the SEC to correct an accounting error due to the material noncompliance of the Company, as a result of misconduct (as defined), with any financial reporting requirement under the federal securities laws, the Board, or any committee of independent directors (as defined in Nasdaq Rule 5605(a)(2)) appointed by the Board (“Independent Committee”), shall review each performance-based award (as defined) paid or granted to or exercised by each covered person (as defined) during the covered period (as defined).

If the Board or the Independent Committee shall determine, in its sole discretion, that (1) a covered person has committed misconduct and (2) the payment, grant, amount, value or vesting during the covered period of any performance-based award would have been different had it been determined, in whole or in part, based on the achievement of the financial results as subsequently restated, then the Board or such Independent Committee may take such actions as it deems appropriate, to recoup any portion of any such performance-based award that would not have been awarded to the covered person had the financial results been properly reported. The Company shall not take any action more than three years after the end of the covered period.

A copy of each such corporate policy is available on the Company’s website, at www.diodes.com, in the “Investors – Corporate Governance” section.

 

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CORPORATE SUSTAINABILITY

Corporate Social and Environmental Responsibility (“CSER”) Statement

The commitment to sustainability is represented in the Company's core values of integrity, commitment, and innovation. The Company strives for environmental sustainability, social responsibility, responsible sourcing, business ethics and compliance, corporate citizenship, and employee volunteerism to have a sustainable operation and a long-term, positive impact on our stakeholders: investors, customers, employees, suppliers, and our communities.

The Company adopt a stakeholder-oriented approach to governance and are committed to conducting an ethical, lawful, profitable, and sustainable business that creates value over the long term. The Company is not actively or directly involved in any political advocacy or lobbying groups nor does the Company provide financial contributions to political organizations. Our engagements on these issues are mainly through industry associations that the Company supports together with our industry peers, or through community engagement with non-profit organizations.

Through our extensive sales and distribution network the Company provide customers around the globe with a broad portfolio of innovative, energy-efficient, and eco-friendly products. It is our firm belief that our stakeholders’ well-being is supported by sustainability considerations, and such considerations are integral to our ongoing organizational success and operational resilience.

As a participant in the global community, the Company recognizes the impact it has on the communities in which its employees, customers, suppliers and other stakeholders live and work. By living our core values – integrity, commitment, and innovation - continuously through our actions in the way the Company conducts business and interacts with its stakeholders, the Company upholds its commitment to be a responsible corporate citizen and positive contributor to our global community. The Company adheres to responsible and ethical business practices and strives to contribute back to its communities.

The Company is committed to a safe and healthy workplace for all our employees and values diversity and inclusion as it contributes to its competitiveness in the global marketplace. The Company is dedicated to ensuring that our employees, customers and suppliers are treated with dignity and respect. In addition to compliance with applicable laws and regulations of the countries in which the Company operates, we also look for opportunities to contribute to the well-being of the communities which we serve.

Environmental Sustainability

Environmental Policy

The Company designs, manufactures, and delivers high-quality semiconductor products to the world’s leading companies in the consumer electronics, computing, communications, industrial, and automotive markets. Our expanded product portfolio of broad discrete, logic, analog, and mixed-signal semiconductor markets and leading-edge packaging technology are developed to meet our customers’ needs, and we are committed to continual improvement. Our worldwide operations including engineering, testing, manufacturing, and customer service, enable us to be a premier provider for high-volume, high-growth markets.

Our commitments to environmental sustainability as a responsible corporate citizen are to:

protect the health and safety of our employees and partners on a worldwide basis;
comply with regulatory and other requirements;
use natural resources, energy, and materials efficiently and reduce consumption where possible;
substitute sustainable resources in place of non-renewable resources;
recycle materials wherever practical and economically reasonable;

20 Diodes Incorporated


 

minimize waste and dispose of waste safely and responsibly;
implement specific measures to prevent and minimize hazards to humans and the environment including pollution prevention; and
consult with and encourage the participation of all employees.

 

The Company recognizes that environmental responsibility is integral to producing world-class products. We understand the impact our operations have on the environment, the community, as well as the health and safety of our employees, contractors, and suppliers. We are committed to ensuring environmentally sustainable business practices and to help minimize the environmental impact of our supply chain. We expect our suppliers and vendors to also subscribe to standards and commitments described in these policies so that we collectively manage a responsible supply chain.

As such, the Company has based its Code of Conduct on the Responsible Business Alliance (RBA) Code of Conduct, formerly the Electronic Industry Citizenship Coalition (EICC), to ensure that business operations are environmentally responsible and compliant, at a minimum, with applicable environmental laws and regulations of the countries in which they have operations. Diodes’ direct suppliers are expected to implement the Code of Conduct as well as an adequate management system to ensure continued compliance with this code.

Diodes' internal manufacturing sites are certified to the ISO 14001 environmental management system standard. The expectation for external suppliers is to be ISO 14001 certified as well or, at a minimum, to submit a plan to become certified.

We enforce rigorous product compliance with the EU Directive regarding the Restriction of Hazardous Substances (RoHS) 2011/65/EU and the REACH Directive 2006/1907 on the Registration, Evaluation, Authorization and Restriction of Chemicals. We provide customers with information on the chemical composition of the materials used in our products, as further described in our master Certificate of Compliance (master CofC).

all products of the Company, including its subsidiaries, are REACH compliant. Where substances of very high concern (SVHCs) are contained in the Company's products, they are listed in our master CofC and either registered for usage, exempt from registration requirements, or present as impurities;
all products of the Company, including its subsidiaries are RoHS compliant. Some use exemptions to enable their compliance. These are listed in our master CofC; and
RoHS compliance is indicated on shipping labels that are attached on packing materials, such as reels and shipping boxes.

 

Diodes is also committed to conflict-free sourcing of tin, tantalum, tungsten, and gold—which are widely used in manufacturing in the semiconductor industry. These metals are derived from minerals that have a variety of sources around the world. One potential source has historically been the Eastern region of the Democratic Republic of Congo (DRC). That region is currently the site of armed conflict, and mining profits by local military groups there are reportedly contributing to human rights abuses, environmental damage, and theft from DRC citizens. Diodes Incorporated requires its suppliers to undertake reasonable due diligence with their supply chains to assure that these metals are not being sourced from the DRC or adjoining countries, unless they are purchased from smelters or refiners that are listed as “conflict-free” on the Responsible Minerals Initiative (RMI) website. Diodes Incorporated has surveyed its relevant suppliers of components and raw materials concerning the origins of these metals. The result of this survey, in the form of the RMI/CFSI reporting template, can be found in our Conflict Minerals Report.

Resource Conservation Efforts

We intend to protect and preserve the environment and provide a safe and healthy workplace for all employees. We are committed to the continual improvement of environmental protection and health and safety performance, as well as

21 Diodes Incorporated


 

compliance with all applicable laws, regulations, permits, internal worldwide standards, and other social responsibility requirements to which we subscribe. We recognize the impact of our business operations on the environment, the ecosystem, and the communities in which we work and our employees reside. Consistent with our commitment to environmental stewardship, and as reflected in our company Code of Conduct, we have policies and processes in place that incorporate assessment of environmental impact as part of our business decision making process. With a continual focus on resource use efficiencies, we re-use and recycle resources where possible, and we also adopt the following measures to provide an ecofriendly working environment:

Deploy light sensors in conference rooms, communal areas and individual offices;
Use mercury-free light tubes;
Deploy time clocks on building lighting and HVAC systems;
Deploy time clocks on hot water boilers with reduced temperature settings from 210°F to 190°F / 98.8°C to 87.7°C. Water from these boilers is used to heat the building as well as supply sinks and showers;
Reduce paper usage through various electronic document storage and management systems;
Reduce paper waste through double-sided printing default setting via our multifunction printers;
Reduce energy consumption via the sleep mode and timer setting in our ecofriendly printers;
Reduce energy consumption via consolidated servers and removal of excess servers;
Use recycled water for our landscaping and environment-friendly landscaping fertilizer;
Use environmentally-friendly janitorial supplies;
Reduce landfill trash through office recycling programs and minimize use of Styrofoam™ cups;
Reduce travel through the increased use of videoconferencing technologies; and
Evaluate installation of onsite electric vehicle charging stations.

SOCIAL RESPONSIBILITY

Response to COVID-19

The Company operates in many parts of the world and sees the impact COVID-19 has on communities where our employees and stakeholders live and work. As we navigate through this unprecedented time, we are committed to protecting our employees and stakeholders and supporting our workforce and communities.

The health and well-being of our employees continues to be our top priority. We have changed our business practices to include:

Providing onsite facial masks, face coverings and other personal protective equipment as well as alcohol-based hand sanitizers and disinfectants;
Installing Plexiglas, desk and table divider shields and other separation panels in meetings rooms, cafeterias and other communal areas;
Increasing the frequency and extent of cleaning and sanitizing our facilities;

 

22 Diodes Incorporated


 

Using ultraviolet disinfection lights to sanitize workspaces, meeting rooms, communal areas, and incoming deliveries;
Providing and paying for accommodations to employees who are subject to quarantines and unable to return home;
Providing paid leave to employees who participate in COVID-19 pandemic response operations; and
Continuing to raise awareness regarding workplace health and safety protocols in alignment with government guidance.

We collaborate with local governments in their COVID-19 recovery programs, infection control and prevention plans, and actively promote awareness of health and safety measures to protect our communities. As an example, our support of frontline health workers was recognized through certificates of appreciation issued by the Affiliated Hospital & Clinical Medical College of Chengdu University.

Through our manufacturing facility at Greenock, Scotland, we donated 17,000 face masks to help protect and support the healthcare workers on the frontlines of the pandemic. These face masks were added to the stock of personal protective equipment held by Inverclyde Health and Social Care Partnership. As recognized by Councilor Robert Moran with Inverclyde Council, this kind of community spirit will help us come out of the pandemic stronger. In our care for the senior citizens’ community and dementia patients, our manufacturing facility in Oldham, U.K. donated face masks and aprons to their local community.

In the Dallas Fort-Worth area, the Company partnered with local organizations in a “Mask Drive” and provided funding to donate over 8,000 masks to multiple schools in local independent school districts (ISD) such as Garland, DeSoto, Plano, Frisco, Carrollton, Richardson, Irving and Allen ISDs to help provide a safe learning environment for students and staff.

In Taiwan where the Company has a strong business and manufacturing presence, upon learning about the pressing need for medical equipment to treat COVID-19 patients, Diodes took prompt actions and contributed NT$6 million (approximately US$214,000) to Cathay General Hospital’s Anti-Epidemic Fund. The financial contribution was used to purchase twelve sets of intensive care ventilators and one set of non-invasive hemodynamic monitor to support the hospital’s treatment of COVID-19 patients and its epidemic prevention efforts. According to Cathay General Hospital, the hemodynamic monitor is a much needed medical equipment for the hospital as it helps with the remote monitoring of patients with severe illness and allows the hospital to more effectively allocate its medical resources. In recognition of Diodes’ deep commitment to protect and promote the well-being of stakeholders in the local community, Cathay General Hospital awarded a certificate of appreciation to Diodes.

In addition, many of our employees volunteer their time and resources for COVID-19 pandemic response programs in their communities, and we applaud their participation in these relief efforts through public recognition at the sites.

The Company is committed in doing everything we can to expedite shipment and ensure supply of our products that are used in healthcare technologies and medical equipment that are essential for the diagnosis and treatment of COVID-19. We work with local governments to ensure that our facilities remain in operation or resume manufacturing activities promptly so that we can continue manufacturing products that are critical to the frontline health workers, the medical community, and our society.

We are making every effort to assist our customers in the ongoing global fight against COVID-19 by supporting many medical applications, including diagnostic and tomography imaging systems, such as ultra-sound monitors, x-ray systems, and pulse oximetry monitors. The Company delivered switching diode products for personal protective equipment used by first responders and health care providers so they can provide excellent care while still maintaining their own health and safety. Similarly, our MOSFETs, diodes, crystals, and crystal oscillators have been adopted in a number of medical applications ranging from testing equipment to ventilators, especially those to fight COVID-19.

 

23 Diodes Incorporated


 

Business Ethics

The Company is committed to operating with a strong sense of integrity, critical to maintaining trust and credibility with our stakeholders. We believe that long-term, trusting business relationships are built by being honest, open, and fair. We are committed to fostering a culture of integrity that starts with the management team modelling the right way and employees doing the right thing across all levels of the organization. Our promise is to uphold high professional standards in all of our global business operations and also expect the same from our vendors and suppliers. These values are embedded in our policies and are applicable to all employees, suppliers, and third parties with whom we partner:

Code of Conduct
Code of Business Conduct
Anti-Bribery and Anti-Corruption Policy

Diodes' employees are required to familiarize themselves with the Code of Business Conduct and related policies and procedures. New employees, as part of the onboarding process, are required to acknowledge certain policies and procedures including our Code of Business Conduct. Each year, employees are required to formally acknowledge that they have read and will comply with the Code of Business Conduct. This mechanism helps increase awareness of acceptable business conduct and allows us to deal with issues as they arise.

Conflict Minerals

The Company is dedicated to ensuring that we use responsibly sourced minerals in both our supply chain as well as through our suppliers. The armed conflict and human rights atrocities that proliferate and are funded by the exploitation of natural resources in the Democratic Republic of Congo (“DRC”) are unacceptable and any manufacture of product connected with this will not be tolerated.

Commonly known conflict minerals are those such as tantalum, tin, tungsten, and gold. Conflict minerals originating from the DRC must not be included in materials or products supplied to the Company. We are committed to ensuring an ethical and diverse supply chain that is focused on responsible mineral sourcing.

Human Capital Management

As an international semiconductor company with a global footprint, Diodes recognizes the important role its human capital plays in a talent-based economy, and what the impact of effective and efficient human capital management (HCM) has on its long-term strategic success and sustainable growth. Our employees are our most critical asset—they contribute to our financial success for the benefit of all our stakeholders, they are the source of great idea generation that fuels the engine of product innovation, and they are collaborators and contributors to the success of the communities in which we live and work. Human capital management affects many aspects of our operations, including recruitment and talent acquisition, retention, training, workforce optimization, performance management, workplace safety, employee health and wellness, employee engagement, and diversity and inclusion.

Developing two–way communications and deploying effective feedback mechanisms are critical components in our employee engagement process. In addition to quarterly CEO “all hands” meetings, we have an “Open Door” policy, and encourage employees to have regular conversations with their managers to share feedback and express concerns. We also solicit employee feedback informally through regular employee interactions. We hold our managers accountable for setting clear expectations and goals with their teams, for providing coaching, as well as identifying professional development opportunities for their teams, and for engaging in periodic performance reviews. We assist our managers with performance management tools as needed to help them effectively manage their teams and optimize workforce productivity.

24 Diodes Incorporated


 

We utilize third-party operated employee self-service portals to allow employees to efficiently and timely manage several of their employment related activities; for example, employee benefits, expense reporting, leave of absence management, and attendance records. In addition to employee onboarding orientations and on-the-job training, we leverage a third party learning management system tool to provide training to our employees. We regularly assess the training modules to be responsive to the professional development and training needs of our employees.

Employee retention is a critical element in our sustainable success. To maintain a stable workforce, we provide skill advancement training and coaching, where appropriate, to help our employees enhance their existing skillsets. With our support and preparation, our employees can continue to grow in their current role and maximize the value they contribute to their current teams. Where a suitable rotation opportunity arises, we provide skill expansion training to equip employees for these new positions. By honing their skills, our employees can leverage their institutional knowledge and experience to contribute to the overall success of the organization. The availability of rotational opportunities can also help keep our employees motivated and engaged.

Human Rights and Workforce Labor Rights Policy

The Company’s human rights and workforce labor rights policy (“Policy”) is rooted in protecting human rights and affording each individual dignity, freedom, respect, and acceptance. This Policy outlines our expectations with respect to human rights and labor practices and the high standard of conduct expected of our employees and suppliers worldwide. The principles of this Policy are reflected in our operational policies and procedures and applied in a non-discriminatory manner, irrespective of geographic location.

The Company is committed to providing a fair and living wage to all of its employees, and our employee remuneration is consistent with the all applicable wage laws, including those relating to minimum wage, overtime hours, and legally mandated benefits.

We support the elimination of all forms of forced, bonded, or indentured labor and child labor is prohibited in any of our operations. We support our employees’ rights to freedom of association in each of the countries where we operate.

These human rights and workforce labor rights are monitored and assessed through our management, human resources, and environmental, health and safety teams as they apply to all of the Company’s operations worldwide and to our suppliers, vendors, partners, or service providers to the Company. These rights are embedded in our Code of Business Conduct, CSER Code of Supplier Conduct, and Supplier Letter, and serve to provide essential protections of the women and minorities in our workforce as reinforced through employee training on fundamental topics such as prevention of harassment, discrimination, abusive conduct, and retaliation.

We believe that employee concerns can be satisfactorily addressed through our “Open Door” channels, but if not, the hotline is an alternative. Consistent with our policies and practices, and legal requirements, the Company will not allow any retribution or retaliation against an employee who reports a compliance issue in good faith. This hotline can be used by our customers, vendors and interested parties to report any conduct that they believe in good faith to be an actual or apparent violation of our Code of Conduct.

25 Diodes Incorporated


 

Modern Slavery Act Transparency Statement

The Company conducts business in accordance with its core values of integrity, commitment, and innovation. As a global business committed to protecting human rights, we take seriously the responsibility of preventing modern slavery in our business and supply chains. We are committed to upholding best practices and remaining vigilant to continuously improve.

Pay and Gender

We are committed to complying with applicable wage laws to ensure our employees are fairly and timely compensated and strive to be equitable and ethical in regards to appropriate compensation for applicable roles.

Health and Safety

The Company’s health and safety policy is based on our commitment to provide a safe worksite for all employees worldwide and applies to our suppliers, vendors, partners, and other companies that sell goods or services to the Company and its affiliates. Every employee is responsible for safety, and the Company encourages employees to make sure they notify the responsible party if safety issues arise. To that end we seek to ensure that all domestic federal and state safety practices are observed at all times and our commitment is embedded in our code of supplier conduct, supplier letters and supplier quality codes.

To achieve the goal of having a completely safe workplace, each site has implemented policies and procedures to address emergency preparedness and response, industrial hygiene and health resources, as well as the use of equipment and personal protective equipment. We ask each employee to be safety conscious. The Company will attempt to do everything in its control to ensure a safe working environment that is compliant with local safety regulations in the countries where we operate. As part of our efforts to encourage a safe workplace, all employees should understand that we will not tolerate any retaliation against an employee for making safety complaints.

Investment in Our Employees

The Company values a diverse, inclusive, safe and respectful work environment while offering our employees career growth, professional development and competitive benefits. In today’s product-driven corporations, we regard our employees as our most important asset. We are committed to providing an excellent environment for the development and achievement of the professional goals of our employees.

We believe in the value of continuous improvement so that we can strive to satisfy our customers’ requirements. In its broadest sense, we believe our customers include our employees, partners and communities where we operate. We believe in the value of continuous learning and fostering a culture of professional growth. We offer various learning opportunities to employees at all levels. Through developmental courses and experiential learning, we reach out to managers to identify training needs of their employees, and we encourage our employees to search for relevant training opportunities.

In 2022, we will strive to deliver training to our employees worldwide. We aim to enhance our employees' knowledge on a variety of key topics, including ethics, harassment, anti-bribery and corruption through online and small group training sessions. These topics are important to ensuring our employees operate in a work environment that is diverse, inclusive, safe and respectful.

Governance and Oversight

Sustainability is a strategic focus for the Company's management team and the Company's Board of Directors ("Board"). To further accelerate our commitment to sustainability, and with the support of the Board, we created a steering

26 Diodes Incorporated


 

committee to focus on sustainability and the ongoing assessment of our operations and their impact on the communities in which we operate.

The sustainability steering committee is headed by our Senior Vice President of Operations and is comprised of representatives from multiple functions including corporate governance, regional management, operations management, legal and compliance, human resources, and quality. The steering committee approves sustainability-related policies, long-term objectives, and external disclosures and reporting. The steering committee also has operational control of environmental, health and safety, and social risks, and provides guidance on actions needed to address these risks.

Given the Company's global manufacturing footprint and strong commitment to environmental responsibility, we also formed a task force represented by regional environmental, health, and safety ("EHS") subject matter experts. This task force is supported by the general counsel and corporate compliance officer of the Company to focus on harmonizing the Company's EHS metrics and leveraging best practices. Both the task force and the steering committee conduct regular review meetings to assess performance and drive continuous improvement.

The task force works closely with the steering committee, which provides periodic updates to the Board and engages frequently with the CEO and Lead Director on sustainability issues. With oversight and support from the Board, the Company has developed and implemented business strategies, and managed business operations in ways that are resilient to sustainability-related risks, including the impacts of climate change and pandemics.

In addition to the Board’s increased oversight of sustainability efforts, the executive bonus compensation includes a measurable sustainability component to further demonstrate and enhance the management’s commitment to sustainability.

The Company also engages in regular dialogue with stakeholders and sustainability rating agencies to solicit feedback as we continue to sharpen our focus on sustainability. Taking into account sustainability standards that are appropriate for the semiconductor industry, and for companies with a manufacturing footprint and scale of operations that are comparable to ours, specific sustainability performance metrics are identified where appropriate as we strive for continuous improvement. We believe these collective sustainability efforts help us create and maintain long-term profitability for our shareholders.

Sustainable Products

We are privileged to partner with our customers in building sustainable products and applications that contribute to the health and well-being of both our communities, and our planet. Our semiconductor devices can be incorporated into a wide range of applications, including energy-efficient products that are used in factories, transportation, electric and hybrid vehicles, vehicle charging stations, LED lighting, smart home technologies, green electronics, and telehealth medical equipment, as well as products used for energy saving and pollution elimination purposes. We collaborate with our customers in the development of sustainable products to help them and their customers reduce their overall carbon footprint. Examples of our collaborative efforts on green factory automation and green-energy initiatives include robotics, automated QR scanners, and products used in solar cell systems, wind power generators and the conversion to full electric vehicle systems.

CSER Conduct

The Company’s CSER Code of Supplier Conduct is based on the Responsible Business Alliance (“RBA”) Code of Conduct, formerly the Electronic Industry Citizenship Coalition, as it establishes standards to ensure safe working conditions in the electronics industry and in industries in which electronics is a key component, including the supply chains that support those industries. The RBA Code of Conduct seeks to ensure workers are treated with respect and dignity and that business operations are environmentally responsible and ethically conducted. The RBA is the world’s largest industry coalition dedicated to corporate social responsibility in global supply chains.

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Through its rigorous Validated Assessment Program, the Company received Silver recognition at two of its Shanghai manufacturing sites during their initial RBA audits.

Executive Officers of the Company

None of the executive officers was selected pursuant to any arrangement or understanding, other than with the executive officers of the Company acting within their capacity as such. Executive officers serve at the discretion of the Board. The following table and discussion sets forth certain biographical information concerning the Company’s executive officers as of the Record Date:

 

Name

Age

Position with the Company

Dr. Keh-Shew Lu

75

Chairman, President and Chief Executive Officer ("CEO")

Brett R. Whitmire

56

Chief Financial Officer

Julie Holland

60

Senior Vice President, Corporate Operations

Francis Tang

67

Senior Vice President, Worldwide Discrete Products

Gary Yu

49

Senior Vice President, Business Groups

(1) See “Proposal One - Election of Directors” for biographical information regarding Dr. Keh-Shew Lu.

Brett R. Whitmire Chief Financial Officer

Mr. Whitmire assumed his current position as the Company’s Chief Financial Officer in March 2019. He has 32 years of industry experience and has been with the Company for over ten years. Prior to being named CFO, he served as the Corporate Controller and Principal Accounting Officer of the Company, and previously served as the director of global supply chain. Mr. Whitmire worked at Freescale Semiconductor as Chief Financial Officer for the Analog & Sensors Division. He began his career at Texas Instruments in a variety of finance and operations leadership positions including seven years as Vice President while serving as the finance and operations executive for the High Volume Analog & Logic Division and the corporate supply chain head. Mr. Whitmire holds both a bachelor's degree in Mechanical Engineering and an MBA from The University of Texas at Austin.

Julie Holland Senior Vice President, Corporate Operations

Ms. Holland currently serves as Senior Vice President, Corporate Operations, with responsibility for the Company’s worldwide manufacturing, operations, and administrative functions. She joined the Company in 2008, serving as the Vice President, Worldwide Analog Products, and transitioned to the role of Vice President, Corporate Operations in 2018, before being appointed Senior Vice President in 2020. She previously spent over 20 years at Texas Instruments where she held several key management roles, last serving as director and general manager of the Connectivity Solutions business unit. She earned her bachelor’s degree in Physics and Mathematics at Northwestern University and her master’s degree in Engineering Management at Southern Methodist University. She is an alumna of Leadership America and Leadership Texas, and was named a Fellow of the International Women’s Forum Leadership Foundation.

Francis Tang Senior Vice President, Worldwide Discrete Products

Mr. Tang was appointed Vice President, Worldwide Discrete Products in 2006 and Senior Vice President in November 2020. He previously served as the Company’s Global Product Manager since 2005. From 2002 until joining the Company, Mr. Tang served as general manager of T2 Microelectronics in Shanghai, China where he managed complex mixed-signal SOC product development. From 1996 to 2001, Mr. Tang was the senior strategic marketing director for Acer Labs, Inc. USA, and prior to that, he was employed by National Semiconductor for 17 years, where he held various management positions in analog and mixed-signal circuit design, applications and strategic marketing. Mr. Tang holds a master’s degree in Electrical Engineering from University of Missouri – Rolla.

Gary Yu Senior Vice President, Business Groups

Mr. Yu, who has been with the Company since 2008, was appointed to his current position in November 2020. He most recently served as the Company’s President, Asia Pacific Region. Prior roles in the Company include General Manager of the Company’s Shanghai wafer fabrication operation and its BCD business unit, Vice President of Asia Pacific Sales and manager of the Company’s DBS and Sensor business unit. Prior to joining the Company, Mr. Yu spent over 10 years at Lite-On Semiconductor Corp. as Vice President, Worldwide Sales and at Texas Instruments in finance and capacity planning

28 Diodes Incorporated


 

positions. Mr. Yu holds a bachelor’s degree in MIS from Fu-Jen University, Taiwan, a master’s degree in Telecommunication Engineering from Southern Methodist University, and an MBA from University of Texas at Dallas.

 

29 Diodes Incorporated


 

 

REPORT OF THE AUDIT COMMITTEE

The Report of the Audit Committee of the Board does not constitute soliciting material and shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

AUDIT COMMITTEE REPORT

The Board maintains an Audit Committee composed of four of the Company’s directors, Michael R. Giordano (Chairman), Angie Chen Button, Peter M. Menard and Christina Wen-Chi Sung. Each member of the Audit Committee meets the independence and experience requirements of Nasdaq and the independence requirements of the SEC. Mr. Giordano qualifies as an “audit committee financial expert” as defined under the rules of the SEC. The Audit Committee assists the Board in monitoring the accounting, auditing and financial reporting practices of the Company.

Management is responsible for the preparation of the Company’s financial statements and financial reporting process, including evaluating the effectiveness of its system of internal controls. In fulfilling its oversight responsibilities, the Audit Committee:

reviewed and discussed with management the audited financial statements contained in the Company’s Annual Report on Form 10-K for fiscal 2021; and
obtained from management their representation that the Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

The independent registered public accounting firm is responsible for performing an audit of the Company’s financial statements in accordance with the auditing standards of the Public Company Accounting Oversight Board and expressing an opinion on whether the Company’s financial statements present fairly, in all material respects, the Company’s financial position and results of operations for the periods presented and conform with accounting principles generally accepted in the United States and the effectiveness of the Company’s internal control over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee:

discussed with the independent registered public accounting firm the matters required to be discussed by Auditing Standard No. 1301 (“Communications with Audit Committees”);
has received the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight Board, regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with Moss Adams LLP the firm’s independence, and;
reviewed and discussed with management, the internal auditor, and the independent registered public accounting firm management’s assessment of the effectiveness of the Company’s internal control over financial reporting and the independent registered public accounting firm’s opinion about the effectiveness of the Company’s internal control over financial reporting.

The Audit Committee operates under a written charter, which was adopted by the Board and is assessed annually for adequacy by the Audit Committee. The Audit Committee held five (5) meetings during fiscal 2021.

In performing its functions, the Audit Committee acts only in an oversight capacity. It is not the responsibility of the Audit Committee to determine that the Company’s financial statements are complete and accurate, are presented in accordance with accounting principles generally accepted in the United States or present fairly the results of operations of the Company for the periods presented or that the Company maintains appropriate internal controls. Nor is it the duty of the Audit Committee to determine that the audit of the Company’s financial statements has been carried out in accordance with the generally accepted auditing standards of the Public Company Accounting Oversight Board (United States) or that

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the Company’s auditors are independent. Based upon the reviews and discussions described above, and the report of the independent registered public accounting firm, the Audit Committee has recommended to the Board, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for filing with the SEC. The Audit Committee also has recommended, and the Board also has approved, the selection of Moss Adams LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022.

 

Dated: April 3, 2022

 

THE AUDIT COMMITTEE

 

 

Michael R. Giordano, Chairman

 

 

Angie Chen Button

 

 

Peter M. Menard

 

 

Christina Wen-Chi Sung

 

CODE OF ETHICS

The Company has adopted a Code of Ethics applicable to the principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions, and all members of the finance department of the Company. The Code of Ethics is available on the Company’s website at www.diodes.com, in the “Investors – Corporate Governance” section. The Company intends to disclose future amendments to, or waivers from, certain provisions of the Code of Ethics on the Company’s website within four business days following the date of such amendment or waiver.

Policy Regarding Related Person Transactions

The Audit Committee has adopted a written policy (the “Policy”) to review any transaction in which the Company was, or is to be, a participant and in which any director, executive officer, or beneficial owner of more than five percent (5%) of the outstanding shares of Common Stock of the Company, or any immediate family member of any such person, has a direct or indirect material interest (a “related person transaction”). The Policy requires the following:

the Audit Committee shall review any proposed agreement or arrangement relating to a related person transaction or series of related person transactions, and any proposed amendment to any such agreement or arrangement;
the Audit Committee shall establish standards for determining whether the transactions covered by such proposed agreement or arrangement are on terms no less favorable to the Company than could be obtained from an unrelated third party (“fair to the Company”);
before the Company enters into any such proposed agreement or arrangement, and at least annually thereafter, the Company’s internal audit department shall report to the Audit Committee whether the transactions covered by such agreement or arrangement are fair to the Company under the standards established by the Audit Committee;
the Audit Committee shall make all reasonable efforts (taking into account the cost thereof to the Company) to cancel or to renegotiate any such agreement or arrangement which is not so determined to be fair to the Company; and
the Company shall disclose any related person transactions required to be disclosed by the rules promulgated by the SEC, in the manner so required.

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From time to time, the Audit Committee also will review any transaction it deems significant to the Company, including, but not limited to, transactions with Keylink International (B.V.I.) Inc. and its subsidiaries and affiliates (“Keylink”), and Chengdu Ya Guang Electronic Co., Ltd. and its subsidiaries and affiliates (“Ya Guang”). Keylink is the Company’s 5% joint venture partner in the Company’s Shanghai, China manufacturing facilities, and Ya Guang is the Company’s 5% and 2% joint venture partner in the Company’s Chengdu, China manufacturing facilities.

Relationships and Transactions

The Audit Committee reviews all related person transactions for potential conflict of interest situations on an ongoing basis, in accordance with such procedures as the Audit Committee may adopt from time to time. We believe that all related person transactions are on terms no less favorable to us than could be obtained from unaffiliated third parties.

We conduct business with Nuvoton Technology Corporation and its subsidiaries and affiliates (collectively, “Nuvoton”). Dr. Keh-Shew Lu, our current Chairman of the Board, President and Chief Executive Officer, is a board member of Nuvoton. We consider our relationships Nuvoton to be mutually beneficial, and we plan to continue our strategic alliance with Nuvoton. We purchased silicon wafers from Nuvoton that we use in the production of finished goods, totaling $9.8 million and $8.4 million, respectively, for the years ended December 31, 2021 and 2020. See “Risk Factors – One of our external suppliers is also a related party. The loss of this supplier could harm our business, operating results and financial condition.” in Part I, Item 1A, and Note 15 - “Related Party Transactions,” to the Company’s Annual Report on Form 10-K filed with the SEC on February 18, 2022 for additional information.

We also conduct business with Keylink International (B.V.I.) Inc. and its subsidiaries and affiliates (“Keylink”). Keylink is our 5% joint venture partner in our Shanghai assembly and test facilities. We sell products to, and purchase inventory from, companies owned by Keylink. We sold products to companies owned by Keylink, totaling approximately $20.0 million for the each of the 12 month periods ended December 31, 2021 and December 31, 2020. In addition, our subsidiaries in China lease their manufacturing facilities in Shanghai from, and subcontract a portion of our manufacturing process (metal plating and environmental services) to, Keylink. We also pay a consulting fee to Keylink. The aggregate amounts paid to Keylink for the years ended December 31, 2021, 2020 and 2019 were approximately $17.9 million, $14.6 million and $15.3 million, respectively. In addition, Chengdu Ya Guang Electronic Company Limited (“Ya Guang”) is our 2% joint venture partner in one of our Chengdu assembly and test facilities and our 5% partner in our other Chengdu assembly and test facilities; however, we have no material transactions with Ya Guang, other than this joint venture. We also purchase materials from Jiyuan Crystal Photoelectric Frequency Technology Ltd. (“JCP”), an FCP manufacturing company in which we have made an equity investment and account for using the equity method of accounting.

Mr. Kevin Chou, the son-in-law of Dr. Keh-Shew Lu, the Company’s Chairman of the Board, President and Chief Executive Officer, is employed by the Company as Corporate Controller. He has been an employee since 2009. For 2021, Mr. Chou’s total cash compensation was approximately $414,276, and his total equity compensation was 1,700 RSUs, which vest in four equal annual installments.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

 

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 Common Stock and any changes in that ownership to the SEC and to furnish the Company with copies of such reports.

Specific due dates for these reports have been established by the SEC, and the Company is required to report any failure to file on a timely basis. Based solely upon review of copies of reports filed by the Company’s directors and executive officers with the SEC during the most recent fiscal year ended December 31, 2021, all reports required to be filed in 2021 were filed timely.

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PROPOSAL TWO

APPROVAL OF THE 2022 EQUITY INCENTIVE PLAN

 

SUMMARY

At the Meeting, we are asking our stockholders to approve a new Diodes Incorporated 2022 Equity Incentive Plan (“2022 Plan”). The 2022 Plan was approved by our Board on March 11, 2022 (“Adoption Date”), conditioned on and subject to obtaining stockholder approval of the 2022 Plan. We are requesting approval of a new equity compensation plan to replace our 2013 Equity Incentive Plan (“2013 Plan”) which is scheduled to expire in 2023.

 

Having an equity incentive plan with an adequate number of shares available for future grants is necessary to promote our long-term success and the creation of stockholder value by:

Enabling us to continue to attract and retain the services of key employees who would be eligible to receive grants;
Aligning participants’ interests with stockholders’ interests through incentives that are based upon the performance of our Common Stock;
Motivating participants, through equity incentive awards, to achieve long-term growth in the Company’s business, in addition to short-term financial performance; and
Providing a long-term equity incentive program that is competitive as compared to other companies with whom we compete for talent.

 

We currently grant stock-based incentive awards to our employees, consultants and directors (collectively, “Selected Participants”) under our 2013 Plan. After its original adoption in 2013, the 2013 Plan was subsequently amended and the last such amendment (which included an increase in shares available to be granted under the 2013 Plan) was approved by our stockholders in 2017. If stockholders approve the 2022 Plan, then the 2022 Plan will become effective and no further awards will be granted from the 2013 Plan. If stockholders do not approve the 2022 Plan, then the 2013 Plan will remain in place as is and awards can continue to be granted under the 2013 Plan subject to its maximum share limit and its expiration date in May 2023. Regardless of whether the 2022 Plan is approved, awards that are outstanding under the 2013 Plan shall continue to remain outstanding pursuant to their terms and conditions but shares underlying 2013 Plan forfeited awards shall not become available for issuance under the 2022 Plan. Moreover, if stockholders approve the 2022 Plan, then shares that are unissued under the 2013 Plan and not subject to an outstanding 2013 Plan award will no longer be available for issuance under the 2013 Plan.``

 

Similar to the 2013 Plan, the 2022 Plan will permit the discretionary award of incentive stock options (“ISOs”), nonstatutory stock options (“NQSOs”), restricted stock, stock units, stock appreciation rights (“SARs”), and/or other equity awards to Selected Participants. Such awards may be granted beginning on the date of stockholder approval of the 2022 Plan and continuing through the day before the tenth anniversary of the Adoption Date, or the earlier termination of the 2022 Plan, and in any event subject to the maximum share limit of the 2022 Plan.

 

Number of Shares Requested to be Approved for the 2022 Plan

 

Management recommended and the Compensation Committee and the Board each unanimously approved that a share pool reserve of 7,000,000 shares of Common Stock (7,000,000 stock options and/or SARS or 3,500,000 of full-value awards), be set aside for future issuance under the 2022 Plan. Full-value awards are awards other than stock options or stock appreciation rights. In determining the number of shares to allocate to the 2022 Plan (and also for determining the 2022 Plan share counting provisions discussed below), management performed analyses and utilized and considered information that has been published by Institutional Shareholder Services (“ISS”). ISS is a provider of corporate governance

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and responsible investment solutions, market intelligence, fund services, and events and editorial content for institutional investors and corporation. In particular, ISS utilizes its proprietary modeling tools to (i) evaluate the estimated cost to stockholders of new equity incentive plans (referred to by ISS as the Shareholder Value Transfer (“SVT”)) and (ii) evaluate whether such cost is reasonable. The Board believes that ISS’ guidelines should support a maximum share limit for the 2022 Plan of 7,000,000 (or more) shares of Common Stock and that the corresponding SVT cost should be considered reasonable by ISS.

 

In determining the number of shares to reserve under the 2022 Plan, the Company also considered its historical burn rate. The gross burn rate is the gross number of equity award shares granted in a given year divided by the weighted average shares of Common Stock outstanding for the same year. Full-value awards are typically multiplied by a factor relative to stock price volatility (in the Company’s case, this factor was assumed to be two (2) for purposes of gross burn rate calculation). Gross burn rate, unlike net burn rate, excludes the add-back of cancelled or forfeited equity awards in the calculation. The Company’s calculated three-year average gross burn rate is approximately 1.26%, which is below our industry gross burn rate cap of 5.91% (as published by ISS for 2022 stockholder meetings after January 2022 for the semiconductors and semiconductor equipment industry Russell 3000 companies).

 

Below is a summary of awards that are outstanding under the 2013 Plan as of the Record Date:

Award Type

 

Number of Outstanding Shares

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Term

Restricted stock units

 

 

1,021,224

 

 

N/A

 

 

N/A

Performance stock units

 

 

287,100

 

 

N/A

 

 

N/A

Stock options

 

 

2,000

 

 

$

27.92

 

 

0.4 years

 

A share issued under a 2013 Plan award that is not a stock option or stock appreciation right counts as 1.84 shares against 2013 Plan share grant limit of 12,000,000 million shares. Shares issued pursuant to the exercise of a stock option or stock appreciation right count as one share against the 2013 Plan share limit. The figures in the above table reflect the actual number of outstanding shares under the 2013 Plan awards and do not take into account this share counting differentiation between full value and appreciated value awards.

 

Upon stockholder approval of the 2022 Plan, no new awards will be issued under the 2013 Plan and the shares underlying any then outstanding 2013 Plan awards that are forfeited in the future will no longer be available for issuance under the 2013 Plan.

 

The approximate impact of the entire requested share reserve for the 2022 Plan on stockholder dilution is shown in the below table (the below figures represent a percentage of our outstanding basic number of shares as of the Record Date and make the conservative assumption that all 2022 Plan awards are full-value awards).

 

Dilutive Effect of Requested New Reserve Shares Under the 2022 Plan

 

 

Full-value shares requested in 2022 Plan

 

3,500,000

 

 

 

 

Outstanding shares as of Record Date

 

45,231,784

 

Full-value shares requested in 2022 Plan

 

3,500,000

 

Maximum shares if all shares from 2022 Plan are outstanding

 

48,731,784

 

 

 

 

Dilution

 

7.2

%

 

 

34 Diodes Incorporated


 

Total Potential Dilution (Including Currently Outstanding Awards Under the 2013 Plan)

 

Full-value shares requested in 2022 Plan

 

3,500,000

 

Outstanding awards under 2013 Plan

 

1,310,324

 

Total potential shares to be issued under equity plans

 

4,810,324

 

 

 

 

Outstanding shares as of Record Date

 

45,231,784

 

Full-value shares requested in 2022 Plan

 

3,500,000

 

Outstanding awards under 2013 Plan

 

1,310,324

 

Maximum shares if all shares from 2013 Plan and 2022 Plan are outstanding

 

50,042,108

 

 

 

 

Dilution

 

9.6

%

 

After considering the foregoing along with our expected future equity grant practices, the Board determined that 7,000,000 shares (7,000,000 stock options and/or SARS or 3,500,000 of full-value awards) would be an appropriate number to satisfy the Company’s equity compensation needs for the next 2-3 years. The Board determined to adopt a fungible ratio of two (2) for full-value awards that are granted under the 2022 Plan. Therefore, shares issued under full-value awards will count as two (2) shares against the 2022 Plan’s maximum share grant limit. A share that is issued pursuant to a stock option or stock appreciation right award will count as the issuance of one (1) share for purposes of the 2022 Plan maximum share limit.

 

Accordingly, the 2022 Plan authorizes a maximum total of 7,000,000 shares (7,000,000 stock options and/or SARS or 3,500,000 of full-value awards) of Common Stock for grants to participants. This amount is intended to manage our equity compensation needs until approximately 2024, assuming an annual burn rate of approximately 1.2 million shares (taking into account the two (2) multiplier for full-value awards). Additional information on our equity compensation plans is available elsewhere in this Proxy Statement under the Equity Compensation Plan Information table. As of Record Date, the fair market value of a share of our Common Stock (as determined by the closing price on that date) was $92.44 per share.

 

Why the 2022 Plan is Important for Our Future Success

 

The following points summarize why the Board strongly believes that the 2022 Plan is essential for our future success:

Achieving superior long-term results for our stockholders always has been one of our primary objectives and, therefore, it is essential that employees think and act like owners of the Company. Stock ownership helps enhance the alignment of the long-term economic interests of our employees with those of our stockholders. Accordingly, we have historically granted equity compensation awards to encourage alignment of the interests of our management and our employees with the long-term economic interests of our stockholders. As of the Record Date, the 2013 Plan has 2,230,763 (each full-value share granted is deducted from the available shares as if it was 1.84 shares of common stock) unissued shares available for future grants and in any event the 2013 Plan will expire by its own terms in May 2023. Therefore, if the 2022 Plan is not approved by stockholders, we will soon lose our ability to grant equity compensation awards to key employees, which will lessen our ability to further align our employees’ long-term economic interests with those of our stockholders.
A critical factor in successfully achieving our business objectives and creating long-term value for our stockholders is the ability to provide long-term equity compensation to our key service providers. Participation in our equity compensation plan rewards these employees for performance by giving them an opportunity to participate in our growth, thereby further aligning their interests with those of our stockholders. Our direct competitors and our peer companies rely on equity compensation to attract and retain top talent in our industry and remain competitive. We believe that any failure by us to offer competitive levels of equity compensation in attracting and retaining important management and key employees would have an adverse effect on our business.

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A balanced approach to executive compensation, using a mix of salaries, performance-based bonus incentives and long-term equity incentives, helps prevent management from making decisions that favor short-term results over longer-term stability and profitability. Without a sufficient share pool from which to grant long-term equity awards to Selected Participants, our ability to inhibit favoring short-term results would be hampered.
The 7,000,000 shares of Common Stock that will become available for grant under the 2022 Plan would represent approximately 15% of the number of shares of our Common Stock that are outstanding as of the Record Date. The share authorization request is a conservative amount designed to manage our equity compensation needs until approximately 2024, assuming an annual burn rate of approximately 1.2 million shares (taking into account the two (2) multiplier for full-value awards), at which time stockholders would be able to re-evaluate any additional share authorization request.
The 2022 Plan provides certain corporate governance enhancements which were not part of the 2013 Plan, including, without limitation, establishing a minimum holding period for shares acquired by stock options under the 2022 Plan and precluding discretionary acceleration of vesting of awards except in the case of a participant’s death or disability.

 

Highlights of Material Differences between the 2022 Plan and the 2013 Plan

 

The following table highlights certain of the differences between the 2022 Plan and the 2013 Plan:

 

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Plan Feature

 

2013 Plan

 

2022 Plan

Plan Share and ISO Grant Limits

 

12,000,000 shares

 

7,000,000 shares

 

 

A share issued under awards other than options or SARs counts as 1.84 shares against 2013 Plan share limit

 

A share issued under awards other than options or SARs counts as two (2) shares against 2022 Plan share limit

 

 

 

 

 

 

 

Plan Expiration

 

May 28, 2023

 

March 10, 2032

 

 

 

 

 

 

 

Internal Revenue Code ("Code") Section 162(m)

 

Contained various provisions to enable Awards to qualify as Code Section 162(m) performance-based compensation and avoid being counted towards $1 million per year deductible compensation limit for certain executive officers

 

Does not contain Code Section 162(m) related provisions in light of 2017 change in federal income tax laws which effectively removed the ability to have Code Section 162(m) performance-based compensation awards

 

 

 

 

 

 

 

Acceleration in Vesting of Awards

 

2013 Plan Committee may provide for accelerated vesting in its discretion

 

2022 Plan Committee may provide for accelerated vesting in its discretion only in cases of Participant death or disability

 

 

 

 

 

 

 

Minimum Holding Period for Shares Acquired upon Exercise of Stock Option

 

N/A

 

Shares (after applicable tax withholding) must be held by optionee for one year or until earlier termination of service

 

 

 

 

 

 

 

Annual Limits on Plan Grants to Non-Employee Directors

 

Chairperson: 240,000 Shares

 

Chairperson: 100,000 Shares

 

 

 

Vice Chairperson: 160,000 Shares

 

 

Vice Chairperson: 80,000 Shares

 

 

 

Other Non-Employee Director: 20,000 Shares

 

 

Other Non-Employee Director: 10,000 Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Control

 

Plan Committee discretion to accelerate vest awards

 

Awards that are not assumed by acquirer in a Change in Control become vested (and at target performance levels for performance based awards). Awards that are assumed by acquirer become vested (and at target performance levels for performance based awards) if participant’s service is terminated without cause by the Company during the 24 months after the Change in Control.

 

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Text of the 2022 Plan

The complete text of the 2022 Plan is attached as Appendix A to this Proxy Statement. Stockholders are urged to review the 2022 Plan together with the following information, which is qualified in its entirety by reference to Appendix A. A more detailed summary of the principal provisions of the 2022 Plan is set forth below. If there is any inconsistency between this Proposal Two or the summary set forth below and the 2022 Plan terms, or if there is any inaccuracy in this Proposal Two or the below summary, the terms of the 2022 Plan shall govern.

 

Key Features of the 2022 Plan

 

Certain key features of the 2022 Plan are summarized as follows:

If approved by Company stockholders, the 2022 Plan will become effective upon such approval and no further awards can then be issued under the 2013 Plan. If not terminated earlier by the Board, the 2022 Plan will terminate on March 10, 2032.
Up to a maximum aggregate of 7,000,000 shares of Common Stock may be issued under the 2022 Plan. However, a share that is issued pursuant to an award other than a stock option or stock appreciation right shall count as two (2) shares against this limit.
The 2022 Plan will generally be administered by a committee comprised solely of independent members of the Board. This committee will be the Compensation Committee unless otherwise designated by the Board (the “2022 Plan Committee”). The Board or the 2022 Plan Committee may designate a separate committee to make awards to employees who are not officers subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934.
Employees, consultants and Board members are eligible to receive awards, provided that the 2022 Plan Committee has the discretion to determine (i) who shall receive any awards, and (ii) the terms and conditions of such awards. Discretionary acceleration of vesting of awards is not permitted except in the case of participant’s death or disability.
Awards may consist of incentive stock options, nonstatutory stock options, restricted stock, stock units, stock appreciation rights, and/or other equity awards.
Stock options and stock appreciation rights may not be granted at a per share exercise price below the fair market value of a share of our Common Stock on the date of grant.
The maximum exercisable term of stock options and stock appreciation rights may not exceed eight years.
Stock options and stock appreciation rights may not be repriced or exchanged without stockholder approval.
Shares (after applicable tax withholding) acquired from the exercise of stock options must be held for at least one year or until an earlier termination of service.
Awards are subject to recoupment of compensation policies adopted by the Company.
A non-employee director cannot receive 2022 Plan awards in any fiscal year which in the aggregate exceeds the following number of shares:
o
Chairperson: 100,000 shares
o
Vice Chairperson: 80,000 shares
o
Other Non-Employee Director: 10,000 shares

 

Description of the 2022 Plan

 

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Background and Purpose of the 2022 Plan. The purpose of the 2022 Plan is to promote our long-term success and the creation of stockholder value by:

Attracting and retaining the services of key employees who would be eligible to receive grants as Selected Participants;
Motivating Selected Participants through equity-based compensation that is based upon the performance of our Common Stock; and
Further aligning Selected Participants’ interests with stockholders, through the award of equity compensation grants which increases their proprietary interest in the Company, to achieve long-term growth over short-term performance.

 

The 2022 Plan permits the grant of the following types of equity-based incentive awards: (1) stock options (which can be either ISOs or NQSOs), (2) stock appreciation rights, (3) restricted stock, (4) restricted stock units, and (5) other equity awards. The vesting of equity awards can be based on either continuous service and/or performance goals. Awards are evidenced by a written agreement between the Selected Participant and the Company.

 

Eligibility to Receive Awards. Employees, consultants and Board members of the Company and certain of our affiliated companies are eligible to receive awards under the 2022 Plan. The 2022 Plan Committee determines, in its discretion, the Selected Participants who will be granted awards under the 2022 Plan. Employees, as defined by the 2022 Plan, including our Executive Officers and Non-Employee Directors would be eligible to participate in the 2022 Plan. With respect to our non-employee directors, the 2022 Plan provides that any non-employee director cannot receive awards in any fiscal year that in the aggregate exceeds 100,000 shares for the Chairperson, 80,000 shares for the Vice Chairperson, and 10,000 for other non-employee directors. Provided that the Board affirmatively acts to implement such a process, the 2022 Plan also provides that non-employee directors may elect to receive stock grants or stock units (which would be issued under the 2022 Plan) in lieu of fees that would otherwise be paid in cash.

 

Shares Subject to the 2022 Plan. If stockholders approve the 2022 Plan pursuant to this Proposal Two, the maximum number of shares of Common Stock that can be issued under the 2022 Plan will be 7,000,000 shares. A share that is issued pursuant to an award other than a stock option or stock appreciation right shall count as the issuance of two (2) shares for purposes of counting toward this maximum share limit while a share that is issued pursuant to a stock option or stock appreciation right award shall count as the issuance of one (1) share. Shares underlying forfeited or terminated awards will become fully available again for issuance under the 2022 Plan. The 2022 Plan also imposes certain share grant limits such as the limit on grants to non-employee directors described above and other limits that are intended to comply with the legal requirements of Code Section 422 and which are discussed further below. No fractional shares may be issued under the 2022 Plan. No shares will be issued or released to a participant unless applicable tax withholding obligations have been satisfied by the participant.

 

Administration of the 2022 Plan. The 2022 Plan will be administered by our Board’s Compensation Committee, acting as the 2022 Plan Committee, which shall consist of independent Board members as specified under Nasdaq rules. With respect to certain awards issued under the 2022 Plan, the members of the 2022 Plan Committee also must be “Non-Employee Directors” under Rule 16b-3 of the Securities Exchange Act of 1934. Subject to the terms of the 2022 Plan, the 2022 Plan Committee has the sole discretion, among other things, to:

Select the individuals who will receive awards;
Determine the terms and conditions of awards (for example, performance conditions, if any, and vesting schedule);
Correct any defect, supply any omission, or reconcile any inconsistency in the 2022 Plan or any award agreement;
Accelerate the vesting in the case of a participant’s death or disability or, extend the post-termination exercise term, subject to the limitations set forth in the 2022 Plan;

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Permit a participant to defer compensation to be provided by an award; and
Interpret the provisions of the 2022 Plan and outstanding awards.

 

The 2022 Plan Committee (or the Board) may suspend vesting, settlement, or exercise of awards pending a determination of whether a Selected Participant’s service should be terminated for cause (in which case outstanding awards would be forfeited). Awards may be subject to any policy that the Board may implement on the recoupment of compensation (referred to as a “clawback” policy). The members of the Board, the 2022 Plan Committee and their delegates shall be indemnified by the Company to the maximum extent permitted by applicable law for actions taken or not taken regarding the 2022 Plan. In addition, the 2022 Plan Committee may use the 2022 Plan to issue shares under other plans or sub-plans as may be deemed necessary or appropriate, such as to provide for participation by non-U.S. employees and those of any of our subsidiaries and affiliates.

 

Types of Awards.

 

Stock Options. A stock option is the right to acquire shares at a fixed exercise price over a fixed period of time. The 2022 Plan Committee will determine, among other terms and conditions, the number of shares covered by each stock option and the exercise price of the shares subject to each stock option, but such per share exercise price cannot be less than the fair market value of a share of our Common Stock on the date of grant of the stock option. The fair market value of a share of our Common Stock for the purposes of pricing our awards shall be equal to the regular session closing price for our Common Stock as reported by Nasdaq on the date of determination. Stock options may not be repriced or exchanged without stockholder approval, and no re-load options may be granted under the 2022 Plan.

 

Stock options granted under the 2022 Plan may be either ISOs or NQSOs. As required by the Code and applicable regulations, ISOs are subject to various limitations not imposed on NQSOs. For example, the exercise price for any ISO granted to any employee owning more than 10% of our Common Stock may not be less than 110% of the fair market value of the Common Stock on the date of grant, and such ISO must expire no later than five years after the grant date. The aggregate fair market value (determined at the date of grant) of Common Stock subject to all ISOs held by a participant that are first exercisable in any single calendar year cannot exceed $100,000. ISOs may not be transferred other than upon death, or to a revocable trust where the participant is considered the sole beneficiary of the stock option while it is held in trust. In order to comply with Treasury Regulation Section 1.422-2(b), the 2022 Plan provides that no more than 7,000,000 shares may be issued pursuant to the exercise of ISOs.

 

A stock option granted under the 2022 Plan generally cannot be exercised until it becomes vested. The 2022 Plan Committee establishes the vesting schedule of each stock option at the time of grant. The maximum term for stock options granted under the 2022 Plan may not exceed eight years from the date of grant although the 2022 Plan Committee may establish a shorter period at its discretion.

 

The exercise price of each stock option granted under the 2022 Plan must be paid in full at the time of exercise, either with cash or through a broker-assisted “cashless” exercise and sale program, or net exercise, or through another method approved by the 2022 Plan Committee. The optionee must also make arrangements to pay any taxes that we are required to withhold at the time of exercise. Shares (after applicable tax withholding) acquired from the exercise of stock options must be held for at least one year or until an earlier termination of service.

 

Stock Appreciation Rights (“SARs”). A SAR is the right to receive, upon exercise, an amount equal to the difference between the fair market value of the shares on the date of the SAR’s exercise and the aggregate exercise price of the shares covered by the exercised portion of the SAR. The 2022 Plan Committee determines the terms of SARs, including the exercise price (provided that such per share exercise price cannot be less than the fair market value of a share of our Common Stock on the date of grant), the vesting and the term of the SAR. The maximum term for SARs granted under the 2022 Plan may not exceed eight years from the date of grant, subject to the discretion of the 2022 Plan Committee to establish a shorter period. Settlement of a SAR may be in shares of Common Stock or in cash, or any combination thereof,

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as the 2022 Plan Committee may determine. Stock appreciation rights may not be repriced or exchanged without stockholder approval.

 

Restricted Stock. A restricted stock award is the grant of shares of our Common Stock to a Selected Participant and such shares may be subject to a substantial risk of forfeiture until specific conditions or goals are met. The restricted shares may be issued with or without cash consideration being paid by the Selected Participant as determined by the 2022 Plan Committee. The 2022 Plan Committee also will determine any other terms and conditions of an award of restricted stock. In determining whether an award of restricted stock should be made, and/or the vesting schedule for any such award, the 2022 Plan Committee may impose whatever conditions to vesting it determines to be appropriate. During the period of vesting, the participant will not be permitted to transfer the restricted shares but will generally have voting and dividend rights (subject to vesting) with respect to such shares.

 

Restricted Stock Units. Restricted stock units are the right to receive an amount equal to the fair market value of the shares covered by the restricted stock unit at some future date after the grant. The 2022 Plan Committee will determine all of the terms and conditions of an award of restricted stock units, including the vesting period. Upon each vesting date of a restricted stock unit, a Selected Participant will become entitled to receive an amount equal to the number of shares indicated in the grant notice, or, if expressed in dollar terms, the fair market value of the shares on the settlement date. We may also include in the terms of the grant that specific performance goals must be also achieved ("Performance Stock Units") in order for the stock units to become vested. Payment for vested stock units may be in shares of Common Stock or in cash, or any combination thereof, as the 2022 Plan Committee may determine. Settlement of vested stock units will generally occur at or around the time of vesting but the 2022 Plan Committee may permit a participant to defer such compensation until a later point in time. Stock units represent an unfunded and unsecured obligation for us, and a holder of a stock unit has no rights other than those of a general creditor.

 

Other Awards. The 2022 Plan also provides that other equity awards, which derive their value from the value of our shares or from increases in the value of our shares, may be granted. Substitute awards may be issued under the 2022 Plan in assumption of or substitution for or exchange for awards previously granted by an entity which we (or an affiliate) acquire.

 

Limited Transferability of Awards. Awards granted under the 2022 Plan generally are not transferrable other than by will or by the laws of descent and distribution. However, the 2022 Plan Committee may in its discretion permit the transfer of awards other than ISOs. Generally, where transfers are permitted, they will be permitted only by gift to a member of the Selected Participant’s immediate family or to a trust or other entity for the benefit of the Selected Participant and/or member(s) of his or her immediate family.

 

Termination of Employment, Death or Disability. The 2022 Plan generally determines the effect of the termination of employment on awards, which determination may be different depending on the nature of the termination, such as terminations due to cause, resignation, death, or disability and the status of the award as vested or unvested, unless the award agreement or a Selected Participant’s employment agreement or other agreement provides otherwise.

 

Dividends and Dividend Equivalents. Any dividend equivalents distributed under the 2022 Plan will not count against the 2022 Plan’s maximum share limit. The 2022 Plan also provides that dividend equivalents will not be paid or accrue on unexercised stock options or unexercised stock appreciation rights. Dividends and dividend equivalents that may be paid or accrue with respect to unvested restricted shares and unvested restricted stock units shall be subject to the same vesting conditions as the underlying award and shall only be distributed to the extent that such vesting conditions are satisfied.

 

Adjustments upon Changes in Capitalization.

 

In the event of the following actions:

stock split of our outstanding shares of Common Stock,

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stock dividend;
dividend payable in a form other than shares in an amount that has a material effect of the price of the shares;
consolidation;
combination or reclassification of the shares;
recapitalization;
spin-off; or
other similar occurrences;

 

then the following shall each be equitably and proportionately adjusted by the 2022 Plan Committee:

maximum number of shares that can be issued under the 2022 Plan (including the ISO limit);
number and class of shares issued under the 2022 Plan and subject to each award;
exercise prices of outstanding awards; and
number and class of shares available for issuance under the 2022 Plan.

 

Change in Control. In the event that we are a party to a merger or other reorganization or similar transaction, outstanding 2022 Plan awards will be subject to the agreement pertaining to such merger or reorganization. Such agreement may provide for (i) the continuation of the outstanding awards by us if we are a surviving corporation, (ii) the assumption or substitution of the outstanding awards by the surviving entity or its parent, or (iii) cancellation of outstanding awards either with or without consideration, in all cases with or without consent of the Selected Participant. The Board or the 2022 Plan Committee need not adopt the same rules for each award or Selected Participant.

 

Additionally, the 2022 Plan Committee may provide that awards will fully vest upon an involuntary termination of employment without cause during the 24 months following a change in control. 2022 Plan awards that are not assumed by the acquirer will fully vest and with performance based awards vesting as if their target level of performance had been attained. The 2022 Plan Committee may also include in an award agreement provisions designed to minimize potential negative income tax consequences for the participant or the Company that could be imposed under the golden parachute tax rules of Code Section 280G.

 

Term of the 2022 Plan. If approved by stockholders, the 2022 Plan will become effective upon such approval and will continue in effect until March 10, 2032, or until earlier terminated by the Board.

 

Governing Law. The 2022 Plan shall be governed by the laws of the State of Delaware (which is the state of our incorporation) except for conflict of law provisions.

 

Amendment and Termination of the 2022 Plan. The Board generally may amend or terminate the 2022 Plan at any time and for any reason, except that it must obtain stockholder approval of material amendments to the extent required by applicable laws, regulations or rules. The 2022 Plan expressly provides that the Board can amend the 2022 Plan to take into account changes in securities laws (including without limitation Rule 16b-3 of the Securities Exchange Act of 1934), federal income tax laws and other laws without obtaining stockholder approval.

 

Certain Federal Income Tax Information

 

The following is a brief general summary, as of March 1, 2022, of the federal income tax consequences to us and to U.S. participants for awards granted under the 2022 Plan. The federal tax laws may change and the federal, state and local tax consequences for any participant will depend upon his or her individual circumstances. Tax consequences for any particular individual may be different. This summary is not intended to be exhaustive and does not discuss the tax

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consequences of a participant’s death or provisions of income tax laws of any municipality, state or other country. We advise participants to consult with a tax advisor regarding the tax implications of their awards under the 2022 Plan.

 

Incentive Stock Options. For federal income tax purposes, the holder of an ISO has no taxable income at the time of the grant or exercise of the ISO. If such person retains the Common Stock acquired under the ISO for a period of at least two years after the stock option is granted and one year after the stock option is exercised, any gain upon the subsequent sale of the Common Stock will be taxed as a long-term capital gain. If the participant disposes of the shares within the two-year or one-year periods referred to above, the participant will recognize ordinary income equal to the lesser of (i) the excess of the fair market value over the exercise price of the shares on the date of exercise, or (ii) the excess of the amount realized on the disposition over the exercise price for the shares. Any remaining gain or loss will be long-term or short-term capital gain or loss depending on whether the participant has held the shares for more than one year. Utilization of losses is subject to special rules and limitations. The difference between the option exercise price and the fair market value of the shares on the exercise date of an ISO is an adjustment in computing the holder’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the participant’s regular income tax for the year.

 

Nonstatutory Stock Options. A participant who receives an NQSO generally will not realize taxable income on the grant of such option, but will realize ordinary income at the time of exercise of the stock option equal to the difference between the option exercise price and the fair market value of the stock on the date of exercise. Any additional gain or loss recognized upon any later disposition of the shares would be short- or long-term capital gain or loss, depending on whether the shares had been held by the participant for more than one year.

 

Stock Appreciation Rights. No taxable income is generally reportable when a stock appreciation right is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received plus the fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of any shares received would be a short- or long-term capital gain or loss, depending on whether the shares had been held by the participant for more than one year.

 

Restricted Stock. A participant will generally not have taxable income upon grant of unvested restricted shares unless he or she elects to be taxed at that time pursuant to an election under Code Section 83(b). Instead, the participant will recognize ordinary income at the time(s) of vesting equal to the fair market value (on each vesting date) of the shares minus any amount paid for the shares.

 

Restricted Stock Units. No taxable income is generally reportable when unvested restricted stock units are granted to a participant. Upon settlement of restricted stock units which have vested, the participant will recognize ordinary income at the time(s) of settlement equal to the sum of the fair market value (on each settlement date) of any shares issued to the participant plus any cash received by the participant.

 

Income Tax Effects for the Company. We generally will be entitled to a tax deduction in connection with an award under the 2022 Plan in an amount equal to the ordinary income realized by a participant at the time the participant recognizes such income (for example, upon the exercise of an NQSO).

 

Internal Revenue Code Section 162(m). Code Section 162(m) generally does not allow a publicly-held corporation to claim a federal income tax deduction for compensation that exceeds $1 million paid in any tax year with respect to those persons who were/are our principal executive officer, principal financial officer and each of the other three most highly compensated officers for any fiscal year after December 31, 2016 (“Covered Employees”). It is impossible to be certain that all 2022 Plan awards or any other compensation paid by the Company to Covered Employees will be tax deductible. In order to maintain flexibility in compensating executive officers in a manner designed to promote corporate goals, the Board has not adopted a policy that all executive compensation must be tax deductible.

 

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Internal Revenue Code Section 409A. Section 409A of the Code governs the federal income taxation of certain types of nonqualified deferred compensation arrangements. A violation of Section 409A of the Code generally results in an acceleration of the recognition of income of amounts intended to be deferred and the imposition of a federal excise tax of 20% on the employee over and above the income tax owed, plus possible penalties and interest. The types of arrangements covered by Section 409A of the Code are broad and may apply to certain awards available under the 2022 Plan (such as restricted stock units). The intent is for the 2022 Plan, including any awards available thereunder, to comply with the requirements of Section 409A of the Code to the extent applicable. As required by Code Section 409A, certain nonqualified deferred compensation payments to “specified employees” may be delayed to the seventh month after such employee’s separation from service.

 

Internal Revenue Code Section 280G. For certain employees, if a change in control of the Company causes an award to vest or become newly payable or if the award was granted within one year of a change in control of the Company and the value of such award or vesting or payment, when combined with all other payments in the nature of compensation contingent on such change in control, equals or exceeds the dollar limit provided in Code Section 280G (generally, this dollar limit is equal to three times the five year historical average of the employee’s annual compensation as reported on Form W-2), then the entire amount exceeding the employee’s average annual compensation will be considered to be an excess parachute payment. The recipient of an excess parachute payment must pay a 20% excise tax on this excess amount, for which the Company must withhold, and the Company cannot deduct the excess amount from its taxable income.

 

New Plan Benefits

 

All 2022 Plan awards will be granted at the 2022 Plan Committee’s discretion, subject to the limitations described in the 2022 Plan. Therefore, the specific benefits and amounts that will be received or allocated to certain participants under the 2022 Plan are not presently determinable.

 

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Required Vote

 

We are asking you to approve the 2022 Plan. This approval will require the affirmative vote of a majority of the voting power of all outstanding shares of our Common Stock present or represented by proxy at the Meeting and entitled to be voted on Proposal Two. Abstentions will be included in the number of shares present and entitled to vote on this Proposal Two and, accordingly, will have the effect of a vote “AGAINST” Proposal Two. Broker non-votes will not be considered as present and entitled to vote on this Proposal Two. Therefore, a broker non-vote will not be counted and will have no effect on this proposal to approve the 2022 Plan other than to reduce the number of affirmative votes required to approve this proposal. In the event that stockholder approval is not obtained, we will be unable to make awards under the 2022 Plan.

 

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE 2022 EQUITY INCENTIVE PLAN.

 

 

 

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PROPOSAL THREE

APPROVAL OF EXECUTIVE COMPENSATION

At the Meeting, the stockholders are being asked to approve the compensation of the NEOs as disclosed below pursuant to the compensation disclosure rules of the SEC, including the information in “Compensation Discussion and Analysis” and in the Summary Compensation Table and other related tables and narrative disclosure below in “Executive Compensation.”

At the Company’s 2017 annual meeting of the stockholders, the Company’s stockholders voted in favor of providing stockholders an advisory vote on the approval of the compensation of the Company’s NEOs on an annual basis.

As discussed below, our executive compensation programs are designed to attract, retain and motivate executives who are critical to our long-term growth and profitability. Under these programs, our executives are incentivized to achieve Company performance goals and individual objectives established by the Compensation Committee, without encouraging undue or unreasonable risk-taking.

The Compensation Committee reviews our executive compensation programs annually to ensure they align executive compensation with the interests of our stockholders and current market practices. See “Compensation Discussion and Analysis” and “Executive Compensation” for information about our executive compensation programs, including information about the fiscal 2021 compensation of the NEOs.

This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on the compensation of our NEOs. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the executive compensation philosophy and decisions described in “Compensation Discussion and Analysis” and “Executive Compensation.”

Approval of the compensation paid to the NEOs, as disclosed below pursuant to the compensation disclosure rules of the SEC, requires the affirmative vote of the holders of a majority of the outstanding shares of the Common Stock present, in person via the Internet or by proxy, and entitled to vote on the proposal at the Meeting.

This vote is advisory and is not binding on the Company, the Board or the Compensation Committee. However, the Board and the Compensation Committee value the opinions of our stockholders and will review the result of the vote and take it into consideration when making future decisions regarding executive compensation.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NEOS AS DISCLOSED IN “COMPENSATION DISCUSSION AND ANALYSIS” AND “EXECUTIVE COMPENSATION.”

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COMPENSATION DISCUSSION AND ANALYSIS

INTRODUCTION

This Compensation Discussion and Analysis (“CD&A”) explains the design and operation of the Company’s compensation program for (i) anyone who served during the fiscal year as our Chief Executive Officer or our Chief Financial Officer and (ii) our three other most highly compensated executive officers in the fiscal year (collectively, our “NEOs”).

Our NEOs for fiscal 2021 were:

Name

Position with the Company

Dr. Keh-Shew Lu

Chairman, President and Chief Executive Officer ("CEO")

Brett R. Whitmire

Chief Financial Officer

Julie Holland

Senior Vice President, Corporate Operations

Francis Tang

Senior Vice President, Worldwide Discrete Products

Gary Yu

Senior Vice President, Business Groups

 

EXECUTIVE SUMMARY

“Say-on-Pay” Vote Summary

At our 2021 annual meeting of stockholders, our stockholders approved, by a vote of approximately 99% of the shares present in person or by proxy and entitled to vote on the proposal (not counting abstentions and broker non-votes), the compensation paid to our NEOs for services rendered in 2020 as presented in the Proxy Statement for the 2021 annual meeting of stockholders. In light of this favorable “say on pay” vote and our stockholder engagement, the Compensation Committee did not materially adjust the Company’s compensation program for 2021 or 2022.

We have engaged with our stockholders to understand their perspectives on our Company, including our strategies, performance, governance, and executive compensation. This ongoing dialogue has helped inform the Board's decision-making and ensure our interests remain well-aligned with those of our stockholders.

The Company has a record of adopting provisions or modifying practices to reflect stockholder input. Examples include the Company's majority vote policy which was strengthened and documented at the request of our stockholders, as well as the 2017 redesign of our executive compensation program.

 

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2021 Business Summary

Below is a summary of our 2021 financial results:

Net sales for fiscal 2021 were $1.81 billion, an increase of 46.9% from the $1.23 billion in fiscal 2020;
Gross profit for fiscal 2021 was $670.4 million, an increase of 55.5% from the $431.1 million in fiscal 2020;
Gross profit margin for fiscal 2021 increased 200 basis points to 37.1% from 35.1% for fiscal 2020;
Income from operations for fiscal 2021 increased 105.4% to $276.0 million, or 15.3% of revenue, from $134.3 million, or 10.9% of revenue, for fiscal 2020;
Net income for fiscal 2021 was $228.8 million, or $5.00 per diluted share, compared to $98.1 million, or $1.88 per diluted share, in fiscal 2020;
Cash flow from operations for fiscal 2021 was $338.5 million including $141.2 million of capital expenditures. Net cash flow was a positive $46.3 million, which included the pay down of $152.5 million of long-term debt; and
As of December 31, 2021, the Company had approximately $373 million in cash and cash equivalents, restricted cash, and short-term investments. Total debt (including long-term and short-term) amounted to approximately $301 million, and working capital was approximately $717 million.

The following table provides additional information concerning our performance in fiscal 2021 compared to fiscal 2020:

Description (in millions, except per share amounts)

2021

 

2020

Net sales

$1,805.0

 

$1,229.2

Gross profit

                 670.4

 

                  431.1

Gross profit margin

37.1%

 

35.1%

Income from operations

                 276.0

 

                  134.3

Diluted net income per share

                   5.00

 

                    1.88

Stock price at fiscal year end

               108.81

 

                  70.50

Adjusted earnings per share - common stockholders (Non-GAAP)

                   5.18

 

                    2.35

 

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CONSOLIDATED RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME

(unaudited)

(in thousands, except per share data)

 

 

 

For the 12 Months Ended December 31,

 

 

 

2021

 

2020

 

 

 

 

 

 

GAAP net income - common stockholders

 

 

$228,763

 

$98,088

GAAP earnings per share - common stockholders

 

 

 

 

 

Diluted

 

 

$5.00

 

$1.88

Adjustments to reconcile net income - common stockholders

 

 

 

 

 

to adjusted net income - common stockholders, net of tax:

 

 

 

 

 

Amortization of acquisition-related intangible assets

 

 

        13,242

 

        13,270

Acquisition-related costs

 

 

          2,225

 

          2,366

Restructuring costs

 

 

              817

 

          2,009

LSC investments related

 

 

          1,591

 

        (1,714)