U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
Form 10-K
(Mark One)
|x| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1997
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number 0-27712
INTEGRATED PACKAGING ASSEMBLY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
California 77-0309372
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification Number)
2221 Old Oakland Road 95131-1402
San Jose, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number including area code: (408) 321-3600
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, no par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by persons other than
those who may be deemed affiliates of the Company as of March 19, 1998, was
approximately $11,200,000. Shares of Common Stock held by each executive
officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may under certain
circumstances be deemed to be affiliates. This determination of executive
officer or affiliate status is not necessarily a conclusive determination for
other purposes.
The number of shares of the Registrant's Common Stock outstanding as of
March 19, 1998 was 14,068,920.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 1998 Annual Meeting
of Stockholders to be held June 16, 1998 are incorporated by reference in
Part IIIof this Form 10-K.
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TABLE OF CONTENTS
<TABLE>
Page
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PART I
<S> <C>
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 10
Item 3. Legal Proceedings........................................... 11
Item 4. Submission of Matters to a Vote of Security Holders......... 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 12
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 14
Item 8. Financial Statements and Supplementary Data................. 19
Item 9. Changes in and Disagreement with Accountants on Accounting
and Financial Disclosure................................... 39
PART III
Item 10. Directors and Executive Officers of the Registrant......... 40
Item 11. Executive Compensation..................................... 40
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 40
Item 13. Certain Relationships and Related Transactions............. 40
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................ 40
SIGNATURES................................................................ 42
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PART I
This Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a
result of the risk related factors set forth herein.
Item 1. Business
Integrated Packaging Assembly Corporation ("IPAC") is a leading
independent North American semiconductor packaging foundry. The Company
receives wafers from its customers and assembles each integrated circuit
in a protective plastic package. The Company's close proximity to its
customers and the end-users of its customers' products allows it to
provide quick turnaround design and prototype production and timely
delivery of products in high volume.
Industry Background
Semiconductor Manufacturing Process
The manufacture of semiconductors requires complex and precise
steps which can be broadly characterized as wafer fabrication, packaging
and testing. Wafer fabrication begins with raw silicon wafers and ends
with devices in the form of die on wafers. Since the die must be
packaged to protect them and facilitate their use in electronic systems,
the fabricated wafers are transferred to packaging facilities. The
packaging facility dices the wafer into individual die, and through a
series of processes connects wire leads to the die and encapsulates the
die in a protective casing. The packaged semiconductor die must then be
tested to ensure functionality before shipment for use.
Semiconductor companies in North America utilize various business
models for the design and manufacture of semiconductors. Certain
vertically integrated companies perform all stages of the manufacturing
process. Other companies outsource certain aspects of the manufacturing
process, including wafer fabrication and packaging. Wafers fabricated by
or for North American semiconductor companies are often tested in North
America and then shipped for packaging to captive or independent
packaging foundries in Asia. The packaged semiconductors are often
returned to North America for final test and distribution to customers.
The shipment to and from Asia for packaging can lengthen the
semiconductor manufacturing process significantly.
Semiconductor Packaging Market
The growth in the worldwide semiconductor market has created a
significant demand for semiconductor packaging capacity. Different types
of devices such as microprocessors, logic devices and memory devices
require different packaging solutions to accommodate different
requirements for heat dissipation and signal propagation. Semiconductor
packages are categorized largely by the technology employed to
interconnect the packaged circuits to printed circuit boards. Surface
mount technology ("SMT"), in which the leads on integrated circuits are
soldered to the surface of the printed circuit board, is a newer and more
advanced technology than pin through hole ("PTH") technology, in which
the leads are inserted into holes in the printed circuit board. SMT
allows components to be placed on both sides of the board, which permits
a higher degree of system integration, increases system performance and
reduces system cost.
The package types used to accommodate SMT include small outline
("SO") packages, quad flat packages ("QFP"), thin quad flat packages
("TQFP") and ball grid array ("BGA") packages. QFPs and TQFPs are
primarily used for logic devices, such as field programmable gate arrays
("FPGAs") and application specific integrated circuits ("ASICs"), which
have lead counts of up to 376 leads per device, while SO packages are
primarily used for memory and analog devices that have much lower lead
counts. BGA is an emerging packaging technology that can accommodate up
to 1,000 leads per device.
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To meet their packaging requirements, semiconductor companies have
relied on captive or independent packaging foundries, principally located
in Asia. These packaging foundries were initially located in Asia in the
1970s to take advantage of low labor costs. Competition among
independent packaging foundries during this period was based largely on
price and the availability of capacity because the large feature sizes of
the semiconductors did not present significant technological challenges
or opportunities for differentiation among packaging techniques. During
the 1980s, semiconductor packaging commenced a transition from a labor
intensive operation to a capital intensive, technologically advanced
operation as packaging facilities were forced to automate to accommodate
significantly more complex devices while achieving consistency, quality
and reliability. These trends accelerated in the 1990s at the same time
that intense competition among semiconductor companies shortened product
life cycles for many devices. As a result, cycle time has become a
critical factor in the semiconductor packaging industry.
The Company believes that the use of independent packaging
foundries enables semiconductor companies to reduce costs and shorten
production cycles. By packaging a greater volume of semiconductors than
a given semiconductor company is likely to do internally, an independent
packaging foundry can reduce costs by employing technically advanced
equipment and by procuring raw materials more cost effectively. The use
of independent packaging foundries also enables semiconductor companies
to avoid the high cost of capital equipment required for advanced
semiconductor packaging. In addition, semiconductor companies are
realizing that the expertise of independent packaging foundries can be a
source for advanced packaging technologies that can satisfy their
requirements for miniaturization, high lead counts and thermal and
electrical performance.
Strategy
The Company's objective is to be the leading independent
semiconductor packaging foundry in North America. The principle elements
of the Company's strategy are set forth below.
Locate Facilities in North America Near Customers and End-Users
The Company's packaging facilities are located in San Jose,
California in close proximity to its customers and the end-users of its
customers' products. Due to intense competitive pressures in the
electronics industry, semiconductor companies are faced with increasingly
shorter product life cycles and therefore have a need to reduce the time
it takes to bring a product to market. The Company believes that its
close proximity to its customers promotes quicker turnaround design,
prototype production and final product delivery to its North American
customers, compared to its principal competitors which are all currently
located in Asia.
Provide High Quality Customer Service
The Company believes that the principle components of quality
customer service are time to market, reliability and quality. Since the
product life cycles of integrated circuits continue to contract, IPAC
offers short packaging cycles as a principal benefit to its customers.
In addition, the Company has established a quality control system that is
designed to enable it to maintain reliable services, high product quality
and high production yields. The Company also maintains a flexible
production capability which enables it to react quickly to changes in
customer requirements as well as industry developments.
Focus on Selected High Growth Markets
The Company focuses on QFPs, TQFPs and BGA packages which are used
for complex, high pin-count products, such as FPGAs and ASICS. The
Company expects QFPs, TQFPs and BGAs to be growth areas of the packaging
market, and generally command higher margins than most other packages.
Manufacturing
Semiconductor Packaging Services
The Company has focused on packages designed for assembly using
SMT. Within the SMT market, the Company focuses on high pin-count
packages, such as QFPs and TQFPS. The Company offers twelve different
QFP and TQFP families with body sizes ranging from 7x7 mm to 32x32 mm,
and with the number of leads available in certain package families
ranging from 44 to 376 leads. Integrated circuits packaged by the
Company are used in the following applications: personal computers,
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modems, disk drives, automobiles, cameras and telecommunications, among
others. The Company also offers a limited number of packages for
emerging packaging technologies, such as BGA packages. Since inception,
QFPs and TQFPs have accounted for substantially all of the Company's
packaging revenues.
Packaging involves several manufacturing operations which are
highly automated to facilitate high volume production. The assembly
process begins with the mounting of a finished, tested wafer onto a
carrier. After a dicing saw cuts the wafer into individual die, the cut
wafer is moved to a die bonder which picks each good die off the wafer
and bonds it to a lead frame with epoxy resin. A lead frame is a
miniature sheet of metal, generally made of copper with selective silver
plating on which the pattern of input/output (I/0) leads has been cut.
Next, very fine (typically 0.001 inches in diameter) gold wires are
connected to the die and the leads through the use of automated machines
known as wire bonders. These wire leads provide the electrical path
necessary for the device to function. Each die is then encapsulated in a
plastic casing and marked. The leads protruding from the finished casing
are then plated with a tin and lead composition to permit the leads to be
connected to the printed circuit board. At the end of the packaging
process, the leads are trimmed and formed into requisite shapes. After
this packaging process is complete, the devices undergo final inspection
and are prepared for shipment.
The Company has expended substantial resources to significantly
expand its production capacity since inception. The Company shipped
approximately 1.6 million devices in 1994, approximately 10.5 million
devices in 1995, approximately 18.1 million devices in 1996 and
approximately 11.9 million devices in 1997. Since the fourth quarter of
1996, the Company has had available manufacturing capacity. The
Company's manufacturing capacity utilization is a function of the mix of
different package types produced by the Company at any one time and the
proportion of standard production runs compared to expedited production
runs. Thus, as the Company shifts its production among different package
types or allocates a different amount of available capacity to standard
production runs, the rate of the Company's capacity utilization changes,
at times significantly.
The Company believes that its competitive position depends on its
ability to have sufficient capacity to meet anticipated customer demand.
Accordingly, although the Company currently has available manufacturing
capacity, the Company is continuing to make significant investments to
expand such capacity, particularly through the acquisition of capital
equipment, including equipment for new packages (e.g. BGA) and an
advanced electroplating system and the training of new personnel. There
can be no assurance that the Company will be able to utilize such
capacity, that the cost of such expansion will not exceed management's
current estimates or that such capacity will not exceed the demand for
the Company's services. In addition, expansion of the Company's
manufacturing capacity will continue to significantly increase its fixed
costs, and the future profitability of the Company will depend on its
ability to utilize its manufacturing capacity in an effective manner.
The Company's inability to generate the additional production volume
necessary to fully utilize its capacity had a material adverse effect on
its business, financial and results of operation during 1997 and would
continue to have a material adverse effect on the Company's future
business, financial condition and results of operations.
The semiconductor packaging business is capital intensive and
requires a substantial amount of highly automated, expensive capital
equipment which is manufactured by a limited number of suppliers, many of
which are located in Asia or Europe. The Company's operations are
significantly dependent upon the Company's ability to obtain capital
equipment for its manufacturing operations in a timely manner. In this
regard, the Company spent $12.4 million in 1997 and expects to spend up
to $10.0 million to purchase capital equipment in 1998. The Company
currently purchases capital equipment from a limited group of suppliers
including Dai-Ichi Seiko Co., Ltd., ESEC SA and Kaijo Corporation. The
Company has no long term agreement with any such supplier and acquires
such equipment on a purchase order basis. The market for capital
equipment used in semiconductor packaging has been and is expected to
continue to be characterized by intense demand, limited supply and long
delivery cycles. The Company's dependence on such equipment suppliers
poses substantial risks. Should any of the Company's major suppliers be
unable or unwilling to provide the Company with high quality capital
equipment in amounts necessary to meet the Company's requirements, the
Company would experience severe difficulty locating alternative suppliers
in a timely fashion and its operations could be materially adversely
affected. In this regard, in the second half of 1996, the Company
experienced problems with the performance of certain capital equipment
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which resulted in manufacturing inefficiencies. These equipment problems
had a material adverse effect on the Company's financial results in the
fourth quarter of 1996. Any further problems with such capital equipment
or any prolonged delay in equipment shipments by key suppliers or an
inability to locate alternative equipment suppliers could have a material
adverse effect on the Company's business, financial condition and
results of operations and could result in damage to customer
relationships. Moreover, increased levels of demand in the capital
equipment market may cause an increase in the price of equipment, further
lengthen delivery cycles and limit the ability of suppliers to adequately
service equipment following delivery, any of which could have an adverse
effect on the Company's business, financial condition or results of
operations. In addition, adverse fluctuations in foreign currency
exchange rates, particularly the Japanese yen, could result in increased
prices for capital equipment purchased by the Company, which could have a
material adverse effect on the Company's business, financial condition
and results of operations.
The Company currently outsources electroplating of the copper leads
protruding from the plastic moldings with a tin and lead composition from
International Lead Frame Corporation, a subsidiary of Mitsui High-Tec,
Inc., and Hytek Finishes, Inc. The Company has no long term agreement
with either supplier and such services are provided on a purchase order
basis. From time to time, the Company's plating subcontractors have
experienced significant manufacturing problems. In particular, such
problems resulted in delayed customer shipments by, and increased costs
to, the Company during the second and third quarters of 1995. There can
be no assurance that the Company's subcontractors will not experience
manufacturing problems in the future or that such problems will not
result in increased costs or production delays which could have a
material adverse effect on the Company's business, financial condition
and results of operations. The Company has purchased an advanced
electroplating system which has been installed at a leased facility in
Milpitas, California, approximately 2 miles from the Company's main
facility, which will be operated by the Company. The Company currently
expects its plating facility to be in operation in the second quarter of
1998, although there can be no assurance that equipment delivery delays
or other factors will not adversely impact such schedule.
Quality Control
The Company believes that total quality management is a vital
component of customer satisfaction and internal productivity. The
Company has established quality control systems which are designed to
maintain acceptable manufacturing yields at high volume production. The
Company has also developed a sophisticated proprietary software program
for material resource planning, shop floor control, work in process
tracking, statistical process control and product costing. The Company
obtained certification for its packaging operations pursuant to ISO 9002
in December 1996 and was recertified in 1997.
As of December 31, 1997, the Company's quality control staff
consisted of 10 engineers, technicians and other employees who monitor
the Company's design and production processes in order to ensure high
quality. These employees include line inspectors who work with members
of the production staff to conduct examination, testing and fine-tuning
of products during the production process. Quality control personnel are
involved from initial design to production. The quality control staff
also collects and analyzes data from various stages of the production
process which is used by the Company for statistical process control.
The semiconductor packaging process is complex and product quality
and reliability is subject to a wide variety of factors. Defective
packaging can result from a number of factors, including the level of
contaminants in the manufacturing environment, human error, equipment
malfunction, use of defective raw materials, defective plating services
and inadequate sample testing. From time to time, the Company has
experienced lower than anticipated production yields as a result of such
factors. For example, in the second half of 1996, the Company
identified a problem with certain elements of the manufacturing process
for lead frames which resulted in reduced yields for the affected
products and substantially reduced orders from a major customer which
adversely impacted the Company's operating results. The Company's
failure to maintain high quality production standards or acceptable
production yields would likely result in loss of customers, delays in
shipments, increased costs, cancellation of orders and product returns
for rework, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
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Raw Materials and Suppliers
The Company's packaging operations depend upon obtaining adequate
supplies of raw materials on a timely basis. The principal raw materials
used in the Company's packaging process are lead frames, gold wire and
molding compound. The semiconductors used by the Company are supplied by
its customer or the customer's wafer foundry; consequently, the Company
incurs no inventory costs relating to the silicon wafers used in its
packaging process. The Company does not maintain large inventories of
lead frames, gold wire or molding compound, and has from time to time
experienced difficulty in obtaining acceptable materials on a timely
basis.
The Company maintains a supplier quality program that includes
qualification, performance measurement and corrective action
requirements. The Company chooses its suppliers based on quality,
delivery, service and price. The Company sources most of its raw
materials, including critical materials such as lead frames and die
attach compound, from a limited group of suppliers, including Sumitomo
Metal Mining Co., Ltd., Dai Nippon Printing, Acqutek International and
Tokyo Printing Ink Manufacturing Co., Ltd. Molding compound, a critical
raw material, is obtained from Sumitomo Bakelite Co., Ltd., a sole source
supplier. From time to time, vendors have extended lead times or limited
the supply of required materials to the Company because of vendor
capacity constraints and, consequently, the Company has experienced
difficulty in obtaining acceptable raw materials on a timely basis. In
addition, from time to time, the Company may reject materials from those
vendors that do not meet its specifications, resulting in declines in
output or yield. Any interruption in the availability or quality of
materials from these suppliers would materially adversely affect the
Company's business, financial condition and results of operations. The
Company purchases all of its materials on a purchase order basis and has
no long term contracts with any of its suppliers. There can be no
assurance that the Company will be able to obtain sufficient quantities
of raw materials and other supplies. The Company's business financial
condition and results of operations would be materially adversely
affected if it were unable to obtain sufficient quantities of raw
materials and other supplies in a timely manner or if there were
significant increases in the costs of raw materials that the Company
could not pass on to its customers.
Marketing and Sales
The Company's marketing and sales efforts are focused on North
American semiconductor companies that design or manufacture IC devices
which are used in applications such as personal computers, modems, disk
drives and telecommunication products. Within such markets, the Company
emphasizes packaging complex, high pin-count products. The Company sells
its services directly through its sales and customer support
organization. The Company assists its customers in evaluating designs
with respect to manufacturability and when appropriate recommends design
changes to reduce manufacturing costs and lead times. The Company also
offers lead frame design services for a fee.
To date, the Company has been substantially dependent on a
relatively small number of customers. Specifically, Cirrus Logic, Intel
Corporation and Atmel accounted for 17%, 16% and 14% of the Company's
revenues in 1997. Cirrus Logic, Tseng Laboratories, and Intel Corporation
accounted for 32%, 17% and 14%, respectively, of the Company's revenues
in 1996. Cirrus Logic and Sierra Semiconductor accounted for 29% and 20%,
respectively, of the Company's revenues in 1995. The Company anticipates
that significant customer concentration will continue, although the
companies which constitute the Company's largest customers may change
from period to period.
All of the Company's customers operate in the cyclical
semiconductor business and their order levels may vary significantly from
period to period. In addition, there can be no assurance that such
customers or any other customers will continue to place orders with the
Company in the future at the same levels as in prior periods. There can
be no assurance that adverse developments in the semiconductor industry
will not adversely affect the Company's business, financial condition and
results of operations. The loss of one or more of the Company's
customers, or reduced orders by any of its key customers, would adversely
affect the Company's business, financial condition and results of
operations. The Company ships its products in accordance with customer
purchase orders and upon receipt of semiconductor wafers from its
customers. The Company generally ships products within one to seven days
after receiving the customer's wafers, and, accordingly, the Company has
not, to date, had a material backlog of orders. The Company expects that
revenues in any quarter will be substantially dependent upon orders
received in that quarter. The Company's expense levels are based in part
on its expectations of future revenues and the Company may be unable to
adjust costs in a timely manner to compensate for any revenue shortfall.
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Competition
The semiconductor packaging industry is highly competitive. The
Company currently faces substantial competition from established
packaging foundries located in Asia, such as Advanced Semiconductor
Assembly Technology in Hong Kong, Advanced Semiconductor Engineering,
Inc. in Taiwan, ANAM in Korea, PT Astra in Indonesia and Swire
Technologies in Hong Kong. Each of these companies has significantly
greater manufacturing capacity, financial resources, research and
development operations, marketing and other capabilities than the Company
and has been operating for a significantly longer period of time than the
Company. Such companies have also established relationships with many
large semiconductor companies which are current or potential customers of
the Company. The Company could face substantial competition from Asian
packaging foundries should one or more of such companies decide to
establish foundry operations in North America. The Company also faces
competition from other independent, North American packaging foundries.
The Company also competes against companies which have in-house packaging
capabilities as current and prospective customers constantly evaluate the
Company's capabilities against the merits of in-house packaging. Many of
the Company's customers are also customers of one or more of the
Company's principal competitors. The principal elements of competition
in the semiconductor packaging market include delivery cycle times,
price, product performance, quality, production yield, responsiveness and
flexibility, reliability and the ability to design and incorporate
product improvements. The Company believes it principally competes on
the basis of shorter delivery cycle times it can offer customers due to
the close proximity of its manufacturing facility to its customers'
operations and the end users of its customers' products.
Research and Development
The Company's research and development efforts are focused on
improving the efficiency and capabilities of its production processes,
and on developing new packages by making improvements upon commercially
available materials and technology. The Company's research and
development efforts are focused on improving existing technology, such as
developing thermally enhanced QFPs that result in better heat
dissipation, and emerging packaging technologies, such as BGA packages
that provide for an increased number of leads per device without
increasing the size of the functional integrated circuit. Although the
Company did not ship commercial quantities of BGA devices in 1997, it
believes that the increased pin count made available by BGA technology is
an important technology that will enable the Company to provide new
packaging services to its customers. The Company also works closely with
the manufacturers of its packaging equipment in designing and modifying
the equipment used in the Company's production process.
As of December 31, 1997, the Company employed 8 persons in research
and development activities. In addition, other management and
operational personnel are involved in research and development
activities. The Company supplements its research and development efforts
with alliances and technology licensing agreements. For example, the
Company is a member of an ARPA-TRP consortium working to enhance
cooperation and participation by United States companies in assembly and
packaging technology. In 1997, 1996 and 1995, the Company's research and
development expenses were approximately $1,276,000, $1,053,000 and
$694,000, respectively. The Company expects to continue to invest
significant resources in research and development.
The Company has focused its manufacturing resources on plastic QFPs
for use with SMT, and the Company has neither the capability nor the
intent to provide services to other substantial segments of the
semiconductor packaging market. For example, the Company has no capacity
to manufacture packages for use with PTH technology, nor does the Company
presently intend to manufacture packages using materials other than
plastic, such as ceramic. BGA packaging currently represents a very
small, but increasing, portion of the Company's overall revenues and a
relatively small portion of the overall semiconductor packaging market.
Technological change in the semiconductor packaging industry is
continuous and in the future semiconductor manufacturers are expected to
require increased technological and manufacturing expertise. The
introduction of new packaging technologies, a reduction or shift away
from QFP's, or the failure of the market for BGA packaging to develop
would result in a material adverse effect on the Company's business,
financial condition and results of operations.
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Intellectual Property
The Company's success depends in part on its ability to obtain
patents and licenses and to preserve other intellectual property rights
relating to its manufacturing processes. As of December 31, 1997, the
Company held five U.S. patents which expire between 2012 and 2014, and
six additional patent applications have been filed and are pending. The
Company expects to continue to file patent applications when appropriate
to protect its proprietary technologies; however, the Company believes
that its continued success depends primarily on factors such as the
technological skills and innovation of its personnel rather than on its
patents. The process of seeking patent protection can be expensive and
time consuming. There can be no assurance that patents will issue from
pending or future applications or that, if patents are issued, they will
not be challenged, invalidated or circumvented, or that rights granted
thereunder will provide meaningful protection or other commercial
advantage to the Company. Moreover, there can be no assurance that any
patent rights will be upheld in the future or that the Company will be
able to preserve any of its other intellectual property rights.
As is typical in the semiconductor industry, the Company may
receive communications from third parties asserting patents on certain of
the Company's technologies. The Company has received one such letter
from a competitor. However, in this case and in the event any other third
party were to make a valid claim and a license were not available on
commercially reasonable terms, the Company's business, financial
condition and results of operations could be materially and adversely
affected. Litigation, which could result in substantial cost to and
diversion of resources of the Company, may also be necessary to enforce
patents or other intellectual property rights of the Company or to defend
the Company against claimed infringement of the rights of others. The
failure to obtain necessary licenses or the occurrence of litigation
relating to patent infringement or other intellectual property matters
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Environmental Matters
The semiconductor packaging process involves a significant amount
of chemicals and gases which are subject to extensive governmental
regulations. For example, liquid waste is produced at the stage at which
silicon wafers are diced into chips with the aid of diamond saws and
cooled with running water. In addition, excess materials on leads and
moldings are removed from packaged semiconductors in the trim and form
process. The Company has installed equipment to collect certain solvents
used in connection with its manufacturing process and has contracted with
independent waste disposal companies to remove such hazardous material.
The Company has purchased an advanced electroplating system which
it installed at a leased facility in Milpitas, California which will be
operated by the Company. This plating operation will involve the use of
significant quantities of certain hazardous substances. Although the
Company has designed procedures to ensure such materials are handled in
compliance with applicable regulations, there can be no assurance that
the operation of such facility will not expose the Company to additional
costs in complying with environmental regulations or result in future
liability to the Company.
Federal, state and local regulations impose various controls on the
storage, handling, discharge and disposal of chemicals used in the
Company's manufacturing process and on the facility occupied by the
Company. The Company believes that its activities conform to present
environmental and land use regulations applicable to its operations and
its current facility. Increasing public attention has, however, been
focused on the environmental impact of semiconductor manufacturing
operations and the risk to neighbors of chemical releases from such
operations. There can be no assurance that applicable land use and
environmental regulations will not in the future impose the need for
additional capital equipment or other process requirements upon the
Company or restrict the Company's ability to expand its operations. The
adoption of new ordinances or similar measures or any failure by the
Company to comply with applicable environment and land use regulations or
to restrict the discharge of hazardous substances could subject the
Company to future liability or cause its manufacturing operations to be
curtailed or suspended.
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Employees
As of December 31, 1997, the Company had 215 full time employees,
180 of whom were engaged in manufacturing, 8 in research and development,
8 in sales and customer service and 19 in finance and administration.
The Company's employees are not represented by any collective bargaining
agreement, and the Company has never experienced a work stoppage. The
Company believes that its employee relations are good. The success of
the Company's future operations depends in large part on the Company's
ability to attract and retain highly skilled technical, manufacturing and
management personnel. There can be no assurance that the Company will be
successful in attracting and retaining key personnel.
Executive Officers
The executive officers of the Company are as follows:
Name Age Position
- ---------------------------- ----- ---------------------------------------
Patrick Verderico............ 54 President, Chief Executive Officer
and Director
Ernest G. Barrieau II....... 42 Executive Vice President, Sales and
Marketing
Gerald K. Fehr.............. 60 Executive Vice President, Operations and
Chief Technology Officer
Alfred V. Larrenaga......... 50 Vice President, Finance and Chief
Financial Officer
Patrick Verderico joined the Company in April 1997 as its Chief
Operating Officer and was appointed the Company's President and Chief
Executive Officer and a Director in July 1997. From 1996 to 1997, Mr.
Verderico was Chief Operating Officer and Executive Vice President of
Maxtor Corporation, a disk drive manufacturer. From 1994 to 1996, Mr.
Verderico was Chief Financial Officer and Vice President Finance and
Administration of Creative Technology, a multi media products company.
From 1992 to 1994, Mr. Verderico was Chief Financial Officer and Vice
President Finance and Administration of Cypress Semiconductor. Prior to
1992, Mr. Verderico had various management positions in finance and
operations with Coopers & Lybrand, Philips Semiconductors and National
Semiconductor. Mr. Verderico is also a Director of Catalyst
Semiconductor and Micro Component Technology, Inc.
Ernest G. Barrieau joined the Company in October, 1997 as its
Executive Vice President, Sales and Marketing. From 1996 to 1997, Mr.
Barrieau was Vice President North American Sales of Alphatec Group, a
semiconductor packaging company. From 1991 to 1996, Mr. Barrieau was
Corporate Vice President World Wide Sales and Marketing, and Director of
Thai Micro Systems, a semiconductor packaging company. Prior to 1991, Mr.
Barrieau held various management positions in sales and operations with
Amkor Electronics and Fairchild Semiconductor.
Gerald K. Fehr is a co-founder of the Company and has served as
Vice President, Technology of the Company since March 1993 and Executive
Vice President, Operations and Chief Technology Officer since December
1997. From January 1991 to March 1993, Dr. Fehr served as an independent
consultant in the semiconductor packaging industry. From March 1981 to
January 1991, Dr. Fehr served as Director of Packaging and Assembly for
LSI Logic, Inc., a semiconductor company. From June 1978 to March 1981,
Dr. Fehr served as Manager of Packaging Operations of Burroughs, a
semiconductor company. From May 1975 to June 1978, Dr. Fehr served as
Manager of Packaging Operations of Fairchild, a semiconductor
corporation. From 1968 to 1975, Dr. Fehr served as Manager of Assembly
and Packaging for Intel Corporation.
Alfred V. Larrenaga joined the Company in August 1997 as Vice
President, Finance and Chief Financial Officer. From 1988 to 1997, Mr.
Larrenaga was Senior Vice President and Chief Financial Officer of
Southwall Technologies Inc., a thin film technology company. Prior to
1988, Mr. Larrenaga held various management positions in finance with
Asyst Technologies Inc., the Farinon Division of Harris Corporation and
Arthur Andersen & Co..
The Company's success depends to a significant extent upon the
continued service of its key management and technical personnel, each of
whom would be difficult to replace. The competition for qualified
employees is intense, and the loss of the services of key personnel or
the inability to attract, retain and motivate qualified new personnel
could have a material adverse effect on the Company's business, financial
Page 10
<PAGE>
condition and results of operations.
Officers serve at the discretion of the Board and are appointed
annually. There are no family relationships between the directors or
officers of the Company.
Item 2. Properties
In January 1998, the Company sold its facility, which consisted of
land and two buildings comprising approximately 138,000 square feet, and
entered into a lease, with a initial term of ten years, for the
approximately 82,000 square foot building which it occupies and it uses
for its manufacturing operations, executive offices and product
development. In October 1997, the Company leased a separate 2,500 square
foot building, approximately 2 miles from the Company's main facility,
for its advanced electroplating system. The Company believes its existing
facilities are adequate to meet its needs for the foreseeable future.
Since the Company does not currently operate multiple facilities in
different geographic areas, a disruption of the Company's manufacturing
operations resulting from various factors, including sustained process
abnormalities, human error, government intervention or a natural disaster
such as fire, earthquake or flood, could cause the Company to cease or
limit its manufacturing operations and consequently would have a material
adverse effect on the Company's business, financial condition and results
of operations.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Page 11
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company effected the initial public offering of its Common
Stock on February 28, 1996. As of March 19, 1998, there were
approximately 1,500 beneficial owners of the Company's Common Stock. The
Company's Common Stock is listed for quotation in the Nasdaq National
Market under the Symbol "IPAC." The following table sets forth for the
periods indicated, the high and low prices of the Company's Common Stock
as quoted in the Nasdaq National Market.
High Low
-------- --------
Fiscal Year Ended December 31, 1996:
First Quarter (from February 28, 1996).... $10 1/8 $7 1/2
Second Quarter............................ 14 1/2 5 1/2
Third Quarter............................. 10 1/4 7
Fourth Quarter............................ 10 1/4 7 1/2
Fiscal Year Ended December 31, 1997:
First Quarter............................. $ 8 1/2 $3 1/2
Second Quarter............................ 5 2 1/2
Third Quarter............................. 4 2
Fourth Quarter............................ 2 1/2 1/2
The trading price of the Company's Common Stock is expected to
continue to be subject to wide fluctuations in response to quarter-to-
quarter variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, general
conditions in the semiconductor industry, changes in earnings estimates
or recommendations by analysts, the failure of the Company to meet or
exceed published earnings estimates or other events or factors. In
addition, the public stock markets have experienced extreme price and
trading volume volatility in recent months. This volatility has
significantly affected the market prices of securities of many high
technology companies for reasons frequently unrelated to the operating
performance of the specific companies. These broad market fluctuations
may adversely affect the market price of the Company's Common Stock.
The Company has not paid any cash dividends on its Common Stock and
currently intends to retain any future earnings for use in its business.
Accordingly, the Company does not anticipate that any cash dividends
will be declared or paid on the Common Stock in the foreseeable future.
Page 12
<PAGE>
Item 6. Selected Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31, (1)
--------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues................... $ -- $3,451 $20,764 $36,402 $19,744
Cost of revenues........... -- 3,438 15,627 28,840 24,089
-------- -------- -------- -------- --------
Gross profit (loss)........ -- 13 5,137 7,562 (4,345)
Operating expenses:........
Selling, general and
administrative.......... 777 1,309 2,229 3,488 5,167
Research and development.. 77 170 694 1,053 1,276
Provision for impairment
of assets............... -- -- -- -- 3,000
-------- -------- -------- -------- --------
Total operating expense 854 1,479 2,923 4,541 9,443
-------- -------- -------- -------- --------
Operating income (loss)... (854) (1,466) 2,214 3,021 (13,788)
Interest and other income. 65 54 551 1,210 971
Interest expense.......... (42) (674) (1,074) (1,384) (2,185)
-------- -------- -------- -------- --------
Income (loss) before income
taxes.................... (831) (2,086) 1,691 2,847 (15,002)
Provision for income taxes. -- -- (141) (530) --
-------- -------- -------- -------- --------
Net income (loss).......... ($831) ($2,086) $1,550 $2,317 $(15,002)
======== ======== ======== ======== ========
Diluted net income (loss)
per share (1)............ ($0.34) ($1.02) $0.16 $0.16 ($1.08)
======== ======== ======== ======== ========
Number of shares used to
compute diluted per share
data (1)................. 2,476 2,051 9,603 14,157 13,898
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, (2)
(In thousands)
-----------------------------------------------------
Pro
Forma
1993 1994 1995 1996 1997 1997
(Unaudited)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital....... $2,325 $2,075 $4,773 $15,614 ($5,877) $1,854
Total assets.......... 7,476 13,310 28,260 69,639 55,482 50,631
Long-term obligations. 3,074 5,371 7,015 16,926 14,249 7,789
Mandatorily redeemable
convertible preferred
stock............... 4,360 8,020 15,981 -- -- --
Total shareholders'
equity (deficit).... (809) (2,764) (918) 40,761 26,238 26,238
</TABLE>
(1) See Note 1 of Notes to Financial Statements for an explanantion of the
method used to determine shares used in computing per share amounts.
(2) The Pro Forma Unaudited Balance Sheet Data as of December 31, 1997
reflects the sale of the Company's facilities on January 20, 1998, as
if the transaction had occurred on December 31, 1997, See Note 5 of
Notes to Financial Statements.
Page 13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
Founded in 1992, the Company commenced commercial production and
recognized its initial revenues in the quarter ended March 31, 1994. The
Company has derived substantially all of its revenues to date from QFPs.
The Company made significant investments in capital equipment and
facilities improvements in 1995, 1996 and 1997 by acquiring equipment
with a cost of $10.1 million, $18.5 million and $12.4 million,
respectively. In 1996, the Company spent an additional $9.2 million to
acquire the building complex in which it has operated since 1993. In
January 1998, the Company sold this complex (see Note 5 of Notes to
Financial Statements). The Company's capital expenditures in 1997
included equipment for new package types (e.g. BGA) and to establish an
advanced electroplating system.
As a result of a reduction in orders from the Company's customers,
the Company has significant excess production capacity. The reduction in
revenues and underutilization of capacity and resultant underabsorption
of fixed cost resulted in operating losses which have continued into
1998. As a result of the operating losses and cost of capital additions,
the Company believes that in addition to existing cash balances, it will
need additional financing in the second quarter of 1998 to meet its
projected working capital and other cash requirements through 1998. The
Report of Independent Accountants on page 20 contains a going concern
statement.
The Company's operating results are affected by a wide variety of
factors that could materially and adversely affect revenues, gross profit
and operating income. These factors include the short-term nature of its
customers' commitments, timing and volume of orders relative to the
Company's production capacity, long lead times for the manufacturing
equipment required by the Company, evolutions in the life cycles of
customers' products, timing of expenditures in anticipation of future
orders, lack of a meaningful backlog, effectiveness in managing
production processes, changes in costs and availability of labor, raw
materials and components, costs to obtain materials on an expedited
basis, mix of orders filled, the impact of price competition on the
Company's average selling prices and changes in economic conditions.
Unfavorable changes in any of the above factors have in the past and may
in the future adversely affect the Company's business, financial
condition and results of operations.
The Company's business is substantially affected by market
conditions in the semiconductor industry, which is highly cyclical and,
at various times, has been subject to significant economic downturns and
characterized by reduced product demand, rapid erosion of average selling
prices and production over capacity. In addition, the markets for
integrated circuits are characterized by rapid technological change,
evolving industry standards, intense competition and fluctuations in end-
user demand. Since the Company' s business is entirely dependent on the
requirements of semiconductor companies for independent packaging
foundries, any future downturn in the semiconductor industry is expected
to have an adverse effect on the Company's business, financial condition
and results of operations. In this regard, in 1997, the Company's
results of operations were materially adversely effected by reduced
orders from several major customers in the P.C. graphics segment of the
semiconductor industry due to decreased demand for such products.
The Company has recently experienced a decline in the average
selling prices for its services and expects that average selling prices
for its services may decline in the future, principally due to intense
competitive conditions. A decline in average selling prices of the
Company's services, if not offset by reductions in the cost of performing
those services, would decrease the Company's gross margins and could
materially and adversely affect the Company's business, financial
condition and results of operations. There can be no assurance that the
Company will be able to reduce its cost per unit
The Company must continue to hire and train significant numbers of
additional personnel to operate the highly complex capital equipment
required by its manufacturing operations. There can be no assurance that
the Company will be able to hire and properly train sufficient numbers of
qualified personnel or to effectively manage such growth and its failure
to do so could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, since the
Company's expense levels are based in part on anticipated future revenue
levels, if revenue were to fall below anticipated levels, the Company's
operating results would be materially adversely affected.
Page 14
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain
items in the Company's statement of operations as a percentage of
revenues:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues................................ 100.0% 100.0% 100.0%
Cost of revenues........................ 75.3 79.2 122.0
--------- --------- ---------
Gross profit (loss)..................... 24.7 20.8 (22.0)
Operating expenses:
Selling, general and administrative... 10.7 9.6 26.2
Research and development.............. 3.3 2.9 6.4
Provision for impairment of assets.... -- -- 15.2
--------- --------- ---------
Total operating expenses............ 14.0 12.5 47.8
--------- --------- ---------
Operating income (loss)................. 10.7 8.3 (69.8)
Interest and other income............... 2.7 3.3 4.9
Interest expense........................ (5.2) (3.8) (11.1)
--------- --------- ---------
Income (loss) before income taxes....... 8.2 7.8 (76.0)
Provision for income taxes.............. (0.7) (1.4) --
--------- --------- ---------
Net income (loss)....................... 7.5% 6.4% (76.0)%
========= ========= =========
</TABLE>
Revenues
The Company recognizes revenues upon shipment of products to its
customers. Revenues decreased 46% to $19.7 million in 1997, from $36.4
million in 1996. Revenues increased 75% to $36.4 million in 1996, from
$20.8 million in 1995. In 1996, six customers accounted for
approximately 75% of the Company's revenues. The decrease in 1997
revenues was primarily due to lower orders from four of these customers,
coupled with operational problems in quality and delivery. Revenues by
quarter for 1997 were $5.6 million in the first quarter, $4.0 million in
the second quarter, $4.2 million in the third quarter and $6.0 million in
the fourth quarter. The growth in 1996 revenues reflected increased order
levels from the Company's three largest customers and revenues earned
from the Company's thermally enhanced packages. The largest portion of
the 1996 revenue growth occurred during the first three quarters and
revenues declined in the fourth quarter as a result of reduced orders
from one of the Company's largest customers, and from quality problems
with respect to certain raw materials and capital equipment.
Gross Profit (Loss)
Cost of revenues includes materials, labor, depreciation and
overhead costs associated with semiconductor packaging. Gross profit
(loss) decreased to $(4.3) million in 1997. Gross profit (loss) increased
to $7.6 million in 1996, from $5.1 million in 1995. Gross profit (loss)
as a percentage of revenues, or gross margin, was (22.0%) in 1997
compared to 20.8% in 1996 and 24.7% in 1995.
In 1997, as a result in the reduction in orders from major
customers, the Company had significant excess production capacity
throughout the year. This underutilization and resultant underabsorption
of fixed costs, along with a decrease in average selling prices, resulted
in a negative gross profit margin in 1997. In 1996, the Company incurred
higher labor and manufacturing overhead expenses from adding
manufacturing personnel and infrastructure, which reduced its gross
margin. In the fourth quarter of 1996, gross margins were also adversely
affected by a drop in average selling prices, caused by industry
competition.
Depreciation for certain production machinery and equipment
acquired prior to 1997 is calculated using the units of production
method, in which depreciation is calculated based upon the units produced
in a given period divided by the estimate of total units to be produced
over its life following commencement of use. Such estimate is reassessed
when facts and circumstances suggest a revision may be necessary. Based
Page 15
<PAGE>
upon reduced utilization of machinery and equipment in relation to plan,
the estimate for total throughput was reduced in late 1996 causing the
depreciation rate per unit to increase in late 1996. Such higher
depreciation rate continued into 1997 and will continue until the assets
are fully depreciated. In all cases, the asset will be fully depreciated
by the end of its estimated six year life. Compared with straight line
depreciation, the units of production method generally results in lower
depreciation expense during the early life of the equipment and
relatively higher depreciation expense once the equipment is in full
production. All machinery and equipment acquired after 1996 is
depreciated using the straight line depreciation method.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of
costs associated with sales, customer service, finance, administration
and management personnel, as well as advertising, public relations, legal
and facilities costs. Selling, general and administrative expenses were
$5.2 million in 1997, $3.5 million in 1996, and $2.2 million in 1995.
These increases were due primarily to increases in staff, marketing
efforts, and facilities to support the Company's expansion.
As a percentage of revenues, selling, general and administrative
expenses increased to 26.2% in 1997 compared to 9.6% in 1996 and 10.7% in
1995. The fluctuation in percentages reflects the increase in absolute
spending and the reduced revenue base. The Company anticipates that its
selling, general and administrative expenses will continue to increase in
absolute dollars in future periods, although such expenses may fluctuate
as a percentage of revenues.
Research and Development
Research and development expenses consist primarily of the costs
associated with research and development personnel, the cost of related
materials and services, and the depreciation of development equipment.
Research and development expenses were $1.3 million in 1997, $1.1 million
in 1996 and $0.7 million in 1995. The increases in 1997 and 1996 were due
primarily to the Company's expanded efforts in developing BGA, chip scale
and thermally enhanced packages.
As a percentage of revenues, research and development expenses
increased to 6.4% in 1997 compared to 2.9% in 1996 and 3.3% in 1995.
The changes in such expenses as a percentage of revenues reflected,
primarily, the reduced revenue base.
Provision for Impairment of Assets
For the quarter ended June 30, 1997, the Company took a $3 million
charge for impaired assets. This charge included a $2.4 million reserve
related to equipment used for the production of certain products with
limited future demand, and a $500,000 reserve for the cancellation of
purchase orders for equipment which the Company has determined to be
surplus in relation to current demand.
Interest and Other Income
Interest income in 1997, 1996, and 1995 was $573,000, $982,000 and
$209,000, respectively. The reduction in interest income for 1997 was due
to lower investment balances, which resulted from the loss from
operations and capital expenditures. The increase in interest income for
1996, was the result of interest earned on proceeds from the Company's
initial public offering which was completed in February 1996. In 1997 and
1996, other income included $124,000 and $228,000, which was earned for
development work with a semiconductor industry consortium. In 1997,
other income also included approximately $270,000 from the sublease of a
portion of the Company's facilities complex. In 1995, other income
consisted of $342,000 earned for development work, of which $318,000 was
earned from participation in a semiconductor industry consortium.
Interest Expense
Interest expense consists primarily of interest payable on capital
leases and term loans secured by equipment. The Company has financed its
Page 16
<PAGE>
manufacturing equipment primarily through capital leases and term loans
secured by equipment with terms ranging from four to five years, and
carrying imputed interest rates ranging from 7.5% to 15.5% per annum.
Interest expense for 1997, 1996, and 1995 was $2.2 million, $1.4 million
and $1.1 million, respectively.
Provision for Income Taxes
In 1997, due to the loss from operations, the Company recorded no
tax provision. The Company's provision for taxes in 1996 was $530,000,
representing an effective tax rate of approximately 19%. The effective
tax rate represents alternative minimum tax ("AMT") resulting from limits
on the use of net operating loss carry forwards for AMT purposes and tax
accelerated depreciation on all machinery and equipment. The Company's
provision for taxes in 1995 was $141,000, representing an effective tax
rate of approximately 8%.
Liquidity and Capital Resources
Prior to its initial public offering in February 1996, the Company
satisfied its liquidity needs principally from the sale of Preferred
Stock, equipment financing through leases and equipment secured term
loans, and to a lesser extent, cash flow from operations. Prior to its
initial public offering, the Company raised approximately $16 million
from issuance of Preferred Stock, $7.8 million from equipment financing,
and $4.9 million from term loans. The Company completed its initial
public offering in February 1996. Net proceeds from this offering were
$23.1 million and were the primary source of the Company's liquidity for
1996 and 1997.
In 1997, 1996 and 1995, the Company entered into borrowing
facilities with a number of lenders, allowing the Company to finance 70%
to 80% of the cost of collateralized machinery and equipment. Borrowings
under these facilities accrued interest at rates ranging from 7.75% to
14.0% with terms ranging from 36 to 48 months. The Company borrowed an
aggregate of $3.5 million, $9.8 million and $4.9 million through these
facilities in 1997, 1996 and 1995, respectively. At December 31, 1997,
the aggregate principal amount outstanding under all equipment loans was
$12.1 million. Certain of the credit facilities require the Company to
maintain certain financial covenants including minimum tangible net
worth, a ratio of total liabilities to tangible net worth, and quarterly
revenues and quarterly income before interest, taxes, depreciation and
amortization (EBITDA). At December 31, 1997 and 1996, the Company was in
compliance with such covenants.
In March 1997, the Company secured a mortgage loan with an
insurance company, which provided the Company with a $6.7 million five
year term loan. The loan was secured by the real estate and buildings
purchased by the Company in December 1996. The loan accrued interest at
8.5%, and was payable in equal monthly installments of $58,000, with a
balloon payment of $5.9 million due after five years. The proceeds of
this mortgage loan were used to pay off and retire the $6.5 million real
estate loan which was entered into in December 1996 to provide temporary
financing for the acquisition of the Company's building complex. The
loan accrued interest at 2.25% over the rate for 30 day certificates of
deposit and was collateralized by a certificate of deposit of equivalent
value.
In December 1997, the Company entered into a line of credit
agreement with a bank which provides, through December 1998, for
borrowings up to the lesser of $5,000,000 or 80% of eligible accounts
receivable. At December 31, 1997, no amounts were outstanding under this
line of credit. Borrowings under the line of credit accrue interest at
the bank's prime rate (8.5% at December 31, 1997) plus 1.25% and are
collateralized by the assets of the Company. The agreement requires the
Company to maintain certain financial covenants, including a liquidity
ratio, minimum tangible net worth, maximum debt to tangible net worth,
quarterly profitability and prohibits the Company from the payment of
dividends without prior approval by the bank. At December 31, 1997, the
Company was in compliance with such covenants.
In January 1998, the Company sold its facility, which consisted of
land and two buildings totaling approximately 138,000 square feet and
leased the 82,390 square foot building that it occupies. This sale
netted the Company $7.3 million in cash and eliminated $6.6 million of
mortgage debt. The effect of this transaction as if it had occurred on
December 31, 1997, is shown as "Pro Forma 1997 (Unaudited)" on the
Balance Sheet. See Note 5 of Notes to Financial Statements.
Capital additions totaled approximately $12.4 million,
$27.7 million and $10.1 million in 1997, 1996, and 1995, respectively.
Page 17
<PAGE>
The $27.7 million of capital additions in 1996 was comprised of
$9.2 million for the acquisition of the building complex the Company
acquired in December 1996, and $18.5 million for equipment and facilities
improvements. The building complex was sold in January 1998. The Company
currently expects to spend up to $10 million for production equipment and
facilities improvements in 1998, of which the Company currently has
commitments for approximately $6.1 million. The Company currently plans
to borrow approximately $7 to $10 million through equipment secured
borrowings to finance 1998 acquisitions. However, the Company currently
does not have commitments with respect to such financing and there can be
no assurance that such financing will be available on terms acceptable to
the Company, if at all. Further, it is unlikely that the Company will be
able to secure substantial additional equipment financing prior to
infusion of equity capital.
The Company is currently seeking additional equity financing to
address its working capital needs and to provide funding for capital
expenditures. There can be no assurances, however, that financing will
be available on terms acceptable to the Company, if at all. If
additional funds are raised through the issuance of equity securities,
the percentage ownership of the Company's stockholders will be diluted
and such equity securities may have rights, preferences or privileges
senior to those of the holders of the Company's Common Stock. There can
be no assurance that additional financing will be available or that, if
available, such financing will include terms favorable to the Company or
its shareholders. If adequate funds are not available on acceptable
terms, the Company's business, financial condition and results of
operations would be materially adversely effected. In such event, the
Company would be required to substantially curtail its operations and
reorganize its current indebtedness.
The Company is subject to certain financial covenants under its
borrowing facilities including minimum revenues and EBITDA, on a
quarterly basis. In the event future revenue and income levels do not
increase, it is likely that the Company would be out of compliance with
certain of its financial covenants during 1998. In this event, the
Company anticipates receipt of a waivers of the covenants in default from
the respective financial institutions. If the waivers were not received,
certain debt would become currently due and payable and the line of
credit would no longer be available for use.
Year 2000 Issue
There is a risk to the Company from unforeseen problems related to
the "Year 2000 issue". The "Year 2000 issue" arises because most
computer systems and programs were designed to handle only a two-digit
year, not a four-digit year. When Year 2000 begins, these computers may
interpret "00" as the year 1900 and could either stop processing date-
related computations or could process them incorrectly. The Company has
recently performed an initial assessment of its information systems and
does not anticipate any internal Year 2000 issues from its own
information systems, databases or programs. However, the Company could
be adversely impacted by Year 2000 issues faced by major suppliers,
customers, vendors, and financial service organizations with which the
Company interacts. The Company is in the process of developing a plan to
determine the impact that third parties who are not Year 2000 compliant
may have on the operations of the Company.
Market Risk
Interest Rate Risk - The Company does not use derivative financial
instruments in its investment portfolio. At December 31, 1997, the
Company's investment portfolio is comprised of highly liquid securities
that mature within 90 days. The Company places investments in
instruments that meet high credit quality standards. These securities
are subject to interest rate risk, and could decline in value if interest
rates fluctuate. Due to the short duration and conservative nature of
the Company's investment portfolio, the Company does not expect any
material loss with respect to its investment portfolio.
The Company has various debt instruments outstanding that mature by
2002. Certain of these instruments have interest rates that are based on
associated rates that may fluctuate over time based on economic changes
in the environment, such as LIBOR and the Prime Rate. The Company is
subject to interest rate risk, and could be subjected to increased
interest payments if market interest rates fluctuate. The Company does
not expect any changes in such interest rates to have a material adverse
effect on the Company's results from operations.
Page 18
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements:
Page
----
<S> <C>
Report of Independent Accountants............................... 20
Balance Sheet as of December 31, 1996 and 1997.................. 21
Statement of Operations for the Years Ended December 31, 1995,
1996 and 1997................................................. 22
Statement of Shareholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997.............................. 23
Statement of Cash Flows for the Years Ended December 31, 1995,
1996 and 1997................................................. 24
Notes to Financial Statements................................... 25
</TABLE>
Financial Statement Schedules:
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
Page 19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders of
Integrated Packaging Assembly Corporation
In our opinion, the financial statements listed in the accompanying
index on page 19 present fairly, in all material respects, the financial
position of Integrated Packaging Assembly Corporation at December 31,
1996 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
the opinion expressed above.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has suffered recent losses from
operations and cash and available financing facilities may not be
sufficient to fund the Company's operations, capital commitments and
debt service requirements for the next year. Management's plans in
regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainity.
Price Waterhouse LLP
San Jose, California
January 27, 1998
Page 20
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
-----------------------------
Pro Forma
(Unaudited)
1996 1997 1997
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $15,817 $2,928 $10,240
Short term investments..................... 3,025 -- --
Accounts receivable, net of allowance
for doubtful accounts of $145 and $263.... 6,141 3,096 3,096
Inventory.................................. 1,977 2,337 2,337
Prepaid expenses and other current assets.. 606 757 757
--------- --------- ---------
Total current assets..................... 27,566 9,118 16,430
Property and equipment, net.................. 41,776 46,127 34,110
Other assets................................. 297 237 91
--------- --------- ---------
Total assets............................... $69,639 $55,482 $50,631
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable........... $3,893 $4,576 $4,435
Current portion of capital lease
obligations............................... 2,225 1,972 1,972
Accounts payable........................... 2,534 5,478 5,478
Accrued expenses and other liabilities..... 3,300 2,969 2,691
--------- --------- ---------
Total current liabilities................ 11,952 14,995 14,576
--------- --------- ---------
Long term portion of notes payable........... 15,155 14,166 7,706
--------- --------- ---------
Long term portion of capital lease
obligations................................. 1,771 83 83
--------- --------- ---------
Deferred gain on sale of facilities.......... -- -- 2,028
Commitments and contingencies --------- --------- ---------
(notes 4, 5 and 10)
Shareholders' equity
Common Stock, no par value, 75,000,000
shares authorized; 13,862,342 and
13,828,348 shares issued and
outstanding............................... 39,811 40,290 40,290
Accumulated earnings (deficit)............... 950 (14,052) (14,052)
--------- --------- ---------
Total shareholders' equity .................. 40,761 26,238 26,238
--------- --------- ---------
Total liabilities and shareholders'
equity ................................... $69,639 $55,482 $50,631
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 21
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues................................ $20,764 $36,402 $19,744
Cost of revenues........................ 15,627 28,840 24,089
--------- --------- ---------
Gross profit (loss)..................... 5,137 7,562 (4,345)
--------- --------- ---------
Operating expenses:
Selling, general and administrative... 2,229 3,488 5,167
Research and development.............. 694 1,053 1,276
Provision for impairment of assets.... -- -- 3,000
--------- --------- ---------
Total operating expenses............ 2,923 4,541 9,443
--------- --------- ---------
Operating income (loss)................. 2,214 3,021 (13,788)
Interest and other income............... 551 1,210 971
Interest expense........................ (1,074) (1,384) (2,185)
--------- --------- ---------
Income (loss) before income taxes....... 1,691 2,847 (15,002)
Provision for income taxes.............. (141) (530) --
--------- --------- ---------
Net income (loss)....................... $1,550 $2,317 ($15,002)
========= ========= =========
Per share data:
Net income (loss) per share
Basic............................... $0.77 $0.20 ($1.08)
========= ========= =========
Diluted............................. $0.16 $0.16 ($1.08)
========= ========= =========
Number of shares used to compute per
share data 2,018 11,730 13,898
Basic................................. ========= ========= =========
Diluted............................... 9,603 14,157 13,898
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 22
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Accumulated
--------------------- Earnings
Shares Amount (Deficit) Totals
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994... 1,933 $153 ($2,917) ($2,764)
Common stock issued under
stock plans.................. 597 125 -- 125
Issuance of warrants........... -- 144 -- 144
Amortization of deferred
compensation................. -- 27 -- 27
Net income..................... -- -- 1,550 1,550
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1995... 2,530 449 (1,367) (918)
Sale of common stock, net of
issuance costs of $935....... 3,450 23,111 -- 23,111
Conversion of Mandatorily
Redeemable Convertible
Preferred Stock into Common
Stock........................ 7,862 15,981 -- 15,981
Common stock issued under
stock plans.................. 93 182 -- 182
Common stock repurchased
under stock plans............ (73) (17) -- (17)
Issuance of warrants........... -- 57 -- 57
Amortization of deferred
compensation................. -- 48 -- 48
Net income..................... -- -- 2,317 2,317
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1996... 13,862 39,811 950 40,761
Common stock issued under
stock plans.................. 127 352 -- 352
Common stock repurchased
under stock plans............ (161) (15) -- (15)
Issuance of warrants........... -- 94 -- 94
Amortization of deferred
compensation................. -- 48 -- 48
Net income (loss).............. -- -- (15,002) (15,002)
---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1997... 13,828 $40,290 ($14,052) $26,238
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 23
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
STATEMENT OF CASH FLOWS
INCREASE (DECREASE) CASH
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................... $1,550 $2,317 ($15,002)
ADJUSTMENTS:
Depreciation and amortization................... 1,541 3,316 6,426
Write down of impaired assets................... -- -- 3,000
Changes in assets and liabilities:
Accounts receivable........................... (2,061) (3,238) 3,045
Inventory..................................... (1,382) 164 (360)
Prepaid expenses and other assets............. (415) (161) (320)
Accounts payable.............................. 953 679 2,944
Accrued expenses and other liabilities........ 950 1,921 (1,369)
Net cash provided by (used in) operating --------- --------- ---------
activities.................................. 1,136 4,998 (1,636)
--------- --------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of property and equipment........... (10,126) (27,744) (12,351)
Purchase of short-term investments.............. -- (25,025) --
Sale & redemption of short-term investments..... -- 22,000 3,025
--------- --------- ---------
Net cash used in investing activities......... (10,126) (30,769) (9,326)
--------- --------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING
ACTIVITIES:
Payments under capital lease obligations........ (1,358) (1,593) (1,958)
Principal payments on note payable.............. (234) (1,819) (10,506)
Proceeds from note payable...................... 4,890 16,300 10,200
Proceeds from issuance of Mandatorily
Redeemable Convertible Preferred Stock......... 7,961 -- --
Proceeds from issuance of common stock, net..... 125 23,276 337
--------- --------- ---------
Net cash provided by (used in) financing
activities.................................. 11,384 36,164 (1,927)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH................. 2,394 10,393 (12,889)
Cash and cash equivalents at beginning of
period........................................ 3,030 5,424 15,817
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...... $5,424 $15,817 $2,928
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest.......................... $1,008 $1,240 $2,074
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES
Acquisition of equipment under capital leases... $40 $147 --
Issuance of warrants............................ $144 $57 $94
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 24
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1-THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Integrated Packaging Assembly Corporation (the "Company"), an
independent semiconductor packaging foundry, was incorporated in
California on April 28, 1992 and reincorporated in Delaware on June 19,
1997. The Company assembles and packages integrated circuits from wafers
consigned by its customers. The Company's focus is on quad flat
packages ("QFP's"), thin quad flat packages ("TQFP's"), and ball grid
array packages ("BGA's"), which are used in complex integrated circuits
with high pin-counts in the personal computer and telecommunications
industries.
Basis of Presentation
As a result of a reduction in orders from the Company's customers, the
Company has significant excess production capacity. The reduction in
revenues and underutilization of capacity and resultant underabsorption
of fixed costs resulted in operating losses which have continued into
1998. As a result of the operating losses and cost of capital
additions, the Company believes that in addition to existing cash
balances, it will need additional financing to meet its projected
working capital and other cash requirements through 1998. While there
can be no assurance that the Company can obtain such financing when
needed, the Company has taken actions to improve liquidity.
In December 1997, the Company entered into a Line of Credit Agreement
with a bank which could provide up to $5 million of additional borrowing
availability to the Company. See Note 5.
In January 1998, the Company sold its facility which consisted of land
and two buildings. Net proceeds from the sale of the facility were $7.3
million, net of the elimination of $6.6 million of mortgage debt, fees,
commissions and closing costs.
However, due to anticipated cash requirements during the first quarter
of 1998, including capital expenditures, debt service costs and an
expected loss from operations, the Company needs to secure additional
financing in the second quarter to fund continuing operations.
The Company is attempting to secure additional financing that would
provide incremental borrowing. Additionally, the Company is reviewing
various proposals to maximize stockholder value, including potential
equity infusions and other financing transactions. The Company is
conducting discussions with interested parties. However, no definitive
agreements, terms or structures have been reached, and there are no
assurances that any transactions will be consummated. Further, it is
unlikely that the Company will be able to secure substantial additional
equipment financing prior to the infusion of equity capital. If the
Company is unable to secure additional financial resources and operating
losses continue, there could be a material adverse impact on the
Company's financial position and results of operations, and the Company
would be required to substantially curtail its operations and reorganize
its current indebtedness.
These financial statements have been prepared on a going concern basis
and, therefore, do not include any adjustment that might result from
these uncertainties.
Fiscal year
In 1997, the Company changed its fiscal year end to December 31.
Prior to 1997, the Company's fiscal quarters and year ended on the
Sunday nearest the calendar quarter end and December 31, respectively.
For purposes of financial statement presentation, each fiscal year is
presented as having ended on December 31 and each fiscal quarter is
presented as having ended on the calendar quarter end. Fiscal years 1995
and 1996 each consisted of 52 weeks or 364 days. Fiscal 1997 consisted
Page 25
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
of 367 days. The effect of these three additional days in 1997 on
revenues and net loss was insignificant.
Pro Forma Unaudited Balance Sheet as of December 31, 1997
In January 1998, the Company sold its facilities and entered into a
lease for the building that it occupies. The Pro Forma 1997 Unaudited
Balance Sheet reflects this transaction as if it had occurred on
December 31, 1997. See Note 5.
Cash equivalents and short term investments
The Company considers all highly liquid investments purchased with
an initial maturity of 90 days or less to be cash equivalents, and
investments with original maturities of greater than 90 days to be short
term investments. As of December 31, 1997, $1.1 million of the
Company's cash and cash equivalents were restricted as collateral for
letters of credit issued during 1997 for the purchase of equipment. As
of December 31, 1996, the Company had short term investments primarily
comprised of fixed maturity securities of $3.0 million all of which
have been classified as available for sale and have contractual
maturities of less than one year. These securities are stated at fair
market value. Unrealized gains and losses were immaterial at December
31, 1996.
Inventory
Inventory, which primarily consists of raw material supplies such as
gold wire, lead frames and mold compound, is stated at the lower of
cost, determined by the first-in, first-out basis, or market. The
Company holds product on consignment from its customers while services
are being performed.
Property and equipment
Property and equipment are recorded at cost. For certain production
machinery and equipment acquired prior to 1997, depreciation is
calculated using the units of production method, in which depreciation
is calculated based upon the units produced in a given period divided by
the estimate of total units to be produced over its life following
commencement of use. Such estimate is reassessed when facts and
circumstances suggest a revision may be necessary. In all cases the
asset will be fully depreciated by the end of its estimated six-year
life. In late 1996, due to lower than expected utilization, the Company
reduced its estimates of the number of units to be produced over the
useful equipment life. Accordingly, the depreciation rate per unit was
increased and was not material to 1996 results. The higher rate
continued into 1997 and will continue until the assets are fully
depreciated. Depreciation for all other property and equipment and all
production machinery and equipment acquired after 1996 is computed using
the straight-line method over the estimated useful lives of the assets,
generally 3 to 6 years.
In December 1996, the Company acquired a real estate parcel and
facilities, including the building that it had operated in since 1993
for $9.2 million. The Company has allocated its purchase cost between
land, buildings and improvements in proportion to fair market value.
The building was depreciated over 30 years, with building improvements
depreciated over 5 to 15 years. In January 1998, the real estate parcel
and buildings on the parcel were sold and the Company entered into a
lease for the building that it occupies. See Note 5.
Revenue recognition
Revenue is generally recognized upon shipment. A provision for
estimated future returns is recorded at the time revenue is recognized.
Page 26
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
Income taxes
The Company accounts for income taxes using the asset and liability
approach which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or income tax
returns. In estimating future tax consequences, the Company generally
considers all expected future events other than enactments of changes in
the tax law or rates.
Stock options
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees". Accordingly, compensation for stock options is generally
measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee
must pay to acquire the stock. In January 1996, the Company adopted the
disclosure only requirements of SFAS 123.
Net income (loss) per share
The Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128") during the fourth quarter of
1997. This statement simplifies the standards for computing earnings
per share (EPS) previously defined in Accounting Principles Board
Opinion No. 15, "Earnings Per Share." All prior-period earnings per
share data has been restated in accordance with SFAS 128. SFAS 128
requires presentation of both Basic EPS and Diluted EPS on the face of
the Statement of Operations. Basic EPS is computed by dividing net
income (loss) available to common shareholders (numerator) by the
weighted average number of common shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period including stock options and
warrants, using the treasury stock method, and convertible preferred
stock, using the if-converted method. In computing Diluted EPS, the
average stock for the period is used in determining the number of shares
assumed to be purchased from the exercise of stock options and warrants.
Following is a reconciliation of the numerator and denominator of the
basic and diluted earnings per share computations under SFAS 128:
<TABLE>
<CAPTION>
(In thousands, except per share data) Year Ended December 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Basic EPS Computation:
Net income (loss)......................... $1,550 $2,317 ($15,002)
========= ========= =========
Weighted-average common shares outstanding 2,018 11,730 13,898
========= ========= =========
Basic earnings (loss) per share........... $0.77 $0.20 ($1.08)
========= ========= =========
</TABLE>
Page 27
<PAGE>
<TABLE>
<CAPTION>
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Diluted EPS Computation:
Net income (loss)......................... $1,550 $2,317 ($15,002)
========= ========= =========
Weighted-average common shares outstanding 2,018 11,730 13,898
Plus shares from assumed conversions:
Convertible preferred stock............. 6,993 1,310 --
Effect of dilutive options and warrants. 592 1,117 --
--------- --------- ---------
Weighted-average common shares used for
diluted earnings (loss) per share....... 9,603 14,157 13,898
========= ========= =========
Diluted earnings (loss) per share $0.16 $0.16 ($1.08)
========= ========= =========
Antidilutive Securities*
Options and warrants outstanding at
end of period......................... 202 216 2,186
========= ========= =========
Weighted-average exercise price........... $4.57 $9.49 $3.04
========= ========= =========
</TABLE>
*Antidilutive securities consist of options and warrants not included in
the computation of diluted earnings per share because i) the exercise
price of each of these options was greater than the average market price
of the Company's Common Stock during the period or ii) the Company
incurred a net loss during the period resulting in all options and
warrants outstanding being antidilutive.
Use of estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could vary from these estimates.
<TABLE>
<CAPTION>
NOTE 2--BALANCE SHEET COMPONENTS:
(In thousands)
December 31,
-----------------------------------
Pro Forma
1997
1996 1997 (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Inventory
Raw materials.................. $1,839 $2,176 $2,176
Work in progress............... 138 161 161
----------- ----------- -----------
$1,977 $2,337 $2,337
=========== =========== ===========
</TABLE>
Page 28
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
1997
1996 1997 (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Property and equipment
Land........................... $3,827 $3,827 --
Buildings and improvements..... 7,175 8,890 288
Machinery and equipment........ 34,624 42,784 42,784
Office and computer equipment.. 613 793 793
Furniture and fixtures......... 268 312 312
Deposits on machinery and
equipment.................... 250 595 595
----------- ----------- -----------
46,757 57,201 44,772
Less accumulated depreciation.. (4,981) (11,074) (10,662)
----------- ----------- -----------
$41,776 $46,127 $34,110
=========== =========== ===========
Property and equipment acquired under
capital leases included above
Machinery and equipment........ $7,819 $7,819 $7,819
Office and computer equipment.. 36 36 36
Furniture and fixtures......... 57 57 57
----------- ----------- -----------
7,912 7,912 7,912
Less accumulated depreciation.. (2,699) (3,919) (3,919)
----------- ----------- -----------
$5,213 $3,993 $3,993
=========== =========== ===========
Accrued expenses and other liabilities
Accrued payroll and related
expenses..................... $642 $762 $762
Accrued income tax............. 621 456 456
Other accrued liabilities...... 2,037 1,751 1,473
----------- ----------- -----------
$3,300 $2,969 $2,691
=========== =========== ===========
</TABLE>
NOTE 3-RESEARCH AND DEVELOPMENT ARRANGEMENT:
In February 1995, the Company joined a consortium (the
"Consortium") of semiconductor companies which entered into a research
and development contract with the Advance Research Projects Agency
(ARPA), a United States Government agency. Under this agreement, ARPA
will provide funds based on the completion of milestones approved by
ARPA and the Consortium. The agreement expired in 1997. Income generated
from the research and development contract was recognized upon the
completion of milestones, which approximates the percentage of
completion method. Accordingly, amounts totaling $318,000, $228,000 and
$123,500 were recognized under this agreement during 1995, 1996 and
1997, respectively, and included in interest and other income.
Additionally during 1996, the Company received $289,000 from ARPA which
it used to reduce the cost of equipment acquired. The Company is not
obligated to repay funding regardless of the outcome of its development
efforts; however, the agreement requires the Company to use its best
efforts to achieve specified results as per the agreement. The Company
retains ownership of the intellectual property developed under the
contract.
NOTE 4-LEASING ARRANGEMENTS AND COMMITMENTS:
The Company leases certain machinery and equipment, office and
computer equipment, and furniture and fixtures under long-term lease
Page 29
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
agreements which are reported as capital leases. The terms of the leases
range from three to five years, with options to purchase or release the
equipment at the end of the respective lease terms. The Company intends
to exercise such options. If it exercises its purchase option, the
Company would pay approximately $800,000 in 1998.
The Company incurred rent expense under a noncancelable operating
lease until December 1996 when the Company purchased the facility it had
been leasing. Rent expense was $180,000, $216,000, and $46,000 in 1995,
1996, and 1997, respectively.
In January 1998, in connection with the sale of its facility (see
Note 5), the Company entered into a noncancelabe operating lease for the
82,390 square foot building on the facility that it occupies. The lease
is for ten years, with options to extend, with an initial lease rate of
$82,390 per month subject to price increases during the term of the
lease.
Future minimum lease payments over the next five years and thereafter
under capital and operating leases, including capitalized purchase
options at December 31, 1997 for capital leases are as follows (in
thousands):
<TABLE>
<CAPTION>
Capital Building
Leases Leases
----------- -----------
<S> <C> <C>
Year ending December 31:
1998.......................................... $1,972 $1,002
1999.......................................... 135 1,059
2000.......................................... -- 1,162
2001.......................................... -- 1,166
2002.......................................... -- 1,264
Thereafter.................................... -- 6,775
----------- -----------
Total minimum payments........................ 2,107 12,428
===========
Less imputed interest and unamortized charges. (52)
-----------
Present value of payments under capital leases 2,055
Less current portion.......................... (1,972)
-----------
Long-term lease obligations................... $83
===========
</TABLE>
In 1993, 1994 and 1996, in connection with arranging capital leases,
the Company issued to the lessors warrants to purchase an aggregate of
457,550 shares of Series A Mandatorily Redeemable Convertible Preferred
Stock at exercise prices ranging from $1.50 to $8.00. As a result of
the Company's initial public offering in 1996, the warrants are now
exercisable to purchase the same number of shares of Common Stock at the
same exercise price. The estimated value of these warrants at the time
of issuance, as determined by the Company, is being amortized as
interest expense over the period the leases are outstanding. The
warrants are exercisable at any time prior to 2003 (200,000 shares) and
2004 (257,550 shares). None of the warrants had been exercised at
December 31, 1997.
Page 30
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NOTE 5--NOTES PAYABLE:
December 31,
-----------------------------------
Pro Forma
1997
1996 1977 (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Notes payable (in thousands):
Bank term note payable..... $3,375 $2,375 $2,375
Equipment notes payable.... 9,173 9,766 9,766
Real estate loan........... 6,500 6,601 --
----------- ----------- -----------
Total notes payable........ 19,048 18,742 12,141
Less current portion...... (3,893) (4,576) (4,435)
----------- ----------- -----------
$15,155 $14,166 $7,706
=========== =========== ===========
</TABLE>
Bank Term Note Payable
The Company fully utilized a borrowing facility by borrowing $2.0
million in 1995 and an additional $2.0 million in 1996. The facility
provides financing for up to the lesser of $4.0 million or 80% of the
cost of collaterized machinery and equipment. The loans accrue interest
at the London Interbank Bank Rate (LIBOR) plus 2.5% and requires 48 equal
monthly principal payments. The agreement requires the Company to
maintain certain financial covenants, including a minimum liquidity ratio
and a debt service coverage ratio, and prohibits the payment of dividends
without prior approval by the bank. At December 31, 1997, the Company
was in compliance with such covenants.
In conjunction with the Company's utilization of this borrowing
facility in 1995, the Company issued a warrant to purchase 21,740 shares
of the Company's Series A Mandatorily Redeemable Convertible Preferred
Stock at an exercise price of $4.60 per share. As a result of the
Company's initial public offering in 1996, this warrant can be exercised
to purchase the same number of shares of Common Stock at the same
exercise price. The $26,000 estimated value of this warrant at the
time of issuance, as determined by the Company and supported by an
independent appraisal, is being amortized as interest expense over the
period the note is outstanding. The warrant is exercisable at any time
prior to July 2000. The warrant had not been exercised at December 31,
1997.
Equipment Notes Payable
In 1995, 1996 and 1997, the Company entered into borrowing
facilities with a number of lenders, allowing the Company to finance 70%
to 80% of the cost of collaterized machinery and equipment. Borrowings
under these facilities accrued interest at rates ranging from 7.75% to
14.0% per annum with terms ranging from 36 to 48 months. Certain of the
credit facilities require the Company to maintain certain financial
covenants including minimum tangible net worth, quarterly revenues and
quarterly income before taxes, depreciation and amortization (EBITDA).
At December 31, 1996 and 1997, the Company was in compliance with such
covenants. In accordance with the borrowing facility agreement entered
in 1995, the Company issued a warrant to purchase 97,826 shares of the
Company's Series A Mandatorily Redeemable Convertible Preferred Stock at
an exercise price of $4.60 per share. As a result of the Company's
initial public offering in 1996, this warrant can be exercised to
purchase the same number of shares of Common Stock at the same exercise
price. The $118,000 value of this warrant at the time of issuance, as
determined by the Company and supported by an independent appraisal, is
being amortized as interest expense over the period the notes are
Page 31
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
outstanding. The warrant is exercisable at any time prior to 2005. The
warrant had not been exercised at December 31, 1997.
Real Estate Loans
In December, 1996, the Company borrowed $6.5 million from a bank to
provide temporary financing for the acquisition of its facilities. The
loan accrues interest at 2.25% over the rate for 30 day certificates of
deposit and was collateralized by a certificate of deposit of equivalent
value. The Company has classified this loan as long-term at December
31, 1996 based on the refinancing disclosed below.
On March 25, 1997, the Company closed a mortgage loan with an
insurance company, which provided the Company with a $6.7 million five
year term loan. The loan is secured by the land, buildings and
improvements purchased in December 1996. The loan accrues interest at
8.5%, and is payable in equal monthly installments of $58,000, with a
balloon payment of $5.9 million due after five years. The proceeds of
this mortgage loan were used to pay off and retire the $6.5 million real
estate loan. In January 1998, the Company sold its facility which
consisted of land and two buildings with approximately 138,336 square
space of building space. Net proceeds from the sale of the facilities
were $7.3 million, net of the elimination of $6.6 million of mortgage
debt, fees, commissions and closing costs. The Pro Forma (Unaudited)
Balance Sheet and Balance Sheet Information in the Footnotes reflects
this transaction as if it had occurred on December 31, 1997.
The Company is now leasing the approximately 82,390 square foot
building on the facility that it occupies. See Note 4
Maturities of Loans and Notes Payable
The aggregate maturities of notes payable at December 31, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
Pro Forma
1997
1997 (Unaudited)
----------- -----------
<S> <C> <C>
1998...................... $4,576 $4,435
1999...................... 3,763 3,608
2000...................... 3,142 2,975
2001...................... 1,403 1,218
2002...................... 5,953 --
----------- -----------
Total..................... 18,837 12,236
Less unamortized charges.. (95) (95)
Less current portion...... (4,576) (4,435)
----------- -----------
Long-term borrowings...... $14,166 $7,706
=========== ===========
</TABLE>
Line of Credit
In December 1997, the Company entered into a line of credit
agreement with a bank which provides, through December 1998, for
borrowings up to the lesser of $5,000,000 or 80% of eligible accounts
receivable. At December 31, 1997, no amounts were outstanding under this
line of credit. Borrowings under the line of credit accrue interest at
the bank's prime rate (8.5% at December 31, 1997) plus 1.25% and are
collateralized by the assets of the Company. The agreement requires the
Company to maintain certain financial covenants, including a liquidity
ratio, minimum tangible net worth, maximum debt to tangible net
Page 32
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
worth, quarterly profitability and prohibits the Company from the
payment of dividends without prior approval by the bank. At December
31, 1997, the Company was in compliance with such covenants.
In conjunction with the line of credit agreement, the Company issued
a warrant to purchase 10,000 shares of the Company's Common Stock at an
exercise price of $0.90 per share. At the time of issuance, the value
of the warrants was determined to be negligible. The warrant is
exercisable at any time prior to 2002. The warrant has not been
exercised as of December 31, 1997.
NOTE 6-COMMON STOCK AND MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK:
On February 28, 1996, the Company issued 3,000,000 shares of Common
Stock at $7.50 per share in the Company's initial public offering
("IPO"). In addition, the underwriters exercised their over allotment
option to purchase 450,000 shares of Common Stock. Proceeds net of
discounts, commissions and offering expenses, total approximately $23.1
million.
Mandatorily Redeemable Convertible Preferred Stock, no par value, of
7,862,000 shares and an amount of $15,981,000 were converted into the
same number of common shares at the Company's IPO.
NOTE 7-STOCK OPTIONS:
1993 Stock Option Plan
In April 1993, the Board of Directors and shareholders adopted the
1993 Stock Option Plan (the "Plan")
which as amended, provides for the grant of incentive stock options
(ISOs) and nonqualified stock options (NSOs) to purchase up to 2,514,921
shares of Common Stock. ISOs may be granted to employees and NSOs may
be granted to either employees or consultants. In accordance with the
Plan, the stated exercise price shall not be less than 100% and 85% of
the estimated fair market value of Common Stock on the date of grant for
ISOs and NSOs, respectively, as determined by the Board of Directors.
The Plan provides that the options shall be exercisable over a period
not to exceed ten years and shall vest as determined by the Board of
Directors. Substantially all of the options vest 25% one year after the
date of grant and 1/48 each month thereafter. Compensation expense of
approximately $200,000 was recognized on stock options granted between
June and November, 1995, and is being amortized over the four-year
vesting period.
Director Stock Option Plan
In connection with the IPO, the Company adopted a Director Stock
Option Plan (the "Director Plan"). A total of 100,000 shares of Common
Stock have been authorized for issuance under the Director Plan. The
Director Plan provides for the grant of NSOs to non-employee directors
of the Company. The Director Plan provides that each non-employee
director who joins the Board will automatically be granted an NSO to
purchase 20,000 shares of Common Stock on the date upon which such
person first becomes a non-employee director (the "Initial Grant"). In
addition, each non-employee director will automatically receive an NSO
to purchase 5,000 shares of Common Stock upon such director's annual re-
election to the Board, provided the director has been a member of the
Board for at least six months upon the date of such re-election (the
"Subsequent Grant"). The Initial Grant vests and becomes exercisable
as to 25% of the shares one year after the date of grant and as to 1/48
of the shares each month thereafter, and each Subsequent Grant shall
become exercisable as to 1/12 of the shares each month following the
date of grant, both subject to the director's continuous service. The
exercise price of all stock options granted under the Director Plan is
equal to the fair market value of the Company's Common Stock on the date
of grant. Options granted under the Director Plan have a term of ten
years. Unless terminated sooner, the Director Plan will terminate in
Page 33
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
2006. Options for 20,000 shares were granted in 1997 under the Director
Plan.
1997 Non Statutory Stock Plan
In October 1997, the Board of Directors adopted the 1997 Non-
Statutory Stock Plan, which provides for the grant of non-qualified
stock options to purchase up to 250,000 share of Common Stock. The
NSOs may only be granted to non-executive officer employees. In
accordance with the Plan, the stated exercise price shall not be less
than 85% of the estimated fair market value of the Common Stock on
the date of grant of the NSO. The options shall be exercisable over
a period not to exceed ten years and shall vest 25% after the year of
grant and 1/48 each month thereafter. No options were granted in 1997
under this plan.
Repricing of Employee Stock Options
As approved by the Board of Directors on January 27, 1998 and
effective as of January 30, 1998, the Company allowed all employee
holders of outstanding stock options to exchange higher priced options
for new stock options at an exercise price of $1.06 per share, the fair
market value of the Company's Common Stock at the close of trading on
January 30, 1998. Those options vested at the time of the exchange would
vest on January 31, 1999, and those options unvested at the time of the
exchange would vest on the original option schedule, but would not be
exercisable until January 31, 1999. Options for 1,035,124 shares were
exchanged.
Restricted Common Stock
In September 1995, 398,333 shares of restricted Common Stock were
sold to employees upon exercise of stock options then outstanding. Each
unvested share of this restricted Common Stock is subject to repurchase
by the Company at the employees' exercise price if an employee
terminates before such shares vest; vesting occurs over the same period
as the former options. In 1996 and 1997, respectively, 170,312 and
67,082 vested shares were converted into unrestricted shares, and 73,750
and 55,314 shares were repurchased by the company from terminated
employees. Of the remaining 31,875 restricted shares outstanding, 18,960
were vested.
1996 Employee Stock Purchase Plan
The Company's 1996 Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors and shareholders in December
1995, and became effective upon the closing of the Company's initial
public offering on February 28, 1996. Under the Purchase Plan, a total
of 400,000 shares of Common Stock has been reserved for issuance to
eligible employees. The Purchase Plan allows employees to purchase
shares through payroll deductions at 85% of the fair market value of the
Common Stock at the beginning or the end of the applicable twelve-month
purchase period. The Purchase Plan is intended to qualify as an
"employee stock purchase plan" under Section 423 of the U.S. Internal
Revenue Code. Unless terminated sooner, the Purchase Plan will terminate
ten years from its effective date. During 1996 and 1997, respectively,
25,062 and 59,656 shares were issued under the Plan.
Page 34
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
Summary of Option Activity
The following table summarizes the Company's stock option activity
and related weighted average exercise price within each category for
each of the years ended December 31, 1995, 1996, and 1997.
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ---------------- -----------------
Average Average Average
(Shares in thousands) Shares Price Shares Price Shares Price
- --------------------- --------- ------ --------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at Jan. 1........... 612,500 $0.18 550,633 $1.04 890,200 $4.85
Options granted....... 615,000 $0.98 484,848 $8.74 1,295,745 $3.03
Options canceled......(547,294) $0.21 (68,126) $0.33 (519,829) $5.90
Options exercised.....(129,573) $0.20 (77,155) $6.04 (66,962) $1.35
--------- ------ --------- ------ ---------- ------
Options outstanding
at Dec. 31.......... 550,633 $1.04 890,200 $4.85 1,599,154 $3.18
========= ====== ========= ====== ========== ======
Options exercisable
at Dec. 31.......... 17,043 $0.24 147,944 $0.88 219,400 $4.52
========= ====== ========= ====== ========== ======
Available for grant
at Dec. 31.......... 916,944 509,301 253,385
========= ========= ==========
</TABLE>
Significant option groups outstanding at December 31, 1997, after
giving effect to the repricing discussed above, and the related weighted
average exercise price and remaining contractual life information are as
follows:
<TABLE>
<CAPTION>
Options with Outstanding Exercisable Remaining
exercise prices -------------------- -------------------- Life
ranging from Shares Price Shares Price (Years)
- ----------------- ----------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 0.10 to $ 0.46.. 272,298 $0.24 186,407 $0.16 7
$ 1.00 to $ 1.50.. 1,180,499 1.06 5,646 1.50 10
$ 2.00 to $ 3.50.. 94,000 2.96 552 2.20 9
$ 7.00 to $ 9.50.. 52,357 7.45 26,795 7.58 8
----------- ------- ----------- ------- --------
Options outstanding
at Dec. 31 1,599,154 $1.74 219,400 $4.52 9
=========== ======= =========== ======= ========
</TABLE>
Fair Value of Stock Options and Employee Purchase Rights
The Company has four stock option plans which reserve shares of
Common Stock for issuance to employees, officers, directors and
consultants. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized in the accompanying statement of
operations for the stock option plans, except for $200,000 which was
recognized on stock options granted between June and November 1995, and
which is being amortized over a four year vesting period. In January
1996, The Company adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation".
For the Stock Option Plan, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions used for grants in
1995, 1996 and 1997 respectively: dividend yield of 0% in all three
years; expected life of 3 years for each year; expected volatility of 56%,
Page 35
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
57% and 65% and risk-free interest rates of 6.4%, 6.2% and 6.1%. The
weighted-average fair value of those stock options granted in 1995, 1996
and 1997 was $0.54, $4.33 and $1.72 per option, respectively.
The fair value of the employees' purchase rights for the Purchase
Plan, which was initiated on February 28, 1996, was estimated at the
beginning of the offering period using the Black-Scholes option pricing
model with the following assumptions used for 1996 and 1997
respectively: dividend yield of 0%; an expected life of six months;
expected volatility of 56% and 65%; and risk-free interest rate of 5.3%
and 5.3%. The weighted-average fair value of these purchase rights
granted in 1996 and 1997 was $2.20 and $3.12, respectively, per right.
Had the Company recorded compensation costs based on the estimated
grant date fair value, as defined by SFAS 123, for awards granted under
its stock option plans and stock purchase plan, the Company's net income
(loss) and income (loss) per share would have been reduced to the pro
forma amounts below for the years ended December 31, 1995, 1996 and
1997:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) as reported (in
thousands)....................... $1,550 $2,317 ($15,002)
Net income (loss), pro forma...... $1,521 $1,923 ($15,708)
Net income (loss) per share as reported
Basic........................... $0.77 $0.20 ($1.08)
Diluted......................... $0.16 $0.16 ($1.08)
Net income (loss) per share, pro forma
Basic........................... $0.75 $0.16 ($1.13)
Diluted......................... $0.16 $0.13 ($1.13)
</TABLE>
The pro forma amounts reflect compensation expense related to 1995,
1996 and 1997 stock option grants and purchase rights only. In future
years, the annual pro forma compensation expense will increase relative
to the fair value of stock options granted in those future years.
NOTE 8-INCOME TAXES:
Through December 31, 1994 and in 1997, the Company incurred net
operating losses and recorded no provision for income taxes. The tax
provision for 1995 and 1996 current taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Current:
Federal................ $48 $13
State.................. 93 169
--------- ---------
141 182
--------- ---------
Deferred:
Federal................ -- 489
State.................. -- (141)
--------- ---------
-- 348
--------- ---------
$141 $530
========= =========
</TABLE>
Page 36
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
The tax provision reconciles to the amount computed by multiplying
income before tax by the U.S. statutory rate (34%) as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
Provision at statutory rate........... $575 $968
Benefits of carryforwards............. (527) (68)
State taxes, net of federal benefit... 93 175
Use of valuation allowance............ -- (475)
Other................................ -- (70)
--------- ---------
$141 $530
========= =========
</TABLE>
Deferred income tax assets comprise the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Federal and state credit
carryforwards......................... $397 $1,689
Federal and state net operating
loss carryforwards.................... 1,575 8,631
Leases, treated as operating for tax... (1,111) (1,592)
Depreciation........................... (1,961) (3,165)
Reserves and accruals.................. 476 587
Other.................................. 246 (201)
--------- ---------
Deferred tax assets (liability).... (378) 5,949
Less valuation allowance........... -- (5,949)
--------- ---------
Net deferred tax asset
(liability).................... ($378) $ --
========= =========
</TABLE>
At December 31, 1997, the Company had federal and state net operating
loss and tax credit carryforwards ("NOL's") of approximately $23,000,000 and
$8,000,000, respectively, which can be used to reduce future taxable income.
These NOL's expire through 2012, if not utilized.
The Tax Reform Act of 1996 limits the use of NOL's in certain
situations where changes occur in the stock ownership of a company. The
Company experienced such an ownership change as a result of the Company's
IPO in 1996, resulting in a limitation of the annual utilization of the NOL's
generated through the date of the IPO. Despite the limitation, the company
may be able to utilize the entire amount of NOL's prior to expiration.
NOTE 9-CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS:
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash in money
market accounts, certificates of deposit, investments in financial
instruments with a maturity of less than one year, and accounts
receivable. At December 31, 1996 and 1997, the Company had $5.2 million
and $1.9 million invested in money market accounts with a bank. At
December 31, 1996, the Company had a certificate of deposit of $6.5
million invested with a bank, and other investments in short term
Page 37
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
financial instruments of $3.0 million invested with a sercurities
firm.
The Company performs ongoing credit evaluations of its customers,
which are semiconductor companies, and maintains reserves for estimated
credit losses. Write-offs of accounts receivable were insignificant in
all periods presented. At December 31, 1996, two customers accounted
for 51% and 16%, respectively, of accounts receivable. At December 31,
1997, four customers accounted for 19%, 15%, 13% and 10%, respectively,
of accounts receivable .
Significant customers
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Customers comprising 10% or more of the
Company's revenues for the periods
indicated:
A......................... 29% 32% 17%
B......................... 3% 14% 16%
C......................... 1% 2% 14%
D......................... 8% 17% 4%
E......................... 20% 4% --%
</TABLE>
NOTE 10-SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996:
Net revenues.................... $8,057 $8,469 $10,385 $9,491
Gross profit (loss)............. 1,997 1,752 2,323 1,490
Net income (loss) .............. 612 567 1,021 117
Net income (loss) per share:
Basic......................... 0.06 0.05 0.08 0.01
Diluted....................... 0.05 0.04 0.07 0.01
1997:
Net revenues.................... 5,575 3,953 4,214 6,002
Gross profit (loss)............. (920) (1,086) (1,244) (1,095)
Net income (loss) .............. (2,473) (6,088) (3,271) (3,170)
Net income (loss) per share:
Basic......................... (0.18) (0.44) (0.23) (0.23)
Diluted....................... (0.18) (0.44) (0.23) (0.23)
</TABLE>
Per share amounts, based on average shares outstanding and potential
dilutive shares each quarter, may not add to the total for the year.
Page 38
<PAGE>
Item 9. Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure
Not applicable.
Page 39
<PAGE>
PART III
Certain information required by Part III is omitted from this
Report on Form 10-K in that the Registrant will file its definitive Proxy
Statement for its Annual Meeting of Stockholders to be held on June 16,
1998, pursuant to Regulation 14A of the Securities Exchange Act of 1934,
as amended (the "Proxy Statement"), not later than 120 days after the end
of the fiscal year covered by this Report, and certain information
included in the Proxy Statement is incorporated herein by reference.
Item 10. Directors and Executive Officers of the Registrant
(a) Executive Officers - See the section entitled "Executive
Officers" in Part I, Item 1 hereof.
(b) Directors - The information required by this Item is
incorporated by reference to the section entitled "Election
of Directors" in the Proxy Statement.
The disclosure required by Item 405 of Regulation S-K is
incorporated by reference to the section entitled "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Proxy Statement.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference
to the sections entitled "Compensation of Executive Officers" and
"Compensation of Directors" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference
to the sections entitled "Principal Share Ownership" and "Security
Ownership of Management" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference
to the section entitled "Certain Transactions" in the Proxy Statement.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
14(a) Exhibits
Exhibit
Number Description of Document
- ------- -----------------------
3.1! Restated Articles of Incorporation.
3.4! Bylaws, as amended.
10.1! Form of Indemnification Agreement.
10.2!* 1993 Stock Option Plan and form of Stock Option Agreement.
10.3!* 1996 Employee Stock Purchase Plan and form of Subscription
Agreement.
10.4!* 1996 Director Stock Option Plan and form of Stock Option
Agreement.
10.5! Registration Rights Agreement dated March 24, 1993, as amended.
10.6! Lease Agreement dated June 16, 1993 between the Company and
WVP Income Plus VI.
10.7! Sublease Agreement dated July 15, 1995 between the Company and
Peripheral Computer Support, Inc.
10.8! Loan and Security Agreement dated September 15, 1995 between the
Company and The CIT Group/Equipment Financing, Inc.
10.9! Warrant to Purchase Series A Preferred Stock, issued to MMC/GATX
Partnership No. 1 as of October 7, 1993, as amended.
10.10! Warrant to Purchase Series A Preferred Stock, issued to Phoenix
Leasing Incorporated as of October 7, 1993.
10.11! Warrant to Purchase Series A Preferred Stock, issued to Comdisco,
Inc. as of March 10, 1994.
Page 40
<PAGE>
10.12! Warrant to Purchase Series A Preferred Stock, issued to Silicon
Valley Bank as of July 10, 1995.
10.13! Warrant to Purchase Series A Preferred Stock, issued to Silicon
Valley bank as of July 10, 1995.
10.14! Warrant to Purchase Series A Preferred Stock, issued to The CIT
Group/Engineering Financing, Inc. as of September 15, 1995.
10.15! Warrant to Purchase Series A Preferred Stock, issued to
Comdisco, Inc. as of January 3, 1996.
10.16!! Sublease Agreement between the Company and Peripheral Computer
Support dated March 8, 1996.
10.17!!! Warrant to Purchase Common Stock, issued to MMC/GATX Partnership
No. 1, dated September 5, 1997.
10.18!!! Amendment to Warrant to Purchase Series A Preferred Stock,
issued to MMC/GATX Partnership No. 1, dated September 5, 1997.
10.19!!! Amendment to Warrant to Purchase Series A Preferred Stock,
issued to MMC/GATX Partnership No. 1, dated September 5, 1997.
10.20!!! Lease Agreement dated November 1, 1997, between the Company and
Jaswinder S. Saini and Surinder K. Saini.
10.21!!!! Purchase and Sale Agreement dated November 20, 1997, between
the Company and Lincoln Property Company N.C., Inc.
10.22!!!! Lease Agreement dated January 20, 1997, between the Company and
Lincoln Property Company N.C., Inc.
10.23* 1997 Nonstatutory Stock Option Plan and form of Stock Option
Agreement.
10.24 Amended and Restated Loan and Security Agreement dated
December 31, 1997 between the Company and SIlicon Valley Bank.
10.25 Warrant to Purchase Stock, issued to Silicon Valley Bank as of
December 31, 1997.
23.1 Consent of Price Waterhouse LLP, Independent Accoutants.
24.1 Power of Attorney (see page 42).
27.1 Financial Data Schedule.
! Incorporated by reference from the Registrant's Registration
Statement on Form SB-2 (file no. 333-326-LA), as ammended, filed
January 17, 1996.
!! Incorporated by reference from the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996.
!!! Incorporated by reference from the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997.
!!!! Incorporated by reference from the Registrant's Current Report
on Form 8-K, filed on January 30, 1997.
* Management contract or compensatory plan or arrangement to be
filed as an exhibit to this form.
(b) Reports on Form 8-K.
Change in Fiscal Year, filed December 11, 1997.
Sale of Facilities, filed January 30, 1998.
(c) Exhibits.
See Item 14(a) hereof.
(d) Financial Statement Schedules.
All financial statement schedules have been omitted because they are
not applicable or the required information is shown in the financial
statements or the notes thereto.
Page 41
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), the Registrant caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of San Jose, State of California, on March 27, 1998.
INTEGRATED PACKAGING ASSEMBLY CORPORATION
By: /s/ ALFRED V. LARRENAGA
-------------------------
Alfred V. Larrenaga
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Patrick Verderico and
Alfred V. Larrenaga, and each of them acting individually, as his
attorney-in-fact, each with full power of substitution, for him in any
and all capacities, to sign any and all amendments to this Report on
Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorney to any and all amendments to said Report.
In accordance with the Exchange Act, this report has been signed
below on March 27, 1998 by the following persons on behalf of the
Registrant and in the capacities indicated.
- --------------------------------------------------------------------------
Signature Title
/s/ PATRICK VERDERICO President and Chief Executive Officer
- -------------------------
Patrick Verderico (Principal Executive Officer)
/s/ ALFRED V. LARRENAGA Chief Financial Officer
- -------------------------
Alfred V. Larrenaga (Principal Financial and Accounting
Officer)
/s/ PHILIP R. CHAPMAN Director
- -------------------------
Philip R. Chapman
/s/ GILL COGAN Director
- ------------------------
Gill Cogan
/s/ PAUL R. LOW Director
- ------------------------
Paul R. Low
/s/ ERIC A. YOUNG Director
- ------------------------
Eric A. Young
Page 42
<PAGE>
<PAGE>
EXHIBIT 10.28
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NONSTATUTORY STOCK PLAN
Adopted December 2, 1997
1. Purposes of the Plan. The purposes of this Plan are to
attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees
and Consultants of the Company and its Subsidiaries and to promote the
success of the Company's business. Only nonstatutory stock options may
be granted under the Plan.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its
Committees appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Committee appointed by the Board
of Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means Integrated Packaging Assembly
Corporation, a Delaware corporation.
(g) "Consultant" means any person, including an advisor,
who is engaged by the Company or any parent, subsidiary or affiliate to
render services.
(h) "Continuous Status as an Employee or Consultant" means
the absence of any interruption or termination of service as an Employee
or Consultant. Continuous Status as an Employee or Consultant shall not
be considered interrupted in the case of: (i) sick leave; (ii) military
leave; (iii) any other leave of absence approved by the Company; (iv)
transfer between locations of the Company or between the Company, its
subsidiaries, successors or affiliates; or (V) change in status from
Employee to Consultant or Consultant to Employee.
(i) "Employee" means any person employed by the Company
or any parent, subsidiary or affiliate of Company other than any executive
officer of the Company within the meaning of Section 16 of the Exchange
Act. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
<PAGE>
(j) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(k) "Fair Market Value" means, as of any date, the value
of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system including without limitation
the National Market of the National Association of Securities Dealers,
Inc. Automated Quotation ("NASDAQ") System, its Fair Market Value shall
be the closing sales price for such stock (or the closing bid, if no
sales were reported), as quoted on such system or exchange, for the day
of determination as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ
System (but not on the National Market thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its
Fair Market Value shall be the mean between the high and low asked
prices for the Common Stock on the date of determination or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Administrator.
(1) "Option" means a nonstatutory stock option granted
pursuant to the Plan. Such option is not intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(m) "Optioned Stock" means the Common Stock subject to an
option.
(n) "Optionee" means an Employee or Consultant who
receives an Option.
(o) "Plan" means this Nonstatutory Stock Plan.
(p) "Share" means a share of the Common Stock, as adjusted
in accordance with Section 12 of the Plan.
3. Stock Subject to the Plan. Subject to the provisions of
Section 12 of the Plan, the maximum aggregate number of shares which may
be optioned and sold under the Plan is Two Hundred Fifty Thousand
(250,000) shares of Common Stock. The shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares
which were subject thereto shall, unless the Plan shall have been
terminated, become available for future grant under the Plan.
<PAGE>
4. Administration of the Plan.
(a) Administration. The Plan shall be administered by (i)
the Board or (ii) a Committee designated by the Board, which Committee
shall be constituted to satisfy applicable laws. Once appointed, such
Committee shall serve in its designated capacity until otherwise
directed by the Board. The Board may increase the size of the Committee
and appoint additional members, remove members (with or without cause)
and substitute new members, fill vacancies (however caused), and remove
all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by applicable laws.
(b) Powers of the Administrator. Subject to the
provisions of the Plan and in the case of a Committee, the specific
duties delegated by the Board to such Committee, the Administrator shall
have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock;
(ii) to select the Consultants and Employees to whom
Options may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options,
are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under
the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price and any restriction or
limitation, or any vesting acceleration or waiver of forfeiture
restrictions regarding any Option and/or the shares of Common Stock
relating thereto, based in each case on such factors as the
Administrator shall determine, in its sole discretion); to determine
whether and under what circumstances an Optionmay be settled in cash
under Section 9(e) instead of Common Stock;
(vii) to determine whether, to what extent and under
what circumstances Common Stock and other amounts payable with respect
to an award under this Plan shall be deferred either automatically or at
the election of the participant (including providing for and determining
the amount, if any, of any deemed earnings on any deferred amount during
any deferral period); and
<PAGE>
(ix) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option shall have declined since the date
the Option was granted.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final
and binding on all Optionees and any other holders of any Options.
5. Eligibility.
(a) Options may be granted to Employees or Consultants.
(b) The Plan shall not confer upon any Optionee any right
with respect to continuation of employment or consulting relationship
with the Company, nor shall it interfere in any way with his right or
the Company's right to terminate his employment or consulting
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon
its adoption by the Board of Directors. It shall continue in effect until
terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the
term, stated in the Option Agreement.
8. Option Exercise Price and Consideration
(a) The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator.
(b) The consideration to be paid for the Shares to
be issued upon exercise of an Option, including the method of payment,
shall be determined by the Administrator and may consist entirely of (1)
cash, (2) check, (3) promissory note, (4) other Shares which (x) in
the case of Shares acquired upon exercise of an Option either have been
owned by the Optionee for more than six months on the date of surrender
or were not acquired, directly or indirectly, from the Company, and OI)
have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised,
(5) authorization from the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having
a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6)
by delivering an irrevocable subscription agreement for the Shares which
irrevocably obligates the option holder to take and pay for the Shares
not more than twelve months after the date of delivery of the
subscription agreement, (7) delivery of a properly executed exercise
notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the
Option and delivery to the Company of the sale or loan proceeds required
to pay the exercise price; (8) any combination of the foregoing methods
of payment, (9) or such other consideration and method of payment for
the issuance of Shares to the extent permitted under applicable laws.
<PAGE>
9. Exercise of Option.
(a) Procedure for Exercise: Rights as a Stockholder. Any
Option granted hereunder shall be exercisable at such times and under
such conditions as determined by the Board, including performance
criteria with respect to the Company and/or the Optionee, and as shall
be permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with
the terms of the Option by the person entitled to exercise the Option
and full payment for the Shares with respect to which the Option is
exercised has been received by the Company. Full payment may, as
authorized by the Board, consist of any consideration and method of
payment allowable under Section 8(b) of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Company shall
issue (or cause to be issued) such stock certificate promptly upon
exercise of the Option. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both
for purposes of the Plan and for sale under the Option, by the number of
Shares as to which the Option is exercised.
(b) Termination of Employment. In the event of termination
of an Optionee's Continuous Status as an Employee or Consultant, such
Optionee may, but only within thirty (30) days (or within such other
period of time as is determined by the Board), after the date of such
termination (but in no event later than the expiration date of the term
of such Option as set forth in the Option Agreement), exercise his
Option to the extent that Optionee was entitled to exercise it at the
date of such termination. To the extent that Optionee was not entitled
to exercise the Option at the date of such termination, or if Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions
of Section 9(b) above, in the event of termination of an Optionee's
Continuous Status as an Employee or Consultant as a result of his total
and permanent disability (as defined in Section 22(e)(3) of the Code),
Optionee may, but only within twelve (12) months from the date of such
termination (but
<PAGE>
in no event later than the expiration date of the term of such Option as
set forth in the Option Agreement), exercise the Option to the extent
otherwise entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise the Option at the
date of termination, or if Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event of the death of an Optionee while
Optionee is an Employee or Consultant, the Option may be exercised at
any time within twelve (12) months following the date of death (but in
no event later than the expiration date of the term of such Option as
set forth in the Option Agreement), by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to
exercise the Option at the date of death. To the extent that Optionee
was not entitled to exercise the Option at the date of termination, or
if Optionee does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate.
(e) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Option previously
granted, based on such terms and conditions as the Administrator shall
establish and communicate to the Optionee at the time that such offer is
made .
10. Non-Transferability of Options. Unless otherwise provided
for by the Administrator, the Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At
the discretion of the Administrator, Optionees may satisfy withholding
obligations as provided in this paragraph. When an Optionee incurs tax
liability in connection with an Option, which tax liability is subject
to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an --- amount required to be withheld
under applicable tax laws, the Optionee may satisfy the withholding tax
obligation by electing to have the Company withhold from the Shares to
be issued upon exercise of the Option, if any, that number of Shares
having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined.
12. Adjustments Upon Changes in Capitalization. Merger or Asset
Sale. Subject to any required action by the stockholders of the Company,
the number of shares of Common Stock covered by each outstanding Option,
and the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted
or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per share of Common Stock covered by
each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock
resulting
<PAGE>
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease
in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have
been "effected without receipt of consideration. " Such adjustment shall
be made by the Board, whose determination in that respect shall be
final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number
or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of
the Company, the Board shall notify the Optionee at least fifteen (15)
days prior to such proposed action. To the extent it has not been
previously exercised, the Option will terminate immediately prior to the
consummation of such proposed action. In the event of a merger of the
Company with or into another corporation, or the sale of all or
substantially all of the Company's assets, the Option shall be assumed
or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. In
the event that such successor corporation does not agree to assume the
Option or to substitute an equivalent option, the Board shall, in lieu
of such assumption or substitution, provide for the Optionee to have the
right to exercise the Option as to all of the Optioned Stock, including
Shares as to which the Option would not otherwise be exercisable. If the
Board makes an Option fully exercisable in lieu of assumption or
substitution in the event of a merger, the Board shall notify the
Optionee that the Option shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option will
terminate upon the expiration of such period.
13. Time of Granting Options. The date of grant of an Option
shall, for all purposes, be the date on which the Administrator makes
the determination granting such Option, or such other date as is
determined by the Board. Notice of the determination shall be given to
each Employee or Consultant to whom an Option is so granted within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment,
alteration, suspension or discontinuation shall be made which would
impair the rights of any Optionee under any grant theretofore made,
without his or her consent.
(b) Effect of Amendment or Termination. Any such amendment
or termination of the Plan shall not affect Options already granted and
such Options shall remain in full force and effect as if this Plan had
not been amended or terminated, unless mutually agreed otherwise between
the Optionee and the Board, which agreement must be in writing and
signed by the Optionee and the Company.
<PAGE>
15. Conditions Upon Issuance of Shares. Shares shall not be
issued pursuant to the exercise of an Option unless the exercise of such
Option and the issuance and delivery of such Shares pursuant thereto
shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at
the time of any such exercise that the Shares are being purchased only
for investment and without any present intention to sell or distribute
such Shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant
provisions of law.
16. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares
as shall be sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Agreements. Options shall be evidenced by written agreements
in such form as the Board shall approve from time to time.
<PAGE>
NONSTATUTORY STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan
shall have the same defined meanings in this Option Agreement.
1. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number
Date of Grant
Vesting Commencement Date
Exercise Price per Share
Total Number of Shares Granted
Total Exercise Price
Type of Option: Nonstatutory Stock Option
Term/Expiration Date:
Vesting Schedule:
Subject to the Optionee continuing to be an Employee or Consultant
on such dates, this Option shall vest and become exercisable in
accordance with the following schedule:
[25% of the Shares subject to the Option shall vest twelve months
after the Vesting Commencement Date, and 1/48th of the Shares subject to
the Option shall vest at the end of each one-month period thereafter.]
Termination Period:
This Option may be exercised for thirty days after Optionee ceases
to be an Employee or Consultant( or within such other period of time as
is determined by the Board). Upon the death or Disability of the
Optionee, this Option may be exercised for such longer period as
provided in the Plan. In no event shall this Option be exercised later
than the Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company
hereby grants to the Optionee named in the Notice of Grant attached as
Part I of this Agreement (the "Optionee") an option (the "Option") to
purchase the number of Shares, as set forth in the Notice of Grant, at
the exercise price per share set forth in
<PAGE>
the Notice of Grant (the "Exercise Price"), subject to the terms and
conditions of the Plan, which is incorporated herein by reference.
Subject to Section 14(b) of the Plan, in the event of a conflict between
the terms and conditions of the Plan and the terms and conditions of
this Option Agreement, the terms and conditions of the Plan shall
prevail.
2. Exercise of Option
(1) Right to Exercise. This Option is exercisable during
its term in accordance with the Vesting Schedule set out in the Notice
of Grant and the applicable provisions of the Plan and this Option
Agreement.
(2) Method of Exercise. This Option is exercisable by
delivery of an exercise notice, in the form attached as Exhibit A (the
"Exercise Notice"), which shall state the election to exercise the
Option, the number of Shares in respect of which the Option is being
exercised (the "Exercised Shares"), and such other representations and
agreements as may be required by the Company pursuant to the provisions
of the Plan. The Exercise Notice shall be completed by the Optionee and
delivered to Chief Financial Officer. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice
accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of
this Option unless such issuance and exercise complies with Applicable
Laws. Assuming such compliance, for income tax purposes the Exercised
Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
3. Method of Payment. Payment of the aggregate Exercise Price
shall be by any of the methods set forth in Section 8(b) of the Plan.
4. Non-Transferability of Option. This Option may not be
transferred in any manner otherwise than by will or by the laws of
descent or distribution and may be exercised during the lifetime of
Optionee only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
5. Ten of Option. This Option may be exercised only within the
term set out in the Notice of Grant, and may be exercised during such
term only in accordance with the Plan and the terms of this Option
Agreement.
6. Tax Consequences. Some of the federal tax consequences
relating to this Option, as of the date of this Option, are set forth
below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUB~TECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(1) Exercising the Option. The Optionee may incur regular
federal income tax liability upon exercise of an NSO. The Optionee will
be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the Fair Market Value
of the Exercised Shares on the date of exercise over their aggregate
Exercise Price. If the Optionee is an Employee or a former Employee, the
Company will be required to withhold from his or her compensation or
collect from Optionee and pay to the applicable taxing authorities an
amount in cash equal to a percentage of this compensation income at the
time of exercise, and may refuse to honor the exercise and refuse to
deliver Shares if such withholding amounts are not delivered at the time
of exercise.
<PAGE>
(2) Disposition of Shares. If the Optionee fields NSO
Shares for at least one year, any gain realized on disposition of the
Shares will be treated as long-term capital gain for federal income tax
purposes.
7. Entire Agreement. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and
supersede in their entirety ail prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may
not be modified adversely to the Optionee's interest except by means of
a writing signed by the Company and Optionee.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND
AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE
HEREOF IS EARNED ONLY BY CONTINUING AS AN EMPLOYEE OR CONSULTANT AT THE
WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN E~RESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS AN
EMPLOYEE OR CONSULTANT FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S
RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS AN EMPLOYEE OR CONSULTANT
AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's
representative below, you and the Company agree that this Option is
granted under and governed by the terms and conditions of the Plan and
this Option Agreement. Optionee has reviewed the Plan and this Option
Agreement in their entirety, has had an opportunity to obtain the advice
of counsel prior to executing this Option Agreement and fully
understands all provisions of the Plan and Option Agreement. Optionee
hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to
the Plan and Option Agreement. Optionee further agrees to notify the
Company upon any change in the residence address indicated below.
OPTIONEE: INTEGRATED PACKAGING ASSEMBLY CORPORATION
Signature: _________________ By:__________________________
Print Name:_____________ Title:_______________________
Address: __________________________
<PAGE>
EXHIBIT A
NONSTATUTORY STOCK PLAN
EXRCISE NOTICE
Alfred V. Larrenaga
Integrated Packaging Assembly Corporation
2221 Old Oakland Road
San Jose, CA 95131
1. Exercise of Option. Effective as of today, ________,
199_, the undersigned ("Purchaser") hereby elects to purchase
shares (the "Shares") of the Common Stock of Integrated Packaging
Assembly Corporation (the "Company") under and pursuant to the
Nonstatutory Stock Plan (the "Plan") and the Stock Option Agreement
dated _________, 199_ (the "Option Agreement"). The purchase price for
the Shares shall be $_____________, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the
Company the full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that
Purchaser has received, read and understood the Plan and the Option
Agreement and agrees to abide by and be bound by their terms and
conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the Shares, no right to
vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise
of the Option. The Shares so acquired shall be issued to the Optionee as
soon as practicable after exercise of the Option. No adjustment will be
made for a dividend or other right for which the record date is prior to
the date of issuance, except as provided in Section 13 of the Plan.
5. Tax Consultation. Purchaser understands that Purchaser may
suffer adverse tax consequences as a result of Purchaser's purchase or
disposition of the Shares. Purchaser represents that Purchaser has
consulted with any tax consultants Purchaser deems advisable in
connection with the purchase or disposition of the Shares and that
Purchaser is not relying on the Company for any tax advice.
6. Entire Agreement. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the
Option Agreement constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede in their entirety all
prior undertakings and agreements of the Company and Purchaser with
respect to the subject matter hereof, and may not be modified adversely
to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser.
Submitted by: Accepted on ___________, 199_ by:
PURCHASER: INTEGRATED PACKAGMG ASSEMBLY CORPORATION
Signature:___________________ By:_________________________
Print Name:__________________ Title:______________________
Address:_____________________ Address: 2221 Old Oakland Road
San Jose, CA 95131
EXHIBIT 10.29
INTEGRATED PACKAGING ASSEMBLY CORPORATION
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
1 DEFINITIONS AND CONSTRUCTION------------------------------ 1
1.1 Definitions------------------------------------------- 1
1 .2 Accounting and Other Terms---------------------------- 9
2 LOAN AND TERMS OF PAYMENT--------------------------------- 10
2.1 Credit Extensions------------------------------------- 10
Overadvances---------------------------------------------- 10
Interest Rates, Payments, and Calculations---------------- 14
Crediting Payments---------------------------------------- 14
Fees------------------------------------------------------ 15
Additional Costs------------------------------------------ 15
Term------------------------------------------------------ 16
3. CONDITIONS OF LOANS------------------------------------------ 16
3.1 Conditions Precedent to Initial Credit Extension---- 16
3.2 Conditions Precedent to all Credit Extensions------- 16
4. CREATION OF SECURITY INTEREST-------------------------------- 17
4.1 Grant of Security Interest-------------------------- 17
4.2 Delivery of Additional Documentation Required------- 17
4.3 Right to Inspect------------------------------------ 17
5. REPRESENTATIONS AND WARRANTIES------------------------------- 17
5.1 Due Organization and Qualification------------------ 17
5.2 Due Authorization; No Conflict---------------------- 17
5.3 No Prior Encumbrances------------------------------- 18
5.4 Bona Fide Eligible Accounts------------------------- 18
5.5 Merchantable Inventory------------------------------ 18
5.6 Intellectual Property------------------------------- 18
5.7 Name; Location of Chief Executive Office------------ 18
5.8 Litigation------------------------------------------ 18
5.9 No Material Adverse Change in Financial Statements-- 18
5.10 Solvency-------------------------------------------- 19
5.11 Regulatory Compliance------------------------------- 19
5.12 Environmental Condition----------------------------- 19
5.13 Taxes----------------------------------------------- 19
5.14 Subsidiaries---------------------------------------- 19
5.15 Government Consents--------------------------------- 10
5.16 Full Disclosure------------------------------------- 20
6 AFFIRMATIVE COVENANTS------------------------------------- 20
6.1 Good Standing--------------------------------------- 20
6.2 Government Compliance------------------------------- 20
6.3 Financial Statements, Reports, Certificates--------- 20
6.4 Inventory; Returns---------------------------------- 21
6.5 Taxes----------------------------------------------- 21
6.6 Insurance------------------------------------------- 21
6.7 Principal Depository-------------------------------- 22
6.8 Debt-Net Worth Ratio-------------------------------- 22
6.9 Tangible Net Worth---------------------------------- 22
<PAGE>
6.10 Profitability--------------------------------------- 22
6.11 Liquidity, Debt Service Coverage------------------- 22
6.12 Further Assurances--------------------------------- 22
NEGATIVE COVENANTS---------------------------------------- 22
7.1 Dispositions---------------------------------------- 23
7.2 Changes in Business, Ownership, Management
or Business Locations------------------------------- 23
7.3 Mergers or Acquisitions----------------------------- 23
7.4 Indebtedness---------------------------------------- 23
7.5 Encumbrances---------------------------------------- 23
7.6 Distributions--------------------------------------- 23
7.7 Investments----------------------------------------- 23
7.8 Transactions with Affiliates------------------------ 24
7.9 Intellectual Property Agreements-------------------- 24
7.10 Subordinated Debt----------------------------------- 24
7.11 Inventory------------------------------------------- 24
7.12 Compliance------------------------------------------ 24
EVENTS OF DEFAULT----------------------------------------- 24
8.1 Payment Default------------------------------------- 24
8.2 Covenant Default------------------------------------ 25
8.3 Material Adverse Change----------------------------- 25
8.4 Attachment------------------------------------------ 25
8.5 Insolvency------------------------------------------ 25
8.6 Other Agreements------------------------------------ 26
8.7 Subordinated Debt----------------------------------- 26
8.8 Judgments------------------------------------------- 26
8.9 Misrepresentations---------------------------------- 26
9. BANK'S RIGHTS AND REMEDIES-------------------------------- 26
9.1 Rights and Remedies--------------------------------- 26
9.2 Power of Attorney----------------------------------- 27
9.3 Accounts Collection--------------------------------- 28
9.4 Bank Expenses--------------------------------------- 28
9.5 Bank's Liability for Collateral--------------------- 28
9.6 Remedies Cumulative--------------------------------- 28
9.7 Demand; Protest------------------------------------- 29
10. NOTICES--------------------------------------------------- 29
11. CHOICE OF LAW AND VENUE----------------------------------- 29
12. GENERAL PROVISIONS---------------------------------------- 29
12.1 Successors and Assigns------------------------------ 29
12.2 Indemnification------------------------------------- 30
12.3 Time of Essence------------------------------------- 31
12.4 Severability of Provisions-------------------------- 31
12.5 Amendments in Writing, Integration------------------ 31
12.6 Counterparts---------------------------------------- 31
12.7 Survival-------------------------------------------- 31
12.8 Confidentiality------------------------------------- 31
<PAGE>
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Agreement")
is entered into as of December 31, 1997, by and between SILICON VALLEY
BANK ("Bank") and INTEGRATED PACKAGING ASSEMBLY CORPORATION
("Borrower").
RECITALS
A. Borrower and Bank are parties to that certain Loan and
Security Agreement dated as
of June 21, 1995, as amended (collectively, the "Original Agreement").
B. Borrower and Bank desire to amend and restate the Original
Agreement on the terms stated herein. This Agreement amends and restates
in its entirety the Original Agreement, and sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the
amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions.
As used in this Agreement, the following terms shall have
the following
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations
owing to Borrower arising out of the sale or lease of goods (including,
without limitation, the licensing of software and other technology) or
the rendering of services by Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed
by Borrower and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the
Committed Revolving Line.
"Affiliate" means, with respect to any Person, any Person
that owns or controls directly or indirectly such Person, any Person
that controls or is controlled by or is under common control with such
Person, and each of such Person's senior executive officers, directors,
partners and, for any Person that is a limited liability company, such
Persons, managers and members.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in
connection with the preparation, negotiation, administration, and
enforcement of the Loan Documents; and Bank's reasonable attorneys' fees
and expenses incurred in amending, enforcing or defending the Loan
Documents (including fees and expenses of appeal or review, or those
incurred in any Insolvency Proceeding), whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including without limitation: ledgers; records concerning Borrower's
assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment,
containing such information.
<PAGE>
"Borrowing Base" means an amount equal to eighty percent
(80%) of Eligible Accounts, as determined by Bank with reference to the
most recent Borrowing Base Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which banks in the State of California are authorized or
required to close.
"Cash Management Sublimit" has the meaning set forth in
Section 2.1.3.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on Exhibit A
attached hereto.
"Committed Revolving Line" means a credit extension of up to
Five Million Dollars ($5,000,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person
with respect to (i) any indebtedness, lease, dividend, letter of credit
or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or
discounted or sold with recourse by that Person, or in respect of which
that Person is otherwise directly or indirectly liable; (ii) any
obligations with respect to undrawn letters of credit issued for the
account of that Person; and (iii) all obligations arising under any
interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or
arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided,
however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be
an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if
not stated or determinable, the maximum reasonably anticipated liability
in respect thereof as determined by such Person in good faith; provided,
however, that such amount shall not in any event exceed the maximum
amount of the obligations under the guarantee or other support
arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work
or authorship and derivative work thereof, whether published or
unpublished and whether or not the same also constitutes a trade secret,
now or hereafter existing, created, acquired or held.
"Credit Extension" means each Advance, Equipment Facility A
Advance, Equipment Facility B Advance, Letter of Credit, Term Loan,
Exchange Contract or any other extension of credit by Bank for the
benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current
assets on the consolidated balance sheet of Borrower and its
Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Borrower and its
Subsidiaries, as at such date, plus, to the extent not already included
therein, all outstanding Credit Extensions made under this Agreement,
including all Indebtedness that is payable upon demand or within one
year from the date of determination thereof unless such Indebtedness is
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renewable or extendable at the option of Borrower or any Subsidiary to a
date more than one year from the date of determination, but excluding
Subordinated Debt.
"Debt Service Coverage" means, as measured quarterly as of
the last day of each fiscal quarter of Borrower, on a consolidated basis
determined in accordance with GAAP, the ratio of (a) an amount equal to
the sum of (i) net income, plus (ii) depreciation and amortization of
intangible assets and other non-cash charges to income plus (iii)
quarterly interest expense to (b) an amount equal to the sum of (x) all
scheduled repayments and mandatory prepayments of principal on account
of long-term Debt for such quarter plus (y) quarterly interest expense.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of
Borrower's representations and warranties to Bank set forth in Section
5.4; provided, that standards of eligibility may be fixed and revised
from time to time by Bank in Bank's reasonable judgment and upon thirty
(30) days prior written notification thereof to Borrower in accordance
with the provisions hereof. Unless otherwise agreed to by Bank in
writing, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay
within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty
percent (50%) of whose Accounts the account debtor has failed to pay
within ninety (90) days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five
percent (25%) of all Accounts, except with respect to Alliance
Semiconductor, Intel, Cirrus Logic, SanDisk, Orbit Semiconductor, VLSI
Technology, and Atmel Semiconductor, as to which the percentage shall be
thirty-five percent (35%), to the extent such obligations exceed the
aforementioned percentages, except as approved in writing by Bank;
(d) Accounts with respect to which the account debtor does
not have its principal place of business in the United States except for
Eligible Foreign Accounts;
(e) Accounts with respect to which the account debtor is a
federal, state or local governmental entity or any department, agency,
or instrumentality thereof except for those Accounts of the United
States or any department, agency or instrumentality thereof as to which
the payee has assigned its rights to payment thereof to Bank and the
assignment has been acknowledged, pursuant to the Assignment of Claims
Act of 1940, as amended (31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable to
the account debtor, but only to the extent of any amounts owing to the
account debtor (sometimes referred to as "contra" accounts, e.g.
accounts payable, customer deposits, credit accounts, etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or
other terms by reason of which the payment by the account debtor may be
conditional;
(h) Accounts with respect to which the account debtor is
an Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as to which
Bank believes, in its sole discretion, that there may be a basis for
dispute (but only to the extent of the amount subject to such dispute or
claim), or is subject to any Insolvency Proceeding, or becomes
insolvent, or goes out of business; and
<PAGE>
(j) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to
which the account debtor does not have its principal place of business
in the United States and that are: (1) covered by credit insurance in
form and amount, and by an insurer satisfactory to Bank less the amount
of any deductible(s) which may be or become owing thereon; or (2)
supported by one or more letters of credit either advised or negotiated
through Bank or in favor of Bank as beneficiary, in an amount and of a
tenor, and issued by a financial institution, acceptable to Bank; or (3)
that Bank approves on a case-by-case basis.
"Equipment" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools,
parts and attachments in which Borrower has any interest.
"Equipment Facility A Advance" has the meaning set forth in
Section 2.1.4.
"Equipment Facility B Advance" has the meaning set forth in
Section 2.1.5.
"ERISA" means the Employment Retirement Income Security Act
of 1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money
or the deferred purchase price of property or services, including
without limitation reimbursement and other obligations with respect to
surety bonds and letters of credit, (b) all obligations evidenced by
notes, bonds, debentures or similar instruments, (c) all capital lease
obligations and (d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, formal or
informal moratoria, compositions, extension generally with its
creditors, or proceedings seeking reorganization, arrangement, or other
relief.
"Intellectual Property Collateral" means all of Borrower's
right, title and
interest in and to the following:
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all
intellectual property rights in computer software and computer software
products now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present
and future infringement of any of the rights included above, with the
right, but not the obligation, to sue for and collect such damages for
said use or infringement of the intellectual property rights identified
above;
<PAGE>
(e) All licenses or other rights to use any of the
Copyrights, Patents, Trademarks, or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such license
or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents or Mask Works; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract
of service, of every kind and description now or at any time hereafter
owned by or in the custody or possession, actual or constructive, of
Borrower, including such inventory as is temporarily out of its custody
or possession or in transit and including any returns upon any accounts
or other proceeds, including insurance proceeds, resulting from the sale
or disposition of any of the foregoing and any documents of title
representing any of the above.
"Investment" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
"Letter of Credit" means a letter of credit or similar
undertaking issued by
Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in
Section 2.1;2.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement any
note or notes executed by Borrower, and any other present or future
agreement entered into between Borrower and/or for the benefit of Bank
in connection with this Agreement, all as amended, extended or restated
from time to time.
"Mask Works" means all mask works or similar rights
available for the protection of semiconductor chips, now owned or
hereafter acquired.
"Material Adverse Effect" means a material adverse effect
on (i) the business operations or condition (financial or otherwise) of
Borrower and its Subsidiaries taken as a whole or (ii) the ability of
Borrower to repay the Obligations or otherwise perform its obligations
under the Loan Documents.
"Maturity Date" means December 1, 2000.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
<PAGE>
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due or
to become due, now existing or hereafter arising, including any interest
that accrues after the commencement of an Insolvency Proceeding and
including any debt, liability, or obligation owing from Borrower to
others that Bank may have obtained by assignment or otherwise.
"Patents" means all patents, patent applications and like
protections, including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part
of the same.
"Payment Date" means the last calendar day of each month,
commencing on the first such date after the Closing Date and ending on
the Revolving Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising
under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Indebtedness to trade creditors and with respect to
surety bonds and similar obligations incurred in the ordinary course of
business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and
Contingent Obligations of any Subsidiary with respect to obligations of
Borrower (provided that the primary obligations are not prohibited
hereby), and Indebtedness of any Subsidiary to any other Subsidiary and
Contingent Obligations of any Subsidiary with respect to obligations of
any other Subsidiary (provided that the primary obligations are not
prohibited hereby);
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases or indebtedness incurred solely to
purchase equipment which is secured in accordance with clause (c) of
"Permitted Liens" below and is not in excess of the lesser of the
purchase price of such equipment or the fair market value of such
equipment on the date of acquisition;
(h) Extensions, refinancing, modifications, amendments
and restatements of any of items of Permitted Indebtedness (a) through (g)
above, provided that the principal amount thereof is not increased or
the terms thereof are not modified to impose more burdensome terms upon
Borrower or its Subsidiary, as the case may be; and
(k) Other Indebtedness not otherwise permitted by
Section 7.4 not exceeding One Hundred Fifty Thousand Dollars ($150,000) in
the aggregate outstanding at any time.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed
in the Schedule;
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency
or any State thereof maturing within one (1) year from
<PAGE>
the date of acquisition thereof, (ii) commercial paper maturing no more
than one (1) year from the date of creation thereof and currently having
the highest rating obtainable from either Standard & Poor's Corporation
or Moody's Investors Service, Inc., (iii) certificates of deposit
maturing no more than one (1) year from the date of investment therein
issued by Bank, and (iv) any Investments permitted by Borrower's
investment policy, as amended from time to time, provided that such
investment policy (and such amendment thereto) has been approved by
Bank, which approval shall not be unreasonably withheld;
(c) Investments consisting of the endorsement of
negotiable instruments for deposit or collection or similar transaction
in the ordinary course of business;
(d) Investments accepted in connection with Transfers
permitted by Section 7.1;
(e) Investments consisting of (i) compensation of
employees, officers and directors of Borrower or its Subsidiaries so
long as the Board of Directors of Borrower determines that such
compensation is in the best interests of Borrower, (ii) travel advances,
employee relocation loans and other employee loans and advances in the
ordinary course of business, (iii) loans to employees, officers or
directors relating to the purchase of equity securities of Borrower or
its Subsidiaries pursuant to employee stock purchase plans or agreements
approved by Borrower's Board of Directors, and (iv) other loans to
officers and employees approved by the Board of Directors of Borrower in
an aggregate amount not in excess of One Hundred Fifty Thousand Dollars
($150,000) outstanding at any time;
(f) Investments (including debt obligations) received
in connection with the bankruptcy or reorganization of customers or
suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary course of
business;
Investments pursuant to or arising under currency agreements or interest
rate agreements entered into in the ordinary course of business;
(h) Investments consisting of notes receivable of, or
prepaid royalties and other credit extensions to, customers and
suppliers who are not Affiliates, in the ordinary course of business;
provided that this paragraph (i) shall not apply to Investments by
Borrower in any Subsidiary;
(i) Investments constituting acquisitions permitted under
Section 7.3;
(j) Deposit accounts of Borrower in which Bank has a Lien
prior to any other Lien;
(k) Deposit accounts of any Subsidiaries maintained ine
the ordinary course of business; and
(1) Other Investments not otherwise permitted by Section
7.7 not exceeding One Hundred Fifty Thousand Dollars ($150,000) in the
aggregate outstanding at any time.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed
in the Schedule or arising under this Agreement or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested
in good faith by appropriate proceedings and as to
<PAGE>
which adequate reserves are maintained on Borrower's Books in accordance
with GAAP, provided the same have no priority over any of Bank's
security interests;
(c) Liens (i) upon or in any Equipment acquired or held
by Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing
the acquisition of such Equipment, or (ii) existing on such equipment at
the time of its acquisition, provided that the Lien is confined solely
to the property so acquired and improvements thereon, and the proceeds
of such Equipment;
(d) Liens on Equipment leased by Borrower or any
Subsidiary pursuant to an operating or capital lease in the ordinary
course of business (including proceeds thereof and accessions thereto)
incurred solely for the purpose of financing the lease of such Equipment
(including Liens pursuant to leases permitted pursuant to Section 7.1
and Liens arising from UCC financing statements regarding leases
permitted by this Agreement);
(e) Leases or subleases and licenses or sublicenses
granted to others in the ordinary course of Borrower's business not
interfering in any material respect with the business of Borrower and
its Subsidiaries taken as a whole, and any interest or title of a
lessor, licensor or under any lease or license, provided that such
leases, subleases, licenses and sublicenses do not prohibit the grant of
the security interest granted hereunder;
(f) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were acquired
by Borrower or any Subsidiary (including Liens on assets of any
corporation that existed at the time it became or becomes a Subsidiary);
provided such Liens are not granted in contemplation of or in connection
with the acquisition of such asset by Borrower or a Subsidiary;
(g) Liens arising from judgments, decrees or attachments
in circumstances
not constituting an Event of Default under Section 8.8;
(h) Easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property not constituting a Material Adverse
Effect;
(i) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payments of customs duties in
connection with the importation of goods;
(j) Liens that are not prior to the Lien of Bank which
constitute rights of set-off of a customary nature or banker's Liens
with respect to amounts on deposit, whether arising by operation of law
or by contract, in connection with arrangement entered in to with banks
in the ordinary course of business;
(k) Earn-out and royalty obligations existing on the date
hereof or entered into in connection with an acquisition permitted by
Section 7.3;
(l) Liens on insurance proceeds in favor of insurance
companies granted
solely as security for financed premiums; and
(m) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (a), (c), (d), (e), (f) and (k) above, provided
that any extension, renewal or replacement Lien shall be limited to the
property encumbered by the existing Lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase.
<PAGE>
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust,
unincorporated organization, association, corporation, institution,
public benefit corporation, firm, joint stock company, estate, entity or
governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not
such announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the
unrestricted cash; unrestricted cash-equivalents; net, billed accounts
receivable and investments with maturities of less than one year of
Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive
Officer, the President, the Chief Financial Officer and the Controller
of the Borrower.
"Revolving Maturity Date" means the date immediately
preceding the first anniversary of the Closing Date.
"Schedule" means the schedule of exceptions attached hereto,
if any.
"Subordinated Debt" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Bank on terms
acceptable to Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business
entity of which more than fifty percent (50%) of the voting stock or
other equity interests is owned or controlled, directly or indirectly,
by such Person or one or more Affiliates of such Person.
"Tangible Net Worth" means, as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries minus,
without duplication, (i) the sum of any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and
research and development expenses except prepaid expenses, and (c) all
reserves not already deducted from assets, and (ii) Total Liabilities.
"Total Liabilities" means, as of any applicable date, all
obligations that should, in accordance with GAAP, be classified as
liabilities on the consolidated balance sheet of Borrower, including in
any event all Indebtedness (other than Contingent Obligations), but
specifically excluding Subordinated Debt and deferred gain on sale of
the building located at the address set forth in Section 10 hereof.
"Trademarks" means any trademark and servicemark rights,
whether registered or not, applications to register and registrations of
the same and like protections, and the entire goodwill of the business
of Assignor connected with and symbolized by such trademarks.
1.2 Accounting: and Other Terms.
All accounting terms not specifically defined herein shall
be construed in accordance with GAAP and all calculations and
determinations made hereunder shall be made in accordance with GAAP.
When used herein, the term "financial statements" shall include the
notes and schedules thereto. The terms "including" / "includes" shall
always be read as meaning "including (or includes) without limitation,"
when used herein or in any other Loan Document.
<PAGE>
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions.
Borrower promises to pay to the order of Bank, in lawful
money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder in
accordance with the terms hereof. Borrower shall also pay interest on
the unpaid principal amount of such Credit Extensions at rates in
accordance with the terms hereof.
2.1.1 Revolving; Advances
(a) Subject to and upon the terms and conditions
of this Agreement, Bank agrees to make Advances to Borrower in an aggregate
outstanding amount not to exceed the lesser of (a) the Committed
Revolving Line minus (i) the Cash Management Sublimit minus (ii) the
face amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), or (b) the Borrowing Base minus (i) the
face amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit). Subject to the terms and conditions of
this Agreement, amounts borrowed pursuant to this Section 2.1.1 may be
repaid and reborrowed at any time prior to the Revolving Maturity Date.
(b) Whenever Borrower desires an Advance,
Borrower will notify Bank by facsimile transmission or telephone no later
than 3:00 p.m. Pacific time, on the Business Day that the Advance is to be
made. Each such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of Exhibit B hereto. Bank
is authorized to make Advances under this Agreement, based upon
instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank's discretion
such Advances are necessary to meet Obligations which have become due
and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a
Responsible Officer or a designee thereof, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by Bank as a
result of such reliance. Bank will credit the amount of Advances made
under this Section 2.1.1 to Borrower's deposit account.
(c) The Committed Revolving Line shall terminate
on the Revolving Maturity Date, at which time all Advances under this
Section 2.1.1 and other amounts due under this Agreement (except as
otherwise expressly specified herein) shall be immediately due and
payable.
2.1.2 Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued Letters of Credit
for the account of Borrower in an aggregate outstanding face amount not
to exceed the lesser of (a) the Committed Revolving Line minus (i) the
Cash Management Sublimit minus (ii) the then outstanding principal
balance of the Advances, or (b) the Borrowing Base minus (i) the then
outstanding principal balance of the Advances; provided that the face
amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve) shall
not in any case exceed Four Million Dollars ($4,000,000). Each Letter of
Credit shall have an expiry date no later than ninety (90) days after
the Revolving Maturity Date, provided that Borrower's letter of credit
reimbursement obligation shall be secured by cash on terms acceptable to
Bank at any time after the Revolving Maturity Date if the term of this
Agreement is not extended by Bank. All Letters of Credit shall be, in
form and substance, acceptable to Bank in its sole discretion and shall
be subject to the terms and conditions of Bank's form of standard
Application and Letter of Credit Agreement.
<PAGE>
(b) The obligation of Borrower to immediately
reimburse Bank for drawings made under Letters of Credit shall be
absolute, unconditional and irrevocable, and shall be performed strictly
in accordance with the terms of this Agreement and such Letters of
Credit, under all circumstances whatsoever. Borrower shall indemnify,
defend, protect and hold Bank harmless from any loss, cost, expense or
liability, including, without limitation, reasonable attorneys' fees,
arising out of or in connection with any Letters of Credit.
(c) Borrower may request that Bank issue a Letter
of Credit payable in a currency other than United States Dollars. If a
demand for payment is made under any such Letter of Credit, Bank shall
treat such demand as an Advance to Borrower of the equivalent of the
amount thereof (plus cable charges) in United States currency at the
then prevailing rate of exchange in San Francisco, California, for sales
of that other currency for cable transfer to the country of which it is
the currency.
(d) Upon the issuance of any Letter of Credit
payable in a currency other than United States Dollars, Bank shall
create a reserve under the Committed Revolving Line for Letters of
Credit against fluctuations in currency exchange rates, in an amount
equal to ten percent (10%) of the face amount of such Letter of Credit.
The amount of such reserve may be amended by Bank from time to time to
account for fluctuations in the exchange rate. The availability of funds
under the Committed Revolving Line shall be reduced by the amount of
such reserve for so long as such Letter of Credit remains outstanding.
2.1.3 Cash Management Sublimit.
Subject to the terms and conditions of this
Agreement Borrower may utilize up to an aggregate amount not to exceed
One Million Dollars ($1,000,000) (the "Cash Management Sublimit") for
cash management services provided by Bank, which services may include
merchant services, PC-AGH, direct deposit of payroll, business credit
card, Firstax, and other related check cashing services as defined in
that certain Cash Management Services Agreement provided to Borrower in
connection herewith (a "Cash Management Service" or the "Cash Management
Services"). Any amounts actually paid by Bank in respect of a Cash
Management Service or Cash Management Services shall, when paid,
constitute an Advance under the Committed Revolving Line.
2.1.4 Equipment Facility A Advances
Borrower and Bank acknowledge that Bank has made
certain advances to Borrower pursuant to the Original Agreement for the
purchase of Equipment (each an "Equipment Facility A Advance" and,
collectively, the "Equipment Facility A Advances"). As of December 31,
1997, the aggregate principal amount of outstanding Equipment Facility A
Advances is equal to Nine Hundred Sixteen Thousand, Six Hundred Sixty-
Six Dollars and Fifty-Eight Cents ($916,666.58). The principal amount of
the outstanding Equipment Facility A Advances shall be payable in
twenty-two (22) consecutive equal monthly installments of $41,666.67
each, plus accrued interest, beginning on January 1, 1998, and
continuing on the same day of each month thereafter through October 1,
1999, at which time all amounts outstanding under this Section 2.1.4
shall be immediately due and payable. Borrower shall not request or
receive additional Equipment Facility A Advances. Equipment Facility A
Advances, once repaid, may not be reborrowed.
2.1.5 Equipment Facility B Advances.
Borrower and Bank acknowledge that in addition to the
Equipment Facility A Advances, Bank has made certain additional advances
to Borrower pursuant to the Original Agreement for the purchase of
Equipment (each an "Equipment Facility B Advance" and, collectively, the
"Equipment Facility B Advances"). As of December 31, 1997, the aggregate
principal amount of outstanding Equipment Facility B Advances is equal
to One Million, Four Hundred Ninety-Nine
<PAGE>
Thousand, Nine Hundred Ninety-Nine Dollars and Ninety-Six Cents
($1,499,999.96). The principal amount of the outstanding Equipment
Facility B Advances shall be payable in thirty-six (36) consecutive
equal monthly installments of $41,666.67 each, plus accrued interest,
beginning on January 1, 1998, and continuing on the same day of each
month thereafter through December 1, 2000, at which time all amounts
outstanding under this Section 2.1.5, and any other amounts outstanding
under this Agreement shall be immediately due and payable. Borrower
shall not request or receive additional Equipment Facility B Advances.
Equipment Facility B Advances, once repaid, may not be reborrowed.
2.1.6 Additional Provisions Regarding LIBOR.
(a) The following definitions shall apply in
this Section 2.1.6:
"Interest Period" means for each LIBOR Rate
Advance, a period of approximately one month, provided that the last day
of an Interest Period for a LIBOR Rate Advance shall be determined in
accordance with the practices of the London interbank market as from
time to time in effect, provided, further, in all cases such period
shall expire not later than the applicable maturity date.
"LIBOR Base Rate" means, for any Interest
Period for a LIBOR Rate Advance, the rate of interest per annum determined
by Bank to be the per annum rate of interest at which deposits in United
States Dollars are offered to Bank in the London interbank market in
which Bank customarily participates at 11:00 A.M. (local time in such
interbank market) two (2) Business Days before the first day of such
Interest Period for a period approximately equal to such Interest Period
and in an amount approximately equal to the amount of such Advance.
"LIBOR Rate" shall mean, for any Interest
Period for a LIBOR Rate Advance, a rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) equal to (i) the LIBOR Base Rate
for such Interest Period divided by (ii) 1 minus the Reserve Requirement
for such Interest Period.
"LIBOR Rate Advances" means any Equipment
Facility A Advances or Equipment Facility B Advances made or a portion
thereof on which interest is payable based on the LIBOR Rate in
accordance with the terms hereof.
"Prime Rate Advances" means any Advances made
or a portion thereof on which interest is payable based on the Prime Rate
in accordance with the terms hereof.
"Regulatory Change" means, with respect to
Bank, any change on or after the date of this Agreement in United States
federal, state or foreign laws or regulations, including Regulation D,
or the adoption or making on or after such date of any interpretations,
directives or requests applying to a class of lenders including Bank of
or under any United States federal or state, or any foreign, laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"Reserve Requirement" means, for any
Interest Period, the average maximum rate at which reserves (including
any marginal, supplemental or emergency reserves) are required to be
maintained during such Interest Period under Regulation D against
"Eurocurrency liabilities" (as such term is used in Regulation D) by
member banks of the Federal Reserve System. Without limiting the effect
of the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by Bank by reason of any Regulatory
Change against (i) any category of liabilities which includes deposits
by reference to which the LIBOR Rate is to be determined as provided in
the definition of "LIBOR Base Rate" or (ii) any category of extensions
of credit or other assets which include Advances.
<PAGE>
(b) The interest rate applicable to each Equipment
Facility A Advance and each Equipment Facility B Advance shall initially
be equal to and shall adjust automatically on the expiration of each
Interest Period to be equal to the then-applicable 30-day LIBOR Rate
plus 2.5%.
(c) If for any reason (including voluntary or
mandatory prepayment or acceleration), Bank receives all or part of the
principal amount of a LIBOR Rate Advance prior to the last day of the
Interest Period for such Advance, Borrower shall immediately notify
Borrower's account officer at Bank and, on demand by Bank, pay Bank the
amount (if any) by which (i) the additional interest which would have
been payable on the amount so received had it not been received until
the last day of such Interest Period exceeds (ii) the interest which
would have been recoverable by Bank by placing the amount so received on
deposit in the certificate of deposit markets or the offshore currency
interbank markets or United States Treasury investment products, as the
case may be, for a period starting on the date on which it was so
received and ending on the last day of such Interest Period at the
interest rate determined by Bank in its reasonable discretion. Bank's
determination as to such amount shall be conclusive absent manifest
error.
(d) Borrower shall pay to Bank, upon the request
of Bank, such amount or amounts as shall be sufficient (in the sole good
faith opinion of such Bank) to compensate it for any loss, costs or
expense incurred by it as a result of (i) any failure by Borrower to
borrow a LIBOR Rate Advance on the date for such borrowing specified in
the relevant notice of borrowing hereunder or (ii) the prepayment
(including acceleration) of any LIBOR Rate Advance on a day which is not
the last day of an Interest Period.
(e) If Bank shall determine that the adoption
or implementation of any applicable law, rule, regulation or treaty
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Bank (or its applicable lending
office) with any respect or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the
rate of return on capital of Bank or any person or entity controlling
Bank (a "Parent") as a consequence of its obligations hereunder to a
level below that which Bank (or its Parent) could have achieved but for
such adoption, change or compliance (taking into consideration its
policies with respect to capital adequacy) by an amount deemed by Bank
to be material, then from time to time Borrower shall pay to Bank such
additional amount or amounts as will compensate Bank for such reduction
upon presentation by Bank of a statement of the amount and setting forth
Bank's calculation thereof, all in reasonable detail, which statement
shall be deemed true and correct, absent manifest error; provided,
however, that Borrower shall not be liable for any such amount
attributable for any period prior to one hundred eighty (180) days prior
to the date of such certificate.
(f) If at any time Bank, in its sole and absolute
discretion, determines that: (i) the amount of the LIBOR Rate Advances
for periods equal to the corresponding Interest Periods are not
available to Bank in the offshore currency interbank markets, or (ii)
the LIBOR Rate does not accurately reflect the cost to Bank of lending
the LIBOR Rate Advance, then Bank shall promptly give notice thereof to
Borrower, and upon the giving of such notice Bank's obligation to make
the LIBOR Rate Advances shall terminate. If it shall become unlawful for
Bank to continue to fund or maintain any LIBOR Rate Advances, or to
perform its obligations hereunder, upon demand by Bank, Borrower shall
prepay the LIBOR Rate Advances in full with accrued interest thereon and
all other amounts payable by Borrower hereunder (including, without
limitation, any amount payable in connection with such prepayment
pursuant to Section 2.1.6) or, at the option of Borrower, such LIBOR
Rate Advances shall be converted into Prime Rate Advances.
<PAGE>
2.2 Overadvances.
If, at any time or for any reason, the amount of Obligations
owed by Borrower to Bank pursuant to Section 2.1.1, 2.1.2 and 2.13 of
this Agreement is greater than the lesser of (i) the Committed Revolving
Line or (ii) the Borrowing Base, Borrower shall immediately pay to Bank,
in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate.
(i) Advances. Except as set forth in Section 2.3(b),
any Advances shall bear interest on the average daily balance thereof,
at a per annum rate equal to one and one quarter (1.25) percentage
points above the Prime Rate. The foregoing notwithstanding, except as
set forth in Section 2.3(b), effective upon the first day of the month
following Bank's receipt of financial statements demonstrating
Borrower's achievement of two consecutive fiscal quarters of a minimum
net profit of at least One Dollar ($1), any Advances shall bear interest
on the average daily balance thereof, at a per annum rate equal to one
half (05) of a percentage point above the Prime Rate.
(ii) Equipment Facility A Advances and Equipment
Facility B Advances. Except as set forth in Section 2.3(b), any
Equipment Facility A Advances and Equipment Facility B Advances shall
bear interest on the outstanding balance thereof at a rate equal to two
and one-half percent (2.5%) above the LIBOR Base Rate.
(b) Default Rate. All Obligations shall bear interest,
from and after the occurrence of an Event of Default, at a rate equal to
five (5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest on the Advances shall be due and
payable on each Payment Date, and on the Revolving Maturity Date.
Borrower hereby authorizes Bank to debt any accounts with Bank,
including, without limitation, Account Number _________ for payments of
principal and interest due on the Obligations and any other amounts
owing by Borrower to Bank. Bank will notify Borrower of all debits which
Bank has made against Borrower's accounts. Any such debits against
Borrower's accounts in no way shall be deemed a set-off. Any interest
not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the
rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed
from time to time hereafter, the applicable rate of interest hereunder
shall be increased or decreased effective as of 12:01 a.m. on the day
the Prime Rate is changed, by an amount equal to such change in the
Prime Rate. All interest chargeable under the Loan Documents shall be
computed on the basis of a three hundred sixty (360) day year for the
actual number of days elapsed.
2.4 Crediting: Payments.
Prior to the occurrence of an Event of Default, Bank shall
credit a wire transfer of funds, check or other item of payment to such
deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire
transfer of funds, check, or other item of payment, whether directed to
Borrower's deposit account with Bank or to the Obligations or otherwise,
shall be immediately applied to conditionally reduce Obligations, but
shall not be considered a payment in respect of the Obligations unless
such payment is of immediately available federal funds or unless and
until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any
wire transfer or payment received by Bank after 3:00 P.M. Pacific time
shall be deemed to have been received by
<PAGE>
Bank as of the opening of business on the immediately following Business
Day. Whenever any payment to Bank under the Loan Documents would
otherwise be due (except by reason of acceleration) on a date that is
not a Business Day, such payment shall, instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall
accrue and be payable for the period of such extension.
2.5 Fees
Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Twelve Thousand
Five Hundred Dollars ($12,500), which fee shall be due on the Closing
Date and shall be fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees. Bank's
customary fees and out-of-pocket expenses for Bank's audits of
Borrower's Accounts, and for each appraisal of Collateral and financial
analysis and examination of Borrower performed from time to time by Bank
or its agents;
(c) Bank Expenses. Upon demand from Bank, including,
without limitation, upon the date hereof, all Bank Expenses incurred
through the date hereof, including reasonable attorneys' fees and
expenses and, after the date hereof, all Bank Expenses, including
reasonable attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs.
In case any change in any law, regulation, treaty or
official directive or the interpretation or application thereof by any
court or any governmental authority charged with the administration
thereof or the compliance with any guideline or request of any central
bank or other governmental authority (whether or not having the force of
law), in each case after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower
or otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of Bank imposed by the
United States of America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, Bank;
or
(c) imposes upon Bank any other condition with respect to
its performance under this Agreement, and the result of any of the
foregoing is to increase the cost to Bank, reduce the income receivable
by Bank or impose any expense upon Bank with respect to any loans, Bank
shall notify Borrower thereof. Borrower agrees to pay to Bank the amount
of such increase in cost, reduction in income or additional expense as
and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth
Bank's calculation thereof, all in reasonable detail, which statement
shall be deemed true and correct absent manifest error; provided,
however, that Borrower shall not be liable for any such amount
attributable to any period prior to the date one hundred eighty (180)
days prior to the date of such certificate.
<PAGE>
2.7 Term.
Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity
Date. Notwithstanding the foregoing, Bank shall have the right to
terminate its obligation to make Credit Extensions under this Agreement
immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination of this
Agreement, Bank's lien on the Collateral shall remain in effect for so
long as any Obligations (excluding Obligations under Section 2.6 and
12.2 to the extent they remain inchoate at the time outstanding payment
obligations are paid in full) are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension.
The obligation of Bank to make the initial Credit Extension
is subject to the condition precedent that Bank shall have received, in
form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with
respect to articles, bylaws, incumbency and resolutions authorizing the
execution and delivery of this Agreement;
(c) a warrant to purchase stock;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof;
(g) an audit of the Collateral, the results of which are
satisfactory to Bank; and
(h) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions.
The obligation of Bank to make each Credit Extension,
including the initial Credit Extension, is further subject to the following
conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as
of the date of such Payment/Advance Form and on the effective date of
each Credit Extension as though made at and as of each such date, and no
Event of Default shall have occurred and be continuing, or would result
from such Credit Extension. The making of each Credit Extension shall be
deemed to be a representation and warranty by Borrower on the date of
such Credit Extension as to the accuracy of the facts referred to in
this Section 3.2(b).
<PAGE>
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest.
Borrower grants and pledges to Bank a continuing security
interest in all presently existing and hereafter acquired or arising
Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in
the Schedule, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral
acquired after the date hereof, in each case, to the extent that a
security interest in such Collateral can be perfected by the filing of a
financing statement or, in the case of Collateral consisting of
instruments, documents, chattel paper or certificated securities, to the
extent that Bank takes possession of such Collateral. Bank agrees to
execute and deliver to Borrower from time to time such lien releases as
Borrower may request and as are necessary to give to other lenders which
finance equipment for Borrower a first priority security interest in the
equipment financed so long as the Liens and the Indebtedness incurred
with respect to such equipment financing are permitted under this
Agreement.
4.2 Delivery of Additional Documentation Required.
Borrower shall from time to time execute and deliver to
Bank, at the request of Bank, all Negotiable Collateral, all financing
statements and other documents that Bank may reasonably request, in form
satisfactory to Bank, to perfect and continue perfected Bank's security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents.
4.3 Right to Inspect.
Bank (through any of its officers, employees, or agents)
shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and
to make copies thereof and to check, test, and appraise the Collateral
in order to verify Borrower's financial condition or the amount,
condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification.
Borrower and each Subsidiary is a corporation duly existing
and in good standing under the laws of its state of incorporation and
qualified and licensed to do business in, and is in good standing in,
any state in which the conduct of its business or its ownership of
property requires that it be so qualified, except for states as to which
any failure to so qualify would not have a Material Adverse Effect.
5.2 Due Authorization; No Conflict.
The execution, delivery, and performance of the Loan
Documents are within Borrower's powers, have been duly authorized, and
are not in conflict with nor constitute a breach of any provision
contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to
which Borrower is a party or by which Borrower is bound. Borrower is not
in default under any agreement to which it is a party or by which it is
bound, which default could reasonably be expected to have a Material
Adverse Effect.
<PAGE>
5.3 No Prior Encumbrances.
Borrower has good and indefeasible title to the Collateral,
free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts.
The Eligible Accounts are bona fide existing obligations.
The service or property giving rise to such Eligible Accounts has been
performed or delivered to the account debtor or to the account debtor's
agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included
in any Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory.
All Inventory is in all material respects of good and
marketable quality, free from all material defects.
5.6 Intellectual Property.
Borrower is the sole owner of the Intellectual Property
Collateral, except for non-exclusive licenses granted by Borrower to its
customers in the ordinary course of business. Each of the Patents is
valid and enforceable, and no part of the Intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in
part, and no claim has been made that any part of the Intellectual
Property Collateral violates the rights of any third party.
5.7 Name; Location of Chief Executive Office.
Except as disclosed in the Schedule, Borrower has not done
business and will not, without at least thirty (30) days prior written
notice to Bank, do business under any name other than that specified on
the signature page hereof. The chief executive office of Borrower is
located at the address indicated in Section 10 hereof.
5.8 Litigation.
Except as set forth in the Schedule, there are no actions or
proceedings pending or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative
agency in which an adverse decision could reasonably be expected to have
a Material Adverse Effect or a material adverse effect on Borrower's
interest or Bank's security interest in the Collateral.
5.9 No Material Adverse Chance in Financial Statements.
All consolidated financial statements related to Borrower
and any Subsidiary that have been delivered by Borrower to Bank fairly
present in all material respects Borrower's consolidated financial
condition as of the date thereof and Borrower's consolidated results of
operations for the period then ended. There has not been a material
adverse change in the consolidated financial condition of Borrower since
the date of the most recent of such financial statements submitted to
Bank.
<PAGE>
5.10 Solvency.
The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its
liabilities; the Borrower is not left with unreasonably small capital
after the transactions contemplated by this Agreement; and Borrower is
able to pay its debts (including trade debts) as they mature.
5.11 Regulatory Compliance.
Borrower and each Subsidiary has met the minimum funding
requirements of ERISA with respect to any employee benefit plans subject
to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could reasonably be expected to have a
Material Adverse Effect. Borrower is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940. Borrower is not engaged principally,
or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations G, T and U of the Board of Governors of the
Federal Reserve System). Borrower has complied with all the provisions
of the Federal Fair Labor Standards Act. Borrower has not violated any
statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
5.12 Environmental Condition.
None of Borrower's or any Subsidiary's properties or assets
has ever been used by Borrower or any Subsidiary or, to the best of
Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with
applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a hazardous
waste or hazardous substance disposal site, or a candidate for closure
pursuant to any environmental protection statute; no lien arising under
any environmental protection statute has attached to any revenues or to
any real or personal property owned by Borrower or any Subsidiary; and
neither Borrower nor any Subsidiary has received a summons, citation,
notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action
or omission by Borrower or any Subsidiary resulting in the release or
other disposition of hazardous waste or hazardous substances into the
environment.
5.13 Taxes.
Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or
has made adequate provision for the payment of, all taxes reflected
therein, except those being contested in good faith by proper
proceedings with adequate reserves under GAAP.
5.14 Subsidiaries.
Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.
5.15 Government Consents.
Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with,
and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
<PAGE>
conducted except where the failure to obtain any such consent, approval
or authorization, to make any such declaration or filing, or to be given
any such notice could not reasonably be expected to have a Material
Adverse Effect.
5.16 Full Disclosure.
No representation, warranty or other statement made by
Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in
such certificates or statements not misleading (it being recognized by
Bank that the projections and forecasts provided by Borrower are not to
be viewed as facts and that actual results during the period or period
covered by any such projections and forecasts may differ from the
projected or forecasted results).
6.0 AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment
to make a Credit Extension hereunder, Borrower shall do all of the
following:
6.1 Good Standing.
Borrower shall maintain its and each of its Subsidiaries'
corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which
the failure to so qualify could reasonably be expected to have a
Material Adverse Effect. Borrower shall maintain, and shall cause each
of its Subsidiaries to maintain, to the extent consistent with prudent
management of Borrower's business, in force all licenses, approvals and
agreements, the loss of which could reasonably be expected to have a
Material Adverse Effect.
6.2 Government Compliance.
Borrower shall meet, and shall cause each Subsidiary to
meet, the minimum funding requirements of ERISA with respect to any
employee benefit plans subject to ERISA. Borrower shall comply, and
shall cause each Subsidiary to comply, with all statutes, laws,
ordinances and government rules and regulations to which it is subject,
noncompliance with which could reasonably be expected to have a Material
Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates.
Borrower shall deliver to Bank: (a) as soon as available,
but in any event within twenty (20) days after the end of each month, a
company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during such period, in a
form and certified by an Officer of Borrower reasonably acceptable to
Bank; (b) within five (5) days of filing, copies of all statements,
reports and notices sent or made available generally by Borrower to its
security holders or to any holders of Subordinated Debt and all reports
on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission; (c) promptly upon receipt of notice thereof, a report of any
legal actions pending or threatened against Borrower or any Subsidiary
that could result in damages or costs to Borrower or any Subsidiary of
One Hundred Thousand Dollars ($100,000) or more; and (d) such budgets,
sales projections, operating plans or other financial information as
Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each month
(or, at any time the aggregate outstanding Advances exceed fifty percent
(50%) of the Borrowing Base, within five (5) days after the last day of
each week), Borrower shall deliver to Bank a Borrowing Base Certificate
<PAGE>
signed by a Responsible Officer in substantially the form of Exhibit C
hereto, together with aged listings of accounts receivable and accounts
payable.
Within twenty (20) days after the last day of each month,
Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially
the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense, provided that such audits
will be conducted no more often than every six (6) months unless an
Event of Default has occurred and is continuing.
6.4 Inventory; Returns.
Borrower shall keep all Inventory in good and marketable
condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same
basis and in accordance with the usual customary practices of Borrower,
as they exist at the time of the execution and delivery of this
Agreement. Borrower shall promptly notify Bank of all returns and
recoveries and of all disputes and claims, where the return, recovery,
dispute or claim involves more than Fifty Thousand Dollars ($50,000).
6.5 Taxes.
Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state,
and local taxes, assessments, or contributions required of it by law,
and will execute and deliver to Bank, on demand, appropriate
certificates attesting to the payment or deposit thereof; and Borrower
will make, and will cause each Subsidiary to make, timely payment or
deposit of all material tax payments and withholding taxes required of
it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and
federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made
such payments or deposits; provided that Borrower or a Subsidiary need
not make any payment if the amount or validity of such payment is (i)
contested in good faith by appropriate proceedings, (ii) is reserved
against (to the extent required by GAAP) by Borrower and (iii) no lien
other than a Permitted Lien results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers,
and all other hazards and risks, and in such amounts, as ordinarily
insured against by other owners in similar businesses conducted in the
locations where Borrower's business is conducted on the date hereof.
Borrower shall also maintain insurance relating to Borrower's ownership
and use of the Collateral in amounts and of a type that are customary to
businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as are reasonably satisfactory
to Bank. All such policies of property insurance shall contain a
lender's loss payable endorsement, in a form satisfactory to Bank,
showing Bank as an additional loss payee thereof and all liability
insurance policies shall show the Bank as an additional insured, and
shall specify that the insurer must give at least twenty (20) days
notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such
policies of insurance and evidence of the payments of all premiums
therefor. So long as no Event of Default has occurred and is continuing,
Borrower shall have the option of applying the proceeds of any casualty
policy to the replacement or repair of destroyed or damaged property;
provided, that after the occurrence and during the continuance of an
Event of Default, all proceeds payable under any such policy shall, at
<PAGE>
the option of Bank, be payable to Bank to be applied on account of the
Obligations.
6.7 Principal Depository.
Borrower shall maintain its principal depository and
operating accounts with Bank.
6.8 Debt-Net Worth Ratio.
Borrower shall maintain, as of the last day of each calendar
month, a ratio of Total Liabilities less Subordinated Debt to Tangible
Net Worth plus Subordinated Debt of not more than 1.50 to 1.0.
6.9 Tangible Net Worth.
Borrower shall maintain, as of the last day of each calendar
month, a Tangible Net Worth of not less than Twenty Million Dollars
($20,000,000).
6.10 Profitability.
Borrower may incur losses not to exceed: (i) Three Million
Eight Hundred Thousand Dollars ($3,800,000) for the fiscal quarter
ending December 31, 1997; (ii) Three Million Four Hundred Thousand
Dollars ($3,400,000) for the fiscal quarter ending March 31, 1998; (iii)
One Million Eight Hundred Thousand Dollars ($1,800,000) for the fiscal
quarter ending June 30, 1998; or (iv) One Hundred Sixty Thousand Dollars
($160,000) for the fiscal quarter ending September 30, 1998. Borrower
shall have a minimum net profit of One Dollar ($1) for the fiscal
quarter ending December 31, 1998, and for each fiscal quarter
thereafter.
6.11 Liquidity, Debt Service Coverage.
Subject to the remainder of this section, Borrower shall
maintain, as of the last day of each calendar month, a Liquidity Ratio
of at least 1.50 to 1.0. Notwithstanding the foregoing, if Borrower
attains two consecutive quarters of Debt Service Coverage of not less
than 1.50 to 1.0, then Liquidity Ratio will no longer be tested and
instead Borrower shall maintain, as of the last day of each of
Borrower's fiscal quarters, a Debt Service Coverage of at least 1.50 to
1.0. For purposes of this Section, "Liquidity Ratio" means as of any
date for which it is tested, the ratio of (a) an amount equal to (i)
cash and cash equivalents plus (ii) the amount available to be drawn but
not drawn under Section 2,1.1, to (b) the aggregate amount of
outstanding Equipment Facility A Advances and Equipment Facility B
Advances.
6.12 Further Assurances.
At any time and from time to time Borrower shall execute and
deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this
Agreement.
7. NEGATTVE COVENANTS
Borrower covenants and agrees that, so long as any Credit
Extension hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment
to make any Advances, Borrower will not do any of the following:
<PAGE>
7.1 Dispositions.
Convey, sell, lease, transfer or otherwise dispose of
(collectively, a 'Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than
Transfers (i) of inventory in the ordinary course of business, (ii) of
non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries in the ordinary course of
business, (iii) Transfers of worn-out or obsolete Equipment or Equipment
financed by other vendors, (iv) Transfers which constitute liquidation
of Investments permitted under Section 7.7, and (v) other Transfers not
otherwise permitted by this Section 7.1 not exceeding One Hundred
Thousand Dollars ($100,000) in the aggregate in any fiscal year.
7.2 Changes in Business, Ownership, Management or Business
Locations
Engage in any business, or permit any of its Subsidiaries to
engage in any business, other than the businesses currently engaged in
by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's
ownership or management. Borrower will not, without at least thirty (30)
days prior written notification to Bank, relocate its chief executive
office or add any new offices or business locations.
7.3 Mergers or Acquisitions.
Merge or consolidate, or permit any of its Subsidiaries to
merge or consolidate, with or into any other business organization, or
acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person,
provided that this Section 73 shall not apply to (i) the purchase of
inventory, equipment or intellectual property rights in any transaction
valued at less than One Hundred Fifty Thousand Dollars ($150,000) in the
ordinary course of business or (ii) transactions among Subsidiaries or
among Borrower and its Subsidiaries in which Borrower is the surviving
entity.
7.4 Indebtedness.
Create, incur, assume or be or remain liable with respect to
any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances.
Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right
to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions.
Pay any dividends or make any other distribution or payment
on account of or in redemption, retirement or purchase of any capital
stock, provided, that (i) Borrower may declare and make any dividend
payment or other distribution payable in its equity securities, (ii)
Borrower may convert any of its convertible securities into other
securities pursuant to the terms of such convertible securities or
otherwise in exchange therefor and (iii) for so long as an Event of
Default has not occurred, Borrower may repurchase stock from former
employees of Borrower in accordance with the terms of repurchase or
similar agreements between Borrower and such employees.
7.7 Investments.
Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to
do, other than Permitted Investments.
<PAGE>
7.8 Transactions with Affiliates.
Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a non-
affiliated Person and except for transactions with a Subsidiary that are
upon fair and reasonable terms and transactions constituting Permitted
Investments.
7.9 Intellectual Property Agreements.
Borrower shall not permit the inclusion in any material
contract to which it becomes a party of any provisions that could or
might in any way prevent the creation of a security interest in
Borrower's rights and interests in any property included within the
definition of the Intellectual Property Collateral acquired under such
contracts, except to the extent that such provisions are necessary in
Borrower's exercise of its reasonable business judgment.
7.10 Subordinated Debt.
Make any payment in respect of any Subordinated Debt, or
permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated
Debt without Bank's prior written consent.
7.11 Inventory.
Store the Inventory with a bailee, warehouseman, or similar
party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary
course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the
location set forth in Section 10 hereof and such other locations of
which Borrower gives Bank prior written notice and as to which Borrower
signs and files a financing statement where needed to perfect Bank's
security interest.
7.12 Compliance.
Become an "investment company" or a company controlled by an
"investment company," within the meaning of the Investment Company Act
of 1940, or become principally engaged in, or undertake as one of its
important activities, the business of extending credit for the purpose
of purchasing or carrying margin stock, or use the proceeds of any
Advance for such purpose; fail to meet the minimum funding requirements
of ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair Labor
Standards Act or violate any other law or regulation, which violation
could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral, or permit
any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event
of Default by Borrower under this Agreement:
8.1 Payment Default.
If Borrower fails to pay the principal of, or any interest
on, any Credit Extension when due and payable; or fails to pay any
portion of any other Obligations not constituting such principal or
<PAGE>
interest, including without limitation, Bank Expenses, within thiry (30)
days of receipt by Borrower of an invoice for such other Obligations;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11 or 6.12 or violates any of
the covenants contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or
agreement contained in this Agreement, in any of the Loan Documents, or
in any other present or future agreement between Borrower and Bank and
as to any default under such other term, provision, condition, covenant
or agreement that can be cured, has failed to cure such default within
ten (10) days after Borrower receives notice thereof or any Responsible
Officer of Borrower becomes aware thereof; provided, however, that if
the default cannot by its nature be cured within the ten (10) day period
or cannot after diligent attempts by Borrower be cured within such ten
(10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt
to cure such default, and within such reasonable time period the failure
to have cured such default shall not be deemed an Event of Default
(provided that no Credit Extensions will be required to be made during
such cure period);
8.3 Material Adverse Change.
If there (i) occurs a material adverse change in the
business, operations, or condition (financial or otherwise) of Borrower
or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the
value or priority of Bank's security interests in the Collateral;
8.4 Attachment.
If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant
or levy has not been removed, discharged or rescinded within thirty (30)
days, or if Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its
business affairs, or if a judgment or other claim becomes a lien or
encumbrance upon any material portion of Borrower's assets, or if a
notice of lien, levy, or assessment is filed of record with respect to
any of Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within
twenty (20) days after Borrower receives notice thereof, provided that
none of the foregoing shall constitute an Event of Default where such
action or event is stayed or an adequate bond has been posted pending a
good faith contest by Borrower (provided that no Credit Extensions will
be required to be made during such cure period);
8.5 Insolvency.
If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is
commenced against Borrower and is not dismissed or stayed within thirty
(30) days (provided that no Credit Extensions will be made prior to the
dismissal of such Insolvency Proceeding);
8.6 Other Agreements.
If there is a default in any agreement to which Borrower is
a party with a third party or parties resulting in a right by such third
party or parties, whether or not exercised, to accelerate the maturity
of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could reasonably be expect to have a Material
Adverse Effect;
8.7 Subordinated Debt.
If Borrower makes any payment on account of Subordinated
Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments.
If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least One Hundred Fifty
Thousand Dollars ($150,000) shall be rendered against Borrower and shall
remain unsatisfied and unstayed for a period of thirty (30) days
(provided that no Credit Extensions will be made prior to the
satisfaction or stay of such judgment); or
8.9 Misrepresentations.
If any material misrepresentation or material misstatement
exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or
any Person acting on Borrower's behalf pursuant to this Agreement or to
induce Bank to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies.
Upon the occurrence and during the continuance of an Event
of Default, Bank may, at its election, without notice of its election
and without demand, do any one or more of the following, ail of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of
Default described in Section 8.5 all Obligations shall become
immediately due and payable without any action by Bank);
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement or under any other
agreement between Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with Bank in
an amount equal to the amount of any Letters of Credit remaining undrawn,
as collateral security for the repayment of any future drawings under
such Letters of Credit, and Borrower shall forthwith deposit and pay
such amounts, and (ii) pay in advance all Letters of Credit fees
scheduled to be paid or payable over the remaining term of the Letters
of Credit;
(d) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Bank
reasonably considers advisable;
(e) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the
<PAGE>
Collateral. Borrower agrees to assemble the Collateral if Bank so
requires, and to make the Collateral available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or
compromise any encumbrance, charge, or lien which in Bank's
determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect
to any of Borrower's premises, Borrower hereby grants Bank a license to
enter such premises and to occupy the same, without charge, in order to
exercise any of Bank's rights or remedies provided herein, at law, in
equity, or otherwise;
(f) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by
Bank, or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Bank is hereby granted a non-
exclusive, royalty-free license or other right, solely pursuant to the
provisions of this Section 9.1, to use, without charge, Borrower's
labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and
selling any Collateral and, in connection with Bank's exercise of its
rights under this Section 9.1, Borrower's rights under all licenses and
all franchise agreements shall inure to Bank's benefit;
(h) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower's
premises) as Bank determines is commercially reasonable, and apply the
proceeds thereof to the Obligations in whatever manner or order Bank
deems appropriate;
(i) Bank may credit bid and purchase at any public sale,
or at any private sale as permitted by law; and
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
(k) Bank shall have a non-exclusive, royalty-free
license to use the Intellectual Property Collateral to the extent reasonably
necessary to permit Bank to exercise its rights and remedies upon the
occurrence of an Event of Default.
9.2 Power of Attorney.
Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's
true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the
Accounts; (b) endorse Borrower's name on any checks or other forms of
payment or security that may come into Bank's possession; (c) sign
Borrower's name on any invoice or bill of lading relating to any
Account, drafts against account debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to account debtors; (d)
make, settle, and adjust all claims under and decisions with respect to
Borrower's policies of insurance; (e) settle and adjust disputes and
claims respecting the accounts directly with account debtors, for
amounts and upon terms which Bank determines to be reasonable; (f) to
modify, in its sole discretion, any intellectual property security
agreement entered into between Borrower and Bank without first obtaining
Borrower's approval of or signature to such modification by amending
Exhibit A, Exhibit B, Exhibit C and Exhibit D, thereof, as appropriate,
to include reference to any right, title or interest in any Copyrights,
Patents, Trademarks or Mask Works acquired by Borrower after the
execution hereof or to delete any reference to any right, title or
interest in any Copyrights, Patents,
<PAGE>
Trademarks or Mask Works in which Borrower no longer has or claims any
right, title or interest; (g) to file, in its sole discretion, one or
more financing or continuation statements and amendments thereto,
relative to any of the Collateral without the signature of Borrower
where permitted by law; and (h) to transfer the Intellectual Property
Collateral into the name of Bank or a third party to the extent
permitted under the California Uniform Commercial Code, provided Bank
may exercise such power of attorney to sign the name of Borrower on any
of the documents described in Section 4.2 regardless of whether an Event
of Default has occurred. The appointment of Bank as Borrower's attorney
in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations
have been fully repaid and performed and Bank's obligation to provide
advances hereunder is terminated.
9.3 Accounts Collection.
At any time from the date of this Agreement, Bank may notify
any Person owing funds to Borrower of Bank's security interest in such
funds and verify the amount of such Account. Borrower shall collect all
amounts owing to Borrower for Bank, receive in trust all payments as
Bank's trustee, and, if requested or required by Bank, immediately
deliver such payments to Bank in their original form as received from
the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses.
If Borrower fails to pay any amounts or furnish any required
proof of payment due to third persons or entities, as required under the
terms of this Agreement, then Bank may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such
reserves under the Committed Revolving Line as Bank deems necessary to
protect Bank from the exposure created by such failure; or (c) obtain
and maintain insurance policies of the type discussed in Section 6.6 of
this Agreement, and take any action with respect to such policies as
Bank deems prudent. Any amounts so paid or deposited by Bank shall
constitute Bank Expenses, shall be immediately due and payable, and
shall bear interest at the then applicable rate hereinabove provided,
and shall be secured by the Collateral. Any payments made by Bank shall
not constitute an agreement by Bank to make similar payments in the
future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral.
So long as Bank complies with its obligations under Section
9207 of the Code, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value thereof; or (d) any act or
default of any carrier, warehouseman, bailee, forwarding agency, or
other person whomsoever. All risk of loss, damage or destruction of the
Collateral shall be borne by Borrower.
9.6 Remedies Cumulative.
Bank's rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Bank shall have
all other rights and remedies not expressly set forth herein as provided
under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any
Event of Default on Borrower's part shall be deemed a continuing waiver.
No delay by Bank shall constitute a waiver, election, or acquiescence by
it. No waiver by Bank shall be effective unless made in a written
document signed on behalf of Bank and then shall be effective only in
the specific instance and for the specific purpose for which it was
given.
<PAGE>
9.7 Demand: Protest.
Borrower waives demand, protest, notice of protest, notice
of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Bank on which Borrower may in
any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement
entered into in connection herewith shall be in writing and (except for
financial statements and other informational documents which may be sent
by first-class mail, postage prepaid) shall be personally delivered or
sent by a recognized overnight delivery service, by certified mail,
postage prepaid, return receipt requested, or by telefacsimile to
Borrower or to Bank, as the case may be, at its addresses set forth
below:
If to Borrower: Integrated Packaging Assembly Corporation
2221 Old Oakland Road
San Jose, CA 95131-1402
Attn: Alfred V. Larrenaga
FAX: (408) 321-3603
If to Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
FAX: (408) 492-9786
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner
given to the other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in
accordance with, the internal laws of the State of California, without
regard to principles of conflicts of law. Each of Borrower and Bank
hereby submits to the exclusive jurisdiction of the state and Federal
courts located in the County of Santa Clara, State of California.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES
THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT
HAS REVIEWED THIS WANER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WANES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH
LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns.
(a) This Agreement shall bind and inure to the benefit
of the respective successors and permitted assigns of each of the parties;
provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written
<PAGE>
consent, which consent may be granted or withheld in Bank's sole
discretion. Bank shall have the right without the consent of or notice
to Borrower to sell, transfer, negotiate, or grant participations in all
or any part of, or any interest in, Bank's obligations, rights and
benefits hereunder, subject to the provisions of this Section 12.1.
(b) Bank may sell, negotiate or grant participations to
other financial institutions in all or part of the obligations of the
Borrower outstanding under the Loan Documents, without notice to or the
approval of Borrower; provided that any such sale, negotiation or
participation shall be in compliance with the applicable federal and
state securities laws and the other requirements of this Section 12.1.
Notwithstanding the sale, negotiation or grant of participations, Bank
shall remain solely responsible for the performance of its obligations
under this Agreement, and Borrower shall continue to deal solely and
directly with Bank in connection with this Agreement and the other Loan
Documents.
(c) The grant of a participation interest shall be on
such terms as Bank determines are appropriate, provided only that (1) the
holder of such a participation interest shall not have any of the rights
of Bank under this Agreement except, if the participation agreement so
provides, rights to demand the payment of costs of the type described in
Section 2.6, provided that the aggregate amount that the Borrower shall
be required to pay under Section 2.6 with respect to any ratable share
of the Committed Revolving Line or any Advance (including amounts paid
to participants) shall not exceed the amount that Borrower would have
had to pay if no participation agreements had been entered into, and (2)
the consent of the holder of such a participation interest shall not be
required for amendments or waivers of provisions of the Loan Agreement
other than those which (i) increase the amount of the Committed
Revolving Line, (ii) extend the term of this Agreement, (iii) decrease
the rate of interest or the amount of any fee or any other amount
payable to Bank under this Agreement, (iv) reduce the principal amount
payable under this Agreement, or (v) extend the date fixed for the
payment of principal or interest or any other amount payable under this
Agreement.
(d) Bank may assign, from time to time, all or any
portion of (he Committed Revolving Line to an Affiliate of Bank or to The
Federal Reserve Bank or, subject to the prior written approval of
Borrower (which approval will not be unreasonably withheld), to any
other financial institution; provided, that (i) the amount of the
Committed Revolving Line being assigned pursuant to each such assignment
shall in no event be less than Five Hundred Thousand Dollars ($500,000)
and shall be an integral multiple of One Hundred Thousand Dollars
($100,000) and (ii) the parties to each such assignment shall execute
and deliver to Borrower an assignment agreement in a form reasonably
acceptable to each. Upon such execution and delivery, from and after the
effective date specified in such assignment agreement (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such
assignment agreement, have the rights and obligations of a Bank
hereunder and (y) Bank shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such assignment
agreement, relinquish its rights and be released from its obligations
under this Agreement (other than pursuant to this Section 12.ltd)), and,
in the case of an assignment agreement covering all or the remaining
portion of Bank's rights and obligations under this Agreement, Bank
shall cease to be a party hereto. In the event of an assignment
hereunder, the parties agree to amend this Agreement to the extent
necessary to reflect the mechanical changes which are necessary to
document such assignment. Each party shall bear its own expenses
(including without limitation attorneys' fees and costs) with respect to
such an amendment.
12.2 Indemnification.
Borrower shall indemnify, defend, protect and hold harmless
Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by the Loan
Documents;
<PAGE>
and (b) all losses or Bank Expenses in any way suffered, incurred, or
paid by Bank as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrower whether under
the Loan Documents, or otherwise (including without limitation
reasonable attorneys fees and expenses), except for losses caused by
Bank's gross negligence or willful misconduct.
12.3 Time of Essence.
Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions.
Each provision of this Agreement shall be severable from
every other provision of this Agreement for the purpose of determining
the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration.
This Agreement cannot be amended or terminated except by a
writing signed by Borrower and Bank. All prior agreements,
understandings, representations, warranties, and negotiations between
the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts.
This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when
executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same
Agreement.
12.7 Survival.
All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any
Obligations (excluding Obligations under Section 2.6 and 12.2 to the
extent they remain inchoate at the time the outstanding payment
Obligations are paid in full) remain outstanding. The obligations of
Borrower to indemnify Bank with respect to the expenses, damages,
losses, costs and liabilities described in Section 12.2 shall survive
until all applicable statute of limitations periods with respect to
actions that may be brought against Bank have run, provided that so long
as the obligations referred to in the first sentence of this Section
12.7 have been satisfied, and Bank has no commitment to make any Credit
Extensions or to make any other loans to Borrower, Bank shall release
all security interests granted hereunder and redeliver all Collateral
held by it in accordance with applicable law.
12.8 Confidentiality.
In handling any confidential information, Bank shall
exercise the same degree of care that it exercises with respect to its
own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or
received pursuant to this Agreement, except that disclosure of such
information may be made (i) to the subsidiaries or affiliates of Bank in
connection with their present or prospective business relations with
Borrower, (ii) to prospective transferees or purchasers of any interest
in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy
to Borrower, (iii) as required by law, regulations, rule or order,
subpoena, judicial order or similar order, (iv) as may be required in
connection with the examination, audit or similar investigation of Bank and
<PAGE>
(v) as Bank may deem appropriate in connection with the exercise of any
remedies hereunder. Confidential information hereunder shall not include
information that either: (a) is in the public domain or in the knowledge
or possession of Bank when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank through no fault of Bank; or (b)
is disclosed to Bank by a third party, provided Bank does not have
actual knowledge that such third party is prohibited from disclosing
such information. Notwithstanding any provision of this Agreement to the
contrary, neither Borrower nor any of its Subsidiaries will be required
to disclose, permit the inspection, examination, copying or making
extracts of, or discussions of: any document, information or other
matter (i) prior to the occurrence of an Event of Default that
constitutes non-financial trade secrets or non-financial proprietary
information (provided that the terms of agreements that generate
Accounts shall not be deemed to be "non-financial trade secrets or non-
financial proprietary information"), or (ii) in respect to which
disclosure to Bank (or designated representative) is then prohibited by
(a) law, or (b) an agreement binding upon Borrower or any Subsidiary
that was not entered into by Borrower or such Subsidiary for the primary
purpose of concealing information from Bank.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first above written.
INTEGRATED PACKAGING ASSEMBLY
CORPORATION
___________________________________
By:
___________________________________
Title:
SILICON VALLEY BANK
___________________________________
By:
___________________________________
Title:
<PAGE>
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles
(including motor vehicles and trailers), and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing,
wherever located;
(b) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products
including such inventory as is temporarily out of Borrower's custody or
possession or in transit and including any returns upon any accounts or
other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title
representing any of the above;
(c) All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications,
leases, license agreements, franchise agreements, blueprints, drawings,
purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and
rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations
owing to Borrower arising out of the sale or lease of goods, the
licensing of technology or the rendering of services by Borrower,
whether or not earned by performance, and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower;
(e) All documents, cash, deposit accounts, securities,
securities entitlements, securities accounts, investment property,
letters of credit, certificates of deposit, instruments and chattel
paper now owned or hereafter acquired and Borrower's Books relating to
the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and
derivative work thereof, whether published or unpublished, now owned or
hereafter acquired; all trade secret rights, including all rights to
unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter
acquired; all mask work or similar rights available for the protection
of semiconductor chips, now owned or hereafter acquired; all claims for
damages by way of any past, present and future infringement of any of
the foregoing; and
(g) All Borrower's Books relating to the foregoing and any and
all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:____________
FAX#: (408) 496-2426 TIME:____________
FROM: Integrated Packaging Assembly Corporation
CLIENT NAME (BORROWER)
REQUESTED BY:___________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:_________________________________
PHONE NUMBER:____________________________
FROM ACCOUNT # __________________ TO ACCOUNT # ___________________
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- -------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $______________________
PRINCIPAL PAYMENT (ONLY) $______________________
INTEREST PAYMENT (ONLY) $______________________
PRINCIPAL AND INTEREST (PAYMENT) $______________________
OTHER INSTRUCTIONS:______________________________________________
_________________________________________________________________
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material
respects as of the date of the telephone request for and Advance
confirmed by this Borrowing Certificate; provided, however, that those
representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of such date.
- ------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment
transfer/loan advance on the advance designated account and is known to
me.
________________________________ ______________________
Authorized Requester Phone #
________________________________ ______________________
Received By (Bank) Phone #
________________________________
Authorized Signature (Bank)
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Integrated Packaging Assembly Corporation
Bank: Silicon Valley Bank
Commitment Amount: $5,000,000
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ______ $_________
2. Additions (please explain on reverse) $_________
3. TOTAL ACCOUNTS RECEIVABLE $_________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $_________
5. Balance of 50% over 90 day accounts $_________
6. Concentration Limits* $_________
7. Non-eligible Foreign Accounts** $_________
8. Governmental Accounts $_________
9. Contra Accounts $_________
10. Promotion or Demo Accounts $_________
11. Intercompany/Employee Accounts $_________
12. Other (please explain on reverse) $_________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_________
14. Eligible Accounts (#3 minus #13) $_________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $_________
BALANCES
16. Maximum Loan Amount $_________
17. Total Funds Available (Lesser of #16 or #15] $_________
18. Present balance owing on Line of Credit $_________
19. Outstanding under Sublimits ( ) $_________
20. RESERVE POSITION (#17 minus #18 and #19) $_________
The undersigned represents and warrants that the foregoing is true,
complete and correct, and that the information reflected in this
Borrowing Base Certificate complies with the representations and
warranties set forth in the Amended and Restated Loan and Security
Agreement between the undersigned and Silicon Valley Bank.
* 25% Concentration Limit for all account debtors except for Alliance
Semiconductor, Intel, Cirrus Logic, SanDisk, Orbit Semiconductor, VLSI
Technology, and Atmel Semiconductor, as to which the percentage shall be
35%.
** Foreign Accounts shall be included in the Borrowing Base to the
extent that such accounts are: (1) covered by credit insurance in form
and amount, and by an insurer satisfactory to Bank less the amount of
any deductible(s) which may be or become owing thereon; or (2) supported
by one or more letters of credit either advised or negotiated through
Bank or in favor of Bank as beneficiary, in an amount and of a tenor;
and issued by a financial institution acceptable to Bank; or (3) that
Bank approves on a case-by-case basis.
COMMENTS:
Integrated Packaging Assembly Corporation BANK USE ONLY
---------------------
By:_____________________ Rec'd By:__________
Authorized Signer Auth. Signer
Date:____________
Verified:____
Auth. Signer
Date:_____________
<PAGE>
EXHIBIT D
COMPLLANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: INTEGRATED PACKAGING ASSEMBLY CORPORATTON
The undersigned authorized officer of Integrated Packaging
Assembly Corporation hereby certifies that in accordance with the terms
and conditions of the Amended and Restated Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending with all required covenants except as
noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects as
of the date hereof. Attached herewith are the required documents
supporting the above certification. The Officer further certifies that
these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the
next except as explained in an accompanying letter or footnotes. The
Officer expressly acknowledges that no borrowings may be requested by
Borrower at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that such
compliance is determined not just at the date this certificate is
delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column
Reporting Covenant Monthly Required Complies
- -------------------------- -------- ----------
Monthly financial statements Monthly within 20 days Yes No
10-Q, 10-K and 8-K Within 5 days after
filing with SEC Yes No
A/R & A/P Agings Monthly within 20 days(1) Yes No
A/R Audit Initial and Semi-Annual Yes No
Financial Covenant Required Actual Complies
- ------------------ ---------- --------- ----------
Maintain on a Monthly Basis:
Maximum Debt/Tangible Net Worth 1.50:1.0 _____:1.0 Yes No
Minimum Tangible Net Worth $20,000,000 $________ Yes No
Minimum Liquidity Ratio 1.50:1.0(2) _____:1.0 Yes No
Minimum Debt Service 1.50:1.0(3) _____:1.0 Yes No
Profitability: Quarterly $_______(4) $________ Yes No
1 If Advances exceed 50% of Borrowing Base, weekly within 5 days.
2 Upon 2 consecutive quarters of Debt Service Coverage of at least
1.50 to 1.0, Liquidity Ratio no longer tested, and Borrower shall
maintain Debt Service Coverage of at least 1.50:1.0 for each
quarter.
3 Measured quarterly.
4 Losses not to exceed: $3,800,000 for quarter ending 12/31/97;
$3,400,000 for quarter ending 3/31/98; $1,800,000 for quarter
ending 6/30/98; or $160,000 for quarter ending 9/30/98. Minimum
net profit of $1 required for quarter ending 12/31/98 and each
quarter thereafter.
Comments Regarding Exceptions: See Attached. BANK USE OMLY
---------------------
Sincerely,______________________ Received by:_________
Auth. Signer
SIGNATURE___________________________ Date:________________
TITLE:________________________ Verified:____________
DATE:__________________________ Date:________________
Compliance Status:
Yes No
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Integrated Packaging Assembly Corporation
Bank: Silicon Valley Bank
LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a
principal amount up to $5,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for
business.
SPECIFIC PURPOSE. The specific purpose of this loan is: Short-term
working capital.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds
will be disbursed until all of Bank's conditions for making the loan
have been satisfied. Please disburse the loan proceeds as follows:
Revolving Line
Amount paid to Borrower directly: $_____________
Undisbursed Funds $_____________
Principal $5,000,000
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed
the following charges:
Prepaid Finance Charges Paid in Cash: $_____________
$12,500 Loan Fee
$______ Accounts Receivables Audit
Other Charges Paid in Cash: $_____________
$_____ Patent Filing Fees $
$_____ Trademark Filing Fees
$_____ Copyright Filing Fees
$_____ Outside Counsel Fees and Expenses (Estimate)
Total Charges Paid in Cash $_____________
AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to
deduct from Borrower's account numbered ________ the amount of any loan
payment. If the funds in the account are insufficient to cover any
payment, Bank shall not be obligated to advance funds to cover the
payment.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS
AND WARRANTS TO BANK THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND
CORRECT AND THAT THERE HAS BEEN NO ADVERSE CHANGE IN BORROWER'S
FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL
STATEMENT TO BANK. THIS AUTHORIZATION IS DATED AS OF DECEMBER 31, 1997.
BORROWER:
Integrated Packaging Assembly Corporation
/s/ Alfred V. Larrenaga
- -----------------------
Authorized Officer
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
Grantor: Integrated Packaging Assembly Corporation
Bank: Silicon Valley Bank
INSURANCE REQUIREMENTS. Integrated Packaging Assembly Corporation
("Grantor") understands that insurance coverage is required in
connection with the extending of a loan or the providing of other
financial accommodations to Grantor by Bank. These requirements are set
forth in the Loan Documents. The following minimum insurance coverages
must be provided on the following described collateral (the
"Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value
Basis: Replacement value.
Endorsements: Loss payable clause to Bank with stipulation
that coverage will not be cancelled or diminished without a minimum of
twenty (20) days' prior written notice to Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance
company Grantor may choose that is reasonably acceptable to Bank.
Grantor understands that credit may not be denied solely because
insurance was not purchased through Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank,
on or before closing, evidence of the required insurance as provided
above, with an effective date of December 31, 1997, or earlier. Grantor
acknowledges and agrees that if Grantor fails to provide any required
insurance or fails to continue such insurance in force, Bank may do so
at Grantor's expense as provided in the Amended and Restated Loan and
Security Agreement. The cost of such insurance, at the option of Bank,
shall be payable on demand or shall be added to the indebtedness as
provided in the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO
PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED
PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE
OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE
INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC Liability
OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF
ANY FINANCIAL RESPONSIBILITY LAWS.
AUTHORTZATION. For purposes of insurance coverage on the
Collateral, Grantor authorizes Bank to provide to any person (including
any insurance agent or company) all information Bank deems appropriate,
whether regarding the Collateral, the loan or other financial
accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
AGREEMENT TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT
IS DATED DECEMBER 31, 1997.
GRANTOR:
Integrated Packaging Assembly Corporation
/S/ Alfred V. Larrenaga
- -----------------------
Authorized Officer
- -------------------------------------------------------------------
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE:_________________ PHONE:___________________
AGENT'S NAME:______________________________________________________
INSURANCE COMPANY:_________________________________________________
POLICY NUMBER:_____________________________________________________
EFFECTIVE DATES:___________________________________________________
COMMENTS:__________________________________________________________
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
BORROWER: Integrated Packaging Assembly Corporation
I, the undersigned Secretary or Assistant Secretary of Integrated
Packaging Assembly Corporation (the "Corporation"), HEREBY CERTIFY that
the Corporation is organized and existing under and by virtue of the
laws of
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are
true and complete copies of the Certificate of Incorporation and Bylaws
of the Corporation, each of which is in full force and effect on the
date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the
Corporation (or by other duly authorized corporate action in lieu of a
meeting), duly called and held, at which a quorum was present and
voting, the following
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, acting for and on behalf of
this Corporation and as its act and deed be, and they heeby are, authorized
and empowered:
NAMES POSITIONS ACTUAL SIGNATURES
PATRICK VERDERICO PRESIDENT & CEO /s/ P. Verderico
ALFRED J. LARRENAGA VICE PRESIDENT & CFO /s/ Alfred J. Larrenaga
F. TERRENCE MARKLE CONTROLLER /S/ F. T. Markle
Borrow Money. To borrow from time to time from Silicon Valley Bank
("Bank"), on such terms as may be agreed upon between the officers,
employees, or agents and Bank, such sum or sums of money as in their
judgment should be borrowed, without limitation, including such sums as
are specified in that certain Amended and Restated Loan and Security
Agreement dated as of December 31, 1997 (the 'Loan Agreement").
Execute Notes. To execute and deliver to Bank the promissory note
or notes of the Corporation, on Bank's forms, at such rates of interest
and on such terms as may be agreed upon, evidencing the sums of money so
borrowed or any indebtedness of the Corporation to Bank, and also to
execute and deliver to Bank one or more renewals, extensions,
modifications, refinancings, consolidations, or substitutions for one or
more of the notes, or any portion of the notes.
Grant Security. To grant a security interest to Bank in the
Collateral described in the Loan Agreement, which security interest
shall secure all of the Corporation's Obligations, as described in the
Loan Agreement.
<PAGE>
Negotiate Items. To draw, endorse, and discount with Bank all
drafts, trade acceptances, promissory notes, or other evidences of
indebtedness payable to or belonging to the Corporation or in which the
Corporation may have an interest, and either to receive cash for the
same or to cause such proceeds to be credited to the account of the
Corporation with Bank, or to cause such other disposition of the
proceeds derived therefrom as they may deem advisable.
Letters of Credit; Foreign Exchange. To execute letters of credit
applications, foreign exchange agreements and other related documents
pertaining to Bank's issuance of letters of credit and foreign exchange
contracts.
Issue Warrants. To issue warrants to purchase the Corporation's
capital stock, for such series and number, and on such terms, as an
officer of the Corporation shall deem appropriate.
Further Acts. In the case of lines of credit, to designate
additional or alternate individuals as being authorized to request
advances thereunder, and in all cases, to do and perform such other acts
and things, to pay any and all fees and costs, and to execute and
deliver such other documents and agreements as they may in their
discretion deem reasonably necessary or proper in order to carry into
effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant
to these resolutions and performed prior to the passage of these
resolutions are hereby ratified and approved, that these Resolutions
shall remain in full force and effect and Bank may rely on these
Resolutions until written notice of their revocation shall have been
delivered to and received by Bank. Any such notice shall not affect any
of the Corporation's agreements or commitments in effect at the time
notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named
above are duly elected, appointed, or employed by or for the
Corporation, as the case may be, and occupy the positions set forth
opposite their respective names; that the foregoing Resolutions now
stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on January 26,
1998 and attest that the signatures set opposite the names listed above
are their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
/s/ Alfred V. Larrenaga
------------------------
<PAGE>
EXHIBIT 10.30
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
PLEDGED, OR OTHERWISE TRANSFERRED ~HOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: INTEGRATED PACKAGING ASSEMBLY CORPORATION,
a Delaware corporation
Number of Shares: 10,000
Class of Stock: Common Initial Exercise
Price: $0.90 per share Issue
Date: December 31, 1997
Expiration Date: December 31, 2002
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00
and for other good and valuable consideration, SILICON VALLEY BANK
("Holder") is entitled to purchase the number of fully paid and
nonassessable shares of the class of securities (the "Shares") of the
corporation (the "Company") at the initial exercise price per Share (the
"Warrant Price") all as set forth above and as adjusted pursuant to
Article 2 of this Warrant, subject to the provisions and upon the terms
and conditions set forth of this Warrant.
ARTICLE 1. EXERCISE.
1.1 Method of Exercise. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form
attached as Appendix 1 to the principal office of the Company. Unless
Holder is exercising the conversion right set forth in Section 1.2,
Holder shall also deliver to the Company a check for the aggregate
Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this
Warrant, in whole or in part, into a number of Shares determined by
dividing (a) the aggregate fair market value of the Shares or other
securities otherwise issuable upon exercise of this Warrant minus the
aggregate Warrant Price of such Shares by (b) the fair market value of
one Share. The fair market value of the Shares shall be determined
pursuant Section 1.3.
1.3 Fair Market Value. If the Shares are traded in a public
market, the fair market value of the Shares shall be the closing price
of the Shares (or the closing price of the Company's stock into which
the Shares are convertible) reported for the business day immediately
before Holder delivers its Notice of Exercise to the Company. If the
Shares are not traded in a public market, the Board of Directors of the
Company shall determine fair market value in its reasonable good faith
judgment. The foregoing notwithstanding, if Holder advises the Board of
Directors in writing that Holder disagrees with such determination, then
the Company and Holder shall promptly agree upon a reputable
<PAGE>
investment banking firm to undertake such valuation. If the valuation of
such investment banking firm is greater than that determined by the
Board of Directors, then all fees and expenses of such investment
banking firm shall be paid by the Company. In all other circumstances,
such fees and expenses shall be paid by Holder.
1.4 Delivery of Certificate and New Warrant. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to
Holder certificates for the Shares acquired and, if this Warrant has not
been fully exercised or converted and has not expired, a new Warrant
representing the Shares not so acquired.
1.5 Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of loss, theft or
destruction, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of
mutilation, or surrender and cancellation of this Warrant, the Company
at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of Like tenor.
1.6 Repurchase on Sale, Merger, or Consolidation of the Company.
1.6.1. "Acquisition". For the purpose of this Warrant,
"Acquisition" means any sale, license, or other disposition of all or
substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the
Company's securities before the transaction beneficially own less than
50% of the outstanding voting securities of the surviving entity after
the transaction.
1.6.2. Assumption of Warrant. Upon the closing of
any Acquisition the successor entity shall assume the obligations of this
Warrant, and this Warrant shall be exercisable for the same securities,
cash, and property as would be payable for the Shares issuable upon
exercise of the unexercised portion of this Warrant as if such Shares
were outstanding on the record date for the Acquisition and subsequent
closing. The Warrant Price shall be adjusted accordingly.
1.6.3. Purchase Right. Notwithstanding the foregoing,
at the election of Holder, the Company shall purchase the unexercised
portion of this Warrant for cash upon the closing of any Acquisition for
an amount equal to (a) the fair market value of any consideration that
would have been received by Holder in consideration of the Shares had
Holder exercised the unexercised portion of this Warrant immediately
before the record date for determining the shareholders entitled to
participate in the proceeds of the Acquisition, less (b) the aggregate
Warrant Price of the Shares, but in no event less than zero.
ARTICLE 2. ADTUSTMENTS TO THE SHARES.
2.1 Stock Dividends, Splits, Etc. If the Company declares or
pays a dividend on its common stock (or the Shares if the Shares are
securities other than common stock) payable in common stock, or other
securities, subdivides the outstanding common stock into a greater
amount of common stock, or, if the Shares are securities other than
common stock, subdivides the Shares in a transaction that increases the
amount of common stock into which the Shares are convertible, then upon
exercise of this Warrant, for each Share acquired, Holder shall receive,
without cost to Holder, the total number and kind of
<PAGE>
securities to which Holder would have been entitled had Holder owned the
Shares of record as of the date the dividend or subdivision occurred.
2.2 Reclassification, Exchange or Substitution. Upon any
reclassification, exchange, substitution, or other event that results in
a change of the number and/or class of the securities issuable upon
exercise or conversion of this Warrant, Holder shall be entitled to
receive, upon exercise or conversion of this Warrant, the number and
kind of securities and property that Holder would have received for the
Shares if this Warrant had been exercised immediately before such
reclassification, exchange, substitution, or other event. Such an event
shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to
common stock pursuant to the terms of the Company's Certificate of
Incorporation upon the closing of a registered public offering of the
Company's common stock. The Company or its successor shall promptly
issue to Holder a new Warrant for such new securities or other property.
The new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Article 2 including, without limitation, adjustments to the Warrant
Price and to the number of securities or property issuable upon exercise
of the new Warrant. The provisions of this Section 2.2 shall similarly
apply to successive reclassifications, exchanges, substitutions, or
other events.
2.3 Adjustments for Combinations, Etc. If the outstanding Shares
are combined or consolidated, by reclassification or otherwise, into a
lesser number of shares, the Warrant Price shall be proportionately
increased.
2.4 Adjustments for Diluting Issuances. The Warrant Price and
the number of Shares issuable upon exercise of this Warrant or, if the
Shares are Preferred Stock, the number of shares of common stock
issuable upon conversion of the Shares, shall be subject to adjustment,
from time to time in the manner set forth on Exhibit A in the event of
Diluting Issuances (as defined on Exhibit A).
2.5 No Impairment. The Company shall not, by amendment of its
Certificate of Incorporation or through a reorganization, transfer of
assets, consolidation, merger, dissolution, issue, or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed under this
Warrant by the Company, but shall at all times in good faith assist in
carrying out of all the provisions of this Article 2 and in taking all
such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any
action affecting the Shares or its common stock other than as described
above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares
issuable upon exercise of this Warrant shall be adjusted upward in such
a manner that the aggregate Warrant Price of this Warrant is unchanged.
2.6 Fractional Shares. No fractional Shares shall be issuable
upon exercise or conversion of the Warrant and the number of Shares to
be issued shall be rounded down to the nearest whole Share. If a
fractional share interest arises upon any exercise or conversion of the
Warrant, the Company shall eliminate such fractional share interest by
paying Holder amount computed by multiplying the fractional interest by
the fair market value of a full Share.
<PAGE>
2.7 Certificate as to Adjustments. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such
adjustment is based. The Company shall, upon written request, furnish
Holder a certificate setting forth the Warrant Price in effect upon the
date thereof and the series of adjustments leading to such Warrant
Price.
ARTICLE 3. REPRESENTATIONSAND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby
represents and warrants to the Holder that all Shares which may be
issued upon the exercise of the purchase right represented by this
Warrant, and all securities, if any, issuable upon conversion of the
Shares, shall, upon issuance, be duly authorized, validly issued, fully
paid and nonassessable, and free of any Liens and encumbrances except
for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 Notice of Certain Events. If the Company proposes at any
time (a) to declare any dividend or distribution upon its common stock,
whether in cash, property, stock, or other securities and whether or not
a regular cash dividend; (b) to offer for subscription pro rata to the
holders of any class or series of its stock any additional shares of
stock of any class or series or other rights; (c) to effect any
reclassification or recapitalization of common stock; (d) to merge or
consolidate with or into any other corporation, or sell, lease, license,
or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the
company's securities for cash, then, in connection with each such event,
the Company shall give Holder (1) at least 20 days prior written notice
of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which
the holders of common stock will be entitled thereto) or for determining
rights to vote, if any, in respect of the matters referred to in (c) and
(d) above; (2) in the case of the matters referred to in (c) and (d)
above at least 20 days prior written notice of the date when the same
will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or
other property deliverable upon the occurrence of such event); and (3)
in the case of the matter referred to in (e) above, the same notice as
is given to the holders of such registration rights.
3.3 Information Rights. So long as the Holder holds this
Warrant and/or any of the Shares, the Company shall deliver to the Holder
(a) promptly after mailing, copies of all notices or other written
communications to the shareholders of the Company, (b) within five (5)
days of filing, copies of all reports on Form 10-K, 10-Q and 8K filed
with the Securities and Exchange Commission; and (c) within forty-five
(45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.
ARTICLE 4. MISCELLANEOUS.
4.1 Term; Notice of Expiration. This Warrant is exercisable, in
whole or in part, at any time and from time to time on or before the
Expiration Date set forth above. The Company shall give Holder written
notice of Holder's right to exercise this Warrant in the
<PAGE>
form attached as Appendix 2 not more than 90 days and not less than 30
days before the Expiration Date. If the notice is not so given, the
Expiration Date shall automatically be extended until 30 days after the
date the Company delivers the notice to Holder.
4.2 Legends. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any)
shall be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITlES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 Compliance with Securities Laws on Transfer. This Warrant
and the Shares issuable upon exercise this Warrant (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any)
may not be transferred or assigned in whole or in part without
compliance with applicable federal and state securities laws by the
transferor and the transferee (including, without limitation, the
delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, as reasonably requested by the
Company). The Company shall not require Holder to provide an opinion of
counsel if the transfer is to an affiliate of Holder or if there is no
material question as to the availability of current information as
referenced in Rule 14Q(c), Holder represents that it has complied with
Rule 144(d) and (e) in reasonable detail, the selling broker represents
that it has complied with Rule 144(f), and the Company is provided with
a copy of Holder's notice of proposed sale.
4.4 Transfer Procedure. Subject to the provisions of Section
4.2, Holder may transfer all or part of this Warrant or the Shares
issuable upon exercise of this Warrant (or the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) by giving
the Company notice of the portion of the Warrant being transferred
setting forth the name, address and taxpayer identification number of
the transferee and surrendering this Warrant to the Company for
reissuance to the transferee(s) (and Holder if applicable). Unless the
Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to
refuse to transfer any portion of this Warrant to any person who
directly competes with the Company.
4.5 Notices. All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and
effective when given personally or mailed by first-class registered or
certified mail, postage prepaid, at such address as may have been
furnished to the Company or the Holder, as the case may be, in writing
by the Company or such holder from time to time.
4.6 Waiver. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed
by the party against which enforcement of such change, waiver, discharge
or termination is sought.
<PAGE>
4.7 Attorneys Fees. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other
party all reasonable costs incurred in such dispute, including
reasonable attorneys' fees.
4.8 Governing Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of California,
without giving effect to its principles regarding conflicts of law.
"COMPANY"
INTEGRATED PACKAGING ASSEMBLY CORPORATION
By ______________________________
Name ____________________________
(Print)
Title: Chairman of the Board, President,
or Vice President
By /s/ Alfred V. Larrenaga
Name ALFRED V. LARRENAGA
(Print)
Title: Chief Financial Officer
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ________ shares
of the Common Stock of _____________________ pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of
such shares in full.
1. The undersigned hereby elects to convert the attached
Warrant into Shares in the manner specified in the Warrant. This
conversion is exercised with respect to _________ of the Shares covered
by the Warrant.
{Strike paragraph that does not apply.}
2. Please issue a certificate or certificates representing
said shares in the name of the undersigned or in such other name as is
specified below:
________________________________
(Name)
________________________________
________________________________
(Address)
3. The undersigned represents it is acquiring the shares
solely for its own account and not as a nominee for any other party and not
with a view toward the resale or distribution thereof except in
compliance with applicable securities laws.
_________________________________________
(Signature)
____________________
(Date)
<PAGE>
APPENDIX 2
Notice that Warrant Is About to Expire
,
(Name of Holder)
(Address of Holder)
Attn: Chief Financial Officer
Dear: ________________________
This is to advise you that the Warrant issued to you described
below will expire on _____ , 199_.
Issuer:
Issue Date: December 31, 1997
Class of Security Issuable: Common
Exercise Price per Share: $0.90
Number of Shares Issuable: 10,000
Procedure for Exercise:
Please contact [name of contact person at (phone number)l with any
questions you may have concerning exercise of the Warrant. This is your
only notice of pending expiration.
___________________________
(Name of Issuer)
___________________________
By
___________________________
Its
<PAGE>
EXHIBTT A
Anti-Dilution Provisions
In the event of the issuance (a "Diluting Issuance") by the
Company, after the Issue Date of the Warrant, of securities at a price
per share less than the Warrant Price, the number of Shares issuable
upon exercise of the Warrant shall be adjusted as a result of Diluting
Issuances in accordance with the Anti-Dilution Agreement between Company
and Holder dated as of the date hereof.
Under no circumstances shall the aggregate Warrant Price payable
by the Holder upon exercise of the Warrant increase as a result of any
adjustment arising from a Diluting Issuance.
<PAGE>
SILICON VALLEY BANK
ANTIDILUTION AGREEMENT
THIS ANTIDILUTION AGREEMENT is entered into as of December 31,
1997, by and between Silicon Valley Bank ("Purchaser") and the Company
whose name appears on the last page of this Antidilution Agreement.
RECITALS
A. Concurrently with the execution of this Antidilution
Agreement, the Purchaser is purchasing from the Company a Warrant to
Purchase Stock (the 'Warrant') pursuant to which Purchaser has the right
to acquire from the Company the Shares (as defined in the Warrant).
B. By this Antidilution Agreement, the Purchaser and the
Company desire to set forth the adjustment in the number of Shares
issuable upon exercise of the Warrant as a result of a Diluting Issuance
(as defined in Exhibit A to the Warrant).
C. Capitalized terms used herein shall have the same meaning
as set forth in the Warrant.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and conditions hereinafter set forth, the parties hereto
mutually agree as follows:
1. Definitions. As used in this Antidilution
Agreement the following terms have the following respective meanings:
(a) "Option" means any right, option, or
warrant to subscribe for, purchase, or otherwise acquire common stock or
Convertible Securities.
(b) "Convertible Securities" means any evidences
of indebtedness, shares of stock, or other securities directly or
indirectly convertible into or exchangeable for common stock.
(c) "Issue" means to grant, issue, sell,
assume, or fix a record date for determining persons entitled to receive,
any security (including Options), whichever of the foregoing is the first
to occur.
(d) "Additional Common Shares" means all
common stock (including reissued shares) issued (or deemed to be issued
pursuant to Section 2) after the date of the Warrant. Additional Common
Shares does not include, however, any common stock issued in a
transaction described in Sections 2.1 and 2.2 of the Warrant; any common
stock Issued upon conversion of preferred stock outstanding on the date
of the Warrant; the Shares; or common stock Issued as incentive or in a
nonfinancing transaction to employees, officers, directors, banks,
lenders, equipment lessors, or consultants to the Company.
(e) The shares of common stock ultimately
Issuable upon exercise of an Option (including the shares of common stock
ultimately Issuable upon conversion or exercise of a Convertible
Security Issuable pursuant to an Option) are deemed to be Issued when
the Option is Issued. The shares of common stock ultimately Issuable
upon conversion or exercise of a Convertible Security (other than a
Convertible Security Issued pursuant to an Option) shall be deemed
Issued upon Issuance of the Convertible Security.
2. Deemed Issuance of Additional Common Shares. The
shares of common stock ultimately Issuable upon exercise of an Option
(including the shares of common stock ultimately Issuable upon
conversion or exercise of a Convertible Security Issuable pursuant to an
Option) are
<PAGE>
deemed to be Issued when the Option is Issued. The shares of common
stock ultimately Issuable upon conversion or exercise of a Convertible
Security (other than a Convertible Security Issued pursuant to an
Option) shall be deemed Issued upon Issuance of the Convertible
Security. The maximum amount of common stock Issuable is determined
without regard to any future adjustments permitted under the instrument
creating the Options or Convertible Securities.
3. Adjustment of Warrant Price for Diluting: Issuances
3.1 Weighted Average Adjustment. If the Company
Issues Additional Common Shares after the date of the Warrant and the
consideration per Additional Common Share (determined pursuant to
Section 9) is less than the Warrant Price in effect immediately before
such Issue, the Warrant Price in effect immediately before such Issue
shall be reduced, concurrently with such Issue, to a price (calculated
to the nearest hundredth of a cent) determined by multiplying the
Warrant Price by a fraction:
(a) the numerator of which is the amount of
common stock outstanding immediately before such Issue plus the amount
of common stock that the aggregate consideration received by the Company
for the Additional Common Shares would purchase at the Warrant Price in
effect immediately before such Issue, and
(b) the denominator of which is the amount of
common stock outstanding immediately before such Issue plus the number
of such Additional Common Shares.
3.2 Adjustment of Number of Shares. Upon each
adjustment of the Warrant Price, the number of Shares issuable upon
exercise of the Warrant shall be increased to equal the quotient
obtained by dividing (a) the product resulting from multiplying (i) the
number of Shares issuable upon exercise of the Warrant and (ii) the
Warrant Price, in each case as in effect immediately before such
adjustment, by (b) the adjusted Warrant Price.
3.3 Securities Deemed Outstanding. For the
purpose of this Section 3,all securities issuable upon exercise of any
outstanding Convertible Securities or Options, warrants, or other rights
to acquire securities of the Company shall be deemed to be outstanding.
4. No Adjustment for Issuances Following Deemed
Issuances. No adjustment to the Warrant Price shall be made upon the
exercise of Options or conversion of Convertible Securities.
5. Adjustment Following: Changes in Terms of Options or
Convertible Securities. If the consideration payable to, or the amount
of common stock Issuable by, the Company increases or decreases,
respectively, pursuant to the terms of any outstanding Options or
Convertible Securities, the Warrant Price shall be recomputed to reflect
such increase or decrease. The recomputation shall be made as of the
time of the Issuance of the Options or Convertible Securities. Any
changes in the Warrant Price that occurred after such Issuance because
other Additional Common Shares were Issued or deemed Issued shall also
be recomputed.
6. Recomputation Upon Expiration of Options or
Convertible Securities. The Warrant Price computed upon the original
Issue of any Options or Convertible Securities, and any subsequent
adjustments based thereon, shall be recomputed when any Options or
rights of conversion under Convertible Securities expire without having
been exercised. In the case of Convertible Securities or Options for
common stock, the Warrant Price shall be recomputed as if the only
Additional Common Shares Issued were the shares of common stock actually
Issued upon the exercise of such securities, if any, and as if the only
consideration received therefor was the consideration actually received
upon the Issue, exercise or conversion of the Options or Convertible
Securities. In the case of Options for Convertible Securities, the
Warrant Price shall be recomputed as if the only Convertible Securities
Issued were the Convertible Securities actually Issued upon the exercise
thereof, if any, and as if the
<PAGE>
only consideration received therefor was the consideration actually
received by the Company (determined pursuant to Section 9), if any, upon
the Issue of the Options for the Convertible Securities.
7. Limit on Readjustments. No readjustment of the Warrant
Price pursuant to Sections 5 or 6 shall increase the Warrant Price more
than the amount of any decrease made in respect of the Issue of any
Options or Convertible Securities.
8. 30 Day Options. In the case of any Options that expire
by their terms not more than 30 days after the date of Issue thereof, no
adjustment of the Warrant Price shall be made until the expiration or
exercise of all such Options.
9. Computation of Consideration. The consideration
received by the Company for the Issue of any Additional Common Shares
shall be computed as follows:
(a) Cash shall be valued at the amount of cash
received by the Corporation, excluding amounts paid or payable for
accrued interest or accrued dividends.
(b) Property. Property other than cash shall be
computed at the fair market value thereof at the time of the Issue as
determined in good faith by the Board of Directors of the Company.
(c) Mixed Consideration. The consideration for
Additional Common Shares Issued together with other property of the
Company for consideration that covers both shall be determined in good
faith by the Board of Directors.
(d) Options and Convertible Securities. The
consideration per Additional Common Share for Options and Convertible
Securities shall be determined by dividing:
(i) the total amount, if any, received or
receivable by the Company for the Issue of the Options or Convertible
Securities, plus the minimum amount of additional consideration (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such
consideration) payable to the Company upon exercise of the Options or
conversion of the Convertible Securities, by
(ii) the maximum amount of common stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number)
ultimately Issuable upon the exercise of such Options or the conversion
of such Convertible Securities.
10. General.
10.1 Governing: Law. This Antidilution Agreement
shall be governed in all respects by the laws of the State of California
as such laws are applied to agreements between California residents
entered into and to be performed entirely within California.
10.2 Successors and Assigns. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.
10.3 Entire Agreement. Except as set forth below,
this Antidilution Agreement and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
10.4 Notices, etc. All notices and other
communications required or permitted hereunder shall be in writing and
shall be mailed by first class mail, postage prepaid, certified or
<PAGE>
registered mail, return receipt requested, addressed (a) if to Purchaser
at Purchaser's address as set forth below, or at such other address as
Purchaser shall have furnished to the Company in writing, or (b) if to
the Company, at the Companies address set forth below, or at such other
address as the Company shall have furnished to the Purchaser in writing.
10.5 Severability. In case any provision of this
Antidilution Agreement shall be invalid, illegal, or unenforceable, the
validity, legality and enforceability of the remaining provisions of
this Antidilution Agreement shall not in any way be affected or impaired
thereby.
10.6 Titles and Subtitles. The titles of the
sections and subsections of this Agreement are for convenience of
reference only and are not to be considered in construing this
Antidilution Agreement.
10.7 Counterparts. This Antidilution Agreement may be
executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.
PURCHASER COMPANY
SILICON VALLEY BANK INTEGRATED PACKAGING ASSEMBLY
CORPORATION
By: /s/ Michael J. Rose By: /s/ Alfred V. Larrenaga
------------------------ -------------------------
Name: MICHAEL J. ROSE Name: ALFRED V. LARRENAGA
------------------------ -------------------------
Title: VICE PRESIDENT Title: VICE PRESIDENT
------------------------ -------------------------
Address: 3003 Tasman Drive Address: 2221 Old Oakland Road
Santa Clara, CA 95054 San Jose, CA 95131-1402
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement of Integrated Packaging Assembly Corporation on Form S-8
Number 333-05571 (filed on June 7, 1996) of our report dated January 27,
1998 appearing on page 20 of this Form 10-K.
Price Waterhouse LLP
San Jose, California
March 26, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted
from the Condensed Statement of Operations, the Condensed
Balance Sheet and the accompanying Notes To The Condensed
Financial Statements included in the Company's Form 10-K for
the year ended December 31, 1997 and is qualified in its
entirety by reference to such.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Dec-31-1997
<PERIOD-TYPE> 12-MOS
<CASH> 2,928
<SECURITIES> 0
<RECEIVABLES> 3,359
<ALLOWANCES> (263)
<INVENTORY> 2,337
<CURRENT-ASSETS> 9,118
<PP&E> 57,201
<DEPRECIATION> (11,074)
<TOTAL-ASSETS> 55,482
<CURRENT-LIABILITIES> 14,995
<BONDS> 0
0
0
<COMMON> 40,290
<OTHER-SE> (14,052)
<TOTAL-LIABILITY-AND-EQUITY> 55,482
<SALES> 19,744
<TOTAL-REVENUES> 19,744
<CGS> 24,089
<TOTAL-COSTS> 24,089
<OTHER-EXPENSES> 9,443
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,185
<INCOME-PRETAX> (15,002)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,002)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,002)
<EPS-PRIMARY> ($1.08)
<EPS-DILUTED> ($1.08)
</TABLE>
