UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-27712
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INTEGRATED PACKAGING ASSEMBLY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 77-0309372
(State or other jurisdiction (I.R.S Employer Identification No.)
of incorporation)
2221 Old Oakland Road
San Jose, CA 95131-1402
(Address of principal executive offices) (Zip Code)
(408) 321-3600
(Registrant's telephone number, including area code)
----------------------------------------------------
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
-------------- --------------
Number of shares of common stock outstanding as of August 16, 1999:
28,748,771. As of August 16, 1999, the Company also had 3,000,000 shares of
Series A Convertible Preferred Stock outstanding which is convertible into
41,246,311 shares of Common Stock.
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TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Condensed Balance Sheet.......................... 3
Condensed Statement of Operations................ 4
Condensed Statement of Cash Flows................ 5
Notes to Condensed Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 9
Part II. Other Information
Item 1. Legal Proceedings................................ 18
Item 6. Exhibits and Reports on Form 8-K................. 18
Signatures.................................................. 19
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Part I.Financial Information
Item 1.Financial Statements
Integrated Packaging Assembly Corporation
Condensed Balance Sheet
(In thousands, except per share data)
<TABLE>
<CAPTION>
July 4, December 31,
1999 1998
(Unaudited)
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents...................... $4,177 $ --
Accounts receivable, net....................... 2,028 2,105
Inventory...................................... 1,126 1,704
Prepaid expenses and other current assets...... 563 792
------------ ------------
Total current assets........................ 7,894 4,601
Property and equipment, net....................... 11,894 13,930
Other assets...................................... 160 197
------------ ------------
Total assets................................ $19,948 $18,728
Liabilities and Shareholders' Equity
Current liabilities:
Bank debt...................................... $7,937 $2,816
Current portion of long term debt.............. 5,875 12,907
Accounts payable............................... 861 2,155
Accrued expenses and other liabilities......... 3,085 2,808
------------ ------------
Total current liabilities................... 17,758 20,686
------------ ------------
Long term debt.................................... 2,348 --
Deferred gain on sale of facilities............... 1,180 1,249
Mandatorily redeemable convertible
preferred stock................................ 6,498 --
Shareholders' equity:
Common Stock................................... 41,531 40,621
Accumulated deficit............................ (49,367) (43,828)
------------ ------------
Total shareholders' equity.................. (7,836) (3,207)
------------ ------------
Total liabilities and shareholders' equity.. $19,948 $18,728
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Integrated Packaging Assembly Corporation
Condensed Statement of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
July 4, July 5, July 4, July 5,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues.......................... $3,653 $5,759 $7,428 $12,724
Cost of revenues.................. 5,547 7,901 11,038 16,316
---------- ---------- ---------- ----------
Gross loss........................ (1,894) (2,142) (3,610) (3,592)
---------- ---------- ---------- ----------
Operating expenses:
Selling, general &
administrative.............. 1,079 976 2,074 2,033
Research & development......... 168 281 347 633
Write down of impaired assets.. -- 18,200 -- 18,200
---------- ---------- ---------- ----------
Total operating expenses.... 1,247 19,457 2,421 20,866
---------- ---------- ---------- ----------
Operating loss.................... (3,141) (21,599) (6,031) (24,458)
Interest & other income .......... 24 52 27 961
Interest expense.................. (393) (396) (931) (852)
---------- ---------- ---------- ----------
Loss before extraordinary gain
and preferred stock dividends. (3,510) (21,943) (6,935) (24,349)
Extraordinary gain................ 1,487 -- 1,487 --
---------- ---------- ---------- ----------
Net loss before preferred stock
dividends...................... (2,023) (21,943) (5,448) (24,349)
---------- ---------- ---------- ----------
Preferred stock dividend.......... 91 -- 91 --
Deemed dividends on preferred
stock.......................... 6,800 -- 6,800 --
---------- ---------- ---------- ----------
Net loss applicable to common
shareholders................... ($8,914) ($21,943) ($12,339) ($24,349)
========== ========== ========== ==========
Per share data:
Net loss per share
Basic and diluted........... ($0.62) ($1.57) ($0.86) ($1.74)
========== ========== ========== ==========
Number of shares used to
compute per share data
Basic and diluted........... 14,304 14,007 14,299 13,999
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Integrated Packaging Assembly Corporation
Condensed Statement of Cash Flows
Increase (Decrease) Cash
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------
July 5, July 5,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from Operating Activities:
Net loss before preferred stock dividends......... ($5,448) ($24,349)
Adjustments:
Depreciation and amortization.................. 2,207 4,724
Write down of impaired assets.................. -- 18,200
Gain on sale of facilities, net................ (69) (710)
Extraordinary gain on debt restructure......... (1,487) --
Changes in assets and liabilities:
Accounts receivable......................... 92 176
Inventory................................... 578 (609)
Prepaid expenses and other assets........... 168 (210)
Accounts payable............................ (554) (2,496)
Accrued expenses and other liabilities...... (257) (8)
----------- -----------
Net cash provided by (used in) operating
activities.................................. (4,770) (5,282)
----------- -----------
Cash flows used in investing activities:
Acquisition of property and equipment............. (13) (1,086)
Proceeds from sale and leaseback.................. -- 7,312
----------- -----------
Net cash provided by (used in) investing
activities.................................. (13) 6,226
----------- -----------
Cash flows provided by financing activities:
Proceeds from revolving bank line................. 7,492 2,000
Payments on revolving line........................ (7,260) --
Payments under capital lease obligations.......... (694) (984)
Payments on note payable.......................... (1,971) --
Proceeds from note payable and other.............. 4,890 --
Proceeds from the issuance of common stock........ 5 95
Proceeds from issuance of preferred stock ........ 6,498 --
----------- -----------
Net cash from financing activities............. 8,960 1,111
----------- -----------
Net increase in cash................................. 4,177 2,055
Cash and cash equivalents at beginning of period..... -- 2,928
----------- -----------
Cash and cash equivalents at end of period........... $4,177 $4,983
=========== ===========
Supplemental disclosure of cash flow information
Acquisition of equipment under capital leases..... $ -- $3,139
Issuance of warrants in conjunction with capital
leases......................................... $ -- $132
Common stock issued for preferred stock dividends. $91 $ --
Deemed dividends on preferred stock............... $6,800 $ --
Issuance and repricing of warrants in conjunction
with debt forgiveness.......................... $790 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
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INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Integrated Packaging Assembly Corporation (the "Company") packages
integrated circuits for companies in the semiconductor industry.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Regulation S-X.
Accordingly, they do not have the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 1998 included in the
Company's Form 10-K/A filed with the Securities and Exchange Commission.
The results of operations for the three month and six month periods ended
July 4, 1999 are not necessarily indicative of the results that may be
expected for any subsequent period or for the entire year ending December 31,
1999.
NOTE 2. NOTES PAYABLE AND CAPITAL LEASES:
At the end of the second quarter of 1998, the Company ceased making
scheduled repayments of its debt balances outstanding relating to its Bank
Term Note Payable, Equipment Notes Payable and Line of Credit as well as its
capital leases. Certain of these debt facilities required that the Company
maintain certain financial covenants. Since July 5, 1998, the Company was out
of compliance with certain of these covenants. As a result of the covenant
noncompliance and failure to make scheduled repayments, the entire balance due
was classified as a current liability until the debt restructuring of April
29, 1999.
Also as a result of the defaults, certain of the Company's secured
creditors commenced legal actions against the Company seeking monetary damages
and recovery of the financed equipment. In December 1998, the Company
obtained forbearance agreements from the secured creditors through May 31,
1999. The forbearance agreements required, among other things, that the
Company make monthly payments through May 1999. These payments have been
made.
On April 29, 1999, Orient Semiconductor Electronics, Limited ("OSE")
purchased 4,000,000 shares of the Company's Preferred Stock, convertible into
75% (approximately 55,000,000 shares) of the Company's Common Stock on a
fully-diluted basis, for $6.8 million. As part of this transaction, the
Company's secured creditors agreed to terminate their legal actions and have
restructured the secured debt, including debt forgiveness and extended payment
terms over the next twelve to forty-eight months.
As part of the restructuring of secured debt, certain creditors were
issued warrants to purchase a total of approximately 1.5 million shares of
common stock at a price of $0.1236 per share. In addition, warrants to
purchase a total of 244,345 shares of common stock held by secured creditors
were repriced from exercise
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prices ranging from $0.77 to $3.30 per share of common stock to $0.1236 per
share. The fair value of the warrants issued and the incremental value of the
repriced warrants was $790,000.
As a result of the debt restructuring, the Company recorded an
extraordinary gain of $1,487,000. The extraordinary gain was the debt
forgiveness less the cost of future interest expense on the refinanced debt
and the repricing and issuance of warrants.
NOTE 3. BALANCE SHEET COMPONENTS:
(In thousands)
<TABLE>
<CAPTION>
July 4, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Inventory
Raw Materials..................... $948 $1,509
Work in process................... 178 195
------------ ------------
$1,126 $1,704
============ ============
</TABLE>
NOTE 4. INCOME TAXES:
No provision or benefit for income taxes was recorded for the three and
six month periods ended July 4, 1999 and July 5, 1998, as the Company operated
at a loss.
NOTE 5. NET INCOME (LOSS) PER SHARE:
Net income (loss) per basic and diluted share for the three month and six
periods ended July 4, 1999 and July 5, 1998 was computed using the weighted
average number of common shares outstanding during the period but excluded the
dilutive potential common shares from assumed conversions because of their
anti-dilutive effect. Dilutive potential common shares include outstanding
stock options and warrants, using the treasury stock method. At July 4, 1999,
there were 3,541,000 options and warrants outstanding to purchase common stock
of which 2,564,000 were exercisable. At July 5, 1998 there were 2,402,000
options and warrants outstanding to purchase common stock of which 1,164,000
were exercisable.
NOTE 6. EQUIPMENT IMPAIRMENT CHARGE:
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to Be Disposed Of" (SFAS 121). SFAS 121 requires that long-
lived assets held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the net book value of an
asset will not be recovered through expected future cash flows (undiscounted
and before interest) from use of the asset. The amount of impairment loss is
measured as the difference between the net book value of the assets and the
estimated fair value of the related assets.
During the second quarter of 1998, the Company recorded charges related
to the impairment of its manufacturing equipment of $18.2 million. These
adjustments related to recording reserves against the carrying value of
manufacturing equipment. The impairment is a result of continued adverse
conditions in
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the semiconductor industry, and historical as well as forecasted manufacturing
equipment underutilization, resulting in the fact that the value of the
manufacturing equipment will not be fully recovered. The fair value of
manufacturing equipment was based upon an independent estimate of fair values.
NOTE 7. RECENTLY ISSUED ACCOUNTING STANDARD:
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes a new
mode for accounting for derivatives and hedging activities. In July 1999, the
Financial Accounting Standards Board issued SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133." ("SFAS 137"). SFAS 137 deferred the effective
date of SFAS 133 until the first fiscal year beginning after June 15, 2000.
The impact of the implementation of SFAS 133 on the consolidated financial
statements of the Company has not yet been determined.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. The forward-looking
statements contained herein are subject to certain factors that could cause
actual results to differ materially from those reflected in the forward-
looking statements. Such factors include, but are not limited to, those
discussed below and elsewhere in this Report on Form 10-Q.
Overview
As a result of a reduction in orders from the Company's customers, the
Company has had significant excess production capacity since the first quarter
of 1997. The reduction in revenues and underutilization of capacity and
resultant underabsorption of fixed costs resulted in operating losses that
have continued into 1999. The Report of Independent Accountants included in
the Company's 1998 Annual Report on Form 10-K/A contains a going concern
statement.
In April, 1999, Orient Semiconductor Electronics, Limited ("OSE")
purchased 4,000,000 shares of the Company's Preferred Stock, convertible into
75% (approximately 55,000,000 shares) of the Company's Common Stock on a
fully-diluted basis, for $6.8 million. As part of this Company's transaction
the Company's secured creditors agreed to terminate their legal actions and
have restructured the secured debt, including debt forgiveness and extended
payment terms over the next twelve to forty-eight months.
The Company's operating results are affected by a wide variety of factors
that have in the past and could in the future materially and adversely affect
revenues, gross profit, operating income and liquidity. 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, the Company's ability to secure additional financing, and changes in
economic conditions. Unfavorable changes in any of the preceding 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 excess
production capacity. In addition, rapid technological change, evolving
industry standards, intense competition and fluctuations in end-user demand
characterize the markets for integrated circuits. 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. 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.
In recent years, the Company has experienced a decline in the average
selling prices for its services and expects that average selling prices for
its services will decline in the future, principally due to intense
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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 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.
Revenues
The Company recognizes revenues upon shipment of products to its
customers. Revenues for the three month and six month periods ended July 4,
1999 were $3.7 million and $7.4 million, respectively, compared with $5.8
million and $12.7 million, respectively, for the comparable periods in the
prior fiscal year. The decreases in revenues in the 1999 period are primarily
due to decreased orders and a reduction in average selling prices due to
changes in product mix and a decline in selling prices.
A substantial portion of the Company's net revenues in each quarter
result from shipments during the last month of that quarter, and for that
reason, among others, the Company's revenues are subject to significant
quarterly fluctuations. In addition, the Company establishes its targeted
expenditure levels based on expected revenues. If anticipated orders and
shipments in any quarter do not occur when expected, expenditure levels could
be disproportionately high and the Company's operating results for that
quarter would be materially adversely affected.
Gross Profit
Cost of revenues includes materials, labor, depreciation and overhead
costs associated with semiconductor packaging. Gross losses for the three
month and six month periods ended July 4, 1999, were $1.9 million and $3.6
million, respectively, compared with losses of $2.1 million and $3.6 million,
respectively, for the comparable periods in the prior fiscal year. Gross
profit as a percentage of revenues was a negative 51.8% for the three months
ended July 4, 1999, compared to a negative 37.2% for the same period of 1998.
Gross profit was a negative 48.6% for the six months ended July 4, 1999,
compared to a negative 28.2% for the same period in 1998. These declines in
gross profit were primarily the result of lower average selling prices, caused
by changes in package mix and industry competition, and higher labor and
manufacturing overhead costs and low capacity utilization.
Depreciation for certain of the Company's 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 estimates are reassessed periodically
when facts and circumstances suggest a revision may be necessary. In all
cases, the asset will be depreciated by the end of its estimated five or six
year life so that each quarter the equipment is subject to certain minimum
levels of depreciation. Assets acquired beginning in 1997 are depreciated
using the straight-line method. Depreciation and amortization was $1.1
million and $2.2 million for the three month and six month periods ended
July 4, 1999 compared to $2.4 million and $4.7 million for the same periods
in 1998. Depreciation expense decreased substantially starting with the
third quarter of 1998, as a result of the write down of impaired assets
recorded during the second quarter of 1998.
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
accounting costs. Selling, general and administrative expenses increased
10.6% to $1.1 million and
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2.0% to $2.1 million for the three month and six month periods ended July 4,
1999, respectively, over the comparable periods of 1998. These increases were
due primarily to increased spending in administration which was partially
offset by reduced spending in the Company's sales function. The increases in
administration spending included a $123,000 severance provision related to a
reduction in the Company's workforce.
As a percentage of revenues, selling, general and administrative expenses
increased from 16.9% for the second quarter of 1998 to 29.5% in the second
quarter of 1999 and from 16.0% for the first six months of 1998 to 27.9% for
the comparable period in 1999. These increases were primarily due to the
lower revenue level in 1999.
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 decreased 40.2% to $168,000 and 45.2% to
$347,000 for the three month and six month periods ended July 4, 1999,
respectively, over the comparable period in 1998. These decreases are
primarily due to reduced spending.
As a percentage of revenues, research and development expenses decreased
from 4.9% in the second quarter of 1998 to 4.6% in the second quarter of 1999
and from 5.0% for the first six months of 1998 to 4.7% for the comparable
period in 1999. These decreases reflects the higher revenue level in 1998 and
containment of the absolute level of research and development expenses.
Write Down of Impaired Assets
During the second quarter of 1998, the Company recorded charges related
to the impairment of its manufacturing equipment of $18.2 million. These
adjustments related to recording reserves against the carrying value of
manufacturing equipment. The impairment was a result of continued adverse
conditions in the semiconductor industry, and historical as well as forecasted
manufacturing equipment underutilization, resulting in the fact that the value
of the manufacturing equipment will not be fully recovered. The fair value of
manufacturing equipment was based upon an independent estimate of fair values.
Therefore, reserves were recorded for the difference between net carrying
value at historical costs and estimates of fair market value of the assets.
Interest and Other Income (Expense)
Net interest and other income are primarily comprised of interest expense
on equipment financing, offset by interest earnings from investments in cash
equivalents and short-term investments. Interest and other income resulted in
net other expense of $369,000 and $904,000 for the three month and six month
periods ended July 4, 1999, respectively, compared to net other expense of
$344,000 for the three month period and net other income of $109,000 for the
six month period ended July 5, 1998. For the three months ended April 4,
1998, interest and other income included a gain of $700,000 from the sale of
certain land and building not occupied by the Company. Interest expense
increased primarily due to the expenses on the accounts receivable factoring
and guaranteed lines of credit.
As a result of the restructuring of the secured debts, in the future,
interest expense will not be recorded on restructured secured debt. Future
interest on the restructured debt was included in the computation of the gain
on the restructured secured debt.
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Provision for Income Taxes
The Company did not record a provision for income tax for the three month
and six month periods ended July 4, 1999 and July 5, 1998 as the Company
operated at a loss.
Deemed Dividends on Preferred Stock
During the second quarter of 1999 the Company recorded a deemed dividend
on preferred stock of $6.8 million. This is the result of the conversion
price of the convertible preferred stock issued to OSE during the quarter
being less than the market price of the common stock on the date of the
transaction. All deemed dividends related to the transaction have been
recognized during the second quarter as a result of the preferred stock being
immediately convertible at the discretion of the holder.
Liquidity and Capital Resources
During the six month period ended July 4, 1999, the Company's net cash
used in operations was $4.8 million. Net cash used in operations was comprised
primarily of a net loss before preferred stock dividends of $5.4 million,
partially offset by $2.2 million of non-cash charges for depreciation and
amortization, and a net increase in working capital items of $27,000. The net
increase in working capital items primarily reflected a decrease in inventory
which was offset by a decrease in accounts payable. As of July 4, 1999, the
Company had cash and cash equivalents of $4.2 million.
The Company had capital expenditures of $13,000 during the first six
months of 1999. The Company expects to spend approximately $500,000 on
capital expenditures during the remainder of 1999 for the acquisition of
equipment. Most of the Company's production equipment has been funded either
through capital leases or term loans secured by production equipment.
In December 1997, the Company entered into a line of credit agreement
with a bank that provided, through December 1998, for borrowings up to the
lesser of $5,000,000 or 80% of eligible accounts receivable. 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. From July
5, 1998 through April 29, 1999, the Company was not in compliance with such
covenants.
On January 20, 1998, the Company completed the sale of its facilities,
which consists of land and two buildings with a total of 138,336 square feet
of building space, and agreed to lease back the 82,290 square foot building
that it occupies. Net proceeds from the sale were $7.3 million, net of the
elimination of $6.6 million of mortgage debt, fees, commissions and closing
costs. The results for the first quarter of 1998 include a gain of $700,000
from the sale of the land and building not occupied by the Company. The
remaining gain of approximately $1,400,000 will be amortized as a reduction
of lease expense over the initial ten year term of the lease for the building
that the Company occupies.
In June 1998, the Company entered in a capital lease for approximately
$3.1 million of production equipment. The lease expires in 2002. In
conjunction with the lease, the Company issued warrants to purchase 171,428
shares of common stock at $1.31 per share and are exercisable for seven years.
The warrants were valued at $132,000 using a Black-Scholes valuation model.
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During the six months ended July 4, 1999, $9.1 million was provided in
financing activities. This resulted primarily from proceeds from issuance of
preferred stock for $6.5 million and proceeds from a revolving line of credit
for $12.4 million which were partially offset by payments of $9.9 million on
the revolving line of credit, notes payable and capital leases.
At the end of the second quarter of 1998, the Company ceased making
scheduled repayments of its debt balances outstanding relating to its Bank
Term Note Payable, Equipment Notes Payable and Line of Credit as well as its
capital leases. Certain of these debt facilities required that the Company
maintain certain financial covenants. At July 5, 1998, the Company was out of
compliance with certain of these covenants. As a result of the covenant
noncompliance and failure to make scheduled repayments, the entire balance due
as of July 5, 1998, $12.0 million, was classified as a current liability. At
April 29, 1999, the Company restructured this debt and was in compliance with
the covenants.
In October 1998, the Company entered into an accounts receivable
factoring agreement with its bank that replaced its bank line of credit. The
agreement provides, as amended, through March 31, 2000, for borrowings up to
the lesser of $3.5 million or 80% of eligible accounts receivable. The bank
charges an administration fee of 0.5% of the gross accounts receivable
factored and a monthly interest charge of 1.25% of the average balance owed.
In December 1998, the Company obtained an additional $7 million bank line
of credit. This line, as amended on April 29, 1999, is guaranteed by OSE and
is available to finance operations and working capital needs through March 31,
2000. The line provides for monthly borrowings and interest acquired at the
bank's prime rate, (8% per annum at July 4, 1999). On July 29, 1999, the
Company obtained a new $7 million line of credit from a bank to replace an
existing $7 million line of credit. This line is guaranteed by OSE and is
available through July 31, 2000. The line is at the bank's prime rate less
0.25% (7.75% per annum at July 29, 1999).
As a result of the defaults, certain of the Company's secured creditors
commenced legal actions against the Company seeking monetary damages and
recovery of the financed equipment. In December 1998, the Company obtained
forbearance agreements from the secured creditors through May 31, 1999. The
forbearance agreements required, among other things, that the Company make
monthly payments through May 1999. These payments have been made.
In April, 1999, OSE purchased 4,000,000 shares of the Company's Preferred
Stock, convertible into 75% (approximately 55,000,000 shares) of the Company's
Common Stock on a fully-diluted basis, for $6.8 million. As part of this
transaction the Company's secured creditors agreed to terminate their legal
actions and have restructured the secured debt, including debt forgiveness and
extended payment terms over the next twelve to forty-eight months. On August
4, 1999, OSE converted 1,000,000 preferred shares into 13,748,771 shares of
common stock.
As part of the restructuring of secured debt, certain creditors were
issued warrants to purchase a total of approximately 1.5 million shares of
common stock at a price of $0.1236 per share. In addition, warrants to
purchase a total of 244,345 shares of common stock held by secured creditors
were repriced from exercise prices ranging from $0.77 to $3.30 per share of
common stock to $0.1236 per share. The fair value of the warrants issued and
the incremental value of the repriced warrants was $790,000.
As a result of the debt restructuring, the Company recorded an
extraordinary gain of $1,487,000. The extraordinary gain was the debt
forgiveness less the cost of future interest expense on the refinanced debt
and the repricing and issuance of warrants.
Page 13
<PAGE>
The Company believes that existing cash balances and available financing
will be sufficient to meet its projected working capital and other cash
requirements at least through the third quarter of 1999. There can be no
assurances, however, that lower than expected revenues, increased expenses,
increased costs associated with the purchase or maintenance of capital
equipment, or other events will not cause the Company to seek more capital, or
capital sooner than currently expected. There can be no assurance that such
additional financing will available when needed or, if available, will be
available on satisfactory terms.
Year 2000 Readiness Disclosure
The information provided below constitutes a "Year 2000 Readiness
Disclosure" for purposes of the Year 2000 Information and Readiness Disclosure
Act.
The Year 2000 ("Y2K") problem arises from the use of a two-digit field to
identify years in computer programs, e.g., 85=1985, and the assumption of a
single century, the 1900s. Any program so created may read or attempt to
read, "00" as the year 1900. There are two other related issues which could
also, lead to incorrect calculations or failure, such as (i) some systems'
programming assigns special meaning to certain dates, such as 9/9/99 and (ii)
the year 2000 is a leap year. Accordingly, some computer hardware and
software including programs embedded within machinery and parts will need to
be modified prior to the year 2000 in order to remain functional. To address
the issue, the Company created an internal task force to assess its state of
readiness for possible "Year 2000" issues and take the necessary actions to
ensure Year 2000 compliance. The task force has and continues to evaluate
internal business systems, production equipment, software and other components
which affect the Company's products, and the Company's vulnerability to
possible "Year 2000" exposures due to suppliers' and other third parties' lack
of preparedness for the year 2000.
The Company is in the process of assessing its production equipment and
its information system and does not anticipate any material Year 2000 issues
from its equipment or its own information system, databases or programs.
Certain software packages are currently being upgraded to compliant versions.
The costs incurred to date and expected to be incurred in the future are not
material to the Company's financial condition or result of operations. In
addition, the Company has been in contact with its suppliers and other third
parties to determine the extent to which they may be vulnerable to "Year 2000"
issues. As this assessment progresses, matters may come to the Company's
attention, which could give rise to the need for remedial measures which have
not yet been identified. As a contingency, the Company may replace the
suppliers and third party vendors who cannot demonstrate to the Company that
their products or services will be Year 2000 compliant. The Company cannot
currently predict the potential effect of third parties' "Year 2000" issues on
its business.
The Company believes that its Year 2000 compliance project will be
completed in advance of the Year 2000 date transition and will not have a
material adverse effect on the Company's financial condition or overall trends
in the results of operations. However, there can be no assurance that
unexpected delays or problems, including the failure to ensure Year 2000,
compliance by systems or products supplied to the Company by a third party,
will not have an adverse effect on the Company, its financial performance, or
the competitiveness or customer acceptance of its products.
Contingency planning will be performed in conjunction with the planning,
testing and integration of the Company's Year 2000 compliance project. For
each mission critical vendor or trading partner that had not responded on
Year 2000 compliance to the Company's satisfaction by July 31, 1999, a
contingency plan is being developed. If, during a follow-up survey scheduled
for the third quarter of 1999, it appears that
Page 14
<PAGE>
compliance is behind schedule or problematic, the contingency plan will be
implemented. This is expected to be completed by the middle of the fourth
quarter of 1999.
CERTAIN FACTORS AFFECTING OPERATING RESULTS
Customer Concentration
The Company has been substantially dependent on a relatively small number
of customers within the semiconductor industry. During the second quarter of
1999, Atmel Semiconductor and Ford Microelectronics accounted for 23% and 17%,
respectively, of the Company's revenues. During the first six months of 1999,
Atmel Semiconductor and Ford Microelectronics accounted for 28% and 18%,
respectively, of the Company's revenues. Ford Microelectronics has notified
the Company that its current business program will end during the third
quarter of 1999. It is estimated that sales to Ford Microelectronics in the
third quarter will represent less than 10% of total sales and zero in the
fourth quarter of 1999. The Company believes that it can develop new business
to offset the loss of this customer. There can be no assurance that the
Company will be able to so.
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. 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.
Underutilization of Manufacturing Capacity; High Fixed Costs
The Company made substantial investments in expanding its manufacturing
capacity during its operating history, in anticipation of increased future
business. Since early 1997, the Company has incurred net losses as revenues
dropped substantially, while overhead and fixed costs increased, with the
result that there was substantial underutilized manufacturing capacity. The
Company continues to operate with significant underutilized capacity. There
can be no assurance that the Company will receive orders from new or existing
customers that will enable it to utilize such manufacturing capacity in a
timely manner. The Company's inability to generate the additional revenues
necessary to more fully utilize its capacity has had and will continue to have
a material adverse effect on the Company's business, financial condition and
results of operations.
Product Quality and Reliability; Production Yields
The semiconductor packaging process is complex and product quality and
reliability are 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, errors in the
design of equipment and related tooling, use of defective raw materials,
defective plating services and inadequate sample testing. From time to time,
the Company has experienced and expects to experience lower than anticipated
production yields as a result of such factors. The Company's failure to
achieve high quality production 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. The Company believes that it has improved its
production quality, however, there can be no assurance that production quality
will continue to improve in the future.
Page 15
<PAGE>
Dependence on Raw Materials Suppliers
To maintain competitive manufacturing operations, the Company must obtain
from its suppliers, in a timely manner, sufficient quantities of acceptable
materials at expected prices. 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. Substantially all molding compound, a critical
raw material, is obtained from a single supplier. From time to time,
suppliers have extended lead times or limited the supply of required materials
to the Company because of supplier 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 has rejected
materials from those suppliers that do not meet its specifications, resulting
in declines in output or yield. Any interruption in the availability of or
reduction in the quality of materials from these suppliers would materially
adversely affect the Company's business, financial condition and results of
operations. The Company's ability to respond to increased orders would also
be adversely affected if the Company is not able to obtain increased supplies
of key raw materials.
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.
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. and Siliconware in Taiwan, ANAM
in Korea, PT Astra in Indonesia and Hana 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.
Design and Engineering of New Products
The Company believes that its competitive position depends substantially
on its ability to design new semiconductor packages in high demand and to
develop manufacturing capabilities for such products. These products include
Ball Grid Array (BGA) packages, Chip Scale Packages (CSP), and Thin Quad Flat
Page 16
<PAGE>
Pack (TQFP) packages. The Company plans to continue to make investments in
the development and design of such packages, and to develop its expertise and
capacity to manufacture such products. There can be no assurance that the
Company will be able to utilize such new designs or be able to utilize such
manufacturing capacity in a timely manner, that the cost of such development
will not exceed management's current estimates or that such capacity will not
exceed the demand for the Company's services. In addition, the allocation of
Company resources into such development costs will continue to increase the
Company's operating expenses and fixed costs. The Company's inability to
generate the additional revenues necessary to make use of such developments
and investments would have a material adverse effect on the Company's
business, financial condition and results of operations.
Dependence on a Limited Number of Equipment Suppliers
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 utilize a substantial amount of this
capital equipment. Accordingly, the Company's operations are highly dependent
on its ability to obtain high quality capital equipment from a limited number
of suppliers. The Company has no long term agreement with any such supplier
and acquires such equipment on a purchase order basis. This dependence
creates 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 ability to place new product lines into volume production
would be materially adversely affected. A prolonged delay in equipment
shipments by key suppliers or an inability to locate alternative equipment
suppliers would have a material adverse effect on the Company's business,
financial condition and results of operations and could result in damage to
customer relationships. In this regard, problems with the quality of certain
capital equipment affected the Company's ability to package semiconductors for
certain customers in a timely manner at acceptable yields, with the result
that the Company's business, operating results and financial condition were
adversely affected in 1996 and 1997.
Dependence on Single Manufacturing Facility
The Company's current manufacturing operations are located in a single
facility in San Jose, California. Because 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.
Page 17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.30 Promissory Note dated as of July 23, 1999,
between the Company and Bank SinoPac.
27 Financial Data Schedule
(b) Reports on Form 8-K
Changes in Control of Registrant, filed on May 7, 1999.
Page 18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Integrated Packaging Assembly Corporation
Date: August 16, 1999 /s/ Patrick Verderico
---------------------------------
Patrick Verderico
President and Chief Executive Officer
/s/ F. Terrence Markle
---------------------------------
F. Terrence Markle
Corporate Controller and
Principal Accounting Officer
Page 19
<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-Q for the three month period ending
July 4, 1999 and is qualified in its entirety by
reference to such.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUL-04-1999
<PERIOD-TYPE> 6-MOS
<CASH> 4,177
<SECURITIES> 0
<RECEIVABLES> 2,273
<ALLOWANCES> (245)
<INVENTORY> 1,126
<CURRENT-ASSETS> 7,894
<PP&E> 31,208
<DEPRECIATION> (19,314)
<TOTAL-ASSETS> 19,948
<CURRENT-LIABILITIES> 17,758
<BONDS> 0
6,498
0
<COMMON> 41,531
<OTHER-SE> (49,367)
<TOTAL-LIABILITY-AND-EQUITY> 19,948
<SALES> 7,428
<TOTAL-REVENUES> 7,428
<CGS> 11,038
<TOTAL-COSTS> 11,038
<OTHER-EXPENSES> 2,421
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 931
<INCOME-PRETAX> (6,935)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,935)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,487)
<CHANGES> 0
<NET-INCOME> (12,339)
<EPS-BASIC> ($0.86)
<EPS-DILUTED> ($0.86)
</TABLE>
EXHIBIT 10.30
PROMISSORY NOTE
Principal $7,000,000.00
Loan Date 07-23-99
Maturity 07-31-2000
Loan No 00115
Call
Collateral
Account
Officer TK
Initials
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length
limitations.
Borrower: Integrated Packaging Assembly Corporation
(TIN: 77-309372)
2221 Old Oakland Road
San Jose, CA 95131
Lender: Bank SinoPac, Los Angeles Branch
350 5. Grand Ave, Suite 3070
Los Angeles, CA 90071
Principal Amount: $7,000,000.00
Initial Rate: 7.750%
Date of Note: July 23,1999
PROMISE TO PAY. Integrated Packaging Assembly Corporation ("Borrower")
promises to pay to Bank SinoPac, Los Angeles Branch ("Lender"), or order, in
lawful money of the United States of America, the principal amount of Seven
Million & 00/100 Dollars ($7,000,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance of each
advance. Interest shall be calculated from the date of each advance until
repayment of each advance.
PAYMENT. Borrower will pay this loan on demand. Payment in full is due
immediately upon Lender's demand. If no demand is made, Borrower will pay this
loan in one payment of all outstanding principal plus all accrued unpaid
Interest on July 31, 2000. In addition, Borrower will pay regular monthly
payments of all accrued unpaid interest due as of each payment date, beginning
August 29,1999, with all subsequent interest payments to be due on the same
day of each month after that. Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid collection costs
and any late charges, then to any unpaid interest, and any remaining amount to
principal. The annual interest rate for this Note is computed on a 365/360
basis; that is, by applying the ratio of the annual interest rate over a year
of 360 days, multiplied by the outstanding principal balance, multiplied by
the actual number of days the principal balance is outstanding. Borrower will
pay Lender at Lender's address shown above or at such other place as Lender
may designate in writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender's Prime Rate
(the "Index"). This is the rate Lender charges, or would charge, on 90-day
unsecured loans to the most creditworthy corporate customers. This rate may or
may not be the lowest rate available from Lender at any given time. Lender
will tell Borrower the current Index rate upon Borrower's request The interest
rate change will not occur more often than each time the prime rate changes.
Borrower understands that Lender may make loans based on other rates as well.
The index currently is 8.000%. The interest rate to be applied to the unpaid
principal balance of this Note will be at a rate of 0.250 percentage points
under the Index, resulting in an initial rate of 7.750%. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum
rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default),
except as otherwise required by law. Except for the foregoing, Borrower may
pay without penalty all or a portion of the amount owed earlier than it is
due. Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued
unpaid interest. Rather, early payments will reduce the principal balance due.
Borrower agrees not to send Lender payments marked "paid in full", "without
recourse", or similar language. If Borrower sends such a payment, Lender may
accept it without losing any of Lender's rights under this Note, and Borrower
will remain obligated to pay any further amount owed to Lender. All written
communications concerning disputed amounts, including any check or other
payment instrument that indicates that the payment constitutes "payment in
full" of the amount owed or that is tendered with other conditions or
limitations or as full satisfaction of a disputed amount must be mailed or
delivered to: Bank SinoPac, Los Angeles Branch; 350 5. Grand Ave. Suite 3070;
Los Angeles, CA 90071.
LATE CHARGE. If a payment is 10 days or more late Borrower will be charged
5.000% of the regularly scheduled payment.
INTEREST AFTER DEFAULT. Upon Borrower's failure to pay all amounts declared
due pursuant to this section, including failure to pay upon final maturity,
Lender, at its option, may, if permitted under applicable law, increase the
variable interest rate on this Note 2.000 percentage points.
DEFAULT. Each of the following shall constitute an event of default ("Event
of Default") under this Note:
Payment Default. Borrower fails to make any payment when due under this Note.
Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Note or in any of the
related documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
False Statements. Any warranty, representation or statement made or furnished
to Lender by Borrower or on Borrower's behalf under this Note or the related
documents is false or misleading in any material respect, either now or at the
time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any
part of Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency
against any collateral securing the loan. This includes a garnishment of any
of Borrower's accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by Borrower
as to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives Lender written notice
of the creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for
the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any guarantor, endorser, surety, or accommodation party of any of the
indebtedness or any guarantor, endorser, surety, or accommodation party dies
or becomes incompetent, or revokes or disputes the validity of, or liability
under, any guaranty of the indebtedness. In the event of a death, Lender, at
its option, may, but shall not be required to, permit the guarantor's estate
to assume unconditionally the obligations arising under the guaranty in a
manner satisfactory to Lender, and, in doing so, cure any Event of Default.
Change In Ownership. My change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of this
Note is impaired.
Cure Provisions. If any default, other than a default in payment, is curable
and if Borrower has not been given a notice of a breach of the same provision
of this Note within the preceding twelve (12) months, it may be cured (and no
event 9f default will have occurred) if Borrower, after receiving written
notice from Lender demanding cure of such default (1) cures the default within
fifteen (15) days; or (2) if the cure requires
Page 1
<PAGE>
PROMISSORY NOTE
Page 2
(Continued)
more than fifteen (15) days, immediately initiates steps which Lender deems in
Lender's sole discretion to be sufficient to cure the default and thereafter
continues and completes all reasonable and necessary steps sufficient to
produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, and then
Borrower will pay that amount
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help
collect the loan if Borrower does not pay. Borrower also will pay Lender that
amount This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses, whether or not there is a
lawsuit, including attorneys' fees, expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction), and
appeals. Borrower also will pay any court costs, in addition to all other sums
provided by law.
JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in
any action, proceeding, or counterclaim brought by either Lender or Borrower
against the other.
GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of California. This Note
has been accepted by Lender in the State of California.
CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request
to submit to the jurisdiction of the courts of Los Angeles County, State of
California.
COLLATERAL. Borrower acknowledges this Note is secured by a US$7,000,000.00
Time Deposit pledged by Orient Semiconductor Electronics, Ltd. (Taiwan) with
Bank SinoPac Kaohsiung branch.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note, as well as directions for payment from Borrower's accounts,
may be requested orally or in writing by Borrower or by an authorized person.
Lender may, but need not, require that all oral requests be confirmed in
writing. Borrower agrees to be liable for all sums either: (A) advanced in
accordance with the instructions of an authorized person or (B) credited to
any of Borrower's accounts with Lender. The unpaid principal balance owing on
this Note at any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer print-outs. Lender will
have no obligation to advance funds under this Note if: (A) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (B) Borrower or any guarantor ceases
doing business or is insolvent; (C) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; or (D) Borrower has applied funds provided
pursuant to this Note for purposes other than :those authorized by Lender.
ARBITRATION. Borrower and Lender agree that all disputes, claims and
controversies between them whether individual, joint, or class in nature,
arising from this Note or otherwise, including without limitation contract and
tort disputes, shall be arbitrated pursuant to the Rules of the American
Arbitration Association in effect at the time the claim is filed, upon request
of either party. No act to take or dispose of any collateral securing this
Note shall constitute a waiver of this arbitration agreement or be prohibited
by this arbitration agreement This includes, without limitation, obtaining
injunctive relief or a temporary restraining order; invoking a power of sale
under any deed of trust or mortgage; obtaining a writ of attachment or
imposition of a receiver; or exercising any rights relating to personal
property, including taking or disposing of such property with or without
judicial process pursuant to Article 9 of the Uniform Commercial Cede. Any
disputes, claims, or controversies concerning the lawfulness or reasonableness
of any act, or exercise of any right, concerning any collateral securing this
Note, including any claim to rescind, reform, or otherwise modify any
agreement relating to the collateral securing this Note, shall also be
arbitrated, provided however that no arbitrator shall have the right or the
power to enjoin or restrain any act of any party. Borrower and Lender agree
that in the event of an action for judicial foreclosure pursuant to California
Code of Civil Procedure Section 726, or any similar provision in any other
state, the commencement of such an action will not constitute a waiver of the
right to arbitrate and the court shall refer to arbitration as much of such
action, including counterclaims, as lawfully may be referred to arbitration.
Judgment upon any award rendered by any arbitrator may be entered in any court
having jurisdiction. Nothing in this Note shall preclude any party from
seeking equitable relief from a court of competent jurisdiction. The statute
of limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of an action for these purposes. The Federal
Arbitration Act shall apply to the construction, interpretation, and
enforcement of this arbitration provision.
GENERAL PROVISIONS. This Note and is payable on demand. The inclusion of
specific default provisions or rights of Lender shall not preclude Lender's
right to declare payment of this Note on its demand. Lender may delay or forgo
enforcing any of its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive any applicable statute of limitations,
presentment, demand for payment, and notice of dishonor. Upon any change in
the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan or
release any party or guarantor or collateral; or impair, fail to realize upon
or perfect Lender's security interest in the collateral; and take any other
action deemed necessary by Lender without the consent of or notice to anyone.
All such parties also agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the modification
is made. The obligations under this Note are joint and several.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
BORROWER:
INTEGRATED PACKAGING ASSEMBLY CORPORATION
By:
--------------------------------------
Patrick Verderico,
President of Integrated Packaging Assembly Corporation
Page 2
<PAGE>
LOAN REOUEST SUMMARY
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length
limitations.
Borrower: Integrated Packaging Assembly Corporation
(TIN: 77-309372)
2221 Old Oakland Road
San Jose, CA 95131
Lender: Bank SinoPac, Los Angeles Branch
350 5. Grand Ave, Suite 3070
Los Angeles, CA 90071
REVOLVING LINE OF CREDIT
(Variable Rate)
Financed In Cash
----------------- --------------
AMOUNT REQUESTED: $7,000,000.00
PREPAID FINANCE CHARGES:
Loan Origination Fee (%) 17,500.00
SECURITY INTEREST CHARGES: 0.00
------------------ --------------
NOTE AMOUNT: $7,000,000.00 $17,500.00
PAYMENT CALCULATION:
Interest Method: 365/360
Disbursement Date: 07-29-1999
First Int Payment Date: 08-29-1999
Due Date: 07-31-2000
Int Payment Period: Monthly
Variable Interest Rate: 7.750
Credit Insurance: None
Payment Schedule. Borrower's payment schedule consists of 12 monthly
consecutive payments, beginning August 29, 1999, with interest calculated on
the unpaid principal balances at an interest rate based on the Bank SinoPac
PRIME RATE (currently 8.000%), is added to the margin of -0.250%, resulting in
an initial interest rate of 7.750%; and one payment of $7,001,506.94 on July
31, 2000, with interest calculated on the unpaid principal balances at an
interest rate based on the Bank SinoPac PRIME RATE (currently 8.000%), is
added to the margin of -0.250%, resulting in an initial interest rate of
7.750%. This estimated final payment is based on the assumption that all
payments will be made exactly as scheduled and that the Index does not change;
the actual final payment will be for all principal and accrued interest not
yet paid, together with any other unpaid amounts under the Note.
APR FINANCE CHARGE AMOUNT FINANCED TOTAL OF PAYMENTS
8.396% $294,777.79 e $6,982,500.00 $7,277,277.79 e
e means estimate
COLLATERAL: Possessory Collateral.
TRANSACTION NUMBER: 1
NOTICE: This Lean Request Summary is for informational purposes only and does
not obligate Lender In any way to make this loan or any other loan to
Borrower. The fees and charges listed above are estimates only; and, if a loan
is made, different or additional fees and charges may be imposed.
DISBURSEMENT REQUEST AND AUTHORIZATION
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length
limitations.
Borrower: Integrated Packaging Assembly Corporation
(TIN: 77-309372)
2221 Old Oakland Road
San Jose, CA 95131
Lender: Bank SinoPac, Los Angeles Branch
350 5. Grand Ave. Suite 3070
Los Angeles, CA 90071
LOAN TYPE. This is a Variable Rate Nondisclosable Revolving Line of Credit
Loan to a Corporation for $7,000,000.00 due on July 31, 2000. The reference
rate (Bank SinoPac PRIME RATE, currently 8.000%) is added to the margin of
- -0.250%, resulting in an initial rate of 7.750.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
[ ] Personal, Family, or Household Purposes or Personal Investment
[X] Business (Including Real Estate Investment).
SPECIFIC PURPOSE. The specific purpose of this loan is: To provide Borrower a
revolving line of credit for general working capital purpose.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $7,000,000.00 as follows:
Amount paid to Borrower directly: $7,000,000.00
$7,000,000.00 Deposited to Credit Balance
Account # 036-05-00201
----------------
Note Principal: $7,000,000.00
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash: $17,500.00
$17,500.00 Loan Origination Fee (%)
---------------
Total Charges Paid in Cash: $17,500.00
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL
CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO
LENDER. THIS AUTHORIZATION IS DATED JULY 23, 1999.
BORROWER:
INTEGRATED PACKAGING ASSEMBLY CORPORATION
By:
--------------------------------------
Patrick Verderico,
President of Integrated Packaging Assembly Corporation
Page 3
<PAGE>
YEAR 2000 COMPLIANCE AGREEMENT
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length
limitations.
Borrower: Integrated Packaging Assembly Corporation
(TIN: 77-309372)
2221 Old Oakland Road
San Jose, CA 95131
Lender: Bank SinoPac, Los Angeles Branch
350 5. Grand Ave, Suite 3070
Los Angeles, CA 90071
THIS YEAR 2000 COMPLIANCE AGREEMENT DATED July 23,1999, IS MADE BY Integrated
Packaging Assembly Corporation (refered to below as "Borrower"), AND Bank
SinoPac, Los Angeles Branch (referred to below as "Lender").
It is recognized that the potential Year 2000 problems, relating to computers,
hardware, microchips, software, and additional software applications utilized
by Borrower in Borrower's business, or by Borrower's suppliers, vendors, and
Borrower's customers may result in unexpected and material adverse changes in
Borrower's business or financial condition. For example, these problems may
create, destroy, delay or create inaccuracies in: (A) the billing process,
thus affecting Borrower's cash flow; (B) the production and the inventory
process, thus affecting Borrower's ability to provide or deliver goods or
services to Borrower's customers; or (C) the ability to manage the business
due to year 2000 Compliance failures of management systems or processes. in
addition, sales of goods or services manufactured or handled by Borrower will
be impaired if the goods or services are not Year 2000 Compliant.
Borrower has an obligation to evaluate and address the Year 2000 risks to
Borrower's business, develop appropriate risk controls to minimize or manage
that risk, and, if a Year 2000 risk is identified, to adopt a plan to
eliminate the risk before December 31,1999.
Federal Banking Regulations require financial institutions to identify those
of its customers whose failure to become Year 2000 compliant would pose a
material risk or threat to the safety and soundness of the financial
institution because of (A) the overall relationship between the customer and
the institution, (B) the complexity of the customer's technology systems, (C)
the degree of reliance by the customer on such systems, (D) the dependence of
the customer on third-party providers of data processing services or products,
(E) the nature of the collateral for customer's indebtedness to the
institution, (F) the nature of the customer's business or products
manufactured, sold, leased or licensed by customer. Banking regulations also
require financial institutions to obtain assurances from those identified
customers that the customer is aware of the year 2000 risks and has or is
implementing plans to manage and eliminate the Year 2000 risks. Borrower has
been identified as a business that is faced with material Year 2000 risks,
which, if not resolved, could cause Borrower to fail or suffer significant
financial reverses and pose a material risk or threat to the safety and
soundness of Lender.
Now therefore and as additional consideration to Induce Lender to grant or
continue to grant credit accommodations to Borrower, Borrower, by executing
this Agreement, hereby represents, warrants, and agrees with Lender as
follows:
REPRESENTATIONS. Borrower represents and warrants to Lender, as of the date
of this Agreement, as of the date of each disbursement of loan proceeds, as of
the date of any renewal, extension or modification of any Loan, and at all
times any Indebtedness exists:
Borrower's Business Will Be Year 2000 Compliant All the computers, hardware,
microchips, software, and additional software applications utilized by
Borrower in the conduct of Borrower's business will record, store, process,
and present calendar dates falling on or after January 1, 2000, and all
information pertaining to such calendar dates, in the same manner and with the
same functionality as the Software does respecting calendar dates falling on
or before December 31,1999. Further, Borrower warrants and represents that the
computers, hardware, microchips, software, and additional software
applications shall have all appropriate capabilities and compatibility for
operation and for handling century-aware or Year 2000 compliant data. Borrower
also warrants and represents that the data-related user interface functions,
data-fields, and data-related program instructions and functions of the
computers, hardware, microchips, software, and additional software
applications include the correct indication or calculation of the century and
will be Year 2000 Compliant before December 31,1999.
Borrower's Key Suppliers, Vendors, and Customers Will Be Year 2000 Compliant.
The key suppliers, vendors, and customers which are material to Borrower's
business operations will be Year 2000 Compliant before December 31, 1999.
Borrower's Goods and Services. My computers, hardware, microchips, software,
and additional software applications goods and services which will be sold or
leased by Borrower's business to Borrower's customers will be Year 2000
Compliant before December 31,1999.
Required Notices. Borrower has provided Lender any communication, written or
oral, from any individual, entity, or consultant, indicating that Borrower's
business has any Year 2000 problems or compliance issues and warrants that
Borrower has not received any communication, written or oral, from any
material suppliers, vendors or customers with Year 2000 problems or compliance
issues which affect Borrower's business.
AFFIRMATIVE COVENANTS. Borrower hereby covenants with Lender as follows:
Borrower's Business Will Be Year 2000 Compliant Borrower's business will be
Year 2000 Compliant by December 31, 1999.
Borrower's Suppliers, Vendors and Customers. The key suppliers, vendors and
customers which are material to Borrower's business operations will be Year
2000 Compliant by December 31,1999.
Borrower's Goods and Services. My computers, hardware, microchips, software,
and additional software applications goods and services which will be sold or
leased by Borrower's business to Borrower's customers and will be Year 2000
Compliant by December 31,1999.
Year 2000 Compliant On the basis of a comprehensive inventory, review and
assessment undertaken by Borrower of Borrower's computers, hardware,
microchips, software, and additional software systems utilized by Borrower's
business, and in conjunction with an extensive inquiry of Borrower's key
suppliers, vendors and customers, Borrower, and Borrower's key suppliers,
vendors and customers, are Year 2000 Compliant
Borrower's Year 2000 Compliance Plan. Borrower has completed or accomplished
or will complete or accomplish, by the indicated dates, the following:
By December 31, 1999, prepare a comprehensive, detailed inventory and
assessment of the extent to which Borrower is not Year 2000 Compliant
By December 31,1999, make a detailed inquiry of all the key suppliers, vendors
and customers, which are material to Borrower's business operations to
ascertain whether such entities are Year 2000 Compliant;
By December 31, 1999, make detailed inquiry of all key suppliers, vendors and
customers, which are material to Borrower's business operation to ascertain
whether such entities are aware of the need to be Year 2000 Compliant and are
taking all appropriate steps to become Year 2000 Compliant on a timely basis;
By December 31,1999, prepare a detailed project plan and timetable for
ensuring the Borrower is Year 2000 Compliant on a timely basis;
Page 4
<PAGE>
YEAR 2000 COMPLIANCE AGREEMENT
Page 2
(Continued)
By December 31,1999, fix all code dates for, or replace with compliant
technology, all adversely affected material computer applications and imbedded
microchips to be Year 2000 Compliant;
By December 31, 1999, complete testing and installation of all necessary
computers, hardware, microchips, software, and additional software
applications such that Borrower is Year 2000 Compliant
Access to Records. Borrower shall deliver to Lender, at Lender's request,
copies of any and all documents in Borrower possession now and in the future
to which Borrower has access relating to Year 2000 problems, issues or
matters, including without limitation results of Year 2000
analyses, or studies, audit reports and other consultants' studies and
reports.
Notices. Borrower shall immediately notify Lender upon becoming aware of any
or the following:
(1) Any communications, written or oral, that Borrower's computers, hardware,
microchips, software, and additional software applications are
not Year 2000 Compliant
(2) Any communication, written or oral, that key suppliers, vendors, and
customers, which are material to Borrower's business operations, are
not Year 2000 Compliant, and shall advise Lender of what impact this will have
on Borrower's business.
(3) Any matters relating to Year 2000 that would give a reasonably prudent
Lender cause to be concerned that the value of Lender's security
interest in the collateral may be reduced, threatened or impaired, or that
Lender's ability to foreclose on the collateral securing the
Indebtedness may be threatened or impaired
Inspections. Lender reserves the right to inspect and investigate Borrower's
Year 2000 progress, problems and compliance issues at any time and from time
to time, and Borrower shall cooperate fully with Lender in such inspection and
investigations. If Lender at any time has reason to believe that Borrower is
not meeting all efforts and plans to ensure that the business will be Year
2000 Compliant, Lender may require Borrower to furnish Lender, at Borrower's
expense, a Year 2000 audit or assessment with respect to the matters of
concern to Lender. Such audit or assessment shall be performed by a qualified
consultant approved by Lender. Any inspections or tests made or requested by
Lender shall be for Lender's purposes only and shall not be construed to
create any responsibility or liability on the part of Lender to Borrower or to
any other person.
Litigation. Borrower shall promptly inform Lender in writing of (A) all
material adverse changes in Borrower's financial condition, and (B) all
existing and all threatened litigation, claims, investigations, administrative
proceedings or similar actions relating to Year 2000 Compliance failures which
could materially affect the financial condition of Borrower.
BORROWER'S WAIVER AND INDEMNIFICATION. Borrower agrees to defend and to save
and hold Lender harmless and Lender's officers, directors, employees, and
agents and Lender's successors and assigns and their officers, directors,
employees, and agents, from any and all claims, suits, obligations, damages,
losses, costs and expenses (including, without limitation, Lender's attorneys'
fees), demands, liabilities, penalties, fines and forfeitures of any nature
whatsoever that may be asserted against or incurred by such entity or person
arising out of, relating to, or in any manner occasioned by any investigatory
or remedial action involving the Year 2000 issues or account of the breach of
any covenant contained in this Agreement, or by the exercise of the rights and
remedies granted Lender under this Agreement In addition to this indemnity,
Borrower hereby releases and waives all present and future claims against
Lender for indemnity or contribution in the event Borrower becomes liable for
any failure under Year 2000 Compliant standards. The foregoing indemnity
provisions shall survive the cancellation of this Agreement as to all matters
arising or accruing prior to such cancellation and the foregoing indemnity
shall survive in the event that Lender elects to exercise any of the remedies
as provided under this Agreement following default hereunder.
DEFAULT. Each of the following shall constitute an Event of Default under
this Agreement
Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of the
Related Documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
False Statements. Any warranty, representation or statement made or furnished
to Lender by Borrower or on Borrower's behalf under this Agreement, the Note,
or the Related Documents is false or misleading in any material respect,
either now or at the time made or furnished or becomes false or misleading at
any time thereafter.
Year 2000 Compliance Failure. Failure to meet the deadlines required in this
Agreement to be Year 2000 Compliant or a reasonable likelihood that Borrower
cannot be Year 2000 Compliant on or before December 31, 1999.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if
there occurs a material adverse change in Borrower's financial condition or
there is any event or circumstance that has resulted or is reasonably likely
to result in a compliance failure under Year
2000 Compliant standards.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement No alteration of or amendment to this Agreement shall
be effective unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement
Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's
costs and expenses, including Lender's attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement Lender
may hire or pay someone else to help enforce this Agreement, and Borrower
shall pay the costs and expenses of such enforcement Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Borrower also shall pay all court costs and such additional fees as may be
directed by the court
Governing Law. This Agreement will be governed by, construed and enforced In
accordance with federal law and the laws of the State of California. This
Agreement has been accepted by Lender In the State of California.
Choice of Venue If there is a lawsuit, Borrower agrees upon Lender's request
to submit to the jurisdiction of the courts of Los Angeles County, State of
California.
No Waiver by Lender. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A
Page 5
<PAGE>
YEAR 2000 COMPLIANCE AGREEMENT
Page 3
(Continued)
waiver by Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict compliance
with that provision or any other provision of this Agreement No prior waiver
by Lender, nor any course of dealing between Lender and Borrower, shall
constitute a waiver of any of Lender's rights or of any of Borrower's
obligations as to any future transactions. Whenever the consent of Lender is
required under this Agreement, the granting of such consent by Lender in any
instance shall not constitute continuing consent to subsequent instances where
such consent is required and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be illegal, invalid, or unenforceable as to any
circumstance, that finding shall not make the offending provision illegal,
invalid, or unenforceable as to any other circumstance. If feasible, the
offending provision shall be considered modified so that it becomes legal,
valid and enforceable. If the offending provision cannot be so modified, it
shall be considered deleted from this Agreement Unless otherwise required by
law, the illegality, invalidity, or unenforceability of any provision of this
Agreement shall not affect the legality, validity or enforceability of any
other provision of this Agreement.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind Borrower's successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower shall
not, however, have the right to assign Borrower's rights under this Agreement
or any interest therein, without the prior written consent of Lender.
Time is of the Essence. Time is of the essence in the performance of this
Agreement
DEFINITIONS. The following capitalized words and terms shall have the
following meanings when used in this Agreement. Unless specifically stated to
the contrary, all references to dollar amounts shall mean amounts in lawful
money of the United States of America. Words and terms used in the singular
shall include the plural, and the plural shall include the singular, as the
context may require. Words and terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the Uniform Commercial
Code:
Agreement The word "Agreement" means this Year 2000 Compliance Agreement, as
this Year 2000 Compliance Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Year 2000
Compliance Agreement from time to time.
Borrower. The word "Borrower" means Integrated Packaging Assembly
Corporation, and all other persons and entities signing the Note in whatever
capacity.
Event of Default The words "Event of Default" mean any of the Events of
Default set forth in this Agreement in the Default section of this Agreement
lndebtedness The word "Indebtedness" means and includes without limitation all
Loans, together with all other obligations, debts and liabilities of Borrower
to Lender, or any one or more of them, as well as all claims by Lender against
Borrower, or any one of them; whether now or hereafter existing, voluntary or
involuntary, due or not due, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or jointly with
others: whether Borrower may be obligated as a guarantor, surety, or
otherwise; whether recovery upon such Indebtedness may be or hereafter may
become barred by any statute of limitation; and whether such Indebtedness may
be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means Bank SinoPac, Los Angeles Branch, its
successors and assigns.
Loan. The word "Loan" means any and all loans and financial accommodations
from Lender to Borrower whether now or hereafter existing, and however
evidenced, including without limitation those loans and financial
accommodations described herein or described on any exhibit or schedule
attached to this Agreement from time to time.
Related Documents. The words "Related Documents" mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
Year 2000 Compliant The words "Year 2000 Compliant" means, with regard to any
entity, that all of the computer, hardware, embedded microchips, software, and
other processing capabilities utilized by the business operations are able to
interpret and manipulate data correctly on all calendar dates for the 2Oth and
21st century.
EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF
THIS AGREEMENT, AND EACH AGREES TO ITS TERMS. NO FORMAL ACCEPTANCE BY LENDER
IS NECESSARY TO MAKE THIS AGREEMENT EFFECTIVE.
BORROWER:
INTEGRTRATED PACKAGING ASSEMBLY CORPORATION
By:
----------------------------------------
Patrick Verderico,
President of Integrated Packaging Assembly Corporation
Page 6
<PAGE>
BUSINESS LOAN AGREEMENT
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length
limitations.
Borrower: Integrated Packaging Assembly Corporation
(TIN: 77-309372)
2221 Old Oakland Road
San Jose, CA 95131
Lender: Bank SinoPac, Los Angeles Branch
350 5. Grand Ave, Suite 3070
Los Angeles, CA 90071
THIS BUSINESS LOAN AGREEMENT dated July 23, 1999, is made and executed between
Integrated Packaging Assembly Corporation ("Borrower") and Bank SinoPac, Los
Angeles Branch ("Lender") on the following terms and conditions. Borrower has
received prior commercial loans from Lender or has applied to Lender for a
commercial loan or loans or other financial accommodations, including those
which may be described on any exhibit or schedule attached to this Agreement
("Loan"). Borrower understands and agrees that: (A) in granting, renewing, or
extending any Loan, Lender Is relying upon Borrower's representations,
warranties, and agreements as set forth In this Agreement, and (B) all such
Loans shall be and remain subject to the terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of July 23, 1999, and shall
continue in full force and effect until such time as all of Borrower's Loans
in favor of Lender have been paid in full, in principal, interest, costs,
expenses, attorneys' fees, and other fees and charges, or until such time as
the parties may agree in writing to terminate this Agreement
Collateral Records. Borrower does now, and at all times hereafter shall, keep
correct and accurate records of the Collateral, all of which records shall be
available to Lender or Lender's representative upon demand for inspection and
copying at any reasonable time. The above is an accurate and complete list of
all locations at which Borrower keeps or maintains business records concerning
Borrower's collateral.
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of in form
and substance satisfactory to the Lender. Thereafter supplemental schedules
shall be delivered according to the following schedule:
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's. obligation to make the
initial Advance and each subsequent Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions
set forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender the following documents for
the Loan: (1) the Note; (2) Security Agreements granting to Lender security
interests in the Collateral; (3) financing statements perfecting Lender's
Security Interests; (4) evidence of insurance as required
below; (5) together with all such Related Documents as Lender may require for
the Loan; all in form and substance satisfactory to Lender and Lender's
counsel.
Borrower's Authorization. Borrower shall have provided in form and substance
satisfactory to Lender properly certified resolutions, duly authorizing the
execution and delivery of this Agreement, the Note and the Related Documents.
In addition, Borrower shall have provided such other resolutions,
authorizations, documents and instruments as Lender or its counsel, may
require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document
Representations and Warranties. The representations and warranties set forth
in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct
No Event of Default There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this Agreement or
under any Related Document
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all times any Indebtedness exists:
Organization. Borrower is a corporation for profit which is, and at all times
shall be, duly organized, validly existing, and in good standing under and by
virtue of the laws of the State of California. Borrower is duly authorized to
transact business in all other states in which Borrower is doing business,
having obtained all necessary filings, governmental licenses and approvals for
each state in which Borrower is doing business. Specifically, Borrower is, and
at all times shall be, duly qualified as a foreign corporation in all states
in which the failure to so qualify would have a material adverse effect on its
business or financial condition. Borrower has the full power and authority to
own its properties and to transact the business in which it is presently
engaged or presently proposes to engage. Borrower maintains its principal
office at 2221 Old Oakland Rd., San Jose, CA 95131. Unless Borrower has
designated otherwise in writing, this is the office at which Borrower keeps
its books and records including its records concerning the Collateral.
Borrower will notify Lender of any change in the location of Borrower's
principal office. Borrower shall do all things necessary to preserve and to
keep in full force and effect its existence, rights and privileges, and shall
comply with all regulations, rules, ordinances, statutes, orders and decrees
of any governmental or quasi-governmental authority or court applicable to
Borrower and Borrower's business activities.
Assumed Business Names. Borrower has filed or recorded all documents or
filings required by law relating to all assumed business names used by
Borrower. Excluding the name of Borrower, the following is a complete list of
all assumed business names under which Borrower does business: None,
Authorization. Borrower's execution, delivery, and performance of this
Agreement and all the Related Documents have been duly authorized by all
necessary action by Borrower and do not conflict with, result in a violation
of, or constitute a default under (1) any provision of Borrower's articles of
incorporation or organization, or bylaws, or any agreement or other instrument
binding upon Borrower or (2) any law, governmental regulation. court decree,
or order applicable to Borrower or to Borrower's properties.
Financial Information. Each of Borrower's financial statements supplied to
Lender truly and completely disclosed Borrower's financial condition as of the
date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the roost recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect This Agreement constitutes, and any instrument or agreement
Borrower is required to give under this Agreement when delivered will
constitute, legal, valid, and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
Hazardous Substances. Except as disclosed to and acknowledged by Lender in
writing, Borrower represents and warrants that (1) During the period of
Borrower's ownership of Borrower's Collateral, there has been no use,
generation, manufacture, storage, treatment, disposal, release or threatened
release of any Hazardous Substance by any person on, under, about or from any
of the Collateral. (2) Borrower has no knowledge of, or reason to believe that
there has been (a) any breach or violation of any Environmental Laws; (b) any
use, generation, manufacture, storage,
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BUSINESS LOAN AGREEMENT
Page 2
(Continued)
treatment, disposal, release or threatened release of any Hazardous Substance
on, under, about or from the Collateral by any prior owners or occupants of
any of the Collateral; or (c) any actual or threatened litigation or claims of
any kind by any person relating to such matters. (3) Neither Borrower nor any
tenant, contractor, agent or other authorized user of any of the Collateral
shall use, generate, manufacture, store, treat, dispose of or release any
Hazardous Substance on, under, about or from any of the Collateral; and any
such activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations; and ordinances, including without
limitation all Environmental Laws. Borrower authorizes Lender and its agents
to enter upon the Collateral to make such inspections and tests as Lender may
deem appropriate to determine compliance of the Collateral with this section
of the Agreement Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be construed
to create any responsibility or liability on the part of Lender to Borrower or
to any other person. The representations and warranties contained herein are
based on Borrower's due diligence in investigating the Collateral for
hazardous waste and hazardous substances. Borrower hereby (1) releases and
waives any future claims against Lender for indemnity or contribution in the
event Borrower becomes liable for cleanup or other costs under any such laws,
and (2) agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which Lender may
directly or indirectly sustain or suffer resulting from a breach of this
section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release of a hazardous
waste or substance on the properties. The provisions of this section of the
Agreement, including the obligation to indemnify, shall survive the payment of
the Indebtedness and the termination, expiration or satisfaction of this
Agreement and shall not be affected by Lender's acquisition of any interest in
any of the Collateral, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which may
materially adversely affect Borrower's financial condition or properties,
other than litigation, claims, or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and
reports that are or were required to be filed, have been filed, and all taxes,
assessments and other governmental charges have been paid in full, except
those presently being or to be contested by Borrower in good faith in the
ordinary course of business and for which adequate reserves have been
provided.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all information
hereafter furnished by or on behalf of Borrower to Lender will be, true and
accurate in every material respect on the date as of which such information is
dated or certified; and none of such information is or will be incomplete by
omitting to state any material fact necessary to make such information not
misleading.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or permitted
the filing or attachment of any Security Interests on or affecting any of the
Collateral directly or indirectly securing repayment of Borrower's Loan and
Note, that would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements (if any),
and all Related Documents are binding upon the signers thereof, as well as
upon their successors, representatives and assigns, and are legally
enforceable in accordance with their respective terms.
AFFIRMATIVIE COVENANTS. Borrower covenants and agrees with Lender that, so
long as this Agreement remains in effect, Borrower will:
Notices of Claims and Litigation. Promptly inform Lender in writing of (1)
all material adverse changes in Borrower's financial condition, and (2) all
existing and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with GAAP,
applied on a consistent basis, and permit Lender to examine and audit
Borrower's books and records at all reasonable times.
Financial Statements. Furnish Lender with the following:
(1) Annual Statements. As soon as available, but in no event later than
ninety (90) days after the end of each fiscal year, Borrower's balance sheet
and income statement for the year ended, audited by a certified public
accountant satisfactory to Lender.
(2) interim Statements. As soon as available, but in no event later than 45
days after the end of each fiscal quarter, Borrower's balance sheet and profit
and loss statement for the period ended, prepared by Borrower.
All financial reports required to be provided under this Agreement shall be
prepared in accordance with GAAP, applied on a consistent basis, and certified
by Borrower as being true and correct
Additional information. Furnish such additional information and statements,
as Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, In form, amounts, coverages and with
insurance companies acceptable to Lender. Borrower, upon request of Lender,
will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least ten (10) days
prior written notice to Lender. Each insurance policy also shall include an
endorsement providing that coverage in favor of Lender will not be impaired in
any way by any act, omission or default of Borrower or any other person. In
connection with all policies covering assets in which Lender holds or is
offered a security interest for the Loans, Borrower will provide Lender with
such lender's loss payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (1) the name of the
insurer; (2) the risks insured: (3) the amount of the policy; (4) the
properties insured; (5) the then current property values on the basis of which
insurance has been obtained, and the manner of determining those values; and
(6) the expiration date of the policy. In addition, upon request of Lender
(however not more often than annually), Borrower will have an independent
appraiser satisfactory to Lender determine, as applicable, the actual cash
value or replacement cost of any Collateral. The cost of such appraisal shall
be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other
party and notify Lender immediately in writing of any default in connection
with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed upon
Borrower or its properties, income, or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrower's properties, income, or profits.
Performance. Perform and comply, in a timely manner, with all terms,
conditions, and provisions set forth in this Agreement, in the Related
Documents, and in all other instruments and agreements between Borrower and
Lender. Borrower shall notify Lender immediately in writing of
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BUSINESS LOAN AGREEMENT
Page 3
(Continued)
any default in connection with any agreement.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and prudent
manner.
Compliance with Governmental Requirements. Comply with all laws, ordinances,
and regulations, now or hereafter in effect, of all governmental authorities
applicable to the conduct of Borrower's properties, businesses and operations,
and to the use or occupancy of the Collateral, including without limitation,
the Americans With Disabilities Act Borrower may contest in good faith any
such law, ordinance, or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Borrower has notified
Lender in writing prior to doing so and so long as, in Lender's sole opinion,
Lender's interests in the Collateral are not jeopardized. Lender may require
Borrower to post adequate security or a surety bond, reasonably satisfactory
to Lender, to protect Lender's interest
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free access to
such records at all reasonable times and to provide Lender with copies of any
records it may request, all at Borrower's expense.
Compliance Certificates. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds, with
a certificate executed by Borrower's chief financial officer, or other officer
or person acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of the date of
the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects
with any and all Environmental Laws; not cause or permit to exist as a result
of an intentional or unintentional action or omission on Borrower's part or on
the part of any third party, on property owned and/or occupied by Borrower,
any environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Borrower promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any governmental
agency or instrumentality concerning any intentional or unintentional action
or omission on Borrower's part in connection with any environmental activity
whether or not there is damage to the environment an/or other natural
resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, assignments, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents,
including but not limited to Borrower's failure to discharge or pay when due
any amounts Borrower is required to discharge or pay under this Agreement or
any Related Documents, Lender on Borrower's behalf may (but shall not be
obligated to) take any action that Lender deems appropriate, including but not
limited to discharging or paying all taxes, liens, security interests,
encumbrances and other claims, at any time levied or placed on any Collateral
and paying all costs for insuring, maintaining and preserving any Collateral
All such expenditures incurred or paid by Lender for such purposes will then
bear interest at the rate charged under the Note from the date incurred or
paid by Lender to the date of repayment by Borrower. All such expenses will
become a part of the Indebtedness and, at Lender's option, will (A) be payable
on demand; (B) be added to the balance of the Note and be apportioned among
and be payable with any installment payments to become due during either (1)
the term of any applicable insurance policy; or (2) the remaining term of the
Note; or (C) be treated as a balloon payment which will be due and payable at
the Note's maturity. Any Collateral also will secure payment of these amounts.
Such right shall be in addition to all other rights and remedies to which
Lender may be entitled upon Default
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:
Capital Expenditures. Make or contract to make capital expenditures,
including leasehold improvements, in any fiscal year in excess of
$______________________________________ or incur liability for rentals of
property (including both real and personal property) in an amount which,
together with capital expenditures, shall in any fiscal year exceed such sum.
Continuity ef Operations. (1) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (2) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change its name, dissolve or transfer or sell Collateral out of the
ordinary course of business, or (3) pay any dividends on Borrower's stock
(other than dividends payable in its stock), provided, however that
notwithstanding the foregoing, but only so long as no Event of Default has
occurred and is continuing or would result from the payment of dividends, if
Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue
Code of 1986, as amended), Borrower may pay cash dividends on its stock to its
shareholders from time to time in amounts necessary to enable the shareholders
to pay income taxes and make estimated income tax payments to satisfy their
liabilities under federal and state law which arise solely from their status
as Shareholders of a Subchapter S Corporation because of their ownership of
shares of Borrower's stock, or purchase or retire any of Borrower's
outstanding shares or alter or amend Borrower's capital structure.
Cessation of Advances. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds
if: (1) Borrower or any Guarantor is in default under the terms of this
Agreement or any of the Related Documents or any other agreement that Borrower
or any Guarantor has with Lender; (2) Borrower or any Guarantor dies, becomes
incompetent or becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (3) there occurs a material adverse
change in Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; or (4) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender.
DEFAULT. Each of the following shall constitute an Event of Default under
this Agreement Payment Default Borrower fails to make any payment when due
under the Loan.
Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of the
Related Documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
False Statements. Any warranty, representation or statement made or furnished
to Lender by Borrower or on Borrower's behalf under this Agreement, the Note,
or the Related Documents is false or misleading in any material respect,
either now or at the time made or furnished or becomes false or misleading at
any time thereafter.
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BUSINESS LOAN AGREEMENT
Page 4
(Continued)
Insolvency. The dissolution or termination of Borrower's existence as a going
business, the insolvency of Borrower, the appointment of a receiver for any
part of Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
document to create a valid and perfected security interest or lien) at any
time and for any reason.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower or by any governmental agency
against any collateral securing the Loan. This includes a garnishment of any
of Borrower's accounts, including deposit accounts, with Lender. However, this
Event of Default shall not apply if there is a good faith dispute by Borrower
as to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives Lender written notice
of the creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for
the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness . in the event of a death, Lender, at its option,
may, but shall not be required to, permit the Guarantor's estate to assume
unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure any Event of Default
Change In Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Loan is impaired.
Right to Cure. If any default, other than a default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given a
notice of a similar default within the preceding twelve (12) months, it may be
cured (and no Event of Default will have occurred) if Borrower or Grantor, as
the case may be, after receiving written notice from Lender demanding cure of
such default (1) cure the default within fifteen (15) days; or (2) if the cure
requires more than fifteen (15) days, immediately initiate steps which Lender
deems in Lender's sole discretion to be sufficient to cure the default and
thereafter continue and complete all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make further Loan Advances or disbursements), and, at Lender's
option, all Indebtedness immediately will become due and payable, all without
notice of any kind to Borrower, except that in the case of an Event of Default
of the type described in the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. in addition, Borrower shall have all the
rights and remedies provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by applicable law, all of
Lender's rights and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or
to take action to perform an obligation of Borrower or of any Grantor shall
not affect Lender's right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement No alteration of or amendment to this Agreement shall
be effective unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment
Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's
costs and expenses, including Lender's attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement Lender
may hire or pay someone else to help enforce this Agreement, and Borrower
shall pay the costs and expenses of such enforcement Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is a
lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection services.
Borrower also shall pay all court costs and such additional fees as may be
directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement
Consent to Loan Participation. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests in
the Loan to one or more purchasers, whether related or unrelated to Lender.
Lender may provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy Borrower may have with respect to
such matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners of such
interests in the Loan and will have all the rights granted under the
participation agreement or agreements governing the sale of such participation
interests. Borrower further waives all rights of offset or counterclaim that
it may have now or later against Lender or against any purchaser of such a
participation interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower's obligation under the Loan irrespective of the
failure or insolvency of any holder of any interest in the Loan. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
Borrower may have against Lender.
Governing Law. This Agreement will be governed by, construed and enforced In
accordance with federal law and the laws of the State of California This
Agreement has been accepted by Lender in the State of California.
Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender's request
to submit to the jurisdiction of the courts of Los Angeles County, State of
California.
No Waiver by Lender. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any of
Borrower's or any Grantor's, obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the granting
of such consent by Lender in any instance shall not constitute continuing
consent to subsequent instances where such consent is required and in all
cases such consent may be granted or withheld in the sole discretion of
Lender.
Notices. Any notice required to be given under this Agreement shall be given
in writing, and shall be effective when actually delivered, when actually
received by telefacsimile (unless otherwise required by law), when deposited
with a nationally recognized overnight courier, or, if mailed,
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BUSINESS LOAN AGREEMENT
Page 5
(Continued)
when deposited in the United States mail, as first class, certified or
registered mail postage prepaid, directed to the addresses shown near the
beginning of this Agreement Any party may change its address for notices under
this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
For notice purposes, Borrower agrees to keep Lender informed at all times of
Borrower's current address. Unless otherwise provided or required by law, if
there is more than one Borrower, any notice given by Lender to any Borrower is
deemed to be notice given to all Borrowers.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be illegal, invalid, or unenforceable as to any
circumstance, that finding shall not make the offending provision illegal,
invalid, or unenforceable as to any other circumstance. If feasible, the
offending provision shall be considered modified so that it becomes legal,
valid and enforceable. If the offending provision cannot be so modified, it
shall be considered deleted from this Agreement Unless otherwise required by
law, the illegality, invalidity, or unenforceability of any provision of this
Agreement shall not affect the legality, validity or enforceability of any
other provision of this Agreement.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used in this Agreement shall include all of Borrower's subsidiaries and
affiliates. Notwithstanding the foregoing however, under no circumstances
shall this Agreement be construed to require Lender to make any Loan or other
financial accomodation to any of Borrower's subsidiaries or affiliates.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind Borrower's successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower shall not
however, have the right to assign Borrower's rights under this Agreement or
any interest therein, without the prior written consent of Lender.
Survival of Representations and Warranties. Borrower understands and agrees
that in extending Loan Advances, Lender is relying on all representations,
warranties, and covenants made by Borrower in this Agreement or in any
certificate or other instrument delivered by Borrower to Lender under this
Agreement or the Related Documents. Borrower further agrees that regardless of
any investigation made by Lender, all such representations, warranties and
covenants will survive the extension of Loan Advances and delivery to Lender
of the Related Documents, shall be continuing in nature, shall be deemed made
and redated by Borrower at the time each Loan Advance is made, and shall
remain in full force and effect until such time as Borrower's indebtedness
shall be paid in full, or until this Agreement shall be terminated in the
manner provided above, whichever is the last to occur.
Time Is of the Essence. Time is of the essence in the performance of this
Agreement
Waive Jury. Ail parties to this Agreement hereby waive the right to any jury
trial in any action, proceeding, or counterclaim brought by any party against
any other party.
DEFINITONS. The following capitalized words and terms shall have the
following meanings when used in this Agreement Unless specifically stated to
the contrary, all references to dollar amounts shall mean amounts in lawful
money of the United States of America. Words and terms used in the singular
shall include the plural, and the plural shall include the singular, as the
context may require. Words and terms not otherwise defined in this Agreement
shall have the meanings attributed to such terms in the Uniform Commercial
Code. Accounting words and terms not otherwise defined in this Agreement shall
have the meanings assigned to them in accordance with generally accepted
accounting principles as in effect on the date of this Agreement
Advance. The word "Advance" means a disbursement of Loan funds made, or to be
made, to Borrower or on Borrower's behalf on a line of credit or multiple
advance basis under the terms and conditions of this Agreement
Agreement. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time, together
with all exhibits and schedules attached to this Business Loan Agreement from
time to time.
Borrower. The word "Borrower" means integrated Packaging Assembly
Corporation, and all other persons and entities signing the Note in whatever
capacity.
Collateral. The word "Collateral" means all property and assets granted as
collateral security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment pledge, chattel mortgage, crop pledge,
chattel mortgage, collateral chattel mortgage, chattel trust factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien or title
retention contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever, whether created by law, contract,
or otherwise.
Default. The word "Default" means the Default set forth in this Agreement in
the section titled "Default".
Environmental Laws. The words "Environmental Laws" mean any and all state,
federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L No. ~499 ("SARA"), the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act 42 U.S.C. Section 6901, et seq.,
Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety
Code, Section 25100, et seq., or other applicable state or federal laws,
rules, or regulations adopted pursuant thereto.
Event of Default. The words "Event of Default" mean any of the Events of
Default set forth in this Agreement in the Default section of this Agreement
GAAP. The word "GAAP" means generally accepted accounting principles.
Grantor. The word "Grantor" means each and all of the persons or entities
granting a Security Interest in any Collateral for the Loan, including without
limitation all Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation
party of any or all of the Loan.
Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender,
including without limitation a guaranty of all or part of the Note.
Indebtedness. The word "indebtedness" means the indebtedness evidenced by the
Note or Related Documents, including all principal and interest together with
all other indebtedness and costs and expenses for which Borrower is
responsible under this Agreement or under any of the Related Documents. in
addition, and without limitation, the term "Indebtedness" includes all amounts
identified in the Revolving Line of Credit and Future Advances paragraphs as
eentalned In one or more of the Related Documents.
Lender. The word "Lender" means Bank SinoPac, Los Angeles Branch, its
successors and assigns.
Loan. The word "Loan" means any and all loans and financial accommodations
from Lender to Borrower whether now or hereafter existing, and however
evidenced, including without limitation those loans and financial
accommodations described herein or described on any exhibit or schedule
attached to this Agreement from time to time.
Note. The word "Note" means the Note executed by Borrower in the principal
amount of $7,000,009.00 dated July 23, 1999, together with all
Page 11
<PAGE>
BUSINESS LOAN AGREEMENT
Page 6
(Continued)
renewals of, extensions of, modifications of, refinancings of, consolidations
of, and substitutions for the note or credit agreement Related Documents. The
words "Related Documents" mean all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, security deeds, collateral mortgages, and all other
instruments, agreements and documents, whether now or hereafter existing,
executed in connection with the Loan.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings
or other agreements, whether created by law, contract, or otherwise,
evidencing, governing, representing, or creating a Security Interest
Security Interest. The words "Security Interest" mean, without limitation,
any and all types of collateral security, present and future, whether in the
form of a lien, charge, encumbrance, mortgage, deed of trust, security deed,
assignment, pledge, crop pledge, chattel mortgage, collateral chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien or trne retention contract, lease or consignment intended
as a security device, or any other security or lien interest whatsoever
whether created by law, contract, or otherwise.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS
DATED JULY 23,1999.
BORROWER:
INTEGRATED PACKAGING ASSEMBLY CORPORATION
By:
--------------------------------------
Patrick Verderico,
President of Integrated Packaging Assembly Corporation
LENDER:
BANK SINOPAC, LOS ANGELES BRANCH
x
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Authorized Signer
