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 October 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission file number: 0-27712
--------------------------------
INTEGRATED PACKAGING ASSEMBLY CORPORATION
(Exact name of registrant as specified in its charter)
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 November 15, 1999:
54,414,601. As of November 15, 1999, the Company also had 3,000,000 shares
of Series A Convertible Preferred Stock outstanding which is convertible
into 41,246,312 shares of Common Stock.
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TABLE OF CONTENTS
Page
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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 Conditions and Results of Operations... 9
Part II. Other Information
Item 1. Legal Proceedings................................ 19
Item 4. Submission of Matters to a Vote of Security
Holders.......................................... 19
Item 6. Exhibits and Reports on Form 8-K................. 21
Signatures................................................... 22
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Integrated Packaging Assembly Corporation
Condensed Statement of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
October 3, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $1,652 --
Accounts receivable, net 2,716 2,105
Inventory 1,014 1,704
Prepaid expenses and other current assets 742 792
------------ ------------
Total current assets 6,124 4,601
Property and equipment, net 10,950 13,930
Other assets 142 197
------------ ------------
Total assets $17,216 $18,728
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Bank debt $15,195 $2,816
Current portion of long term debt -- 12,907
Accounts payable 1,737 2,155
Accrued expenses and other liabilities 2,888 2,808
------------ ------------
Total current liabilities 19,820 20,686
------------ ------------
Deferred gain on sale of facilities 1,145 1,249
Series A Mandatorily redeemable convertible
preferred stock 4,874 --
Shareholders' equity:
Common Stock 43,181 40,621
Accumulated earnings (deficit) (51,804) (43,828)
------------ ------------
Total shareholders' equity (8,623) (3,207)
------------ ------------
Total liabilities and shareholders' equity $17,216 $18,728
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Integrated Packaging Assembly Ccorporation
Condensed Statement of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ---------------------
October 3, October 4, October 3, October 4,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $4,408 $5,816 $11,836 $18,539
Cost of revenues 6,001 6,930 17,039 23,245
---------- ---------- ---------- ----------
Gross loss (1,593) (1,114) (5,203) (4,706)
---------- ---------- ---------- ----------
Operating expenses:
Selling, general &
administrative 843 1,047 2,917 3,080
Research & development 181 272 528 905
Write down of impaired assets -- -- -- 18,200
---------- ---------- ---------- ----------
Total operating expenses 1,024 1,319 3,445 22,185
---------- ---------- ---------- ----------
Operating loss (2,617) (2,433) (8,648) (26,891)
Interest & other income 32 248 59 1,208
Interest expense (276) (452) (1,207) (1,304)
---------- ---------- ---------- ----------
Loss before extraordinary
gain and preferred stock
dividends (2,861) (2,637) (9,796) (26,987)
Extraordinary gain 560 -- 2,047 --
---------- ---------- ---------- ----------
Net loss before preferred
stock dividends (2,301) (2,637) (7,749) (26,987)
Preferred stock dividend 136 -- 227 --
Deemed dividends on preferred
stock -- -- 6,800 --
---------- ---------- ---------- ----------
Net loss applicable to common
shareholders ($2,437) ($2,637) ($14,776) ($26,987)
========== ========== ========== ==========
Per share data:
Net loss per share
Basic and diluted ($0.10) ($0.19) ($0.84) ($1.92)
========== ========== ========== ==========
Number of shares used to
compute per share data
Basic and diluted 23,934 14,088 17,511 14,029
========== ========== ========== ==========
</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>
Nine Months Ended
---------------------
October 3, October 4,
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from Operating Activities:
Net loss before preferred stock dividends ($7,749) ($26,987)
Adjustments:
Depreciation and amortization 3,266 5,855
Write down of impaired assets -- 18,200
Gain on sale of facilities, net (104) (792)
Extraordinary gain on debt restructurings (2,047) --
Changes in assets and liabilities:
Accounts receivable (611) (307)
Inventory 689 6
Prepaid expenses and other assets (34) (435)
Accounts payable 203 (2,600)
Accrued expenses and other liabilities (455) 701
---------- ----------
Net cash provided by (used in) operating
activities (6,842) (6,359)
---------- ----------
Cash flows used in investing activities:
Acquisition of property and equipment (79) (1,289)
Proceeds from sale and leaseback -- 7,312
---------- ----------
Net cash provided by (used in) investing
activities (79) 6,023
---------- ----------
Cash flows provided by financing activities:
Proceeds from revolving bank line 25,817 2,135
Payments on revolving line (18,328) --
Payments under capital lease obligations (694) (976)
Proceeds from note payable and other 4,890 --
Payments on note payable (9,629) (3,897)
Proceeds from issuance of preferred stock 6,498 --
Proceeds from the issuance of common stock 19 152
---------- ----------
Net cash provided by (used in) financing
activities 8,573 (2,586)
---------- ----------
Net increase in cash 1,652 (2,922)
Cash and cash equivalents at beginning of period -- 2,928
---------- ----------
Cash and cash equivalents at end of period $1,652 $6
========== ==========
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 nine month periods
ended October 3, 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. From 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 Series A 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
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from exercise prices ranging from $0.77 to $3.30 per share of common stock to
$0.1236 per share. The fair value as determined using a Black-Scholes
valuation model of the warrants issued and the incremental value of the
repriced warrants was $790,000.
As a result of the April 1999 debt restructuring, the Company recorded an
extraordinary gain of $1,487,000.
In September 1999, the Company entered into a loan and security
agreement with Far East National Bank and Bank SinoPac, Los Angeles Branch
that provides a revolving committed line of credit of up to $11 million (the
"Facility"). The Facility was used to repay all remaining principal amounts
due to secured creditors that were subject to the April 1999 debt
restructuring. This transaction resulted in an extraordinary gain of
$560,000.
In addition to allowing all restructured secured debts to be repaid, the
Facility also replaced the accounts receivable factoring agreement which had
allowed the Company to borrow up to the lesser of $2.8 million or 80% of
eligible accounts receivable.
The Facility accrues interest at the prime rate of Far East National Bank
(8.25 % at October 3, 1999) plus 0.75%. The Facility is available to the
Company through September 17, 2000. Under the Facility, the Company is
required to meet certain financial covenants, including certain net
income/loss levels, restrictions on the payment of dividends and restrictions
on a change in control of the Company. The Facility is guaranteed by Orient
Semiconductor Electronics Limited. The Facility is secured by all property
and equipment, inventory, intangibles and accounts receivable. As of October
3, 1999 the Company owed $8,194,768 under the Facility.
In July 1999, the Company entered into a Business Loan Agreement and
Promissory Note (the Agreement). Under the Agreement the Company has borrowed
$7 million from Bank SinoPac, Los Angeles Branch which is repayable on July
31, 2000. The interest payable under the Agreement is the Bank SinoPac prime
rate (8.25 % at October 3, 1999) less 0.25%. Under the Agreement, the Company
is required to meet certain covenants including restrictions on changes in
ownership and payment of dividends. The Agreement is guaranteed by Orient
Semiconductor Electronics Limited. As of October 3, 1999 the Company owed
$7,000,000 under the Agreement. The Agreement replaced a $7,000,000 line of
credit from another bank.
As a result of the conversion of Series A Preferred Stock into Common
Stock during the quarter ended October 3, 1999 (see Note 8) and the October
29, 1999 acquisition of OSE, Inc. (see Note 7) the Company had Events of
Default under the Facility and the Agreement. The Company has obtained
waivers for these events of default as well as negotiated amendments to the
Facility and the Agreement.
NOTE 3. BALANCE SHEET COMPONENTS:
(In thousands)
<TABLE>
<CAPTION>
October 4, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Inventory
Raw Materials $761 $1,509
Work in process 253 195
------------ ------------
$1,014 $1,704
============ ============
</TABLE>
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NOTE 4. INCOME TAXES:
No provision or benefit for income taxes was recorded for the three and
nine month periods ended October 3, 1999 and October 4, 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
nine periods ended October 3, 1999 and October 4, 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
October 3, 1999, there were options and warrants outstanding to purchase an
aggregate of 8,064,000 shares of Common Stock of which options and warrants to
purchase an aggregate of 2,490,000 shares were exercisable. At October 4,
1998 there were options and warrants outstanding to purchase an aggregate of
2,518,000 shares of Common Stock of which options and warrants to purchase an
aggregate of 1,257,000 shares 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. The
impairment is a result of continued adverse conditions in the semiconductor
industry, and historical as well as forecasted manufacturing equipment
underutilization. The fair value of manufacturing equipment was based upon an
independent estimate of fair values.
NOTE 7. ACQUISITION OF THE NORTH AMERICAN DISTRIBUTOR OF ORIENT
SEMICONDUCTOR ELECTRONIC, LTD.
On October 29, 1999, the Company acquired the North American distributor
of Orient Semiconductor Electronics, LTD., ("OSE") in a stock for stock
exchange valued at approximately $5 million. In connection with the
acquisition the Company issued 25,910,090 shares of its Common Stock. As a
result of the transaction, the distributor, OSE, Inc. ("OSEI"), will be
operated as a wholly owned subsidiary of the Company.
OSEI is a privately held corporation that serves as the exclusive North
American distributor of OSE, a public Taiwanese company and the Company's
principal shareholder. OSEI derives its earnings from fees received on the
sales of OSE's semiconductor assembly and test services to customers in North
America. OSEI had revenues of $48.8 million in the fiscal year 1999 that
ended June 1999. The Company will report consolidated results with OSEI
commencing on October 30, 1999
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NOTE 8. SERIES A MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
The Company issued 4,000,000 shares of Series A mandatorily redeemable
convertible preferred stock (Series A Preferred) to OSE on April 29, 1999.
Each share of Series A Preferred is initially convertible into 13.7487705
shares of the Company's Common Stock at the option of the holder. On August
4, 1999, OSE converted 1,000,000 shares of Series A Preferred into 13,748,771
shares of the Company's Common Stock. The holders of shares of Series A
Preferred are entitled to dividends at the rate of $0.136 per annum per share
payable semiannually on July 1 and January 1 each year. The dividends on
Series A preferred are payable in cash, shares of Common Stock or any
combination of cash and shares of Common Stock, at the option of the holders
of Series A Preferred. The Series A Preferred are mandatorily redeemable for
$1.70 per share in the event of any liquidation, dissolution, or winding up of
the Company.
NOTE 9. 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.
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. As a result of these circumstances, the Company's
independent accountants' opinion on the Company's December 31, 1998 financial
statements includes an explanatory paragraph indicating that these matters
raise substantial doubt about the Company's ability to continue as a going
concern.
In April, 1999, Orient Semiconductor Electronics, Limited ("OSE")
purchased 4,000,000 shares of the Company's Series A 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.
On October 29, 1999, the Company acquired the North American distributor
of Orient Semiconductor
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Electronics, LTD., ("OSE") in a stock for stock exchange valued at
approximately $5 million. In connection with the acquisition the Company
issued 25,910,090 shares of Common Stock. As a result of the transaction, the
distributor, OSE, Inc. ("OSEI"), will be operated as a wholly owned subsidiary
of the Company.
OSEI is a privately held corporation that serves as the exclusive North
American distributor of OSE, a public Taiwanese company and the Company's
principal shareholder. OSEI derives its earnings from fees received on the
sales of OSE's semiconductor assembly and test services to customers in North
America. OSEI had revenues of $48.8 million in the fiscal year 1999 that
ended June 1999. The Company will report consolidated results with OSEI
commencing on October 30, 1999.
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
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 nine month periods ended October
3, 1999 were $4.4 million and $11.8 million, respectively, compared with $5.8
million and $18.5 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.
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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 nine month periods ended October 3, 1999, were $1.6 million and $5.2
million, respectively, compared with losses of $1.1 million and $4.7 million,
respectively, for the comparable periods in the prior fiscal year. Gross
profit as a percentage of revenues was a negative 36.1% for the three months
ended October 3, 1999, compared to a negative 19.2% for the same period of
1998. Gross profit was a negative 44.0% for the nine months ended October 3,
1999, compared to a negative 25.4% 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 $3.3 million for the three month and nine month periods ended
October 3, 1999 compared to $1.1 million and $5.9 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 decreased
19.5% to $0.8 million and 5.3% to $2.9 million for the three month and nine
month periods ended October 3, 1999, respectively, over the comparable periods
of 1998. For the three month period, the decrease was due primarily to
decreased spending in the sales function and administration activities. For
the nine month period, the decrease was primarily due to decreased spending in
the sales functions which was partially offset by increased spending in the
administration activities. The increase in administration spending for the
nine month period included a $123,000 severance provision in June 1999 related
to a reduction in the Company's workforce.
As a percentage of revenues, selling, general and administrative expenses
increased from 18.0% for the third quarter of 1998 to 19.1% in the third
quarter of 1999 and from 16.6% for the first nine months of 1998 to 24.6% for
the comparable period in 1999. These increases were primarily due to the
lower revenue level in 1999.
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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 33.5% to $181,000 and 41.7% to
$528,000 for the three month and nine month periods ended October 3, 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 4.7% in the third quarter of 1998 to 4.1% in the third quarter of 1999
and from 4.9% for the first nine months of 1998 to 4.5% for the comparable
period in 1999. The decrease resulted from 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. The
impairment was a result of continued adverse conditions in the semiconductor
industry, and historical as well as forecasted manufacturing equipment
underutilization. The fair value of manufacturing equipment was based upon an
independent estimate of fair values.
Interest and Other Income (Expense)
Interest expense 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 decreased from $248,000 for the three month
period ended October 4, 1998 to $32,000 for the three month period ended
October 3, 1999. This decrease is primarily due to the reduction in interest
earnings from investments in cash equivalents and short-term investments.
Interest and other income decreased from $1,208,000 for the nine month period
ended October 4, 1998 to $$59,000 for the nine month period ended October 3,
1999. For the nine month period ending October 4, 1998, interest and other
income included a gain of $700,000 from the sale of the land and building not
occupied by the Company.
Interest expense decreased from $452,000 for the three month period ended
October 4, 1998 to $276,000 for the three month period ended October 3, 1999.
Interest expense decreased primarily due to the reduction of secured debt as a
result of the restructuring. Interest expense decreased from $1,304,000 for
the nine month period ended October 4, 1998 to $1,207,000 for the nine month
period ended October 3, 1999.
On September 29, 1999, the Company entered into a new $11 million loan
and security agreement with two banks. The principal of the revolving loan is
due and payable in one year. The loan is guaranteed by OSE. With the new
loan, the Company has terminated and fully repaid all its secured creditors.
Provision for Income Taxes
The Company did not record a provision for income tax for the three month
and nine month periods ended October 3, 1999 and October 4, 1998 as the
Company operated at a loss.
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Extraordinary Gain
In April 1999, the Company's secured creditors agreed to a restructure of
the Company's secured debt, including debt forgiveness. As a result, the
Company recorded an extraordinary gain of $1,487,000.
In September 1999, the Company entered into a loan and security agreement
with Far East National Bank and Bank SinoPac, Los Angeles Branch. As a result
the secured creditors subject to the April 1999 restructure were paid all
remaining principal amounts. Accordingly this transaction resulted in an
extraordinary gain of $560,000.
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 nine month period ended October 3, 1999, the Company's net
cash used in operations was $6.8 million. Net cash used in operations was
comprised primarily of a net loss before preferred stock dividends of $7.7
million and non-cash extraordinary gain on debt restructure of $2.0 million,
partially offset by $3.3 million of non-cash charges for depreciation and
amortization, and a net increase in working capital items of $208,000. As of
October 3, 1999, the Company had cash and cash equivalents of $1.7 million.
The Company has approximately $2.8 million available to be used under the $11
million credit facility entered into in September 1999.
The Company had capital expenditures of $79,000 during the first nine
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 historically been
funded through term loans secured by production equipment and future
expenditure is expected to be financed this way.
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.
As discussed later, these warrants were repriced to an exercised price of
$0.1236 per share as part of a debt restructure. This lease was paid out in
full in September 1999.
Page 13
<PAGE>
During the nine months ended October 3, 1999, $8.6 million was provided
in financing activities. This resulted primarily from net proceeds from
issuance of preferred stock for $6.5 million and proceeds from a revolving
lines of credit for $30.7 million which were offset by payments of $28.7
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 April, 1999, OSE purchased 4,000,000 shares of the Company's Series A
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.
On July 23, 1999, the Company entered into a $ 7 million bank line of
credit. This line is guaranteed by OSE and is available to finance operations
and working capital needs through July 31, 2000. Borrowings under the line of
credit accrue interest at the bank's prime rate (8.25% at October 3, 1999)
less 0.25%. The Company used the proceeds of this line to terminate and
completely pay off an existing $7 million line of credit.
On September 29, 1999, the Company entered into a line of credit agreement
with two banks that provides through September 2000, for borrowing up to a
total of $ 11,000,000. Borrowings under the line of credit accrue interest at
the bank prime rate (8.25% of October 3, 1999) plus 0.75% and are
collateralized by the assets of the Company. This agreement requires the
Company to maintain certain financial covenants and restricts the payment of
dividends. The Company has approximately $2.8 million available to be used
under the $11 million credit facility entered into in September 1999.
On September 29, 1999 the Company paid off all the secured creditors of
the debt restructured on April 29, 1999.
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 second quarter of 2000. 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.
Page 14
<PAGE>
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 may be other related issues which could
also lead to incorrect calculations or failure, such as 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 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
unanticipated delays or problems, including the failure to ensure Year 2000
compliance by systems, services 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.
The Company has completed its initial assessment of its production
equipment and its information system, and does not anticipate any significant
Year 2000 issues from its equipment or its own information system, databases
or programs. Software and supporting hardware determined to be essential for
Company operations has been tested and if necessary upgraded to account for
Year 2000 dates. 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. The majority of these suppliers have completed their programs
and have assured the Company that they do not anticipate any Year 2000 issues.
To address potential interruption in supply or services from the remaining
suppliers, contingency plans have been developed, approved and implemented.
The Company continues to assess our Year 2000 status in order to include
matters as they come to the Company's attention, which could give rise to the
need form remedial measures which have not yet been identified.
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 third quarter of
1999, Atmel Semiconductor and Dii Semiconductor accounted for approximately
33% and 18% , respectively, of the Company's revenues. During the first nine
months of 1999, Atmel Semiconductor and Ford Microelectronics accounted for
approximately 30% and 13%, 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. Sales to Ford Microelectronics
were approximately 5% of total revenue in the third quarter and are expected
to be zero in the fourth quarter of
Page 15
<PAGE>
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 likely 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, 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.
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
Page 16
<PAGE>
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
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
Page 17
<PAGE>
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.
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 18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1999 Annual Meeting of the Stockholders was held on
September 3, 1999. Matters voted at that meeting were:
(i) The election of the five (5) directors to hold office until
the 2001 Annual Meeting of Stockholders and until their
successors are elected and qualified.
(ii) Proposal to amend the Company's certificate of incorporation
to increase the authorized number of shares of common stock
by 125,000,000 shares to 200,000,000 shares and increase the
authorized number of shares of preferred stock by 5,000,000
shares to 10,000,000 shares.
(iii) Proposal to amend the Company's 1993 Stock Plan to increase
the number of shares available for issuance thereunder by
17,485,079 shares to 20,000,000 shares.
(iv) Proposal to amend the Company's employee stock purchase plan
to increase the number of shares available for issuance
thereunder by 1,600,000 shares to 2,000,000 shares.
(v) Proposal to approve the Company's 1999 director option plan
with 4,000,000 shares reserved for issuance thereunder.
(vi) Proposal to ratify the appointment of PricewaterhouseCoopers
LLP as the Company's independent accountants for the 1999
fiscal year.
The results of the voting on each proposal were as follows:
Proposal I. Election of directors
Director For Withheld
Patrick Verderico 59,549,876 19,473
Donald W. Brooks 59,550,147 19,202
Edward S. Duh 59,550,147 19,202
Calvin Lee 59,550,147 19,202
Edmond Tseng 59,550,147 19,202
Page 19
<PAGE>
Proposal II. Amendment to the Company's certificate of
incorporation
For Against Abstain Broker non-votes
Common Stock
18,071,424 240,582 11,030 None
Preferred Stock
41,246,312 0 0 None
Proposal III. Amendment to the Company's 1993 Stock Plan
For Against Abstain Broker non-votes
59,321,998 243,078 4,273 None
Proposal IV. Amendment to the Company's stock purchase plan
For Against Abstain Broker non-votes
59,528,292 35,984 5,073 None
Proposal V. Approve the Company's 1999 director option plan
For Against Abstain Broker non-votes
59,316,253 247,823 5,273 None
Proposal VI. Ratification of the selection of
PricewaterhouseCoopers LLP
For Against Abstain Broker non-votes
59,560,891 2,300 6,158 None
Page 20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.31 Loan and Security Agreement dated as of September 17, 1999,
between the Company and Bank SinoPac and Far East National
Bank.
10.32* Exclusive Sales Distributor Agreement between OSE, Inc.
and Orient Semiconductor Electronics Limited dated as
of October 29, 1999.
10.33 Amendment to Loan and Security Agreement dated as of
September 17, 1999 between the Company and Bank SinoPac,
Los Angeles Branch and Far East National Bank.
10.34 Amendment to Business Loan Agreement and Promissory Note dated
as of November 8, 1999 between the Company and Bank SinoPac.
* Incorporated by reference to the Company's Current Report
on Form 8-K filed on November 15, 1999.
27 Financial Data Schedule
(b) Reports on Form 8-K
Acquisition of OSEI, filed on November 15, 1999
Page 21
<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: November 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
<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 period ending October 3, 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> OCT-03-1999
<PERIOD-TYPE> 9-MOS
<CASH> 1,652
<SECURITIES> 0
<RECEIVABLES> 2,938
<ALLOWANCES> (222)
<INVENTORY> 1,014
<CURRENT-ASSETS> 6,124
<PP&E> 31,275
<DEPRECIATION> (20,325)
<TOTAL-ASSETS> 17,216
<CURRENT-LIABILITIES> 19,820
<BONDS> 0
4,874
0
<COMMON> 43,181
<OTHER-SE> (51,804)
<TOTAL-LIABILITY-AND-EQUITY> 17,216
<SALES> 11,836
<TOTAL-REVENUES> 11,836
<CGS> 17,039
<TOTAL-COSTS> 17,039
<OTHER-EXPENSES> 3,445
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,148
<INCOME-PRETAX> (9,795)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,795)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,047)
<CHANGES> 0
<NET-INCOME> (14,776)
<EPS-BASIC> ($0.84)
<EPS-DILUTED> ($0.84)
</TABLE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
LOAN AND SECURITY AGREEMENT
BANK SINOPAC, LOS ANGELES BRANCH
ADMINISTRATIVE AGENT
FAR EAST NATIONAL BANK
SERVICING AGENT
This LOAN AND SECURITY AGREEMENT is entered into as of September 17,
1999, by and among BANK SINOPAC, LOS ANGELES BRANCH, as Administrative Agent
("Administrative Agent"), FAR EAST NATIONAL BANK, as Servicing Agent
("Servicing Agent") and the financial institutions named on the signature
pages hereof, including initially Far East National Bank and Bank SinoPac,
Los Angeles Branch (each a "Lender" and collectively the "Lenders") and
INTEGRATED PACKAGING ASSEMBLY CORPORATION ("Borrower").
RECITALS
Borrower wishes to obtain credit from Lenders, and Lenders desire to
extend credit to Borrower. This Agreement sets forth the terms on which
Lenders will advance credit to Borrower, and Borrower will repay the amounts
owing to Lenders.
AGREEMENT
The parties agree as follows:
1. DEFINTTIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contact rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering
of services by Borrower, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing.
"Administrative Agent" means, initially, Bank SinoPac, Los
Angeles Branch.
"Advance" or "Advances" means a loan advance under the
Revolving Committed Line.
"Affiliate" means, with respect to any Person, any Person
that owns or controls directly or indirectly such Person, any Person that
controls or is controlled by or is under common control with such Person,
and each of such Person's senior executive officers, directors, partaers
and, for any Person that is a limited liability company, such Persons,
managers and members.
"Agent" or "Agents" means either or both of the
Administrative Agent and the Servicing Agent.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred by an Agent or
any Lender in connection with the preparation, negotiation, administration,
and enforcement of the Loan Documents; and the reasonable attorneys' fees
and expenses incurred by an Agent or any Lender in amending, enforcing or
defending the Loan Documents (including fees and expenses of appeal or
review, or those incurred in any Insolvency Proceeding), whether or not suit
is brought.
"Borrower's Books" means all of Borrower's books and records
including without limitation: ledgers; records concerning Borrower's assets
or liabilities, the Collateral, business operations or financial condition;
and all computer programs, or tape files, and the equipment, containing such
information.
"Business Day" means any day that is not a' Saturday, Sunday,
or other day on which banks in the State of California are authorized or
required to close.
"Change of Control": The occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than
by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Borrower and
its Subsidiaries taken as a whole to any
Page 1
<PAGE>
"person" or "group" (within the meanings of Sections 13(d)(3) and 14(d)(2),
respectively, of the Exchange Act) other than (y) the holders of the
Borrower's capital stock as of the date of this Agreement, (ii) the adoption
of a plan relating to the liquidation or dissolution of the Borrower and
(iii) the consummation of any transaction (including any merger or
consolidation) the result of which is that any "person~~ or "group" (as
defined above), other than (y) the holders of the Borrower's capital stock
as of the dare of this Agreement, becomes the "beneficial owner" (as such
term is defined in Rules 13(d)-3 and 13(d)-S of the Exchange Act) directly
or indirectly, of more than 50% of the voting stock of Borrower or (iv)
during any consecutive two-year period, individuals who at the beginning of
such period constituted the board of directors of Borrower (together with
any new directors whose election to such board of directors or whose
nomination for election by the stockholders of Borrower was approved by a
vote of a majority of the directors of the Borrower then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the board of directors of Borrower then in office.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Cbmmercial Code.
"Collateral" means the property described on Exhibit B
attached hereto.
"Comminnent" means the obligation of each Lender to make
Advances to Borrower under this Agreement.
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold
with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations with respect
to undrawn letters of credit issued for the account of that Person; and
(iii) all obligations arising under any interest rate, currency or commodity
swap agreement, interest rate cap agreement, interest rate collar agreement,
or other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business.
The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that
such amount shall not in any event exceed the maximum amount of the
obligations under the guarantee or other support arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Extension" means each Advance or any other extension
of credit by Lenders for the benefit of Borrower hereunder.
"Equipment" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts
and attachments in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act
of 1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Guarantor" means Orient Semiconductor Electronics Limited.
Page 2
<PAGE>
"Indebtedness" means (a) all indebtedness for borrowed money
or the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds
and letters of credit, (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, (c) all capital lease obligations and (d)
all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United Stares
Ban.lauptcy Code, as amended, or under any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means all of Borrower's
right, title and interest in and to the following:
(a) Copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and airy and all intellectual
property rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present
and future infringement of any of the rights included above, with the right,
but not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the
Copyrights, Patents, Trademarks, or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by such license or
rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents or Mask Works; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
"Intellectual Property Security Agreement" means an
intellectual property security agreement in a form reasonably acceptable to
Servicing Agent.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or at any time hereafter owned by
or in the custody or possession, actual or constructive, of Borrower,
including such inventory as is temporarily out of its custody or possession
or in transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any documents of title representing any of the above.
"Investment" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
"Lien" means any mortgage, lien, deed of tust, charge,
pledge, security interest or other encumbrance.
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"Loan Documents" means, collectively, this Agreement, any
note or notes executed by Borrower, and any other present or future
agreement entered into between Borrower and/or for the benefit of Agent
and/or Lenders in connection with this Agreement, all as amended, extended
or restated from time to time.
"Majority Lenders" means as of any date of determination,
Lenders owed not less than 66.667% of the then aggregate unpaid principal
amount of the Notes, or, if no principal amount of the Notes is outstanding,
then Lenders having not less than 66.667% of the Commitments.
"Mask Works" means all mask works or similar rights available
for the protection of semiconductor chips, now owned or hereafter acquired.
"Material Adverse Effect" means a material adverse effect on
(i) the business operations or condition (financial or otherwise) of
Borrower and its Subsidiaries taken as a whole or (ii) the ability of
Borrower to repay the Obligations or otherwise perform its obligations under
the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from Borrower to others that Servicing
Agent or Lenders may have obtained by assignment or otherwise.
"Patents" means all patents, patent applications and like
protections, including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of
the same.
"Payment Date" means the ______ calendar day of each month
during the term of this Agreement.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Lenders arising
under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed
in the Schedule;
(c) Indebtedness to trade creditors and with respect to
surety bonds and similar obligations incurred in the ordinary course of
business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and
Contingent Obligations of any Subsidiary with respect to obligations of
Borrower (provided that the primary obligations are not prohibited hereby),
and Indebtedness of any Subsidiary to any other Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of any other
Subsidiary (provided that the primary obligations are not prohibited
hereby);
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases or indebtedness incurred solely to
purchase equipment which is secured in accordance with clause (c) of
"Permitted Liens" below and is not in excess of the lesser of the purchase
price of such equipment or the fair market value of such equipment on the
date of acquisition; and
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(h) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (g)
above, provided that the principal amount thereof is not increased or the
terms thereof are not modified to impose more burdensome terms upon Borrower
or its Subsidiary, as the case may be.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in
the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or
any State thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the
date of creation thereof and currently having the highest rating obtainable
from either Standard & Poor's Corporation or Moody's Investors Service,
Inc., and (iii) certificates of deposit maturing no more than one (1) year
from the date of investment therein issued by Administrative Agent or
Servicing Agent;
(c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transaction in the ordinary
course of business;
(d) Investments accepted in connection with Transfers
permitted by Section 7.1;
(e) Investments consisting of (i) compensation of employees,
officers and directors of Borrower or its Subsidiaries so long as the Board
of Directors of Borrower determines that such compensation is in the best
interests of Borrower, (ii) travel advances, employee relocation loans and
other employee loans and advances in the ordinary course of business, and
(iii) loans to employees, officers or directors relating to the purchase of
equity securities of Borrower or its Subsidiaries pursuant to employee stock
purchase plans or agreements approved by Borrower's Board of Directors;
(f) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers
and in settlement of delinquent obligations of; and other disputes with,
customers or suppliers arising in the ordinary course of business;
(g) Investments pursuant to or arising under currency
agreements or interest rate agreements entered into in the ordinary course
of business;
(h) Investments consisting of notes receivable of; or
prepaid royalties and other credit extensions to, customers and suppliers
who are not Affiliates, in the ordinary course of business; provided that
this paragraph (i) shall not apply to Investments by Borrower in any
Subsidiary;
(i) Investments constituting acquisitions permitted under
Section 7.3;
(j) Deposit accounts of Borrower in which Bank has a Lien
prior to any other Lien; and
(k) Deposit accounts of any Subsidiaries maintained in the
ordinary course of business.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in
the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and as to which adequate reserves are
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maintained on Borrower's Books in accordance with GAAIP, provided the same
have no priority over any of Agent's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment, or (ii) existing on such equipment at the
nine of its acquisition, provided that the Lien is confined solely to the
property so acquired and improvements thereon, and the proceeds of such
Equipment,
(d) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant
to leases permitted pursuant to Section 7.1 and Liens arising from UCC
financing statements regarding leases permitted by this Agreement);
(e) Leases or subleases and licenses or sublicenses granted
to others in the ordinary course of Borrower's business not interfering in
any material respect with the business of Borrower and its Subsidiaries
taken as a whole, and any interest or title of a lessor, licensor or under
any lease or license, provided that such leases, subleases, licenses and
sublicenses do not prohibit the grant of the security interest granted
hereunder;
(f) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were acquired by
Borrower or any Subsidiary (including Liens on assets of any corporation
that existed at the time it became or becomes a Subsidiary); provided such
Liens are not granted in contemplation of or in connection with the
acquisition of such asset by Borrower or a Subsidiary;
(g) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
(h) Easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property not constituting a Material Adverse
Effect;
(i) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payments of customs duties in
connection with the importation of goods;
(j) Liens that are not prior to the Lien of Servicing Agent
which constitute rights of set-off of a customary nature or banker's Liens
with respect to amounts on deposit, whether arising by operation of law or
by contract, in connection with arrangement entered in to with banks in the
ordinary course of business;
(k) Earn-out and royalty obligations existing on the date
hereof or entered into in connection with an acquisition permitted by
Section 7.3;
(l) Liens on insurance proceeds in favor of insurance
companies granted solely as security for financed premiums; and
(m) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described in
clauses (a), (c), (d), (e), (f) and (k) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by
the existing Lien and the principal amount of the indebtedness being
extended, renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental
agency.
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"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Servicing Agent, as its "prime rate," whether or
not such announced rate is the lowest rate available from Agent.
"Pro Rata Share" means the percentage specified under the
signature block of each Lender.
"Responsible Officer" means each of the Chief Executive
Officer, the President, the Chief Financial Officer and the Controller of
Borrower.
"Revolving Committed Line" means the facility under which
Borrower may request Advances under Section 2.1.1 in an amount up to Eleven
Million Dollars ($11,000,000).
"Revolving Maturity Date" means the day before the first
anniversary of the Closing Date.
"Schedule" means the schedule of exceptions attached hereto,
if any.
"Servicing Agent" means Far East National Bank.
"Subordinated Debt" means any debt incurred by Borrower that
is subordinated to the debt owing by Borrower to Lenders on terms acceptable
to Servicing Agent (and identified as being such by Borrower and Servicing
Agent).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business
entity of which more than fifty percent (50%) of the voting stock or other
equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
"Trademarks" means any trademark and servicemark rights,
whether registered or not, applications to register and registrations of the
same and like protections, and the entire goodwill of the business of
Borrower connected with and symbolized by such trademarks.
1.2 Accounting and Other Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and
all calculations and determinations made hereunder shall be made in
accordance with GAAP. When used herein, the term "financial statements"
shall include the notes and schedules thereto. The terms "including" /
"includes" shall always be read as meaning "including (or includes) without
limitation," when used herein or in any other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. Borrower promises to pay to the order of
Lenders, in lawful money of the United States of America, the aggregate
unpaid principal amount of all Credit Extensions made by Lenders to Borrower
hereunder. Borrower shall also pay interest on the unpaid principal amount
of such Credit Extensions at rateii in accordance with the terms hereof
2.1.1 Advances.
(a) Subject to and upon the terms and conditions of
this Agreement, each Lender, severally and not jointly, agrees to make
Advances to Borrower in an individual amount not to exceed such Lender's
Commitment and in an aggregate amount not to exceed Revolving Committed
Line. Subject to the terms and conditions of this Agreement, amounts
borrowed pursuant to this Section 2.1.1 may be repaid and reborrowed at any
time prior to the Revolving Maturity Date.
(b) Whenever Borrower desires an Advance, Borrower will
notify Servicing Agent by facsimile transmission or telephone no later than
3:00 p.m California time, on the Business Day
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before the Business Day that the Advance is to be made, and Servicing Agent
shall promptly notify each Lender of such notification. Each such
notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit C hereto. Not later than 1:00 p.m.
California time on the date that an Advance is to be made, each Lender shall
deposit immediately available funds in the amount of its Pro Rata Share of
the Advance to Account No. _____________ with Servicing Agent Upon
satisfaction of the applicable conditions set forth in Article 3, Agent will
make available the proceeds of each Advance to Borrower by crediting the
account of Borrower on the books of Servicing Agent.
(c) Lenders are authorized to make Advances under this
Agreement, based upon instructions received from a Responsible Officer, or
without instructions if in Servicing Agent's discretion such Advances are
necessary to meet Obligations which have become due and remain unpaid.
Servicing Agent shall be entitled to rely on any telephonic notice given by
a person who Servicing Agent reasonably believes to be a Responsible
Officer, and Borrower shall indemnify and hold Servicing Agent harmless for
any damages or loss suffered by Servicing Agent as a result of such
reliance.
(d) Unless Servicing Agent shall have received notice
from a Lender prior to the date of any Advance that such Lender will not
make available to Servicing Agent such Lender's Pro Rata Share of such
Advance, Servicing Agent may assume that such Lender has made such portion
available to Servicing Agent on the date of such Advance in accordance with
this Section and Servicing Agent may, in reliance upon such assumption, make
available to Borrower on such date a corresponding amount. If and to the
extent that such Lender shall not have so made such Pro Rata Share available
to Servicing Agent, such Lender and Borrower severally agree to repay to
Servicing Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available
to Borrower until the date such amount is repaid to Servicing Agent, at (i)
in the case of Borrower, the interest rate applicable at the time to such
Advance and (ii) in the case of such Lender, the Federal Funds Rate. If such
Lender shall repay to Servicing Agent such corresponding amount, such amount
so repaid shall constitute such Lender's Pro Rata Share of such Advance for
purposes of this Agreement. The failure of any Lender to make available its
Pro Rats Share of any Advance shall not relieve any other Lender of its
obligation, if any, hereunder, to make available its Pro Rata Share of such
Advance on the date of such Advance, but no Lender shall be responsible for
the failure of any other Lender to make available its Pro Rata Share of any
Advance on the date of any Advance.
(e) The Advances made by Lenders pursuant hereto shall
be evidenced by promissory notes of the Borrower, substantially in the form
of Exhibits A-I and A-2 hereto (the "Revolving Notes"), payable to the order
of each Lender and representing the obligation of Borrower to pay the
aggregate unpaid principal amount of all Advances made by that Lender, with
interest thereon as prescribed in Section 2.3. Each Lender is hereby
authorized to record in its books and records and on any schedule annexed to
its Revolving Note, the date and amount of each Advance made by that Lender,
and the date and amount of each payment of principal thereof and any such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded; provided that failure by any Lender to effect such
recordation shall not affect Borrower's obligations hereunder. Prior to the
transfer of a Revolving Note, the transferring Lender shall record such
information on any schedule annexed to and forming a part of such Revolving
Note.
(f) The Revolving Committed Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1.1
and other amounts due under this Agreement shall be immediately due and
payable.
2.2 Overadvances. If, at any time or for any reason, the amount
of Obligations owed by Borrower to Lenders pursuant to Section 2.1.1 of this
Agreement is greater than the Revolving Committed Line, Borrower shall
immediately pay to Servicing Agent, for the benefit of Lenders, in cash, the
amount of such excess.
2.3 Interest Rates. Payments. and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b),
any Advances shall bear interest on the average daily balance thereof at a
per annum rate equal to the Prime Rate plus three quarters of one percent
(0.75%).
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(b) Late Fee: Default Rate. If any payment is not made
within ten (10) days after the date such payment is due, Borrower shall pay
Servicing Agent, for the benefit of Lenders, a late fee equal to five
percent (5%) of the amount of such unpaid amount. All Obligations shall bear
interest, from and after ten (10) days following the occurrence of an Event
of Default, at a rate equal to five (5) percentage points above the interest
rate applicable immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable
not later than 12:00 noon California time on each Payment Date. Borrower
hereby authorizes Servicing Agent to debit any accounts with Servicing
Agent, including, without limitation, Account Number 650-000579 for payments
of principal and interest due on the Obligations and any other amounts owing
by Borrower to Lenders. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder. No later
than 3:00 p.m. California time on the Business Day following receipt of any
payments received hereunder, Servicing Agent shall pay to each Lender such
Lender's Pro Rata Share of such payments.
(d) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate
is changed, by an amount equal to such change in the Prime Rate. All
interest chargeable under the Loan Documents shall be computed on the basis
of a three hundred sixty (360) day year for the actual number of days
elapsed.
(e) Sharing of Payments. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) on account of the Advances owing to it in excess
of its Pro Rata Share of payments on account of the Advances obtained by all
the Lenders, then such Lender shall forthwith purchase from the other
Lenders such participations in the Advances owing to them as shall be
necessary to cause such purchasing Lender to share the excess payment
ratably with each of them; provided, however, that if all or any portion of
such excess payment is thereafter recovered from such purchasing Lender,
such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such
recovery together with an amount equal to such Lender's Pro Rata Share
(according to the proportion of(i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender)
of any interest or other amount paid or payable by the purchasing Lender in
respect of the total amount so recovered. The Borrower agrees that any
Lender so purchasing a participation from another Lender pursuant to this
Section 2.3(e) or any other provision of this Agreement may, to the fullest
extent permitted by law, exercise all of its rights of payment (including
the right to set-off) with respect to such participation as fully as if such
Lender were the direct creditor of Borrower in the amount of such
participation.
2.4 Crediting Payments. Prior to the occurrence of an Event of
Default, Servicing Agent shall credit a wire transfer of funds, check or
other item of payment to such deposit account or Obligation as Borrower
specifies. After the occurrence of an Event of Default, the receipt by
Servicing Agent of any wire transfer of funds, check, or other item of
payment, whether directed to Borrower's deposit account with Servicing Agent
or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is
honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Servicing Agent
after 12:00 noon Pacific time shall be deemed to have been received by
Servicing Agent as of the opening of business on the immediately following
Business Day. Whenever any payment under the Loan Documents would otherwise
be due (except by reason of acceleration) on a date that is not a Business
Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable
for the period of such extension.
2.5 Fees. Borrower shall pay to Servicing Agent the following:
(a) Facility Fee. A Facility Fee equal to Fifty-Five
Thousand Dollars ($55,000), which fee shall be due on the Closing Date and
shall be fully earned and non-refundable;
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(b) Financial Examination and Appraisal Fees. Servicing
Agent's customary fees and out-of-pocket expenses for Servicing Agent's
audits of Borrower's Accounts, and for each appraisal of Collateral and
financial analysis and examination of Borrower performed from time to time
by Servicing Agent or its agents;
(c) Bank Expenses. Upon demand from Servicing Agent,
including, without limitation, upon the date hereof, all Bank Expenses
incurred through the date hereof, including reasonable attorneys' fees and
expenses and, after the date hereof, all Bank Expenses, including reasonable
attorneys' fees and expenses, as and when they become due.
2.6 Additional Costs. In case any change in any law, regulation,
treaty or official directive or the interpretation or application thereof by
any court or any governmental authority charged with the administration
thereof or the compliance with any guideline or request of any central bank
or other governmental authority (whether or not having the force of law), in
each case after the date of this Agreement:
(a) subjects a Lender or an Agent to any tax with respect to
payments of principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of a Lender or an Agent imposed
by the United States of America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets
held by, or deposits in or for the account of, or loans by, a Lender or an
Agent; or
(c) imposes upon a Lender or an Agent any other
condition with respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to such
Lender or Agent, reduce the income receivable by such Lender or Agent or
impose any expense upon such Lender or Agent with respect to any loans, such
Lender or Agent shall notify Borrower thereof. Borrower agrees to pay to
such Lender or Agent the amount of such increase in cost, reduction in
income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by such Bank of a statement of the
amount and setting forth such Lender's or Agent's calculation thereof, all
in reasonable detail, which statement shall be deemed true and correct
absent manifest error; provided, however, that Borrower shall not be liable
for any such amount attributable to any period prior to the date of hundred
eighty (180) days prior to the date of such certificate.
2.7 Term. Except as otherwise set forth herein, this Agreement
shall become effective on the Closing Date and, subject to Section 11.14,
shall continue in full force and effect for a term ending on the Revolving
Maturity Date. Notwithstanding the foregoing, each Lender shall have the
right to terminate its obligation to make Credit Extensions under this
Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination of this
Agreement, Servicing Agent's lien on the Collateral shall remain in effect
for so long as any Obligations (excluding Obligations under Section 2.6 and
11.11 to the extent they remain inchoate at the time outstanding payment
obligations are paid in full) are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The
obligation of each Lender to make the initial Credit Extension is subject to
the condition precedent that Servicing Agent shall have received, in form
and substance satisfactory to Servicing Agent, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect
to articles, bylaws, incumbency and resolutions authorizing the execution
and delivery of this Agreement;
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(d) the Revolving Promissory Notes;
(e) a guaranty of Guarantor;
(f) an opinion of Borrower's counsel;
(g) financing statements (Forms UCC-l);
(h) insurance certificate;
(i) payment of the fees and Bank Expenses then due specified
in Section 2.5 hereof; and
(j) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation
of each Lender to make each Credit Extension, including the initial Credit
Extension, is further subject to the following conditions:
(a) timely receipt by Servicing Agent of the Payment/Advance
Form as provided in Section 2.1; and
(b) the representations and warranties contained in Section
5 shall be true and correct in all material respects on and as of the date
of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, and no Event of
Default shall have occurred and be continuing, or would result from such
Credit Extension. The making of each Credit Extension shall be deemed to be
a representation and warranty by Borrower on the date of such Advance as to
the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY TNTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to
Servicing Agent as collateral agent for Lenders a continuing security
interest in all presently existing and hereafter acquired or arising
Collateral in order to secure prompt payment of any and all Obligations and
in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule,
such security interest constitutes a valid, first priority security interest
in the presently existing Collateral, and will constitute a valid, first
priority security interest in Collateral acquired after the date hereof; in
each case, to the extent that a security interest in such Collateral can be
perfected by the filing of a financing statement or, in the case of
Collateral consisting of instruments, documents, chattel paper or
certificated securities, to the extent that Servicing Agent takes possession
of such Collateral. Borrower acknowledges that any Lender may place a "hold"
on any deposit account pledged as Collateral to secure the Obligations.
Notwithstanding termination of this Agreement, Servicing Agent's Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall
from time to time execute and deliver to Servicing Agent, at the request of
Servicing Agent, all Negotiable Collateral, all financing statements and
other documents that Agent may reasonably request, in form satisfactory to
Servicing Agent, to perfect and continue perfected Servicing Agent's
security interests in the Collateral and in order to fully consummate all of
the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Servicing Agent (through any of its
officers, employees, or agents) shall have the tight, upon reasonable prior
notice, from time to time during Borrower's usual business hours, to inspect
Borrower's Books and to make copies thereof and to check, test, and appraise
the Collateral in order to verify Borrower's financial condition or the
amount, condition of; or any other matter relating to, the Collateral.
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5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the
laws of its state of incorporation and qualified and licensed to do business
in, and is in good standing in, any state in which the conduct of its
business or its ownership of property requires that it be so qualified,
except for states as to which any failure to so qualify would not have a
Material Adverse Effect.
5.2 Due Authorization: No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been
duly authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to
which Borrower is a party or by which Borrower is bound. Borrower is not in
default under any agreement to which it is a party or by which it is bound,
which default could reasonably be expected to have a Material Adverse
Effect.
5.3 No Prior Encumbrances. Borrower has good and marketable title
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Accounts. The Accounts are bona fide existing
obligations. The service or property giving rise to such Accounts has been
performed or delivered to the account debtor or to the account debtor's
agent for immediate shipment to and unconditional acceptance by the account
debtor.
5.5 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
5.6 Intellectual Property. As of the execution date of this
Agreement, Borrower owns or has rights to use all intellectual property
(including all patents, trademarks, copyrights, licenses to use any of the
foregoing, trade secrets, and know-how) necessary to continue to conduct its
business as now or heretofore conducted by it or proposed to be conducted by
it, and each patent, trademark, copyright and license held by Borrower is
listed, together with application or registration numbers, as applicable, on
the Schedule, and on Exhibit A, B, and C to the Intellectual Property
Security Agreement. Borrower conducts its business and affairs without
infringement of or interference with any intellectual property of any other
Person. Each of the Patents is valid and enforceable, and no part of the
Intellectual Property Collateral has been judged invalid or unenforceable,
in whole or in part, and no claim has been made that any part of the
Intellectual Property Collateral violates the rights of any third party.
Except for and upon the filing with the California Secretary of State a
financing statement on Form UCC- 1 and with the United States Patent and
Trademark Office with respect to the Patents and Trademarks and the Register
of Copyrights with respect to the Copyrights and Mask Works necessary to
perfect the security interests created hereunder, and except as has been
already made or obtained, no authorization, approval or other action by, and
no notice to or filing with, any United States governmental authority or
United States regulatory body is required either (i) for the grant by
Borrower of the security interest granted hereby or for the execution,
delivery or performance of Loan Documents by Borrower in the United States
or (ii) for the perfection in the United States or the exercise by Servicing
Agent or Lenders of any rights and remedies hereunder.
5.7 Name: Location of Chief Executive Office. Except as disclosed
in the Schedule, Borrower has not done business and will not, without at
least thirty (30) days prior written notice to Agent, do business under any
name other than that specified on the signature page hereof. The chief
executive office of Borrower is located at the address indicated in Section
10 hereof.
5.8 Litigation. Except as set forth in the Schedule, there are no
actions or proceedings pending or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency
in which an adverse decision could reasonably be expected to have a Material
Adverse Effect or a material adverse effect on Borrower's interest or
Servicing Agent's security interest in the Collateral.
5.9 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary
that have been delivered by Borrower to Agent or any Lender fairly present
in all material respects Borrower's consolidated financial condition as of
the date thereof and
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Borrower's consolidated results of operations for the period then ended.
There has not been a material adverse change in the consolidated financial
condition of Borrower since the date of the most recent of such financial
statements submitted to Servicing Agent or any Lender on or about the
Closing Date.
5.10 Solvency. Borrower is not left with unreasonably small
capital after the transactions contemplated by this Agreement, and Borrower
is able to pay its debts (including trade debts) as they mature.
5.11 Regulatory Compliance. Borrower and each Subsidiary has met
the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from
Borrower's failure to comply with ERISA that is reasonably likely to result
in Borrower's incurring any liability that could reasonably be expected to
have a Material Adverse Effect. Borrower is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940. Borrower is not engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve
System). Borrower has complied with all the provisions of the Federal Fair
Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a
Material Adverse Effect.
5.12 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release,
or transport, any hazardous waste or hazardous substance other than in
accordance with applicable law; to the best of Borrower's knowledge, none of
Borrower's properties or assets has ever been designated or identified in
any manner pursuant tn any environmental protection statute as a hazardous
waste or hazardous substance disposal site, or a candidate for closure
pursuant to any environmental protection statute; no lien arising under any
environmental protection statute has attached to any revenues or to any real
or personal property owned by Borrower or any Subsidiary; and neither
Borrower nor any Subsidiary has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal,
state or other governmental agency concerning any action or omission by
Borrower or any Subsidiary resulting in the release or other disposition of
hazardous waste or hazardous substances into the environment.
5.13 Taxes. Borrower and each Subsidiary has filed or caused to
be filed all tax returns required to be filed on a timely basis, and has
paid, or has made adequate provision for the payment of, all taxes reflected
therein, except those being contested in good faith by proper proceedings
with adequate reserves under
GAAP.
5.14 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15 Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all governmental
authorities that are necessary for the continued operation of Borrower's
business as currently conducted except where the failure to obtain any such
consent, approval or authorization, to make any such declaration or filing,
or to be given any such notice could not reasonably be expected to have a
Material Adverse Effect.
5.16 Year 2000. Borrower and its Subsidiaries have reviewed the
areas within their operations and business which could be adversely affected
by, and have developed or are developing a program to address on a timely
basis, the Year 2000 Problem and have made related appropriate inquiry of
material suppliers and vendors, and based on such review and program, the
Year 2000 Problem will not have a material adverse effect upon the financial
condition, operations or business of the Borrower and its Subsidiaries as
now conducted. "Year 2000 Problem" means the possibility that any computer
applications or equipment used by Borrower and its Subsidiaries may be
unable to recognize and properly perform date sensitive functions involving
certain dates prior to and any dates on or after December 31, 1999.
5.17 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished
to an Agent or any Lender contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained in such certificates or
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statements not misleading (it being recognized that the projections and
forecasts provided by Borrower are not to be viewed as facts and that actual
results during the period or period covered by any such projections and
forecasts may differ from the projected or forecasted results).
6. AFFIRMAT1VE COVENANTS. Borrower covenants and agrees that, until
payment in full of all outstanding Obligations, and for so long as Lenders
may have any commitment to make a Credit Extension hereunder, Borrower shall
do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could reasonably be expected to have a Material
Adverse Effect. Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain in force all licenses, approvals and agreements,
the loss of which could reasonably be expect to have a Material Adverse
Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause
each Subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. Borrower shall
comply, and shall cause each Subsidiary to comply, with all statutes, laws,
ordinances and government rules and regulations to which it is subject,
noncompliance with which could reasonably be expected to have a Material
Adverse Effect or a material adverse effect on the Collateral or the
priority of Servicing Agent's Lien on the Collateral.
6.3 Financial Statements. Reports. Certificates. Borrower shall
deliver to Servicing Agent:
(a) as soon as available, but in any event within thirty (30) days after
the end of each month, agings of accounts receivable and accounts payable,
in a form reasonably acceptable to Servicing Agent and certified by a
Responsible Officer; (b) within fifteen (15) days of filing, copies of all
statements, reports and notices sent or made available generally by Borrower
to its security holders or to any holders of Subordinated Debt and all
reports on Form 1 0-K (including audited annual financial statements and an
unqualified opinion from Borrower's independent certified public
accountants), 10-Q (including quarterly financial statements) and 8-K filed
with the Securities and Exchange Commission; (c) as soon as available, but
in any event within sixty (60) days of the last day of each fiscal quarter,
audited quarterly financial statements; (d) as soon as available, but in any
event within one hundred twenty (120) days of the last day of each fiscal
year, audited annual financial statements of Guarantor and an unqualified
opinion (except for a "going concern" exception) from Guarantor's
independent certified public accountants; (e) promptly upon receipt of
notice thereof, a report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower
or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and
(f) such budgets, financial forecasts, operating plans or other financial
information as Bank may reasonably request from time to time. Borrower shall
deliver to Bank with the quarterly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of
Exhibit D hereto.
6.4 Inventory: Returns. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on
the same basis and in accordance with the usual customary practices of
Borrower, as they exist at the time of the execution and delivery of this
Agreement. Borrower shall promptly notify Servicing Agent and recoveries and
of all disputes and claims, where the return, recovery, dispute or claim
involves more than Fifty Thousand Dollars
($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary
to make, due and timely payment or deposit of all material federal, state,
and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Servicing Agent, on demand, appropriate
certificates attesting to the payment or deposit thereof; and Borrower will
make, and will cause each Subsidiary to make, timely payment or deposit of
all material tax payments and withholding taxes required of it by applicable
laws, including, but not limited to, those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Servicing Agent with proof satisfactory to
Servicing Agent indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make
any payment if the amount or validity of such payment is (i) contested in
good faith by appropriate proceedings, (ii) is reserved against (to the
extent required by GAAP) by Borrower and (iii) no lien other than a
Permitted Lien results.
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A. Insurance
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and
all other hazards and risks, and in such amounts, as ordinarily insured
against by other owners in similar businesses conducted in the locations
where Borrower's business is conducted on the date hereof. Borrower shall
also maintain insurance relating to Borrower's ownership and use of the
Collateral in amounts and of a type that are customary to businesses similar
to Borrower's.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as are reasonably satisfactory to
Servicing Agent. All such policies of property insurance shall contain a
lender's loss payable endorsement, in a form satisfactory to Servicing
Agent, showing Servicing Agent as an additional loss payee thereof and all
liability insurance policies shall show Servicing Agent as an additional
insured, and shall specify that the insurer must give at least twenty (20)
days notice to Servicing Agent before canceling its policy for any reason.
At Servicing Agent's request, Borrower shall deliver to Bank certified
copies of such policies of insurance and evidence of the payments of all
premiums therefor. So long as no Event of Default has occurred and is
continuing, Borrower shall have the option of ipplying the proceeds of any
casualty policy to the replacement or repair of destroyed or damaged
property; provided, that after the occurrence and during the continuance of
an Event of Default, all proceeds payable under any such policy shall, at
the option of Servicing Agent, be payable to Servicing Agent to be applied
on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
depository, money market and operating accounts with Servicing Agent.
6.8 Registration of Intellectual Property Ri2hts.
(a) Borrower shall register or cause to be registered (to
the extent not already registered) with the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, those
intellectual property rights listed on Exhibits A, B and C to the
Intellectual Property Security Agreement delivered to Servicing Agent by
Borrower in connection with this Agreement within thirty (30) days of the
date of this Agreement. Borrower shall register or cause to be registered
with the United States Patent and Trademark Office or the United States
Copyright Office, as applicable, those additional intellectual property
rights developed or acquired by Borrower from time to time in connection
with any product prior to the sale or licensing of such product to any third
party, including without limitation revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional
instruments and documents from time to time as Servicing Agent shall
reasonably request to perfect Servicing Agent's security interest in the
Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents, Copyrights and Mask
Works, (ii) use its best efforts to detect infringements of the Trademarks,
Patents, Copyrights and Mask Works and promptly advise Agent in writing of
material infringements detected and (iii) not allow any Trademarks, Patents,
Copyrights or Mask Works to be abandoned, forfeited or dedicated to the
public without the written consent of Servicing Agent, which shall not be
unreasonably withheld, unless Servicing Agent determines that reasonable
business practices suggest that abandonment is appropriate.
(d) Servicing Agent shall have the right, but not the
obligation, to take, at Borrower's sole expense, any actions that Borrower
is required under this Section 6.8 to take but which Borrower fails to take,
after fifteen (15) days' notice to Borrower. Borrower shall reimburse and
indemnify Servicing Agent for all reasonable costs and reasonable expenses
incurred in the reasonable exercise of its rights under this Section 6.8.
6.9 Profitability. Beginning the fiscal quarter ending on
December 31, 1999, Borrower shall have a net profit (net loss) after tax for
each fiscal quarter that is not less than the net profit after tax (or
greater than the net loss after tax) set forth in the forecast attached
hereto as Exhibit E in any two (2) consecutive fiscal quarters.
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<PAGE>
6.10 Year 2000 Compliance. Borrower shall perform all acts
reasonably necessary to ensure that (a) Borrower and any business in which
Borrower holds a substantial interest, and (b) all customers, suppliers and
vendors that are material to Borrower's business, become Year 2000 Compliant
in a timely manner. Such acts shall include, without limitation, performing
a comprehensive review and assessment of all Borrower's systems and adopting
a detailed plan, with itemized budget, for the remediation, monitoring and
testing of such systems. As used in this paragraph, "Year 2000 Compliant"
shall mean, in regard to any entity, that all software, hardware, firmware,
equipment, goods or systems utilized by or material to the business
operations or financial condition of such entity, will properly perform date
sensitive functions before, during and after the year 2000. Borrower shall
immediately upon request, provide to Servicing Agent such certifications or
other evidence of Borrower's compliance with the terms of this paragraph as
Servicing Agent may from time to time require.
6.11 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Servicing Agent to effect
the purposes of this Agreement.
7. NEGATIVE COVENANTS. Borrower covenants and agrees that, so long as
any Credit Extension hereunder shall be available and until payment in full
of the outstanding Obligations or for so long as Lenders may have any
commitment to make any Advances, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries
to Transfer, all or any part of its business or property, other than
Transfers (i) of inventory in the ordinary course of business, (ii) of non-
exclusive licenses and similar arrangements for the use of the property of
Borrower or its Subsidiaries in the ordinary course of business, (iii)
Transfers of worn-out or obsolete Equipment or Equipment financed by other
vendors, (iv) Transfers which constitute liquidation of Investments
permitted under Section 7.7, and (v) other Transfers not otherwise permitted
by this Section 7.1 not exceeding One Hundred Thousand Dollars ($100,000) in
the aggregate in any fiscal year.
7.2 Changes in Business. Ownership. Management or Business
Locations. Engage in any business, or permit any of its Subsidiaries to
engage in any business, other than the businesses currently engaged in by
Borrower and any business substantially similar or related thereto (or
incidental thereto), or suffer a Change in Control. Borrower will not,
without at least thirty (30) days prior written notification to Servicing
Agent, relocate its chief executive office or add any new offices or
business locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any
of its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all
or substantially all of the capital stock or property of another Person,
provided that this Section 7.3 shall not apply to (i) the purchase of
inventory, equipment or intellectual property rights in any transaction
valued at less than One Hundred Thousand Dollars ($100,000) in the ordinary
course of business or (ii) transactions among Subsidiaries or among Borrower
and its Subsidiaries in which Borrower is the surviving entity or (iii)
acquisitions or mergers in which the consideration is primarily Borrower's
capital stock.
7.4 Indebtedness. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other
than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any
Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any
of its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or
purchase of any capital stock, provided, that (i) Borrower may declare and
make any dividend payment or other distribution payable in its equity
securities, (ii) Borrower may convert any of its convertible securities into
other securities pursuant to the terms of such convertible securities or
otherwise in exchange therefor and (iii) for so long as an Event of Default
has not occurred, Borrower may repurchase stock from former employees of
Borrower in accordance with the terms of repurchase or similar agreements
between Borrower and such employees and pay cash dividends on account of the
preferred stock held by Guarantor.
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7.7 Investments. Directly or indirectly acquire or own, or make
any Investment in or to any Person, or permit any of its Subsidiaries so to
do, other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of
Borrower's business, upon fair and reasonable terms that are no less
favorable to Borrower than would be obtained in an arm's length transaction
with a non-affiliated Person and except for transactions with a Subsidiary
that are upon fair and reasonable terms and transactions constituting
Permitted Investments.
7.9 Intellectual Property Agreements. Borrower shall not permit
the inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Borrower's rights and interests in any property included within
the definition of the Intellectual Property Collateral acquired under such
contracts.
7.10 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such
payment, except in compliance with the terms of such Subordinated Debt, or
amend any provision contained in any documentation relating to the
Subordinated Debt without Servicing Agent's prior written consent.
7.11 Inventory. Store the Inventory with a bailee, warehouseman,
or similar party unless Servicing Agent has received a pledge of any
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location
set forth in Section 10 hereof and such other locations of which Borrower
gives Servicing Agent prior written notice and as to which Borrower signs
and files a financing statement where needed to perfect Servicing Agent's
security interest.
7.12 Compliance. Become an "investment company" or a company
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one
of its important activities, the business of extending credit for the
purpose of purchasing or carrying margin stock, or use the proceeds of any
Advance for such purpose; fail to meet the minimum funding requirements of
ERISA, permit a Reportable Event or Prohibited Transaction, as defined in
ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or
violate any other. law or regulation, which violation could have a Material
Adverse Effect or a material adverse effect on the Collateral or the
priority of Servicing Agent's Lien on the Collateral, or permit any of its
Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT. Any one or more of the following events shall
constitute an Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of
the Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation
under Sections 6.3, 6.6, 6.7, 6.8 or 6.9 or violates any of the covenants
contained in Article 7 of this Agreement, or if Borrower fails or neglects
to perform, keep, or observe any other material term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and
Servicing Agent or Lenders and as to any default under such other term,
provision, condition, covenant or agreement that can be cured, has failed to
cure such default within ten (10) days after the occurrence thereof;
provided, however, that if the default cannot by its nature be cured within
the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be
cured within a reasonable time, then Borrower shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such reasonable time period the
failure to have cured such default shall not be deemed an Event of Default
(provided that no Credit Extensions will be required to be made during such
cure period);
8.3 Material Adverse Chan2e. If there (i) occurs a material
adverse change in the business, operations, or condition (financial or
otherwise) of Borrower or (ii) is a material impairment of the prospect of
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repayment of any portion of the Obligations or (iii) is a material
impairment of the value or priority of Servicing Agent's security interests
in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied
upon, or comes into the possession of any trustee, receiver or person acting
in a similar capacity and such attachment, seizure, writ or distress warrant
or levy has not been removed, discharged or rescinded within ten (10) days,
or if Borrower is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs, or if a judgment or other claim becomes a lien or encumbrance upon
any material portion of Borrower's assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower's assets by
the United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within ten (10) days after Borrower receives notice
thereof, provided that none of the foregoing shall constitute an Event of
Default where such action or event is stayed or an adequate bond has been
posted pending a good faith contest by Borrower (provided that no Credit
Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency
Proceeding is commenced against Borrower and is not dismissed or stayed
within thirty (30) days (provided that no Credit Extensions will be made
prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to
which Borrower is a party with a third party or parties resulting in a right
by such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could reasonably be expected to have a Material
Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account
of Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with or for the benefit of Lenders;
8.8 Judgments. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Fifty
Thousand Dollars ($50,000) shall be rendered against Borrower and shall
remain unsatisfied and unstayed for a period often (10) days (provided that
no Credit Extensions will be made prior to the satisfaction or stay of such
judgment);
8.9 Misrepresentations. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or
representation set forth herein or in any certificate or writing delivered
to any Agent or Lender by Borrower or any Person acting on Borrower's behalf
pursuant to this Agreement or to induce any Agent or Lender to enter into
this Agreement or any other Loan Document; or
8.10 Guaranty. If Guarantor fails to perform any obligation under
the Guaranty, or revokes or purports to revoke the Guaranty, or the Guaranty
ceases to be effective for any reason, or any of the circumstances described
in any of Sections 8.3, 8.4 or 8.5 occurs with respect to Guarantor.
9. RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Servicing Agent shall at the request, or
may with the consent, of the Majority Lenders, at its election, without
notice of its election and without demand, do any one or more of the
following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Servicing Agent or Lenders);
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(b) Direct Lenders to cease advancing money or extending
credit to or for the benefit of Borrower under this Agreement or under any
other agreement between Borrower and any Lender;
(c) Settle or adjust disputes and claims directly with
account debtors for amounts, upon terms and in whatever order that Servicing
Agent reasonably considers advisable;
(d) Make such payments and do such acts as Servicing Agent
considers necessary or reasonable to protect its security interest in the
Collateral. Borrower agrees to assemble the Collateral if Agent so requires,
and to make the Collateral available to Servicing Agent as Servicing Agent
may designate. Borrower authorizes Agent to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien which in Servicing Agent's determination
appears to be prior or superior to its security interest and to pay all
expenses incurred in connection therewith. With respect to any of Borrower's
premises, Borrower hereby grants Servicing Agent a license to enter such
premises and to occupy the same, without charge, in order to exercise any of
Servicing Agent's rights or remedies provided herein, at law, in equity, or
otherwise;
(e) Direct Lenders to set off and apply to the Obligations any and all (i)
balances and deposits of Borrower held by any Lender, or (ii) indebtedness
at any time owing to or for the credit or the account of Borrower held by
any Lender;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral. Servicing Agent is hereby granted a non-exclusive, royalty-free
license or other right to use, without charge, Borrower's labels, patents,
copyrights, mask works, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of
a similar nature, as it pertains to the Collateral, in completing production
of, advertising for sale, and selling any Collateral and, in connection with
Servicing Agent's exercise of its rights under this Section 9.1, Borrower's
rights under all licenses and all franchise agreements shall inure to
Servicing Agent's benefit;
(g) Dispose of the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Servicing
Agent determines is commercially reasonable, and apply the proceeds thereof
to the Obligations in whatever manner or order Servicing Agent deems
appropriate;
(h) Servicing Agent may credit bid and purchase at any public sale, or at
any private sale as permitted by law; and
(i) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
(j) Servicing Agent shall have a non-exclusive, royalty-free license to
use the Intellectual Property Collateral to the extent reasonably necessary
to permit Bank to exercise its rights and remedies upon the occurrence of an
Event of Default.
Servicing Agent shall distribute the proceeds realized from the disposition
of the Collateral or any exercise of remedies hereunder, net of all costs of
enforcement and collection, to the Lenders according to their respective Pro
Rats Shares.
9.2 Power of Attorney. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Servicing Agent (and any of Servicing Agent's designated officers, or
employees) as Borrower's true and lawful attorney to: (a) send requests for
verification of Accounts or notify account debtors of Servicing Agent's
security interest in the Accounts; (b) endorse Borrower's name on any checks
or other forms of payment or security that may come into Servicing Agent's
possession; (c) sign Borrower's name on any invoice or bill of lading
relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; (e) settle and adjust disputes
and claims
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respecting the accounts directly with account debtors, for amounts and upon
terms which Servicing Agent determines to be reasonable; (f) to modify, in
its sole discretion, the Intellectual Property Security Agreement without
first obtaining Borrower's approval of or signature to such modification by
amending Exhibit A, Exhibit B, Exhibit C and Exhibit D, thereof, as
appropriate, to include reference to any right, title or interest in any
Copyrights, Patents, Trademarks or Mask Works acquired by Borrower after the
execution hereof or to delete any reference to any right, title or interest
in any Copyrights, Patents, Trademarks or Mask Works in which Borrower no
longer has or claims any right, title or interest; (g) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; and (h) to dispose of the Collateral to the extent
permitted under the California Uniform Commercial Code, provided Servicing
Agent may exercise such power of attorney to sign the name of Borrower on
any of the documents described in Section 4.2 regardless of whether an Event
of Default has occurred. The appointment of Servicing Agent as Borrower's
attorney in fact, and each and every one of Servicing Agent's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Servicing Agent's
obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time from the date of this
Agreement, Servicing Agent may notify any Person owing funds to Borrower of
Servicing Agent's security interest in such funds and verify the amount of
such Account. Borrower shall collect all amounts owing to Borrower for
Servicing Agent, receive in fl-ust all payments as Servicing Agent's
trustee, and, if requested or required by Servicing Agent, immediately
deliver such payments to Agent in their original form as received from the
account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Servicing Agent may do any or all of
the following: (a) make payment of the same or any part thereof; (b) setup
such reserves under the Revolving Committed Line as Servicing Agent deems
necessary to protect Servicing Agent or any Lender from the exposure created
by such failure; or (c) obtain and maintain insurance policies of the type
discussed in Section 6.6 of this Agreement, and take any action with respect
to such policies as Servicing Agent deems prudent. Any amounts so paid or
deposited by Servicing Agent or any Lender shall constitute Bank Expenses,
shall he immediately due and payable, and shall bear interest at the then
applicable rate hereinabove provided, and shall be secured by the
Collateral. Any payments made by Servicing Agent or any Lender shall not
constitute an agreement by Agent or any Lender to make similar payments in
the future or a waiver of any Event of Default under this Agreement.
9.5 Liability for Collateral. So long as Servicing Agent and each
Lender complies with its obligations under Section 9207 of the Code, neither
Servicing Agent nor any Lender shall in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion from any cause;
(c) any diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever. All risk of loss, damage or destruction of the Collateral shall
be borne by Borrower.
9.6 Remedies Cumulative. Agents' and Lenders' rights and remedies
under this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Agents and Lenders shall have all other rights and remedies not
expressly set forth herein as provided under the Code, by law, or in equity.
No exercise of one right or remedy shall be deemed an election, and no
waiver of any Event of Default on Borrower's part shall be deemed a
continuing waiver. No delay shall constitute a waiver, election, or
acquiescence by it. No waiver shall be effective unless made in a written
document signed on behalf of Servicing Agent and then shall be effective
only in the specific instance and for the specific purpose for which it was
given.
9.7 Demand: Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments,
chattel paper, and guarantees at any time held by Servicing Agent or Lenders
on which Borrower may in any way be liable.
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10.1 Authorization and Action.
(a) Each Lender hereby appoints and authorizes each Agent to
take such action as agent on its behalf and to exercise such powers under
this Agreement as are delegated to such Agent by the terms hereof, together
with such powers as are reasonably incidental thereto. As to any matters
not expressly provided for by this Agreement (including enforcement or
collection of the Notes), an Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the instructions of the Majority Lenders, and such instructions
shall be binding upon all Lenders and all holders of Notes; provided,
however, that an Agent shall not be required to take any action which
exposes an Agent to personal liability or which is contrary to this
Agreement or applicable law. Servicing Agent agrees to give to each Lender
prompt notice of each notice given to it by Borrower pursuant to the terms
of this Agreement.
(b) The provisions of this Article 10 are solely for the
benefit of Lenders and Agents and Borrower has no rights as a third party
beneficiary of any of the provisions hereof.
10.2 Agent's Reliance, Etc. Neither Agent nor any of their
respective directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection
with this Agreement, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, Servicing
Agent: (i) may treat the payee of any Note as the holder thereof until
Servicing Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form satisfactory to Servicing Agent;
(ii) may consult with legal counsel, independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of
such counsel, accountants or experts; (iii) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for
any statements, warranties or representations made in or in connection with
this Agreement; (iv) shall not have any duty to ascertain or to inquire as
to the performance or observance of any of the terms, covenants or
conditions of this Agreement on the part of Borrower or to inspect the
property (including the books and records) of Borrower; (v) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any
other instrument or document furnished pursuant hereto; and (vi) shall incur
no liability under or in respect of this Agreement by acting upon any
notice, consent, certificate or other instrument or writing (which may be by
telegram, telefacsimile, cable or telex) believed by it to be genuine and
signed or sent by the proper party or parties.
10.3 Bank SinoPac. Los Angeles Branch. Far East National Bank and
Affiliates. With respect to its Commitment, the Advances made by it and the
Note issued to it, each of Far East National Bank and Bank SinoPac Los
Angeles Branch shall have the same rights and powers under this Agreement as
any other Lender and may exercise the same as though it were not an Agent;
and the term "Lender" or "Lenders" shall, unless otherwise expressly
indicated, include each of Far East National Bank and Bank SinoPac Los
Angeles Branch in its individual capacity. Far East National Bank and Bank
SinoPac Los Angeles Branch and their respective affiliates may accept
deposits from, lend money to, act as trustee under indentures of, and
generally engage in any kind of business with, Borrower, any of its
subsidiaries and any Person who may do business with or own securities of
Borrower or any such subsidiary, all as if Far East National Bank and Bank
SinoPac Los Angeles Branch were not Agents, and without any duty to account
therefor to Lenders.
10.4 Lender Credit Decision. Each Lender acknowledges that it
has, independently and without reliance upon an Agent or any other Lender
and based on the financial statements referred to in Section 6.3 and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon an Agent
or any other Lender and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement.
10.5 Indemnification. Lenders agree to indemnify each Agent (to
the extent not reimbursed by Borrower), ratably according to the respective
principal amounts of the Notes then held by each of them (or if no Notes are
at the time outstanding or if any Notes are held by Persons which are not
Lenders, ratably according to the
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respective amounts of their Commitments), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by, or asserted against such Agent in any
way relating to or arising out of this Agreement or any action taken or
omitted by such Agent under this Agreement in its capacity as Agent,
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct. Without limiting the foregoing, each Lender agrees to
reimburse such Agent promptly upon demand for its ratable share of any out-
of-pocket expenses (including counsel fees) incurred by such Agent in
connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that such Agent is not
reimbursed for such expenses by Borrower.
10.6 Successor Agent. An Agent may resign at any time by giving
written notice thereof to Lenders and Borrower and may be removed at any
time with or without cause by the Majority Lenders. Upon any such
resignation or removal, the Majority Lenders shall have the right to appoint
a successor Agent with the prior consent of Borrower, which consent shall
not be unreasonably withheld or delayed, provided that such consent of the
Borrower shall not be required at any time an Event of Default or Potential
Event of Default exists. If no successor Agent shall have been so appointed
by the Majority Lenders, and shall have accepted such appointment, within
thirty (30) days after the retiring Agent's giving of notice of resignation
or the Majority Lenders' removal of the retiring Agent, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent, which shall
be a commercial bank organized under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of
at least $100,000,000. Upon the acceptance of any appointment as Agent
hereunder a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations as Agent under this Agreement. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article 10
shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was Agent under this Agreement.
11. MISCELLANEOUS.
11.1 Amendments. No amendment or waiver of any provision of the Loan
Documents nor consent to any departure by the Borrower therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Majority Lenders, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given;
provided however, that no amendment, waiver or consent shall, unless in
writing and signed by all the Lenders, do any of the following: (a) waive
any of the conditions specified in Article 3, (b) increase the Commitments
of the Lenders or subject the Lenders to any additional obligations, (c)
reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of; or interest on, the Notes or any fees or other amounts payable
hereunder, (e) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes, or the number of Lenders, which shall
be required for the Lenders or any of them to take any action hereunder, or
release any material portion of any collateral covered by any security
agreement given in connection herewith; and provided further that no
amendment, waiver or consent shall, unless in writing and signed by an Agent
in addition to the Lenders required above to take such action, affect the
rights or duties of such Agent under this Agreement or any other Loan
Document.
11.2 Notices. Etc. Except as otherwise set forth in this Agreement, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex or facsimile communication) and mailed or
telegraphed or telexed or sent by facsimile or delivered, if to the
Borrower, at its address set forth on the signature page hereof; and if to
any Lender, or an Agent, at its address set forth on the signature page
hereof or, as to each party, at such other address as shall be designated by
such party in a written notice to the other parties. All such notices and
communications shall be effective three (3) Business Days after deposit in
the U.S. mail, postage prepaid, when sent by telex or sent by facsimile, or
when delivered, respectively.
11.3 Right of Setoff: Deposit Accounts. Upon and after the occurrence of
any Event of Default, each Lender is hereby authorized by the Borrower, at
any time and from time to time, without notice, for the ratable benefit of
the Lenders, (a) to set off against, and to appropriate and apply to the
payment of; the
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obligations and liabilities of the Borrower under the Loan Documents
(whether matured or unmatured, fixed or contingent or liquidated or
unliquidated) any and all amounts owing by such Lender to the Borrower
(whether payable in U.S. Dollars or any other currency, whether matured or
unmatured, and, in the case of deposits, whether general or special, time or
demand and however evidenced) and (b) pending any such action, to the extent
necessary, to hold such amounts as collateral to secure such obligations and
liabilities and to return as unpaid for insufficient funds any and all
checks and other items drawn against any deposits so held as such Lender in
its sole discretion may elect; provided that no such setoff, appropriation,
or application shall be taken or made without the prior written consent of
Servicing Agent or the Majority Lenders. Borrower hereby grants to each
Lender a security interest in all deposits and accounts maintained with that
Lender. The rights of each Lender under this Section are in addition to
other rights and remedies (including other rights of set-ofl) which such
Lender may have. This Agreement constitutes notice to each Lender of the
security interest of Servicing Agent in any deposit account maintained by
Borrower with such Lender.
11.4 Additional Lenders: Assignments: Participations.
(a) None of the Loan Documents nor any rights thereunder may be assigned
by Borrower without the prior written consent of all the Lenders, which
consent may be granted or withheld in the Lenders' sole discretion. Any
Lender may assign, from time to time, all or any portion of its pro rata
share of the Commitments and its Note to (i) an Affiliate of that Lender,
without the prior written approval of Servicing Agent or Borrower, or (u)
any other financial institution acceptable to Servicing Agent, provided that
an assignee may not assign its interest without the consent of the Agents;
and provided further that the parties to each such assignment shall execute
and deliver to Servicing Agent and Borrower an assignment agreement
reasonably satisfactory to Servicing Agent. Upon (A) such execution and
delivery and (B) except in the case of an assignment pursuant to clause (i)
of the preceding sentence, payment of a fee in the amount of $2,500 to
Servicing Agent to cover administrative costs, from and after the effective
date of such assignment (x) the assignee thereunder shall be a party hereto
and, to the extent that rights and obligations hereunder have been assigned
to it, have the rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it, relinquish its rights and be released
from its obligations under this Agreement (other than pursuant to Section
11.4(e)), and, in the case of an assignment covering all or the remaining
portion of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto, subject to its
continuing obligations under Section 11.4(e). The Commitments hereunder
shall be modified to reflect the Commitment of such assignee, and, if any
such assignment occurs while any Notes are outstanding, new Notes shall,
upon the surrender of the assigning Lender's Notes, be issued to such
assignee and to the assigning Lender as necessary to reflect the new
Commitments of the assigning Lender and of its assignee.
(b) Each Lender may sell, negotiate or grant participations to other
parties in all or part of the obligations of the Borrower outstanding under
the Loan Documents, without notice to or the approval of Servicing Agent or
the Borrower; provided that any such sale, negotiation or participation
shall be in compliance with the applicable federal and state securities laws
and the other requirements of this Section 11.4. No participant shall
constitute a "Lender" under any Loan Document, and the Borrower shall
continue to deal solely and directly with Servicing Agent and the Lenders.
(c) Each Lender may disclose to any proposed assignee or participant any
information relating to the Borrower or any of its Subsidiaries; provided,
that prior to such disclosure such proposed assignee or participant shall
have agreed in writing to keep any such information confidential
substantially on the terms of Section 11.4(e).
(d) The grant of a participation interest shall be on such terms as the
granting Lender determines are appropriate, provided only that (i) the
holder of such a participation interest shall not have any of the rights of
a Lender under this Agreement except, if the participation agreement so
provides, rights to demand the payment of costs of the type described in
Section 2.5(c), (ii) the consent of the holder of such a participation
interest shall not be required for amendments or waivers of provisions of
the Loan Documents other than those that (A) increase the amount of the
Commitments, (B) extend the term of the Commitments, (C) decrease the rate
of interest or the amount of any fee or any other amount payable to the
Lenders under the Loan Documents, (D) reduce the principal amount payable
under the Loan Documents, or (E) extend the date fixed for the payment of
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principal or interest or any other amount payable under the Loan Documents,
and (iii) the holder may not transfer or participate any of its interest
without the consent of the Agents.
(e) Each Lender understands that some of the information and documents
furnished to it pursuant to this Agreement may be confidential and each
Lender agrees that it will keep all non-public information, documents and
agreements so furnished to it confidential and will make no disclosure to
other Persons of such information or agreements until it shall have become
public, except (i) to the extent required in connection with matters
involving operations under or enforcement or amendment of the Loan
Documents; (ii) to such Lender's examiners and auditors or in accordance
with such Lender's obligations under law or regulations or pursuant to
subpoenas or other process to make information available to governmental
agencies and examiners or to others; (iii) to any corporate parent of any
Lender so long as such parent agrees to accept such information or agreement
subject to the restrictions provided in this Section 11.4(e); (iv) to any
participant bank or trust company of any Lender so long as such participant
shares the corporate parent with such Lender and agrees to keep such
information, documents or agreement confidential in accordance with the
restrictions provided in this Section 11.4(e); (v) to Servicing Agent or to
any other Lender and their respective counsel and other professional
advisors and to its own counsel and professional advisors so long as such
Persons are instructed to keep such information confidential in accordance
with the provisions of this Section 11.4(e); (vi) to proposed assignees and
participants in accordance with Section 11.4(c); and (vii) with the prior
written consent of the Borrower.
11.5 Effectiveness: Bindin2 Effect: Governing Law. This Agreement shall
become effective when it shall have been executed by the Borrower, each
Agent and each Lender and thereafter shall be binding upon and inure to the
benefit of the Borrower, the Agents, each Lender and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of Servicing Agent and all the Lenders. THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW DOCTRINE.
11.6 Waiver of Jury Trial. BORROWER, EACH AGENT, AND EACH LENDER HEREBY
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN
DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF
THIS LOAN TRANSACTION AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING
ESTABLISHED: The
scope of this waiver is intended to be all-encompassing of any and all
disputes that may be filed in any court and that relate to the subject
matter of this transaction, including contract claims, tort claims, breach
of duty claims, and all other common law and statutory claims. Each Agent,
each Lender, and the Borrower each acknowledge that this waiver is a
material inducement to enter into a business relationship, that each has
already relied on the waiver in entering into this Agreement, and that each
will continue to rely on the waiver in their related future dealings. Each
Agent, each Lender, and the Borrower further warrant and represent that each
has reviewed this waiver with its legal counsel, and that each knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE
LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
LOAN. In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court.
11.7 Consent to Jurisdiction: Venue: A2ent for Service of Process. All
judicial proceedings brought against the Borrower with respect to this
Agreement and the Loan Documents may be brought in any state or federal
court of competent jurisdiction in the County of Santa Clara in the State of
California, and by execution and delivery of this Agreement, Borrower
accepts for itself and in connection with its properties, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and
irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement. Borrower irrevocably waives any right it may
have to assert the doctrine of forum non conveniens or to object to venue to
the extent any proceeding is brought in accordance with this Section.
Borrower designates and appoints Borrower's Chief Financial Officer, from
time to time, and such other Persons as may hereafter be selected by
Borrower irrevocably agreeing in writing to so serve as its agent to receive
on its behalf service of all process in any such proceedings in any such
court, such service being hereby acknowledged by Borrower to be effective
and binding service in every respect. A copy of any such process
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so served shall be mailed by registered mail to Borrower at its address
provided in the applicable signature page hereto, except that unless
otherwise provided by applicable law, any failure to mail such copy shall
not affect the validity of service of process. If any agent appointed by
Borrower refuses to accept service, Borrower hereby agrees that service upon
it by mail shall constitute sufficient notice. Nothing herein shall affect
the right to serve process in any other manner permitted by law or shall
limit the right of either Agent or any Lender to bring proceedings against
Borrower in courts of any jurisdiction.
11.8 Entire Agreement. This Agreement with Exhibits and Schedules and the
other Loan Documents embody the entire agreement and understanding between
the parties hereto and supersedes all prior agreements and understandings
relating to the subject matter hereof.
11.9 Separability of Provisions. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
11.10 Obligations Several. The obligation of each Lender hereunder is
several, and no Lender shall be responsible for the obligation or commitment
of any other Lender hereunder. Nothing contained in this Agreement and no
action taken by the Lenders pursuant hereto shall be deemed to constitute
the Lenders to be a partnership, an association, a joint venture or any
other kind of entity.
11.11 Indemnification. Borrower shall indemnify, defend, protect and hold
harmless each Agent, each Lender and their respective officers, employees,
and agents against: (a) all obligations, demands, claims, and liabilities
claimed or asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses in
any way suffered, incurred, or paid as a result of or in any way arising out
of, following, or consequential to transactions between an Agent or such
Lender and Borrower under the Loan Documents (including without limitation
reasonable attorneys fees and expenses), except for losses caused by such
Agent's or such Lender's gross negligence or willful misconduct.
11.12 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
11.13 Counterparts. This Agreement maybe executed in any number of
counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
11.14 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
(excluding Obligations under Section 2.6 and 11.11 to the extent they remain
inchoate at the time the outstanding payment Obligations are paid in full)
remain outstanding. The obligations of Borrower to indemnify each Agent and
Lenders with respect to the expenses, damages, losses, costs and liabilities
described in Section 11.11 shall survive until all applicable statute of
limitations periods with respect to actions that may be brought against any
of them have run, provided that so long as the Obligations referred to in
the first sentence of this Section 11.14 have been satisfied, and Lenders
have no commitment to make any Credit Extensions or to make any other loans
to Borrower, Servicing Agent shall release all security interests granted
hereunder and redeliver all Collateral held by it in accordance with
applicable law.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
"Borrower"
INTEGRATED PACKAGING ASSEMBLY CORPORATION
By: P. Verderico
-------------
Title: CEO
2221 Old Oakland Road
San Jose, CA 95131
Attn: Terry Markle
FAX: (408) 321-3603
"Administative Agent"
BANK SINOPAC, LOS ANGELES BRANCH
By: Sophie Cheng
----------------
Title: VP
350 5. Grand Avenue, 30th Floor
Los Angeles, CA 90071
Attn: Ms. Sophie Cheng
Fax: (213) 437-4849
"Servicing Agent"
FAR EAST NATIONAL BANK
By: Martha Minker
-----------------
Title: AVP
2001 Gateway Place, Suite lOlE
San Jose, CA 95110
Attn: Mr. Daniel R. Michener
FAX: (408) 487-0333
Page 26
<PAGE>
"Lenders"
FAR EAST NATIONAL BANK
By: Martha Minker
-----------------
Title: AVP
Maximum Commitment: $6,000,000
Pro Rata Share: 54.5%
2001 Gateway Place, Suite IOlE
San Jose, CA 95110
Attn: Mr. Daniel Michener
Fax: (408) 487-0333
BANK SINOPAC, LOS ANGELES BRANCH
By: Sophie Cheng
---------------
Title: VP
Maximum Commitment: $5,000,000
Pro Rata Share: 45.5%
350 5. Grand Ave.
30th Floor
Los Angeles, CA 90071
Attn: Ms. Sophie Cheng
Fax: (213) 437-4849
Page 27
<PAGE>
The Collateral shall consist of all right, title and interest of Borrower in
and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor
vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any documents of title representing any of the above;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, tade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs,
computer discs, computer tapes, literature, reports, catalogs, design
rights, income tax refunds, payments of insurance and rights to payment of
any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of
technology or the rendering of services by Borrower, whether or not earned
by performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrower;
(e) All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, letters of credit,
certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing;
(0 All copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar
rights available for the protection of semiconductor chips, now owned or
hereafter acquired; all claims for damages by way of any past, present and
future infringement of any of the foregoing; and
(g) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof.
Page 28
<PAGE>
EXHIBIT C
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR NEXT DAY PROCESSING IS 3:00pm, PACIFIC TIME
TO: SERVICING AGENT DATE:_______
FAX#: _____________ TIME: _______
FROM:________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY:________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:________________________
PHONE NUMBER:___________________
FROM ACCOUNT #__________ TO ACCOUNT #____________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $_____________
PRINCIPAL PAYMENT (ONLY) $_____________
INTEREST PAYMENT (ONLY) $_____________
PRINCIPAL AND INTEREST (PAYMENT) $_____________
OTHER INSTRUCTIONS:
All representations and warranties of Borrower stated in the
Loan Agreement are true, correct and complete in all material
respects as of the date of the telephone request for and Advance
confirmed by this Borrowing Certificate; provided, however, that
those representations and warranties expressly referring to
another date shall be nue, correct and complete in all material
respects as of such date.
- ---------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
- ------------------
The following person is authorized to request the loan payment
transfer/loan advance on the advance designated account and is
known to me.
- ------------------------ ---------------
Authorized Requester Phone #
- ------------------------ ---------------
Received by (Bank) Phone #
-----------------------------
Authorized Signature (Bank)
Page 29
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: FAR EAST NATIONAL BANK
FROM: INTEGRATED PACKAGING ASSEMBLY CORPORATION
The undersigned authorized officer of Integrated Packaging Assembly
Corporation hereby certifies that in accordance with
the terms and conditions of the Loan and Security Agreement
among Borrower, Agents and Lenders (the "Agreement"), (i)
Borrower is in complete compliance for the period ending ______
with all required covenants except as noted below and (ii) all
representations and warranties of Borrower stated in the
Agreement are true and correct in all material respects as of
the date hereof Attached herewith are the required documents
supporting the above certification. The Officer further
certifies that these are prepared in accordance with Generally
Accepted Accounting Principles (GAAP) and are consistently
applied from one period to the next except as explained in
an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies"
column.
Reporting Covenant Required
- ------------------ --------
FYE Financial Statements, 10K Annually within 15 days
of filing
Quarterly Financial Statements, 10Q Quarterly within 15 days
of filing
A/P, A/R Aging Monthly within 30 days
Guarantor FYE Financial Statements Annually within 120 days
of FYE
Guarantor Quarterly Financial
Statements Quarterly within 60 days
of quarter end
Financial Covenant Required Actual
- ------------------ -------- ------
Profitability * --
* No 2 consecutive quarters below forecast
Comments Regarding Exceptions: See Attached
Sincerely,
- ----------------------------------
SIGNATURE
- ----------------------------------
TITLE
- ----------------------------------
DATE
Page 30
<PAGE>
EXHIBIT E
[PROFITABILITY FORECAST - COMPANY TO PREPARE]
Page 31
<PAGE>
Integrated Packaging Assembly Corporation
Financial Statements
Income Statement (in $000, except ASP)
Company Confidential
Page 32
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
September 17; 1999 by and between FAR EAST NATIONAL BANK, as Servicing Agent
("Bank") and INTEGRATED PACKAGING ASSEMBLY CORPORATION, a Delaware
corporation ("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend certain
financial accommodation to Grantor (the "Loans") in the amounts and manner
set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated of even date herewith (as the same may be amended,
modified or supplemented from time to time, the "Loan Agreement";
capitalized terms used herein are used as defined in the Loan Agreement).
B. Bank is willing to make the Loans to Grantor, but only upon the
condition, among others, that Grantor shall grant to Bank a security
interest in certain Copyrights, Trademarks and Patents to secure the
obligations of Grantor under the Loan Agreement.
C. Pursuant to the terms of the Loan Agreement, Grantor has granted to Bank
a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral
security for the prompt and complete payment when due of its obligations
under the Loan Agreement and all other agreements now existing or hereafter
arising between Grantor and Bank, Grantor hereby represents, warrants,
covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement and under any other
agreement now existing or hereafter arising between Bank and Grantor,
Grantor grants and pledges to Bank a security interest in all of Grantor's
right, title and interest in, to and under its Intellectual Property
Collateral (including without limitation those Copyrights, Patents and
Trademarks listed on Schedules A, B and C hereto), and including without
limitation all proceeds thereof (such as, by way of example but not by way
of limitation, license royalties and proceeds of infringement suits), the
right to sue for past, present and future infringements, all rights
corresponding thereto throughout the world and all re-issues, divisions
continuations, renewals, extensions and continuations-in-part thereof.
This security interest is granted in conjunction with the security interest
granted to Bank under the Loan Agreement. The rights and remedies of Bank
with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and
those which are now or hereafter available to Bank as a matter of law or
equity. Each right, power and remedy of Bank provided for herein or in the
Loan Agreement or any of the Loan Documents, or now or hereafter existing at
law or in equity shall be cumulative and concurrent and shall be in addition
to every right, power or remedy provided for herein and the exercise by Bank
of any one or more of the rights, powers or remedies provided for in this
Intellectual Property Security Agreement, the Loan Agreement or any of the
other Loan Documents, or now or hereafter existing at law or in equity,
shall not preclude the simultaneous or later exercise by any person,
including Bank, of any or all other rights, powers or remedies.
Grantor represents and warrants that Exhibits A, B, and C attached hereto
set forth any and all intellectual property rights in connection to which
Grantor has registered or filed an application with either the United States
Patent and Trademark Office or the United States Copyright Office, as
applicable.
Page 1
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly
authorized as of the first date written above.
GRANTOR:
Address of Grantor: INTEGRATED PACKAGING ASSEMBLY
CORPORATION
2221 Old Oakland Road
San Jose, CA 95131 By: P. Verderico
---------------
Attn: Terrence Markle Title: CEO
BANK:
Address of Bank: FAR EAST NATIONAL BANK
2001 Gateway Place, Suite lOlE
San Jose, CA 95110 By: Martha Minker
Attn: Mr. Daniel Michener Title: AVP
Page 2
<PAGE>
EXHIBIT A
Copyrights
Registation/ Registration
Application Application
Number Date
------------ -------------
Page 3
<PAGE>
EXHIBIT B
Patents
Description Registration Registration
Application Application
Number Date
- ------------ ------------ ------------
Method for forming encapsulated 5,682,673 11/04/97
IC package
Method for encapsulating IC package 5,859,477 01/122/99
with diamond substrate
Apparatus and method for insuring 5,872,395 02/16/99
position of heat spreader in a IC
package
Pressure-plate-operative system for 5,766,535 06/16/98
one-side injection molding of
substrate-mounted integrated
circuits
Method for making an IC lead-frame 5,497,681 03/12/96
punch
Method for sharpening an IC lead-frame 5,495,780 03/05/96
punch
Metal semiconductor package with an 5,491,110 02/13/96
external plastic seal
Apparatus for integrated circuit 5,452,635 09/26/95
lead-frame punching
Metal semiconductor package with an 5,436,407 07/25/95
external plastic seal
Page 4
<PAGE>
EXHIBIT C
Trademarks
Description Registration Registration
Application Application
Number Date
- --------------- ------------ ------------
IPAC integrated packaging assembly 2,020,500 12/03/96
corporation packaging foundry
(and design)
IPAC (and design) 1,965,537 04/02/96
Integrated packaging assembly 1,983,827 07/02/98
corporation
Page 5
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
- -------------------------------------------------------------
Borrower: Integrated Packaging Assembly Corporation
- -------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of Integrated Packaging
Assembly Corporation (the "Corporation"), HEREBY CERTIFY that the
Corporation is organized and existing under and by virtue of the laws of the
State of Delaware.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Certificate of Incorporation, as amended and the
Bylaws of the Corporation, each of which is in full force and effect on the
date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other
duly authorized corporate action in lieu of a meeting), the following
resolutions were adopted.
BE IT RESOLVED, that any one (1) of the following named officers, employees,
or agents of this Corporation, whose actual signatures are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
PATRICK VERDERICO CEO ___________________
F. TERRENCE MARKLE CAO ___________________
acting for an on behalf of this Corporation and as its act and deed be, and
they hereby are, authorized and empowered:
Borrow Money. To borrow from time to time from the Lenders, on such terms as
may be agreed upon between the officers, employees, or agents and the
Lenders, such sum or sums of money as in their judgment should be borrowed,
without limitation, including such sums as are specified in that certain
Loan and Security Agreement dated as of September 17, 1999 (the "Loan
Agreement").
Execute Loan Agreement. To execute and deliver to Far East National Bank, as
Servicing Agent, Bank SinoPac, Los Angeles Branch, as Administrative Agent,
and the Lenders, the Loan Agreement and the related promissory notes, and
also to execute and deliver one or more renewals, extensions, modifications,
refinancings, consolidations, or substitutions for the Loan Agreement and
such notes, one or more of the notes, or any portion of the notes.
Grant Security. To grant a security interest to Servicing Agent in the
Collateral described in the Loan Agreement, which security interest shall
secure all of the Corporation's Obligations, as described in the Loan
Agreement.
Negotiate Items. To draw, endorse, and discount with Servicing Agent or
Lenders all drafts, trade acceptances, promissory notes, or other evidences
of indebtedness payable to or belonging to the Corporation or in which the
Corporation may have an interest, and either to receive cash for the same or
to cause such proceeds to be
Page 1
<PAGE>
credited to the account of the Corporation with Servicing Agent or Lenders,
or to cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
Further Acts. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements as they may in their discretion deem reasonably necessary or
proper in order to carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full
force and effect and each Agent and Lenders may rely on these Resolutions
until written notice of their revocation shall have been delivered to and
received by them. Any such notice shall not affect any of the Corporation's
agreements or commitments in effect at the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set forth opposite their respective names;
that the foregoing Resolutions now stand of record on the books of the
Corporation; and that the Resolutions are in full force and effect and have
not been modified or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on September 24, 1999 and
attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED TO AND ATTESTED BY
Integrated Packaging Assembly Corporation
By:
------------------------
J. Robert Suffoletta
Page 2
<PAGE>
CORPORATE RESOLUTIONS TO GUARANTY
- --------------------------------------------------------
Guarantor: Orient Semiconductor Electronics, Limited
- --------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of Orient Semiconductor
Electronics, Limited (the "Corporation"), HEREBY CERTIFY that the
Corporation is organized and existing under and by virtue of the laws of the
Republic of China.
I FURTHER CERTIFY that the charter documents attached hereto are in full
force and effect on the date hereof and have not been modified or amended as
of the date hereof
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation duly
called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that any one (1) of the following named officers, employees,
or agents of this Corporation, whose actual signatures are shown below:
NAMES POSITION ACTUAL SIGNATURES
Duh Yang, Mei-shou Chairwoman __________________
acting for an on behalf of this Corporation and as its act and deed be, and
they hereby are, authorized and empowered:
Guaranty Indebtedness. To guaranty amounts borrowed from time to time from
the Lenders by Integrated Packaging Assembly Corporation ("Borrower")
pursuant to that certain Loan and Security Agreement among Bank SinoPac, Los
Angeles Branch, as Administrative Agent, Far East National Bank, as
Servicing Agent, and the Lenders named therein, dated as of September __
1999 as amended from time to time (the "Loan Agreement").
Execute Guaranty. To execute and deliver to Administrative Agent or
Servicing Agent the guaranty of the Corporation (the "Guaranty"), and also
to execute and deliver one or more renewals, extensions, modifications,
consolidations, or substitutions therefor.
Further Acts. To do and perform such other acts and things, to pay any and
all fees and costs, and to execute and deliver such other documents and
agreements as they may in their discretion deem reasonably necessary or
proper in order to cany into effect the provisions of these Resolutions.
BE IT FLTRTHLER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are
hereby ratified and approved, that these Resolutions shall remain in full
force and effect and each Agent and Lenders may rely on these Resolutions
until written notice of their revocation shall have been delivered to and
received by Servicing Agent. Any such notice shall not affect any of the
Corporation's agreements or commitments in effect at the time notice is
given.
Page 1
<PAGE>
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case
may be, and occupy the positions set opposite their respective names; that
the foregoing Resolutions now stand of record on the books of the
Corporation; and that the Resolutions are in full force and effect and have
not been modified or revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on 9-20, 1999, and attest
that the signatures set opposite the names listed above are their genuine
signatures.
CERTIFIED TO AND ATTESTED BY:
____________________________
Duh Yang, Mei-shou
Page 2
<PAGE>
CORPORATE GUARANTY
This Guaranty ("Guaranty") is entered into as of September ___,
1999 by Orient Semiconductor Electronics, Limited ("Guarantor"), in favor of
BANK SINOPAC, LOS ANGELES BRANCH, as Administrative Agent ("Administrative
Agent") FAR EAST NATIONAL BANK, as Servicing Agent ("Servicing Agent"
Administrative Agent and Servicing Agent are sometimes referred to herein as
an "Agent" or the "Agents") and FAR EAST NATIONAL BANK and BANK SINOPAC, LOS
ANGELES BRANCH and such other Persons (the "Lenders") named from time to
time as "Lenders" under that certain Loan and Security Agreement (the "Loan
Agreement") of even date herewith among Agents, Integrated Packaging
Assembly Corporation ("Borrower") and Lenders.
RECITALS
WHEREAS, Borrower has requested that Lenders extend credit to Borrower under
the Loan Agreement, and Lenders have agreed to do so pursuant to the terms
and conditions set forth therein; and in the Promissory Notes, dated as of
the date hereof, made by Borrower to the order of each Lender in the
aggregate principal amount of $11,000,000 (as amended from time to time, the
"Notes"; capitalized terms used herein without definition shall have the
meanings assigned to them in the Loan Agreement);
WHEREAS, one of the conditions to the effectiveness of the Loan Agreement is
that Guarantor guaranty the Obligations under the Loan Agreement and
reflected in the Notes;
WHEREAS, Guarantor, as Borrower's controlling shareholder, has concluded
that it will benefit from the transactions contemplated in the Loan
Agreement and the Notes, and is therefore willing to guaranty the
Obligations;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and intending to be legally
bound, Guarantor hereby represents, warrants, covenants and agrees as
follows:
1. Guaranty.
1.1. Guaranty of Payment. Guarantor hereby guarantees and agrees to pay to
each Agent and Lenders in lawful money of the United States all amounts
owing from Borrower to an Agent or Lenders under the Loan Agreement, the
Notes and any related documents that constitute Obligations under the Loan
Agreement,
(collectively the "Obligations" the Obligations and all other obligations
and covenants to be performed by Guarantor under this Guaranty shall
hereinafter be collectively referred to as the "Guaranty Obligations").
This guaranty of the Obligations includes in all cases all such Obligations
that arise after the filing of a bankruptcy petition with respect to
Borrower and all such Obligations that would become due but for the
operation of the (i) automatic stay under Section 362(a) of the Bankruptcy
Code, (ii) Section 502(b) of the Bankruptcy Code, or (iii) Section 506(b) of
the Bankruptcy Code, including, but not limited to, interest accruing under
the Loan Agreement or the Notes after the filing of a bankruptcy petition,
whether or not allowed or allowable as a claim in the bankruptcy proceeding.
This Guaranty is a guaranty of prompt and punctual payment of the
Obligations, whether at stated maturity, by acceleration or otherwise, and
is not merely a guaranty of collection.
This Guaranty shall remain in effect until the Obligations have been paid or
performed in full. Any other guarantors of all or any part of the
Obligations may be released without affecting the liability of Guarantor
hereunder.
1.2. Expenses. Guarantor agrees to pay all reasonable expenses, including,
without limitation, reasonable attorneys' fees, and costs incurred by an
Agent or any Lender in connection with the enforcement of any rights under
this Guaranty.
Page 1
<PAGE>
1.3. Joint and Several Liability. All guarantors of the Obligations and
their respective successors and assigns shall be jointly and severally bound
by the tern-is of their respective guaranties, notwithstanding any
relationship or contact of co-obligation by or among such guarantors.
1.4. Separate Obligations. The Guaranty Obligations of Guarantor arising
hereunder are independent and separate from any and all obligations of
Borrower to an Agent and Lenders.
2. Representations and Warranties. Guarantor hereby represents and
warrants to each Agent and Lenders that: (a) the execution, delivery and
performance by Guarantor of this Guaranty: (i) are within Guarantor's powers
and have been duly authorized by all necessary action, and (ii) do not
contravene Guarantor's charter documents; (b) this Guaranty is a valid and
binding obligation of Guarantor, enforceable against Guarantor in accordance
with its terms, except as the enforceability thereof may be subject to or
limited by bankruptcy, insolvency, reorganization, arrangement, moratorium
or other similar laws relating to or affecting the rights of creditors
generally; and (c) the incurrence of the Guarantor's obligations under this
Guaranty will not cause the Guarantor to (i) become insolvent, (ii) be left
with unreasonably small capital for any business or transaction in which
Guarantor is presently engaged or plans to be engaged, or (iii.) be unable
to pay its debts as such debts mature.
3. Financial Condition of Borrower. Guarantor assumes the responsibility
for being and keeping itself informed of the financial condition of Borrower
and of all other circumstances bearing upon the risk of liability hereunder
which diligent inquiry would reveal and that absent a request for such
information by Guarantor. Neither Agent nor any Lender shall have any duty
to advise Guarantor of information known to it regarding such condition or
any such circumstances.
4. Authorizations: Waivers. Guarantor authorizes Service Agent and each
Lender, without notice or demand and without affecting its liability
hereunder, from time to time to (a) renew, extend, or otherwise change the
terms of the Loan Agreement, the Notes and any other Loan Documents to which
Borrower is a party; (b) take and hold security for the payment of the
Obligations, and exchange, enforce, waive and release any such security; and
(c) apply such security and direct the order or manner of sale thereof as
each Agent or Lenders, in the sole discretion of each, determines. Guarantor
waives any right to require each Agent or any Lender to (a) proceed against
Borrower or any other Person; (b) proceed against or exhaust any security
held from Borrower; or (c) pursue any other remedy in an Agent's or Lender's
power. Each Agent and any Lender may, at its election, exercise or decline
or fail to exercise any right or remedy it may have against Borrower or any
security held by such Agent or Lender, including, without limitation, the
right to foreclose upon any such security by judicial or nonjudicial sale,
without affecting or impairing in any way Guarantor's liability hereunder
with respect to the Obligations. Guarantor waives any defense arising by
reason of any disability or other defense of Borrower or by reason of the
cessation from any cause whatsoever of Borrower's liability for the
Obligations other than payment of the Obligations. Guarantor waives (i) any
setoff, defense or counterclaim that it may have against either Agent or any
Lender, (ii) any defense arising out of the absence, impairment or loss of
any right of reimbursement or subrogation or any other rights against
Borrower, (iii) all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and
notices of acceptance of this Guaranty and of the existence, creation, or
incurring of new or additional indebtedness, (iv) any right to terminate its
liability with respect to the Obligations guarantied hereunder, and (v) any
defense to its liability with respect to Borrower's liability for the
Obligations based on (A) any changes to the Loan Agreement or any Note or
any of the other Loan Documents to which Borrower is a party, (B) any
impairment or suspension of an Agent's or any Lender's rights and remedies
against Borrower, (C) any obligation of an Agent or any Lender to proceed
first against Borrower or any of Borrower's assets, (D) any obligation of an
Agent or any Lender to marshall Collateral or other assets, (B) any law
providing that a guarantor's obligations to a lender may not be greater than
the obligations of the principal debtor whose obligations are guaranteed,
and (F) any law providing that a guarantor is released from liability for
guaranteed obligations to the extent that the principal debtor is not liable
for such obligations. Guarantor waives the benefits of California Civil Code
sections 2809, 2810, 2815, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and
3433.
5. Subrogation. No payment or performance hereunder by Guarantor shall
entitle Guarantor to subrogation to the rights of an Agent or any Lender or
any other Person to any of the Obligations or to any payment by Borrower,
except after payment or performance in full of the Obligations. Upon such
payment in full, Guarantor shall be entitled to exercise, by way of
subrogation, all rights and remedies of an Agent and/or Lenders in respect
of the Obligations.
Page 2
<PAGE>
6. Reinstatement. Notwithstanding any provision of any Note or the other
Loan Documents to the contrary, the liability of Guarantor hereunder shall
be reinstated and revived and the rights of each Agent and each Lender shall
continue if and to the extent that for any reason any payment by or on
behalf of Borrower is rescinded or must be otherwise restored by an Agent or
any Lender, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, all as though such amount has not been paid.
The determination as to whether any such payment must be rescinded or
restored shall be made by an Agent or such Lender, as applicable, in its
sole discretion; provided however that if an Agent or Lender chooses to
contest any such matter at the request of Guarantor, Guarantor agrees to
indemnify and hold harmless such Agent and Lender, as applicable, from all
costs and expenses (including, without limitation, reasonable attorneys'
fees) of such litigation. To the extent any payment is rescinded or
restored, the Obligations shall be revived in full force and effect without
reduction or discharge for that payment.
7. Payment Free and Clear of Taxes. Guarantor agrees that all payments it
makes hereunder shall be made in accordance with the Notes and the other
Loan Documents free and clear of, and without deduction for, any present or
future income, excise, stamp or franchise taxes and other taxes, fees,
duties, withholdings or other charges of any nature whatsoever imposed by
any taxing authority, but excluding franchise taxes and taxes imposed on or
Si measured by an Agent's or any Lender's net income or receipts (such non-
excluded items the "Taxes"). If any withholding or deduction from any
payment by Guarantor hereunder is required in respect of any Taxes pursuant
to any applicable law, rule or regulation, then Guarantor shall (i) pay
directly to the relevant authority the full amount required to be so
withheld or deducted; (ii) promptly forward to each Agent or each Lender, as
applicable, an official receipt or other documentation satisfactory to such
Agent or Lender, as applicable, evidencing such payment to such authority;
and (iii) pay to such Agent or Lender, as applicable, such additional amount
or amounts needed to ensure that the net amount such Agent or Lender
actually receives equals the full amount such Agent or Lender would have
received had no such withholding or deduction been required. Moreover, if
any Taxes are directly asserted against an Agent or any Lender with respect
to any payment it receives hereunder, such Agent and such Lender, as
applicable, may pay such Taxes and Guarantor shall promptly pay such
additional amounts (including any penalties, interest or expenses) needed so
that the net amount such Agent or such Lender received after the payment of
such Taxes (including any Taxes on such additional amount) equals the amount
such Agent or such Lender would have received had not such Taxes been
asserted. If Guarantor fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to Agent or such Lender the required
receipts or other required documentary evidence, Guarantor shall indemnify
such Agent and such Lender for any incremental Taxes, interest or penalties
that may become payable by such Agent or Lender as a result of any such
failure. Without prejudice to the survival of any other agreement of
Guarantor hereunder, the agreements and obligations of Guarantor contained
in this section shall survive the payment in full of the Guarantied
Obligations and the termination of the Notes and the other Loan Documents.
8. Judgement. Guarantor agrees that:
(a) If, for the purposes of obtaining a judgment in any court, it is
necessary to convert a sum due hereunder in United States Dollars into
another currency, the rate of exchange used shall be that at which in
accordance with normal banking procedures an Agent or any Lender could
purchase United States Dollars with such other currency on the business day
preceding that on which final judgment is given; and
(b) Guarantor's obligation in respect of any sum it owes to an Agent or
any Lender shall, notwithstanding any judgment in a currency other than
United States Dollars, be discharged only to the extent that on the business
day following such Agent's or Lender's receipt of any sum adjudged to be so
due in such other currency such Agent or such Lender may, in accordance with
normal banking procedures, purchase United States Dollars with such other
currency; if the United States Dollars so purchased are less than the sum
originally due to such Agent or such Lender in United States Dollars,
Guarantor, as a separate obligation and notwithstanding any such judgment,
shall indemnify and hold harmless such Agent and such Lender against such
loss, and if the United States Dollars so purchased exceed the sum
originally due to such Agent or such Lender in United States Dollars, such
Agent or such Lender, as applicable, shall remit such excess to Guarantor.
9. No Waiver: Amendments. No failure on the part of an Agent or any
Lender to exercise, no delay in exercising and no course of dealing with
respect to, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the
Page 3
<PAGE>
exercise of any other right. This Guaranty may not be amended or modified
except by written agreement between Guarantor, Agents and Lenders.
10. Notices. All notices, demands and other communications which
Guarantor, an Agent or any Lender desires or is required to give to the
other shall be in writing and shall be sent via registered or certified
mail, telecopied or personally delivered and shall be addressed to the party
to be notified at the address below its signature below. Any such notice,
demand or request shall be deemed given when received if personally
delivered or sent by overnight courier, or when deposited in the United
States mails, postage paid, if sent by registered or certified mail, or when
answer back received, if sent by telecopier. Guarantor, each Agent and each
Lender may change its address by giving notice in accordance with this
section.
11. Entire Agreement. This Guaranty constitutes and contains the entire
agreement of the parties and supersedes all prior and contemporaneous
agreements, negotiations, correspondence, understandings and communications
among Guarantor, Agents and Lenders, whether written or oral, respecting the
subject matter hereof.
12. Severability. If any provision of this Guaranty is held to be
unenforceable under applicable law for any reason, it shall be adjusted, if
possible, rather than voided in order to achieve the intent of Guarantor,
Agents and Lenders to the extent possible. In any event, all other
provisions of this Guaranty shall be deemed valid and enforceable to the
full extent possible under applicable law.
13. Binding Effect: Governing Law: Venue. This Guaranty shall be binding
upon and inure to the benefit of Guarantor, Agents and Lenders and their
respective successors and assigns. This Guaranty shall be governed by and
construed in accordance with, the internal laws of the State of California,
without giving effect to conflicts of law principles. EACH AGENT, EACH
LENDER AND GUARANTOR WAIVE ANY RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
Guarantor, Agents and Lenders agree that all actions or proceedings arising
in connection with this Guaranty shall be tried and litigated only in the
state and federal courts located in the County of Santa Clara, State of
California or, at Administrative Agent's option, any court in which
Administrative Agent determines it is necessary or appropriate to initiate
legal or equitable proceedings in order to exercise, preserve, protect or
defend any of its rights and remedies under this Guaranty or otherwise and
which has subject matter jurisdiction over the matter in controversy.
Guarantor waives any right it may have to assert the doctrine of forum non
conveniens or to object to such venue, and consents to any court ordered
relief. Guarantor waives personal service of process and agrees that a
summons and complaint commencing an action or proceeding in any such court
shall be promptly served and shall confer personal jurisdiction if served by
registered or certified mail to Guarantor. The choice of forum set forth
herein shall not be deemed to preclude the enforcement of any judgment
obtained in such forum, or the taking of any action under this Guaranty to
enforce the same, in any appropriate jurisdiction.
14. Guarantor Covenants. Guarantor covenants and agrees that Guarantor
shall do all of the following:
14.1. Guarantor shall maintain its corporate existence, remain in good
standing in its jurisdiction of incorporation, and continue to qualify in
each jurisdiction in which the failure to so qualify could reasonably be
expected to have a material adverse effect on the financial condition,
operations or business of Guarantor. Guarantor shall maintain in force all
licenses, approvals and agreements, the loss of which could reasonably be
expected to have a material adverse effect on its financial condition,
operations or business.
14.2. Guarantor shall comply with all statutes, laws, ordinances,
directives, orders, and government rules and regulations to which it is
subject if non-compliance with such laws could reasonably be expected to
adversely affect the financial condition, operations or business of
Guarantor.
14.3. At any time and from time to time Guarantor shall execute and deliver
such further instruments and take such further action as may reasonably be
requested by an Agent to effect the purposes of this Agreement.
Page 4
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as of
the date first written above.
GUARANTOR:
ORIENT SEMICONDUCTOR ELECTRONICS,LIMITED
By: _________________________
Printed Name: Duh Yang, Mei-shou
Title: Chairman
Address:
12-2 Nei Huan South Rd. N.E.P.Z.,
Kaohsiung, Taiwan, 811, R.O.C.
REVIEWED AND ACCEPTED:
BANK SINOPAC, LOS ANGELES BRANCH, as Administrative Agent
By: ___________________________
Printed Name: Sophie H. Cheng
Title: VP
Address: 350 5. Grand Ave.
30th Floor
Los Angeles, CA 90071
Attn: Ms. Sophie Chang
Fax: (213) 437-4849
FAR EAST NATIONAL BANK, as Servicing Agent
By: ________________________
Printed Name: Martha L. Minker
Title: AVP
Address:
2001 Gateway Place, Suite lOlE
San Jose, CA 95110
Attn: Mr. Daniel Michener
Fax: (408) 487-0333
Page 5
<PAGE>
LENDERS:
FAR EAST NATIONAL BANK
By: ________________________
Printed Name: Martha L. Minker
Title: AVP
Address: 2001 Gateway Place, Suite lOlE
San Jose, CA 95110
Attn: Mr. Daniel Michener
Fax: (408) 487-0333
BANK SINOPAC, LOS ANGELES BRANCH
By: ___________________________
Printed Name: Sophie H. Cheng
Title: VP
Address: 350 5. Grand A/ye.
30th Floor
Los Angeles, CA 90071
Attn: Ms. Sophie Chang
Fax: (213) 437-4849
Page 6
<PAGE>
EXHIBIT A-1
INTEGRATED PACKAGING ASSEMBLY CORPORATION
REVOLVING PROMISSORY NOTE
$5,000,000 San Jose, California
September 17, 1999
FOR VALUE RECEIVED, INTEGRATED PACKAGING ASSEMBLY CORPORATION, a Delaware
corporation (the "Borrower"), promises to pay to the order of Bank SinoPac,
Los Angeles Branch (the "Lender") the principal amount of Five Million
Dollars ($5,000,000) or, if less, the aggregate amount of Advances (as
defined in the Loan Agreement referred to below) made by Lender to Borrower
pursuant to the Loan Agreement referred to below outstanding on the
Revolving Maturity Date (as defined in the Loan Agreement referred to
below). All unpaid amounts of principal and interest shall be due and
payable in full on the Revolving Maturity Date.
Borrower also promises to pay interest on the unpaid principal amount hereof
from the date hereof until paid at the rates and at the times which shall be
determined in accordance with the provisions of the Loan Agreement.
Notwithstanding any other limitations contained in this Note, Lender does
not intend to charge and Borrower shall not be required to pay any interest
or other fees or charges in excess of the maximum permitted by applicable
law. Any payments in excess of such maximum shall be refunded to the
Borrower or credited against principal.
All payments of principal and interest in respect of this Note shall be made
in lawful money of the United States of America in same day funds at the
office of Servicing Agent described in the Loan Agreement. Until notified of
the transfer of this Note, Borrower shall be entitled to deem Lender or such
person who has been so identified by the transferor in writing to the
Borrower as the holder of this Note, as the owner and holder of this Note.
This Note is referred to in, and is entitled to the benefits of the Loan and
Security Agreement dated as of September 17, 1999 (the "Loan Agreement")
among the Borrower, the financial institutions named therein and the Agents.
The Loan Agreement, among other things, (i) provides for the making of
advances (the "Advances") by Lender to Borrower from time to time in an
aggregate amount not to exceed at any time outstanding the U.S. dollar
amounts stated therein, and (ii) contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon
the terms and conditions therein specified.
The terms of this Note are subject to amendment only in the manner provided
in the Loan Agreement.
No reference herein to the Loan Agreement and no provision of this Note or
the Loan Agreement shall alter or impair the obligation of Borrower, which
is absolute and unconditional, to pay the principal of and interest on this
Note at the place, at the respective times, and in the currency herein
prescribed.
Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note.
Borrower hereby consents to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waives diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted
by law, the right to plead any statute of limitations as a defense to any
demand hereunder.
This Note shall be governed by, and construed in accordance with, the laws of
the State of California without giving effect to its choice of law doctrine.
Page 1
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place
first above written.
Integrated Packaging Assembly Corporation
By: /S/ F. T. Markle
---------------------
Title: Controller / CAO
Page 2
<PAGE>
EXHIBIT A-2
INTEGRATED PACKAGING ASSEMBLY CORPORATION
REVOLVING PROMISSORY NOTE
$6,000,000 San Jose, California
September 17, 1999
FOR VALUE RECEIVED, INTEGRATED PACKAGING ASSEMBLY CORPORATION, a Delaware
corporation (the "Borrower"), promises to pay to the order of Far East
National Bank (the "Lender") the principal amount of Six Million Dollars
($6,000,000) or, if less, the aggregate amount of Advances (as defined in
the Loan Agreement referred to below) made by Lender to Borrower pursuant to
the Loan Agreement referred to below outstanding on the Revolving Maturity
Date (as defined in the Loan Agreement referred to below) All unpaid
amounts of principal and interest shall be due and payable in full on the
Revolving Maturity Date.
Borrower also promises to pay interest on the unpaid principal amount hereof
from the date hereof until paid at the rates and at the times which shall be
determined in accordance with the provisions of the Loan Agreement.
Notwithstanding any other limitations contained in this Note, Lender does
not intend to charge and Borrower shall not be required to pay any interest
or other fees or charges in excess of the maximum permitted by applicable
law. Any payments in excess of such maximum shall be refunded to the
Borrower or credited against principal.
All payments of principal and interest in respect of this Note shall be made
in lawful money of the United States of America in same day funds at the
office of Servicing Agent described in the Loan Agreement. Until notified of
the transfer of this Note, Borrower shall be entitled to deem Lender or such
person who has been so identified by the transferor in writing to the
Borrower as the holder of this Note, as the owner and holder of this Note.
This Note is referred to in, and is entitled to the benefits of, the Loan
and Security Agreement dated as of September 17, 1999 (the "Loan Agreement")
among the Borrower, the financial institutions named therein and the Agents.
The Loan Agreement, among other things, (i) provides for the making of
advances (the "Advances") by Lender to Borrower from time to time in an
aggregate amount not to exceed at any time outstanding the U.S. dollar
amounts stated therein, and (ii) contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and. also for
prepayments on account of principal hereof prior to the maturity hereof upon
the terms and conditions therein specified.
The terms of this Note are subject to amendment only in the manner provided
in the Loan Agreement.
No reference herein to the Loan Agreement and no provision of this Note or
the Loan Agreement shall alter or impair the obligation of Borrower, which
is absolute and unconditional, to pay the principal of and interest on this
Note at the place, at the respective times, and in the currency herein
prescribed.
Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note.
Borrower hereby consents to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waives diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted
by law, the right to plead any statute of limitations as a defense to any
demand hereunder.
This Note shall be governed by, and construed in accordance with, the laws
of the State of California without giving effect to its choice of law
doctrine.
Page 3
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
Integrated Packaging Assembly Corporation
By: /S/ F. T. Markle
--------------------
Title: Controller / CAO
Page 4
<PAGE>
THIS SPACE FOR USE OF FILING OFFICE
FINANCING STATEMENT FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform
Commercial Code and will remain effective with certain exceptions for 5
years from date of filing.
A. NAME & TEL. # OF CONTACT AT FILER (optional)
B. FILING OFFICE ACCT. # (optional)
C. RETURN COPY TO: Name and Mailing Address)
Far East National Bank
Attn: Loan Department
2001 Gateway Place, Suite lOlE
San Jose, CA 95110
D. OPTIONAL DESIGNATION (if applicable)
1. DEBTOR'S EXACT FULL LEGAL NAME
1a. INTEGRATED PACKAGING ASSEMBLY CORPORATION
1c. MAILING ADDRESS 2221 OLD OAKLAND ROAD
CITY SAN JOSE
STATE CA
COUNTRY USA
POSTAL CODE 95131
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME
3. SECURED PARTY'S (ORIGINAL S/P OR ITS TOTAL ASSIGNEE) EXACT
FULL LEGAL NAME
3a. BANK SINOPAC, LOS ANGELES BRANCH
3c. MAILING ADDRESS 350 S. GRAND AVENUE, 30TH FLOOR
CITY LOS ANGELES
STATE CA
COUNTRY USA
POSTAL CODE 90071
4. This FINANCING STATEMENT covers the following types of
items of property:
SEE EXHIBIT A ATTACHED HERETO FOR COLLATERAL DESCRIPTION.
5. CHECK BOX (if applicable)
6. REQUIRED SIGNATURE(S)
Integrated Packaging Assembly Corporation
/S/ P. Verderico
Page 5
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
- -------------------------------------------------------------
Borrower: Integrated Packaging Assembly Corporation
- -------------------------------------------------------------
Disbursement Instructions:
Borrower understands that no loan proceeds will be disbursed until all of
Lenders conditions for making the loan have been satisfied. Borrower hereby
instructs FAR EAST NATIONAL BANK,
as Servicing Agent, and BANK SINOPAC, LOS ANGELES BRANCH, as Administrative
Agent, to disburse the loan proceeds of $l1,000,000 as follow:
Amount Paid to Borrower Directly:
$500,000.00 Deposit to
MM Acc. No. 650-000412 $ 500,000.00
Undisbursed Funds: $ 2,805,231.64
Other Charges Financed: $ 69,549.50
$ 13,598.50 Legal Fees: Gray Cary Ware &
Freidenrich Matter #2100742-900300
Invoice No. 10046083 (issue check)
$ 651.00 UCC Filing fees (to be held
in suspense account)
$ 55,000.00 Loan Fees
Amount Paid to Others on Borrower's Behalf: $ 7,625,218.86
On 9-29-1999
$ 699,116.27 Heller Financial Leasing, Inc.
(wire transfer)
$ 341,696.94 Comdisco, Inc. (wire transfer)
$ 748,476.29 Comerica Leasing (wire transfer)
$1,278,076.60 Transamerica Business Credit
Corporation (wire transfer)
$1,684,814.88 GATX Capital Corporation
(wire transfer)
$ 757,360.57 The CIT Group Equipment Financing
(wire transfer)
$1,147,839.71 Silicon Valley Bank (wire transfer)
$ 630,690.52 Copelco Capital (wire transfer)
$ 137,147.08 ICOS Vision Systems, Inc.
(wire transfer)
--------------
Note Principal $11,000,000.00
FINANCIAL CONDITION. BY SIGNTNG 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 SEPTEMBER 29, 1999.
BORROWER:
Integrated Packaging Assembly Corporation
By: /S/ F. TERRENCE MARKLE
----------------------------
Printed Name: F. TERRENCE MARKLE
Title: Controller / CAO
Address: 2221 Old Oakland Road
San Jose, CA 95131
AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This amendment to Loan and Security Agreement is entered into as of
September 17, 1999 (the "Amendment"), by and between Bank SinoPac, Los
Angeles Branch and Far East National Bank (individually, a "Lender" and
collectively, the "Lenders") and Integrated Packaging Assembly Corporation
("Borrower").
RECITALS
Borrower and Lender are parties to that certain Loan and Security
Agreement dated as of September 17, 1999, as amended (the "Agreement"). The
parties desire to amend the Agreement in accordance with the terms of this
Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Section 6.3 is amended to read as follows:
6.3 Financial Statements, Reports, Certificates. Borrower
shall deliver to Servicing Agent: (a) as soon as available, but in any
event within thirty (30) days after the end of each month, agings of
accounts receivable and accounts payable, in a form reasonably
acceptable to Servicing Agent and certified by a Responsible Officer;
(b) within fifteen (15) days of filing, copies of all statements,
reports and notices sent or made available generally by Borrower to
its security holders or to any holders of Subordinated Debt and all
reports on Form 10-K (including audited annual financial statements
and an unqualified opinion (except for a "going concern" exception)
from Borrower's independent certified public accountants), 10-Q
(including quarterly financial statements) and 8-K filed with the
Securities and Exchange Commission; ( c) as soon as available, but in
any event within sixty (60) days of the last day of each fiscal
quarter, Guarantor's quarterly financial statements; (d) as soon as
available, but in any event within one hundred twenty (120) days of
the last day of each fiscal year, audited annual financial statements
of Guarantor and an unqualified opinion from Guarantor's independent
certified public accountants; (e) promptly upon receipt of notice
thereof, a report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000)
or more, and (f) such budgets, financial forecasts, operating plans or
other financial information as Bank may be reasonably request from
time to time. Borrower shall deliver to Bank with the quarterly
financial statements a Compliance Certificate signed by a Responsible
Officer in substantially the form of Exhibit D hereto.
2. Section 7.11 is amended to read as follows:
7.11 Inventory. Store the Inventory with a bailee,
warehouseman, or similar party unless Servicing Agent has received a
pledge of any warehouse receipt covering such Inventory. Except for
Inventory sold in the ordinary course of business and except for such
other locations as Bank may approve in writing, Borrower shall keep
the Inventory only at its principal place of business and such other
locations of which Borrower gives Servicing Agent prior written notice
and as to which Borrower signs and files a financing statement where
needed to perfect Servicing Agent's security interest.
3. Unless otherwise defined, all capitalized terms in this
Amendment shall be as defined in the Agreement. Except as amended,
the Agreement remains in full force and effect. Borrower represents
and warrants that the Representations and Warranties contained in the
Agreement are true and correct as of the date of this Amendment, and
that no Event of Default has occurred and is continuing. This
Amendment may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall
constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment
as of the first date above written.
INTEGRATED PACKAGING ASSEMBLY
CORPORATION
By: /S/ P. Verderico
--------------------------
Title: CEO
-----------------------
BANK SINOPAC, LOS ANGELES BRANCH
By: /S/ Sophie Cheng
--------------------------
Title: VP
-----------------------
FAR EAST NATIONAL BANK
By: Martha Minker
--------------------------
Title: AVP
-----------------------
AMENDMENT
TO
BUSINESS LOAN AGREEMENT AND PROMISSORY NOTE
This amendment to Business Loan Agreement and Promissory Note is
entered into as of November 8, 1999 (the "Amendment"), by and between Bank
SinoPac, Los Angeles Branch (the "Lender") and Integrated Packaging Assembly
Corporation (the "Borrower").
RECITALS
Borrower and Lender are parties to that certain Business Loan
Agreement (the "Agreement") and Promissory Note (the "Note") dated as of
July 23, 1999. The parties desire to amend the Agreement and Note in
accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. "Change in Ownership" under DEFAULT in the Agreement and the
Note is amended to read as follows:
Change in Ownership. Any change in the percentage ownership of
the fully converted diluted equity of the Borrower held by any individual
stockholder of twenty-five (25%) or more of the fully converted diluted
equity of the Borrower when compared to the percentage ownership as of July
23, 1999. The majority ownership by Orient Semiconductor Electronics, Ltd.
is never less than 51% of the fully converted diluted equity.
2. "Continuity of Operations" under NEGATIVE COVENANTS in the
Agreement is amended as follows:
Continuity of Operations. (1) Engage in any business
activities substantially different than those in which Borrower is presently
engaged. (2) cease operations, liquidate, merger, transfer, acquire or
consolidate with any other entity (other than acquisitions or mergers in
which the consideration is primarily Borrower's capital stock), 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, and other than dividends payable under the 4,000,000
shares of Series A Convertible Preferred Stock purchased by Orient
Semiconductor Electronics, Ltd. on April 29, 1999), 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 Shareholder 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.
3. Unless otherwise defined, all capitalized terms in this
Amendment shall be as defined in the Agreement and the Note remains in full
force and effect. Borrower represents and warrants that the Representations
and Warranties contained in the Agreement are true and correct as of the
date of this Amendment. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the first date above written.
Integrated Packaging Assembly Corporation
By: /S/ F. T. Markle
------------------------------
Title: Controller / CAO
---------------------------
Bank SinoPac, Los Angeles Branch
By: /S/ Sophie Cheng
------------------------------
Title: VP & DGM
---------------------------
