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 April 2, 2000
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 May 15, 2000: 55,193,515.
As of May 15, 2000, the Company also had 3,000,000 shares of Series A
Convertible Preferred Stock outstanding, which are convertible into
41,246,312 shares of Common Stock.
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<PAGE>
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets........... 3
Condensed Consolidated Statements of
Operations.................................... 4
Condensed Consolidated Statements of
Cash Flows.................................... 5
Notes to Condensed Consolidated Financial
Statements.................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 9
Part II. Financial Information
Item 1. Legal Proceedings............................... 17
Item 4. Submission of Matters to a Vote of Security
Holders....................................... 17
Item 6. Exhibits and Reports on Form 8-K................ 17
Signatures............................................... 18
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Integrated Packaging Assembly Corporation
Condensed Consolidated Balance Sheets
(In thousands except share data)
(Unaudited
<TABLE>
<CAPTION>
December 31, April 2,
1999 2000
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $5,371 $1,537
Accounts receivable, net 28,295 35,551
Inventory, net 1,204 1,346
Prepaid expense and other current assets 603 548
------------ ------------
Total current assets 35,473 38,982
Property and equipment, net 10,498 9,912
Intangible assets, net 5,659 5,475
Other assets 18 18
------------ ------------
Total assets $51,648 $54,387
============ ============
Liabilities, Mandatorily Redeemable
Convertible Preferred Stock and
Stockholder's Equity (Deficit)
Current liabilities:
Bank debt and notes payable $17,000 $18,000
Accounts payable 2,290 1,752
Accounts payable - related parties 29,801 34,269
Accrued expenses and other liabilities 3,069 2,660
------------ ------------
Total current liabilities 52,160 56,681
Deferred gain on sale of facilities 1,111 1,077
------------ ------------
Total liabilities 53,271 57,758
------------ ------------
Mandatorily redeemable convertible
preferred stock 5,100 5,100
------------ ------------
Stockholder's equity (deficit):
Preferred stock - -
Common stock, $.001 par value;
200,000,000 shares authorized;
54,414,601 (1999) and 55,193,515
(2000) shares issued and
outstanding 54 55
Additional paid-in capital 54,333 54,590
Accumulated deficit (61,110) (63,116)
------------ ------------
Total stockholder's deficit (6,723) (8,471)
------------ ------------
Total liabilities, mandatorily
redeemable convertible preferred
stock and stockholder's deficit $51,648 $54,387
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE>
Integrated Packaging Assembly Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
April 4, April 2,
1999 2000
---------- ----------
<S> <C> <C>
Revenues $3,775 $7,075
Cost of revenues 5,491 6,607
---------- ----------
Gross profit (loss) (1,716) 468
---------- ----------
Operating expenses:
Selling, general & administrative 995 1,706
Research & development 179 265
---------- ----------
Total operating expenses 1,174 1,971
---------- ----------
Operating loss (2,890) (1,503)
Interest & other income 3 10
Interest expense (538) (411)
---------- ----------
Net loss (3,425) (1,904)
Preferred stock dividend - 102
---------- ----------
Net loss applicable to common stockholders ($3,425) ($2,006)
========== ==========
Per share data:
Net loss per share
Basic and diluted ($0.24) ($0.04)
========== ==========
Number of shares used to compute
per share data
Basic and diluted 14,294 55,057
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE>
Integrated Packaging Assembly Corporation
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For Three Months Ended
-------------------------
April 4, April 2,
1999 2000
------------ ------------
<S> <C> <C>
Cash flows used by operating activities
Net loss ($3,425) ($1,904)
Adjustments:
Depreciation and amortization 1,108 1,099
Gain on sale of facilities, net (34) (34)
Changes in assets and liabilities
Accounts receivable 285 (7,256)
Inventories 223 (142)
Other current assets (44) 55
Accounts payable and accounts
payable related party (399) 3,930
Accrued liabilities (401) (295)
------------ ------------
Net cash used in operating activities (2,687) (4,547)
------------ ------------
Cash flows used in investing activities
Capital expenditures (2) (349)
------------ ------------
Net cash used in investing activities (2) (349)
------------ ------------
Cash flows from financing activities
Proceeds from revolving bank line 3,390 -
Payments on revolving bank line (3,768) -
Payments under capital lease obligations (668) -
Payments on note payable (61) -
Proceeds from note payable and other 4,305 1,000
Proceeds from issuance of common stock, net 4 62
------------ ------------
Net cash provided by financing activities 3,202 1,062
------------ ------------
Net increase (decrease) in cash 513 (3,834)
Cash and cash equivalents at beginning of period - 5,371
------------ ------------
Cash and cash equivalents at end of period $513 $1,537
============ ============
Supplemental disclosure of cash flow information
Cash paid for interest $786 $411
Common stock issued for preferred stock dividend $ - $216
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
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<PAGE>
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 and is also
the exclusive North American distributor for Orient Semiconductor
Electronics, Limited ("OSE"), a public Taiwanese company and the Company's
principal stockholder.
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, 1999 included in the
Company's Form 10-K filed with the Securities and Exchange Commission.
The results of operations for the three month period ended April 2, 2000
are not necessarily indicative of the results that may be expected for any
subsequent period or for the entire year ending December 31, 2000.
NOTE 2. BALANCE SHEET COMPONENTS:
(In thousands)
<TABLE>
<CAPTION>
December 31, April 2,
1999 2000
------------ ------------
<S> <C> <C>
Inventory
Raw materials $1,072 $1,286
Work in process 132 60
------------ ------------
$1,204 $1,346
============ ============
</TABLE>
NOTE 3. INCOME TAXES:
No provision or benefit for income taxes was recorded for the three
month period ended April 2, 2000 as the Company operated at a loss.
NOTE 4. NET LOSS PER SHARE:
Net loss per basic and diluted share for the three month periods ended
April 2, 2000 and April 4, 1999 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 April 2,
2000, there were options and warrants outstanding to purchase an aggregate of
12,281,303 shares of Common Stock of which options and warrants to purchase
an aggregate of 3,607,162
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shares were exercisable. At April 4, 1999 there were options and warrants
outstanding to purchase an aggregate of 2,493,133 shares of Common Stock of
which options and warrants to purchase an aggregate of 1,584,279 shares were
exercisable.
NOTE 5. 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 shares of 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 6. 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 quarter 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.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements"
(SAB 101). SAB 101 summarizes certain of the Staff's views in applying
generally accepted principles to revenue recognition in financial statements.
The Company has until the second quarter of 2000 to comply with the guidance
in SAB 101. The implementation of SAB 101 on the consolidated financial
statements of the Company is not expected to be material.
In March 2000 the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44 ("FIN 44") Accounting for Certain Transactions
involving Stock Compensation an interpretation of APB Opinion 25. FIN 44
clarifies the application of Opinion 25 for (a) the definition of employee
for purposes of applying Opinion 25, (b) the criteria for determining whether
a plan qualifies as a noncompensatory plan, (c) the accounting consequence of
various modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock compensation awards in
a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions cover specific events that occur after either December 15, 1998,
or January 12, 2000. Management believes that the impact of FIN 44 will not
have a material effect on the financial position or results of operations of
the Company.
NOTE 7. SEGMENTS
The Company has two segments, manufacturing and distribution.
Manufacturing comprises the semiconductor packaging services of packages
designed for assembly using Surface Mount Technology ("SMT") in which leads
on integrated circuits are soldered to the surface of the printed circuit
board. Within the SMT market, the Company focuses on high pin-count
packages, such as Quad Flat packages ("QFP") and thin Quad Flat packages
("TQFP"). Distribution comprises the North American sales, marketing and
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technical support organization for OSE. Commissions are earned from the
sales for the semiconductor assembly and test service of OSE. The customers
are mainly US headquartered manufacturers of high-tech products such as video
components, chip sets, graphics chips and logic components.
<TABLE>
<CAPTION>
Manufacturing Distribution Total
------------- ------------- -------------
<S> <C> <C> <C>
First quarter, 2000:
(In thousands)
Revenues $5,396 $1,679 $7,075
Interest income 4 6 10
Interest expense (411) - (411)
Depreciation and amortization 902 197 1,099
Net income (loss) (2,557) 653 (1,904)
Total assets 14,961 39,426 54,387
Expenditures for additions to
long-lived assets $336 $13 $349
</TABLE>
Prior to the acquisition of OSEI, the Company's only operations
consisted of the manufacturing segment.
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<PAGE>
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 underutilization of capacity and resultant
underabsorption of fixed costs resulted in operating losses that have
continued into 2000. As a result of these circumstances, the Company's
independent accountants' opinion on the Company's December 31, 1999 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, 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 terminated their
legal actions and have restructured the Company's 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 OSE in a stock for stock exchange valued at approximately $4.7 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
was a privately held corporation that serves as the exclusive North American
distributor of OSE. OSEI derives its earnings from fees received on the
sales of OSE's semiconductor assembly and test services to customers
headquartered in North America. OSEI had revenues of $5.8 million in its
1999 fiscal year that ended June 30, 1999. The Company has reported
consolidated results with OSEI since the acquisition date.
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
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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 for the manufacturing segment. For the distribution segment,
revenues are derived from fees received on the sales of OSE's semiconductor
assembly and test services to customers headquartered in North America and
revenues are recognized on a net commission basis.
Revenues for the three month period ended April 2, 2000 for the
manufacturing segment were $5.4 million compared with $3.8 million for the
comparable period in the prior fiscal year. The increase in revenues are
primarily due to increased orders offset by a reduction in average selling
prices due to changes in product mix and a decline in selling prices.
Revenues for the three month period ended April 2, 2000 for the
distribution segment were $1.7 million. There were no revenues in the prior
year since OSEI was not consolidated with the Company until October 29, 1999.
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 profit for the three
month period ended April 2, 2000 was $468,000 compared with a loss of $1.7
million for the comparable period in the prior fiscal year. Gross profit as
a percentage of revenues was 6.6% for the three month period ended April 2,
2000 compared to a negative 45.5% for the same period of 1999. This increase
in gross profit was primarily the result of profit contribution by OSEI of
$1.7 million, and increased revenue for the Company's packaging operation
offset by lower average selling prices, caused by changes in package mix and
industry competition. Low capacity utilization was partially offset by lower
labor and manufacturing overhead costs.
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
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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 for the three month period ended April 2, 2000
and also $1.1 million for the same period in 1999.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of costs
associated with sales, customer service, finance, administration and
management personnel, as well as advertising, public relations, legal, and
accounting costs. Selling, general and administrative expenses increased
71.8% to $1.7 million for the three month period ended April 2, 2000 from
$1.0 million for the comparable period of 1999. The selling, general and
administrative expenses in 2000 includes $1.1 million attributable to OSEI.
The $345,000 decrease, excluding OSEI, for the three month period was due
primarily to decreased spending in the sales function and administration
activities.
As a percentage of revenues, selling, general and administrative
expenses decreased from 26.4% for the first quarter of 1999 to 24.2% in the
first quarter of 2000. This decrease was primarily due to the higher revenue
level in 2000.
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 48.0% to $265,000 for the three
month period ended April 2, 2000 over the comparable period in 1999. This
decrease is primarily due to decreased spending.
As a percentage of revenues, research and development expenses decreased
from 4.7% in the first quarter of 1999 to 3.7% in the first quarter of 2000.
The decrease was primarily due to lower absolute spending and higher revenue
in 2000.
Interest and Other Income
Interest income is primarily comprised of interest earnings from
investments in cash equivalents and short-term investments. Interest and
other income increased from $3,000 for the three month period ended April 4,
1999 to $10,000 for the three month period ended April 2, 2000. The interest
income in 2000 includes $6,000 attributable to OSEI.
Interest Expense
Interest expense consists primarily of interest payable on bank debt, and
capital leases and term loans secured by equipment. Interest expense
decreased from $538,000 for the three month period ended April 4, 1999 to
$411,000 for the three month period ended April 2, 2000. Interest expense
decreased primarily due to the replacement in 1999 of certain secured debt as
a result of the restructuring with lines of credit guaranteed by OSE.
Provision for Income Taxes
The Company did not record a provision for income tax for the three
month period ended April 2, 2000 as the Company operated at a loss.
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Segment Reporting
The Company has two segments, manufacturing and distribution.
Manufacturing comprises the semiconductor packaging services of packages
designed for assembly using Surface Mount Technology ("SMT") in which leads
on integrated circuits are soldered to the surface of the printed circuit
board. Within the SMT market, the Company focuses on high pin-count
packages, such as Quad Flat packages ("QFP") and thin Quad Flat packages
("TQFP"). Distribution comprises the North American sales, marketing and
technical support organization for OSE. Commissions are earned from the
direct sales efforts in the "direct channel" for the semiconductor assembly
and test service of OSE. The customers are mainly US headquartered
manufacturers of high-tech products such as video components, chip sets,
graphics chips and logic components.
<TABLE>
<CAPTION>
Manufacturing Distribution Total
------------- ------------- -------------
<S> <C> <C> <C>
First quarter, 2000:
(In thousands)
Revenues $5,396 $1,679 $7,075
Interest income 4 6 10
Interest expense (411) - (411)
Depreciation and amortization 902 197 1,099
Net income (loss) (2,557) 653 (1,904)
Total assets 14,961 39,426 54,387
Expenditures for additions to
long-lived assets $336 $13 $349
</TABLE>
Prior to the acquisition of OSEI, the Company's only operations
consisted of the manufacturing segment.
Liquidity and Capital Resources
During the three month period ended April 2, 2000, the Company's net
cash used in operations was $4.5 million. Net cash used in operations was
comprised primarily of a net loss of $1.9 million, partially offset by $1.1
million of non-cash charges for depreciation and amortization, and a net
increase in working capital items of $3.7 million. The net increase in
working capital items primarily reflected a $7.3 million increase in accounts
receivable, which was partially offset, by a $3.9 million increase in
accounts payable. As of April 2, 2000, the Company had cash and cash
equivalents of $1.5 million and is operating under bank lines obtained in
July and September 1999.
In the first quarter of 2000, investing activities used $349,000 for
capital expenditures. The Company expects to spend approximately $7.5
million on capital expenditures during the remainder of 2000 for the
acquisition of equipment. Most of the Company's production equipment has
historically been funded either through capital leases of term loans secured
by production equipment and future expenditures are expected to be funded out
of internal cash flow.
During the three months ended April 2, 2000, $1.1 million was provided
in financing activities. This resulted primarily from proceeds from
borrowings of $1.0 million and $62,000 from proceeds of issuance of common
stock.
The Company believes that existing cash balances together with the
renewal of existing finance facilities will be sufficient to meet its
projected working capital and other cash requirements at least through the
fourth quarter of 2000. The Company believes that its existing bank lines of
credit of $18.0 million which expire in
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July and September 2000 will be re-issued because they are guaranteed by the
Company's principal stockholder, OSE. There can be no assurances, however,
that the bank lines will be renewed or that lower than expected revenues,
increased expenses, increased costs associated with the purchase or
maintenance of capital equipment, or other events will not cause the Company
to seek more capital, or capital sooner than currently expected. There can
be no assurance that such additional financing will available when needed or,
if available, will be available on satisfactory terms.
Year 2000 Readiness Disclosure
The Company has completed all Year 2000 readiness work and did not
experience disruption in its business related to the Year 2000 issue.
However, the Company cannot provide any assurance that no Year 2000 issues
will impact the Company's systems, products or other aspects of the Company's
business in the future. The Company's key suppliers have not experienced
disruptions in their businesses related to the Year 2000 issue. However, the
Company cannot provide any assurance that no Year 2000 issue will affect the
Company's suppliers in the future. The total cost of Year 2000 readiness
program was approximately $59,000. All costs were charged to expense as
incurred, and did not include potential cost related to any customers or
other claims or the cost of internal software or hardware replaced in the
normal course of business.
Certain Factors Affecting Operating Results
The Company's operating results are affected by a wide variety of
factors that could materially and adversely affect revenues, gross profit,
operating income and liquidity. These factors include the Company's ability
to secure additional financing, the short term nature of its customers'
commitments, the 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 productions processes, changes in costs
and availability of labor, raw materials and components, costs to obtain
materials on an expedited basis, mix of orders filled, the impact of price
competition on the Company's average selling prices and changes in economic
conditions. The occurrence or continuation of unfavorable changes in any of
the proceeding factors would adversely affect the Company's business,
financial condition and results of operations.
Customer Concentration
The Company has been substantially dependent on a relatively small
number of customers within the semiconductor industry. During the first
quarter of 2000, Atmel Semiconductor and Dii Semiconductor accounted for
approximately 56% and 19%, respectively, of the Company's revenues. 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
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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 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,
Amkor Technology and ChipPAC in Korea, and other subcontractors in Singapore,
Taiwan, Malaysia and Indonesia. 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
Page 14
<PAGE>
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 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 15
<PAGE>
Risks and uncertainities
Ability to identify, recruit and retain additional personnel
The Company must continue to hire and train significant numbers of
additional personnel to operate the highly complex capital equipment required
by its manufacturing operations. There can be no assurance that the Company
will be able to hire and properly train sufficient numbers of qualified
personnel or to effectively manage such growth and its failure to do so could
have a material adverse effect on the Company's business, financial condition
and results of operations. Furthermore, since the Company's expense levels
are based in part on anticipated future revenue levels, if revenue were to
fall below anticipated levels, the Company's operating results would be
materially adversely affected.
Dependence on Taiwan
The Company may be significantly impacted by the political, economic and
military conditions in Taiwan due to the Company's subsidiary, OSEI, being a
distributor for OSE whose operations are principally located in Taiwan.
Taiwan and the Republic of China are continuously engaged in political
disputes and both countries have recently conducted military exercises in or
near the other's territorial waters and airspace. Such disputes may continue
and even escalate, resulting in economic embargo, a disruption in shipping or
even military hostilities. This could severely harm OSEI's business by
interrupting or delaying production or shipment of products OSEI distributes.
Any kind of activity of this nature or even rumors of such activity could
severely and negatively impact the Company's operations, revenues, operating
results, and stock price.
Earthquake or other natural disasters
The Company's facilities are located in California near major earthquake
faults. In addition, some of the Company's suppliers are located near
earthquake sensitive areas. In the event of a major earthquake or other
natural disaster near its facilities, the Company's operations could be
harmed. Similarly, a major earthquake or other natural disaster near the
Company's suppliers, like the one that occurred in Taiwan in September 1999,
could disrupt the operations of those suppliers, which could limit the
availability of products for the Company to distribute and harm the Company's
business.
Page 16
<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
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.32 Business Loan Agreement and Promissory Note dated
March 23, 2000, between the Company and Bank SinoPac,
Los Angeles Branch.
10.33 Amendment to Business Loan Agreement and Promissory
Note dated March 23, 2000 between the Company and
Bank SinoPac, Los Angeles Branch.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K/A, Acquisition of OSEI, filed on May 11, 2000.
Page 17
<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: May 17, 2000 /s/ PATRICK VERDERICO
----------------------------
Patrick Verderico
President, Chief Executive Officer, and
Principal Financial and Accounting Officer
Page 18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED STATEMENT OF OPERATIONS,
THE CONDENSED BALANCE SHEET AND THE ACCOMPANYING NOTES
TO THE CONDENSED FINANCIAL STATEMENTS INCLUDED IN THE
COMPANY'S FORM 10-Q FOR THE THREE MONTH PERIOD ENDING
APRIL 2, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-02-2000
<PERIOD-TYPE> 3-MOS
<CASH> 1,537
<SECURITIES> 0
<RECEIVABLES> 35,822
<ALLOWANCES> (271)
<INVENTORY> 1,346
<CURRENT-ASSETS> 38,982
<PP&E> 32,290
<DEPRECIATION> (22,378)
<TOTAL-ASSETS> 54,387
<CURRENT-LIABILITIES> 56,681
<BONDS> 0
5,100
0
<COMMON> 55
<OTHER-SE> (8,526)
<TOTAL-LIABILITY-AND-EQUITY> 54,387
<SALES> 7,075
<TOTAL-REVENUES> 7,075
<CGS> 6,607
<TOTAL-COSTS> 6,607
<OTHER-EXPENSES> 1,971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 411
<INCOME-PRETAX> (2,006)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,006)
<EPS-BASIC> ($0.04)
<EPS-DILUTED> ($0.04)
<PAGE>
</TABLE>
BUSINESS LOAN AGREEMENT
Principal: $7,000.000.00
Loan Date: 03-23-2000
Maturity: 07-31-2000
LOAN NO: 115-20091
CALL:
COLLATERAL:
ACCOUNT:
OFFICER: SC
INITIALS:
References in the shared area are for Lender's use only and do not limit
the applicability of this document to an particular loan or item. Any item
above containing "***" has been omitted due to text length limitations.
Borrower: Integrated Packaging Assembly Corporation (TIN 77-0309372)
2221 Old Oakland Road
San Jose, CA 95131
Lender: BankSinoPac, Los Angeles Branch
350 S. Grand Ave, Suite 3070
Los Angeles, CA 90071
THIS BUSINESS LOAN AGREEMENT dated March 23, 2000, is made and executed
between Integrated Packaging Assembly Corporation ("Borrower') and Bank
SinoPac, Los Angeles Branch ("Lender") on the following terms and
conditions. Borrower has received prior commercial loans from Lender or
has applied to Lender for a commercial loan or loans or other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement ("Loan"). Borrower understands and
agrees that: (A) in granting, renewing, or extending any Loan, Lender is
relying upon Borrower's representations, warranties, and agreements as set
forth in this Agreement, and (B) all such Loans shall be and remain subject
to the terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of March 23, 2000, and shall
continue in full force and effect until such time as all of Borrower's
Loans in favor of Lender have been paid in full, in principal, interest,
costs, expenses, attorneys' fees, and other fees and charges, or until July
31, 2000.
Collateral Records. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. The above is an accurate
and complete list of all locations at which Borrower keeps or maintains
business records concerning Borrower's collateral.
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender schedules of in
form and substance satisfactory to the Lender. Thereafter supplemental
schedules shall be delivered according to the following schedule:
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the
initial Advance and each subsequent Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the
conditions set forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender the following documents
for the Loan: (1) the Note; (2) guaranties; (3) together with all such
Related Documents as Lender may require for the Loan; all in form and
substance satisfactory to Lender and Lender's counsel.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents. In addition, Borrower shall have provided such other
resolutions, authorizations, documents and instruments as Lender or its
counsel, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this Agreement
or under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of
loan proceeds, as of the date of any renewal, extension or modification of
any Loan, and at all times any Indebtedness exists:
Organization. Borrower is a corporation for profit which is, and at all
times shall be, duly organized, validly existing, and in good standing
under and by virtue of the laws of the State of California. Borrower is
duly authorized to transact business in all other states in which Borrower
is doing business, having obtained all necessary filings, governmental
licenses and approvals for each state in which Borrower is doing business.
Specifically, Borrower is, and at all times shall be, duly qualified as a
foreign corporation in all states in which the failure to so qualify would
have a material adverse effect on its business or financial condition.
Borrower has the full power and authority to own its properties and to
transact the business in which it is presently engaged or presently
proposes to engage. Borrower maintains an office at 2221 Old Oakland Road,
San Jose, CA 95131. Unless Borrower has designated otherwise in writing,
the principal office is the office at which Borrower keeps its books and
records including its records concerning the Collateral. Borrower will
notify Lender of any change in the location of Borrower's principal office.
Borrower shall do all things necessary to preserve and to keep in full
force and effect its existence, rights and privileges, and shall comply
with all regulations, rules, ordinances, statutes, orders and decrees of
any governmental or quasi-governmental authority or court applicable to
Borrower and Borrower's business activities.
Assumed Business Names. Borrower has filed or recorded all documents or
filings required by law relating to all assumed business names used by
Borrower. Excluding the name of Borrower, the following is a complete list
of all assumed business names under which Borrower does business: None.
Authorization. Borrower's execution, delivery, and performance of this
Agreement and all the Related Documents have been duly authorized by all
necessary action by Borrower and do not conflict with, result in a
violation of, or constitute a default under (1) any provision of Borrower's
articles of incorporation or organization, or bylaws, or any agreement or
other instrument binding upon Borrower or (2) any law, governmental
regulation, court decree, or order applicable to Borrower or to Borrower's
properties.
Financial Information. Each of Borrower's financial statements supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
Borrower is required to give under this Agreement when delivered will
constitute, legal, valid, and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms. Hazardous
Substances. Except as disclosed to and acknowledged by Lender in writing,
Borrower represents and warrants that: (1) During the period of Borrower's
ownership of Borrower's Collateral, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened release of
any Hazardous Substance by any person on, under, about or from any of the
Collateral. (2) Borrower has no knowledge of, or reason to believe that
there has been (a) any breach or violation of any Environmental Laws; (b)
any use, generation, manufacture, storage, treatment, disposal, release or
threatened release of any Hazardous Substance on, under, about or from the
Collateral by any prior owners or occupants of any of the Collateral; or
(c) any actual or threatened litigation or claims of any kind by any person
relating to such matters. (3) Neither Borrower nor any tenant, contractor,
agent or other authorized user of any of the Collateral shall use,
generate, manufacture, store, treat,
Page 1
<PAGE>
BUSINESS LOAN AGREEMENT
(Continued)
Page 2
dispose of or release any Hazardous Substance on, under, about or from any
of the Collateral; and any such activity shall be conducted in compliance
with all applicable federal, state, and local laws, regulations, and
ordinances, including without limitation all Environmental Laws. Borrower
authorizes Lender and its agents to enter upon the Collateral to make such
inspections and tests as Lender may deem appropriate to determine
compliance of the Collateral with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are based
on Borrower's due diligence in investigating the Collateral for hazardous
waste and hazardous substances. Borrower hereby (1) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws, and
(2) agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which Lender
may directly or indirectly sustain or suffer resulting from a breach of
this section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release of a
hazardous waste or substance on the properties. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination, expiration or
satisfaction of this Agreement and shall not be affected by Lender's
acquisition of any interest in any of the Collateral, whether by
foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns
and reports that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary 10 make
such information not misleading.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements (if any),
and all Related Documents are binding upon the signers thereof, as well as
upon their successors, representatives and assigns, and are legally
enforceable in accordance with their respective terms.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so
long as this Agreement remains in effect, Borrower will:
Notices of Claims and Litigation. Promptly inform Lender in writing of (1)
all material adverse changes in Borrower's financial condition, and (2) all
existing ancfall threatened litigation, claims, investigations,
administrative proceedings or similar actions affecting Borrower or any
Guarantor which could materially affect the financial condition of Borrower
or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with GAAP,
applied on a consistent basis, and permit Lender to examine and audit
Borrower's books and records at all reasonable times.
Financial Statements. Furnish Lender with the following:
(1) Annual Statements. As soon as available, but in no event later than
ninety (90) days after the end of each fiscal year, Borrower's balance
sheet and income statement for the year ended, audited by a certified
public accountant satisfactory to Lender.
(2) Interim Statements. As soon as available, but in no event later than
45 days after the end of each fiscal quarter, Borrower's balance sheet and
profit and loss statement for the period ended, prepared by Borrower.
All financial reports required to be provided under this Agreement shall be
prepared in accordance with GAAP, applied on a consistent basis, and
certified by Borrower as being true and correct
Additional Information. Fumish such additional information and statements,
as Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies acceptable to Lender. Borrower, upon request of Lender,
will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least ten (10)
days prior written notice to Lender. Each insurance policy also shall
include an endorsement providing that coverage in favor of Lender will not
be impaired in any way by any act, omission or default of Borrower or any
other person. In connection with all policies covering assets in which
Lender holds or is offered a security interest for the Loans, Borrower will
provide Lender with such lender's loss payable or other endorsements as
Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (1) the
name of the insurer; (2) the risks insured; (3) the amount of the policy;
(4) the properties insured; (5) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (6) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantor named
below, on Lender's forms, and in the amount and under the conditions set
forth in those guaranties.
Name of Guarantor Amount
Orient Semiconductor Electronics, Ltd. 100.000% of $7,000,000.00
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits.
Page 2
<PAGE>
BUSINESS LOAN AGREEMENT
(Continued)
Page 3
Performance. Perform and comply, in a timely manner, with all terms,
conditions, and provisions set forth in this Agreement, in the Related
Documents, and in all other instruments and agreements between Borrower and
Lender. Borrower shall notify Lender immediately in writing of any default
in connection with any agreement.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner.
Compliance with Governmental Requirements. Comply with all laws,
ordinances, and regulations, now or hereafter in effect, of all
governmental authorities applicable to the conduct of Borrower's
properties, businesses and operations, and to the use or occupancy of the
Collateral, including without limitation, the Americans With Disabilities
Act. Borrower may contest in good faith any such law, ordinance, or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Borrower has notified Lender in writing
prior to doing so and so long as, in Lender's sole opinion, Lender's
interests in the Collateral are not jeopardized. Lender may require
Borrower to post adequate security or a surety bond, reasonably
satisfactory to Lender, to protect Lender's interest.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
Compliance Certificates. Unless waived in writing by Lender, provide Lender
at least annually and at the time of each disbursement of Loan proceeds,
with a certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects
with any and all Environmental Laws; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on Borrower's
part or on the part of any third party, on property owned and/or occupied
by Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, assignments,
financing statements, instruments, documents and other agreements as Lender
or its attorneys may reasonably request to evidence and secure the Loans
and to perfect all Security Interests.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Borrower fails
to comply with any provision of this Agreement or any Related Documents,
including but not limited to Borrower's failure to discharge or pay when
due any amounts Borrower is required to discharge or pay under this
Agreement or any Related Documents, Lender on Borrower's behalf may (but
shall not be obligated to) take any action that Lender deems appropriate,
including but not limited to discharging or paying all taxes, liens,
security interests, encumbrances and other claims, at any time levied or
placed on any Collateral and paying all costs for insuring, maintaining and
preserving any Collateral All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the
Note from the date incurred or paid by Lender to the date of repayment by
Borrower. All such expenses will become a part of the Indebtedness and, at
Lender's option, will (A) be payable on demand; (B) be added to the balance
of the Note and be apportioned among and be payable with any installment
payments to become due during either (1) the term of any applicable
insurance policy; or (2) the remaining term of the Note; or (C) be treated
as a balloon payment which will be due and payable at the Note's maturity.
Any Collateral also will secure payment of these amounts. Such right shall
be in addition to all other rights and remedies to which Lender may be
entitled upon Default.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while
this Agreement is in effect, Borrower shall not, without the prior
written consent of Lender:
Indebtedness and Liens. (1) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (2) sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of Borrower's assets
(except as allowed as Permitted Liens), or (3) sell with recourse any of
Borrower's accounts, except to Lender.
Transfer and Liens. Fail to continue to own all of Borrower's assets,
except for routine transfers, use or depletion in the ordinary course of
Borrower's business. Borrower agrees not to create or grant to any person,
except Lender, any lien, security interest, encumbrance, cloud on title,
mortgage, pledge or similar interest in any of Borrower's property, even in
the ordinary course of Borrower's business. Borrower agrees not to sell,
convey, grant, lease, give, contribute, assign, or otherwise transfer any
of Borrower's assets, except for sales of inventory or leases of goods in
the ordinary course of Borrower's business.
Continuity of Operations. (1) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(2) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, or (3) pay any dividends
on Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
on its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income tax
payments to satisfy their liabilities under federal and state law which
arise solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of shares of Borrower's stock, or
purchase or retire any of Borrower's outstanding shares or alter or amend
Borrower's capital structure.
Loans, Acquisitions and GuarantIes. (1) Loan, invest in or advance money or
assets, (2) purchase, create or acquire any interest in any ether
enterprise or entity, or (3) incur any obligation as surety or guarantor
other than in the ordinary course of business.
Cessation of Advances. If Lender has made any commitment to make any Loan
to Borrower, whether under this Agreement or under any other agreement,
Lender shall have no obligation to make Loan Advances or to disburse Loan
proceeds if: (1) Borrower or any Guarantor is in default under the terms of
this Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (2) Borrower or any Guarantor
dies, becomes incompetent or becomes insolvent, files a petition in
bankruptcy or similar proceedings, or is adjudged a bankrupt; (3) there
occurs a material adverse change in Borrower's financial condition, in the
financial condition of any Guarantor, or in the value of any Collateral
securing any Loan; or (4) any Guarantor seeks, claims or otherwise attempts
to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (5) Lender in good faith deems itself insecure,
even though no Event of Default shall have occurred.
Page 3
<PAGE>
BUSINESS LOAN AGREEMENT
(Continued)
Page 4
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves
a right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust
accounts for which setoff would be prohibited by law. Borrower authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
sums owing on the Indebtedness against any and all such accounts.
DEFAULT. Each of the following shall constitute an Event of Default under
this Agreement:
Payment Default. Borrower fails to make any payment when due under the
Loan.
Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of
the Related Documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default in Favor of Third Parties. Borrower or any Grantor defaults under
any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf under this
Agreement, the Note, or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished or becomes
false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
document to create a valid and perfected security interest or lien) at any
time and for any reason.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower or by any
governmental agency against any collateral securing the Loan. This includes
a garnishment of any of Borrower's accounts, including deposit accounts,
with Lender. However, this Event of Default shall not apply if there is a
good faith dispute by Borrower as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding and if
Borrower gives Lender written notice of the creditor or forfeiture
proceeding and deposits with Lender monies or a surety bond for the
creditor or forfeiture proceeding, in an amount determined by Lender, in
its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness . In the event of a death, Lender,
at its option, may, but shall not be required to, permit the Guarantor's
estate to assume unconditionally the obligations arising under the guaranty
in a manner satisfactory to Lender, and, in doing so, cure any Event of
Default.
Change in Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Loan is impaired.
Insecurity. Lender in good faith believes itself insecure.
Right to Cure. If any default, other than a default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default: (1) cure the default within ten (10) days;
or (2) if the cure requires more than ten (10) days, immediately initiate
steps which Lender deems in Lender's sole discretion to be sufficient to
cure the default and thereafter continue and complete all reasonable and
necessary steps sufficient to produce compliance as soon as reasonably
practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make further Loan Advances or disbursements), and, at
Lender's option, all Indebtedness immediately will become due and payable,
all without notice of any kind to Borrower, except that in the case of an
Event of Default of the type described in the "Insolvency' subsection
above, such acceleration shall be automatic and not optional. In addition,
Lender shall have all the rights and remedies provided in the Related
Documents or available at law, in equity, or otherwise. Except as may be
prohibited by applicable law, all of Lender's rights and remedies shall be
cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISlONS. The following miscellaneous provisions are a part
of this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of
Lender's costs and expenses, including Lender's attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Agreement. Lender may hire or pay someone else to help enforce this
Agreement, and Borrower shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's attorneys' fees and legal
expenses whether or not there is a lawsuit, including attomeys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also shall pay all court costs
and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loan to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy Borrower may
have with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that the
purchasers of any such participation interests will be considered as the
absolute owners of such interests in the Loan and will have
Page 4
<PAGE>
BUSINESS LOAN AGREEMENT
(Continued)
Page 5
all the rights granted under the participation agreement or agreements
governing the sale of such participation interests. Borrower further waives
all rights of offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loan irrespective of the failure or
insolvency of any holder of any interest in the Loan. Borrower further
agrees that the purchaser of any such participation interests may enforce
its interests irrespective of any personal claims or defenses that Borrower
may have against Lender.
Governing Law. This Agreement will be governed by, construed and enforced
in accordance with federal law and the laws of the State of California.
This Agreement has been accepted by Lender in the State of California.
Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Los Angeles County,
State of California.
No Waiver by Lender. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender's rights
or of any of Borrower's or any Grantor's, obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances wI~ere such consent
is required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
Notices. Any notice required to be given under this Agreement shall be
given in writing, and shall be effective when actually delivered, when
actually received by telefacsimile (unless otherwise required by law), when
deposited with a nationally recognized overnight courier, or, if mailed,
when deposited in the United States mail, as first class, certified or
registered mail postage prepaid, directed to the addresses shown near the
beginning of this Agreement. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
For notice purposes, Borrower agrees to keep Lender informed at all times
of Borrower's current address. Unless otherwise provided or required by
law, if there is more than one Borrower, any notice given by Lender to any
Borrower is deemed to be notice given to all Borrowers.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be illegal, invalid, or unenforceable as to any
circumstance, that finding shall not make the offending provision illegal,
invalid, or unenforceable as to any other circumstance. If feasible, the
offending provision shall be considered modified so that it becomes legal,
valid and enforceable. If the offending provision cannot be so modified, it
shall be considered deleted from this Agreement. Unless otherwise required
by law, the illegality, invalidity, or unenforceability of any provision of
this Agreement shall not affect the legality, validity or enforceability of
any other provision of this Agreement.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower' as
used in this Agreement shall include all of Borrower's subsidiaries and
affiliates. Notwithstanding the foregoing however, under no circumstances
shall this Agreement be construed to require Lender to make any Loan or
other financial accommodation to any of Borrower's subsidiaries or
affiliates.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind Borrower's successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower shall
not, however, have the right to assign Borrower's rights under this
Agreement or any interest therein, without the prior written consent of
Lender.
Survival of Representations and Warranties. Borrower understands and agrees
that in extending Loan Advances, Lender is relying on all representations,
warranties, and covenants made by Borrower in this Agreement or in any
certificate or other instrument delivered by Borrower to Lender under this
Agreement or the Related Documents. Borrower further agrees that regardless
of any investigation made by Lender, all such representations, warranties
and covenants will survive the extension of Loan Advances and delivery to
Lender of the Related Documents, shall be continuing in nature, shall be
deemed made and redated by Borrower at the time each Loan Advance is made,
and shall remain in full force and effect until such time as Borrower's
Indebtedness shall be paid in full, or until this Agreement shall be
terminated in the manner provided above, whichever is the last to occur.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
Waive Jury. All parties to this Agreement hereby waive the right to any
jury trial in any action, proceeding, or counterclaim brought by any party
against any other party.
DEFINITONS. The following capitalized words and terms shall have the
following meanings when used in this Agreement. Unless specifically stated
to the contrary, all references to dollar amounts shall mean amounts in
lawful money of the United States of America. Words and terms used in the
singular shall include the plural, and the plural shall include the
singular, as the context may require. Words and terms not otherwise defined
in this Agreement shall have the meanings attributed to such terms in the
Uniform Commercial Code. Accounting words and terms not otherwise defined
in this Agreement shall have the meanings assigned to them in accordance
with generally accepted accounting principles as in effect on the date of
this Agreement:
Advance. The word "Advance" means a disbursement of Loan funds made, or to
be made, to Borrower or on Borrower's behalf on a line of credit or
multiple advance basis under the terms and conditions of this Agreement.
Agreement. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
Borrower. The word "Borrower" means Integrated Packaging Assembly
Corporation, and all other persons and entities signing the Note in
whatever capacity.
Collateral. The word "Collateral" means all property and assets granted as
collateral security for a Loan, whether real or personal property, whether
granted directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, collateral
mortgage, deed of trust, assignment, pledge, chattel mortgage, crop pledge,
chattel mortgage, collateral chattel mortgage, chattel trust, factor's
lien, equipment trust, conditional sale, trust receipt, lien, charge, lien
or title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether created
by law, contract, or otherwise.
Default. The word "Default" means the Default set forth in this Agreement
in the section titled "Default".
Environmental Laws. The words "Environmental Laws" mean any and all state,
federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment, including without limitation
the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L No. 99-499
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the
California Health and Safety Code, Section 25100, et seq., or other
applicable state or federal laws, rules, or regulations adopted pursuant
thereto.
Page 5
<PAGE>
BUSINESS LOAN AGREEMENT
(Continued)
Page 6
Event of Default. The words "Event of Default" mean any of the Events of
Default set forth in this Agreement in the Default section of this
Agreement.
GAAP. The word "GAAP" means generally accepted accounting principles.
Grantor. The word 'Grantor' means each and all of the persons or entities
granting a Security Interest in any Collateral for the Loan, including
without limitation all Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means any guarantor, surety, or
accommodation party of any or all of the Loan.
Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender,
including without limitation a guaranty of all or part of the Note.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by
the Note or Related Documents, including all principal and interest
together with all other indebtedness and costs and expenses for which
Borrower is responsible under this Agreement or under any of the Related
Documents.
Lender. The word "Lender" means Bank SinoPac, Los Angeles Branch, its
successors and assigns.
Loan. The word "Loan" means any and all loans and financial accommodations
from Lender to Borrower whether now or hereafter existing, and however
evidenced, including without limitation those loans and financial
accommodations described herein or described on any exhibit or schedule
attached to this Agreement from time to time.
Note. The word "Note" means the Note executed by Borrower in the principal
amount of $7,000,000.00 dated March 23, 2000, together with all renewals
of, extensions of, modifications of, refinancings of, consolidations of,
and substitutions for the note or credit agreement.
Permitted Liens. The words "Permitted Liens" mean (1) liens and security
interests securing Indebtedness owed by Borrower to Lender; (2) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (3) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (4) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (5) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (6) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
security agreements, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Loan.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean, without limitation,
any and all types of collateral security, present and future, whether in
the form of a lien, charge, encumbrance, mortgage, deed of trust, security
deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien or title retention contract, lease or consignment
intended as a security device, or any other security or lien interest
whatsoever whether created by law, contract, or otherwise.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS
DATED MARCH 23, 2000.
BORROWER:
INTEGRATED PACKAGING ASSEMBLY CORPORATION
By: /s/ P. Verderico
--------------------------------
Patrick Verderico, President of
Integrated Packaging Assembly Corporation
LENDER:
BANK SINOPAC, LOS ANGELES BRANCH
x______________
Authorized Signer
Page 6
<PAGE>
PROMISSORY NOTE
Principal: $7,000.000.00
Loan Date: 03-23-2000
Maturity: 07-31-2000
LOAN NO: 115-20091
CALL:
COLLATERAL:
ACCOUNT:
OFFICER: SC
INITIALS:
References in the shared area are for Lender's use only and do not limit the
applicability of this document to an particular loan or item. Any item above
containing "***" has been omitted due to text length limitations.
Borrower: Integrated Packaging Assembly Corporation (TIN 77-0309372)
2221 Old Oakland Road
San Jose, CA 95131
Lender: BankSinoPac, Los Angeles Branch
350 S. Grand Ave, Suite 3070
Los Angeles, CA 90071
Principal Amount: $7,000,000.00
Initial Rate: 8.750%
Date of Note: March 23, 2000
PROMISE TO PAY. Integrated Packaging Assembly Corporation ("Borrower")
promises to pay to Bank SinoPac, Los Angeles Branch ("Lender"), or order,
in lawful money of the United States of America, the principal amount of
Seven Million & 00/100 Dollars ($7,000,000.00) or so much as may be
outstanding, together with interest on the unpaid outstanding principal
balance of each advance. Interest shall be calculated from the date of each
advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on July 31, 2000. In addition,
Borrower will pay regular monthly payments of all accrued unpaid interest
due as of each payment date, beginning April 23, 2000, with all subsequent
interest payments to be due on the same day of each month after that.
Unless otherwise agreed or required by applicable law, payments will be
applied first to any unpaid collection costs and any late charges, then to
any unpaid interest, and any remaining amount to principal. The annual
interest rate for this Note is computed on a 365/360 basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is Lender's Prime Rate
(the "Index"). This is the rate Lender charges, or would charge, on 90-day
unsecured loans to the most creditworthy corporate customers. This rate may
or may not be the lowest rate available from Lender at any given time.
Lender will tell Borrower the current Index rate upon Borrower's request.
The interest rate change will not occur more often than each time the prime
rate changes. Borrower understands that Lender may make loans based on
other rates as well. The Index currently is 9.000%. The interest rate to be
applied to the unpaid principal balance of this Note will be at a rate of
0.250 percentage points under the Index, resulting in an initial rate of
8.750%. NOTICE: Under no circumstances will the interest rate on this Note
be more than the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full
prepayment of this Note, Borrower understands that Lender is entitled to a
minimum interest charge of $200.00. Other than Borrower's obligation to pay
any minimum interest charge, Borrower may pay without penalty all or a
portion of the amount owed earlier than it is due. Early payments will not,
unless agreed to by Lender in writing, relieve Borrower of Borrower's
obligation to continue to-make payments of accrued unpaid interest. Rather,
early payments will reduce the principal balance due. Borrower agrees not
to send Lender payments marked "paid in full", "without recourse", or
similar language. If Borrower sends such a payment, Lender may accept it
without losing any of Lender's rights under this Note, and Borrower will
remain obligated to pay any further amount owed to Lender. All written
communications concerning disputed amounts, including any check or other
payment instrument that indicates that the payment constitutes "payment in
full" of the amount owed or that is tendered with other conditions or
limitations or as full satisfaction of a disputed amount must be mailed or
delivered to: Bank SinoPac, Los Angeles Branch; 350 S. Grand Ave. Suite
3070; Los Angeles, CA 90071.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment.
INTEREST AFTER DEFAULT. Upon Borrower's failure to pay all amounts declared
due pursuant to this section, including failure to pay upon final maturity,
Lender, at its option, may, if permitted under applicable law, increase the
variable interest rate on this Note 2.000 percentage points.
DEFAULT. Each of the following shall constitute an event of default ("Event
of Default") under this Note:
Payment Default. Borrower fails to make any payment when due under this
Note.
Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Note or in any of the
related documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default in Favor of Third Parties. Borrower or any Grantor defaults under
any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's ability
to repay this Note or perform Borrower's obligations under this Note or any
of the related documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf under this Note or
the related documents is false or misleading in any material respect,
either now or at the time made or furnished or becomes false or misleading
at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower or by any
governmental agency against any collateral securing the loan. This includes
a garnishment of any of Borrower's accounts, including deposit accounts,
with Lender. However, this Event of Default shall not apply if there is a
good faith dispute by Borrower as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding and if
Borrower gives Lender written notice of the creditor or forfeiture
proceeding and deposits with Lender monies or a surety bond for the
creditor or forfeiture proceeding, in an amount determined by Lender, in
its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any guaranty of the indebtedness . In the event of a death, Lender,
at its option, may, but shall not be required to, permit the Guarantor's
estate to assume unconditionally the obligations arising under the guaranty
in a manner satisfactory to Lender, and, in doing so, cure any Event of
Default.
Change In Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
this Note is impaired.
Insecurity. Lender in good faith believes itself insecure.
Page 1
<PAGE>
PROMISSORY NOTE
(Continued)
Page 2
Cure Provisions. If any default, other than a default in payment, is curable
and if Borrower has not been given a notice of a breach of the same provision
of this Note within the preceding twelve (12) months, it may be cured (and no
event of default will have occurred) if Borrower, after receiving written
notice from Lender demanding cure of such default: (1) cures the default
within ten (10) days; or (2) if the cure requires more than ten (10) days,
immediately initiates steps which Lender deems in Lender's sole discretion to
be sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately
due, and then Borrower will pay that amount.
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help
collect the loan if Borrower does not pay. Borrower will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses, whether or not there is a
lawsuit, including attorneys' fees, expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
and appeals. Borrower also will pay any court costs, in addition to all
other sums provided by law.
JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial
in any action, proceeding, or counterclaim brought by either Lender or
Borrower against the other.
GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of California. This
Note has been accepted by Lender in the State of California.
CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Los Angeles County,
State of California.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if
Borrower makes a payment on Borrower's loan and the check or preauthorized
charge with which Borrower pays is later dishonored.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves
a right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust
accounts for which setoff would be prohibited by law. Borrower authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
sums owing on the Indebtedness against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note, as well as directions for payment from Borrower's
accounts, may be requested orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests
be confirmed in writing. Borrower agrees to be liable for all sums either:
(A) advanced in accordance with the instructions of an authorized person or
(B) credited to any of Borrower's accounts with Lender. The unpaid
principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under
this Note if:
(A) Borrower or any guarantor is in default under the terms of this Note or
any agreement that Borrower or any guarantor has with Lender, including any
agreement made in connection with the signing of this Note; (B) Borrower or
any guarantor ceases doing business or is insolvent; (C) any guarantor
seeks, claims-or otherwise attempts to limit, modify or revoke such
guarantor's guarantee of this Note or any other loan with Lender; (D)
Borrower has applied funds provided pursuant to this Note for purposes
other than those authorized by Lender; or (E) Lender in good faith believes
itself insecure.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower,
and upon Borrower's heirs, personal representatives, successors and
assigns, and shall inure to the benefit of Lender and Lender's successors
and assigns.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed
by law, waive any applicable statute of limitations, presentment, demand
for payment, and notice of dishonor. Upon any change in the terms of this
Note, and unless otherwise expressly stated in writing, no party who signs
this Note, whether as maker, guarantor, accommodation maker or endorser,
shall be released from liability. All such parties agree that Lender may
renew or extend (repeatedly and for any length of time) this loan or
release any party or guarantor or collateral; or impair, fail to realize
upon or perfect Lender's security interest in the collateral; and take any
other action deemed necessary by Lender without the consent of or notice to
anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom
the modification is made. The obligations under this Note are joint and
several.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
BORROWER:
INTEGRATED PACKAGING ASSEMBLY CORPORATION
By: /s/ P. Verderico
---------------------------------
Patrick Verderico, President of
Integrated Packaging Assembly Corporation
AMENDMENT
TO
BUSINESS LOAN AGREEMENT AND PROMISORY NOTE
This Amendment to Business Loan Agreement and Promissory Note is
entered into as of May 9, 2000 (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 March 23,
2000. The parties desire to amend the Agreement and the Note in accordance
with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
"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 percent (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.
"Continuity of Operations" under NEGATIVE CONVENANTS in the
Agreement is amended to read 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, Limited 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 Shareholders of a Subchapter S Corporation because of
their ownership of shares of Borrower's stock, or purchase or retire any of
Borrower's outstanding shares or alter or amend Borrower's capital structure.
Unless otherwise defined, all capitalized terms in this Amendment shall
be as defined in the Agreement and the Note. Except as amended, 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, 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: President and CEO
-----------------------------
Bank SinoPac, Los Angeles Branch
By: --------------------------------
Nelson Wang
Title: Senior Vice President & GM
