U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
Form 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1999
[ ] 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
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INTEGRATED PACKAGING ASSEMBLY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 77-0309372
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2221 Old Oakland Road 95131-1402
San Jose, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number including area code: (408) 321-3600
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, .001 par value
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by persons other than
those who may be deemed affiliates of the Company as of March 17, 2000, was
approximately $7,743,000. Shares of Common Stock held by each executive
officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may under certain
circumstances be deemed to be affiliates. This determination of executive
officer or affiliate status is not necessarily a conclusive determination for
other purposes.
The number of shares of the Registrant's Common Stock outstanding as of
March 17, 2000 was 55,193,515. The Registrant also had 3,000,000 shares of
Series A Convertible Preferred Stock outstanding on such date which is
convertible at any time by the holder into 41,246,312 shares of Common Stock.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 2000 Annual Meeting
of Stockholders are incorporated by reference in Part III of this Form 10-K.
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TABLE OF CONTENTS
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Page
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Part I
Item 1. Business................................................. 3
Item 2. Properties............................................... 11
Item 3. Legal Proceedings........................................ 11
Item 4. Submission of Matters to a Vote of Security Holders...... 11
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 12
Item 6. Selected Financial Data.................................. 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 14
Item 7a. Quantitative and Qualitative Disclosures About
Market Data............................................ 21
Item 8. Financial Statements and Supplemental Data............... 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 44
Part III
Item 10. Directors and Executive Officers of the Registrant...... 45
Item 11. Executive Compensation.................................. 45
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 45
Item 13. Certain Relationships and Related Transactions.......... 45
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K........................................... 45
SIGNATURES............................................................. 49
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PART I
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This Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of the
risk related factors set forth herein.
Item 1. Business
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Integrated Packaging Assembly Corporation ("IPAC") is a leading
independent North American semiconductor packaging foundry. The Company
receives wafers from its customers and assembles each integrated circuit in a
protective plastic package. The Company's packaging facilities are located in
San Jose, California in close proximity to its customers and the end-users of
its customers' products. Due to intense competitive pressures in the
electronics industry, semiconductor companies are faced with increasingly
shorter product life cycles and therefore have a need to reduce the time it
takes to bring a product to market. The Company believes that its close
proximity to its customers promotes quicker turnaround design, prototype
production and final product delivery to its North American customers,
compared to its principal competitors which are primarily located in Asia.
The Company is also the exclusive North American sales and marketing
organization for Orient Semiconductor Electronics, Ltd. ("OSE") of Taiwan, a
public Taiwanese company and the Company's principal stockholder. Earnings
are derived from fees received on the sales of OSE's semiconductor assembly
and test services to customers headquartered in North America. The Company
entered this market in October 1999 with the acquisition of OSE, Inc.
("OSEI").
Manufacturing
Semiconductor Packaging Services
The Company has focused on 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 ("QFPs") and
Thin Quad Flat Packages ("TQFPs"). The Company offers eight different QFP and
TQFP families with body sizes ranging from 7x7 mm to 32x32 mm and lead counts
from 32 to 256 leads, two Plastic Ball Grid Array ("PBGA")/ Cavity Down Ball
Grid Array ("CDBGA") families with body sizes of 27x27 and 35x35 with ball
counts from 225 to 532 balls and three Low Profile Fine Pitch Ball Grid Array
("LFBGA")/Thin Profile Fine Pitch ball Grid Array ("TFBGA") families with ball
counts from 144 to 196 balls. Integrated circuits packaged by the Company are
used in the following applications: personal computers, modems, disk drives,
automobiles, cameras and telecommunications, among others. Since inception,
QFPs and TQFPs have accounted for substantially all of the Company's packaging
revenues.
Packaging involves several manufacturing operations, which are highly
automated to facilitate high volume production. The assembly process begins
with the mounting of a finished, tested wafer onto a carrier. After a dicing
saw cuts the wafer into individual die, the cut wafer is moved to a die bonder
which picks each good die off the wafer and bonds it to a lead frame with
epoxy resin. A lead frame is a miniature sheet of metal, generally made of
copper with selective silver plating on which the pattern of input/output
(I/0) leads has been cut. Next, very fine (typically 0.001 inches in
diameter) gold wires are connected to the die and the leads through the use of
automated machines known as wire bonders. These wire leads provide the
electrical path necessary for the device to function. Each die is then
encapsulated in a plastic casing and marked. The leads protruding from the
finished casing are then plated with a tin and lead composition to permit the
leads to be connected to the printed circuit board. At the end of the
packaging process, the leads are trimmed and formed into requisite shapes.
After this packaging process is complete, the devices undergo final inspection
and are prepared for shipment.
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The Company shipped approximately 11.9 million devices in 1997,
approximately 19.8 million devices in 1998 and approximately 15.8 million
devices in 1999. Since the fourth quarter of 1996, the Company has had
available manufacturing capacity. The Company's manufacturing capacity
utilization is a function of the mix of different package types produced by
the Company at any one time and the proportion of standard production runs
compared to expedited production runs. Thus, as the Company shifts its
production among different package types or allocates a different amount of
available capacity to standard production runs, the rate of the Company's
capacity utilization changes, at times significantly.
The Company has made substantial investments in expanding its
manufacturing capacity during its operating history, in anticipation of
increased future business. Since early 1997, the Company has incurred net
losses as revenues dropped substantially, while overhead and fixed costs
increased, with the result that there was substantial underutilized
manufacturing capacity. The Company continues to operate with significant
underutilized capacity. There can be no assurance that the Company will
receive orders from new or existing customers that will enable it to utilize
such manufacturing capacity in a timely manner.
The Company's inability to generate the additional revenues necessary
to more fully utilize its capacity has had and will continue to have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company believes that its competitive position depends on its
ability to have sufficient capacity to meet anticipated customer demand.
Accordingly, although the Company currently has available manufacturing
capacity, the Company plans to continue to selectively invest to expand such
capacity, particularly through the acquisition of capital equipment, including
equipment for new packages (e.g. Ball Grid Array ("BGA") and Chip Scale
Package ("CSP")). There can be no assurance that the Company will be able to
utilize such capacity, that the cost of such expansion will not exceed
management's current estimates or that such capacity will not exceed the
demand for the Company's services. In addition, expansion of the Company's
manufacturing capacity will continue to significantly increase its fixed
costs, and the future profitability of the Company will depend on its ability
to utilize its manufacturing capacity in an effective manner. The Company's
inability to generate the additional production volume necessary to fully
utilize its capacity had a material adverse effect on its business, financial
condition and results of operation since 1997 and would continue to have a
material adverse effect on the Company's future business, financial condition
and results of operations.
The semiconductor packaging business is capital intensive and requires a
substantial amount of highly automated, expensive capital equipment which is
manufactured by a limited number of suppliers, many of which are located in
Asia or Europe. The Company's operations are significantly dependent upon the
Company's ability to obtain capital equipment for its manufacturing operations
in a timely manner. In this regard, the Company spent $608,000 in 1999 and
expects to spend up to approximately $7.8 million to purchase capital
equipment in 2000. The Company currently purchases capital equipment from a
limited group of suppliers including Dai-Ichi Seiko Co., Ltd., ESEC SA and
Kaijo Corporation. The Company has no long term agreement with any such
supplier and acquires such equipment on a purchase order basis. The market
for capital equipment used in semiconductor packaging has at times been
characterized by intense demand, limited supply and long delivery cycles. The
Company's dependence on such equipment suppliers poses substantial risks.
Should any of the Company's major suppliers be unable or unwilling to provide
the Company with high quality capital equipment in amounts necessary to meet
the Company's requirements, the Company would experience severe difficulty
locating alternative suppliers in a timely fashion and its operations could be
materially adversely affected. Any problems with such capital equipment or
any prolonged delay in equipment shipments by key suppliers or an inability to
locate alternative equipment suppliers could have a material adverse effect on
the Company's business, financial condition and results of operations and
could result in damage to customer relationships. Moreover, increased levels
of demand in the capital equipment
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market may cause an increase in the price of equipment, further lengthen
delivery cycles and limit the ability of suppliers to adequately service
equipment following delivery, any of which could have an adverse effect on the
Company's business, financial condition or results of operations. In
addition, adverse fluctuations in foreign currency exchange rates,
particularly the Japanese yen, could result in increased prices for capital
equipment purchased by the Company, which could have a material adverse effect
on the Company's business, financial condition and results of operations.
Quality Control
The Company believes that total quality management is a vital component
of customer satisfaction and internal productivity. The Company has
established quality control systems, which are designed to maintain acceptable
manufacturing yields at high volume production. The Company has also
developed a sophisticated proprietary software program for material resource
planning, shop floor control, work in process tracking, statistical process
control and product costing. The Company obtained certification for its
packaging operations pursuant to ISO 9002 in December 1996 and recertification
in October 1999.
As of December 31, 1999, the Company's quality control staff consisted of
11 engineers, technicians and other employees who monitor the Company's design
and production processes in order to ensure high quality. These employees
include line inspectors who work with members of the production staff to
conduct examination, testing and fine-tuning of products during the production
process. Quality control personnel are involved from initial design to
production. The quality control staff also collects and analyzes data from
various stages of the production process which is used by the Company for
statistical process control.
The semiconductor packaging process is complex and product quality and
reliability is subject to a wide variety of factors. Defective packaging can
result from a number of factors, including the level of contaminants in the
manufacturing environment, human error, equipment malfunction, use of
defective raw materials, defective plating services and inadequate sample
testing. From time to time, the Company has experienced lower than
anticipated production yields as a result of such factors. The Company's
failure to maintain high quality production standards or acceptable production
yields would likely result in loss of customers, delays in shipments,
increased costs, cancellation of orders and product returns for rework, any of
which could have a material adverse effect on the Company's business,
financial condition and results of operations.
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
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supplies in a timely manner or if there were significant increases in the
costs of raw materials that the Company could not pass on to its customers.
Marketing and Sales
The Company's business is substantially affected by market conditions
in the semiconductor industry, which is highly cyclical and, at various
times, has been subject to significant economic downturns and characterized
by reduced product demand, rapid erosion of average selling prices and
production over capacity. In addition, rapid technological change, evolving
industry standards, intense competition and fluctuations in end user demand
characterize the markets for integrated circuits. Because the Company's
business is entirely dependent on the requirements of semiconductor
companies for independent packaging foundries, any downturn in the
semiconductor industry is expected to have an adverse effect on the
Company's business, financial condition and results of operations. For
example, delays or rescheduling of orders due to a downturn or anticipated
downturn in the semiconductor industry have in the past and could in the
future have a material adverse effect on the Company's business, operating
results and financial condition.
The semiconductor industry is comprised of different market segments
based on device type and the end use of the device. Accordingly, within the
semiconductor industry, demand for production in a particular segment may be
subject to more significant fluctuations than other segments. If any of the
Company's significant customers are in a segment which has experienced
adverse market conditions, there would be an adverse effect on the Company's
business, financial condition and operating results. There can be no
assurance that reduced demand, or the general economic conditions underlying
such demand, will not continue to adversely affect the Company's results of
operations. Furthermore, there can be no assurance that any such
continuation or expansion of this reduced demand will not result in an
additional and significant decline in the demand for the products produced
by the Company's customers and a corresponding material adverse impact on
the Company's business, operating results and financial condition.
In addition, the Company has been substantially dependent on a relatively
small number of customers within the semiconductor industry. The high
concentration of business with a limited number of customers has adversely
affected the Company's operating results, when business volume dropped
substantially for several customers. 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. In recent
years, the Company's need for additional financing, and the uncertainty as to
whether such financing could be obtained, adversely affected the Company's
ability to obtain new customers. The loss of one or more of the Company's
customers, or reduced orders by any of its key customers, would adversely
affect the Company's business, financial condition and results of operations.
The Company's marketing and sales efforts are focused on North American
semiconductor companies that design or manufacture IC devices which are used
in applications such as personal computers, modems, disk drives and
telecommunication products. Within such markets, the Company emphasizes
packaging complex, high pin-count products. The Company sells its services
directly through its sales and customer support organization. The Company
assists its customers in evaluating designs with respect to manufacturability
and when appropriate recommends design changes to reduce manufacturing costs
and lead times. The Company also offers lead frame design services for a fee.
To date, the Company has been substantially dependent on a relatively
small number of customers. Specifically, Atmel Semiconductor and Orbit
Semiconductor accounted for 30%, and 15%, respectively, of the Company's
revenues in 1999. Atmel, Cirrus Logic and Ford accounted for 39%, 11% and 11%,
respectively, of the Company's revenues in 1998. Cirrus Logic, Intel
Corporation and Atmel accounted for 17%, 16% and 14%, respectively, of the
Company's revenues in 1997. The Company anticipates that significant customer
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concentration will continue, although the companies which constitute the
Company's largest customers may change from period to period. In this regard,
Ford Microelectronics stopped manufacturing the automotive components that the
Company packaged in 1999.
All of the Company's customers operate in the cyclical semiconductor
business and their order levels may vary significantly from period to period.
In addition, there can be no assurance that such customers or any other
customers will continue to place orders with the Company in the future at the
same levels as in prior periods. There can be no assurance that adverse
developments in the semiconductor industry will not adversely affect the
Company's business, financial condition and results of operations. The loss
of one or more of the Company's customers, or reduced orders by any of its key
customers, would adversely affect the Company's business, financial condition
and results of operations. The Company ships its products in accordance with
customer purchase orders and upon receipt of semiconductor wafers from its
customers. The Company generally ships products within one to seven days
after receiving the customer's wafers, and, accordingly, the Company has not,
to date, had a material backlog of orders. The Company expects that revenues
in any quarter will be substantially dependent upon orders received in that
quarter. The Company's expense levels are based in part on its expectations
of future revenues and the Company may be unable to adjust costs in a timely
manner to compensate for any revenue shortfall.
Competition; Decline in Average Selling Prices
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 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.
For the past several years, the Company has experienced a decline in
the average selling prices for a number of its products. The Company
expects that average selling prices for its products will continue to
decline in the future, principally due to intense competitive conditions. A
decline in average selling prices of the Company's products, if not offset
by reductions in the cost of producing those products, would continue to
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.
Research and Development
The Company's research and development efforts are focused on improving
the efficiency and capabilities of
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its production processes, and on developing new packages by making
improvements upon commercially available materials and technology. The
Company's research and development efforts are focused on improving existing
technology, such as developing thermally enhanced QFPs that result in better
heat dissipation, and emerging packaging technologies, such as BGA packages
that provide for an increased number of leads per device without increasing
the size of the functional integrated circuit and Chip Scale Packaging
("CSP"). Although the Company did not ship significant quantities of BGA
devices in 1999, it believes that the increased pin count made available by
BGA technology is an important technology that will enable the Company to
provide new packaging services to its customers. The Company also works
closely with the manufacturers of its packaging equipment in designing and
modifying the equipment used in the Company's production process.
As of December 31, 1999, the Company employed 4 persons in research and
development activities. In addition, other management and operational
personnel are involved in research and development activities. The Company
supplements its research and development efforts with alliances and technology
licensing agreements. For example, the Company is a member of an ARPA-TRP
consortium working to enhance cooperation and participation by United States
companies in assembly and packaging technology. In 1999, 1998 and 1997, the
Company's research and development expenses were approximately $727,000,
$1,101,000 and $1,276,000, respectively. The Company expects to continue to
invest significant resources in research and development.
The Company has focused its manufacturing resources on plastic QFPs for
use with SMT, and the Company has neither the capability nor the intent to
provide services to other substantial segments of the semiconductor packaging
market. For example, the Company has no capacity to manufacture packages for
use with PTH technology, nor does the Company presently intend to manufacture
packages using materials other than plastic, such as ceramic. BGA packaging
currently represents a very small, but increasing, portion of the Company's
overall revenues and a relatively small portion of the overall semiconductor
packaging market. The Company has recently committed to the introduction of
an LFBGA family which the Company believes to be an important new commercially
attractive package for its customers. Technological change in the
semiconductor packaging industry is continuous and in the future semiconductor
manufacturers are expected to require increased technological and
manufacturing expertise. The introduction of new packaging technologies, a
reduction or shift away from QFP's, or the failure of the market for BGA
packaging to develop would result in a material adverse effect on the
Company's business, financial condition and results of operations.
Intellectual Property
The Company's success depends in part on its ability to obtain patents
and licenses and to preserve other intellectual property rights relating to
its manufacturing processes. As of December 31, 1999, the Company held
eleven U.S. patents, which expire, between 2012 and 2015, and three
additional patent applications have been filed and are pending. The Company
expects to continue to file patent applications when appropriate to protect
its proprietary technologies; however, the Company believes that its continued
success depends primarily on factors such as the technological skills and
innovation of its personnel rather than on its patents. The process of
seeking patent protection can be expensive and time consuming. There can be
no assurance that patents will issue from pending or future applications or
that, if patents are issued, they will not be challenged, invalidated or
circumvented, or that rights granted thereunder will provide meaningful
protection or other commercial advantage to the Company. Moreover, there can
be no assurance that any patent rights will be upheld in the future or that
the Company will be able to preserve any of its other intellectual property
rights.
As is typical in the semiconductor industry, the Company may receive
communications from third parties asserting patents on certain of the
Company's technologies. In the event any third party were to make a valid
claim and a license were not available on commercially reasonable terms, the
Company's business, financial
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condition and results of operations could be materially and adversely
affected. Litigation, which could result in substantial cost to and diversion
of resources of the Company, may also be necessary to enforce patents or other
intellectual property rights of the Company or to defend the Company against
claimed infringement of the rights of others. The failure to obtain necessary
licenses or the occurrence of litigation relating to patent infringement or
other intellectual property matters could have a material adverse effect on
the Company's business, financial condition and results of operations.
Environmental Matters
The semiconductor packaging process involves a significant amount of
chemicals and gases which are subject to extensive governmental regulations.
For example, liquid waste is produced at the stage at which silicon wafers are
diced into chips with the aid of diamond saws and cooled with running water.
In addition, excess materials on leads and moldings are removed from packaged
semiconductors in the trim and form process. The Company has installed
equipment to collect certain solvents used in connection with its
manufacturing process and has contracted with independent waste disposal
companies to remove such hazardous material.
In 1998, the Company installed an advanced electroplating system at a
leased facility in Milpitas, California and substantially all of the Company's
plating is performed at such facility. This plating operation involves the
use of significant quantities of certain hazardous substances. Although the
Company has designed procedures to ensure such materials are handled in
compliance with applicable regulations, there can be no assurance that the
operation of such facility will not expose the Company to additional costs in
complying with environmental regulations or result in future liability to the
Company.
Federal, state and local regulations impose various controls on the
storage, handling, discharge and disposal of chemicals used in the Company's
manufacturing process and on the facility occupied by the Company. The
Company believes that its activities conform to present environmental and land
use regulations applicable to its operations and its current facility.
Increasing public attention has, however, been focused on the environmental
impact of semiconductor manufacturing operations and the risk to neighbors of
chemical releases from such operations. There can be no assurance that
applicable land use and environmental regulations will not in the future
impose the need for additional capital equipment or other process requirements
upon the Company or restrict the Company's ability to expand its operations.
The adoption of new ordinances or similar measures or any failure by the
Company to comply with applicable environment and land use regulations or to
restrict the discharge of hazardous substances could subject the Company to
future liability or cause its manufacturing operations to be curtailed or
suspended.
The Company's OSEI subsidiary is not involved in manufacturing.
Employees
As of December 31, 1999, the Company had 257 full time employees, 222 of
whom were engaged in manufacturing, 4 in research and development, 14 in sales
and customer service, and 17 in finance and administration. The Company's
employees are not represented by any collective bargaining agreement, and the
Company has never experienced a work stoppage. The Company believes that its
employee relations are good. The success of the Company's future operations
depends in large part on the Company's ability to attract and retain highly
skilled technical, manufacturing and management personnel. There can be no
assurance that the Company will be successful in attracting and retaining key
personnel.
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Executive Officers
The executive officers of the Company are as follows:
<TABLE>
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Age Position(s)
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Patrick Verderico 56 President, Chief Executive Officer and
Director
Gerald K. Fehr 62 Executive Vice President, Chief Technology
Officer
Phil Marcoux 53 Vice President, Sales and Marketing
F. Terrence Markle 58 Corporate Controller, Treasurer and
Chief Accounting Officer
Chris BK Ooi 45 Vice President, Operations
Richard Oshiro 51 Vice President, Quality
Edmond Tseng 53 Chairman of Board of Directors and
President, OSE, Inc.
</TABLE>
Patrick Verderico joined the Company in April 1997 as its Executive Vice
President and Chief Operating Officer and was appointed the Company's
President and Chief Executive Officer and a Director in July 1997. From
August 1996 through April 1997, he was an independent business consultant.
From April 1996 through July 1996 he served as Executive Vice President and
Chief Operating Officer of Maxtor Corporation. From January 1994 through
March 1996, he was Vice President, Finance and Chief Financial Officer of
Creative Technology, Ltd., a California and Singapore based manufacturer and
distributor of multi-media products. From October 1992 to January 1994, he
was Vice President, Finance and Administration, and Chief Financial Officer
of Cypress Semiconductor, Inc., a manufacturer of integrated circuits.
Prior to 1992, Mr. Verderico held various management positions with Coopers
& Lybrand, Philips Semiconductors and National Semiconductor. He is also a
director of Micro Component Technology and Catalyst Semiconductor.
Gerald K. Fehr is a Co-Founder of the Company and has served as Vice
President, Technology of the Company since March 1993 and Executive Vice
President, Chief Technology Officer since December 1997. From January 1991
to March 1993, Dr. Fehr served as an independent consultant in the
semiconductor packaging industry. Prior to 1991, Dr. Fehr held various
management positions in operations with LSI Logic, Inc., Burroughs
Corporation, Fairchild Semiconductor Corporation and Intel Corporation.
Phil Marcoux joined the Company in June 1999 as Vice President, Sales and
Marketing. From 1992 to 1998, Mr. Marcoux served as Co-Founder and President
of ChipScale, Inc., an advanced wafer level semiconductor packaging company.
He currently serves as a director of ChipScale. From 1981 to 1987, Mr.
Marcoux served as Co-Founder and President of AWI, Inc., a surface mount board
assembly, test and packaging company. Prior to 1981, Mr. Marcoux served in
various sales and marketing positions with Philips Semiconductors.
F. Terrence Markle joined the Company in September 1997 as Corporate
Controller, Treasurer and Chief Accounting Officer. From July 1996 to
September 1997, Mr. Markle served as the Founder of Prospector Software, a
financial software company. From April 1995 to July 1996, Mr. Markle was the
Corporate Controller, Treasurer and Chief Accounting Officer of Netcom Online
Communications, an internet service provider company. Prior to 1995, Mr.
Markle held various management positions in finance with National
Semiconductor Corporation, Fairchild Semiconductor Corporation and Advanced
Micro Devices.
Chris BK Ooi joined the Company in February 1996 as Director of
Engineering and was appointed the Company's Vice President of Operations in
June 1999. From 1994 to 1996, Mr. Ooi was Co-Founder and Executive Vice
President of Ampac Enterprises, a semiconductor sales and marketing company.
Prior to 1994, Mr. Ooi held various positions with National Semiconductor
Corporation.
Page 10
<PAGE>
Richard J. Oshiro joined the Company in May 1995 as Director of Quality
and was appointed the Company's Vice President of Quality in June 1999. Prior
to 1995, Mr. Oshiro held various positions with Integrated Device Technology,
Adaptec, National Semiconductor and Ungermann-Bass.
Edmond Tseng has been President and Chief Executive Officer of OSE, Inc
since 1990. Mr. Tseng has been a Director and Chairman of the Board of
Directors at IPAC since April 1999. From June 1985 to Dec 1989, Mr. Tseng
served as Director of Packaging Technology at Condata, Incorporated.
The Company's success depends to a significant extent upon the continued
service of its key management and technical personnel, each of whom would be
difficult to replace. The competition for qualified employees is intense, and
the loss of the services of key personnel or the inability to attract, retain
and motivate qualified new personnel could have a material adverse effect on
the Company's business, financial condition and results of operations.
Officers serve at the discretion of the Board and are appointed annually.
There are no family relationships among the directors or officers of the
Company.
Item 2. Properties
- -------------------
The Company's principal operations are located in an approximately 82,000
square foot building which it occupies under a ten year lease. In November
1997, the Company leased a separate 2,500 square foot building, with an
initial term of five years, approximately 2 miles from the Company's principal
facility, for its advanced electroplating system. In addition, the Company
acquired a 3,805 square foot leased facility in Santa Clara, California, with
an expiration date of August, 2001, as a result of the OSEI acquisition. The
Company also acquired the sales offices of OSEI located in Boston,
Massachusetts and Phoenix, Arizona. The Company believes its existing
facilities are adequate to meet its needs for the foreseeable future. Since
the Company does not currently operate multiple facilities in different
geographic areas, a disruption of the Company's manufacturing operations
resulting from various factors, including sustained process abnormalities,
human error, government intervention or a natural disaster such as fire,
earthquake or flood, could cause the Company to cease or limit its
manufacturing operations and consequently would have a material adverse effect
on the Company's business, financial condition and results of operations.
Item 3. Legal Proceedings
- --------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted during the fourth quarter to a vote of
security holders.
Page 11
<PAGE>
Part II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
- ----------------------------------------------------------------------
The Company effected the initial public offering of its Common Stock on
February 28, 1996. As of March 17, 2000, there were approximately 1,500
beneficial owners of the Company's Common Stock. The Company's Common Stock
is listed for quotation on the OTC Bulletin Board under the Symbol "IPAC."
The following table sets forth for the periods indicated, the high and low
prices of the Company's Common Stock.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1998 High Low
- ----------------------------------- ------- -------
<S> <C> <C>
First Quarter $1.59 $0.69
Second Quarter 1.37 0.50
Third Quarter 1.00 0.13
Fourth Quarter $0.25 $0.06
Fiscal Year Ended December 31, 1999 High Low
- ----------------------------------- ------- -------
First Quarter $0.52 $0.08
Second Quarter 0.59 0.23
Third Quarter 0.34 0.17
Fourth Quarter $0.63 $0.13
</TABLE>
The trading price of the Company's Common Stock is expected to continue
to be subject to wide fluctuations in response to quarter-to-quarter
variations in operating results, announcements of technological innovations or
new products by the Company or its competitors, general conditions in the
semiconductor industry, changes in earnings estimates or recommendations by
analysts, the failure of the Company to meet or exceed published earnings
estimates or other events or factors. In addition, the public stock markets
have experienced extreme price and trading volume volatility in recent months.
This volatility has significantly affected the market prices of securities of
many high technology companies for reasons frequently unrelated to the
operating performance of the specific companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock.
The Company has not paid any cash dividends on its Common Stock and
currently intends to retain any future earnings for use in its business.
Accordingly, the Company does not anticipate that any cash dividends will be
declared or paid on the Common Stock in the foreseeable future. In addition,
our line of credit does not permit the payment of dividends, except for
certain dividends on the Company's series A convertible preferred stock. In
1999, we paid accrued dividends of $90,700 on our series A convertible
preferred stock by issuing 326,022 shares of our Common Stock.
In July 1999, the Company entered into a Business Loan Agreement and
Promissory Note ("the Agreement") with a bank. Under the Agreement the Company
has borrowed $7 million. Under the Agreement, the Company is required to meet
certain covenants including restrictions on payment of dividends. The Company
cannot pay any dividends on the Company's stock other than dividends payable
in the Company's stock and other than dividends payable on the Company's
series A convertible preferred stock purchased by OSE.
Page 12
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, (1)
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(In thousands, except per
share data)
Statement of Operations
Data:
Revenues $20,764 $36,402 $19,744 $23,281 $17,441
Cost of revenue 15,627 28,840 24,089 29,114 23,500
--------- --------- --------- --------- ---------
Gross profit (loss) 5,137 7,562 (4,345) (5,833) (6,059)
--------- --------- --------- --------- ---------
Operating expenses:
Selling, general and
administrative 2,229 3,488 5,167 4,068 3,651
Research and development 694 1,053 1,276 1,101 727
Provision for impairment
of assets - - 3,000 18,200 -
--------- --------- --------- --------- ---------
Total operating
expenses 2,923 4,541 9,443 23,369 4,378
--------- --------- --------- --------- ---------
Operating income (loss) 2,214 3,021 (13,788) (29,202) (10,437)
Interest and other income 551 1,210 971 1,209 72
Interest expense (1,074) (1,384) (2,185) (1,783) (1,555)
--------- --------- --------- --------- ---------
Income (loss) before
income taxes and
extraordinary gains 1,691 2,847 (15,002) (29,776) (11,920)
Provision for income taxes (141) (530) - - -
--------- --------- --------- --------- ---------
Income (loss) before
extraordinary gains 1,550 2,317 (15,002) (29,776) (11,920)
Extraordinary gains - - - - 2,047
--------- --------- --------- --------- ---------
Net income (loss) 1,550 2,317 (15,002) (29,776) (9,873)
Preferred stock dividend - - - - 308
Deemed dividends on
preferred stock - - - - 6,800
--------- --------- --------- --------- ---------
Net income (loss)
applicable to common
stockholders $1,550 $2,317 ($15,002) ($29,776) ($16,981)
========= ========= ========= ========= =========
Net income (loss)
per share (1):
Basic $0.77 $0.20 ($1.08) ($2.12) ($0.68)
Diluted $0.16 $0.16 ($1.08) ($2.12) ($0.68)
Number of shares used
to compute per share
data (1):
Basic 2,018 11,730 13,898 14,046 24,957
Diluted 9,603 14,157 13,898 14,046 24,957
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
Balance Sheet Data:
Working capital $4,773 $15,614 ($5,877) ($16,085) ($16,687)
Total assets 28,260 69,639 55,482 18,728 51,648
Long-term obligations /
deferred gains 7,015 16,926 14,249 1,249 1,111
Mandatorily redeemable
convertible preferred
stock 15,981 - - - 5,100
Total stockholders' ($918) $40,761 $26,238 ($3,207) ($6,723)
equity (deficit)
</TABLE>
(1) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the method used to determine shares used in computing
per share amounts.
Page 13
<PAGE>
Item 7. 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 as follows and elsewhere in this Report on Form 10-K.
Overview
As a result of a reduction in orders from the Company's customers, the
Company has had significant excess production capacity since the first
quarter of 1997. The reduction in revenues and underutilization of capacity
and resultant underabsorption of fixed costs resulted in operating losses
that have continued into 1999. As a result of these circumstances, the
Company's independent accountants' opinion on the Company's December 31,
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, Orient Semiconductor Electronics, Limited ("OSE")
purchased 4,000,000 shares of the Company's Series A Convertible Preferred
Stock, convertible into approximately 55,000,000 shares of the Company's
Common Stock for $6.8 million. As part of this transaction the Company's
secured creditors agreed to terminate their legal actions and restructured
the Company's secured debt.
OSEI was a privately held corporation that serves as the exclusive
North American distributor of OSE, a public Taiwanese company and the
Company's principal stockholder. OSEI derives its earnings from fees
received on the sales of OSE's semiconductor assembly and test services to
customers headquartered in North America. On October 29, 1999, the Company
acquired OSEI 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 to the OSEI shareholders. As a result of the
transaction, the distributor, OSEI, is being operated as a wholly owned
subsidiary of the Company. The Company 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 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
Page 14
<PAGE>
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.
To date, the Company has been substantially dependent on a relatively
small number of customers. Specifically, Atmel Semiconductor and Orbit
Semiconductor accounted for 30%, and 15%, respectively, of the Company's
revenues in 1999. Atmel, Cirrus Logic and Ford accounted for 39%, 11% and 11%,
respectively, of the Company's revenues in 1998. Cirrus Logic, Intel
Corporation and Atmel accounted for 17%, 16% and 14%, respectively, of the
Company's revenues in 1997. The Company anticipates that significant customer
concentration will continue, although the companies which constitute the
Company's largest customers may change from period to period. In this regard,
in 1999 Ford stopped manufacturing the automotive component that the Company
packaged.
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.
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.
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.
Results of Operations
The following table sets forth, for the periods indicated, certain items
in the Company's statement of operations as a percentage of revenues:
Page 15
<PAGE>
<TABLE>
<CAPTION>
-----------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of revenues 122.0 125.0 134.7
--------- --------- ---------
Gross loss (22.0) (25.0) (34.7)
--------- --------- ---------
Operating expenses:
Selling, general and administrative 26.2 17.5 20.9
Research and development 6.4 4.7 4.2
Provision for impairment of assets 15.2 78.2 -
--------- --------- ---------
Total operating expenses 47.8 100.4 25.1
--------- --------- ---------
Operating loss (69.8) (125.4) (59.8)
Interest and other income 4.9 5.2 0.4
Interest expense (11.1) (7.7) (8.9)
--------- --------- ---------
Loss before extraordinary
gains and preferred stock dividends (76.0) (127.9) (68.3)
Extraordinary gain - - 11.7
--------- --------- ---------
Net loss (76.0)% (127.9)% (56.6)%
========= ========= =========
</TABLE>
Revenues
The Company recognizes revenues upon shipment of products to its
customers. Revenues decreased 25.1% to $17.4 million in 1999, from $23.3
million in 1998. The revenues in 1999 include $1.2 million attributable to
the new distribution segment revenues resulting from the acquisition of OSEI.
Revenues increased 17.9% to $23.3 million in 1998, from $19.7 million in 1997.
The decrease in revenues in 1999 was primarily due to decreased orders and a
reduction in average selling prices due to changes in product mix and a
decline in selling prices. The increase in 1998 revenues was primarily due to
increased orders offset in part by a reduction in average selling prices due
to changes in product mix and a decline in selling prices.
A substantial portion of the Company's net revenues in each quarter
results 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 Loss
Cost of revenues includes materials, labor, depreciation and overhead
costs associated with semiconductor packaging. Gross loss increased to $(6.1)
million in 1999 from ($5.8) million in 1998. Gross loss was ($4.3) million in
1997. Gross loss as a percentage of revenues was (34.7%) in 1999, (25.0%) in
1998 and (22.0%) in 1997. The increase in gross loss in 1999 was primarily
the result of lower average selling prices, caused by changes in product mix
and industry competition which offset the reduction in material, labor, and
depreciation expenses and a gross profit of $1.2 million recorded by OSEI
since its acquisition. The increases in gross loss in 1998 and 1997 were
primarily the result of lower average selling prices, caused by changes in
product mix and industry competition, and higher costs for depreciation, labor
and manufacturing overhead and low capacity utilization.
Page 16
<PAGE>
Depreciation for certain production machinery and equipment acquired
prior to 1997 is calculated using the units of production method, in which
depreciation is calculated based upon the units produced in a given period
divided by the estimate of total units to be produced over its life following
commencement of use. Such estimate is reassessed when facts and circumstances
suggest a revision may be necessary. Based upon reduced utilization of
machinery and equipment in relation to plan, the estimate for total throughput
was reduced in late 1996 causing the depreciation rate per unit to increase in
late 1996. Such higher depreciation rate continued into 1997 and 1998. In
all cases, the assets will be fully depreciated by the end of their estimated
six year life. Compared with straight line depreciation, the units of
production method generally results in lower depreciation expense during the
early life of the equipment and relatively higher depreciation expense once
the equipment is in full production. All machinery and equipment acquired
after 1996 is depreciated using the straight line depreciation method. After
the write down of impaired assets (see Note 4 - Equipment Impairment) in June
1998, depreciation expense for the second half of 1998 and 1999 was
significantly lower than the first half of 1998.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of costs
associated with sales, customer service, finance, administration and
management personnel, as well as advertising, public relations, legal and
facilities costs. Selling, general and administrative expenses were $3.7
million in 1999, $4.1 million in 1998 and $5.2 million in 1997. The selling,
general and administrative expenses in 1999 includes $494,000 attributable to
OSEI. The decrease in 1999, compared to 1998, was due primarily to reduced
spending in sales and administration offset by increased spending in sales
associated with OSEI. The decrease in 1998, compared to 1997, was due
primarily to reduced spending in administration and sales.
As a percentage of revenues, selling, general and administrative expenses
increased to 20.9% in 1999 compared to 17.5% in 1998. In 1997, the percentage
was 26.2%. The fluctuation in percentages reflects the changes in absolute
spending and revenue.
Research and Development
Research and development expenses consist primarily of the costs
associated with research and development personnel, the cost of related
materials and services, and the depreciation of development equipment.
Research and development expenses were $727,000 in 1999, $1.1 million in 1998
and $1.3 million in 1997.
As a percentage of revenues, research and development expenses were 4.2%
in 1999, 4.7% in 1998 and 6.4% in 1997. The changes in such expenses as a
percentage of revenues reflected changes in absolute spending and revenue.
Write Down of Impaired Assets
During the second quarter of 1998, the Company recorded charges related
to the impairment of its manufacturing equipment of $18.2 million. These
adjustments related to recording reserves against the carrying value of
manufacturing equipment. The impairment is a result of continued adverse
conditions in the semiconductor industry, and historical as well as
forecasted manufacturing equipment underutilization, resulting in the
estimation that the value of the manufacturing equipment will not be fully
recovered. The fair value of manufacturing equipment was based upon an
independent estimate of fair values.
During the second quarter of 1997, the Company took a $3 million charge
for impaired assets. This charge included a $2.4 million reserve related to
equipment used for the production of certain products with limited future
demand, and a $500,000 reserve for the cancellation of purchase orders for
equipment which the Company has determined to be surplus in relation to
current demand.
Page 17
<PAGE>
Interest and Other Income
Interest income in 1999, 1998, and 1997 was $58,000, $83,000, and
$573,000, respectively. The reductions in 1999 and 1998 were due to lower
investment balances, which resulted from the losses from operations and
capital expenditures. In 1997, other income included approximately $368,000
from the sublease of a portion of the Company's facilities complex, which the
Company sold in 1998. In 1998, other income included a gain of $700,000 from
the sale of the land and building not occupied by the Company. In 1998, other
income also included $124,000, which was earned from development work with a
semiconductor industry consortium and approximately $158,000 from non-
recurring engineering services.
Interest Expense
Interest expense consists primarily of interest payable on bank debt, and
capital leases and term loans secured by equipment. Interest expense for
1999, 1998, and 1997 was $1.6 million, $1.8 million and $2.2 million,
respectively.
Provision for Income Taxes
In 1999, 1998 and 1997, the Company did not recognize any tax benefits
from the operating losses. FASB Statement No. 109 provides for the
recognition of deferred tax assets if realization of such assets is more
likely than not. Based upon available data, which includes the Company's
historical operating performance and the reported cumulative net losses in
prior years, the Company has provided for full valuation allowance against the
Company's net deferred tax assets as the future realization of the tax benefit
is not sufficiently assured.
Extraordinary Gain
In April 1999, the Company's secured creditors agreed to restructure
the Company's secured debt, including debt forgiveness. As a result, the
Company recorded an extraordinary gain of $1,487,000.
In September 1999, the Company entered into a loan and security
agreement with Far East National Bank and Bank SinoPac, Los Angeles Branch.
As a result the liabilities subject to the April 1999 restructuring were
settled for less than recorded amounts. Accordingly, this transaction
resulted in an extraordinary gain of $560,000.
Deemed Dividends on Preferred Stock
During the second quarter of 1999, the Company recorded a deemed
dividend on preferred stock of $6.8 million. This is the result of the
conversion price of the convertible preferred stock issued to OSE during the
quarter being less than the market price of the common stock on the date of
the transaction. All deemed dividends related to the transaction have been
recognized during the second quarter as a result of the preferred stock
being immediately convertible at the discretion of the holder.
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 ("TQFPs").
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
Page 18
<PAGE>
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>
1999:
Revenues $16,227 $1,214 $17,441
Net loss ($10,627) $754 ($9,873)
</TABLE>
Recent Accounting Pronouncements
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 established a new
model for accounting for derivative 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.
Liquidity and Capital Resources
During 1999, the Company's net cash used in operations was $5.7
million. Net cash used in operations was comprised primarily of a net loss
of $9.9 million and non-cash extraordinary gains on debt restructure of $2.0
million, partially offset by $4.5 million of non-cash charges for
depreciation and amortization, and a net increase in working capital items
of $1.8 million. The increase in working capital is primarily due to the
acquisition of OSEI in October, 1999. The net increase in working capital
items primarily reflected a $6.1 million increase in accounts payable which
was partially offset by a $4.0 million increase in accounts receivable. As
of December 31, 1999, the Company had a cash balance of $5.4 million and is
operating under bank lines obtained in July and September 1999.
In 1999, $738,000 was provided by investing activities. The Company
had capital expenditures of $608,000 during 1999. The capital expenditures
were incurred primarily for the purchase of production equipment. Most of
the Company's production equipment has historically been funded either
through capital leases or term loans secured by production equipment and
future expenditure is expected to be funded out of internal cash flow.
On January 20, 1998, the Company completed the sale of its facilities,
which consists of land and two buildings with a total of 138,336 square feet
of building space, and agreed to lease back the 82,290 square foot building
that it occupies. Net proceeds from the sale were $7.3 million, net of the
elimination of $6.6 million of mortgage debt, fees, commissions and closing
costs. The results for the first quarter of 1998 include a gain of $700,000
from the sale of the land and building not occupied by the Company. The
remaining gain of approximately $1,400,000 will be amortized as a reduction of
lease expense over the initial ten year term of the
Page 19
<PAGE>
lease for the building that the Company occupies.
In June 1998, the Company entered in a capital lease for approximately
$3.1 million of production equipment. In conjunction with the lease, the
Company issued warrants to purchase 171,428 shares of common stock at $1.31
per share and which are exercisable for seven years. The warrants were
valued at $132,000 using a Black-Scholes valuation model. These warrants
were repriced in 1999 to an exercise price of $0.1236 per share as part of a
debt restructure. This lease was paid in full in September 1999.
In 1999, $10.4 million was provided in financing activities. This
resulted primarily from net proceeds from issuance of preferred stock for
$6.5 million, and proceeds from borrowings of $32.5 million which were
offset by payments of $28.7 million on the revolving line of credit, notes
payable and capital leases.
At the end of the second quarter of 1998, the Company ceased making
scheduled repayments of its debt balances outstanding relating to its Bank
Term Note Payable, Equipment Notes Payable and Line of Credit as well as its
capital leases. Certain of these debt facilities required that the Company
maintain certain financial covenants. At July 5, 1998, the Company was out
of compliance with certain of these covenants. As a result of the covenant
noncompliance and failure to make scheduled repayments, the entire balance
due as of July 5, 1998, $12.0 million, was classified as a current
liability. At April 29, 1999, the Company restructured this debt and was in
compliance with the covenants.
In April 1999, OSE purchased 4,000,000 shares of the Company's Series A
Redeemable Preferred Stock, convertible into approximately 55,000,000 shares
of the Company's Common Stock for $6.8 million. As part of this
transaction, the Company's secured creditors agreed to terminate their legal
actions and have restructured the Company's secured debt, including debt
forgiveness. On August 4, 1999, OSE converted 1,000,000 preferred shares
into 13,748,771 shares of common stock.
As part of the restructuring of secured debt, certain creditors were
issued warrants to purchase a total of approximately 1.5 million shares of
common stock at a price of $0.1236 per share. In addition, warrants to
purchase a total of 244,345 shares of common stock held by secured creditors
were repriced from exercise prices ranging from $0.77 to $3.30 per share of
common stock to $0.1236 per share. The fair value as determined using a
Black-Scholes valuation model of the warrants issued and the incremental value
of the repriced warrants was $790,000.
On July 23, 1999, the Company entered into a $7 million bank line of
credit. This line is guaranteed by OSE and is available to finance
operations and working capital needs through July 31, 2000. Borrowings
under the line of credit accrue interest at the bank's prime rate (8.50% at
December 31, 1999) less 0.25%. The Company used the proceeds of this line
to terminate and completely pay off an existing $7 million line of credit.
On September 29, 1999, the Company entered into a line of credit
agreement with two banks that provides through September 2000, for borrowing
up to a total of $11,000,000. Borrowings under the line of credit accrue
interest at the bank prime rate (8.50% of December 31, 1999) plus 0.75% and
are collateralized by the assets of the Company. This agreement requires
the Company to maintain certain financial covenants and restricts the
payment of dividends. At December 31, 1999 the Company has approximately $1
million available to be used under the $11 million credit facility entered
into in September 1999.
On September 29, 1999 the Company paid off all the secured creditors of
the debt restructured on April 29, 1999.
The Company believes that existing cash balances 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
Page 20
<PAGE>
quarter of 2000. The Company believes that its existing bank lines of credit
of $18.0 million which expire in 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 State of Readiness
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 effect 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 production processes, changes
in costs and availability of labor, raw materials and components, costs to
obtain materials on an expedited basis, mix of orders filled, the impact of
price competition on the Company's average selling prices and changes in
economic conditions. The occurrence or continuation of unfavorable changes
in any of the preceding factors would adversely affect the Company's
business, financial condition and results of operations.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
- --------------------------------------------------------------------
The Company has various debt instruments outstanding that mature by 2000.
Certain of these instruments have interest rates that are based on associated
rates that may fluctuate over time based on economic changes in the
environment, such as the Prime Rate. The Company is subject to interest rate
risk, and could be subjected to increased interest payments if market interest
rates fluctuate. The Company estimates that a ten percent increase in
interest rates would cause interest expense to increase by an immaterial
amount.
Page 21
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Page
----
Report of Independent Accountants................................... 23
Consolidated Balance Sheets as of December 31, 1998 and 1999........ 24
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999.................................. 25
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1998 and 1999.................................. 26
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.................................. 27
Notes to Consolidated Financial Statements.......................... 28
Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Page 22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders of
Integrated Packaging Assembly Corporation:
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, of stockholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of Integrated Packaging Assembly Corporation and subsidiary at December 31,
1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Integrated Packaging Assembly Corporation is a member of a group of
affiliated companies owned by Orient Semiconductor Electronics, Ltd of
Taiwan ("OSE") and, as disclosed in Note 14 to the consolidated financial
statements, OSE is guarantor of certain debts of the Company, and the
Company had certain other transactions with OSE. It is possible that the
terms of these transactions are not the same as those that would result from
transactions among wholly unrelated parties.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Jose, California
March 9, 2000
Page 23
<PAGE>
Integrated Packaging Assembly Corporation
Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ - $5,371
Accounts receivable, net of allowance for
doubtful accounts of $263 and $272 2,105 28,295
Inventory 1,704 1,204
Prepaid expenses and other current assets 792 603
---------- ----------
Total current assets 4,601 35,473
Property and equipment, net 13,930 10,498
Intangible assets, net - 5,659
Other assets 197 18
---------- ----------
Total assets $18,728 $51,648
========== ==========
Liabilities, Mandatorily Redeemable Convertible
Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
Bank debt and notes payable $11,399 $17,000
Capital leases obligations 4,324 -
Accounts payable 2,155 2,290
Accounts payable - related party - 29,801
Accrued expenses and other liabilities 2,808 3,069
---------- ----------
Total current liabilities 20,686 52,160
Deferred gain on sale of facilities 1,249 1,111
---------- ----------
Total liabilities 21,935 53,271
---------- ----------
Mandatorily redeemable convertible preferred stock - 5,100
---------- ----------
Commitments and contingencies (note 6)
Stockholders' equity (deficit)
Preferred stock - -
Common stock, $.001 par value; 75,000,000 (1998)
and 200,000,000 (1999) shares authorized;
13,938,794 (1998) and 54,414,601 (1999) shares
issued and outstanding 14 54
Additional paid-in capital 40,607 54,333
Accumulated deficit (43,828) (61,110)
---------- ----------
Total stockholders' deficit (3,207) (6,723)
---------- ----------
Total liabilities, mandatorily redeemable
convertible preferred stock and
stockholders' equity (deficit) $18,728 $51,648
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 24
<PAGE>
Integrated Packaging Assembly Corporation
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $19,744 $23,281 $17,441
Cost of revenues 24,089 29,114 23,500
----------- ----------- -----------
Gross loss (4,345) (5,833) (6,059)
----------- ----------- -----------
Operating expenses:
Selling, general & administrative 5,167 4,068 3,651
Research & development 1,276 1,101 727
Provision for impairment of assets 3,000 18,200 -
----------- ----------- -----------
Total operating expenses 9,443 23,369 4,378
----------- ----------- -----------
Operating loss (13,788) (29,202) (10,437)
Interest and other income 971 1,209 72
Interest expense (2,185) (1,783) (1,555)
----------- ----------- -----------
Loss before extraordinary
gains and preferred stock dividends (15,002) (29,776) (11,920)
Extraordinary gains - - 2,047
----------- ----------- -----------
Net loss (15,002) (29,776) (9,873)
Preferred stock dividend - - (308)
Deemed dividends on preferred stock - - (6,800)
----------- ----------- -----------
Net loss applicable to
common stockholders ($15,002) ($29,776) ($16,981)
=========== =========== ===========
Per Share data:
Net loss applicable to common
stockholders before extraordinary
gains per share -
Basic and diluted ($1.08) ($2.12) ($0.76)
Extraordinary gains per share -
Basic and diluted - - 0.08
----------- ----------- -----------
Net loss applicable to common
stockholders per share -
Basic and diluted ($1.08) ($2.12) ($0.68)
=========== =========== ===========
Number of shares used to compute
per share data:
Basic and diluted 13,898 14,046 24,957
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 25
<PAGE>
Integrated Packaging Assembly Corporation
Consolidated Statements of Stockholder's Equity (Deficit)
(In thousands)
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit) Totals
------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 14,015 $14 $39,797 $950 $40,761
Common stock issued under
stock plans 127 - 352 - 352
Common stock repurchased
under stock plans (161) - (15) - (15)
Issuance of warrants - - 94 - 94
Amortization of deferred
compensation - - 48 - 48
Net loss - - - (15,002) (15,002)
------- ------- ---------- ----------- ---------
Balance at December 31, 1997 13,981 14 40,276 (14,052) 26,238
Common stock issued under
stock plans 265 - 152 - 152
Common stock repurchased
under stock plans (2) - (1) - (1)
Issuance of warrants - - 132 - 132
Amortization of deferred
compensation - - 48 - 48
Net loss - - - (29,776) (29,776)
------- ------- ---------- ----------- ---------
Balance at December 31, 1998 14,244 14 40,607 (43,828) (3,207)
Common stock issued under
stock plans 190 - 20 - 20
Common stock repurchased
under stock plans (4) - (1) - (1)
Issuance and repricing of
warrants - - 790 - 790
Beneficial conversion
feature on redeemable
preferred stock - - 6,800 - 6,800
Accretion of redeemable
preferred stock - - - (7,101) (7,101)
Preferred dividend 326 - 91 - 91
Conversion of preferred
stock 13,749 14 1,686 - 1,700
Acquisition of OSE, Inc. 25,910 26 4,292 - 4,318
Amortization of deferred
compensation - - 48 - 48
Preferred stock dividend - - - (308) (308)
Net loss - - - (9,873) (9,873)
------- ------- ---------- ----------- ---------
Balance at December 31, 1999 54,415 $54 $54,333 ($61,110) ($6,763)
======= ======= ========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 26
<PAGE>
Integrated Packaging Assembly Corporation
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows used by Operating Activities:
- ----------------------------------------
Net loss ($15,002) ($29,776) ($9,873)
Adjustments:
Depreciation and amortization 6,426 6,957 4,458
Write down of impaired assets 3,000 18,200 -
Gain on sale of facilities, net - (827) (138)
Loss on disposal of equipment - - 96
Extraordinary gains on debt
restructure - - (2,047)
Changes in assets and liabilities
(in 1999, net of effects of
acquistion):
Accounts receivable 3,045 990 (4,018)
Inventory (360) 633 500
Prepaid expenses and other assets (320) (233) 196
Accounts payable and accounts
payable related party 2,944 (3,323) 6,097
Accrued expenses and other
liabilities (1,369) 633 (1,012)
----------- ----------- -----------
Net cash used in operating activities (1,636) (6,746) (5,741)
----------- ----------- -----------
Cash flows provided by (used in)
investing activities:
- --------------------------------
Acquisition of property and equipment (12,351) (1,507) (608)
Cash acquired - - 1,346
Sales and redemption of short-term
investments 3,025 - -
Proceeds from sale of facilities, net - 7,312 -
----------- ----------- -----------
Net cash provided by (used in)
investing activities (9,326) 5,805 738
----------- ----------- -----------
Cash flows provided by (used in)
financing activities:
- --------------------------------
Payments under capital lease
obligations (1,958) (990) (694)
Proceeds from note payable 10,200 3,490 4,890
Principal payments on note payable (10,506) (4,639) (9,629)
Proceed from bank credit lines - - 27,617
Payments under bank credit lines - - (18,328)
Proceeds from issuance of mandatorily
redeemable preferred stock, net - - 6,499
Proceeds from issuance of common
stock, net 337 152 19
----------- ----------- -----------
Net cash provided by (used in)
financing activities (1,927) (1,987) 10,374
----------- ----------- -----------
Net increase (decrease) in cash (12,889) (2,928) 5,371
Cash and cash equivalents at beginning
of year 15,817 2,928 -
----------- ----------- -----------
Cash and cash equivalents at end
of year $2,928 $ - $5,371
=========== =========== ===========
Supplemental disclosure of cash flow
information
Cash paid for interest $2,074 $1,124 $2,070
Supplemental disclosure of noncash
financing activities
Acquisition of equipment under
capital leases $ - $3,139 $ -
Issuance and repricing of warrants $ 94 $ 132 $ 790
Common stock issued for preferred
stock dividend $ - $ - $ 91
Deemed dividend on preferred stock $ - $ - $6,800
Issuance of common stock on OSE, Inc
acquisition $ - $ - $4,318
Conversion of preferred stock to
common stock $ - $ - $1,700
Accretion of redeemable preferred
stock $ - $ - $7,101
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 27
<PAGE>
INTEGRATED PACKAGING ASSEMBLY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Integrated Packaging Assembly Corporation (the "Company") was
incorporated in California on April 28, 1992 and reincorporated in Delaware on
June 19, 1997. The Company operates within two segments of the semiconductor
industry: (1) manufacturing and (2) distribution.
Within manufacturing, the Company assembles and packages integrated
circuits from wafers consigned by its customers. The Company's focus is on
quad flat packages ("QFPs"), thin quad flat packages ("TQFPs"), ball grid
array packages ("BGAs") and chip scale packaging ("CSPs"), which are used in
complex integrated circuits with high pin-counts in the personal computer and
telecommunications industries.
Within distribution, the Company is the exclusive North American sales
and marketing organization for Orient Semiconductor Electronics, Ltd. ("OSE")
of Taiwan, a public Taiwanese company and the Company's controlling
stockholder. Earnings are derived from fees received on the sales of OSE's
semiconductor assembly and test services to customers headquartered in North
America. The Company entered this segment of the market in October 1999 with
the acquisition of OSE, Inc. ("OSEI") (see Note 5, "Acquisition of the North
American Distributor of Orient Semiconductor Electronics, Ltd.").
Basis of Presentation
As a result of a reduction in orders from the Company's customers, the
Company has significant excess production capacity. The reduction in revenues
and underutilization of capacity and resultant underabsorption of fixed costs
resulted in operating losses which have continued into 1999. As a result of
the operating losses and cost of capital additions, the Company believes that
it will fund its projected working capital and other cash requirements through
2000 out of operating activities and renewal of existing financing facilities
as a result of expected ongoing guarantees from OSE. While there can be no
assurance that the Company can obtain additional financing when needed, the
Company has taken actions to improve liquidity.
The Company has two lines of credit which provide for borrowings up to a
total of $18.0 million, of which $17.0 million has been drawn down at December
31, 1999. Both of the lines of credit expire during 2000.
The Company is currently seeking to renew its bank lines of credit. The
Company believes that it will be successful in renewing these lines due to the
guarantee of OSE, its principal stockholder. There can be no assurance that
the lines will be renewed, that OSE will continue to guarantee certain
borrowings or other financing will be available when needed. If adequate
funds are not available the Company may be required to substantially curtail,
cease or liquidate its operations and reorganize its indebtedness.
These financial statements have been prepared on a going concern basis
and, therefore, do not include any adjustment that might result from these
uncertainties.
Risks and uncertainties
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
Page 28
<PAGE>
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 and operating results.
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.
Fiscal year
In 1997, the Company changed its fiscal year end to December 31. Prior
to 1997, the Company's fiscal quarters and year ended on the Sunday nearest
the calendar quarter end and December 31, respectively. For purposes of
financial statement presentation, each fiscal year is presented as having
ended on December 31. Fiscal 1997 consisted of 367 days. Fiscal 1998 and
1999 consisted of 365 days. The effect of the different number of days in
the fiscal years on revenues and net loss was insignificant.
Basis of consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary after elimination of intercompany
balances and transactions.
Cash equivalents and short term investments
The Company considers all highly liquid investments purchased with an
initial maturity of 90 days or less to be cash equivalents, and investments
with original maturities of greater than 90 days to be short term
investments.
Financial instruments
The carrying amounts reported for cash and cash equivalents, accounts
receivable and accounts payable are considered to approximate fair values
based upon the short maturities of these financial instruments. The
carrying amount of borrowings under the lines of credit are also considered
to approximate fair values as the interest rates on the borrowings adjust to
the banks reference rate.
Inventory
Inventory, which primarily consists of raw material supplies such as
gold wire, lead frames and mold compound, is stated at the lower of cost,
determined by the first-in, first-out basis, or market. The Company holds
product on consignment from its customers while services are being
performed.
Property and equipment
Property and equipment are recorded at cost. For certain production
machinery and equipment acquired prior to 1997, depreciation is calculated
using the units of production method, in which depreciation is calculated
based upon the units produced in a given period divided by the estimate of
total units to be produced over its life following commencement of use. Such
estimate is reassessed when facts and circumstances suggest a revision may
be necessary. In all cases the asset will be fully depreciated by the end
of its estimated six-year life. In late 1996, due to lower than expected
utilization, the Company reduced its estimates of the number of units to be
produced over the useful equipment life. Accordingly, the
Page 29
<PAGE>
depreciation rate per unit was increased and was not material to 1996
results. The higher rate continued into 1997 and will continue until the
assets are fully depreciated. Depreciation for all other property and
equipment and all production machinery and equipment acquired after 1996 is
computed using the straight-line method over the estimated useful lives of
the assets, generally 3 to 6 years.
In December 1996, the Company acquired a real estate parcel and
facilities, including the building that it had operated in since 1993, for
$9.2 million. The Company has allocated its purchase cost among land,
buildings and improvements in proportion to fair market value. The building
was being depreciated over 30 years, with building improvements depreciated
over 5 to 15 years. In January 1998, the real estate parcel and buildings
on the parcel were sold and the Company entered into a lease for the
building that it occupies. See Note 6.
Long-lived assets
Long-lived assets include property and equipment and intangible assets.
Whenever events or changes in circumstances indicate that the carrying
amount of long-lived assets may not be recoverable, the Company estimates
the future cash flows, undiscounted and without interest charges, expected
to result from the use of those assets and their eventual cash position. If
the sum of the expected future cash flows is less than the carrying amount
of those assets, the Company recognizes an impaired loss based on the excess
of the carrying amount over the fair value of the assets.
Revenue recognition
Revenue is generally recognized upon shipment. A provision for
estimated future returns is recorded at the time revenue is recognized. As
a result of the acquisition of OSEI, the company became a distributor. The
nature of the distributor transactions is such that the company does not
bear the risks and rewards of ownership of the product being distributed and
is compensated in a manner similar to a commission. Accordingly revenue
relating to the Company's distribution agreement is recognized on a net
basis. From the date of acquisition of OSEI through December 31, 1999 the
net revenue recorded was $1.2 million, on gross billings of $24.3 million.
Income taxes
The Company accounts for income taxes using the asset and liability
approach which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or income tax returns.
In estimating future tax consequences, the Company generally considers all
expected future events other than enactments of changes in the tax law or
rates.
Stock based compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Accordingly, compensation for stock options is generally
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to
acquire the stock. The Company adopted the disclosure only requirements of
SFAS 123.
Comprehensive income
There was no difference between the Company's net loss and its total
comprehensive loss for the periods reported in these financial statements.
Page 30
<PAGE>
Net loss per share
Basic EPS is computed by dividing net loss available to common
stockholders (numerator) by the weighted average number of common shares
outstanding (denominator) during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period including stock
options and warrants, using the treasury stock method, and convertible
preferred stock, using the if-converted method. In computing diluted EPS, the
average stock price for the period is used in determining the number of shares
assumed to be purchased from the exercise of stock options and warrants.
Following is a reconciliation of the numerator and denominator of the
basic and diluted earnings per share before and after the extraordinary gain.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Basic and diluted EPS Computation
before extraordinary gain:
Net loss applicable to common
stockholders ($15,002) ($29,776) ($16,981)
Extraordinary gain - - 2,047
----------- ----------- -----------
Net loss applicable to common
stockholders before extraordinary
gain ($15,002) ($29,776) ($19,028)
=========== =========== ===========
Weighted-average common stock
outstanding 13,898 14,046 24,957
=========== =========== ===========
Basic and diluted loss per share
applicable to common stockholders
before extraordinary gain ($1.08) ($2.12) ($0.76)
=========== =========== ===========
Basic and diluted EPS Computation
Net loss applicable to common
stockholders ($15,002) ($29,776) ($16,981)
=========== =========== ===========
Weighted-average common stock
outstanding 13,898 14,046 24,957
=========== =========== ===========
Basic and diluted loss per share
applicable to common stockholders ($1.08) ($2.12) ($0.68)
=========== =========== ===========
Antidilutive Securities:
- ------------------------
Convertible preferred stock - - 3,000
=========== =========== ===========
Options and warrants outstanding at
end of period 2,186 2,501 11,478
=========== =========== ===========
Weighted-average exercise price of
options and warrants $3.04 $1.43 $0.50
=========== =========== ===========
</TABLE>
Antidilutive securities consist of options and warrants not included in
the computation of diluted earnings per share because the exercise price of
each of these options was greater than the average market price of the
Company's Common Stock during the period or the Company incurred a net loss
during the period resulting in all options, warrants and convertible preferred
stock outstanding being antidilutive.
Use of estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
Page 31
<PAGE>
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
vary from these estimates.
Recent Accounting Pronouncements
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 established a new
model for accounting for derivative 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.
NOTE 2 - BALANCE SHEET COMPONENTS:
(In thousands)
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Inventory
Raw materials $1,509 $1,072
Work in process 195 132
---------- ----------
Total $1,704 $1,204
========== ==========
Property and equipment
Buildings and improvements $701 $709
Machinery and equipment 29,533 29,924
Office and computer equipment 705 1,032
Furniture and fixtures 257 276
---------- ----------
31,196 31,941
Less: accumulated depreciation (17,266) (21,443)
---------- ----------
$13,930 $10,498
========== ==========
Depreciation expense was $6,092,000,
$6,192,000 and $4,240,000 for 1997,
1998 and 1999, respectively.
Accrued expenses and other liabilities
Accrued payroll and related expenses $771 $1,406
Other accrued liabilities 2,037 1,663
---------- ----------
$2,808 $3,069
========== ==========
</TABLE>
Page 32
<PAGE>
NOTE 3 - RESEARCH AND DEVELOPMENT ARRANGEMENT:
In February 1995, the Company joined a consortium (the ''Consortium'')
of semiconductor companies which entered into a research and development
contract with the Advance Research Projects Agency (ARPA), a United States
Government agency. Under this agreement, ARPA will provide funds based on
the completion of milestones approved by ARPA and the Consortium. The
agreement expired in 1997. Income generated from the research and
development contract was recognized upon the completion of milestones, which
approximates the percentage of completion method. Accordingly, $124,000 was
recognized under this agreement during 1998 and included in interest and
other income. The Company is not obligated to repay funding regardless of
the outcome of its development efforts; however, the agreement requires the
Company to use its best efforts to achieve specified results as per the
agreement. The Company retains ownership of the intellectual property
developed under the contract.
NOTE 4 - EQUIPMENT IMPAIRMENT CHARGE:
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-lived Assets and
for Long-lived Assets to Be Disposed Of" (SFAS 121). SFAS 121 requires that
long-lived assets held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the net book value
of an asset will not be recovered through expected future cash flows
(undiscounted and before interest) from use of the asset. The amount of
impairment loss is measured as the difference between the net book value of
the assets and the estimated fair value of the related assets.
During the second quarter of 1998, the Company recorded charges related
to the impairment of its manufacturing equipment of $18.2 million. These
adjustments related to recording reserves against the carrying value of
manufacturing equipment. The impairment is a result of continued adverse
conditions in the semiconductor industry, and historical as well as
forecasted manufacturing equipment underutilization, resulting in an
estimation that the value of the manufacturing equipment will not be fully
recovered. The fair value of manufacturing equipment was based upon an
independent estimate of fair values.
During the second quarter of 1997, the Company took a $3 million charge
for impaired assets. This charge included $2.4 million related to equipment
used for the production of certain products with limited future demand, and
$500,000 for the cancellation of purchase orders for equipment which the
Company has determined to be surplus in relation to current demand.
NOTE 5 - ACQUISITION OF THE NORTH AMERICAN DISTRIBUTOR OF ORIENT
SEMICONDUCTOR ELECTRONICS, LTD.
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 its Common Stock with a fair market value of $4.3
million. As a result of the transaction, the distributor, 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, a public Taiwanese company and the
Company's principal stockholder. OSEI derives its earnings from fees
received on the sales of OSE's semiconductor assembly and test services to
customers headquartered in North America. The Company reported consolidated
results with OSEI since the acquisition date.
The purchase price of $4.7 million, which includes acquisition costs of
$0.4 million, was accounted for using the purchase method of accounting,
which means that the purchase price was allocated to the assets
Page 33
<PAGE>
acquired and liabilities assumed based on the estimated fair values at the
date of the acquisition. The fair value of the assets of OSEI and a summary
of the consideration exchanged for these assets is as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Assets acquired:
Tangible assets, primarily cash
and accounts receivable $23,642
Distributor contract 3,557
Workforce 280
Goodwill 1,940
Liabilities assumed (24,711)
----------
Total purchase price $4,708
==========
</TABLE>
The amount allocated to the distributor contract and the workforce is
amortized on a straight line basis over ten years and three years,
respectively. The goodwill recorded on the acquisition is to be amortized
over its expected life of seven years.
Summarized below are the unaudited pro forma results of IPAC as though
OSEI had been acquired at the beginning of periods presented. Adjustments
have been made for the estimated increases in amortization related to the
purchase of the distributor contract, workforce and goodwill, and other
appropriate pro forma adjustments. Non-recurring transactions have been
excluded from the results of both periods presented.
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Net revenues $25,352 $19,630
Net loss ($30,104) ($11,972)
Net loss per share - basic and diluted ($0.75) ($0.26)
</TABLE>
The above amounts are based on certain assumptions and estimates which
we believe are reasonable and do not reflect any benefit from economies of
scale which might be achieved from combined operations. The pro forma
financial information presented above is not necessarily indicative of
either the results of operations that would have occurred had the
acquisition taken place at the beginning of the periods presented or of
future results of operations of the combined companies.
NOTE 6 - LEASING ARRANGEMENTS AND COMMITMENTS:
On January 20, 1998, the Company completed the sale of its facilities,
which consists of land and two buildings with a total of 138,336 square feet
of building space, and agreed to lease back the 82,290 square foot building
it occupies. Net proceeds from the sale were $7.3 million, net of the
elimination of $6.6 million of mortgage debt, fees, commissions and closing
costs. The results for the first quarter of 1998 included a gain of
$700,000 from the sale of the land and building not occupied by the Company.
The remaining gain of approximately $1,400,000 is being amortized as a
reduction of lease expense over the initial ten year term of the lease for
the building that the Company occupies.
In November 1997, the Company entered into a noncancelable operating
lease for a 2,500 square foot portion of a building for its plating
operations. The lease is for five years, with an option to extend.
The Company acquired a 3,805 square foot leased facility as a result of
the OSEI acquisition. The lease expires in August 2001.
Page 34
<PAGE>
Rent expense was $46,000, $1,054,000 and $1,529,000 in 1997, 1998 and
1999, respectively.
Future minimum lease payments over the next five years and thereafter
under operating leases at December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Building
Leases
-----------
<S> <C>
Year ending December 31:
2000 $1,313
2001 1,274
2002 1,275
2003 1,196
2004 1,316
Thereafter 4,211
-----------
Total minimum payments $10,585
===========
</TABLE>
NOTE 7 - BANK DEBT and NOTES PAYABLE
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Bank debt and notes payable $2,816 $17,000
Equipment notes payable 8,583 -
---------- ----------
$11,399 $17,000
========== ==========
</TABLE>
Bank debt and notes payable
At December 31, 1998, the Company had an accounts receivable factoring
agreement with its bank and an additional $7 million bank line of credit.
These were replaced during 1999 with the borrowings outlined below.
In July 1999, the Company entered into a Business Loan Agreement and
Promissory Note (the Agreement). Under the Agreement the Company has
borrowed $7.0 million. The borrowings under the Agreement are guaranteed by
OSE and are repayable in July 2000. Under the Agreement, the Company is
required to meet certain covenants including restrictions on changes in
ownership and payment of dividends. Borrowings under the Agreement accrue
interest at the bank's prime rate (8.50% at December 31, 1999) less 0.25%.
On September 29, 1999, the Company entered into a loan and security
agreement with two banks that provides through September 2000, for
borrowings up to a total of $11,000,000 (the Facility). Borrowings under
the Facility accrue interest at the bank's prime (8.50% at December 31,
1999) plus 0.75% and are collateralized by the assets of the Company. The
borrowings under the Facility are guaranteed by OSE. The Facility requires
the Company to meet certain financial covenants, including certain net
income/loss levels, restrictions on the payment of dividends and
restrictions on a change in control of the Company. At December 31, 1999,
the Company had drawn down $10 million and had $1 million available to be
used.
As a result of the conversion of Series A Preferred Stock into common
Stock during August 1999 (see
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<PAGE>
Note 8) and the October 29, 1999 acquisition of OSEI, (see Note 5) the
Company had Events of Default under the Facility and the Agreement. The
Company has obtained waivers for these events as well as negotiated
amendments to the Facility and the Agreement.
Equipment Notes Payable
During 1998, due to covenant noncompliance and failure to make
scheduled repayments the Company defaulted on its equipment notes payable.
As part of the April 1999 transaction outlined in Note 8, under which the
Company issued Series A mandatorily redeemable convertible preferred stock,
the Company's secured creditors agreed to restructure the secured debt,
including debt forgiveness, extended payment terms and terminate related
legal actions. As a result of the April debt restructuring, the Company
recorded an extraordinary gain of $1,487,000.
In September 1999, when the Facility was obtained, it was used to
settle amounts due to secured creditors that were subject to the April 1999
debt restructuring for less than the recorded amounts. This transaction
resulted in an extraordinary gain of $560,000.
NOTE 8 - PREFERRED STOCK:
The Company has 10,000,000 shares of preferred stock authorized at
December 31, 1999. At December 31, 1998 there were 5,000,000 shares of
preferred stock authorized.
During 1999 the Board of Directors designated 4,000,000 of the
preferred stock as Series A convertible preferred stock with a par value of
$.001.
The Company issued 4,000,000 shares of Series A mandatorily redeemable
convertible preferred stock (Series A Preferred) to OSE on April 29, 1999
for proceeds of $6,499,000, net of issuance costs of $301,000. 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 with a value of $1,700,000
into 13,748,771 shares of the Company's Common Stock. The holders of shares
of Series A Preferred are entitled to dividends at the rate of $0.136 per
annum per share payable semiannually on July 1 and January 1 each year. The
dividends on Series A preferred are payable in cash, shares of Common Stock
or any combination of cash and shares of Common Stock, at the option of the
holders of Series A Preferred. The Series A Preferred are mandatorily
redeemable for $1.70 per share in the event of any liquidation, dissolution,
or winding up of the Company.
During the second quarter of 1999, the Company recorded a deemed
dividend on preferred stock of $6.8 million. This is the result of the
conversion price of the convertible preferred stock issued to OSE during the
quarter being less than the market price of the common stock on the date of
the transaction. All deemed dividends related to the transaction have been
recognized during the second quarter as a result of the preferred stock
being immediately convertible at the discretion of the holder.
NOTE 9 - STOCK PLANS:
1993 Stock Option Plan
In April 1993, the Board of Directors and stockholders adopted the 1993
Stock Option Plan (the "Plan") which as amended, provides for the grant of
incentive stock options (ISOs) and nonqualified stock options (NSOs) to
purchase up to 2,514,921 shares of Common Stock. ISOs may be granted to
employees and NSOs may be granted to either employees or consultants. In
accordance with the Plan, the stated exercise price
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<PAGE>
shall not be less than 100% and 85% of the estimated fair market value of
Common Stock on the date of grant for ISOs and NSOs, respectively, as
determined by the Board of Directors. The Plan provides that the options
shall be exercisable over a period not to exceed ten years and shall vest as
determined by the Board of Directors. Substantially all of the options vest
25% one year after the date of grant and 1/48 each month thereafter.
Compensation expense of approximately $200,000 was recognized on stock
options granted in 1995, and is being amortized over the four year vesting
period. There is no deferred compensation balance at December 31, 1999.
On September 3, 1999, the Plan was amended to increase by 17,485,079 to
an aggregate of 20,000,000 the amount of options that may be granted. In
addition, the number of shares that may be granted to any employee in any
one fiscal year was increased from 250,000 shares to 2,000,000 shares and
the number of shares that may be granted to an employee upon initial
employment was increased from 250,000 shares to 2,000,000 shares.
1995 Director Stock Option Plan
In December 1995, the Company adopted a Director Stock Option Plan (the
"Director Plan"). A total of 100,000 shares of Common Stock have been
authorized for issuance under the Director Plan. The Director Plan provides
for the grant of NSOs to non-employee directors of the Company. The Director
Plan provides that each non-employee director who joins the Board will
automatically be granted an NSO to purchase 20,000 shares of Common Stock on
the date upon which such person first becomes a non-employee director (the
"Initial Grant"). In addition, each non-employee director will
automatically receive an NSO to purchase 5,000 shares of Common Stock upon
such director's annual re-election to the Board, provided the director has
been a member of the Board for at least six months upon the date of such re-
election (the "Subsequent Grant"). The Initial Grant vests and becomes
exercisable as to 25% of the shares one year after the date of grant and as
to 1/48 of the shares each month thereafter, and each Subsequent Grant shall
become exercisable as to 1/12 of the shares each month following the date of
grant, both subject to the director's continuous service. The exercise
price of all stock options granted under the Director Plan is equal to the
fair market value of the Company's Common Stock on the date of grant.
Options granted under the Director Plan have a term of ten years. Unless
terminated sooner, the Director Plan will terminate in 2006. Options for
20,000 shares were granted in 1997 under the Director Plan. The 1995
Director Stock Option Plan is no longer being used as it was replaced by the
1999 Director Stock Option Plan.
1999 Director Option Plan
In September 1999, the Company adopted the 1999 Director Option Plan
(the "1999 Director Plan"). A total of 4,000,000 shares of Common Stock
have been authorized for issuance under the 1999 Director Plan. The 1999
Director Plan provides for the grant of NSOs to non-employee directors of
the Company. The 1999 Director Plan provides that each non-employee
director who joins the Board will automatically be granted an NSO to
purchase 100,000 shares of Common Stock on the date upon which such person
first becomes a non-employee director. In addition, each non-employee
director will automatically receive an NSO to purchase 100,000 shares of
common Stock upon such directors' annual reelection to the Board if the
director has served on the Board for at least six months as of the date of
the reelection. All options granted under the 1999 Director Plan will have
an exercise price equal to the fair value of the Common Stock on the date of
grant and will be fully vested and exercisable on the date of grant. The
options will have a term of ten years. Options for 400,000 shares were
granted in 1999. At December 31, 1999 there were 3,600,000 options
available for grant.
1997 Non Statutory Stock Plan
In October 1997, the Board of Directors adopted the 1997 Non-Statutory
Stock Plan, which, as amended,
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<PAGE>
provides for the grant of non-qualified stock options to purchase up to
750,000 share of Common Stock. The NSOs may only be granted to non-executive
officer employees. In accordance with the Plan, the stated exercise price
shall not be less than 85% of the estimated fair market value of the Common
Stock on the date of grant of the NSO. The options shall be exercisable over a
period not to exceed ten years and shall vest 25% after the year of grant and
1/48 each month thereafter. Options for 463,000 shares were granted in 1998
under this plan and 27,000 were granted in 1999.
Repricing of Employee Stock Options
As approved by the Board of Directors on January 27, 1998 and effective
as of January 30, 1998, the Company allowed all employee holders of
outstanding stock options to exchange higher priced options for new stock
options at an exercise price of $1.06 per share, the fair market value of
the Company's Common Stock at the close of trading on January 30, 1998.
Those options vested at the time of the exchange would vest on January 31,
1999, and those options unvested at the time of the exchange would vest on
the original option schedule, but would not be exercisable until January 31,
1999. Options for 1,035,124 shares were exchanged.
Restricted Common Stock
In September 1995, 398,333 shares of restricted Common Stock were sold
to employees upon exercise of stock options then outstanding. Each unvested
share of this restricted Common Stock is subject to repurchase by the Company
at the employees' exercise price if an employee terminates before such shares
vest. In 1997 67,082 vested shares were converted into unrestricted shares and
55,314 shares were repurchased by the Company from terminated employees. The
remaining 31,875 restricted shares outstanding were fully vested as of
December 31, 1998.
1996 Employee Stock Purchase Plan
The Company's 1996 Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors and stockholders in December
1995, and became effective upon the closing of the Company's initial public
offering on February 28, 1996. Under the Purchase Plan, a total of 400,000
shares of Common Stock has been reserved for issuance to eligible employees.
The Purchase Plan allows employees to purchase shares through payroll
deductions at 85% of the fair market value of the Common Stock at the
beginning or the end of the applicable twelve-month purchase period. The
Purchase Plan is intended to qualify as an "employee stock purchase plan"
under Section 423 of the U.S. Internal Revenue Code. Unless terminated
sooner, the Purchase Plan will terminate ten years from its effective date.
During 1997, 1998, and 1999, respectively, 59,656, 155,051 and 185,292
shares, respectively, were issued under the Plan.
On September 3, 1999, the Purchase Plan was amended to increase by
1,600,000 shares to an aggregate of 2,000,000 shares the number of shares
available for issuance.
Summary of Option Activity
The following table summarizes the Company's stock option activity and
related weighted average exercise price within each category for each of the
years ended December 31, 1997, 1998, and 1999.
Page 38
<PAGE>
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Options
outstanding
at Jan. 1 890,200 $4.85 1,599,154 $3.18 1,679,997 $1.00
Options
granted 1,295,745 $3.03 1,498,124 $1.02 7,957,376 $0.36
Options
canceled (519,829) $5.90 (1,307,386) $3.76 (485,948) $1.06
Options
exercised (66,962) $1.35 (109,895) $0.22 (4,583) $0.22
----------- -------- ----------- -------- ----------- --------
Options
outstanding
at Dec. 31 1,599,154 $3.18 1,679,997 $1.00 9,146,842 $0.44
=========== ======== =========== ======== =========== ========
Options
exercisable
at Dec. 31 219,400 $4.52 592,322 $0.91 809,841 $0.93
=========== ======== =========== ======== =========== ========
Available
for grant
at Dec. 31 483,385 792,647 14,908,048
=========== =========== ===========
</TABLE>
Significant option groups outstanding at December 31, 1999, after
giving effect to the repricing discussed previously, and the related
weighted average exercise price and remaining contractual life information
are as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------- --------------------- Weighted
Weighted Weighted Average
Average Average Remaining
Options with exercise Exercise Exercise Life
prices ranging from: Shares Price Shares Price (Years)
- -------------------- ----------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
$0.10 - $0.12 14,187 $0.11 4,687 $0.10 7
0.24 - 0.30 5,319,771 0.24 110,489 0.22 10
0.41 - 0.46 33,135 0.44 15,635 0.46 8
0.91 - 0.97 2,819,000 0.60 54,421 0.73 10
1.06 - 1.50 941,249 1.06 613,931 1.06 7
1.59 - 3.50 19,000 2.10 10,199 2.19 8
$9.50 500 9.50 479 9.50 6
----------- --------- ----------- --------- ----------
Options outstanding
at Dec. 31, 1999 9,146,842 $1.00 809,841 $0.91 9
=========== ========= =========== ========= ==========
</TABLE>
Fair Value of Stock Options and Employee Purchase Rights
The Company has four stock option plans, which reserve shares of Common
Stock for issuance to employees, officers, directors and consultants. The
Company applies APB Opinion 25 and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized in the
accompanying statement of operations for the stock option plans, except for
$200,000 which was recognized on stock options granted between June and
November 1995, and which was amortized over a four year vesting period. In
January 1996, The Company adopted the disclosure only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation".
Page 39
<PAGE>
For the Stock Option Plan, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in 1997,
1998 and 1999 respectively: dividend yield of 0% in all three years;
expected life of 4 years for each year; expected volatility of 65%, 65% and
310%; and risk-free interest rates of 6.1%, 5.8% and 5.75%. The weighted-
average fair value of those stock options granted in 1997, 1998 and 1999 was
$1.72, $0.55 and $0.40 per option, respectively.
The fair value of the employees' purchase rights for the Purchase Plan,
which was initiated on February 28, 1996, was estimated at the beginning of
the offering period using the Black-Scholes option pricing model with the
following assumptions used for 1997, 1998, and 1999, respectively: dividend
yield of 0%; an expected life of six months; expected volatility of 65%, 65%
and 310%; and risk-free interest rate of 5.3% in 1997 and 1998 and 4.8% in
1999. The weighted-average fair value of these purchase rights granted in
1997, 1998 and 1999 was $3.12, $0.64 and $0.15, respectively, per right.
Had the Company recorded compensation costs based on the estimated
grant date fair value, as defined by SFAS 123, for awards granted under its
stock option plans and stock purchase plan, the Company's net income (loss)
and income (loss) per share would have been reduced to the following pro
forma amounts (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net loss applicable to common
shareholders as reported
(in thousands) ($15,002) ($29,776) ($16,981)
Net loss applicable to common
shareholders, pro forma ($15,708) ($30,633) ($17,881)
Net loss applicable to common
shareholders per share as
reported
Basic and diluted ($1.08) ($2.12) ($0.68)
Net loss applicable to common
shareholders per share,
pro forma
Basic and diluted ($1.13) ($2.18) ($0.72)
</TABLE>
NOTE 10 - WARRANTS:
In 1993, 1994, 1996 and 1998 in connection with arranging capital
leases, the Company issued to the lessors warrants to purchase an aggregate
of 628,978 shares of common stock at exercise prices ranging from $0.77 to
$8.00 per share. The estimated value of these warrants at the time of
issuance, as determined by the Company, is being amortized as interest
expense over the period the leases were outstanding.
In 1995 and 1997 in connection with bank debt and various loan
agreements, the Company issued to the lenders warrants to purchase an
aggregate of 202,483 shares of common stock at exercise prices ranging from
$3.30 to $4.60. The estimated value of these warrants at the time of
issuance, as determined by the Company, was amortized as interest expense
over the terms of the loans.
As part of the April 1999 debt restructuring of secured debt, certain
creditors were issued warrants to purchase a total of 1,500,000 shares of
common stock at a price of $0.1236 per share. In addition, warrants to
purchase a total of 244,345 shares of common stock held by secured creditors
were repriced from exercise prices ranging from $0.77 to $3.30 per share of
common stock to $0.1236 per share. The fair value as determined using a
Black-Scholes valuation model of the warrants issued and the incremental
value of the
Page 40
<PAGE>
repriced warrants was $790,000. The value of the warrants and incremental
value of the repriced warrants was offset against the outstanding debt.
The outstanding warrants are exercisable at any time prior to 2000
(21,740 shares), 2001 (28,450), 2002 (10,000 shares), 2003 (100,000 shares),
2004 (401,717 shares), 2005 (269,254 shares) and 2006 (1,500,000 shares).
None of the warrants had been exercised at December 31, 1999.
NOTE 11 - INCOME TAXES:
In 1997, 1998 and 1999, the Company incurred net operating losses and
recorded no provision for income taxes.
Deferred income tax assets comprise the following (in thousands):
<TABLE>
<CAPTION>
December 31,
1998 1999
---------- ----------
<S> <C> <C>
Federal and state credit carryforwards $2,437 $2,653
Federal and state net operating loss
carryforwards 14,282 9,011
Provision for impaired assets 7,568 7,462
Leases, treated as operating for tax (2,961) (2,907)
Depreciation (4,154) (4,585)
Reserves and accruals 763 910
Other (16) (359)
---------- ----------
Deferred tax assets 17,919 12,185
Less valuation allowance (17,919) (12,185)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
</TABLE>
The deferred tax assets valuation at December 31, 1999 and 1998 is
attributable to federal and state deferred tax assets. Management believes
that sufficient uncertainty exists with regard to the realizability of these
tax assets such that a full valuation allowance is necessary. These factors
include the lack of a significant history of consistent profits and a lack
of carryback capacity to realize these assets. Based on the absence of
objective evidence, management is unable to assert that it is more likely
than not that the Company will generate sufficient taxable income to realize
the Company's net deferred tax asssets.
At December 31, 1999, the Company had federal and state net operating
loss and tax credit carryforwards ("NOLs") of approximately $20,000,000 and
$10,000,000, respectively, which can be used to reduce future taxable income.
The federal NOLs, state NOLs and federal and state credits expire through
2019, 2014 and 2019 respectively, if not utilized. The availability and
timing of these carry forwards to offset the taxable income maybe limited due
to the occurrence of certain events, including change of ownership.
The Tax Reform Act of 1996 limits the use of NOLs in certain situations
where changes occur in the stock ownership of a company. The Company
experienced such an ownership change as a result of the Company's initial
public offering in 1996, resulting in a limitation of the annual utilization
of the NOLs generated through the date of the initial public offering.
Another such ownership charge was experienced as a result of the issue of
series A convertible preferred stock in 1999, resulting in a limitation of the
annual utilization of the NOLs generated through the date of issuance of
series A convertible preferred stock.
Page 41
<PAGE>
NOTE 12 - CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS:
Concentration of credit risk
The Company performs ongoing credit evaluations of its customers, which
are semiconductor companies, and maintains reserves for estimated credit
losses. Write-offs of accounts receivable were insignificant in all periods
presented. At December 31, 1998, two customers accounted for 27% and 16%,
respectively, of accounts receivable. At December 31, 1999, two customers
accounted for 32% and 18%, respectively.
Significant customers
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Customers comprising 10% or
more of the Company's revenues
for the periods indicated:
A 14% 39% 30%
B 7% 9% 15%
C 17% 11% 3%
</TABLE>
NOTE 13 - 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 ("TQFPs").
Distribution comprises the North American sales, marketing and 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>
Revenues $16,227 $1,214 $17,441
Interest income 60 12 72
Interest expense (1,555) - (1,555)
Depreciation and amortization 4,355 123 4,478
Extraordinary gain 2,047 - 2,047
Net income (loss) (10,627) 754 (9,873)
Total assets 20,446 31,202 51,648
Expenditures for additions to
long-lived assets $606 $2 $608
</TABLE>
Prior to the acquisition of OSEI, the Company's only operations consisted
of the manufacturing segment.
Page 42
<PAGE>
NOTE 14 - RELATED PARTY TRANSACTIONS
The Company is a member of a group of affiliated companies owned by
Orient Semiconductor Electronics, Ltd of Taiwan ("OSE"). Significant related
party transactions with OSE and its affiliates are as follows:
Guarantor of Debt
OSE is guarantor for two debt agreements outlined in Note 7.
Acquisition of OSEI
OSE was a significant shareholder in OSEI. Accordingly, when the Company
acquired OSEI, as outlined in Note 5, OSE received approximately 4.9 million
shares of the Company's common stock for its shares in OSEI.
Distributor
All of the revenue of OSEI, the Company's subsidiary, is earned as a
result of being a distributor for OSE. The revenue under the distributor
agreement is based on a fixed percentage of the value of the semiconductor
assembly and test services provided to customers in OSEI's distribution area
of entities headquartered in North America. From the date of acquisition of
OSEI through December 31, 1999, OSEI purchased $23.1 million in product and
services from OSE and its affiliates and sold them to its customers for $24.3
million. Accordingly OSEI recorded revenue of $1.2 million. While OSEI is
responsible for the collection of accounts receivable from its customers it
has obtained certain guarantees from OSE which reduce OSEI's exposure to the
risk of bad debt. OSEI normally makes payments to OSE for purchases after
OSEI has collected the related accounts receivable from its customer.
Page 43
<PAGE>
Item 9. Changes in and Disagreement with Accountants on Accounting and
Financial Disclosure
- -----------------------------------------------------------------------
Not applicable.
Page 44
<PAGE>
PART III
--------
Certain information required by Part III is omitted from this Report on
Form 10-K in that the Registrant will file its definitive Proxy Statement for
its Annual Meeting of Stockholders pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended (the "Proxy Statement"), not later
than 120 days after the end of the fiscal year covered by this Report, and
certain information included in the Proxy Statement is incorporated herein by
reference.
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
(a) Executive Officers - See the section entitled "Executive Officers"
in Part I, Item 1 hereof.
(b) Directors - The information required by this Item is incorporated by
reference to the section
entitled "Election of Directors" in the Proxy
Statement.
The disclosure required by Item 405 of Regulation S-K is incorporated by
reference to the section entitled "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Proxy Statement.
Item 11. Executive Compensation
- --------------------------------
The information required by this Item is incorporated by reference to the
sections entitled "Compensation of Executive Officers" and "Compensation of
Directors" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by this Item is incorporated by reference to the
sections entitled "Principal Share Ownership" and "Security Ownership of
Management" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this Item is incorporated by reference to the
section entitled "Certain Transactions" in the Proxy Statement.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
14(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description of Document
Number Description of Document
------- -------------------------------------------------------
<S> <C>
3.1! Restated Articles of Incorporation.
3.4! Bylaws, as amended.
10.1! Form of Indemnification Agreement
10.2!* 1993 Stock Option Plan and form of Stock Option Agreement.
10.3!* 1996 Employee Stock Purchase Plan and form of Subscription
Agreement.
10.4!* 1996 Director Stock Option Plan and form of Stock Option
Agreement.
Page 45
<PAGE>
10.5! Registration Rights Agreement dated March 24, 1993, as
amended.
10.6! Warrant to Purchase Series A Preferred Stock, issued to
MMC/GATX Partnership No. 1 as of October 7, 1993, as
amended.
10.7! Warrant to Purchase Series A Preferred Stock, issued to
Phoenix Leasing Incorporated as of October 7, 1993.
10.8! Warrant to Purchase Series A Preferred Stock, issued to
Comdisco, Inc. as of March 10, 1994.
10.9! Warrant to Purchase Series A Preferred Stock, issued to
Silicon Valley Bank as of July 10, 1995.
10.10! Warrant to Purchase Series A Preferred Stock, issued to
Silicon Valley Bank as of July 10, 1995.
10.11! Warrant to Purchase Series A Preferred Stock, issued to
The CIT Group/Equipment Financing, Inc. as of September
15, 1995.
10.12! Warrant to Purchase Series A Preferred Stock, issued to
Comdisco, Inc. as of January 3, 1996.
10.13!!! Warrant to Purchase Common Stock, issued to MMC/GATX
Partneship No. 1, dated September 5, 1997.
10.14!!! Amendment to Warrant to Purchase Series A Preferred Stock,
issued to MMC/GATX Partnership No. 1, dated September 5,
1997.
10.15!!! Amendment to Warrant to Purchase Series A Preferred Stock,
issued to MMC/GATX Partnership No. 1, dated September 5,
1997.
10.16!!! Lease Agreement dated November 1, 1997, between the
Company and Jaswinder S. Saini and Surinder K. Saini.
10.17!!!! Purchase and Sale Agreement dated November 20, 1997,
between the Company and Lincoln Property Company N.C.,
Inc.
10.18!!!! Lease Agreement dated January 20, 1997, between the
Company and Lincoln Property Company N.C., Inc.
10.19* 1997 Nonstatutory Stock Options Plan and form of Stock
Option Agreement.
10.20!!!!! Warrant to Purchase Stock, issued to Silicon Valley Bank
as of December 31, 1997.
10.21!!!!!!! Promissory Note dated July 23, 1999, between the Company
and Bank SinoPac
10.22!!!!!!!! Loan and Security Agreement dated as of September 17,
1999, between the Company and Bank SinoPac and Far East
National Bank.
10.23** Exclusive Sales Distributor Agreement between OSE, Inc.
and Orient Semiconductor Electronics Limited dated as
of October 29, 1999.
10.24!!!!!!!! Amendment to Loan and Security Agreement dated as of
September 17, 1999 between the Company and Bank SinoPac,
Los Angeles Branch and Far East National Bank.
10.25!!!!!!!! Amendment to Business Loan Agreement and Promissory Note
dated as of November 8, 1999 between the Company and
Bank SinoPac.
Page 46
<PAGE>
10.26 Amendment to Warrant to Purchase Common Stock, issued to
Transamerica Business Credit Corporation, dated May 1,
1999.
10.27 Warrant to Purchase Common Stock, issued to Transamerica
Business Credit Corporation, dated May 1, 1999.
10.28 Amendment to Warrant to Purchase Series A Preferred Stock,
issued to MMC/GATX Partnership No. 1, dated May 1, 1999.
10.29 Amendment to Warrant to Purchase Series A Preferred Stock,
issued to MMC/GATX Partnership No. 1, dated May 1, 1999.
10.30 Amendment to Warrant to Purchase Common Stock, issued to
MMC/GATX Partnership No. 1, dated May 1, 1999.
10.31 Warrant to Purchase Common Stock, issued to MMC/GATX
Partnership No. 1, dated May 1, 1999.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
24.1 Power of Attorney.
27.1 Financial Data Schedule.
---------- -----------------------------------------------------------
! Incorporated by reference from the Registrant's
Registration Statement on Form SB-2 (file no.
333-326-LA), as amended, filed on January 17,1996.
!! Incorporated by reference from the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996.
!!! Incorporated by reference from the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997.
!!!! Incorporated by reference from the Registrant's Current
Report on Form 8-K, filed on January 30, 1997.
!!!!! Incorporated by reference from the Registrant's Annual
Report on Form 10-K, for the year ended December 31,
1997.
!!!!!! Incorporated by reference from the Registrant's Annual
Report on Form 10-K, for the year ended December 31,
1998.
!!!!!!! Incorporated by reference from the Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 4, 1999.
!!!!!!!! Incorporated by reference from the Registrant's Quarterly
Report on Form 10-Q for the quarter ended October 3,
1999.
* Management contract or compensatory plan or arrangement
required to be filed as an exhibit to this form.
** Incorporated by reference to the Company's Current Report
on Form 8-K filed on November 15, 1999.
</TABLE>
Page 47
<PAGE>
(b) Reports on Form 8-K.
Acquisition of OSEI, filed on November 15, 1999
Amendment to acquisition of OSEI, filed on January 14, 2000
(c) Exhibits.
See Item 14(a) hereof.
(d) Financial Statement Schedules.
All financial statement schedules have been omitted because they
are not applicable or the
required information is shown in the financial statements or the
notes thereto.
Page 48
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"), the Registrant caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Jose, State of California, on March 27, 2000.
INTEGRATED PACKAGING ASSEMBLY CORPORATION
By: /s/ PATRICK VERDERICO
-----------------------------------------
Patrick Verderico
President and Chief Executive Officer
By: /s/ F. TERRENCE MARKLE
-----------------------------------------
F. Terrence Markle
Chief Accounting Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Patrick Verderico and
F. Terrence Markle, and each of them acting individually, as his attorney-in-
fact, each with full power of substitution, for him in any and all capacities,
to sign any and all amendments to this Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney to any and all
amendments to said Report.
In accordance with the Exchange Act, this report has been signed below on
March 27, 2000 by the following persons on behalf of the Registrant and in the
capacities indicated.
/s/ PATRICK VERDERICO President and Chief Executive Officer
Patrick Verderico (Principal Executive Officer)
/s/ F. TERRENCE MARKLE Chief Accounting Officer
F. Terrence Markle (Principal Accounting Officer)
/s/ DONALD W. BROOKS Director
Donald W. Brooks
/s/ EDWARD S. DUH Director
Edward S. Duh
/s/ CALVIN LEE Director
Calvin Lee
/s/ EDMOND TSENG Chairman and Director
Edmond Tseng
Page 49
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Numbers 333-49365, 333-30457, 333-05571 and 333-
88341) of Integrated Packaging Assembly Corporation of our report dated
March 9, 2000 relating to the financial statements, which appears in this
Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Jose, California
March 27, 2000
Page 50
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED STATEMENT OF OPERATIONS,
THE CONDENSED BALANCE SHEET AND THE ACCOMPANYING NOTES
TO THE CONDENSED FINANCIAL STATEMENTS INCLUDED IN THE
COMPANY'S FORM 10-K FOR THE TWELVE MONTH PERIOD ENDING
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH.
</LEGEND>
<CAPTION>
<S> <C>
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<PERIOD-TYPE> 12-MOS
<CASH> 5,371
<SECURITIES> 0
<RECEIVABLES> 28,567
<ALLOWANCES> (272)
<INVENTORY> 1,204
<CURRENT-ASSETS> 35,473
<PP&E> 31,941
<DEPRECIATION> (21,443)
<TOTAL-ASSETS> 51,648
<CURRENT-LIABILITIES> 52,160
<BONDS> 0
5,100
0
<COMMON> 54
<OTHER-SE> (6,669)
<TOTAL-LIABILITY-AND-EQUITY> 51,648
<SALES> 17,441
<TOTAL-REVENUES> 17,441
<CGS> 23,500
<TOTAL-COSTS> 23,500
<OTHER-EXPENSES> 4,378
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,555
<INCOME-PRETAX> (16,981)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,981)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,047
<CHANGES> 0
<NET-INCOME> (16,981)
<EPS-BASIC> ($0.68)
<EPS-DILUTED> ($0.68)
</TABLE>
THIS WARRANT ANND THE SECURITIES ISSUABLE UPON TRE EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED~
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SEGLIUTIES LAWS OR
THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
No. I
AMENDED AND RESTATED STOCK SUBSCRIPTION WARRANT
To Purchase Common Stock of
INTEGRATED PACKAGING ASSEMBLY CORPORATION (the "Company")
DATE OF INITIAL ISSUAINCE: May 28,1998
THIS CERTIFTES TRAT for value received , TRANSAMERICA BUSINESS CREDIT
CORPORATION its registered assigns (hereinafter called the "Holder") is
entitled to purchase from the Company, at any time during the Term of this
Warrant, One Hundred Seventy-One Thousand Four Hundred Twenty-Eight
(171,428) shares of common stock, $.00l par value, of the Company (the
"Common Stock"), at the Warrant Price, payable as provided herein. The
exercise of this Warrant shall be subject to the provisions, limitations and
restrictions herein contained, and may be exercised in whole or in part.
SECTION 1. Definitions.
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
Common Stock- shall mean and include the Company's authorized Common
Stock, $.00l par value, as constituted at the date hereof.
Exchange Act - shall mean the Securities Exchange Act of 1934, as
amended from time to time.
Securities Act - shall mean the Securities Act of 1933, as amended.
Term of this Warrant - shall mean the period beginning on the date of
initial issuance hereof and ending at 5:00 p.m. (California time) on May 28,
2005.
Warrant Price - $0.l236 per share, subject to adjustment in accordance
with Section 5 hereof.
Warrants - this Warrant and any other Warrant or Warrants issued in
connection with a Commitment Letter dated April 20, 199S executed by the
Company and Transamerica Business Credit Corporation (the "Commitment
Letter") to the original holder of this Warrant, or any transferees from
such original holder or this Holder.
Page 1
<PAGE>
Warrant Shares - shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the exercise hereof.
SECTION 2. Exercise of Warrant
2.1. Procedure for Exercise of Warrant. To exercise this Warrant in
whole or in part (but not as to any fractional share of Common Stock), the
Holder shall deliver to the Company at its office referred to in Section 12
hereof at any time and from time to time during the Term of this Warrant:
(i) the Notice of Exercise in the form attached hereto, (ii) cash, certified
or official bank check payable to the order of the Company or wire transfer
of funds to the Company's account (or any combination of any of the
foregoing) in the amount of the Warrant Price for each share being
purchased, and (lii) this Warrant. Notwithstanding any provisions herein to
the contrary, if the Current Market Price (as defined in Section 5) is
greater than the Warrant Price (at the date of calculation, as set forth
below), in lieu of exercising this Warrant as hereinabove permitted, the
Holder may elect to receive shares of Common Stock equal to the value (as
determined below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the office of the Company referred to in
Section 12 hereof, together with the Notice of Exercise, in which event the
Company shall issue to the Holder that number of shares of Common Stock
computed using the following formula:
CS = WCS x (CMP - WP)
----------------
CMP
where
CS equals the number of shares of Common Stock to be issued to the
Holder
WCS equals the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being exercised (at the date of such calculation)
CMP equals the Current Market Price (at the date of such
calculation)
WP equals the Warrant Price (as adjusted to the date of such
calculation)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder or (subject to compliance with
applicable securities laws) such other name or names as may be designated by
the Holder, shall be delivered to the Holder hereof within a reasonable
time, not exceeding fifteen (15) days, after the rights represented by this
Warrant shall have been so exercised; and, unless this Warrant has expired,
a new Warrant representing the number of shares (except a remaining
fractional share), if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof within such
time. The person in whose name any certificate for shares of Common Stock is
issued upon exercise of this Warrant shall for all purposes be deemed to
have become the holder of record of such shares on the date on which the
Warrant was surrendered and payment of the Warrant Price and any applicable
taxes was made, irrespective of the date of delivery of such certificate,
except that, if the date of such surrender and payment is a date when the
stock transfer books of the Company are closed, such person shall be deemed
to have become the holder of such shares at the close of business on the
next succeeding date on which the stock transfer books are open.
Page 2
<PAGE>
2.2. Transfer Restriction Legend. Each certificate for Warrant Shares
shall bear the following legend (and any additional legend required by (i)
any applicable state securities laws and (ii) any securities exchange upon
which such Warrant Shares may, at the time of such exercise, be listed) on
the face thereof unless at the time of exercise such Warrant Shares shall be
registered under the Securities
Act:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold or
transferred in the absence of such registration or an exemption therefrom
under said Act.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution under a registration statement of the
securities represented thereby) shall also bear such legend unless, in the
opinion of counsel for the holder thereof (which counsel shall be reasonably
satisfactory to counsel for the Company) the securities represented thereby
are not, at such time, required by law to bear such legend.
SECTION 3. Covenants as to Common Stock The Company covenants and agrees
that all shares of Common Stock that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued,
fully paid and nonassessable, and free from all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that it will pay when due and payable any and all federal and state taxes
(other than taxes on or measured by the net income of the Holder) which may
be payable in respect of the issue of this Warrant or any Common Stock or
certificates therefore issuable upon the exercise of this Warrant. The
Company further covenants and agrees that the Company will at all times have
authorized and reserved, free from preemptive rights, a sufficient number of
shares of Common Stock to provide for the exercise of the rights represented
by this Warrant. The Company further covenants and agrees that if any shares
of capital stock to be reserved for the purpose of the issuance of shares
upon the exercise of this Warrant require registration with or approval of
any governmental authority under any federal or state law before such shares
may be validly issued or delivered upon exercise, then the Company will in
good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be. If and so long as the Common
Stock issuable upon the exercise of this Warrant is listed on any national
securities exchange, the Company will, if permitted by the rules of such
exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon exercise of this
Warrant.
SECTION 4. Adjustment of Number of Shares. Upon each adjustment of the
Warrant Price as provided in Section 5, the Holder shall thereafter be
entitled to purchase, at the Warrant Price resulting from such adjustment,
the number of shares (calculated to the nearest tenth of a share) obtained
by multiplying the Warrant Price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately
prior to such adjustment and dividing the product thereof by the Warrant
Price resulting from such adjustment.
SECTION 5. Adjustment of Warrant Price. The Warrant Price shall be subject
to adjustment from time to time as follows:
Page 3
<PAGE>
(i) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, following the record date fixed for the determination of
holders of Common Stock entitled to receive such stock dividend, subdivision
or split-up, the Warrant Price shall be appropriately decreased so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
increased in proportion to such increase in outstanding shares.
(ii) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for such
combination, the Warrant Price shall appropriately increase so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
(iii) In case, at any time during the Term of this Warrant, the
Company shall declare a cash dividend upon its Common Stock payable
otherwise than out of earnings or earned surplus or shall distribute to
holders of its Common Stock shares of its capital stock (other than Common
Stock), stock or other securities of other persons, evidences of
indebtedness issued by the Company or other persons, assets (excluding cash
dividends and distributions) or options or rights (excluding options to
purchase and rights to subscribe for Common Stock or other securities of the
Company convertible into or exchangeable for Common Stock), then, in each
such case, immediately following the record date fixed for the determination
of the holders of Common Stock entitled to receive such dividend or
distribution, the Warrant Price in effect thereafter shall be determined by
multiplying the Warrant Price in effect immediately prior to such record
date by a fraction of which the numerator shall be an amount equal to the
difference of (x) the Current Market Price of one share of Common Stock
minus (y) the fair market value (as determined by the Board of Directors 6f
the Company, whose determination shall be conclusive) of the stock,
securities, evidences of indebtedness, assets, options or rights so
distributed in respect of one share of Common Stock, and of which the
denominator shall be such Current Market Price.
(iv) All calculations under this Section 5 shall be made to the
nearest cent or to the nearest one-tenth (1/10) of a share, as the case may
be.
(v) For the purpose of any computation pursuant to this Section 5, the
Current Market Price at any date of one share of Common Stock shall be
deemed to be the average of the daily closing prices for the 15 consecutive
business days ending on the last business day before the day in question (as
adjusted for any stock dividend, split, combination or reclassification that
took effect during such 15 business day period). The closing price for each
day shall be the last reported sales price regular way or, in case no such
reported sales took place on such day, the average of the last reported bid
and asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading or as reported by Nasdaq (or if the Common Stock is not at the time
listed or admitted for trading on any such exchange or if prices of the
Comm9n Stock are not reported by Nasdaq then such price shall be equal to
the average of the last reported bid and asked prices on such day as
reported by The National Quotation Bureau Incorporated or any similar
reputable quotation and reporting service, if such quotation is not reported
by The National Quotation Bureau Incorporated); provided, however, that if
the Common Stock is not traded in such manner that the quotations referred
to in this clause (v) are available for the period required hereunder, the
Current Market Price shall be determined in good faith by the Board of
Directors of the Company or, if such determination cannot be made, by a
nationally recognized independent investment banking firm selected by the
Board of Directors of the Company (or if such selection cannot be made, by a
nationally recognized independent investment banking firm selected by the
American Arbitration Association in accordance with its rules).
Page 4
<PAGE>
(vi) Whenever the Warrant Price shall be adjusted as provided in
Section 5, the Company shall prepare a statement showing the facts requiring
such adjustment and the Warrant Price that shall be ii, effect after such
adjustment. The Company shall cause a copy of such statement to be sent by
mail, first class postage prepaid, to each Holder of this Warrant at its,
his or her address appearing on the Company's records. where appropriate,
such copy may be given in advance and may be included as part of the notice
required to be mailed under the provisions of subsection (viii) of this
Section 5.
(vii) Adjustments made pursuant to clauses (i), (ii) and (iii) above
shall be made on the date such dividend, subdivision, split-up, combination
or distribution, as the case may be, is made, and shall become effective at
the opening of business on the business day next following the record date
for the determination of stockholders entitled to such dividend,
subdivision, split-up, combination' or distribution.
(viii) In the event the Company shall propose to take any action of
the types described in clauses (i), (ii), or (iii) of this Section 5, the
Company shall forward, at the same time and in the same manner, to the
Holder of this Warrant such notice, if any, which the Company shall give to
the holders of capital stock of the Company.
(ix) In any case in which the provisions of this Section 5 shall
require that an adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence of such event
issuing to the Holder of all or any part of this Warrant which is exercised
after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such exercise by reason of
the adjustment required by such event over and above the shares of capital
stock issuable upon such exercise before giving effect to such adjustment
exercise; provided, however, that the Company shall deliver to such Holder a
due bill or other appropriate instrument evidencing such Holder's right to
receive such additional shares upon the occurrence of the event requiring
such adjustment.
SECTION 6. Ownership.
6.1. Ownership of This Warrant. The Company may deem and treat the
person m whose name this Warrant is registered as the holder and owner
hereof (notwithstanding any notations of ownership or writing hereon made by
anyone other than the Company) for all purposes and shall not be affected by
any notice to the contrary until presentation of this Warrant for
registration of transfer as provided in this Section 6.
6.2. Transfer and Replacement. This Warrant and all rights hereunder
are transferable in whole or in part upon the books of the Company by the
Holder hereof in person or by duly authorized attorney, and a new Warrant or
Warrants, of the same tenor as this Warrant but registered in the name of
the transferee or transferees (and in the name of the Holder, if a partial
transfer is effected) shall be made and delivered by the Company upon
surrender of this Warrant duly endorsed, at the office of the Company
referred to in Section 12 hereof. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft or destruction, and, in
such case, of indemnity or security reasonably satisfactory to it, and upon
surrender of this Warrant if mutilated, the Company will make and deliver a
new Warrant of like tenor, in lieu of this Warrant; provided that if the
Holder hereof is an instrumentality of a state or local government or an
institutional holder or a nominee for such an instrumentality or
Page 5
<PAGE>
institutional holder an irrevocable agreement of indemnity by such Holder
shall be sufficient for all purposes of this Section 6, and no evidence of
loss or theft or destruction shall be necessary. This Warrant shall be
promptly cancelled by the Company upon the surrender hereof in connection
with any transfer or replacement. Except as otherwise provided above, in the
case of the loss, theft or destruction of a Warrant, the Company shall pay
all expenses, taxes and other charges payable in connection with any
transfer or replacement of this Warrant, other than stock transfer taxes (if
any) payable in connection with a transfer of this Warrant, which shall be
payable by the Holder. Holder will not transfer this Warrant and the rights
hereunder except in compliance with federal and state securities laws which
shall be demonstrated to the reasonable satisfaction of the Company and its
legal counsel.
SECTION 7. Mergers, Consolidation, Sales. In the case of any proposed
consolidation or merger of the Company with another entity, or the proposed
sale of all or substantially all of its assets to another person or entity,
or any proposed reorganization or reclassification of the capital stock of
the Company, then, as a condition of such consolidation, merger, sale,
reorganization or reclassification, lawful and adequate provision shall be
made whereby the Holder of this Warrant shall thereafter have the right to
receive upon the basis and upon the terms and conditions specified herein,
in lieu of the shares of the Common Stock of the Company immediately
theretofore purchasable hereunder, such shares of stock, securities or
assets as may (by virtue of such consolidation, merger, sale, reorganization
or reclassification) be issued or payable with respect to or in exchange for
the number of shares of such Common Stock purchasable hereunder immediately
before such consolidation, merger, sale, reorganization or reclassification.
In any such case appropriate provision shall be made with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof shall thereafter be applicable as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of this Warrant.
SECTION 8. Notice of Dissolution or Liquidation. In case of any distribution
of the assets of the Company in dissolution or liquidation (except under
circumstances when the foregoing Section 7 shall be applicable), the Company
shall give notice thereof to the Holder hereof and shall make no
distribution to shareholders until the expiration of thirty (30) days from
the date of mailing of the aforesaid notice and, in any case, the Holder
hereof may exercise this Warrant within thirty (30) days from the date of
the giving of such notice, and all rights herein granted not so exercised
within such thirty-day period shall thereafter become null and void.
SECTION 9. Notice of Extraordinary Dividends. If the Board of Directors of
the Company shall declare any dividend or other distribution on its Common
Stock except out of earned surplus or by way of a stock dividend payable in
shares of its Common Stock, the Company shall mail notice thereof to the
Holder hereof not less than thirty (30) days prior to the record date fixed
for determining shareholders entitled to participate in such dividend or
other distribution, and the Holder hereof shall not participate in such
dividend or other distribution unless this Warrant is exercised prior to
such record date. The provisions of this Section 9 shall not apply to
distributions made in connection with transactions covered by Section 7.
SECTION 10. Fractional Shares. Fractional shares shall not be issued upon
the exercise of this Warrant but in any case where the Holder would, except
for the provisions of this Section 10, be entitled under the terms hereof to
receive a fractional share upon the complete exercise of this Warrant, the
Company shall, upon the exercise of this Warrant for the largest number of
whole shares then called for, pay a sum in cash equal to the excess of the
value of such fractional share (determined in such reasonable manner as may
be prescribed in good faith by the Board of Directors of the Company) over
the Warrant Price for such fractional share.
Page 6
<PAGE>
SECTION 11. Special Arrangements of the Company. The Company covenants and
agrees that during the Term of this Warrant, unless otherwise approved by
the Holder of this Warrant:
11.1. Will Reserve Shares. The Company will reserve and set apart and
have available for issuance at all times, free from preemptive or other
preferential rights, the number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant.
11.2. Will Not Amend Certificate. The Company will not amend its
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
11.3. Will Bind Successors. This Warrant shall be binding upon any
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
SECTION 12. Notices. Any notice or other document required or permitted to
be given or delivered to the Holder shall be delivered at, or sent by
certified or registered mail to, the Holder at Transamerica Technology
Finance Division, 76 Batterson Park Road, Farmington, Connecticut 06032,
Attention:
Assistant Vice President, Lease Administration, with a copy to the Lender at
Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois
60018, Attention: Legal Department or to such -~other address as shall have
been furnished to the Company in writing by the Holder. Any notice or other
document required or permitted to be given or delivered to the Company shall
be delivered at, or sent by certified or registered mail to, the Company at
2221 Oakland Road, , San Jose, California, 95131, Attention: Vice President
& Chief Financial Officer or to such other address as shall have been
furnished in writing to the Holder by the Company. Any notice so addressed
and mailed by registered or certified mail shall be deemed to be given when
so mailed. Any notice so addressed and otherwise delivered shall be deemed
to be given when actually received by the addressee.
SECTION 13. No Rights as Stockholder; Limitation of Liability. This Warrant
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof. No
provision hereof, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
SECTION 14. Law Governing. THE VALIDITY, INTERPRETION, AND ENFORCEMENT OF
THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF ILLINOIS WITHOUT OTVING EFFECT TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.
SECTION 15. Miscellaneous. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by both parties (or any respective predecessor in interest thereof).
The headings in this Warrant are for purposes of reference only and shall
not affect the meaning or construction of any of the provisions hereof
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer this _______ day of April, 1999.
INTEGRATED PACKAGING ASSEMBLY CORPORATION
[CORPORATE SEAL]
By: _________________________
Title: ______________________
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<PAGE>
FORM OF NOTICE OF EXERCISE
[To be signed only upon exercise of the Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase _________ shares of
Common Stock which the undersigned is entitled to purchase by the terms of
the within Warrant according to the conditions thereof, and herewith
[check one]
__ makes payment of $___________ therefore; or
__ directs the Company to issue _______ shares, and to
withhold _______ shares in lieu of payment of the
warrant Price, as described in Section 2.1 of the
Warrant.
All shares to be issued pursuant hereto shall be issued in the narne of and
the initial address of such person to be entered on the books of the Company
shall be:
The shares are to be issued in certificates of the following
denominations:
________________________
[Type Name of Holder]
By: ______________________
Title: ___________________
Dated: ________________________
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<PAGE>
FORM OF ASSIGNMENT
(ENTIRE)
[To be signed only upon transfer of entire Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED __________________________ hereby sells, assigns and
transfers unto _______________________________ all rights of the undersigned
under and pursuant to the within Warrant, and the undersigned does hereby
irrevocably constitute and appoint _______________________________ Attorney
to transfer the said Warrant on the books of the Company, with full power of
substitution.
_____________________________
[Type Name of Holder]
By: __________________________
Title: _______________________
Dated: _____________________
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE>
FORM OF ASSIGNMENT
(PARTIAL)
[To be signed only upon partial transfer of Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECETVED _____________________ hereby sells, assigns and transfers
unto _________________________________ (i) the rights of the undersigned to
purchase ___ shares of Common Stock under and pursuant to the within
Warrant, and (ii) on a non-exclusive basis, all other rights of the
undersigned under and pursuant to the within Warrant, it being understood
that the undersigned shall retain, severally (and not jointly) with the
transferee(s) named herein, all rights assigned on such non-exclusive basis.
The undersigned does hereby irrevocably constitute and appoint
__________________________ Attorney to transfer the said Warrant on the
books of the Company, with full power of substitution.
_______________________________
[Type Name of Holder]
By: ___________________________
Title: ________________________
Dated: _________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
Page 11
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT RE SOLD OR OFFERED
FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE
AVALABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
No.2
STOCK SUBSCRIPTION WARRANT
To Purchase Common Stock of
INTEGRATED PACKAGING ASSEMBLY CORPORATION (the "Company")
DATE OF INITIAL ISSUANCE: April __, 1999
THIS CERTIFIES THAT for value received, TBCC FUNDINGNG TRUST I or its
registered assigns hereinafter called the "Holder") is entitled to purchase
from the Company, at any time during the Term of this Warrant Five Hundred
Thousand (500,000) shares of common stock, $0.00l par value, of the Company
(the "Common Stock"), at the Warrant Price, payable as provided herein. The
exercise of this Warrant shall be subject to the provisions, limitations and
restrictions herein contained, and may be exercised in whole or in part
SECTION 1. Definitions.
For all purposes of this Warrant, the following terms shall have the
meanings indicated:
Common Stock shall mean and include the Company's authorized Common Stock,
.001 par value, as constituted at the date hereof.
Exchange Act - shall mean the Securities Exchange Act of 1934, as amended
from time to time.
Securities Act the Securities Act of 1933, as amended.
Term of this Warrant - shall mean the period beginning on the date of
initial issuance hereof and ending on April 29, 2006.
Warrant Price - $0.1236 per share, subject to adjustment in accordance with
Section 5 hereof.
Warrants - this Warrant and any other Warrant or Warrants issued in
connection with a Commitment Letter dated April 20, 1998 executed by the
Company and Transamerica Business Credit Corporation (the "Commitment
Letter") to the original holder of this Warrant, or any transferees from
such original holder or this Holder.
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<PAGE>
SECTION 2. Exercise of Warrant.
2.1. Procedure for Exercise of Warrant. To exercise this Warrant in
whole or in part (but not as to any fractional share of Common Stock), the
Holder shall deliver to the Company at its office referred to in Section 13
hereof at any time and from time to time during the Term of this Warrant:
(i) the Notice of Exercise in the form attached hereto, (ii) cash, certified
or official bank check payable to the order of the Company, wire transfer of
funds to the Company's account, or evidence of any indebtedness of the
Company to the Holder (or any combination of any of the foregoing) in the
amount of the Warrant Price for each share being purchased, and (iii) this
Warrant. Notwithstanding any provisions herein to the contrary, if the
Current Market Price (as defined in Section 5) is greater than the Warrant
Price (at the date of calculation, as set forth below), in lieu of
exercising this Warrant as hereinabove permitted, the Holder may elect to
receive shares of Common Stock equal to the value (as determined below) of
this Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the office of the Company referred to in Section 13 hereof,
together with the Notice of Exercise, in which event the Company shall issue
to the Holder that number of shares of Common Stock computed using the
following formula:
CS = WCS x (CMP-WP)
--------------
CMP
Where
CS equals the number of shares of Common Stock to be issued to the
Holder
WCS equals the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being exercised, the portion
of the Warrant being exercised (at the date of such calculation)
CMP equals the Current Market Price (at the date of such calculation)
WP equals the Warrant Price (as adjusted to the date of such
calculation)
In the event of any exercise of the rights represented by this Warrant, a
certificate or certificates for the shares of Common Stock so purchased,
registered in the name of the Holder or such other name or names as may be
designated by the Holder, shall be delivered to the Holder hereof within a
reasonable time, not exceeding fifteen (15) days, after the rights
represented by this Warrant shall have been so exercised; and, unless this
Warrant has expired, a new Warrant representing the number of shares (except
a remaining fractional share), if any, with respect to which this Warrant
shall not then have been exercised shall also be issued to the Holder hereof
within such time. The person in whose name any certificate for shares of
Common Stock is issued upon exercise of this Warrant shall for all purposes
be deemed to have become the holder of record of such shares on the date on
which the Warrant was surrendered and payment of the Warrant Price and any
applicable taxes was made, irrespective of the date of delivery of such
certificate, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Company are closed, such person
shall be deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are
open.
2.2. Transfer Restriction Legend. Each certificate for Warrant
Shares shall bear the following legend (and any additional legend required
by (i) any applicable state securities law and (ii)
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<PAGE>
any securities exchange upon which such Warrant Shares may, at the time of
such exercise, be listed) on the face thereof unless at the time of exercise
such Warrant Shares shall be registered under the Securities
Act:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold or
transferred in the absence of such registration or an exemption therefrom
under said Act."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon
completion of a public distribution under a registration statement of the
securities represented thereby) shall also bear such legend unless, in the
opinion of counsel for the holder thereof (which counsel shall be reasonably
satisfactory to counsel for the Company) the securities represented thereby
are not, at such time, required by law to bear such legend.
SECTION 3. Covenants as to Common Stock. The Company covenants and agrees
that all shares of Common Stock that may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued,
fully paid and nonassessable, and free from all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that it will pay when due and payable any and all federal and state taxes
which may be payable in respect of the issue of this Warrant or any Common
Stock or certificates therefor issuable upon the exercise of this Warrant.
The Company further covenants and agrees that the Company will at all times
have authorized and reserved, free from preemptive rights, a sufficient
number of shares of Common Stock to provide for the exercise of the rights
represented by this Warrant. The Company further covenants and agrees that
if any shares of capital stock to be reserved for the purpose of the
issuance of shares upon the exercise of this Warrant require registration
with or approval of any governmental authority under any federal or state
law before such shares may be validly issued or delivered upon exercise,
then the Company will in good faith and as expeditiously as possible
endeavor to secure such registration or approval, as the case may be. If and
so long as the Common Stock issuable upon the exercise of this Warrant is
listed on any national securities exchange, the Company will, if permitted
by the rules of such exchange, list and keep listed on such exchange, upon
official notice of issuance, all shares of such Common Stock issuable upon
exercise of this Warrant.
SECTION 4. Adjustment of Number of Shares. Upon each adjustment of the
Warrant Price as provided in Section 5, the Holder shall thereafter be
entitled to purchase, at the Warrant Price resulting from such adjustment,
the number of shares (calculated to the nearest tenth of a share) obtained
by multiplying the Warrant Price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately
prior to such adjustment and dividing the product thereof by the Warrant
Price resulting from such adjustment.
SECTION 5. Adjustment of Warrant Price. The Warrant Price shall be subject
to adjustment from time to time as follows:
(i) If, at any time during the Term of this Warrant, the number of
shares of Common Stock outstanding is increased by a stock dividend payable
in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, following the record date fixed for the determination of
holders of Common Stock entitled to receive such stock dividend, subdivision
or split-up, the Warrant Price shall be appropriately decreased so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
increased in proportion to such increase in outstanding shares
Page 3
<PAGE>
(ii) If, at any time during the Term of this Warrant, the number of
shares of Common Stock ) outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following he record date for such
combination, the Warrant Price shall appropriately increase so that the
number of shares of Common Stock issuable upon the exercise hereof shall be
decreased in proportion to such decrease in outstanding shares.
(iii) In case, at any time during the Term of this Warrant, the Company
shall declare a cash dividend upon its Common Stock payable otherwise than
out of earnings or earned surplus or shall distribute to holders of its
Common Stock share of its capital stock (other than Common Stock), stock or
other securities of other persons, evidences of indebtedness issued by the
Company or other persons, assets (excluding cash dividends and
distributions) or options or rights (excluding options to purchase and
rights to subscribe for Common Stock or other securities of the Company
convertible into or exchangeable for Common Stock), then, in each such case,
immediately following the record date fixed ~r the determination of the
holders of Common Stock entitled to receive such dividend or distribution,
ie Warrant Price in effect thereafter shall be determined by multiplying the
Warrant Price in effect immediately prior to such record date by a fraction
of which the numerator shall be an amount equal to the difference of (x) the
Current Market Price of one share of Common Stock minus (y) the fair market
value (as determined by the Board of Directors of the Company, whose
determination shall be inclusive) of the stock, securities, evidences of
indebtedness, assets, options or rights so distributed in spect of one share
of Common Stock, and of which the denominator shall be such Current Market
rice.
(iv) All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one tenth (1/10) of a share, as the case may be.
(v) For the purpose of any computation pursuant to this Section 5, the
Current Market Price at an date of one share of Common Stock shall be deemed
to be the average of the daily closing prices for each 15 consecutive
business days ending on the last business day before the day in question (as
adjusted r any stock dividend, split, combination or reclassification that
took effect during such 15 business day period). The closing price for each
day shall be the last reported sales price regular way or, in case no
reported sales took place on such day, the average of the last reported bid
and asked prices regular, in either case on the principal national
securities exchange on which the Common Stock is listed or mitted to trading
or as reported by Nasdaq (or if the Common Stock is not at the time listed
or admitted or trading on any such exchange or if prices of the Common Stock
are not reported by Nasdaq then such ice shall be equal to the average of
the last reported bid and asked prices on such day as reported by National
Quotation Bureau Incorporated or any similar reputable quotation and
reporting service, if quotation is not reported by The National Quotation
Bureau Incorporated); provided, however, that the Common Stock is not traded
in such manner that the quotations referred to in this clause (v) are
available for the period required hereunder, the Current Market Price shall
be determined in good faith by Board of Directors of the Company or, if such
determination cannot be made, by a nationally recognized independent
investment banking firm selected by the Board of Directors of the Company
(or such selection cannot be made, by a nationally recognized independent
investment banking firm selected by the American Arbitration Association in
accordance with its rules).
(vi) Whenever the Warrant Price shall be adjusted as provided in
Section 5, the Company shall prepare a statement showing the facts requiring
such adjustment and the Warrant Price that shall be in ect after such
adjustment. The Company shall cause a copy of such statement to be sent by
mail, first
Page 4
<PAGE>
class postage prepaid, to each Holder of this Warrant at its, his or her
address appearing on the Company's records. Where appropriate, such copy may
be given in advance and may be included as part of the notice required to be
mailed under the provisions of subsection (viii) of this Section 5.
(vii) Adjustments made pursuant to clauses (I), (ii) and (iii) above
shall be made on the date such dividend, subdivision, split-up, combination
or distribution, as the case may be, is made, and shall become effective at
the opening of business on the business day next following the record date
for the determination of stockholders entitled to such dividend,
subdivision, split-up, combination or distribution.
(viii) In the event the Company shall propose to take any action of the
types described in clauses (i), (ii), or (iii) of this Section 5, the
Company shall forward, at the same time and in the same manner, to the
Holder of this Warrant such notice, if any, which the Company shall give to
the holders of capital stock of the Company.
(ix) In any case in which the provisions of this Section 5 shall
require that an adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence of such event
issuing to the Holder of all or any part of this Warrant which is exercised
after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such exercise by reason of
the adjustment required by such event over and above the shares of capital
stock issuable upon such exercise before giving effect to such adjustment
exercise; provided, however, that the Company shall deliver to such Holder a
due bill or other appropriate instrument evidencing such Holder's right to
receive such additional shares upon the occurrence of the event requiring
such adjustment.
SECTION 6. Ownership.
6.1. Ownership of This Warrant. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner
hereof (notwithstanding any notations of ownership or writing hereon made by
anyone other than the Company) for all purposes and shall not be affected by
any notice to the contrary until presentation of this Warrant for
registration of transfer as provided in this Section 6.
6.2. Transfer and Replacement. This Warrant and all rights hereunder
are transferable in whole or in part upon the books of the Company by the
Holder hereof in person or by duly authorized attorney, and a new Warrant or
Warrants, of the same tenor as this Warrant but registered in the name of
the transferee or transferees (and in the name of the Holder, if a partial
transfer is effected) shall be made and delivered by the Company upon
surrender of this Warrant duly endorsed, at the office of the Company
referred to in Section 13 hereof. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft or destruction, and, in
such case, of indemnity or security reasonably satisfactory to it, and upon
surrender of this Warrant if mutilated, the Company will make and deliver a
new Warrant of like tenor, in lieu of this Warrant; provided that if the
Holder hereof is an instrumentality of a state or local government or an
institutional holder or a nominee for such an instrumentality or
institutional holder an irrevocable agreement of indemnity by such Holder
shall be sufficient for all purposes of this Section 6, and no evidence of
loss or theft or destruction shall be necessary. This Warrant shall be
promptly cancelled by the Company upon the surrender hereof in connection
with any transfer or replacement. Except as otherwise provided above, in the
case of the loss, theft or destruction of a Warrant, the Company shall pay
all expenses, taxes and other charges payable in connection with any
transfer or replacement of this Warrant, other than stock transfer taxes (if
any) payable in connection
Page 5
<PAGE>
class postage prepaid, to each Holder of this Warrant at its, his or her
address appearing on the Company's records. Where appropriate, such copy may
be given in advance and may be included as part of the notice required to be
mailed under the provisions of subsection (viii) of this Section 5.
(vii) Adjustments made pursuant to clauses (i), (ii) and (iii) above
shall be made on the date such dividend, subdivision, split-up, combination
or distribution, as the case may be, is made, and shall become effective at
the opening of business on the business day next following the record date
for the determination of stockholders entitled to such dividend,
subdivision, split-up, combination or distribution.
(viii) In the event the Company shall propose to take any action of the
types described in clauses (i), (ii), or (iii) of this Section 5, the
Company shall forward, at the same time and in the same manner, to the
Holder of this Warrant such notice, if any, which the Company shall give to
the holders of capital stock of the Company.
(ix) In any case in which the provisions of this Section 5 shall
require that an adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence of such event
issuing to the Holder of all or any part of this Warrant which is exercised
after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such exercise by reason of
the adjustment required by such event over and above the shares of capital
stock issuable upon such exercise before giving effect to such adjustment
exercise; provided, however, that the Company shall deliver to such Holder a
due bill or other appropriate instrument evidencing such Holder's right to
receive such additional shares upon the occurrence of the event requiring
such adjustment.
SECTION 6. Ownership.
6.1. Ownership of This Warrant. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner
hereof (notwithstanding any notations of ownership or writing hereon made by
anyone other than the Company) for all purposes and shall not be affected by
any notice to the contrary until presentation of this Warrant for
registration of transfer as provided in this Section 6.
6.2. Transfer and Replacement. This Warrant and all rights hereunder
are transferable in whole or in part upon the books of the Company by the
Holder hereof in person or by duly authorized attorney, and a new Warrant or
Warrants, of the same tenor as this Warrant but registered in the name of
the transferee or transferees (and in the name of the Holder, if a partial
transfer is effected) shall be made and delivered by the Company upon
surrender of this Warrant duly endorsed, at the office of the Company
referred to in Section 13 hereof. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft or destruction, and, in
such case, of indemnity or security reasonably satisfactory to it, and upon
surrender of this Warrant if mutilated, the Company will make and deliver a
new Warrant of like tenor, in lieu of this Warrant; provided that if the
Holder hereof is an instrumentality of a state or local government or an
institutional holder or a nominee for such an instrumentality or
institutional holder an irrevocable agreement of indemnity by such Holder
shall be sufficient for all purposes of this Section 6, and no evidence of
loss or theft or destruction shall be necessary. This Warrant shall be
promptly cancelled by the Company upon the surrender hereof in connection
with any transfer or replacement. Except as otherwise provided above, in the
case of the loss, theft or destruction of a Warrant, the Company shall pay
all expenses, taxes and other charges payable in connection with any
transfer or replacement of this Warrant, other than stock transfer taxes (if
any) payable in connection
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<PAGE>
with a transfer of this Warrant, which shall be payable by the Holder.
Holder will not transfer this Warrant and the rights hereunder except in
compliance with federal and state securities laws.
SECTION 7. Mergers, Consolidation, Sales. In the case of any proposed
consolidation or merger of the Company with another entity, or the proposed
sale of all or substantially all of its assets to another person or entity,
or any proposed reorganization or reclassification of the capital stock of
the Company, then, as a condition of such consolidation, merger, sale,
reorganization or reclassification, lawful and adequate provision shall be
made whereby the Holder of this Warrant shall thereafter have the right to
receive upon the basis and upon the terms and conditions specified herein,
in lieu of the shares of the Common Stock of the Company immediately
theretofore purchasable hereunder, such shares of stock, securities or
assets as may (by virtue of such consolidation, merger, sale, reorganization
or reclassification) be issued or payable with respect to or in exchange for
the number of shares of such Common Stock purchasable hereunder immediately
before such consolidation, merger, sale, reorganization or reclassification.
In any such case appropriate provision shall be made with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof shall thereafter be applicable as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of this Warrant.
SECTION 8. Notice of Dissolution or Liquidation. In case of any distribution
of the assets of the Company in dissoluti6n or liquidation (except under
circumstances when the foregoing Section 7 shall be applicable), the Company
shall give notice thereof to the Holder hereof and shall make no
distribution to shareholders until the expiration of thirty (30) days from
the date of mailing of the aforesaid notice and, in any case, the Holder
hereof may exercise this Warrant within thirty (30) days from the date of
the giving of such notice, and all rights herein granted not so exercised
within such thirty-day period shall thereafter become null and void.
SECTION 9. Notice of Extraordinary Dividends. If the Board of Directors of
the Company shall declare any dividend or other distribution on its Common
Stock except out of earned surplus or by way of a stock dividend payable in
shares of its Common Stock, the Company shall mail notice thereof to the
Holder hereof not less than thirty (30) days prior to the record date fixed
for determining shareholders entitled to participate in such dividend or
other distribution, and the Holder hereof shall not participate in such
dividend or other distribution unless this Warrant is exercised prior to
such record date. The provisions of this Section 9 shall not apply to
distributions made in connection with transactions covered by Section 7.
SECTION 10. Fractional Shares. Fractional shares shall not be issued upon
the exercise of this Warrant but in any case where the Holder would, except
for the provisions of this Section 10, be entitled under the terms hereof to
receive a fractional share upon the complete exercise of this Warrant, the
Company shall, upon the exercise of this Warrant for the largest number of
whole shares then called for, pay a sum in cash equal to the excess of the
value of such fractional share (determined in such reasonable manner as may
be prescribed in good faith by the Board of Directors of the Company) over
the Warrant Price for such fractional share.
SECTION 11. Special Arrangements of the Company. The Company covenants and
agrees that during the Term of this Warrant, unless otherwise approved by
the Holder of this Warrant:
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11.1. Will Reserve Shares. The Company will reserve and set apart and
have available for issuance at all times, free from preemptive or other
preferential rights, the number of shares of authorized but unissued Common
Stock deliverable upon the exercise of this Warrant.
11.2. Will Not Amend Certificate. The Company will not amend its
Certificate of Incorporation to eliminate as an authorized class of capital
stock that class denominated as "Common Stock" on the date hereof.
11.3. Will Bind Successors. This Warrant shall be binding upon any
corporation or other person or entity succeeding to the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets.
SECTION 12. Registration Rights; etc.
12.1. Certain Definitions. As used in this Section 12, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean the Warrant Shares less any Warrant
Shares theretofore sold to the public or in a private placement.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Section 12.2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration (but
excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses."
"Holder" shall mean any holder of outstanding Warrant Shares or
Registrable Securities which (except for purposes of determining "Holders"
under Section 12.5 hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company
who are entitled by contract with the Company or who are permitted by the
Company to have securities included in a registration of the Company's
securities.
12.2. Company Registration.
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(a) Notice of Registration. If the Company shall determine to
register any of its securities either for its own account or the account of
a security holder or holders, other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Commission
Rule 145 transaction, or a registration on any registration form which does
not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable blue sky
or other state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder within fifteen (15) days
after receipt of the written notice from the Company described in clause (i)
above, subject to any limitations on the number of shares as set forth in
Section 12.2(b) below.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the written notice given
pursuant to Section 12.2(a)(i). In such event, the right of any Holder to
registration pursuant to Section 12.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such
Holder1s Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company, directors and officers and
the Other Shareholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 12.2, if the
underwriter determines that marketing factors require a limitation on the
number of shares to be underwritten, the underwriter may (subject to the
allocation priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which would otherwise
be underwritten pursuant hereto. The Company shall so advise all holders of
securities requesting registration, and the number of shares of securities
that are entitled to be included in the registration and underwriting shall
be allocated in the following manner. The number of shares that may be
included in the registration and underwriting on behalf of such Holders,
directors and officers and Other Shareholders shall be allocated among such
Holders, directors and officers and Other Shareholders in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities
and other securities which they had requested to be included in such
registration at the time of filing the registration statement.
If any Holder of Registrable Securities or any officer, director or
Other Shareholder disapproves of the terms of any such underwriting, it, he
or she may elect to withdraw therefrom by written notice to the Company and
the underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
12.3. Registration Rights. Intentionally Omitted.
12.4. Expenses of Registration. The Company shall bear all
Registration Expenses incurred in connection with any registration,
qualification and compliance by the Company pursuant to Section
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12.2 hereof. All Selling Expenses shall be borne by the holders of the
securities so registered pro rata on the basis of the number of their shares
so registered.
12.5. Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 12, the Company will keep
each Holder advised in writing as to the initiation of each registration
and as to the completion thereof. The Company will, at its expense:
(a) keep such registration effective for a period of one hundred
twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs;
(b) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request; and
(c) use its best efforts to register or qualify the Registrable
Securities under the securities laws or blue-sky laws of such jurisdictions
as any Holder may request; provided, however, that the Company shall not be
obligated to register or qualify such Registerable Securities in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in order to effect such registration,
qualification or compliance, unless the Company is already subject to
service in such jurisdiction and except as may be required by the Securities
Act or applicable rules or regulations thereunder.
12.6. Indemnification.
(a) The Company, with respect to each registration, qualification
and compliance effected pursuant to this Section 12, will indemnify and hold
harmless each Holder, each of its officers, directors, partners, and agents,
and each party controlling such Holder, and each underwriter, if any, and
each party who controls any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including
any related registration statement, notification or the like) incident to
any such registration, qualification or compliance, or based on any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of
its officers, directors, partners, and agents, and each party controlling
such Holder, each such underwriter and each party who controls any such
underwriter, for any legal and any other expenses incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of
or is based on any untrue statement or omission based solely upon written
information furnished to the Company by such Holder or underwriter, as the
case may be, and stated to be specifically for use in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance.
(b) Each Holder and Other Shareholder will, if Registrable
Securities held by it, him or her are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify
and hold harmless the Company, each of its directors and officers and each
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<PAGE>
underwriter, if any, of the Company's securities covered by such a
registration statement, each party who controls the Company or such
underwriter, each other such Holder and Other Shareholder and each of their
respective officers, directors, partners, and agents, and each party
controlling such Holder or Other Shareholder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and
such Holders, Other Shareholders, directors, officers, partners, agents,
parties, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document solely in reliance upon and
in conformity with written information furnished to the Company by such
Holder or Other Shareholder and stated to be specifically for use in any
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance; provided, however, that the
obligations of such Holders and Other Shareholders hereunder shall be
limited to an amount equal to the proceeds to each such Holder or Other
Shareholder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
12.5 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense
of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such
claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and
the Indemnified Party may participate in such defense at such party's
expense (unless the Indemnified Party shall have been advised by counsel
that actual or potential differing interests or defenses exist or may exist
between the Indemnifying Party and the Indemnified Party, in which case such
expense shall be paid by the Indemnifying Party), and provided further that
the failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this Section 12.
No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant 6r plaintiff to such
Indemnified Party of a release from all liability in respect to such cJaim
or litigation. Each Indemnified Party shall provide such information as may
be reasonably requested by an Indemnifying Party in order to enable such
Indemnifying Party to defend a claim as to which indemnity is sought.
12.7. Information by Holder. Each Holder of Registrable Securities,
and each Other Shareholder holding securities included in any registration,
shall furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 12.
12.8. Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may permit the sale
of the Registrable Securities to the public without registration, the
Company agrees to:
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(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all
times from and after ninety (90) days following the effective date of the
first registration under the Securities Act filed by the Company for an
offering of its securities to the general public;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") at any time
after it has become subject to such reporting requirements; and
(c) So long as the Holder owns any Registrable Securities, furnish to the
Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first
registration statement in connection with an offering of its Securities to
the general public), and of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents so filed as the Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing the
Holder to sell any such securities without registration.
12.9. Termination of Registration Rights. MJ registration rights
granted pursuant to this Section 12 shall terminate and be of no further
force or effect if all registerable securities held by and issuable to such
Holder (and its affiliates partners, former partners, members and former
members) maybe sold under Rule 144 during any ninety day period.
SECTION 13. Notices. Any notice or other document required or permitted to
be given or delivered to the Holder shall be delivered at, 9r sent by
certified or registered mail to, the Holder at Transamerica Technology
Finance Division, 76 Batterson Park Road, Farmington, Connecticut 06032,
Attention:
Assistant Vice President, Lease Administration, with a copy to the Lender at
Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois
60018, Attention: Legal Department or to such other address as shall have
been furnished to the Company in writing by the Holder. Any notice or other
document required or permitted to be given or delivered to the Company shall
be delivered at, or sent by certified or registered mail to, the Company at
2221 Oakland Road, , San Jose, California, 95131, Attention: Vice President
& Chief Financial Officer or to such other address as shall have been
hirnished in writing to the Holder by the Company. Any notice so addressed
and mailed by registered or certified mail shall be deemed to be given when
so mailed. Any notice so addressed and otherwise delivered shall be deemed
to be given when actually received by the addressee.
SECTION 14. No Rights as Stockholder; Limitation of Liability. This Warrant
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof No
provision hereof in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
SECTION 15. Law Governing. THE VALIDITY, INTERPRE~ON, AND ENFORCEMIiIT OF
TH[S.WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH Th:E
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<PAGE>
LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.
SECTION 16. Miscellaneous. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by both parties (or any respective predecessor in interest thereof).
The headings in this Warrant are for purposes of reference only and shall
not affect the meaning or construction of any of the provisions hereof
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer this _______ day of April, 1999.
INTEGRATED PACKAGING ASSEMBLY CORPORATION
[CORPORATE SEAL]
By: ____________________________
Title: _________________________
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<PAGE>
FORM OF NOTICE OF EXERCISE
[To be signed only upon exercise of the Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THE WITHIN WARRANT
The undersigned hereby exercises the right to purchase _________ shares
of Common Stock which the undersigned is entitled to purchase by the terms
of the within Warrant according to the conditions thereof, and herewith
[check one]
___ makes payment of $__________ therefor; or
___ directs the Company to issue ______ shares, and to
withhold ____ shares in lieu of payment of the Warrant Price, as described
in Section 2.1 of the Warrant.
All shares to be issued pursuant hereto shall be issued in the name of and
the initial address of such person to be entered on the books of the Company
shall be:
The shares are to be issued in certificates of the following
denominations:
________________________
[Type Name of Holder]
By: _____________________
Title: __________________
Dated: ________________
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<PAGE>
FORM OF ASSIGNMENT
(ENTIRE)
[To be signed only upon transfer of entire Warrant]
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEIVED _____________________ hereby sells, assigns and
transfers unto _______________________________ all rights of the undersigned
under and pursuant to the within Warrant, and the undersigned does hereby
irrevocably constitute and appoint _______________________________ Attorney
to transfer the said Warrant on the books of the Company, with full power of
substitution.
__________________________
[Type Name of Holder]
By: ______________________
Title: ___________________
Dated: __________
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE>
FORM OF ASSIGNMENT
(PARTIAL)
[To be signed only upon partial transfer of Warrant
TO BE EXECUTED BY THE REGISTERED HOLDER
TO TRANSFER THE WITHIN WARRANT
FOR VALUE RECEWED ______________________ hereby sells, assigns and
transfers unto _________________________________ (i) file rights of the
undersigned to purchase ___ shares of Common Stock under and pursuant to the
within Warrant, and (ii) on a non-exclusive basis, all other rights of the
undersigned under and pursuant to the within Warrant, it being understood
that the undersigned shall retain, severally (and not jointly) with the
transferee(s) named herein, all rights assigned on such non-exclusive basis.
The undersigned does hereby irrevocably constitute and appoint
__________________________ Attorney to transfer the said Warrant on the
books of the Company, with full power of substitution.
__________________________
[Type Name of Holder
By: __________________
Title: _______________
Dated: _______
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
Page 16
<PAGE>
GUARANTY
GUARANTY, dated as of April 29, 1999, made by Orient Semiconductor
Electronics, Limited, a corporation organized and existing under the laws
of Taiwan (the "Guarantor"), in favor of Transamerica Business Credit
Corporation ("TBCC").
WHEREAS, TBCC has made or will make loans, advances or other financial
accommodations to Integrated Packaging Assembly Corporation (the
"Customer"), pursuant to a certain Promissory Note dated April 1999, a
Security Agreement dated April 29, 1999 and a Settlement Agreement and
Mutual General Release dated April 29, 1999. (collectively, the
"Agreements").
WHEREAS, it is a condition to the financing provided by TBCC under the
Agreements that the Guarantor, which has a financial interest in the
Customer, shall have executed and delivered this Guaranty to TBCC.
NOW, THEREFORE, in consideration of the premises and to induce TBCC to
enter into or become a party to the Agreements, the Guarantor hereby agrees
as follows:
SECTION 1. Guaranty. The Guarantor hereby unconditionally guarantees
the prompt payment ~nd performance of all obligations of the Customer now or
hereafter existing under the Agreements, which may in ANU manner whatsoever
be presently or hereafter due and owing (collectively, the "Obligations").
SECTION 2. Guaranty Absolute. The Guarantor guarantees that the
Obligations will be paid strictly in accordance with the terms of the
Agreements, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of TBCC
with respect thereto. The liability of the Guarantor under this Guaranty
shall be absolute and unconditional irrespective of:
(i) any lack of validity, regularity or enforceability of the
Agreements or any other agreement or instrument relating thereto;
(ii) any lack of validity, regularity or enforceability of this
Guaranty or any other agreement or instrument relating hereto;
(iii) any modification or change in the time, manner or place of
payment of; or in any other term of; all or any of the Obligations, or any
other modification, change, amendment or waiver of or any consent to
departure from any term of any of the Agreements;
(iv) any exchange, release or non-perfection of any collateral,
or any release or amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Obligations;
(v) any failure on the part of TBCC or any other person or
entity to exercise, or any delay in exercising, any right under the
Agreements or any other document or instrument delivered in connection
therewith; or
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<PAGE>
(vi) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Customer, the Guarantor or any
other guarantor with respect to the Obligations (including, without
limitation, all defenses based on suretyship or impairment of collateral,
and all defenses that the Customer may assert to the repayment of the
Obligations, including, without limitation, failure of consideration, breach
of warranty, fraud (other than fraud committed by TBCC), payment, statute of
frauds, bankruptcy, lack of legal capacity, statute of limitations, lender
liability, accord and satisfaction, and usury), this Guaranty and the
obligations of the Guarantor under this Guaranty.
The Guarantor hereby agrees that if the Customer or any other guarantor of
all or a portion of the Obligations is the subject of a bankruptcy
proceeding under Title 11 of the United States Code, it will not assert the
pendency of such proceeding or any order entered therein as a defense to the
timely payment of the Obligations. This Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time any payment
of any of the Obligations is rescinded or must otherwise be returned by TBCC
upon the insolvency, bankruptcy or reorganization of the Customer or
otherwise, all as though such payment had not been made.
SECTION 3. Waivers, Consents.
(a) The Guarantor hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the Obligations and
this Guaranty and any requirement that TBCC protect, secure, perfect or
insure any security interest or lien on any property subject thereto or
exhaust any right to take any action against the Customer or any other
person or entity or any collateral. The Guarantor hereby further waives any
right to receive notice of any disposition or retention by TBCC of any
collateral and any right of redemption relating to any collateral.
(b) The Guarantor consents that without the necessity for any
additional endorsement or guarantee of the Obligations or any reservation of
rights against the Guarantor, and without notice to or further assent of the
Guarantor, the liability of the Customer to TBCC may, from time to time, in
whole or in part, be increased, renewed, modified, amended, compromised, or
released by TBCC, all without impairing, abridging, affecting, diminishing
or releasing the obligations of the Guarantor hereunder.
SECTION 4. Subrogation. The Guarantor hereby agrees it will not
exercise any rights which it may acquire by way of subrogation under this
Guaranty, by any payment made hereunder or otherwise, until all the
Obligations shall have been paid in full in cash. If any amount shall be
paid to the Guarantor on account of such subrogation rights at any time when
all the Obligations shall not have been paid in full, such amount shall be
held in trust for the benefit of TBCC and shall forthwith be paid to TBCC to
be credited and applied upon the Obligations, whether matured or unmatured,
in accordance with the terms of the Agreements. If (i) the Guarantor shall
make payment to TBCC of all or any part of the Obligations and (ii) all the
Obligations shall be paid in full, TBCC will, at the Guarantor's request,
execute and deliver to the Guarantor appropriate documents, without recourse
and without representation or warranty, necessary to evidence the transfer
by subrogation to the Guarantor an interest in the Obligations resulting
from such payment by the Guarantor.
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<PAGE>
SECTION 5. Representations and Warranties. The Guarantor hereby
represents and warrants as follows:
(a) Due Organization, Etc. The Guarantor is a corporation duly
organized, validly existing and in good standing under the laws of its state
of incorporation and has all requisite power and authority to own or lease
and operate its properties and to carry on its business as now conducted and
as proposed to be conducted. The Guarantor is duly qualified or licensed to
do business as a foreign corporation or other entity in good standing in all
jurisdictions in which it owns or leases property or in which the conduct of
its business requires it to so quality or be licensed, except for such
jurisdictions where the failure to so qualify or be licensed would not have
a material adverse effect on the business, condition (financial or
otherwise), operations, properties, performance or prospects of the
Guarantor or otherwise on the ability of the Guarantor to carry out its
obligations under this Guaranty.
(b) Due Authorization and Execution, Etc. The execution, delivery
and performance (including the incurrence of the Obligations hereunder) by
the Guarantor of this Guaranty are within the Guarantor's powers, have been
duly authorized by all necessary action and do not and will not (i) require
any consent or approval of any shareholder of the Guarantor, (ii) contravene
(A) the Guarantor's charter or by-laws, or (B) any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award or any
contractual restriction binding on or affecting the Guarantor or any of its
properties, and (iii) result in or require the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than pursuant hereto) upon or with respect
to any of the Guarantor's properties. The Guarantor is not in default under
any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or any such contractual restriction, which default
would have a material adverse effect on the business, condition )~inancial
or otherwise), operations, properties, performance or prospects of the
Guarantor or otherwise on the ability of the Guarantor to carry out its
obligations under this Guaranty.
(c) Government Consents. No authorization, consent, approval or
other action by, and no notice to or filing with, any governmental authority
or regulatory body is required for the due execution, delivery or
performance by the Guarantor of this Guaranty.
(d) Legal, Valid and Binding Nature. This Guaranty is the legal,
valid and binding obligation of the Guarantor enforceable against the
Guarantor in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, or similar laws affecting creditors'
rights, generally and general principles of equity.
(e) Solvency. Based upon the Guarantor's balance sheet,
statement of operations, statement of cash flows and statement of changes in
shareholder's equity, all prepared in accordance with generally accepted
accounting principles, the fair value of the property of the Guarantor
exceeds the total amount of liabilities (including, without limitation,
contingent liabilities) of the Guarantor; the present fair saleable value of
the assets of the Guarantor exceeds the amount that will be required to pay
the probable liability of the Guarantor on its existing debts as they become
absolute and matured. The Guarantor is able to realize upon its assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business; the Guarantor
does not intend to, and does not believe that it will, incur debts or
liabilities beyond the Guarantor's ability to pay as such debts and
liabilities mature; and the Guarantor is not engaged in business or a
transaction, and is not about to engage in business or transaction, for
which the property remaining with the guarantor would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which the Guarantor is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all facts and
circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
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<PAGE>
(f) Absence of Litigation. There are no actions, suits,
investigations, litigation or proceedings pending or, to the knowledge of
the Guarantor, threatened against or affecting the Guarantor or any of its
subsidiaries (whether partnerships or corporations) or the properties of the
Guarantor or any such subsidiary before any court, arbitrator or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which purports to affect any part of
the transactions contemplated hereby or by the Agreements or the legality,
validity or enforceability of this Guaranty.
(g) Financial Statements. Until the payment and satisfaction in
full of all Obligations, the Guarantor shall deliver to TBCC the following
financial information as soon as available, but not later than 120 days
after the end of each fiscal year of the Guarantor and its consolidated
subsidiaries, the consolidated balance sheet, income statement and
statements of cash flows and shareholders equity for the Guarantor and its
consolidated subsidiaries (the "Financial Statements") for such year,
audited by an independent certified public accountants without an adverse
qualification of any kind and as soon as available, but not later than 60
days after the end of each of the first three fiscal quarters in any fiscal
year of the Guarantor and its consolidated subsidiaries, the Financial
Statements for such fiscal quarter, together with a certification duly
executed by a responsible officer of the Guarantor that such Financial
Statements have been prepared in accordance with GAAP and are fairly stated
in all material respects (subject to normal year-end audit adjustments).
SECTION 6. Integration. This Guaranty constitutes the entire agreement
and understanding between TBCC and the Guarantor relating to the subject
matter hereof, and supersedes all prior negotiations, agreements and
understandings relating to such subject matter. In entering into this
Guaranty, the Guarantor acknowledges that it is relying on no statement,
representation, warranty, covenant or agreement of any kind made by TBCC or
any employee or agent of TBCC.
SECTION 7. Amendments, Etc. No amendment or waiver of any provision of
this Guaranty or consent to any departure by the Guarantor here from shall
in any event be effective unless the same shall be in writing and signed by
TBCC, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 8. Addresses for Notices. Except as otherwise provided herein,
all notices, approvals, consents, correspondence or other communications
required or desired to be given hereunder shall be given in writing and
shall be delivered by overnight courier, hand delivery or certified or
registered mail, postage prepaid, if to TBCC, then to Technology Finance
Division, 76 Batterson Park Road, Farmington, Connecticut 06032, Attention:
Assistant Vice President - Lease Administration, with a copy to TBCC at
Riverway II, West Office Tower, 9399 West Higgins Road, Rosemont, Illinois
60018, Attention: Legal Department or such other address as shall be
designated by the Lender to the Borrower. All such notices and
correspondence shall be effective when received.
SECTION 9. No Waiver; Remedies. No failure on the part of TBCC to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein
Page 20
<PAGE>
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 10. INTENTIONALLY OMITTED
SECTION 11. Continuing Guaranty; Transfer of Obligations. This Guaranty
is a continuing guaranty and shall (I) remain in full force and effect until
payment in full of the Obligations and all other amounts payable under this
Guaranty, (ii) be binding upon the Guarantor and its successors and assigns,
and (iii) inure to the benefit of and be enforceable by TBCC and its
successors, transferees and assigns. Without limiting the generality of the
foregoing clause (iii), TBCC may assign or otherwise transfer the right to
collect the Obligations to any other person or entity, and such other person
or entity shall thereupon become vested with all the rights in respect
thereof granted to TBCC herein or otherwise.
SECTION 12. Indemnification. The Guarantor hereby agrees to indemnify
and hold harmless TBCC and its directors, officers, employees and agents,
including all professionals (each an "Indemnified Party") from and against
any and all reasonable expenses, losses, claims, damages and liabilities
(including, without limitation, all reasonable fees and disbursements of
attorneys and other professionals) incurred by or asserted against any
Indemnified Party in connection with or arising out of, relating to, or by
reason of any investigation, litigation or proceeding arising out of,
relating to or in connection with any claims made by any person or entity in
any way relating to this Guaranty or the transactions contemplated hereby,
but excluding therefrom all expenses, losses, claims, damages, and
liabilities arising out of or resulting from the gross negligence or willful
misconduct of any Indemnified Party.
SECTION 13. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS.
SECTION 14. CONSENT TO JURISDICTION.
(a) THE GUANNNTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY ILLINOIS STATE OR FEDERAL COURT SITTING IN CHICAGO IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY, AND THE GUARANTOR
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH ILLINOIS STATE OR FEDERAL
COURT. THE GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO, ANY OBJECTION TO THE LAYING OF VENUE OR ANY DEFENSE OF AN
INCONVEMENT FORUM WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF SUCH
ACTION OR PROCEEDING. THE GUARANTOR IRREVOCABLY CONSENTS TO THE SERVICE OF
ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES OF SUCH PROCESS TO THE GUARANTOR AT ITS ADDRESS SPECIFIED IN SECTION
8 OF THIS GUARANTY. THE GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH
ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW.
(b) NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF TBCC TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT
TBCC TO BRING ANY ACTION OR PROCEEDING AGAINST THE GUARANTOR OR ITS PROPERTY
IN THE COURTS OF ANY OTHER JURISDICTIONS.
Page 21
<PAGE>
SECTION 15.JURY TRIAL WMVER. THE GUARANTOR AND, BY ITS ACCEPTANCE
HEREOF, TBCC HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING IN ANY COURT RELATING TO, IN CONNECTION WITH OR ARISING UNDER
THIS GUARANTY, THE AGREEMENTS OR ANY OF THE OTHER DOCUMENTS EXECUTED IN
CONNECTION THEREWITH.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the
date first above written.
ORIENT SEMICONDUCTOR ELECTROMCS, LIMITED
By: /s/ Edward S. Duh
---------------------
Name: Edward S. Duh
Title: Vice President
Form 6
Page 22
SECOND AMENDMENT TO WARRANT
TO PURCHASE 12,800 SHARES OF
SERIES A PREFERRED STOCK
This Amendment to Warrant to Purchase 12,800 Shares of Series A Preferred
Stock (the "Amendment") is entered into as of May 1, 1999, by and between
MMC/GATX Partnership No.1 ("Partnership) and INTEGRATED PACKAGING ASSEMBLY
CORPORATION ("IPAC").
RECITALS
IPAC issued to the Partnership a Warrant to Purchase 12,800 Shares of A
Preferred Stock, amended by Amendment to Warrant, dated as of September 5,
1997 (the "Warrant"). The parties desire to amend the Warrant in accordance
with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. The reference to "$2.00 per share" in the introductory paragraph of
the Warrant is hereby amended to read "$0.1236 per share".
2. A new Section 4(d) is added which reads as follows:
(d) Adjustments for Diluting Issuances.
(i) Adjustment Procedure. Upon each Actual Issuance of
Common Stock or Deemed Issuance of Common Stock ("Issuance of Common Stock")
after May 1, 1999, for no consideration or for a consideration per share
less than the Warrant Price (a "Dilutive Issuance"), then, concurrent with
the closing of the Dilutive Issuance, the number of Shares issuable upon the
exercise of this Warrant shall be increased by the number of shares of
Common Stock determined under the following formula:
X= (BxA)-(BxC)
-----------
C
Where: X= The increase in the number of Shares acquirable
hereunder
B= The Shares acquirable hereunder immediately prior to the
Issuance of Common Stock
A= The Warrant Price in effect immediately prior to the
Issuance of Common Stock
C= The Adjusted Share Value
Page 1
<PAGE>
For purposes hereof, the Adjusted Share Value, upon the closing of any
Issuance of Common Stock, shall be the amount equal to the sum of(i) the
amount obtained by multiplying the Common Stock Outstanding immediately
prior to the Issuance of Common Stock by the Warrant Price in effect
immediately prior to the Issuance of Common Stock, and (ii) the Aggregate
Consideration that the Company receives from the Issuance of Common Stock,
and dividing the resulting sum by the Common Stock Outstanding immediately
after the Issuance of Common Stock. Upon each Issuance of Common Stock
described in this subsection (d), the Warrant Price shall be adjusted to the
Adjusted Share Value resulting from such Issuance of Common Stock.
(ii) Special Provisions. Notwithstanding the provisions of
subsection (i) of this Section 4(d), the following provisions shall govern
the adjustment formula set forth in subsection (i):
(A) Deemed Issuances of Common Stock. Whenever an
adjustment is made in the Warrant Price pursuant to subsection (i) based
upon a Deemed Issuance of Common Stock (as defined below), except as
provided in paragraph (C) of this subsection, no further adjustment in the
Warrant Price shall be made upon the subsequent actual issuance of the
shares of Common Stock subject to the applicable Convertible Securities or
Options, nor shall the exercise of any Convertible Security or Option
included in such Deemed Issuance of Common Stock constitute an issuance of
securities for which an adjustment in the Warrant Price may be made under
this Section 4(d).
(B) Change in Exercise Price or Conversion Rate. If;
subsequent to any Deemed Issuance of Common Stock, there is a change (other
than a change required by anti-dilution provisions of any Convertible
Security or Option intended to serve the same purpose as the provisions of
this Section 4(d)) in (i) the purchase or exercise price provided for in any
Option included in such Deemed Issuance of Common Stock (an "Exercise
Price") or (ii) the conversion price or exchange ratio (a "Conversion Rate")
of any Convertible Security included in such Deemed Issuance of Common
Stock, such that the changed Exercise Price or Conversion Rate, as the case
may be, had it been in effect at the time of such Deemed Issuance of Common
Stock, would have resulted in a decrease in the Warrant Price as a result of
such Deemed Issuance of Common Stock, then (A) the Warrant Price shall be
recalculated to equal that Warrant Price which would have been in effect at
such time had all of such Options or Convertible Securities that remain
outstanding at the time of such change (or that may be issued upon the
exercise of any Option or Convertible Securities included in such Deemed
Issuance of Common Stock and that then remain outstanding) provided for such
changed Exercise Price or Conversion Rate, as the case may be, at the time
of such Deemed Issuance of Common Stock, and (B) each other adjustment, if
any, made to the Warrant Price subsequent to such Deemed Issuance of Common
Stpck based on subsequent Issuances of Common Stock shall be recalculated,
utilizing for such purpose the Average Offering Price as recalculated or as
readjusted pursuant to subsection (i) of this Section 4(d).
Page 2
<PAGE>
(C) Expiration of Option or Convertible Right. With
respect to any Deemed Issuance of Common Stock, effective as of the close of
business on the first business day on which no share of Common Stock may
thereafter be issued upon an exercise of an Option or Convertible Security
included in such Deemed Issuance of Common Stock (whether by reason of (i)
the full exercise of all Options and/or Convertible Securities Included in
such Deemed Issuance of Common Stock or (ii) the expiration or termination
of any right to exercise any Options and/or Convertible Securities included
in such Deemed Issuance of Common Stock that have not theretofore been
exercised and/or (iii) the purchase by the Company and cancellation or
retirement of some or all Options and/or Convertible Securities included in
such Deemed Issuance of Common Stock that have not theretofore been
exercised), the Warrant Price shall be adjusted by (x) recalculating the
Warrant Price pursuant to Section 4(d) hereof; basing such recalculation on
each issuance of shares of Common Stock upon an exercise of an Option or
Convertible Security included in such Deemed Issuance of Common Stock,
rather than the Common Stock Outstanding on which the original calculation
was based and (y) recalculating each other adjustment, if any, made to
Warrant Price subsequent to such Deemed Issuance of Common Stock based on
subsequent Issuances of Common Stock, utilizing the Warrant Price as
adjusted pursuant to subsection (i) of this Section 4(d) and including in
Common Stock Outstanding for such purpose only the shares of Common Stock
actually issued upon the exercise of Options and/or Convertible Securities
included in such Deemed Issuance of Common Stock in place of the shares of
Common Stock Outstanding in respect of such Deemed Issuance of Common Stock
as utilized in the original calculations of those adjustments.
(iii) Definitions.
Actual Issuance of Common Stock means any issuance by the Company of Common
Stock other than pursuant to conversion of a Convertible Security or
exercise of an Option.
Aggregate Consideration means with respect of an Issuance of Common Stock,
an amount equal to (I) the aggregate consideration that the Company receives
with respect to an issuance by the Company of Common Stock other than
pursuant to conversion of a Convertible Security or exercise of an Option
("Actual Consideration"), if any, issued and (ii) the Deemed Consideration
received with respect to the Options and Convertible Securities, if any,
issued.
Common Stock Outstanding means as of any date (i) all shares of Common Stock
that are outstanding as of such date, ~lus (ii) all shares of Common Stock
issuable upon conversion of Convertible Securities outstanding as of such
date, whether or not convertible as of such date, nIus (iii) all shares of
Common Stock issuable upon exercise of Options outstanding as of such date,
whether or not such Options are exercisable as of such date (assuming for
this purpose that Convertible Securities acquirable upon exercise of any
such Options are converted into Common Stock as of such date).
Page 3
<PAGE>
Convertible Securities means evidence of indebtedness, shares of stock or
other securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
Deemed Consideration means the aggregate consideration received or deemed
received by the Company with respect to the Company's issuance of a
Convertible Security or Option (a "Deemed Issuance of Common Stock"),
determined by adding (i) the aggregate amount, if any, received or
receivable by the Company as consideration in respect of the issuance of
Options and/or Convertible Securities constituting such Deemed Issuance of
Common Stock, and (ii) the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the full exercise of the
Options (and if Options to acquire Convertible Securities, upon full
exercise of the conversion rights with respect to such Convertible
Securities) and upon full conversion of the Convertible Securities in order
to acquire the underlying shares of Common Stock.
Deemed Issuance of Common Stock means an issuance by the Company of a
Convertible Security or an Option.
Option means any right, warrant or option to subscribe or purchase shares of
Common Stock or Convertible Securities.
3. Existing Section 4(d) is redesignated as Section 4(e) and the
phrase "Upon each adjustment in the Warrant Price pursuant to this Section
4" is amended to read "Upon each adjustment in the Warrant Price under
subsections (a), (b) and (c) of this section."
4. Unless otherwise defined, all capitalized terms in this Amendment
shall be as defined in the Warrant. Except as amended, the Warrant remains
in full force and effect.
5. 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/ Alfred Larrenaga
TITLE; EVP and CFO
MMC/GATX PARTNERSHIP NO. 1
By: GATX Capital Corporation as Agent
By: /s/ Thomas C. Nacd
Title: Vice President
Page 4
SECOND AMENDMENT TO WARRANT
TO PURCHASE l00,000 SHARES OF
SERIES A PREFERRED STOCK
This Second Amendment to Warrant to Purchase 100,000 Shares of Series A
Preferred Stock (the "Amendment") is entered into as of May 1, 1999, by and
between MMC/GATX Partnership No.1 ("Partnership") and INTEGRATED PACKAGING
ASSEMBLY CORPORATION ("IPAC").
RECITALS
IPAC issued to the Partnership a Warrant to Purchase 100,000 Shares of
Series A Preferred Stock, amended by Amendment to Warrant, dated as of
September 5, 1997 (the "Warrant"). The parties desire to amend the Warrant
in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. The reference to "$2.00 per share" in the introductory paragraph of
the Warrant is hereby amended to read "$0.1236 per share".
2. A new Section 4(d) is added which reads as follows:
(d) Adiustments for Diluting Issuances.
(i) Adjustment Procedure. Upon each Actual Issuance of Common
Stock or Deemed Issuance of Common Stock ("Issuance of Common Stock") after
May 1, 1999, for no consideration or for a consideration per share less than
the Warrant Price (a "Dilutive Issuance"), then, concurrent with the closing
of the Dilutive Issuance, the number of Shares issuable upon the exercise of
this Warrant shall be increased by the number of shaRes of Common Stock
determined under the following formula:
X= (BxA)-(BxC)
-----------
C
Where: X= The increase in the number of Shares acquirable hereunder
B= The Shares acquirable hereunder immediately prior to the Issuance
of Common Stock
A= The Warrant Price in effect immediately prior to the Issuance of
Common Stock
C= The Adjusted Share Value
For purposes hereof, the Adjusted Share Value, upon the closing of any
Issuance of Common Stock, shall be the amount equal to the sum of (i) the
amount obtained by multiplying the Common Stock Outstanding immediately
prior to the Issuance of Common Stock by the Warrant Price in effect
immediately prior to the Issuance of Common Stock, and (ii) the Aggregate
Consideration that the Company receives from the Issuance of Common Stock,
and dividing the resulting sum by the Common Stock Outstanding immediately
after the Issuance of Common Stock. Upon each Issuance of Common Stock
described in this subsection (d), the Warrant Price shall be adjusted to the
Adjusted Share Value resulting from such Issuance of Common Stock.
Page 1
<PAGE>
(ii) Special Provisions. Notwithstanding the provisions of
subsection (i) of this Section 4(d) the following provisions shall govern
the adjustment formula set forth in subsection (i):
(A) Deemed Issuances of Common Stock. Whenever an adjustment
is made in the Warrant Price pursuant to subsection (i) based upon a Deemed
Issuance of Common Stock (as defined below), except as provided in paragraph
(C) of this subsection, no further adjustment in the Warrant Price shall be
made upon the subsequent actual issuance of the shares of Common Stock
subject to the applicable Convertible Securities or Options, nor shall the
exercise of any Convertible Security or Option included in such Deemed
Issuance of Common Stock constitute an issuance of securities for which an
adjustment in the Warrant Price may be made under this Section 4(d).
(B) Change in Exercise Price or Conversion Rate. If,
subsequent to any Deemed Issuance of Common Stock, there is a change (other
than a change required by anti-dilution provisions of any Convertible
Security or Option intended to serve the same purpose as the provisions of
this Section 4(d)) in (i) the purchase or exercise price provided for in any
Option included in such Deemed Issuance of Common Stock (an "Exercise
Price") or (ii) the conversion price or exchange ratio (a "Conversion Rate")
of any Convertible Security included in such Deemed Issuance of Common
Stock, such that the changed Exercise Price or Conversion Rate, as the case
may be, had it been in effect at the time of such Deemed Issuance of Common
Stock, would have resulted in a decrease in the Warrant Price as a result of
such Deemed Issuance of Common Stock, then (A) the Warrant Price shall be
recalculated to equal that Warrant Price which would have been in effect at
such time had all of such Options or Convertible Securities that remain
outstanding at the time of such change (or that may be issued upon the
exercise of any Option or Convertible Securities included in such Deemed
Issuance of Common Stock and that then remain outstanding) provided for such
changed Exercise Price or Conversion Rate, as the case may be, at the time
of such Deemed Issuance of Common Stock, and (B) each other adjustment, if
any, made to the Warrant Price subsequent to such Deemed Issuance of Common
Stock based on subsequent Issuances of Common Stock shall be recalculated,
utilizing for such purpose the Average Offering Price as recalculated or as
readjusted pursuant to subsection (i) of this Section 4(d).
Page 2
<PAGE>
(C) Expiration of Option or Convertible Right. With respect
to any Deemed Issuance of Common Stock, effective as of the close of
business on the first business day on which no share of Common Stock may
thereafter be issued upon an exercise of an Option or Convertible Security
included in such Deemed Issuance of Common Stock (whether by reason of(i)
the full exercise of all Options and/or Convertible Securities Included in
such Deemed Issuance of Common Stock or (ii)the expiration or termination of
any right to exercise any Options and/or Convertible Securities included in
such Deemed Issuance of Common Stock that have not theretofore been
exercised and/or (iii) the purchase by the Company and cancellation or
retirement of some or all Options and/or Convertible Securities included in
such Deemed Issuance of Common Stock that have not theretofore been
exercised), the Warrant Price shall be adjusted by (x) recalculating the
Warrant Price pursuant to Section 4(d) hereof, basing such recalculation on
each issuance of shares of Common Stock upon an exercise of an Option or
Convertible Security included in such Deemed Issuance of Common Stock,
rather than the Common Stock Outstanding on which the original calculation
was based and (y) recalculating each other adjustment, if any, made to
Warrant Price subsequent to such Deemed Issuance of Common Stock based on
subsequent Issuances of Common Stock, utilizing the Warrant Price as
adjusted pursuant to subsection (i) of this Section 4(d) and including in
Common Stock Outstanding for such purpose only the shares of Common Stock
actually issued upon the exercise of Options and/or Convertible Securities
included in such Deemed Issuance of Common Stock in place of the shares of
Common Stock Outstanding in respect of such Deemed Issuance of Common Stock
as utilized in the original calculations of those adjustments.
(iii) Definitions.
Actual Issuance of Common Stock means any issuance by the Company of Common
Stock other than pursuant to conversion of a Convertible Security or
exercise of an Option.
Aggregate Consideration means with respect of an Issuance of Common Stock,
an amount equal to (i) the aggregate consideration that the Company receives
with respect to an issuance by the Company of Common Stock other than
pursuant to conversion of a Convertible Security or exercise of an Option
("Actual Consideration"), if any, issued and (ii) the Deemed Consideration
received with respect to the Options and Convertible Securities, if any,
issued.
Common Stock Outstanding means as of any date (i) all shares of Common Stock
that are outstanding as of such date, plus (ii) all shares of Common Stock
issuable upon conversion of Convertible Securities outstanding as of such
date, whether or not convertible as of such date, ~ (iii) all shares of
Common Stock issuable upon exercise of Options outstanding as of such date,
whether or not such Options are exercisable as of such date (assuming for
this purpose that Convertible Securities acquirable upon exercise of any
such Options are converted into Common Stock as of such date).
Convertible Securities means evidence of indebtedness, shares of stock or
other securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
Page 3
<PAGE>
Deemed Consideration means the aggregate consideration received or deemed
received by the Company with respect to the Company's issuance of a
Convertible Security or Option (a "Deemed Issuance of Common Stock"),
determined by adding (i) the aggregate amount, if any, received or
receivable by the Company as consideration in respect of the issuance of
Options and/or Convertible Securities constituting such Deemed Issuance of
Common Stock, and (ii) the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the full exercise of the
Options (and if Options to acquire Convertible Securities, upon full
exercise of the conversion rights with respect to such Convertible
Securities) and upon frill conversion of the Convertible Securities in order
to acquire the underlying shares of Common Stock.
Deemed Issuance of Common Stock means an issuance by the Company of a
Convertible Security or an Option.
Option means any right, warrant or option to subscribe or purchase shares of
Common Stock or Convertible Securities.
3. Existing Section 4(d) is redesignated as Section 4(e) and the
phrase "Upon each adjustment in the Warrant Price pursuant to this Section
4" is amended to read "Upon each adjustment in the Warrant Price under
subsections (a), (b) and (c) of this section."
4. Unless otherwise defined, all capitalized terms in this Amendment
shall be as defined in the Warrant. Except as amended, the Warrant remains
in frill force and effect.
5. 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/ Alfred Larrenaga
TITLE; EVP and CFO
MMC/GATX PARTNERSHIP NO. 1
By: GATX Capital Corporation as Agent
By: /s/ Thomas C. Nacd
Title: Vice President
Page 4
AMENDMENT TO WARRANT
TO PURCHASE 72,9l7 SHARES OF
COMMON STOCK
This Amendment to Warrant to Purchase 72,917 Shares of Common Stock (the
"Amendment") is entered into as of May 1, 1999, by and between MMC/GATX
Partnership No.1 ("Partnership") and INTEGRATED PACKAGING ASSEMBLY
CORPORATION ("IPAC").
RECITALS
IPAC issued to the Partnership a Warrant to Purchase 72,917 Shares of Common
Stock (the "Warrant"). The parties desire to amend the Warrant in accordance
with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. The reference to "$3.30" in the introductory paragraph
of the Warrant is hereby amended to read "$0.1236".
2. A new Section 4(d) is added which reads as follows:
(d) Adjustments for Diluting Issuances.
(i) Adjustment Procedure. Upon each Actual Issuance of
Common Stock or Deemed Issuance of Common Stock ("Issuance of Common Stock")
after May 1, 1999, for no consideration or for a consideration per share
less than the Warrant Price (a "Dilutive Issuance"), then, concurrent with
the closing of the Dilutive Issuance, the number of Shares issuable upon the
exercise of this Warrant shall be increased by the number of shares of
Common Stock determined under the following formula:
X = (B x A) - (B x C)
-----------------
C
Where: X= The increase in the number of Shares acquirable hereunder
B= The Shares acquirable hereunder immediately prior to the
Issuance of Common Stock
A= The Warrant Price in effect immediately prior to the
Issuance of Common Stock
C= The Adjusted Share Value
For purposes hereof; the Adjusted Share Value, upon the closing of any
Issuance of Common Stock, shall be the amount equal to the sum of(i) the
amount obtained by multiplying the Common Stock Outstanding immediately
prior to the Issuance of Common Stock by the Warrant Price in effect
immediately prior to the Issuance of Common Stock, and (ii) the Aggregate
Consideration that the Company receives from the Issuance of Common Stock,
and dividing the resulting sum by the Common Stock Outstanding immediately
after the Issuance of Common Stock. Upon each Issuance of Common Stock
described in this subsection (d), the Warrant Price shall be adjusted to the
Adjusted Share Value resulting from such Issuance of Common Stock.
Page 1
<PAGE>
(ii) Special Provisions. Notwithstanding the provisions of
subsection (i) of this Section 4(d) the following provisions shall govern
the adjustment formula set forth in subsection (i):
(A) Deemed Issuances of Common Stock. Whenever
an adjustment is made in the Warrant Price pursuant to
subsection (i) based upon a Deemed Issuance of Common Stock (as
defined below), except as provided in paragraph (C) of this
subsection, no further adjustment in the Warrant Price shall be
made upon the subsequent actual issuance of the shares of Common
Stock subject to the applicable Convertible Securities or
Options, nor shall the exercise of any Convertible Security or
Option included in such Deemed Issuance of Common Stock
constitute an issuance of securities for which an adjustment in
the Warrant Price may be made under this Section 4(d).
(B) Change in Exercise Price or Conversion Rate. If,
subsequent to any Deemed Issuance of Common Stock, there is a change (other
than a change required by anti-dilution provisions of any Convertible
Security or Option intended to serve the same purpose as the provisions of
this Section 4(d)) in (i) the purchase or exercise price provided for in any
Option included in such Deemed Issuance of Common Stock (an "Exercise
Price") or (ii) the conversion price or exchange ratio (a "Conversion Rate")
of any Convertible Security included in such Deemed Issuance of Common
Stock, such that the changed Exercise Price or Conversion Rate, as the case
may be, had it been in effect at the time of such Deemed Issuance of Common
Stock, would have resulted in a decrease in the Warrant Price as a result of
such Deemed Issuance of Common Stock, then (A) the Warrant Price shall be
recalculated to equal that Warrant Price which would have been in effect at
such time had all of such Options or Convertible Securities that remain
outstanding at the time of such change (or that may be issued upon the
exercise of any Option or Convertible Securities included in such Deemed
Issuance of Common Stock and that then remain outstanding) provided for such
changed Exercise Price or Conversion Rate, as the case may be, at the time
of such Deemed Issuance of Common Stock, and (B) each other adjustment, if
any, made to the Warrant Price subsequent to such Deemed Issuance of Common
Stock based on subsequent Issuances of Common Stock shall be recalculated,
utilizing for such purpose the Average Offering Price as recalculated or as
readjusted pursuant to subsection (i) of this Section 4(d).
Page 2
<PAGE>
(C) Expiration of Option or Convertible Right. With
respect to any Deemed Issuance of Common Stock, effective as of the close of
business on the first business day on which no share of Common Stock may
thereafter be issued upon an exercise of an Option or Convertible Security
included in such Deemed Issuance of Common Stock (whether by reason of(i)
the full exercise of all Options and/or Convertible Securities Included in
such Deemed Issuance of Common Stock or (ii) the expiration or termination
of any right to exercise any Options and/or Convertible Securities included
in such Deemed Issuance of Common Stock that have not theretofore been
exercised and/or (iii) the purchase by the Company and cancellation or
retirement of some or all Options and/or Convertible Securities included in
such Deemed Issuance of Common Stock that have not theretofore been
exercised), the Warrant Price shall be adjusted by (x) recalculating the
Warrant Price pursuant to Section 4(d) hereof, basing such recalculation on
each issuance of shares of Common Stock upon an exercise of an Option or
Convertible Security included in such Deemed Issuance of Common Stock,
rather than the Common Stock Outstanding on which the original calculation
was based and (y) recalculating each other adjustment, if any, made to
Warrant Price subsequent to such Deemed Issuance of Common Stock based on
subsequent Issuances of Common Stock, utilizing the Warrant Price as
adjusted pursuant to subsection (i) of this Section 4(d) and including in
Common Stock Outstanding for such purpose only the shares of Common Stock
actually issued upon the exercise of Options and/or Convertible Securities
included in such Deemed Issuance of Common Stock in place of the shares of
Common Stock Outstanding in respect of such Deemed Issuance of Common Stock
as utilized in the original calculations of those adjustments.
(iii) Definitions.
Actual Issuance of Common Stock means any issuance by the Company of Common
Stock other than pursuant to conversion of a Convertible Security or
exercise of an Option.
Aggregate Consideration means with respect of an Issuance of Common Stock,
an amount equal to (i) the aggregate consideration that the Company receives
with respect to an issuance by the Company of Common Stock other than
pursuant to conversion of a Convertible Security or exercise of an Option
("Actual Consideration"), if any, issued and (ii) the Deemed Consideration
received with respect to the Options and Convertible Securities, if any,
issued.
Common Stock Outstanding means as of any date (i) all shares of Common Stock
that are outstanding as of such date, plus (ii) all shares of Common Stock
issuable upon conversion of Convertible Securities outstanding as of such
date, whether or not convertible as of such date, ',lus (iii) all shares of
Common Stock issuable upon exercise of Options outstanding as of such date,
whether or not such Options are exercisable as of such date (assuming for
this purpose that Convertible Securities acquirable upon exercise of any
such Options are converted into Common Stock as of such date).
Convertible Securities means evidence of indebtedness, shares of stock or
other securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
Page 3
<PAGE>
Deemed Consideration means the aggregate consideration received or deemed
received by the Company with respect to the Company's issuance of a
Convertible Security or Option (a "Deemed Issuance of Common Stock"),
determined by adding (i) the aggregate amount, if any, received or
receivable by the Company as consideration in respect of the issuance of
Options and/or Convertible Securities constituting such Deemed Issuance of
Common Stock, and (ii) the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the full exercise of the
Options (and if Options to acquire Convertible Securities, upon full
exercise of the conversion rights with respect to such Convertible
Securities) and upon full conversion of the Convertible Securities in order
to acquire the underlying shares of Common Stock.
Deemed Issuance of Common Stock means an issuance by the Company of a
Convertible Security or an Option.
Option means any right, warrant or option to subscribe or purchase shares of
Common Stock or Convertible Securities.
3. Existing Section 4(d) is redesignated as Section 4(e) and the
phrase "Upon each adjustment in the Warrant Price pursuant to this Section
4" is amended to read "Upon each adjustment in the Warrant Price under
subsections (a), (b) and (c) of this section."
4. Unless otherwise defined, all capitalized terms in this Amendment
shall be as defined in the Warrant. Except as amended, the Warrant remains
in full force and effect.
5. 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/ Alfred Larrenaga
TITLE; EVP and CFO
MMC/GATX PARTNERSHIP NO. 1
By: GATX Capital Corporation as Agent
By: /s/ Thomas C. Nacd
Title: Vice President
Page 4
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. NO SALE OR DISPOSITION THEREOF MAY BE EFFECTED WITHOUT
(I) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF
COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LET'TERS FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE
PROVISIONS OF SECTION 7 OF THIS WARRANT.
INTEGRATED PACKAGING ASSEMBLY CORPORATION
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received, MMC/GATX Partnership No. I and its
assignees are entitled to subscribe for and purchase the initial number of
shares of the fully paid and nonassessable Common Stock (as adjusted pursuant
to Section 4 hereof, the 'Shares") of Integrated Packaging Assembly
Corporation, a Delaware corporation (the "Company"), at the initial exercise
price per share specified herein (such price and such other price as shall
result, from time to time, from the adjustments specified in Section 4 hereof
is herein referred to as the "Warrant Price"), subject to the provisions and
upon the terms and conditions hereinafter set forth. The Warrant Price shall
be equal to $0.1236. The initial number of Shares shall be equal to 1,000,000.
As used herein, (a) the term "Date of Grant" shall mean the Date of Grant
listed on the signature page hereof, and (b) the term "Other Warrants" shall
mean any warrant issued upon transfer or partial exercise of this Warrant. The
term "Warrant" as used herein shall be deemed to include Other Warrants unless
the context clearly requires otherwise. "Common Stock" means the Company's
Common Stock as defined in its Certificate of Incorporation.
1. Term. The purchase right represented by this Warrant is exercisable,
in whole or in part, at any time and from time to time from the Date of Grant
through and including the date which is seven (7) years after the Date of
Grant. Notwithstanding any other provision of this Warrant, this Warrant shall
expire and the terms hereof shall terminate unless exercised on or prior to
5:00 p.m. (California time) on May 1, 2006.
2. Method of Exercise: Payment: Issuance of New Warrant. Subject to
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, at
the election of the holder hereof, by (a) the surrender of this Warrant (with
the notice of exercise substantially in the form attached hereto as Exhibit A
duly completed and executed) at the principal office of the Company and by the
payment to the Company, by certified or bank check, or by wire transfer to an
account designated by the Company of an amount equal to the then applicable
Warrant Price multiplied by the number of Shares then being purchased, or (b)
exercise of the right provided for in Section 9.1 hereof. The person or
persons in whose name(s) any certificate(s) representing the Shares shall be
issuable upon exercise of this Warrant shall be deemed to have become the
holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed
to have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised. In the event of any exercise of
the rights represented by this Warrant, certificates for the shares of stock
so purchased shall be delivered to the holder hereof as soon as possible and
in any event within thirty (30) days after such exercise and, unless this
Warrant has been fully exercised or expired, a new Warrant representing the
portion of the Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be issued to the holder hereof as soon as
possible and in any event within such thirty-day period.
Page 1
<PAGE>
3. Stock Fully Paid: Reservation of Shares. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock
to provide for the exercise of the rights represented by this Warrant.
4. Adiustment of Warrant Price and Number of Shares. The number and kind
of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
(a) Reclassification or Merger. In case of any reclassification or
change of securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from
no par value to par value, or as a result of a subdivision or combination), or
in case of any merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the acquiring
and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or in case of any sale of all or substantially all of the
assets of the Company, the Company, or such successor or purchasing
corporation, as the case may be, shall duly execute and deliver to the holder
of this Warrant a new Warrant (in form and substance reasonably satisfactory
to the holder of this Warrant), so that the holder of this Warrant shall have
the right to receive, at a total purchase price not to exceed that payable
upon the exercise of the unexercised portion of this Warrant, and in lieu of
the shares of Common Stock theretofore issuable upon exercise of this Warrant,
the kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change or merger by a holder of the
number of shares of Common Stock then purchasable under this Warrant. Such new
Warrant shall provide for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 4. The
provisions of this Section 4(a) shall similarly apply to successive
reclassifications, changes, mergers and transfers.
(b) Subdivision or Combination of Shares. If the Company at any
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the
case of a combination, effective at the close of business on the date the
subdivision or combination becomes effective.
(c) Stock Dividends and Other Distributions. If the Company at any
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Common Stock payable in Common Stock, or (ii) make any other
distribution of Common Stock with respect to Common Stock which does not
require the holder to pay any consideration prior to receiving such
distribution of Common Stock (except any distribution specifically provided
for in Sections 4(a) and 4(b)), then the Warrant Price shall be adjusted, from
and after the date such dividend or distribution becomes effective, to that
price determined by multiplying the Warrant Price in effect immediately prior
to such date of determination by a fraction (i) the numerator of which shall
be the total number of shares of Common Stock outstanding immediately prior to
such dividend or distribution, and (ii) the denominator of which shall be the
total number of shares of Common Stock outstanding immediately after such
dividend or distribution.
Page 2
<PAGE>
(d) Adjustments for Diluting Issuances.
(i) Adjustment Procedure. Upon each Actual Issuance of Common
Stock or Deemed Issuance of Common Stock ("Issuance of Common Stock") after
May 1, 1999, for no consideration or for a consideration per share less than
the Warrant Price (a "Dilutive Issuance"), then, concurrent with the closing
of the Dilutive Issuance, the number of Shares issuable upon the exercise of
this Warrant shall be increased by the number of shares of Common Stock
determined under the following formula:
X= (B x A)-(B x C)
---------------
C
Where: X= The increase in the number of Shares acquirable
hereunder
B= The Shares acquirable hereunder immediately prior to
the Issuance of Common Stock
A= The Warrant Price in effect immediately prior to the
Issuance of Common Stock
C= The Adjusted Share Value
For purposes hereof, the Adjusted Share Value, upon the closing of any
Issuance of Common Stock, shall be the amount equal to the sum of (i) the
amount obtained by multiplying the Common Stock Outstanding immediately prior
to the Issuance of Common Stock by the Warrant Price in effect immediately
prior to the Issuance of Common Stock, and (ii) the Aggregate Consideration
that the Company receives from the Issuance of Common Stock, and dividing the
resulting sum by the Common Stock Outstanding immediately after the Issuance
of Common Stock. Upon each Issuance of Common Stock described in this
subsection (d), the Warrant Price shall be adjusted to the Adjusted Share
Value resulting from such Issuance of Common Stock.
(ii) Special Provisions. Notwithstanding the provisions of
subsection (i) of this Section 4(d), the following provisions shall govern the
adjustment formula set forth in subsection (i):
(A) Deemed Issuances of Common Stock. Whenever an
adjustment is made in the Warrant Price pursuant to subsection (i) based upon
a Deemed Issuance of Common Stock (as defined below), except as provided in
paragraph (C) of this subsection, no further adjustment in the Warrant Price
shall be made upon the subsequent actual issuance of the shares of Common
Stock subject to the applicable Convertible Securities or Options, nor shall
the exercise of any Convertible Security or Option included in such Deemed
Issuance of Common Stock constitute an issuance of securities for which an
adjustment in the Warrant Price may be made under this Section 4(d).
Page 3
<PAGE>
(B) Change in Exercise Price or Conversion Rate. If,
subsequent to any Deemed Issuance of Common Stock, there is a change (other
than a change required by anti-dilution provisions of any Convertible Security
or Option intended to serve the same purpose as the provisions of this Section
4(d)) in (i) the purchase or exercise price provided for in any Option
included in such Deemed Issuance of Common Stock (an "Exercise I'rice") or
(ii) the conversion price or exchange ratio (a "Conversion Rate") of any
Convertible Security included in such Deemed Issuance of Common Stock, such
that the changed Exercise Price or Conversion Rate, as the case may be, had it
been in effect at the time of such Deemed Issuance of Common Stock, would have
resulted in a decrease in the Warrant Price as a result of such Deemed
Issuance of Common Stock, then (A) the Warrant Price shall be recalculated to
equal that Warrant Price which would have been in effect at such time had all
of such Options or Convertible Securities that remain outstanding at the time
of such change (or that may be issued upon the exercise of any Option or
Convertible Securities included in such Deemed Issuance of Common Stock and
that then remain outstanding) provided for such changed Exercise Price or
Conversion Rate, as the case may be, at the time of such Deemed Issuance of
Common Stock, and (B) each other adjustment, if any, made to the Warrant Price
subsequent to such Deemed Issuance of Common Stock based on subsequent
Issuances of Common Stock shall be recalculated, utilizing for such purpose
the Average Offering Price as recalculated or as readjusted pursuant to
subsection (i) of this Section 4(d).
(C) Expiration of Option or Convertible Right. With
respect to any Deemed Issuance of Common Stock, effective as of the close of
business on the first business day on which no share of Common Stock may
thereafter be issued upon an exercise of an Option or Convertible Security
included in such Deemed Issuance of Common Stock (whether by reason of (i) the
full exercise of all Options and/or Convertible Securities Included in such
Deemed Issuance of Common Stock or (ii) the expiration or termination of any
right to exercise any Options and/or Convertible Securities included in such
Deemed Issuance of Common Stock that have not theretofore been exercised
and/or (iii) the purchase by the Company and cancellation or retirement of
some or all Options and/or Convertible Securities included in such Deemed
Issuance of Common Stock that have not theretofore been exercised), the
Warrant Price shall be adjusted by (x) recalculating the Warrant Price
pursuant to Section 4(d) hereof, basing such recalculation on each issuance of
shares of Common Stock upon an exercise of an Option or Convertible Security
included in such Deemed Issuance of Common Stock, rather than the Common Stock
Outstanding on which the original calculation was based and (y) recalculating
each other adjustment, if any, made to Warrant Price subsequent to such Deemed
Issuance of Common Stock based on subsequent Issuances of Common Stock,
utilizing the Warrant Price as adjusted pursuant to subsection (i) of this
Section 4(d) and including in Common Stock Outstanding for such purpose only
the shares of Common Stock actually issued upon the exercise of Options and/or
Convertible Securities included in such Deemed Issuance of Common Stock in
place of the shares of Common Stock Outstanding in respect of such Deemed
Issuance of
Common Stock as utilized in the original calculations of those adjustments.
Page 4
<PAGE>
(iii) Definitions.
Actual Issuance of Common Stock means any issuance by the Company of Common
Stock other than pursuant to conversion of a Convertible Security or exercise
of an Option.
Aggregate Consideration means with respect of an Issuance of Common Stock, an
amount equal to (i) the aggregate consideration that the Company receives with
respect to an issuance by the Company of Common Stock other than pursuant to
conversion of a Convertible Security or exercise of an Option ("Actual
Consideration"), if any, issued and (ii) the Deemed Consideration received
with respect to the Options and Convertible Securities, if any, issued.
Common Stock Outstanding means as of any date (i) all shares of Common Stock
that are outstanding as of such date, plus (ii) all shares of Common Stock
issuable upon conversion of Convertible Securities outstanding as of such
date, whether or not convertible as of such date, plus (iii) all shares of
Common Stock issuable upon exercise of Options outstanding as of such date,
whether or not such Options are exercisable as of such date (assuming for this
purpose that Convertible Securities acquirable upon exercise of any such
Options are converted into Common Stock as of such date).
Convertible Securities means evidence of indebtedness, shares of stock or
other securities which are convertible into or exchangeable for, with or
without payment of additional consideration, shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event or both.
Deemed Consideration means the aggregate consideration received or deemed
received by the Company with respect to the Company's issuance of a
Convertible Security or Option (a "Deemed Issuance of Common Stock"),
determined by adding (i) the aggregate amount, if any, received or receivable
by the Company as consideration in respect of the issuance of Options and/or
Convertible Securities constituting such Deemed Issuance of Common Stock, and
(ii) the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the full exercise of the Options (and if Options to
acquire Convertible Securities, upon full exercise of the conversion rights
with respect to such Convertible Securities) and upon full conversion of the
Convertible Securities in order to acquire the underlying shares of Common
Stock.
Deemed Issuance of Common Stock means an issuance by the Company of a
Convertible Security or an Option.
Option means any right, warrant or option to subscribe or purchase shares of
Common Stock or Convertible Securities.
(e) Adjustment of Number of Shares. Upon each adjustment in the
Warrant Price under subsections (a), (b) and (c) of this section, the number
of Shares purchasable hereunder shall be adjusted, to the nearest whole share,
to the product obtained by multiplying the number of Shares purchasable
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately prior to such
adjustment and the denominator of which shall be the Warrant Price immediately
thereafter.
Page 5
<PAGE>
5. Notice of Adjustments. Whenever the Warrant Price or the number of
Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof,
the Company shall make a certificate signed by its chief financial officer
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated,
and the Warrant Price and the number of Shares purchasable hereunder after
giving effect to such adjustment, and shall cause copies of such certificate
to be mailed (without regard to Section 13 hereof, by first class mail,
postage prepaid) to the holder of this Warrant at such holder's last known
address as reflected in the Company's records.
6. Fractional Shares. No fractional shares of Common Stock will be
issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
fair market value of the Common Stock on the date of exercise as reasonably
determined in good faith by the Company's Board of Directors.
7. Compliance with Securities Act: Disposition of Warrant or Shares of
Common Stock.
(a) Compliance with Securities Act. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant, and the Shares to be issued upon
exercise hereof are being acquired for investment and that such holder will
not offer, sell or otherwise dispose of this Warrant, or any Shares except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended (the "Act"), or any applicable state securities laws. Upon
exercise of this Warrant, unless the Shares being acquired are registered
under the Act and any applicable state securities laws or an exemption from
such registration is available, the holder hereof shall confirm in writing
that the Shares so purchased are being acquired for investment and not with a
view toward distribution or resale in violation of the Act and shall confirm
such other matters related thereto as may be reasonably requested by the
Company. This Warrant and all Shares issued upon exercise of this Warrant
(unless registered under the Act and any applicable state securities laws)
shall be stamped or imprinted with a legend in substantially the following
form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS
RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii)
RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR
(iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER
WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a holder, at
such time as the restrictions on the transfer of the applicable security shall
have terminated. In addition, in connection with the issuance of this Warrant,
the holder specifically represents to the Company by acceptance of this
Warrant as follows:
Page 6
<PAGE>
(1) The holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. The
holder is acquiring this Warrant for its own account for investment purposes
only and not with a view to, or for the resale in connection with, any
"distribution" thereof in violation of the Act.
(2) The holder understands that this Warrant has not been
registered under the Act or any state securities laws in reliance upon
specific exemptions therefrom, which exemptions depend upon, among other
things, the bona fide nature of the holder's investment intent as expressed
herein.
(3) The holder further understands that this Warrant and the
securities issuable upon the exercise hereof must be held indefinitely unless
subsequently registered under the Act and qualified under any applicable state
securities laws, or unless exemptions from registration and qualification are
otherwise available. The holder is aware of the provisions of Rule 144,
promulgated under the Act.
(b) Disposition of Warrant or Shares. With respect to any offer,
sale or other disposition of this Warrant or any Shares acquired pursuant to
the exercise of this Warrant prior to registration of such Warrant or Shares
under the Act, the holder hereof agrees to give written notice to the Company
prior thereto, describing in reasonable detail the manner thereof, together
with a written opinion of such holder's counsel, or other evidence, if
reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Act as then in effect or any federal or state securities law then in
effect) of this Warrant or the Shares and indicating whether or not under the
Act certificates for this Warrant or the Shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with such laws. Promptly upon
receiving such written notice and reasonably satisfactory opinion or other
evidence, if so requested, the Company, as promptly as practicable but no
later than fifteen (15) days after receipt of the written notice, shall notify
such holder that such holder may sell or otherwise dispose of this Warrant or
such Shares, all in accordance with the terms of the notice delivered to the
Company and applicable laws. If a determination has been made pursuant to this
Section 7(b) that the opinion of counsel for the holder or other evidence is
not reasonably satisfactory to the Company, the Company shall so notify the
holder promptly with details thereof after such determination has been made.
Notwithstanding the foregoing, this Warrant or such Shares may, as to such
federal laws, be offered, sold or otherwise disposed of in accordance with
Rule 144 or 144A under the Act, provided that the Company shall have been
furnished with such information as the Company may reasonably request to
provide a reasonable assurance that the provisions of Rule 144 or 144A have
been satisfied. Each certificate representing this Warrant or the Shares thus
transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a
legend as to the applicable restrictions on transferability in order to ensure
compliance with such laws, unless in the aforesaid opinion of counsel for the
holder, such legend is not required in order to ensure compliance with such
laws. The Company may issue stop transfer instructions to its transfer agent
in connection with such restrictions.
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<PAGE>
(c) Applicability of Restrictions. Neither any restrictions of
any legend described in this Warrant nor the requirements of Section 7(b)
above shall apply to any transfer or grant of a security interest in, this
Warrant (or the Common Stock obtainable upon exercise thereof) or any part
hereof (i) to a partner of the holder if the holder is a partnership, (ii) to
a partnership of which the holder is a partner, or (iii) to any affiliate of
the holder if the holder is a corporation; provided, however, in any such
transfer, if applicable, the transferee shall on the Company's request agree
in writing to be bound by the terms of this Warrant as if an original
signatory hereto.
8. Rights as Stockholders: Information. No holder of this Warrant, as
such, shall be entitled to vote or receive dividends or be deemed the holder
of Shares, nor shall anything contained herein be construed to confer upon the
holder of this Warrant, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until
this Warrant shall have been exercised and the Shares purchasable upon the
exercise hereof shall have become deliverable, as provided herein.
Notwithstanding the foregoing, the Company will transmit to the holder of this
Warrant such information, documents and reports as are generally distributed
to the holders of any class or series of the securities of the Company
concurrently with the distribution thereof to the stockholders.
9. Additional Rights.
9.1 Right to Convert Warrant into Stock: Net Issuance.
(a) Right to Convert. In lieu of payment of the exercise price
as provided in Section 2 hereof, the holder shall have the right to convert
this Warrant or any portion thereof (the "Conversion Right") into shares of
Common Stock as provided in this Section 9.1 at any time or from time to time
prior to the expiration of this Warrant. Upon exercise of the Conversion Right
with respect to a particular number of shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the holder (without
payment by the holder of any exercise price or any cash or other
consideration) (X) that number of shares of fully paid and nonassessable
Common Stock equal to the quotient obtained by dividing the value of this
Warrant (or the specified portion hereof) on the Conversion Date (as defined
in subsection (b) hereof), which value shall be determined by subtracting (A)
the aggregate Warrant Price of the Converted Warrant Shares immediately prior
to the exercise of the Conversion Right from (B) the aggregate fair market
value of the Converted Warrant Shares issuable upon exercise of this Warrant
(or the specified portion hereof) on the Conversion Date (as herein defined)
by (Y) the fair market value of one share of Common Stock on the Conversion
Date (as herein defined).
Expressed as a formula, such conversion shall be computed as follows:
X= B-A
---
Y
Page 8
<PAGE>
Where: X= the number of shares of Common Stock that may be issued to
holder
Y= the fair market value (FMV) of one share of Common Stock
A= the aggregate Warrant Price (i.e., Converted Warrant Shares
x Warrant Price)
B= the aggregate FMV (i.e., FMV x Converted Warrant Shares)
No fractional shares shall be issuable upon exercise of the Conversion Right,
and, if the number of shares to be issued determined in accordance with the
foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined). For purposes
of this Section 9, shares issued pursuant to the Conversion Right shall be
treated as if they were issued upon the exercise of this Warrant.
(b) Method of Exercise. The Conversion Right may be exercised by
the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered (referred to in Section
9.1(a) hereof as the Converted Warrant Shares) in exercise of the Conversion
Right. Such conversion shall be effective upon receipt by the Company of this
Warrant together with the aforesaid written statement, or on such later date
as is specified therein, which date shall in no event be later than the
expiration date of this Warrant (the "Conversion Date"). Certificates for the
shares issuable upon exercise of the Conversion Right and, if applicable, a
new warrant evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Conversion Date and shall be delivered to
the holder within thirty (30) days following the Conversion Date.
(c) Determination of Fair Market Value. For purposes of this
Section 9.1, "fair market value" of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
(i) If traded on a securities exchange or the Nasdaq National
Market, the fair market value of the Common Stock shall be deemed to be the
average of the closing prices of the Common Stock on such exchange or market
over the 30-day period ending on the day prior to the Determination Date;
(ii) If traded over-the-counter, the fair market value of the
Common Stock shall be deemed to be the average of the closing bid prices of
the Common Stock over the 30-day period ending on the day prior to the
Determination Date; and
(iii) If there is no public market for the Common Stock, then
fair market value shall be determined by mutual agreement of the holder of
this Warrant and the Company.
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10. Representations and Warranties. The Company represents and warrants
to the holder of this warrant as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and
other equitable remedies;
(b) The Shares have been duly authorized and reserved for issuance
by the Company and, when issued in accordance with the terms hereof will be
validly issued, fully paid and non-assessable;
(c) The rights, preferences, privileges and restrictions granted to
or imposed upon the Shares and the holders thereof are as set forth in the
Company's Certificate of Incorporation, as amended to the Date of the Grant, a
true and complete copy of which has been delivered to the original holder of
this Warrant (the "Charter");
(d) The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's Charter or bylaws,
do not and will not contravene any law, governmental rule or regulation,
judgment or order applicable to the Company, and do not and will not conflict
with or contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound or require the consent or approval of, the
giving of notice to, the registration or filing with or the taking of any
action in respect of or by, any Federal, state or local government authority
or agency or other person, except for the filing of notices pursuant to
federal and state securities laws, which filings will be effected by the time
required thereby; and
(e) There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against
the Company in any court or before any governmental commission, board or
authority which, if adversely determined, will have a material adverse effect
on the ability of the Company to perform its obligations under this Warrant.
11. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
12. Notices. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books of
the Company or to the Company at the address indicated therefore on the
signature page of this Warrant.
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13. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Shares issuable upon the exercise or conversion
of this Warrant shall survive the exercise, conversion and termination of this
Warrant and all of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the holder hereof. The Company
will, at the time of the exercise or conversion of this Warrant, in whole or
in part, upon request of the holder hereof but at the Company's expense,
acknowledge in writing its continuing obligation to the holder hereof in
respect of any rights to which the holder hereof shall continue to be entitled
after such exercise or conversion in accordance with this Warrant; provided,
that the failure of the holder hereof to make any such request shall not
affect the continuing obligation of the Company to the holder hereof in
respect of such rights.
14. Lost Warrants or Stock Certificates. The Company covenants to the
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company and its transfer agent of the loss, theft, destruction or mutilation
of this Warrant or any stock certificate and, in the case of any such loss,
theft or destruction, upon receipt of an indemnity reasonably satisfactory to
the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the
lost, stolen, destroyed or mutilated Warrant or stock certificate.
15. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
16. Governing Law. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of California.
17. Survival of Representations. Warranties and Agreements. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained
herein shall survive indefinitely until, by their respective terms, they are
no longer operative.
18. Remedies. In case any one or more of the covenants and agreements
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action
for damages as a result of any such breach and/or an action for specific
performance of any such covenant or agreement contained in this Warrant.
19. [INTENTIONALLY OMITTED.]
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20. Severabilitv. The invalidity or unenforceability of any provision of
this Warrant in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction, or affect any
other provision of this Warrant, which shall remain in full force and effect.
21. Recovery of Litigation Costs. If any legal action or other proceeding
is brought for the enforcement of this Warrant, or because of an alleged
dispute, breach, default, or misrepresentation in connection with any of the
provisions of this Warrant, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs
incurred in that action or proceeding, in addition to any other relief to
which it or they may be entitled.
22. Entire Agreement: Modification. This Warrant constitutes the entire
agreement between the parties pertaining to the subject matter contained in it
and supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with res ct to such
subject matter.
INTEGRATED PACKAGING ASSEMBLY CORPORATION
By: /s/ Alfred Larrenaga
---------------------
Alfred Larrenaga
Chief Financial Officer
Address: 2221 Old Oakland Road
San Jose, CA 95131
Date of Grant: May 1, 1999
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EXHIBIT A
NOTICE OF EXERCISE
To: INTEGRATED PACKAGING ASSEMBLY CORPORATION (the "Company")
1. The undersigned hereby:
_____________ elects to purchase ____ shares of Common Stock of the
Company pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price of such shares in full, or
_____________ elects to exercise its net issuance rights pursuant to
Section 9.1 of the attached Warrant with respect to ____ shares of Common
Stock.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below.
_________________________
(Name)
_________________________
_________________________
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that
the undersigned has no present intention of distributing or reselling such
shares, all except as in compliance with applicable securities laws.
________________________________
(Signature)
______________
(Date)
