-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D4iN+QU4XuJFDU6ALiZ0IcsIBUPPyn70R1ZMGYtIXDIO7aHT1bncHcTbLJC21V0S saP0rbS2g30p3T//NpR5XQ== 0001169232-03-003674.txt : 20030514 0001169232-03-003674.hdr.sgml : 20030514 20030514110835 ACCESSION NUMBER: 0001169232-03-003674 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOVEX INC CENTRAL INDEX KEY: 0000050601 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 411223933 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13143 FILM NUMBER: 03697345 BUSINESS ADDRESS: STREET 1: 530 ELEVENTH AVENUE SOUTH CITY: HOPKINS STATE: MN ZIP: 55343-9904 BUSINESS PHONE: 6129384155 10-Q 1 d55598_10-q.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Period ended March 31, 2003. OR |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Commission File Number: 0-13143 INNOVEX, INC. (Exact name of registrant as specified in its charter) Minnesota 41-1223933 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 5540 Pioneer Creek Drive, Maple Plain, Minnesota 55359-9003 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (763) 479-5300 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| As of April 14, 2003, 15,205,111 shares of the registrant's common stock, $.04 par value per share, were outstanding. Exhibit Index, page 10 PART 1: ITEM 1 FINANCIAL INFORMATION INNOVEX, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)
March 31, September 30, 2003 2002 - ---------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and equivalents $ 3,529,035 $ 2,364,136 Accounts receivable, net 20,983,241 16,773,103 Inventories 9,201,841 9,285,600 Deferred income taxes - current 5,775,552 3,147,691 Other current assets 1,656,477 3,111,291 ------------ ------------ Total current assets 41,146,146 34,681,821 Property, plant and equipment, net of accumulated depreciation of $45,307,000 and $39,316,000 69,889,282 73,691,694 Goodwill 3,000,971 3,000,971 Deferred income taxes - long-term 1,917,445 1,236,038 Other assets 2,429,093 2,317,340 ------------ ------------ $118,382,937 $114,927,864 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 9,751,449 $ 10,798,096 Line of credit 15,818,520 7,302,352 Accounts payable 16,378,087 13,075,040 Accrued compensation 1,833,699 1,653,223 Other accrued liabilities 2,208,235 2,305,858 ------------ ------------ Total current liabilities 45,989,990 35,134,569 Long-term debt, less current maturities 11,523,907 15,371,841 Stockholders' equity: Common stock, $.04 par value; 30,000,000 shares authorized, 15,163,475 and 15,108,283 shares issued and outstanding 606,539 604,331 Capital in excess of par value 17,924,337 17,815,641 Retained earnings 42,338,164 46,001,482 ------------ ------------ Total stockholders' equity 60,869,040 64,421,454 ------------ ------------ $118,382,937 $114,927,864 ============ ============
See accompanying notes to condensed consolidated financial statements. Page 2 of 15 INNOVEX, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 2003 2002 ------------ ------------ Net sales $37,055,736 $34,971,762 Costs and expenses: Cost of sales 32,822,890 29,946,573 Selling, general and administrative 4,742,491 3,983,798 Engineering 1,641,980 1,228,546 Restructuring charges -- 950,000 Net interest (income) expense 554,063 748,726 Net other (income) expense (89,411) (11,337) ------------ ------------ Income (loss) before taxes (2,616,277) (1,874,544) Income taxes (1,249,404) (2,216,537) ------------ ------------ Net income (loss) $(1,366,873) $341,993 ============ ============ Net income (loss) per share: Basic ($0.09) $0.02 ============ ============ Diluted ($0.09) $0.02 ============ ============ Weighted average shares outstanding: Basic 15,169,585 15,053,349 ============ ============ Diluted 15,169,585 15,339,656 ============ ============ Six months Ended March 31, 2003 2002 ------------ ------------ Net sales $71,580,974 $72,814,621 Costs and expenses: Cost of sales 63,853,050 62,016,068 Selling, general and administrative 9,365,240 8,212,407 Engineering 3,177,771 2,622,329 Restructuring charges 750,000 950,000 Net interest (income) expense 1,121,898 1,518,472 Net other (income) expense 2,291 (211,924) ------------ ------------ Income (loss) before taxes (6,689,276) (2,292,731) Income tax benefit (3,025,958) (2,337,807) ------------ ------------ Net income (loss) $(3,663,318) $45,076 ============ ============ Net income (loss) per share: Basic ($0.24) $0.00 ============ ============ Diluted ($0.24) $0.00 ============ ============ Weighted average shares outstanding: Basic 15,164,162 15,052,599 ============ ============ Diluted 15,164,162 15,281,458 ============ ============ See accompanying notes to condensed consolidated financial statements. Page 3 of 15 INNOVEX, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended March 31, 2003 2002 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(3,663,318) $ 45,076 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 6,066,967 6,770,660 Restructuring charges 750,000 950,000 Other non-cash items (3,403,420) (102,429) Changes in operating assets and liabilities: Accounts receivable (4,210,138) (454,353) Inventories 83,759 2,449,516 Other current assets 1,454,814 11,454,462 Accounts payable 3,303,047 (2,219,817) Other liabilities (667,147) (6,533,268) ----------- ------------ Net cash provided by (used in) operating activities (285,436) 12,359,847 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (2,286,156) (1,499,124) Other 4,000 2,451 099 ----------- ------------ Net cash provided by (used in) investing activities (2,282,156) 951,975 CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (4,894,582) (4,478,321) Issuance of long-term debt -- 414,492 Net activity on line of credit 8,516,169 4,199,817 Proceeds from exercise of stock options 110,904 81,747 ----------- ------------ Net cash provided by (used in) financing activities 3,732,491 217,735 Increase (decrease) in cash and equivalents 1,164,899 13,529,557 Cash and equivalents at beginning of period 2,364,136 1,798,272 ----------- ------------ Cash and equivalents at end of period $ 3,529,035 $ 15,327,829 =========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest was $1,153,000 and $1,635,000 in fiscal 2003 and 2002. Income tax payments were $6,000 and $24,000 in fiscal 2003 and 2002. See accompanying notes to condensed consolidated financial statements. Page 4 of 15 INNOVEX INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements NOTE 1 - FINANCIAL INFORMATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions on Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited condensed consolidated financial statements include the accounts of Innovex, Inc. and its subsidiaries (the "Company") after elimination of all significant intercompany transactions and accounts. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of operating results have been made. Operating results for interim periods are not necessarily indicative of results that may be expected for the year as a whole. The Company utilizes a fiscal year that ends on the Saturday nearest to September 30. For clarity of presentation, the Company has described all periods as if they end at the end of the calendar quarter. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended September 30, 2002. Preparation of the Company's condensed consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from these estimates. NOTE 2 - RESTRUCTURING CHARGES Manufacturing operations restructuring- The fiscal 2001 second quarter included asset impairment and restructuring charges of $9,754,000 and $10,124,000 related to the restructuring of the Company's manufacturing operations. The restructuring is primarily related to moving manufacturing operations from the Company's Chandler, Arizona facility to the Company's Minnesota locations. During the fiscal 2002 second quarter and the fiscal 2003 first quarter, additional restructuring charges of $876,000 and $750,000, respectively, were recorded due to an increase in the estimate of the leased Chandler facility disposition costs. As of March 31, 2003, the restructuring is substantially complete. During the second quarter of fiscal 2003, payments of approximately $633,000 were made to buy out the remainder of the Chandler facility lease through its June 2003 termination. The remaining restructuring accrual for cash items as of March 31, 2003 totaled $179,000. Selected information regarding the restructuring follows (in thousands): Manufacturing Operations Restructuring - Arizona ---------------------------- Facility Employee Abandonment Termination Charges Benefits Total ------------------------------------ Accrual at October 1, 2002 $ 225 $78 $ 303 Change in estimate 750 -- 750 Payments (874) -- (874) ------------------------------------ Accrual at March 31, 2003 $ 101 $78 $ 179 ==================================== NOTE 3 - EARNINGS PER SHARE The Company's basic net loss per share is computed by dividing net loss by the weighted average number of outstanding common shares. The Company's diluted net loss per share is computed by dividing net loss by the weighted average number of outstanding common shares and common share equivalents relating to stock options when dilutive. Options to purchase 1,070,800 and 1,214,325 shares of common stock with weighted average exercise prices of $12.10 and $11.17 were outstanding during the three and six month periods ending March 31, 2003, but were excluded from the computation of common share equivalents because they were not dilutive. Options to purchase 1,287,523 and 1,379,098 shares of common stock with weighted average exercise prices of $11.68 and $11.25 were outstanding during the three and six month periods ending March 31, 2002, but were excluded from the computation of common share equivalents because they were not dilutive. Page 5 of 15 The Company's fiscal 2003 second quarter and first six months pro forma net loss would have been ($1,545,000) and ($4,020,000) or ($0.10) and ($0.27) diluted net loss per share had the fair value method been used for valuing options granted. The Company's fiscal 2002 second quarter net income and first six months pro forma net loss would have been $145,000 and ($349,000) or $0.01diluted net income per share and ($0.02) diluted net loss per share had the fair value method been used for valuing options granted. The weighted average fair value of options granted in 2003 and 2002 was $1.47 and $1.46. The value was computed by applying the following weighted average assumptions to the Black Scholes options pricing model: volatility of 75% and 90%; dividends yields of 0.0%; risk-free rate of return of 2.6% and 4.0%; and an average term of 4.5 years for 2003 and 2002. No adjustment was made to the Black Scholes calculation to reflect that the options are not freely traded. NOTE 4 - INVENTORIES Inventories are comprised of the following (in thousands): March 31, September 30, 2003 2002 ------------------------- Raw materials and purchased parts $3,575 $3,939 Work-in-process and finished goods 5,627 5,347 ------------------------- $9,202 $9,286 ========================= NOTE 5 - DERIVATIVE INSTRUMENTS The Company enters into forward exchange contracts that are recorded at fair value with related fair value gains or losses recorded in earnings within the caption other (income) expense. Generally, these contracts have maturities of six months or less. These contracts are entered into to offset the gains or losses on foreign currency denominated assets and liabilities. The Company does not enter into forward exchange contracts for trading purposes and the contracts are not designated as hedges. At March 31, 2003, the Company had open forward exchange contracts to buy Thailand baht maturing July 3, 2003 with notional amounts of 880,000,000. The total open contracts for 880,000,000 baht equates to approximately $20.5 million U.S. dollars. NOTE 6 - REVENUE RECOGNITION Innovex makes electronic components (flexible circuits) based on customer specifications. The Company's revenue recognition policy is consistently applied regardless of sales channels utilized and product destination. The Company has an implied warranty that the products meet the customer's specification. Credits are only issued for customer returns. In recognizing revenue in any period, the company applies the provisions of SEC Staff Accounting Bulletin 101, "Revenue Recognition." Revenue from product sales is recognized when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is reasonably assured. For all sales, a binding purchase order is used as evidence of an arrangement. The Company also stores inventory in warehouses (JIT hubs - third party owned warehouses) that are located close to the customer's manufacturing facilities. Revenue is recognized on sales from JIT hubs upon the transfer of title and risk of loss, following the customer's acknowledgement of the receipt of the goods. PART I: ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE COMPANY Innovex is a leading worldwide provider of flexible circuit interconnect solutions to OEMs in the electronics industry. The Company offers a full range of customized flexible circuit applications and services from initial design, development and prototype to fabrication, assembly and test on a global basis. The Company targets high-volume markets where miniaturization, form and weight are driving factors and flexible circuits are an enabling technology. Applications for flexible circuits currently addressed by the Company include notebook computers, LCD displays for portable communication devices, data storage devices such as hard disk drives ("HDDs"), tape drives and arrays, high-end consumer electronics products such as digital video disk(DVD) players and printers. The Company's principal customers include 3M, Alps, Compaq, Dell, Hewlett Packard, IBM, Littelfuse, Maxtor, Medtronic, Nokia, Philips, Page 6 of 15 Quantum, ReadRite, SAE Magnetics, Samsung, Seagate, Staktek, StorageTek, Xerox and other leading electronic OEMs. Flexible circuits consist of copper conductive patterns on flexible substrate materials, such as polyimide, and provide electrical connection between components in electronic systems. Flexible circuit interconnects frequently incorporate components such as integrated circuits ("ICs"), connectors, stiffeners, resistors and capacitors mounted directly on a flexible circuit. With proliferation of electronic applications, electronic products have become smaller, lighter and more portable. To meet the challenges represented by the increased complexity of miniaturization, form and weight requirements, OEMs have increasingly turned to flexible circuit interconnect solutions because they decrease the weight and expense of connectors and other packaging components, conform to contoured, ergonomic shapes or small spaces and provide mechanical flexure. The Company's products consist of flexible circuits with high to mid-range tolerances and may include other secondary finishing or assembly operations. The high-end flexible circuits generate the highest gross margin percentages. The mid-range or standard flexible circuits with components added through the performance of additional assembly steps garner lower gross margin percentages due to higher material costs and the increased number of competitors. Prior to 1999, the Company's primary products were small lead wire assemblies for computer disk drives. The disk drive industry has transitioned away from lead wire assembly interconnects to integrated interconnects such as the Company's Head Interconnect Flex ("HIF") and Flex suspension assembly ("FSA") products. This transition has had a significant impact on the Company's operations since 1998 as it has had to manage the rapid increase in its flexible circuit business while controlling the rapid drop in its lead wire assembly operations. Lead wire assembly sales constituted none of fiscal 2002 and 2001 consolidated revenues and less than 1% of fiscal 2000 revenues after comprising over 72% of fiscal 1998 revenues. While the trend toward miniaturization and portability increases product complexity, electronic OEMs face escalating time to market, cost and global sourcing requirements. In response, the Company has established manufacturing facilities in Thailand that have lower cost structures and closer proximity to the Company's OEM customer base. The Company believes it is a preferred supplier for the majority of its customers' high-end, high-volume flexible circuit interconnect requirements. Innovex, Inc. was incorporated under the laws of the State of Minnesota in 1972. Its principal executive offices are located at 5540 Pioneer Creek Drive, Maple Plain, Minnesota 55359-9003 and its telephone number is (763) 479-5300. Products are developed and manufactured through the Company's wholly owned subsidiaries, Innovex Precision Components, Inc. and Innovex (Thailand) Ltd. Innovex Precision Components, Inc. is a Minnesota corporation and Innovex (Thailand) Ltd. is a Thailand corporation. CRITICAL ACCOUNTING POLICIES This report on Form 10Q should be read in conjunction with the Company's Annual Report on Form 10-K for the period ended September 30, 2002 for a full discussion of our accounting policies. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we used in applying the critical accounting policies. Within the context of these critical accounting policies, we are not currently aware of any reasonably likely event that would result in materially different amounts being reported. Allowance for Excess and Obsolete Inventory: Inventories, which are composed of raw materials, work in process and finished goods, are valued at the lower of cost or market with cost being determined by the first-in, first-out method. On a periodic basis, the Company analyzes the level of inventory on hand, its cost in relation to market value and estimated customer requirements to determine whether write-downs for excess or obsolete inventory are required. Actual customer requirements in any future periods are inherently uncertain and thus may differ from estimates. If actual or expected requirements were significantly greater or lower than the established reserves, a reduction or increase to the obsolescence allowance would be recorded in the period in which such a determination was made. Page 7 of 15 Goodwill: The Company adopted Statement of Financial Accounting Standards (SFAS) 142, Goodwill and Intangible Assets effective October 1, 2001 and as a result discontinued the amortization of goodwill and any other intangible assets determined to have indefinite lives. The Company has determined goodwill relates to one reporting unit for purposes of impairment testing. Goodwill and other intangible assets with indefinite lives are tested for impairment annually or whenever an impairment indicator arises. If events or circumstances change, including reductions in anticipated cash flows generated by operations, goodwill could become impaired and result in a charge to earnings. Deferred Taxes: The Company accounts for income taxes using the liability method. Deferred income taxes are provided for temporary differences between the financial reporting and tax bases of assets and liabilities. A valuation allowance is set up where the realization of any deferred taxes becomes less likely than not to occur. The valuation allowance is analyzed periodically by the Company and may result in income tax expense different than statutory rates. RESULTS OF OPERATIONS NET SALES The Company's net sales from operations totaled $37,056,000 for the quarter, up 6% from $34,972,000 reported in the same quarter of fiscal 2002. The increase in net sales for the second quarter of fiscal 2003 as compared to the same quarter of fiscal 2002 was due to higher revenue generated by disk drive and liquid crystal display (LCD) applications. The increased disk drive revenue was related to the Company's improved FSA market share resulting from the disk drive industry's transition to the 80 GB per platter technology platform. The LCD revenue improvement was related to the continued ramp-up of the new LCD program announced during the first quarter of fiscal 2003. Sales of $71,581,000 for the six months ended March 31, 2003 decreased 2% from the prior year period. The decrease in net sales for the first half of fiscal 2003 as compared to the same period of fiscal 2002 was due to lower revenue generated by the disk drive, consumer optical storage and computer applications as a result of economic conditions. Revenue from the disk drive industry generated 76% of the Company's revenue for the fiscal 2003 second quarter as compared to 72% for the fiscal 2002 second quarter, revenue from integrated circuit packaging applications was 7% versus 2% from the prior year quarter, consumer application revenue was 6% versus 17%, network system application revenue was unchanged at 6% and revenue from other industry applications was 5% versus 3% from the prior year quarter. Fiscal 2003 second quarter net sales increased 7% as compared to the first quarter of fiscal 2003 as a result of the continued ramp-up of a mobile phone LCD application and increases in revenue generated by FSA applications. Revenue is expected to show a slight increase in the third quarter of fiscal 2003 as new LCD and FSA programs continue to ramp up. GROSS MARGINS The Company's gross profit as a percent of sales for the quarter ended March 31, 2003 decreased to 11% from the 14% reported for the fiscal 2002 second quarter. The gross profit as a percent of sales for the first six months decreased to 11%, from the 15% reported for the same period last year. As compared to the prior year, fiscal 2003 second quarter gross margins were impacted by incremental start up and tooling costs related to new product introductions and product mix changes. The company experienced a significant product transition during the second quarter, converting approximately 70% of its products to new designs. The current year's product mix also had an increased share of FSA revenue with higher material pass through content related to the suspension material used in the FSA product. The prior year's product mix included higher share of the company's HIF product, which does not include the suspension related pass through material. The decreased fiscal 2003 first half gross margin percent as compared to the prior year period was primarily due to higher new product introduction costs, lower portion of HIF revenue within the product mix and lower revenue reducing fixed cost leverage. The Company anticipates that gross margins in the last half of fiscal 2003 will improve as the new program introductions reach higher production volumes and revenue levels increase. Page 8 of 15 OPERATING EXPENSES Operating expenses were 17% of sales for the current quarter, as compared to 15% in the prior year's second quarter. Operating expenses for the first six months of fiscal 2003 were 17.5%, up from 14.9% from the prior year first six months. Total operating expenses for the second quarter of fiscal 2003 increased by $1.2 million from the fiscal 2002 second quarter. Operating expenses for the first six months of fiscal 2003 increased by $1.7 million from the same period in fiscal 2002. The increase in fiscal 2003 second quarter spending was primarily due to consulting and training costs related to implementation of the company wide Six Sigma program and increased new product development spending. Start up costs related to Six Sigma were approximately $300,000 during the March quarter. Six Sigma start up costs will continue through the June quarter, at which time Six Sigma start up costs are expected to end and savings generated by the program are expected to begin. The increased operating expenses during the fiscal 2003 first six months as compared to the prior year period were Six Sigma consulting and training expenses, increased new product development spending and severance costs of $400,000 included in the fiscal 2003 first quarter resulting from efforts to increase operational efficiency by consolidating from four to three marketing groups. Operating expenses for the remainder of fiscal 2003 are expected to decrease as a percent of sales due to a reduced level of Six Sigma spending and anticipated increased revenue in the last half of the year. RESTRUCTURING CHARGES The fiscal 2001 second quarter included asset impairment and restructuring charges of $9,754,000 and $10,124,000 related to the restructuring of the Company's manufacturing operations. The restructuring was primarily related to moving manufacturing operations from the Company's Chandler, Arizona facility to the Company's Minnesota locations. The charges included $6,332,000 for Chandler facility abandonment costs. During the fiscal 2002 second quarter and the fiscal 2003 first quarter, additional restructuring charges of $876,000 and $750,000, respectively, were recorded due to an increase in the estimate of the leased Chandler facility disposition costs. During the second quarter of fiscal 2003, payments of approximately $633,000 were made to buy out the remainder of the Chandler facility lease through its June 2003 termination. As of March 31, 2003, the restructuring is substantially complete. OPERATING PROFIT (LOSS) The consolidated operating loss of ($2,152,000) in the current quarter was up from the operating loss of ($1,137,000) for the prior year second quarter. Consolidated operating loss for the fiscal 2003 first six months was ($5,565,000) versus ($986,000) for the same period last year. The fiscal 2003 decrease is primarily due to lower revenue and related gross margin, higher new product introduction expenses, higher operating expenses due to Six Sigma implementation costs and increased new product development spending for the periods as compared to the prior year. INCOME TAXES Income tax benefit for the fiscal 2003 second quarter was $1,249,000 as compared to $2,217,000 for the same quarter in fiscal 2002. Income tax benefit for the first six months of fiscal 2003 was $3,026,000 as compared to $2,338,000 for the same period in the prior year. The fiscal 2003 tax benefit was calculated by applying an effective tax rate of 36.7% to the Company's U.S. based pretax loss. The Company has determined that it is more likely than not that the Company will be able to utilize the tax benefit in the future. During the fiscal 2002 second quarter, approximately $1.7 million of the tax benefit recorded was due to a reduction of the deferred tax allowance. The deferred tax allowance was reduced as a result of the estimated improvement in deferred tax asset recoverability in light of the receipt of a $13 million tax refund resulting from the carry-back of the fiscal 2001 net operating loss. NET INCOME(LOSS) Consolidated net loss for the fiscal 2003 second quarter was ($1,367,000) as compared to net income of $342,000 for the prior year. The net loss per share was ($0.09) as compared to basic and diluted net income per share of $0.02 for the prior year second quarter. Consolidated net loss for the first six months of fiscal 2003 was ($3,663,000) as compared to net income of $45,000 for the prior year. The net loss per share was ($0.24) as compared to basic and diluted net income per share of $0.00 for the same period last year. Page 9 of 15 LIQUIDITY AND CAPITAL RESOURCES Cash and short-term investments increased to $3.5 million at March 31, 2003 from $2.4 million at September 30, 2002. Accounts receivable at March 31, 2003 increased by $4.2 from September 30, 2002 due to the higher level of revenue in the current quarter as compared to at the quarter ended September 30, 2002. Inventories at March 31, 2003 decreased by $100,000 from September 30, 2002 due to a focused effort to reduce inventory levels. Other current assets decreased by $1.4 million from September 30, 2002 primarily due to the receipt of a tax refund related to the fiscal 2002 tax loss carryback. Accounts payable at March 31, 2003 increased by $3.3 million primarily due to higher level of revenue in the current quarter as compared to the quarter ended September 30, 2002. Other liabilities at March 31, 2003 decreased by $667,000 from September 30, 2002 primarily due to payments made to buy out the remaining portion of the Chandler facility lease reducing the restructuring reserve. Working capital totaled ($4.8) million and ($0.5) million at March 31, 2003 and September 30, 2002. Since September 30, 2002, the Company has invested $2.3 million in capital expenditures primarily for test equipment and capacity increases in selected areas. Capital expenditures of approximately $4 million are expected during the remainder of fiscal 2003. These expenditures will include technological upgrades and capacity increases in specific areas. In April 2001 the Company entered into a 1.2 billion Thailand baht (approximately $27 million) credit facility agreement with Bank of Ayudhya Public Company Limited and The Industrial Finance Corporation of Thailand. The facility is comprised of a 590 million baht long-term facility, a 530 million baht packing credit facility, a 70 million baht short term working capital facility and a 10 million baht overdraft facility. The Thailand based facility is secured by certain receivables, inventory and assets held by the Company in Thailand. In June 2002, the Company completed a 300 million Thailand baht (approximately $6.8 million) expansion of its Thailand credit facilities also secured by certain receivables and inventory held by the Company. In February 2003, the Company completed a 220 million baht (approximately $5.1 million) expansion of its Thailand credit facilities. The new long term debt is secured by specified equipment held by Innovex Thailand. As of March 31, 2003, the Company had $11 million of borrowing capacity available under the existing credit facilities. The Company is in compliance with covenants under its U.S. and Thailand based financing agreements as of March 31, 2003. Long-term debt, including current maturities, decreased by $4.9million from September 30, 2002 to March 31, 2003. The decrease is primarily the result of two regularly scheduled $1.6 million quarterly payments made on the existing Wells Fargo facility with the remainder being scheduled principal payments made on the Thailand credit facilities and other long term lease financing. The ratio of long-term debt, net of current maturities, to stockholders' equity was .19 at March 31, 2003 compared to .24 at the end of fiscal 2002. The Company believes that with the existing U.S. and Thailand credit facilities and cash generated from operations, it will have adequate funds to support projected working capital and capital expenditures for fiscal 2003. The Company is considering alternatives for generating additional working capital and long term financing and will continue to pursue financing opportunities primarily in the U.S to better leverage its assets. The Company's financing needs and the financing alternatives available to it are subject to change depending on, among other things, general economic and market conditions, changes in industry buying patterns, customer acceptance of the FSA product and cash flow from operations. NEW PRONOUNCEMENTS In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS 146 clarifies the accounting for costs associated with exit or disposal activities. The Company adopted this statement effective in January 2003. Effective for the period ended March 31, 2003 the Company adopted SFAS 148, Accounting for Stock-based Compensation-Transition and Disclosure. SFAS 148 amends the disclosure and certain transition provisions of Page 10 of 15 statement 123, Accounting for Stock-Based Compensation. The disclosure requirements of this pronouncement are included in the consolidated financial statements for the period ended March 31, 2003. FORWARD LOOKING STATEMENTS Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Operations, elsewhere in this report and in future filings by the Company with the SEC, except for the historical information contained herein and therein, are "forward-looking statements" that involve risks and uncertainties. These risks and uncertainties include the timely availability and acceptance of new products including the FgSA, LCD flexible circuits and semiconductor packaging substrates, the impact of competitive products and pricing, interruptions in the operations of the Company's single source suppliers, changes in manufacturing efficiencies and other risks detailed from time to time in the Company's reports filed with the Securities and Exchange Commission. In addition, a significant portion of the Company's revenue is generated from the disk drive, integrated circuit substrates, consumer electronics and data storage industries and the global economic downturn has had and a continued economic downturn will continue to have an adverse impact on the Company's operations. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect subsequent events or circumstances or the occurrence of unanticipated events. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There were no material changes in the Company's market risk during the three-month period ended March 31, 2003. ITEM 4: CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive Officer, William P. Murnane, and Chief Financial Officer, Thomas Paulson, have reviewed the Company's disclosure controls and procedures within 90 days prior to the filing of this report. Based upon this review, these officers believe that the Company's disclosure controls and procedures are effective in ensuring that material information related to the Company is made known to them by others within the Company. (b) Changes in Internal Controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls during the quarter covered by this report or from the end of the reporting period to the date of this Form 10-Q. PART II - OTHER INFORMATION Responses to Items 1 through 3 and 5 are omitted since these items are either inapplicable or the response thereto would be negative. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS a) The Annual Meeting of the shareholders of Innovex, Inc. was held on January 16, 2002. There were 15,151,975 shares of common stock entitled to vote at the meeting and a total of 14,474,417 shares were represented at the meeting. b) Six directors were elected at the meeting to serve for one year or until their successors are elected and qualified. Shares were voted as follows: For Withheld --- -------- Allen Andersen 14,369,426 104,991 Thomas W. Haley 13,845,077 629,340 Elick Eugene Hawk 14,373,803 100,614 William P. Murnane 13,928,304 546,113 Raj K. Nooyi 14,375,735 98,682 Michael C. Slagle 14,364,919 109,498 Page 11 of 15 c) Other matters voted on at the meeting: Proposal #2. A proposal was made to approve the selection of the Company's independent public accountants for the current fiscal year. Shares were voted as follows: For Against Abstain --- ------- ------- 14,376,989 40,745 56,684 Accordingly, each nominee was elected as a director and the appointment of Grant Thorton LLP was approved. ITEM 5: OTHER INFORMATION On November 27, 2002, the Company entered into an Option Agreement with Concorde Pape II ("Concorde"), pursuant to which Concorde granted to the Company an option to acquire shares of KRP Precision Public Company Limited ("KRP") representing 24.9% of the issued and outstanding shares of KRP. As of date of the Option Agreement, Concorde owned approximately 55.7% of the shares of KRP. The option is exercisable in the discretion of the Company at any time on or prior to December 31, 2003; however, the Company is under no obligation to exercise this option. Payment of the exercise price is due in shares of Company common stock. The number of Innovex shares to be issued to Concorde for the KRP shares in payment of the exercise price of this option will be determined by the following formula: [A x B] / C=D, where A is the number of KRP shares to be transferred equal to 24.9% of the outstanding KRP shares at the time the option is exercised; B is the KRP Share Value as defined below; C is the Innovex Share Value as defined below; and D is the number of Innovex shares to be issued. The KRP Share Value shall be determined by the following formula: X x [1-Y] = B, where X is the average daily closing price of KRP shares as reported on the Stock Exchange of Thailand for each trading day in the twelve week period ending on the exercise notice date and Y is a fraction (which shall not be greater than 1/4), the numerator of which is the revenue of KRP for that twelve week period generated directly or indirectly from a designated customer's FSA/FgSA business and the denominator of which is total revenue of KRP for that twelve week period. The Innovex Share Value shall equal the average daily closing price for Innovex shares for each trading day in the twelve week period ending on the exercise notice date. If the Company does not exercise this option by December 31, 2003, the option agreement terminates. If the Company exercises this first option, Concorde will grant the Company a second option to purchase the remaining shares of KRP owned by Concorde between twelve and twenty-four months from the closing of the first option. The exercise price for this second option would be payable to Concorde in cash with the value of the remaining KRP shares determined by the average daily closing price of KRP shares for each trading day in the twelve week period ending on the second call option exercise notice date. Further, in the event the Company exercises its second option, the Company may be required to make a general offer to purchase KRP shares from KRP shareholders. In the event the second option is not exercised, Concorde may require the Company to purchase its remaining KRP shares under certain circumstances within the next twelve month period with the purchase price payable in shares of the Company's common stock and the number of Innovex shares to be issued calculated using the same formula as for the first option. Michael C. Slagle -- Michael Slagle, a member of the Company's Board of Directors, passed away May 8, 2003. Mr. Slagle had served on Innovex's Board since 1972. He was retired and the former owner of Minnesota Benefit Planners, an insurance brokerage consulting firm. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 10.1 Second Supplemental Agreement dated February 28, 2003 to Credit Facilities Agreement dated April 23, 2001 among Innovex (Thailand) Limited, Bank Of Ayudhya Public Company Limited and The Industrial Finance Corporation of Thailand. 99.1 Certification pursuant to 18 U.S.C. ss.1350. b) Reports on Form 8-K None. Page 12 of 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INNOVEX, INC. Registrant Date: May 14, 2003 By \s\ William P. Murnane William P. Murnane President and Chief Executive Officer By \s\ Thomas Paulson Thomas Paulson Chief Financial Officer Page 13 of 15 CERTIFICATIONS I, William P. Murnane, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Innovex, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ William P. Murnane ---------------------------------------- President and Chief Executive Officer Page 14 of 15 I, Thomas Paulson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Innovex, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 14, 2003 /s/ Thomas Paulson ---------------------------------------- Chief Financial Officer Page 15 of 15 EX-10.1 3 d55598_ex10-1.txt SECOND SUPPLEMENTAL AGREEMENT Exhibit 10.1 THE SECOND SUPPLEMENTAL AGREEMENT TO CREDIT FACILITIES AGREEMENT DATED 23 APRIL 2001 This Agreement is made to be effective from 28 February 2003 (the "Effective Date of the Second Supplemental Agreement") BETWEEN INNOVEX (THAILAND) LIMITED (Registration No. Bor Aor Chor. Lor Por 253) with its head office located at No. 79 Moo 4 Export Industrial Zone 2, Northern Industrial Estate, Baan Klang Sub-district, Muang Lampoon District, Lampoon Province (hereinafter referred to as the "Borrower") BANK OF AYUDHYA PUBLIC COMPANY LIMITED ("Bank of Ayudhya") with its head office located at 1222, Rama 3 Road, Bangpongpang, Yanawa, Bangkok as the Facility Agent (hereinafter referred to in this Agreement as the "Facility Agent") THE INDUSTRIAL FINANCE CORPORATION OF THAILAND ("IFCT") with its head office located at 1770, New Petchburi Road, Bangkapi, Huaykwang, Bangkok as the Security Agent (hereinafter referred to as the "Security Agent"). AND IFCT and BANK OF AYUDHYA as the Creditors (hereinafter referred to collectively as the "Creditors" and individually as "Creditor"). WHEREAS (A) The Borrower entered into the Credit Facilities Agreement dated 23 April 2001 (hereinafter referred to as the "Credit Facilities Agreement dated 23 April 2001") with the Facility Agent, the Security Agent and the Creditors. (B) The Borrower entered into the Supplemental Agreement to the Credit Facilities Agreement dated 23 April 2001 on 1 March 2002 (hereinafter referred to as the "First Supplemental Agreement to the Credit Facilities Agreement"). The Credit Facilities Agreement dated 23 April 2001 and the First Supplemental Agreement to the Credit Facilities Agreement (hereinafter referred to as the "Credit Facilities Agreement"). (C) The Borrower, the Facility Agent, the Security Agent and the Creditors intend to amend the Credit Facilities Agreement pursuant to the terms and conditions of this second supplemental agreement to the Credit Facilities Agreement (hereinafter referred to as the "Second Supplemental Agreement to the Credit Facilities Agreement"). 1. Definition and Interpretation The parties agree as follows: 1.1 Words and expressions used in this Agreement shall have the same respective meanings as the words and expressions defined in the Credit Facilities Agreement except as otherwise defined in this Agreement. Page 1 of 18 1.2 Definition "Net Profit" means the total amount of income of the Borrower less all expenses of the Borrower as appeared in the Financial Statement for each half year period of each financial year reviewed by the Auditor acceptable to the Creditors or as appeared in the Financial Statement for each financial year audited by the Auditor acceptable to the Creditors; "Repayment Date for New Long Term Facility" means the day on which the loan shall be repaid as specified in Clause 3.6 below and under Attachment 1 of the Second Supplemental Agreement to the Credit Facilities Agreement; "Return on Assets" means the amount of Net Profit divided by Total Assets; "Second Guarantee Agreement" means the Second Guarantee Agreement issued by the Guarantor to the Creditors as required by the Second Supplemental Agreement to the Credit Facilities Agreement and in accordance with the form of Attachment 3 of the Second Supplemental Agreement to the Credit Facilities Agreement as a security of the Debt of the Borrower under the Credit Facilities Agreement as amended by the Second Supplemental Agreement to the Credit Facilities Agreement; "The Second Equipment Pledge Agreement" means the second equipment pledge agreement made between the Borrower, Security Keeper, Security Agent and the Creditors for the benefit of the Creditors in accordance with the form specified in Attachment 2 of the Second Supplemental Agreement to the Credit Facilities Agreement; "Former Long Term Facility" means the Long Term Facility in Baht as specified in Clause 2.1.1 of the Credit Facilities Agreement as amended by Clause 2.2 of the Second Supplemental Agreement to Credit Facilities Agreement; "New Long Term Facility" means the new Long Term Facility in Baht as specified in Clause 3.1 of the Second Supplemental Agreement to Credit Facilities Agreement; "Additional Short Term Working Capital Facility" means the short term working capital facility that the Packing Credit Creditors permit the Borrower to drawdown pursuant to Clause 2.1.2 (b)(2) of the Credit Facilities Agreement as amended by Clause 2.3 of the Second Supplemental Agreement to Credit Facilities Agreement; "Total Assets" means the assets including revenues and rights of every description of a company" "Consolidated Pre-Tax Income" means net income before provision for income taxes of the consolidated income statement of Innovex Inc.; "Availability Period for New Long Term Facility" means the period from the Effective Date of the Second Supplemental Agreement until 30 December 2003; "Availability Period for Additional Short Term Working Capital Facility" means the period commencing from the Effective Date of the Second Supplemental Agreement and expiring on the earlier of (a) the Packing Credit Creditors have no obligation to provide the Additional Short Term Working Capital Facility to the Borrower under this Agreement and/or the Documents for the Utilization of Additional Short Term Working Capital Facility or (b) the Packing Credit Creditors agree with the Borrower; "United States Dollars" or US$" means the lawful currency of the United States of America; "Repayment Schedule for New Long Term Facility" means the repayment schedule for New Long Term Facility under the condition specified in Clause 3.6 below and Attachment 1 of the Second Supplemental Agreement to the Credit Facilities Agreement; Page 2 of 18 "Documents for the Utilization of Additional Short Term Working Capital Facility" means the application for the utilization of Additional Short Term Working Capital Facility and/or any documents, instruments, Promissory Notes or other agreements which are used for the utilization of the Additional Short Term Working Capital Facility in the form and substance specified, from time to time, by each Packing Credit Creditor; "Innovex Inc" means Innovex Inc. which is an ultimate parent company of the Borrower established under the laws of Minnesota, United States of America with its registered office at 5540 Pioneer Creek Drive, Maple Plain, Minnesota, U.S.A. 1.3 In this Agreement, except as otherwise defined the reference to the Credit Facilities Agreement, the Transaction Documents or any documents related to the Credit Facilities Agreement or the Transaction Documents shall include this Agreement. 1.4 From the Effective Date of this Agreement, any terms or conditions in the Credit Facilities Agreement or the Transaction Documents or any documents related to the Credit Facilities Agreement or the Transaction Documents which contradict the terms amended by this Agreement, then the terms under this Agreement shall prevail and the terms or conditions under the Credit Facilities Agreement or the Transaction Documents or any documents related to the Credit Facilities Agreement or the Transaction Documents which contradict the terms of this Agreement shall no longer be effective. 2. Amendment The Borrower, the Facility Agent, the Security Agent and the Creditors agree to amend the terms of the Credit Facilities Agreement as follows: 2.1 On the Effective Date of the Second Supplemental Agreement, the definitions and interpretation under Clause 1.1 of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "Repayment Schedule" means the repayment schedule for Former Long Term Facility under the condition specified in Clause 6.1.1 and Attachment 6 of the Credit Facilities Agreement; "Interest Period" means the interest period as specified in Clause 5.1.2, Clause 5.2, Clause 5.3, Clause 9.3.2, Clause 9.3.5 and Clause 12.3.2 of the Credit Facilities Agreement and Clause 3.5.3 of the Second Supplemental Agreement to Credit Facilities Agreement; "Promissory Note" means any promissory note issued by the Borrower to the Packing Credit Creditor and/or Working Capital Creditor as an evidence for the granting and/or drawing of that type of Facility to the Borrower and shall be in accordance with the form specified by each such Creditor; "Facility" means all or part of the credit facilities provided by any or all of the Creditors to the Borrower under this Agreement including Former Long Term Facility, New Long Term Facility, Packing Credit Facility, Working Capital Facility and Additional Short Term Working Capital Facility; "Packing Credit Facility" means the Packing Credit Facility in Baht or foreign currency equivalent to Baht and the Additional Short Term Working Capital Facility in Baht as specified in Clause 2.1.2 of the Credit Facilities Agreement as amended by Clause 2.3 of the Second Supplemental Agreement to Credit Facilities Agreement; "Facility Limit of Each Creditor" means the facility limit for Former Long Term Facility, New Long Term Facility, Packing Credit Facility and Working Capital Facility provided by each Creditor to the Borrower under Attachment 1 of the Credit Facilities Agreement under the name of each such Creditor, this facility limit may be reduced or cancelled under the term of this Agreement; Page 3 of 18 "Repayment Date" means the day on which the Former Long Term Facility shall be repaid as specified in Clause 6.1 of the Credit Facilities Agreement as amended by Clause 2.15 of the Second Supplemental Agreement to Credit Facilities Agreement and under Attachment 6 of the Credit Facilities Agreement; "Availability Period for Long Term Facility" means the period commencing from the Effective Date of this Agreement and expiry on the earlier of (a) 30 June 2001 or (b) the Long Term Creditors have no obligation to provide the Former Long Term Facility to the Borrower or (c) the Long Term Creditors agree with the Borrower; "Availability Period for Packing Credit Facility" means (1) For Packing Credit Facility pursuant to Clause 2.1.2 (a) of the Credit Facilities Agreement as amended by Clause 2.3 of the Second Supplemental Agreement to Credit Facilities Agreement, the period commencing from the Effective Date of this Agreement and expiring on the earlier of (a) the Packing Credit Creditors have no obligation to provide Packing Credit Facility pursuant to Clause 2.1.2 (a) to the Borrower under this Agreement and/or the Documents for the Utilization of Packing Credit Facility or (b) the Packing Credit Creditors agree with the Borrower; (2) For Packing Credit Facility pursuant to Clause 2.1.2 (b)(1) of the Credit Facilities Agreement as amended by Clause 2.3 of the Second Supplemental Agreement to Credit Facilities Agreement, the period commencing from the Effective Date of the First Supplemental Agreement to the Credit Facility Agreement and expiring on the earlier of (a) the Packing Credit Creditors have no obligation to provide Packing Credit Facility pursuant to Clause 2.1.2 (b)(1) to the Borrower under this Agreement and/or the Documents for the Utilization of Packing Credit Facility or (b) the Packing Credit Creditors agree with the Borrower; "Security" means the security specified in Clauses 3.1 and 13 and Attachment 5 of the Credit Facilities Agreement and Clause 3.2 and 3.3 of the Second Supplemental Agreement to Credit Facilities Agreement including the additional security to be provided in addition to or as a substitution in the form and value acceptable to the Creditors; "Transaction Documents" means this Agreement, and agreements, documents and other agreements relating to the utilization of the Facility under this Agreement including all the documents relating to Security, Guarantee Agreement, Land and Building Mortgage Agreement, Equipment Pledge Agreement, Equipment Mortgage Agreement, Escrow Agreement, Prioritization Agreement, Second Guarantee Agreement, The Second Equipment Pledge Agreement, Documents for the Utilization of Overdraft Facility, Documents for the Utilization of Packing Credit Facility, Documents for the Utilization of Short Term Working Capital Facility, Documents for the Utilization of Additional Short Term Working Capital Facility, Receipt and Promissory Notes; "Proportion of Debt" means the proportion of the Existing Debt of the Borrower for each Creditor and all the Existing Debts of the Borrower under the Former Long Term Facility, New Long Term Facility, Packing Credit Facility or Working Capital Facility (as the case may be) at any time under this Agreement; 2.2 Clause 2.1.1 (Long Term Facility) of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "2.1.1 Long Term Facility Page 4 of 18 Long Term Facility: the Baht loan facility provided by the Long Term Creditors to the Borrower under the terms and conditions of this Agreement for the aggregate amount of not exceeding Baht 590,000,000 (Five Hundred Ninety Million Baht)." 2.3 Clause 2.1.2 (Packing Credit Facility) of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "2.1.2 Packing Credit Facility (a) the Baht and/or foreign currency equivalent to Baht facility as Packing Credit Creditors agree but not exceeding the Packing Credit Facility Limit provided by Packing Credit Creditors to the Borrower under the terms and conditions of this Agreement for the aggregate amount of not exceeding Baht 530,000,000 (Five Hundred Thirty Million Baht). (b) Packing Credit Facility for the payment of expenses related to the business transaction with Seagate Technology (Thailand) Limited and/or the Additional Short Term Working Capital Facility for the aggregate amount of not exceeding Baht 300,000,000 (Three Hundred Million Baht) provided that each Packing Credit Creditor will provide Packing Credit Facility pursuant to this sub-clause (b) in the amount not exceeding Baht 150,000,000 (One Hundred and Fifty Million Baht), details of the Facilities are as follows: (1) Packing Credit Facility for the payment of expenses related to the business transaction with Seagate Technology (Thailand) Limited in Baht and/or foreign currency equivalent to Baht as Packing Credit Creditors agree but not exceeding the Packing Credit Facility Limit provided by Packing Credit Creditors to the Borrower under the terms and conditions of this Agreement, in the minimum amount of Baht 150,000,000 (One Hundred and Fifty Million Baht) and in the maximum amount of Baht 300,000,000 (Three Hundred Million Baht) depend on the utilization of the Additional Short Term Working Capital Facility of the Borrower. (2) Additional Short Term Working Capital Facility in Baht provided by Packing Credit Creditors to the Borrower under the terms and conditions of this Agreement provided that the Borrower may not utilize the Additional Short Term Working Capital Facility at any time exceeding Baht 150,000,000 (One Hundred Fifty Million Baht) and each Packing Credit Creditor will not provide the Additional Short term Working Capital Facility in the amount exceeding Baht 75,000,000 (Seventy Five Million Baht). 2.4 Clause 2.2.1 (Long Term Facility) of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "2.2.1 Long Term Facility Former Long Term Facility: The Borrower shall use the Former Long Term Facility under Clause 2.1.1 (1) for the payment of expenses related to the Project." 2.5 Clause 3.2.1(b) of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "(b) The Borrower and the Guarantor (as the case may be) are in compliance with the conditions precedent as specified in Clause 3.1 and/or 3.3 (as the case may be) completely and/or being waived in writing by the Facility Agent;" 2.6 Clause 3.2.3 of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "3.2.3 Documents which are conditions precedent for each utilization of the Packing Credit Facility Page 5 of 18 (a) Before the utilization of each Packing Credit Facility pursuant to Clause 2.1.2 (a) and 2.1.2 (b)(1), each Packing Credit Creditor will receive the Documents for the Utilization of Packing Credit Facility and Promissory Note which is duly signed by the Authorized Director of the Borrower and proper stamp duties have already been affixed." (b) Before the utilization of each Additional Short Term Working Capital Facility pursuant to Clause 2.1.2(b)(2), each Packing Credit Creditor will receive the Documents for the Utilization of Additional Short Term Working Capital Facility and Promissory Note which is duly signed by the Authorized Director of the Borrower and proper stamp duties have already been affixed." 2.7 The following terms shall be inserted as Clause 3.3 of the Credit Facilities Agreement: "3.3 Additional Conditions Precedent for the Additional Short Term Working Capital Facility In addition to other conditions precedent specified in Clause 3.1 and 3.2, the Packing Credit Creditors are bound to provide the Additional Short Term Working Capital Facility to the Borrower under this Agreement when the Facility Agent receives an evidence of acknowledge receipt of the letter which issued by the Borrower informing the amount of Debt outstanding to the Creditors from U.S. Bank and Wells Fargo Bank in the form and substance acceptable to the Creditors no later than one (1)Banking Days before the first Utilization Date of the Additional Short Term Working Capital Facility or if the Facility Agent has waived the condition precedent under this sub-clause in writing before or on such first Utilization Date of the Additional Short Term Facility." 2.8 Clause 4.1.1 of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "4.1.1 Subject to the terms of Clause 3.1 and Clause 3.2 and other terms and conditions specified in this Agreement or the Transaction Documents, the Borrower may utilize the Former Long Term Facility pursuant to Clause 2.1.1 on any Banking Days during the Availability Period for Long Term Facility." 2.9 Clause 4.1.2 (c) of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "(c) Subject to the conditions of Clause 2.1.1, the Borrower is entitled to drawdown Former Long Term Facility for the aggregate amount of Baht 590,000,000 (Five Hundred Ninety Million Baht)" 2.10 Clause 4.1.2 (d) of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "(d) In case the Borrower has drawndown Former Long Term Facility pursuant to Clause 2.1.1 in full during the Availability Period for Long Term Facility , the Borrower is not entitled to drawdown such amount again." 2.11 Clause 4.2.1 and 4.2.2 of the Credit Facilities Agreement shall be repealed and replaced to read as follows: Page 6 of 18 "4.2.1(a) Subject to Clauses 3.1 and 3.2 and other conditions specified in this Agreement or the Transaction Documents, on any Banking Days during the Availability Period for Packing Credit Facility, the Borrower is entitled to utilize the Packing Credit Facility pursuant to Clause 2.1.2(a) and 2.1.2(b)(1) in Baht and/or in other foreign currency which is equivalent to Baht acceptable by each of the Packing Credit Creditor but not exceeding the Facility Limit of each Packing Credit Creditor. (b) Subject to Clauses 3.1, 3.2 and 3.3 and other conditions specified in this Agreement or the Transaction Documents, on any Banking Days during the Availability Period for Additional Short Term Working Capital Facility, the Borrower is entitled to utilize the Additional Short Term Working Capital Facility in Baht provided that the amount of Additional Short Term Working Capital Facility at any time shall not exceed Baht 150,000,000 (One Hundred Fifty Million Baht) and each Packing Credit Creditor will not provide the Additional Short Term Working Capital Facility in the amount exceeding Baht 75,000,000 (Seventy Five Million Baht). 4.2.2 For the utilization of the Packing Credit Facility under Clause 2.1.2 (a) and 2.1.2(b)(1) from each Packing Credit Creditor, the Borrower shall execute the Documents for the Utilization of Packing Credit Facility for such Packing Credit Creditor no later than two (2) Banking Days before the Utilization Date for Packing Credit Facility under Clause 2.1.2 (a) and 2.1.2(b)(1) and shall deliver a Receipt to each Packing Credit Creditor on each Utilization Date for Packing Credit Facility under Clause 2.1.2 (a) and 2.1.2(b)(1) obtained from such Packing Credit Creditor.2.12 The following terms shall be inserted as Clause 4.5 of the Credit Facilities Agreement: "4.5 Utilization of Additional Short Term Working Capital Facility 4.5.1 Subject to Clauses 3.1, 3.2 and 3.3 and other conditions specified in this Agreement or the Transaction Documents, on any Banking Days during the Availability Period for Additional Short Term Working Capital Facility, the Borrower is entitled to utilize the Additional Short Term Working Capital Facility in Baht by executing the Documents for the Utilization of Additional Short Term Working Capital Facility to each Packing Credit Creditor no later than two (2) Banking Days before that Utilization date for the Additional Short Term Working Capital Facility and shall deliver a Receipt to each Packing Credit Creditor on each Utilization Date for Additional Short Term Working Capital Facility obtained from the relevant Packing Credit Creditor. 4.5.2 The maximum amount the Borrower is entitled to utilize the Additional Short Term Working Capital Facility from the Packing Credit Creditors under this Agreement at any time shall not exceed Baht 150,000,000 (One Hundred and Fifty Million Baht) and each Packing Credit Creditor will not provide the Additional Short Term Working Capital Facility in the amount exceeding Baht 75,000,000 (Seventy Five Million Baht). 4.5.3 The maturity of each Additional Short Term Working Capital Facility will not exceed ninety (90) days from the Utilization Date and in any case shall not exceed the Availability Period for Additional Short Term Working Capital Facility unless the Packing Credit Creditors will agree otherwise. 4.5.4 The Borrower will issue and deliver Promissory Note to the Packing Credit Creditor as specified by such Packing Credit Creditor in relation to the utilization of Additional Short Term Working Capital Facility in compliance with the conditions specified by that Packing Credit Creditor and/or the conditions specified in the Documents for the Utilization of Additional Short Term Working Capital Facility. 4.5.5 The utilization of Additional Short Term Working Capital Facility must be renewed on a yearly basis in accordance with the conditions specified by each Packing Credit Creditor and/or the Page 7 of 18 conditions specified in the Documents for the Utilization of Additional Short Term Working Capital Facility. 4.5.6 Subject to the conditions of Clause 4.5.2, for any amount drawndown by the Borrower under the Additional Short Term Working Capital Facility that has been repaid by the Borrower, the Borrower is entitled to drawdown such amount again under the terms set forth by each Packing Credit Creditor and/or the terms specified in the Documents for the Utilization of Additional Short Term Working Capital Facility." 2.13 Clause 5.1 of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "5.1 Former Long Term Facility 5.1.1 Front End Fee for the Former Long Term Facility Within seven (7) days from the Effective Date of this Agreement, the Borrower will pay the front end fee for the Former Long Term Facility to IFCT for the amount of Baht 1,500,000 (One Million Five Hundred Thousand Baht) and to the Bank of Ayudhya for the amount of Baht 1,450,000 (One Million Four Hundred Fifty Thousand) by using bank checks of the commercial bank which has its head office or branches in Bangkok Metropolis and payable in the name of IFCT or Bank of Ayudhya. 5.1.2 Interest for the Former Long Term Facility The interest rate for the Loan in relation to the Former Long Term Facility will be calculated as an annual rate specified by the Facility Agent on the date of first drawdown date and on the date the interest for the Former Long Term Facility has changed at the following rate: (1) From the first drawdown date until 23 April 2003 at the rate of seven (7) percent per annum. (2) From 24 April 2003 until 31 December 2005 at the rate equal to Average MLR per annum. For each Interest Period, the Borrower will pay interest for the Loan under the Former Long Term Facility in compliance with the conditions in this Agreement to each Long Term Creditor directly pursuant to the Proportion of Debt under the Former Long Term Facility by payment within 10:00 a.m. (Bangkok time) on the last Banking Day of each month under the calendar year. 2.14 Clause 5.2 of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "5.2 Packing Credit Facility (a) The interest rate for the Loan under Packing Credit Facility under Clause 2.1.2 (a) and 2.1.2 (b)(1) will be calculated on an annual basis specified by the Facility Agent as Market Rate. For each Interest Period, the Borrower will pay such interest in compliance with the conditions specified by each Packing Credit Creditor in the Documents for the Utilization of Packing Credit Facility of such Packing Credit Creditor. In case those documents do not specify any specific condition on this, the Borrower will pay interest on the last Banking Day of each month under the calendar year. (b) Interest for the Additional Short Term Working Capital Facility Page 8 of 18 In relation to the Additional Short Term Working Capital Facility provided by each Packing Credit Creditor, the interest rate for Loan will be at the rate equal to Average MLR minus one per cent (MLR-1%) per annum. For each Interest Period, the Borrower will pay interest on the last Banking Day of each month under the calendar year and in compliance with the conditions specified by each Packing Credit Creditor in the Documents for the Utilization of Additional Short Term Working Capital Facility of such Packing Credit Creditor." 2.15 Clause 6.1 of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "6.1 Former Long Term Facility 6.1.1 The Borrower shall repay the Loan under the Former Long Term Facility to each Long Term Creditor on the last Banking Day of March, June, September and December (for the total 18 installments) in accordance with Repayment Schedule commencing from 30 September 2001 onwards. 6.1.2 Before 10.00 a.m on each Repayment Date, the Borrower will repay the Loan to the Facility Agent for the benefit of the Long Term Creditors in accordance with the condition of Clause 6.1.1 and in compliance with the Repayment Schedule. In case the Borrower does not utilize the whole amount of Former Long Term Facility, the amount of Loan to be repaid by the Borrower on each Repayment Date will be reduced in the inverse order of maturity. 6.1.3 After the Borrower has repaid the Loan, the Borrower may not utilize such repayment amount again. 6.1.4 The Borrower is entitled to prepay the Loan in relation to the Former Long Term Facility in whole or in part on any Interest Payment Date before the Repayment Schedule in compliance with the following conditions: (a) The Borrower has delivered the notice in writing specifying the intention to prepay the Loan by specifying the amount to be prepaid and the date of such prepayment to the Facility Agent in advance no later than thirty (30) Banking Days; (b) Subject to Clause 7.1, the amount to be partially prepaid will be in the amount of not less than 5,000,000 Baht (Five Million Baht) or the integral multiple of 5,000,000 Baht (Five Million Baht); (c) The Borrower shall prepay the Loan together with interest calculated until the date of such prepayment and any other amount which is due and payable under this Agreement; (d) The amount prepaid will firstly be used to pay the expenses which are due under this Agreement. After that it will be used to pay the fees and interest which are due and payable and the Loan in the inverse order of maturity; (e) On each Prepayment Date, the Borrower agrees to pay the prepayment fee equal to two percent (2%) of the amount prepaid to the Facility Agent for the benefit of the Long Term Creditors in compliance with their Proportion of Debt in relation to the Former Long Term Facility except in the case where the prepayment money is obtained from the operation of the Borrower's business or from the Page 9 of 18 capital increase of the Borrower; in which case the Borrower shall not be responsible to pay the prepayment fee. 6.1.5 Any notices of prepayment given by the Borrower shall be irrevocable and the Borrower shall be bound to make the prepayment in accordance with such notice. 6.1.6 Except as otherwise clearly mentioned in this Agreement, the Borrower is not entitled to prepay any or all part of the Loan. The Loan which is prepaid shall not be available for further drawdown." 2.16 Clause 6.2 of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "6.2 Repayment of Packing Credit Facility and Working Capital Facility The Borrower shall comply with all the conditions specified in the Documents for the Utilization of Packing Credit Facility, Documents for the Utilization of Overdraft Facility, Documents for the Utilization of Short Term Working Capital Facility and Documents for the Utilization of Additional Short Term Working Capital Facility or other relevant documents or agreements and shall reduce Packing Credit Facility and all types of Working Capital Facility to zero upon the expiry of Availability Period for Packing Credit Facility, the Availability Period for Working Capital Facility or the Availability Period for Additional Short Term Working Capital Facility (as the case may be)." 2.17 Clause 7.1 of the Credit Facilities Agreement shall be repealed and replaced to read as follows: "7.1 Except as otherwise expressly provided under this Agreement, on each day on which any sum is due under this Agreement, the Borrower shall make payment to the Creditors in Baht (or in other foreign currency (in some cases) for the Packing Credit Facility) which may be utilized immediately within that day within 10.00 a.m. Bangkok time by, for the case of Former Long Term Facility, payment to the Facility Agent for the benefit of the Creditors or payment directly to each Creditor in accordance with their Proportion of Debt for Former Long Term Facility and for the other types of Facilities, by direct payments to the Creditors for such Facilities. For Packing Credit Facility which is denominated in other foreign currency other than Baht, the Borrower hereby irrevocably waives any rights it may have under Section 196 of the Civil and Commercial Code of Thailand (or any modification or re-enactment thereof for the time being in force) to make payment under the Packing Credit Facility in Baht and shall make payment to the Packing Credit Creditors under the terms and conditions specified in the Documents for the Utilization of Packing Credit Facility." 2.18 The following terms shall be inserted as Clause 11.1.17 of the Credit Facilities Agreement: "The Borrower shall maintain the proportion of Return on Assets subject to the Consolidated Pre-Tax Income of Innovex Inc. at the following percentages: (a) If the Consolidated Pre-Tax Income of Innovex Inc. is less than US$5,000,000 (Five Million United States Dollars), the Borrower shall maintain its Return on Assets in such financial year equal to six (6) per cent; (b) If the Consolidated Pre-Tax Income of Innovex Inc. is equal to or exceeding US$ 5,000,000 (Five Million United States Dollars) but less than US$7,000,000 (Seven Million United States Dollars), the Borrower shall maintain its Return on Assets in such financial year equal to seven (7) per cent; Page 10 of 18 (c) If the Consolidated Pre-Tax Income of Innovex Inc. is equal to or exceeding US$ 7,000,000 (Seven Million United States Dollars) but less than US$9,000,000 (Nine Million United States Dollars), the Borrower shall maintain its Return on Assets in such financial year equal to eight (8) per cent; and (d) If the Consolidated Pre-Tax Income of Innovex Inc. is equal to or exceeding US$9,000,000 (Nine Million United States Dollars), the Borrower shall maintain its Return on Assets in such financial year equal to nine (9) per cent; The Borrower shall maintain the proportion of its Return on Assets specified under this Clause at the end of each six (6) months period of each financial year by considering the Consolidated Pre-Tax Income of Innovex Inc. relevant to such period. The Borrower shall maintain the proportion of its Return on Assets not less than half of the above percentages at the end of the first six (6) months period of each financial year and shall maintain the proportion of its Return on Assets in full at the end of each financial year." 2.19 Attachment 1((Details of the Facilities and the Creditors) of the Credit Facilities Agreement shall be repealed and replaced to read as follows:
- ------------------------------------------------------------------------------------------------- Category of the Facilities Creditors Facility Limit Commitment Percentage - ------------------------------------------------------------------------------------------------- Former Long Term Facility IFCT 300,000,000 30/59 Bank of Ayudhya 290,000,000 29/59 - ------------------------------------------------------------------------------------------------- New Long Term Facility IFCT 110,000,000 1 / 2 Bank of Ayudhya 110,000,000 1 / 2 - ------------------------------------------------------------------------------------------------- Packing Credit Facility IFCT 480,000,000 48/8335/83 Bank of Ayudhya 350,000,000 - ------------------------------------------------------------------------------------------------- Overdraft Facility Bank of Ayudhya 10,000,000 1/8 - ------------------------------------------------------------------------------------------------- Short Term Working Capital IFCT 70,000,000 7/8 Facility - -------------------------------------------------------------------------------------------------
3. Provisions on New Long Term Facility The Borrower, the Facility Agent, the Security Agent and the Creditors agree as follows: 3.1 New Long Term Facility 3.1.1 New Long Term Facility: the Baht loan facility provided by the Long Term Creditors to the Borrower under the terms and conditions of this Agreement for the aggregate amount of not exceeding Baht 220,000,000 (Two Hundred and Twenty Million Baht). 3.1.2 The Borrower shall use the New Long Term Facility under Clause 3.1.1 of this Agreement for the payment of seventy (70) per cent of its capital investments made since May 2001 and to be invested in the Project and/or the expansion of the Project within 30 December 2003. 3.1.3 The fact that, for whatsoever reason, the New Long Term Facility or any part thereof is not fully utilized by the Borrower or is unavailable to the Borrower shall neither affect nor impair the liabilities of the Borrower to perform any and all of its obligations under this Agreement in full nor impose any obligation on any Long Term Creditor to provide the Borrower any New Long Term Facility other than the Commitment Percentage of each Long Term Creditor for the New Long Term Facility as specified in this Agreement. Page 11 of 18 3.1.4 Failure by a Long Term Creditor to perform its obligation under this Clause 3 shall not release other Creditor, Facility Agent, Security Agent or the Borrower from their respective obligations under this Agreement nor shall any Creditor, Security Agent or Facility Agent be liable in any respect for the failure of such Long Term Creditor to perform its obligation under this Clause 3 of this Agreement. In the event of any circumstance as specified above has happened, other Creditors will arrange the consultation with the Borrower immediately to find a possible remedy for such circumstance. 3.2 General Conditions Precedent The terms and conditions of Clause 3.1 (General Conditions Precedent) and 3.2 (Conditions Precedent for the Utilization of Long Term Facility, Packing Credit Facility and Working Capital Facility) of the Credit Facilities Agreement shall be applied as applicable to the utilization of the New Long Term Facility. 3.3 Additional Conditions Precedent for the New Long Term Facility In addition to other conditions precedent specified in Clause 3.1 and 3.2 of the Credit Facilities Agreement, the Long Term Creditors are bound to provide the New Long Term Facility to the Borrower under this Agreement when the Facility Agent is of the opinion that the Borrower and the Guarantor have fulfilled the following conditions precedent completely no later than five (5) Banking Days before the first Utilization Date of the New Long Term Facility or if the Facility Agent has waived any condition precedent in writing before or on such first Utilization Date of the New Long Term Facility: (a) The Borrower, the Security Keeper, the Security Agent and the Creditors executed the Second Equipment Pledge Agreement and deliver the Second Equipment Pledge Agreement to the Security Agent including undertaking all actions as required under the terms and conditions of the Second Equipment Pledge Agreement for the enforceability of such agreement in the form and substance satisfactory to the Security Agent; (b) The Guarantor executed the Second Guarantee Agreement and in the case that the Second Guarantee Agreement is not executed in Thailand, such agreement shall be duly notarized by the notary public and authenticated by the Thai Embassy or Consul in the form and substance acceptable to the Creditors; (c) The Guarantor has obtained the legal opinion from the law firm acceptable to the Creditors on the legality and enforceability of the Second Guarantee Agreement in the form and substances acceptable to the Creditors; (d) The Borrower has arranged for the Creditors to be the beneficiary under the insurance policies pursuant to the terms as indicated in Clause 11.2.1 of the Credit Facilities Agreement; and (e) The Facility Agent receives an evidence of acknowledge receipt of the letter which issued by the Borrower informing the amount of Debt outstanding to the Creditors from U.S. Bank and Wells Fargo Bank in the form and substance acceptable to the Creditors. 3.4 Utilization of New Long Term Facility 3.4.1 Subject to the terms of Clauses 3.1 and 3.2 of the Credit Facilities Agreement and Clause 3.3 of the Second Supplemental Agreement to Credit Facilities Agreement and other terms and conditions specified in this Agreement or the Transaction Documents, the Borrower may utilize the New Long Term Facility pursuant to Clause 3.1.1 of the Second Supplemental Agreement to Credit Facilities Agreement on any Banking Days during the Availability Period for New Long Term Facility. Page 12 of 18 3.4.2 Each drawdown of the New Long Term Facility will be in compliance with the following conditions: (a) The Facility Agent has received a Notice of Drawdown from the Borrower no later than three (3) Banking Days prior to the date of such drawdown; (b) The Borrower shall deliver Receipt to the Facility Agent on each Utilization Date of the New Long Term Facility by delivering: (1) Receipt specifying the total amount for such drawdown; (2) Receipt specifying the amount that each Long Term Creditor provided to the Borrower under the Commitment Percentage of the New Long Term Facility for each Long Term Creditor. 3.4.3 Subject to Clause 3.1.1 of the Second Supplemental Agreement to Credit Facilities Agreement, the Borrower is entitled to drawdown the New Long Term Facility for the aggregate amount of Baht 220,000,000 (Two Hundred and Twenty Million Baht). 3.4.4 In case the Borrower has drawndown the New Long Term Facility pursuant to Clause 3.1.1 of the Second Supplemental Agreement to Credit Facilities Agreement in full during the Availability Period for New Long Term Facility, the Borrower is not entitled to drawdown such amount again. 3.4.5 A Notice of Drawdown issued by the Borrower shall be irrevocably binding on the Borrower to act in compliance with such notice. 3.4.6 In case the Borrower issues a Notice of Drawdown to the Facility Agent and there is no drawdown on the date specified as Utilization Date for New Long Term Facility due to the reason that the Borrower fails to drawdown or the reason that the Borrower fails to comply with any conditions specified in Clause 3.3 of the Second Supplemental Agreement to Credit Facilities Agreement in full, the Borrower will pay the money to the Long Term Creditor upon request to remedy the damage, loss and expenses as a result of the failure to drawdown on such date including the loss, interest margin, costs and expenses incurred from the reallocation of the amount prepared for the providing of such New Long Term Facility to the Borrower. 3.4.7 Payment of Loan by the Long Term Creditors Subject to the terms and conditions of this Agreement, for each drawdown of New Long Term Facility, the Facility Agent will issue the Notice of Commitment Percentage to inform each Long Term Creditor of the amount of money that such Long Term Creditor has to provide to the Borrower in compliance with the Commitment Percentage of such Long Term Creditor for the New Long Term Facility no later than two (2) Banking Days prior to the Utilization Date of New Long Term Facility and within 10.00 a.m of the Utilization Date of New Long Term Facility that the Borrower is allowed to drawdown the New Long Term Facility, each Long Term Creditor will deliver the amount specified by the Facility Agent by transferring the money to the Borrower's account (in which case the Long Term Creditor will deliver copy of the transfer slip to the Facility Agent within the Utilization Date of the New Long Term Facility) or deliver cashier's cheque under the name of the Borrower dated the Utilization Date of New Long Term Facillity to the Facility Agent for deposit in the Borrower's account. The parties clearly agree that the Borrower will be deemed to receive the Loan when each Long Term Creditor has delivered the amount of money in accordance with the Commitment Percentage of the New Long Term Facility to the account of the Borrower or delivered the cashier's cheque in the name of the Borrower dated the Utilization Date of New Long Term Facility to the Facility Agent which has deposited such funds in the Borrower's account in compliance with the condition of this Clause. Page 13 of 18 3.5 Fees and Interest for the New Long Term Facility 3.5.1 Front End Fee for the New Long Term Facility Within seven (7) days from the Effective Date of the Second Supplemental Agreement, the Borrower will pay the front end fee for the New Long Term Facility at the rate of zero point five (0.5) per cent of the principal amount of the New Long Term Facility in the amount of Baht 220,000,000 (Two Hundred and Twenty Million Baht) which is equivalent to Baht 1,100,000 (One Million One Hundred Thousand Baht) to each Long Term Creditor pro rata and payment of such front end fee shall be made in the form of bank checks of the commercial bank which has its head office or branches in Bangkok Metropolis. 3.5.2 Commitment Fee for the New Long Term Facility During the Availability Period for New Long Term Facility, the Borrower will be subjected to the commitment fee at the rate of zero point five (0.5) per cent of unutilized amount if, by the end of each quarter, the Borrower utilizes the New Long Term Facility less than the accumulated Utilization Amount indicated below: (a) From the Effective Date of the Second Supplemental Agreement until the last Banking Day of March 2003, the accumulated Utilization Amount of Baht 80,000,000 (Eighty Million Baht); (b) On the last Banking Day of June 2003, the accumulated Utilization Amount of Baht 116,000,000 (One Hundred and Sixteen Million Baht); (c) On the last Banking Day of September 2003, the accumulated Utilization Amount of Baht 160,000,000 (One Hundred and Sixty Million Baht); and (d) On the last Banking Day of December 2003, the accumulated Utilization Amount of Baht 220,000,000 (Two Hundred and Twenty Million Baht). The commitment fee shall be payable to each Long Term Creditor pursuant to its Proportion of Debt in arrears on the last Banking Day of each quarter, which end in March, June, September and December of each year, beginning on the Effective Date of the Second Supplemental Agreement until the last day of the Availability Period for New Long Term Facility and the last payment of commitment fee shall be made on the last Banking Day of the Availability Period for New Long Term Facility and payment of such commitment fee shall be made in the form of bank checks of the commercial bank which has its head office or branches in Bangkok Metropolis. 3.5.3 Interest for the New Long Term Facility The interest rate for the Loan in relation to the New Long Term Facility will be calculated as an annual rate specified by the Facility Agent on the date of first drawdown of the New Long Term Facility and on the date the interest for the New Long Term Facility has changed at the following rate: (1) Within one (1) year from the Effective Date of the Second Supplemental Agreement at the rate of six (6) per cent per annum; and (2) From the date immediately after one (1) year from the Effective Date of the Second Supplemental Agreement at the rate equal to Average MLR per annum. For each Interest Period, the Borrower will pay interest for the Loan under the New Long Term Facility in compliance with the conditions in this Agreement to each Long Term Creditor directly pursuant to the Proportion of Debt under the New Long Term Facility by payment within 10:00 a.m. (Bangkok time) on the last Banking Day of each month under the calendar year. Page 14 of 18 3.5.4 The Calculation of Interest for the New Long Term Facility Interest for the New Long Term Facility will be calculated on the basis of actual number of days elapsed and a year of 365 days. 3.6 Repayment of New Long Term Facility 3.6.1 The Borrower shall repay the Loan under the New Long Term Facility to each Long Term Creditor on the last Banking Day of March, June, September and December (for the total 16 installments) in accordance with the Repayment Schedule for New Long Term Facility commencing from the last Banking Day of March 2004 onwards. 3.6.2 Before 10.00 a.m on each Repayment Date for the New Long Term Facility, the Borrower will repay the Loan to each Long Term Creditor in accordance with the Proportion of Debt under the New Long Term Facility and condition of Clause 3.6.1 of the Second Supplemental Agreement to Credit Facilities Agreement and in compliance with the Repayment Schedule for New Long Term Facility. In case the Borrower does not utilize the whole amount of New Long Term Facility, the amount of Loan to be repaid by the Borrower on each Repayment Date for New Long Term Facility will be reduced in the inverse order of maturity. 3.6.3 After the Borrower has repaid the Loan under the New Long Term Facility, the Borrower may not utilize such repayment amount again. 3.6.4 The Borrower is entitled to prepay the Loan in relation to the New Long Term Facility in whole or in part on any Interest Payment Date before the Repayment Schedule for New Long Term Facility in compliance with the following conditions: (a) The Borrower has delivered the notice in writing specifying the intention to prepay the Loan by specifying the amount to be prepaid and the date of such prepayment to the Facility Agent in advance no later than thirty (30) Banking Days; (b) Subject to Clause 3.7.1 of the Second Supplemental Agreement to Credit Facilities Agreement, the amount to be partially prepaid will be in the amount of not less than 5,000,000 Baht (Five Million Baht) or the integral multiple of 5,000,000 Baht (Five Million Baht); (c) The Borrower shall prepay the Loan under the New Long Term Facility together with interest calculated until the date of such prepayment and any other amount which is due and payable under this Agreement; (d) The amount prepaid will firstly be used to pay the expenses which are due under this Agreement. After that it will be used to pay the fees and interest which are due and payable and the Loan under the New Facility Agreement in the inverse order of maturity; (e) On each Prepayment Date, the Borrower agrees to pay the prepayment fee equal to two percent (2%) of the amount prepaid to the Facility Agent for the benefit of the Long Term Creditors in compliance with their Proportion of Debt in relation to the New Long Term Facility except in the case where the prepayment money is obtained from the operation of the Borrower's business or from the capital increase of the Borrower; in which case the Borrower shall not be responsible to pay the prepayment fee. 3.6.5 Any notices of prepayment given by the Borrower pursuant to the New Long Term Facility shall be irrevocable and the Borrower shall be bound to make the prepayment in accordance with such notice. 3.6.6 Except as otherwise clearly mentioned in this Agreement, the Borrower is not entitled to prepay any or all part of the Loan under the New Long Term Facility. The Loan which is prepaid shall not be available for further drawdown. Page 15 of 18 3.7 Payment 3.7.1 Except as otherwise expressly provided under this Agreement, on each day on which any sum under the New Long Term Facility is due under this Agreement, the Borrower shall make payment to the Creditors in Baht which may be utilized immediately within that day within 10.00 a.m. Bangkok time to the Facility Agent for the benefit of the Long Term Creditors or payment directly to each Long Term Creditor in accordance with their Proportion of Debt for the New Long Term Facility pursuant to the terms and conditions of the Second Supplemental Agreement to Credit Facilities Agreement. 3.7.2 The Borrower shall promptly upon demand by the Facility Agent make or cause to make any evidence of debt to evidence the obligations of the Borrower under this Agreement. 3.7.3 The Borrower agrees to be bound as each Long Term Creditor records in its book of account and other records in the absence of manifest error. 3.7.4 Except as otherwise specified in this Agreement or the Transaction Documents, if any due date for payment under this Agreement is not on the Banking Day such payment shall be extended to the next succeeding Banking Day except in the case that the succeeding Banking Day is in the subsequent month in which case the due date for the payment shall be shortened to be on the last Banking Day of that month. 3.8 The Application of the Terms and Conditions under the Credit Facilities Agreement to the New Long Term Facility The terms and conditions under Clause 8 (The Facility Agent, the Security Agent, and the Creditors), Clause 9 (Change in Circumstances), Clause 10 (Representations and Warranties), Clause 11 (Affirmative Covenants and Negative Covenants), Clause 12 (Event of Default), Clause 13 (Security), Clause 14 (Distribution of Security), Clause 15 (Indemnity), Clause 16 (Expenses), Clause 17 (Notices), Clause 18 (Assignment), Clause 19 (Void Provision not Affecting Valid Provision), Clause 20 (Amendment or Waiver), Clause 21 (Set-Off), Clause 22 (Governing Laws) and Clause 23 (No Waiver) of the Credit Facilities Agreement shall be applied to the New Long Term Facility as appicable to the utilization of the New Long Term Facility. 4. Continuity of Agreement Except as amended and supplemented under this Second Supplemental Agreement to Credit Facilities Agreement, all terms and conditions under the Credit Facilities Agreement, the Transaction Documents and any documents related to the Credit Facilities Agreement and the Transaction Documents (including the provisions on security) shall remain in full force and effect among the Borrower, the Facility Agent, the Security Agent and the Creditors and this Second Supplemental Agreement to Credit Facilities Agreement shall be deemed as an integral part of the Credit Facilities Agreement and the Transaction Documents. The provisions with respect to Representations and Warranties, Affirmative Covenants and Negative Covenants including Event of Default which must be performed or should not be performed as specified in the Credit Facilities Agreement, the Transaction Documents and any agreements related to the Credit Facilities Agreement and the Transaction Documents shall also apply to this Second Supplemental Agreement to Credit Facilities Agreement. 5. The Effective Date of this Second Supplemental Agreement to Credit Facilities Agreement This Second Supplemental Agreement to Credit Facilities Agreement shall be effective as from the Effective Date of the Second Supplemental Agreement as written above. Page 16 of 18 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed on the date specified above. THE BORROWER: INNOVEX (THAILAND) LIMITED ________________________________________ THE SECURITY AGENT: THE INDUSTRIAL FINANCE CORPORATION OF THAILAND ________________________________________ THE FACILITY AGENT: BANK OF AYUDHYA PUBLIC COMPANY LIMITED ________________________________________ THE CREDITORS: THE INDUSTRIAL FINANCE CORPORATION OF THAILAND ________________________________________ BANK OF AYUDHYA PUBLIC COMPANY LIMITED ________________________________________ WITNESS: ________________________________________ WITNESS: ________________________________________ Page 17 of 18 Attachment 1 Repayment Schedule for New Long Term Facility - -------------------------------------------------------------------------------- No. Repayment Date for Amount of Portion of IFCT Portion of Bank New Long Term Repayment of Ayudhya Facility (Baht) (last Banking Day of each month) - -------------------------------------------------------------------------------- 1 March 2004 10,000,000 5,000,000 5,000,000 - -------------------------------------------------------------------------------- 2. June 2004 10,000,000 5,000,000 5,000,000 - -------------------------------------------------------------------------------- 3. September 2004 10,000,000 5,000,000 5,000,000 - -------------------------------------------------------------------------------- 4 December 2004 10,000,000 5,000,000 5,000,000 - -------------------------------------------------------------------------------- 5 March 2005 12,500,000 6,250,000 6,250,000 - -------------------------------------------------------------------------------- 6 June 2005 12,500,000 6,250,000 6,250,000 - -------------------------------------------------------------------------------- 7 September 2005 12,500,000 6,250,000 6,250,000 - -------------------------------------------------------------------------------- 8 December 2005 12,500,000 6,250,000 6,250,000 - -------------------------------------------------------------------------------- 9 March 2006 15,000,000 7,500,000 7,500,000 - -------------------------------------------------------------------------------- 10 June 2006 15,000,000 7,500,000 7,500,000 - -------------------------------------------------------------------------------- 11 September 2006 15,000,000 7,500,000 7,500,000 - -------------------------------------------------------------------------------- 12 December 2006 15,000,000 7,500,000 7,500,000 - -------------------------------------------------------------------------------- 13 March 2007 17,500,000 8,750,000 8,750,000 - -------------------------------------------------------------------------------- 14 June 2007 17,500,000 8,750,000 8,750,000 - -------------------------------------------------------------------------------- 15 September 2007 17,500,000 8,750,000 8,750,000 - -------------------------------------------------------------------------------- 16 December 2007 17,500,000 8,750,000 8,750,000 - -------------------------------------------------------------------------------- Page 18 of 18 EX-99.1 4 d55598_ex99-1.txt CERTIFICATION Exhibit 99.1 CERTIFICATION The undersigned certify pursuant to 18 U.S.C.ss.1350, that: (1) The accompanying Quarterly Report on Form 10-Q for the period ended March 31, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the accompanying Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 14, 2003 /s/ William P. Murnane ---------------------------------------- President and Chief Executive Officer Date: May 14, 2003 /s/ Thomas Paulson ---------------------------------------- Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----