-----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, JwRnd7aHUID/vaXSJTS/bPL1Vf83tXwHygwXr+VHq6UlDvYu8gC0qqaDjhkhwK3H +qkJnK7s3ImVztenxH28Kg== 0000898430-02-000157.txt : 20020413 0000898430-02-000157.hdr.sgml : 20020413 ACCESSION NUMBER: 0000898430-02-000157 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20020117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHIPPAC INC CENTRAL INDEX KEY: 0001093779 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770463048 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-76554 FILM NUMBER: 2511431 BUSINESS ADDRESS: STREET 1: 3151 CORONADO DR CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4084865900 MAIL ADDRESS: STREET 1: 3151 CORONADO DRIVE CITY: SANTA CLARA STATE: CA ZIP: 95054 S-3/A 1 ds3a.txt AMENDMENT NO. 1 TO FORM S-3 As filed with the Securities and Exchange Commission on January 17, 2002 Registration No. 333-76554 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- Amendment No. 1 to FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ----------------- ChipPAC, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 77-0463048 (State or Other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization) 47400 Kato Road, Fremont, California 94538 (510) 979-8000 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Dennis P. McKenna President & Chief Executive Officer ChipPAC, Inc. 47400 Kato Road, Fremont, California 94538 (510) 979-8000 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Copies to: Eva Herbst Davis, Esq. Stephen L. Burns, Esq. Kirkland & Ellis Cravath, Swaine & Moore 777 South Figueroa Street Worldwide Plaza Los Angeles, California 90017 825 Eighth Avenue (213) 680-8400 New York, New York 10019 (212) 474-1000 ----------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this registration statement. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ----------------- CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Proposed Maximum Proposed Maximum Amount to be Offering Price Aggregate Offering Amount of Title of Each Class of Securities to be Registered Registered(1) Per Share(2) Price(2) Registration Fee(3) - ------------------------------------------------------------------------------------------------------------------------ Class A Common Stock, par value $.01 per share.... 9,200,000 $8.87 $81,604,000 $19,504 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------
(1) Includes 1,200,000 shares of Class A common stock issuable upon exercise of the underwriters' over-allotment option. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, based on the average of the high and low sales prices of the Class A common stock on January 8, 2002. (3) Fee paid with previous filing of registration statement. ----------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. +++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION DATED JANUARY 17, 2002 8,000,000 Shares [LOGO] ChipPAC Incorporated Class A Common Stock ----------------- We are offering 8,000,000 shares of our Class A common stock. Our Class A common stock is listed on The Nasdaq National Market under the symbol "CHPC." The last reported sale price of our Class A common stock on January 15, 2002 was $7.70. The underwriters have an option to purchase a maximum of 1,200,000 additional shares to cover over-allotments of shares. Investing in our Class A common stock involves risks. See "Risk Factors" beginning on page 8.
Underwriting Price to Discounts and Proceeds to Public Commissions ChipPAC, Inc. -------- ------------- ------------- Per Share.................................................. $ $ $ Total...................................................... $ $ $
Delivery of the shares of Class A common stock will be made on or about , 2002. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Credit Suisse First Boston Merrill Lynch & Co. Thomas Weisel Partners LLC The date of this prospectus is , 2002. TABLE OF CONTENTS PROSPECTUS SUMMARY.............................................. 1 RISK FACTORS.................................................... 8 FORWARD-LOOKING STATEMENTS...................................... 19 USE OF PROCEEDS................................................. 20 PRICE RANGE OF CLASS A COMMON STOCK............................. 20 DIVIDEND POLICY................................................. 20 CAPITALIZATION.................................................. 21 DILUTION........................................................ 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................................... 23 BUSINESS........................................................ 31 MANAGEMENT........................................................ 43 DESCRIPTION OF CAPITAL STOCK...................................... 45 SHARES ELIGIBLE FOR FUTURE SALE................................... 48 MATERIAL UNITED STATES TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS......................................................... 50 UNDERWRITING...................................................... 53 NOTICE TO CANADIAN RESIDENTS...................................... 56 LEGAL MATTERS..................................................... 57 EXPERTS........................................................... 57 WHERE YOU CAN FIND MORE INFORMATION............................... 58 INCORPORATION BY REFERENCE........................................ 58 ----------------- You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document. In this prospectus, the "Company," "ChipPAC," "we," "us" and"our" refer to ChipPAC, Inc. Our principal executive offices are located at 47400 Kato Road, Fremont, California 94538, and our telephone number is (510) 979-8000. ----------------- INDUSTRY DATA In this prospectus, we rely on and refer to information regarding the semiconductor market and its segments and competitors from Cahners In-Stat, which provides research and analysis on the digital communications sector, Electronic Trend Publications, which publishes market research reports for the electronics industry, and other market reports, analyst reports and publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of the information and have not independently verified it. i PROSPECTUS SUMMARY This summary may not contain all of the information that may be important to you. You should read this entire prospectus, including "Risk Factors" and the additional information, including the financial data and related notes included or incorporated by reference in this prospectus, before making an investment decision. ChipPAC ChipPAC is one of the world's largest independent providers of semiconductor packaging, test and distribution services. We offer one of the broadest portfolios of leaded and laminate packages for integrated circuits, including those used for power functions. We supply packaging solutions to the leading semiconductor companies that service the computing, communications and multi-application end markets. We are a leader in providing high end packaging solutions, including ball grid array packages, or BGA packages, the most advanced type of mass produced package. In addition to providing assembly and test services on a global basis, we are the largest semiconductor packaging and test service provider in mainland China. As consumers demand smaller electronic devices with more functionality, there is a greater requirement for power regulation and generation, which we expect to drive demand for our power packages. We are the leader in high-volume assembly, test and distribution of discrete and analog power packages. We are also one of the leading providers of advanced packaging products that address the needs of semiconductors used in wireless LAN and handset applications, including chip-scale, stacked die and flip-chip technologies. Our online design and characterization process, referred to as SmartDESIGN(TM), is a proprietary web-based design collaboration system that provides a higher rate of product qualification, improved technical performance and shorter time-to-market service for our customers. This system enables us to link to our customers via the Internet to perform package design, electrical, thermal and mechanical analysis and to model end system performance. Outsourcing of packaging and test services to independent packagers like ChipPAC continues to expand due to several factors, including time-to-market pressures, cost reduction, resource allocation, equipment utilization, the increased technological complexity of packaging and the growth of fabless semiconductor manufacturers. Historically, outsourced semiconductor manufacturing services have grown faster than the semiconductor market as a whole. Management believes that the lack of investments in assembly and test capacity by semiconductor manufacturers during the recent downturn in the semiconductor industry will position outsourced providers well to capture enhanced volume levels during the next upturn in the cycle. According to Electronic Trend Publications, outsourcing for high-end package solutions such as BGA and chip-scale packages, or CSP, is forecasted to grow at a compounded annual rate of 38.8% from 2000 to 2005. Our headquarters are located in Fremont, California and our manufacturing facilities are strategically located in China, Malaysia and South Korea to address the needs of our customers. We also have design centers in Arizona and South Korea to provide 24-hour support to our customers. 1 Competitive Strengths We believe our core strengths are as follows: . High End Technology Expertise--We are one of the world's largest providers of outsourced BGA packages, which accounted for approximately 61.0% of our packaging revenues for the twelve months ended December 31, 2000, and 46.5% of our packaging revenues for the nine months ended September 30, 2001. Our BGA packages are used for most high-end applications such as providing non-microprocessor packaging requirements for computing and communications devices, including graphics for nVIDIA Corporation, personal computer chipsets for Intel Corporation, CDMA chipsets for Qualcomm Incorporated and flash for wireless handsets. Our advanced package portfolio also includes next generation flip-chip technology for system on a chip, or SOC, which is used in network servers and telecom switching devices, as well as multi-die packaging for digital signal processors, or DSPs, and other wireless chipsets. In addition, we have critical expertise for testing radio frequency, or RF, devices. We believe that our advanced technology expertise and our commitment to research and development will enable us to continue to drive the development of solutions for next generation semiconductor packages. . Leader in Growing Power Segment--We are the leader in high-volume semiconductor assembly and test services focused on discrete, analog, RF and mixed-signal technologies for power products. Power products manage the electricity requirements for multiple components, ensuring an accurate and efficient flow of voltage so electronic devices run longer and more efficiently. Our Malaysian business supports a number of the world's major power and analog semiconductor manufacturers, including Fairchild Semi-conductor International, Inc., NEC Corporation, Siliconix Incorporated, STMicroelectronics, Inc. and Vishay Intertechnology, Inc. As electronics become increasingly global, portable, complex and performance-driven, the demand for power regulation increases exponentially. A broad and fast-growing range of end markets, including portable devices, household appliances, automotive systems and telecommunications, will continue to drive power semiconductor usage and the demand for our power products. . Strategic Geographic Diversification--We are strategically located to take advantage of industry outsourcing trends. Cahners In-Stat predicts that within the next ten years, China will be the second largest market in the world for semiconductors. Our Shanghai facility, which was established in 1994, makes us the largest packaging and test provider in China, and we are the first independent provider of chip-scale BGA packages in that country. In addition, we provide local content for products sold into the Chinese market, including cellular telephones and portable devices where local content requirements are being driven by the Chinese government. Our high-volume packaging site for advanced BGA packages is in Ichon, South Korea which is significant for its proximity to semiconductor manufacturers entering the wafer foundry business, large semiconductor customers and an available pool of highly-skilled research and development and technical staff. Our Malaysian facility in Kuala Lumpur positions us to benefit from the growth in fabless manufacturing taking place in Southeast Asia. Our headquarters in Silicon Valley and state-of-the-art research and development facilities in California, Arizona and South Korea are located near our customers and provide us with the distinct ability to work closely with our customers in the design process and in supply chain management. . New and Diversifying Customer Base--We continue to diversify our customer base and end markets. In 2001, we provided services to over 70 customers worldwide. We increased our customer diversification by adding 27 new customers in 2000 and 16 in 2001, including Fairchild, Linfinity Microelectronics, Inc., Siliconix, STMicroelectronics, Texas Instruments Incorporated and Vishay. In particular, we added eight new customers in the power semiconductor segments. Excluding the effect of our largest customer in the computing segment, the total revenues from the rest of our customer base grew at a compound rate of 36.9% from 1999 to 2001. 2 . Long-Term Partnership with Key Customers--We received approximately 66.3% of our revenue for the nine months ended September 30, 2001 under long-term agreements. These agreements provide a competitive advantage during cycles as price incentives and volume terms ensure a leading outsourced position with that customer. We have entered into a supply agreement with Qualcomm under which we will provide packaging and test services for their CDMA chipsets and RF components. We have a supply agreement with Fairchild to supply discrete power products for silicon-based power devices for the computer, communications, industrial, automotive and space and defense end-user markets. We also have an agreement with Intersil Corporation to assemble and test its PRISM(R) wireless LAN chipsets as well as its other analog and mixed signal semiconductors. Lastly, we support LSI Logic Corporation's flip-chip technology through a license and supply agreement. . Among the Leaders in Growing Test Services--Through our long-term partnerships and existing customer base, we are well positioned to capitalize on the rapid growth of outsourced testing by semiconductor producers. This growth in outsourced testing is driven by the increasing demand for mixed-signal and high performance logic devices that require greater capital expenditures on testing equipment. We have made significant capital expenditures on testing equipment that provides us with the capability to test mixed-signal, digital logic, memory, power and RF devices. By increasing our emphasis on our test business and adding capacity, we have significantly increased our test revenues, and we expect this growth to continue. Our test business revenue grew to $45.5 million in 2001, an increase of $35.0 million from $10.5 million in 1999. Our key customers include many of the world's largest and most prominent semiconductor manufacturers including: Atmel Corporation, Fairchild, International Business Machines Corporation, Intel, Intersil, LSI Logic, nVIDIA, Qualcomm, Samsung Semiconductor, and STMicroelectronics. In addition, we consistently rank among the top packaging and test providers to our customers and in recent years have received numerous quality awards, including supplier of the year recognition from Atmel, Cirrus Logic Inc., Intersil, LSI Logic, QuickLogic Corporation and Virata Corporation, Intel's 1999 and 2000 Preferred Quality Supplier Award and 2000 e-business supply chain award, and Integrated Circuit Systems, Inc.'s vendor excellence award based on performance, services and support. 3 Business Strategy Our business strategy is to utilize our core strengths in manufacturing and our leadership in technology to take advantage of our outsourcing relationships with semiconductor manufacturers and fabless semiconductor manufacturers. To achieve these goals, we will: . continue to implement long term partnership agreements to further strengthen our technology partnerships with key customers and to expand our customer base; . expand our testing business to capitalize on the growing trend for outsourced testing services; . utilize our product breadth, technology and geographic locations to secure relationships with new and existing semiconductor foundries that are servicing the fabless semiconductor manufacturers; . pursue strategic acquisitions in the fragmented packaging and test industry, including acquisitions of facilities owned by semiconductor manufacturers; and . develop new packaging technology that will attract new customers and allow us to become early stage partners with our customers in new semiconductor designs. Recent Developments We expect revenue of approximately $76.5 million for the three months ended December 31, 2001, which represents an increase from our revenue of $74.6 million for the three months ended September 30, 2001. We expect to report an adjusted net loss for the three months ended December 31, 2001 of $(0.22) per share, as compared to an actual loss of $(0.24) per share for the three months ended September 30, 2001. The loss for the three months ended December 31, 2001 excludes previously announced planned restructuring charges, other one-time charges and an asset write down. We expect the one-time charges and restructuring charges to be approximately $3.0 million and the asset write down to be between $30.0 and 35.0 million. The asset write down relates primarily to our manufacturing assets in our assembly and test facilities in South Korea and Malaysia. We determined that due to excess capacity, the future expected cash flows related to equipment for certain package types will not be sufficient to recover the carrying value of the manufacturing equipment for those package types in those facilities. The carrying values of these assets were written down to our estimate of fair market value and will continue to be depreciated over their remaining useful lives. 4 The Offering Class A common stock offered........... 8,000,000 shares Class A common stock to be outstanding after this offering.................. 77,403,370 shares Voting rights.......................... Holders of Class A common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders. Use of proceeds of this offering....... We intend to use 50% and 25% of the net proceeds of this offering to pay down our term loans and revolving loans, respectively. We intend to use the remaining net proceeds of this offering for general corporate purposes. Nasdaq National Market symbol.......... CHPC The number of shares of our Class A common stock to be outstanding after this offering in the table above is based on the number of shares outstanding as of December 31, 2001 and does not include: . shares issuable upon exercise of outstanding options under our 1999 Stock Option Plan, of which 1,437,006 were issuable as of September 30, 2001 at a weighted average exercise price of $6.89 per share; . shares issuable upon exercise of outstanding options under our 2000 Equity Incentive Plan, of which 5,915,341 were issuable as of September 30, 2001 at a weighted average exercise price of $3.31 per share; and . shares available for future grants under our 2000 Equity Incentive Plan, of which 5,689,724 were available as of September 30, 2001. Unless otherwise stated, all information contained in this prospectus assumes no exercise of the over-allotment option we granted to the underwriters. If the over-allotment option is exercised in full, ChipPAC will issue and sell an additional 1,200,000 shares of Class A common stock. Our long-time stockholders have waived their piggy-back registration rights and will not sell any shares in conjunction with this offering. 5 Summary Historical Financial Data The following summary historical financial data for each of the years in the three-year period ended December 31, 2000 were derived from our audited financial statements and as of and for the nine months ended September 30, 2001 were derived from our unaudited financial statements, all of which are incorporated by reference in this prospectus. See "Where You Can Find More Information" and "Incorporation by Reference." The as adjusted balance sheet data as of September 30, 2001 gives effect to this offering and the application of the net proceeds from this offering, as if they had occurred at that date. See "Use of Proceeds." The following table should be read in conjunction with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements, the unaudited interim financial data and the related notes included or incorporated by reference in this prospectus.
Nine Months Years Ended December 31, Ended --------------------------------- September 30, 1998 1999 2000 2001 -------- -------- -------- ------------- (dollars in thousands, except per share amounts Statement of Operations Data: Revenue.................................................. $334,081 $375,530 $494,411 $251,894 Gross profit............................................. 63,716 58,042 109,144 25,206 Operating income (loss).................................. 40,429 12,619 62,330 (11,078) Net income (loss)........................................ $ 32,303 $ (7,308) $ 12,056 $(33,621) ======== ======== ======== ======== Net income (loss) available to common stockholders....... $ 32,303 $(11,528) $ 2,869 $(33,621) ======== ======== ======== ======== Net income (loss) per common share available to common stockholders: Basic................................................. $ 0.83 $ (0.30) $ 0.05 $ (0.49) Diluted............................................... 0.83 (0.30) 0.05 (0.49) -------- -------- -------- -------- Weighted average common shares outstanding: Basic................................................. 38,861 38,935 57,067 68,714 Diluted............................................... 38,861 38,935 58,253 68,714 -------- -------- -------- -------- Pro Forma Statement of Operations Data(1): Pro forma net income (loss) per common share available to common stockholders: Basic................................................. $ 0.11 $ (0.40) Diluted............................................... 0.10 (0.40) Pro forma weighted average common shares outstanding: Basic................................................. 63,067 74,714 Diluted............................................... 64,253 74,714 Other Financial Data: Depreciation............................................. $ 45,855 $ 55,894 $ 41,742 $ 38,868 Amortization............................................. -- 1,581 5,257 6,831 Capital expenditures..................................... 61,332 57,856 93,174 33,976
- -------- (1) The pro forma statement of operations data gives pro forma effect to this offering and the application of 75% of the net proceeds therefrom to pay down the senior credit facilities as described under "Use of Proceeds" as if each had occurred as of the beginning of the periods presented, and in accordance with Article 11 of Regulation S-X, includes 6,000,000 common shares, representing 75% of the common shares to be issued as part of this offering. The unaudited pro forma statement of operations data does not purport to represent what our results of operations actually would have been if such transactions had actually occurred as of the beginning of the periods presented, or what such results will be for any future periods. 6
As of September 30, 2001 ------------------------ Actual As Adjusted(2) -------- -------------- Balance Sheet Data: Cash and cash equivalents.................................. $ 25,908 $ 40,417 Accounts receivable........................................ 34,219 34,219 Working capital............................................ (6,007) 23,011 Total assets............................................... 462,447 476,956 Revolving loans............................................ 28,367 13,858 Total long-term debt, including current portion............ 333,627 304,610 Total stockholders' equity................................. 36,761 94,796
- -------- (2) Reflects the sale by us of 8,000,000 common shares in this offering at an assumed offering price of $7.70 per share less underwriting discounts and commissions and estimated offering expenses and the application of the net proceeds from this offering. See "Use of Proceeds." 7 RISK FACTORS You should carefully consider the following factors in addition to the other information set forth in this document in analyzing an investment in our Class A common stock. We believe that the risks and uncertainties described below are the current material risks facing us. If any of the following risks actually occur, our business, financial condition or results of operations will likely suffer. In that case, the trading price of our publicly traded Class A common stock could fall, and you may lose all or part of the money you invested. Pursuant to a recent waiver provided by our senior lenders, we will use a significant portion of the net proceeds of this offering to pay down our existing senior credit facilities. The weakness in demand for packaging and test services as a result of the current downturn in the semiconductor industry has and is expected to continue to adversely affect our cash flow from operations. We believe that our existing cash balances, cash flows from operations, available equipment lease financing and available borrowings under our senior credit facilities provide sufficient cash resources to meet our projected operating and other cash requirements for the next twelve months. We have signed an amendment to our senior credit facilities pursuant to which, among other things, our senior lenders waived compliance with our financial covenants until December 31, 2002 and replaced those covenants with new covenants that apply for the year ended December 31, 2002 which better reflect current conditions in the semiconductor industry. However, the amendment stipulates that we raise at least $20.0 million of net proceeds of permitted junior capital and prepay the outstanding senior credit facilities on or prior to March 1, 2002 in an aggregate principal amount equal to the greater of (i) $20.0 million and (ii) 50% of those net proceeds. This offering of Class A common stock would qualify as an issuance of permitted junior capital. If we do not complete an offering and repayment on or prior to March 1, 2002, the waiver expires on that date and we believe we would be in violation of the covenants which were waived pursuant to the amendment. If the transaction providing us with the net proceeds is a registered offering of securities and if the SEC reviews that offering, then we have until March 31, 2002 to apply those net proceeds and obtain the benefits of the waiver by our senior lenders. Should we fail to meet the requirements of the waiver by the expiration date, we expect to enter into negotiations with our senior lenders. We cannot assure you that if we do raise these proceeds we will be in compliance with all of our other existing covenants. Failure to comply with any of our existing covenants would constitute a default under the senior credit facilities. A default could cause a cross default under the indenture for our senior subordinated notes, which in turn could cause a substantial majority of our aggregate indebtedness to become due and payable immediately. An event of default under any debt instrument, if not cured or waived, could have a material adverse effect on us. Our operating results for the quarters ended September 30, 2001, June 30, 2001 and March 31, 2001 declined significantly from the quarters ended September 30, 2000, June 30, 2000 and March 31, 2000. Our gross margins, net income and operating income for the quarters ended September 30, 2001, June 30, 2001 and March 31, 2001 decreased as compared to our results in the quarters ended September 30, 2000, June 30, 2000 and March 31, 2000 as a result of a decline in our revenues. Our revenues for the quarters ended September 30, 2001, June 30, 2001 and March 31, 2001 were $74.7 million, $87.4 million and $89.9 million, respectively, compared to $155.8 million, $109.0 million and $97.5 million, respectively, in the same periods for 2000. The decline is attributable to the continued semiconductor industry demand slowdown and resulting inventory buildup caused by ongoing end market demand weakness. Our net loss has increased from $9.7 million and $9.4 million in the quarters ended March 31, 2001 and June 30, 2001, respectively, to $16.4 million in the quarter ended September 30, 2001. In addition to the effect of the decline in operating income, net income was further reduced in the third quarter of 2001 compared to the other quarters by the change in the effective tax rate from 20% to 0%. We cannot assure you that our business will not continue to decline or that our performance will improve. 8 We may not be able to continue to implement our cost saving strategy. Even if we do, it may not reduce our operating expenses by as much as we anticipated and could even compromise the development of our business. In response to the recent weakness in demand for semiconductors, we implemented cost saving measures, including significant reduction in our workforce, furloughs, reduced work shift schedules, reductions in discretionary spending, reduced materials cost and lower capital expenditures and redesign of our manufacturing processes to improve productivity. As a result of these cost saving measures, we have incurred approximately $3.0 million in restructuring charges during the nine months ended September 30, 2001. Additionally, we expect there to be approximately $3.0 million in charges in the three months ended December 31, 2001 for actions to be completed in 2002. However, we cannot assure you that these cost saving measures will increase productivity nor that the expected net savings will occur during this period or at any other time in the expected amounts, if at all. In fact, our cost saving measures could adversely affect our revenue, as it could create inefficiencies in our business operations, result in labor disruptions and limit our ability to expand and grow our business. The cyclicality of the semiconductor industry could adversely affect our operating results. Our operations are substantially affected by market conditions in the semiconductor industry, which is highly cyclical and, at various times, has experienced significant economic downturns characterized by reduced product demand and production overcapacity which can result in rapid erosion of average selling prices. Since the end of 2000 we have experienced a general slowdown in the semiconductor industry. Our profitability is affected by average selling prices which tend to decline. Decreases in the average selling prices of our packaging and test services can have a material adverse effect on our profitability. The average selling prices of packaging and test services have declined historically, with packaging services in particular experiencing severe pricing pressure. This pricing pressure for packaging and test services is likely to continue. Our ability to maintain or increase our profitability will continue to be dependent, in large part, upon our ability to offset decreases in average selling prices by improving production efficiency, increasing unit volumes packaged or tested, or by shifting to higher margin packaging and test services. If we are unable to do so, our business, financial condition and results of operations could be materially and adversely affected. If we are unable to develop and market new technologies, we may not remain competitive within the semiconductor packaging industry. The semiconductor packaging and test industry is characterized by rapid increases in the diversity and complexity of packaging services. As a result, we expect that we will need to continually introduce more advanced package designs in order to respond to competitive industry conditions and customer requirements. The requirement to develop, license and maintain advanced packaging capabilities and equipment could require significant research and development and capital expenditures in future years. Any failure by us to achieve advances in package design or to obtain access to advanced package designs developed by others could reduce our growth prospects and operating income. The intensity of competition in our industry could result in the loss of our customers, which could adversely affect our revenues and profits. We face substantial competition from a number of established independent packaging companies and with the internal capabilities of many of our largest customers. Each of our primary competitors has significant operational capacity, financial resources, research and development operations, and established relationships with many large semiconductor companies, which are current or potential customers of ours. Furthermore, our 9 competitors may in the future capture our existing or potential customers through superior responsiveness, service quality, product design, technical competence or other factors, which we view as principal elements of competition in our industry. In addition, our primary customers may, in the future, shift more of their packaging and test service demand internally. As a result, we may have reduced revenues and profits. Our research and development efforts may not yield profitable and commercially viable services; thus, we may have significant short-term research and development expenses, which will not necessarily result in increases in revenue. Our research and development efforts may not yield commercially viable packages or test services. The qualification process for new customers is conducted in various stages which may take one or more years to complete, and during each stage there is a substantial risk that we will have to abandon a potential package or test service which is no longer marketable and in which we have invested significant resources. In the event we are able to qualify new packages, a significant amount of time will have elapsed between our investment in new packages and the receipt of any related revenues. We could lose customers, and thus revenue, if we cannot maintain the quality of our services. The semiconductor packaging process is complex and involves a number of precise steps. Defective packaging can result from a number of factors, including the level of contaminants in the operational environment, human error, equipment malfunction, use of defective materials and plating services and inadequate sample testing. From time to time, we expect to experience lower than anticipated yields as a result of these factors, particularly in connection with any expansion of capacity or change in processing steps. In addition, our yield on new packaging could be lower during the period necessary for us to develop the requisite expertise and experience with these processes. Any failure by us to maintain high quality standards or acceptable yields, if significant and sustained, could result in the loss of customers, delays in shipments, increased costs and cancellation of orders. Our business may be adversely affected by the loss of, or reduced purchases by, Atmel, Fairchild, Intel, Intersil, LSI Logic, nVIDIA or any other large customer. Additionally, we may encounter difficulties in soliciting new customers. For the nine months ended September 30, 2001, sales to our top five customers in the aggregate accounted for approximately 73.2% of total net revenues. During this same period, our three largest customers Intersil, Intel and LSI Logic, respectively, produced 21.2%, 18.8% and 14.5% of our revenues. If any of our main customers were to purchase significantly less of our services in the future, these decreased levels of purchases could harm our operating results. Semiconductor packaging companies must pass a lengthy and rigorous qualification process that can take up to six months at a cost to the customer of approximately $250,000 to $300,000. If we fail to qualify packages with potential customers or customers with which we have recently become qualified do not use our services, then our customer base could become more concentrated with a limited number of customers accounting for a significant portion of our revenues. Moreover, we believe that once a semiconductor company has selected a particular packaging and test foundry company's services, the semiconductor company generally relies on that vendor's packages for specific applications and, to the extent possible, subsequent generations of that vendor's packages. Accordingly, it may be difficult to achieve significant sales from a particular or potential customer once it selects another vendor's packaging services. 10 Our stock price has fluctuated significantly in the past, and the market price of our Class A common stock may be lower than you expect. Since our initial public offering on August 8, 2000, the closing price of our Class A common stock has fluctuated significantly, ranging from a low of $1.88 to a high of $18.50 per share. Fluctuations in our stock price could continue. Among the factors that could affect our stock price are: . quarterly variations in our operating results; . rating changes by research analysts; . strategic actions by us or our competitors, such as acquisitions; . general market conditions; and . general economic factors unrelated to our performance. The stock markets in general, and the markets for technology companies in particular, have experienced a high degree of volatility not necessarily related to the operating performance of particular companies. We cannot provide assurances as to our stock price. Some of our long-time stockholders have the right to require us to register the public sale of their shares; all of our total outstanding shares of Class A common stock may be sold into the market; future sales of those shares could depress the market price of our Class A common stock. The public market for our Class A common stock includes 11,500,000 shares of Class A common stock that we sold in our initial public offering and, after giving effect to this offering, will include an additional 8,000,000 shares of Class A common stock, assuming that the underwriters do not exercise their over-allotment option. At the time of our initial public offering, there were 55,631,718 additional shares of our Class A common stock outstanding. Following this offering, we expect to have 77,403,370 shares of Class A common stock outstanding, assuming that the underwriters do not exercise their over-allotment option. Those people and entities who were our stockholders prior to our initial public offering are able to sell their shares in the public market, subject to legal restrictions on transfer. Some of our stockholders prior to our initial public offering are parties to agreements with us that provide for demand registration rights to cause us to register under the Securities Act of 1933, as amended, or the Securities Act, all or part of their shares of our Class A common stock, as well as piggyback registration rights. Our long-time stockholders have waived their piggy-back registration rights and will not sell any shares in conjunction with this offering. Currently, approximately 46,463,489 shares of our Class A common stock have restrictions on resale and are subject to these registration rights. We believe that all of the other shares of our Class A common stock are freely tradable. Registration of the sale of these restricted shares of our Class A common stock would permit their sale into the market immediately. If our stockholders sell a large number of shares, the market price of our Class A common stock could decline, as these sales may be viewed by the public as an indication of an upcoming or recently occurring shortfall in the financial performance of our company. Moreover, the perception in the public market that these stockholders might sell shares of our Class A common stock could depress the market price of the Class A common stock. See "Shares Eligible for Future Sale." As of December 31, 2001, we had 69,403,370 shares of our Class A common stock outstanding. All of these shares are freely tradeable without restriction under the Securities Act, except for any shares which may be held or acquired by an affiliate of our company, as that term is defined in Rule 144 promulgated under the Securities Act. We believe that affiliates hold approximately 46,416,214 shares of common stock, and that those shares could only be sold over the next 12 months in accordance with the volume and manner of sale limitations set forth in Rule 144. 11 Provisions of our charter documents could discourage potential acquisition proposals and could delay, deter or prevent a change in control. Provisions of our certificate of incorporation and by-laws may inhibit changes in control of our company not approved by our board of directors and would limit the circumstances in which a premium may be paid for our Class A common stock in proposed transactions, or a proxy contest for control of the board may be initiated. These provisions provide for: . a prohibition on stockholder action through written consents; . a requirement that special meetings of stockholders be called only by our chief executive officer or the board of directors; . advance notice requirements for stockholder proposals and nominations; . limitations on the ability of stockholders to amend, alter or repeal the by-laws; and . the authority of the board to issue, without stockholder approval, preferred stock with terms as the board may determine. Our substantial indebtedness could adversely affect our financial health and make us vulnerable to adverse economic and industry conditions. As of September 30, 2001, our total indebtedness was $362.0 million. Our substantial indebtedness could have important consequences to you. For example, it could: . increase our vulnerability to general adverse economic and industry conditions by limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; . require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thus reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes; . place us at a competitive disadvantage relative to our competitors that have less debt; and . limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds. Furthermore, failing to comply with those covenants could result in an event of default which, if not cured or waived, could have a material adverse effect on our ability to increase our revenues and profitability and meet our growth objectives. Despite our current levels of indebtedness, we still may be able to incur substantially more debt which could increase the risks created by our substantial indebtedness. We may be able to incur substantial additional indebtedness in the future. Our senior credit facility provides for revolving loans up to $50.0 million, including letters of credit. In addition, we have the ability to increase our revolving line of credit by $25.0 million without further consent from our existing lenders. Additionally, the indenture for the existing senior subordinated notes permits us to incur additional indebtedness if we meet a test measuring our cash flow relative to our required interest payments. This indenture also allows us to incur debt under our senior credit facility. The indenture for our convertible notes does not limit our ability to incur additional indebtedness. All of the borrowings under our senior credit facility are secured by all of our assets and those of our subsidiaries, except those of our Chinese operating subsidiary. The addition of new debt to our current debt levels could intensify the debt-related risks that we now face that are described above. 12 Your right to receive payments on the Class A common stock is junior to the company's existing and, possibly future, senior and subordinated indebtedness. It is possible, therefore, that you may receive no compensation of any kind relating to the Class A common stock if there is a bankruptcy, liquidation or similar proceeding affecting us. The Class A common stock ranks behind all of our existing indebtedness, including our guarantees of our subsidiary's obligations under the senior credit facility and our subsidiary's existing 12 3/4% senior subordinated notes. The Class A common stock also ranks behind all of our future borrowings, except any future indebtedness that expressly provides that it ranks with, or subordinated in right of payment to, the Class A common stock. As a result, upon any distribution to our creditors, in a bankruptcy, liquidation or reorganization or similar proceeding relating to us or our property, we will have to pay the holders of debt senior to the Class A common stock in full before we can make any payment on the Class A common stock. Moreover, the Class A common stock will be structurally subordinated to all liabilities, including trade payables, of our subsidiaries and any subsidiaries upon their liquidation or reorganization, and the rights of the holders of the Class A common stock to share in those assets, would be subordinate to the claims of the subsidiaries' creditors. In addition, all payments on the Class A common stock will be blocked in the event of a payment default on our senior and subordinated debt, including borrowings under the senior credit facility, and may be blocked for specified periods in the event of non-payment defaults on certain senior debt. The senior credit facility and the indenture governing our existing 12 3/4% senior subordinated notes impose limitations on how we conduct our business; as a result, we may not be able to pursue strategies that could be in the best interests of holders of our stock. The senior credit facility and the indenture governing our existing 12 3/4% senior subordinated notes contain restrictions on us that could increase our vulnerability to general adverse economic and industry conditions by limiting our flexibility in planning for and reacting to changes in our business and industry. Specifically, these restrictions limit our ability to: . incur additional debt; . pay dividends and make other distributions; . prepay subordinated debt; . make investments and other restricted payments; . enter into sale and leaseback transactions; . create liens; . sell assets; . enter into transactions with affiliates; and . consolidate or merge. Our senior credit facility contains financial covenants that require us to meet specified financial tests, including, without limitation, a minimum interest coverage ratio, a maximum leverage ratio, a minimum fixed charge coverage ratio, a maximum senior leverage ratio and a minimum consolidated adjusted EBITDA amount. As a result of these restrictions, we may not be able to pursue business strategies that could be in the best interest of our stockholders. Our senior lenders have waived compliance with our financial covenants until December 31, 2002 and replaced those covenants with new covenants that apply for the year ended December 31, 2002 which better reflect current conditions in the semi-conductor industry. However, the amendment stipulates that we raise at least $20.0 million of net proceeds of permitted junior capital and prepay the outstanding senior credit facilities on or prior to March 1, 2002 in an aggregate principal amount equal to the greater of (i) $20.0 million and (ii) 50% of those net proceeds. 13 The covenants waived for 2002 under the most recent bank amendment include: (1) the minimum interest coverage ratio of 1.6 to 1.0 through March 31, 2002, 1.75 to 1.0 through June 30, 2002 and 1.85 to 1.0 through December 31, 2002; (2) the maximum leverage ratio of 5.0 to 1.0 through June 30, 2002 and 4.5 to 1.0 through December 31, 2002; and (3) the maximum senior leverage ratio of 2.5 to 1.0 through December 31, 2002. These three covenants were waived under the current amendment and replaced for 2002 with (1) a minimum consolidated adjustable EBITDA amount of $30.0 million, $26.0 million, $32.0 million and $40.0 million for the twelve months ended March 31, June 30, September 30 and December 31, 2002, respectively, and (2) a new maximum capital expenditure amount of $30.0 million. Pursuant to a prior amendment, the minimum fixed charge coverage ratio of 1.05 to 1.0 was waived through December 31, 2002. At September 30, 2001, we were in compliance with all of our financial covenants, except the minimum fixed charge coverage ratio whose compliance was waived. In addition, at September 30, 2001, our interest coverage ratio was 1.83 to 1.0; our leverage ratio was 4.83 to 1.0 and our senior leverage ratio was 2.28 to 1.0. For the nine months ended September 30, 2001, our consolidated capital expenditures were approximately $33.7 million. While we were not required to maintain consolidated adjusted EBITDA for any periods ending on or prior to December 31, 2001, our consolidated adjusted EBITDA for the twelve months ended September 30, 2001 was $64.5 million. If we fail to comply with the restrictions in the senior credit facility, a default may also occur under the indenture governing our existing 12 3/4% senior subordinated notes and any other financing agreements. This default may allow some creditors, if their respective agreements so provide, to accelerate payments owed on such debt as well as any other indebtedness as to which a cross-acceleration or cross-default provision applies. The creditors who may be entitled to accelerated payments in the event of a default are: (1) the holders of our 12 3/4% senior subordinated notes issued in the aggregate principal amount of $165.0 million, under an indenture dated July 29, 1999 by and among us, ChipPAC International Company Limited, and Firstar Bank, N.A. as trustee; and (2) the senior credit facility lenders, including Credit Suisse First Boston, New York branch, BankBoston N.A., State Street Bank and Trust Company, Balanced High-Yield Fund II Limited, CIBC Inc., First Source Financial LLP, Heller Financial, Inc., The First National Bank of Chicago and IBM Credit Corporation, under our senior credit facility, dated as of August 5, 1999 by and among the us, ChipPAC International Company Limited, and Credit Suisse First Boston, New York branch as the administrative agent, collateral agent and sole lead arranger for the senior facility lenders. As of September 30, 2001, the aggregate principal amount of the senior credit facility was $168.6 million of which approximately $147.0 million was outstanding. In addition, our lenders may be able to terminate any commitments they had made to supply us with further funds. Economic crisis in Asia where most of our suppliers are located could prevent us from securing adequate supplies of materials, which could, in turn, prevent us from meeting the requirements of our customers and result in a decrease in our revenues. Most of our materials suppliers are located in Asia. Historically, over half of our substrate costs were incurred from the purchase of materials from Japanese suppliers. In the future, we expect that a growing portion of these materials will be supplied by sources in South Korea and Taiwan. Several countries in this region have experienced currency devaluation and/or difficulties in financing short-term obligations. We cannot assure you that the effect of an economic crisis on our suppliers will not impact operations, or that the effect on our customers in that region will not adversely affect both the demand for our services and the collectibility of receivables. The failure of our vendors to supply sufficient quantities of materials on a timely basis could prevent us from fulfilling our customers' orders. In addition, we may not be able to pass on any unexpected increase in the cost of these materials to our customers. We obtain materials to fill orders for our packaging and test services directly from vendors. To maintain competitive packaging operations, we must obtain from our vendors, in a timely manner, sufficient quantities of acceptable materials at expected prices. We source most of our materials, including critical materials like laminate substrates, lead frames, mold compounds and gold wires, from a limited group of suppliers. We 14 purchase all of our materials on a purchase order basis and have no long-term contracts with any suppliers. From time to time, vendors have extended lead times or limited the supply of required materials to us because of vendor capacity constraints and, consequently, we have experienced difficulty in obtaining acceptable materials on a timely basis. Our business and results could be negatively impacted if our ability to obtain sufficient quantities of materials and other supplies in a timely manner were substantially diminished or if there were significant increases in the cost of materials that we could not pass on to our customers. If we are unable to obtain capital equipment in a timely manner, we may be unable to meet the increased demands of our customers which could result in a decrease in our revenues. Our facilities currently have sufficient packaging and test services capacity to meet the current and expected demands of our customers. Nonetheless, in the event there are significant increases in overall semiconductor demand or demand for some of our products and services, we may not be able to meet those increased demands of our customers. Moreover, because the semiconductor packaging and test services business requires investment in expensive capital equipment and is characterized, from time to time, by intense demand, limited supply and long delivery cycles, we may not be able to readily increase our operating capacity. This would lead to a loss of sales of our packaging and test services, could ultimately lead to a loss in market share and have a negative impact on our results of operations. We depend upon intellectual property and license critical technology from Hynix Semiconductor, Motorola, Inc., Tessera, Inc., LSI Logic and Intersil. To the extent these licenses are not perpetual and irrevocable, our net revenues could be materially adversely affected if our rights under these licenses expire or are terminated. We seek to protect our proprietary information and know-how through the use of trade secrets, confidentiality agreements and other security measures. We may not obtain patent protection for the patent applications that we file, or if we are granted patents, those patents may not offer meaningful protection. Additionally, we cannot assure you that our competitors will not develop, patent or gain access to similar know-how and technology, or reverse engineer our packaging services, or that any confidentiality agreements upon which we rely to protect our trade secrets and other proprietary information will be adequate to protect our proprietary technology. Any patents and utility model, design right and computer program right registrations obtained relating to technology that we developed prior to our recapitalization are owned by Hynix Semiconductor Inc., formerly Hyundai Electronics Inc. In connection with our recapitalization, we entered into a patent and technology license agreement by which Hynix Semiconductor granted us license to use specific intellectual property rights in our semiconductor packaging and test activities. We expect to seek patents and utility model, design right and computer program right registrations, as applicable, on new packaging process and package design technologies that we develop as a means of protecting technology and market position. We have a non-exclusive sublicense from Hynix Semiconductor to use patented BGA technologies owned by Motorola, which expires on December 31, 2002. Motorola licenses these patents to others, including our competitors. After giving pro forma effect to the acquisition of the Malaysian business as if it had occurred at the beginning of 2000, these BGA technologies contributed 41.1% of our net revenues in 2000, We have a worldwide, royalty-bearing, non-exclusive license under specified Tessera patents, technical information and trademarks relating to Tessera's proprietary IC packages. This license will expire sometime after February 2018. We also have two separate license agreements with LSI Logic under which we have worldwide, royalty-bearing, non-exclusive licenses to use LSI packaging technology and technical information to manufacture, use and sell flip-chip semiconductor devices having at least 200 solder balls and semiconductor device assemblies having an overall height of less than 1.2 millimeters, respectively. The LSI Logic license relating to flip-chip 15 semiconductor devices becomes perpetual and irrevocable upon our payment of fees or January 1, 2004, whichever occurs first. The other LSI Logic license is perpetual but may be terminated by LSI Logic in the event of our uncured breach or bankruptcy. In addition, we have a worldwide, royalty-free, non-exclusive license under Intersil patents, copyrights and technical information which are used in or related to the operation of the Malaysian business. This Intersil license is perpetual and irrevocable. Any intellectual property rights in the bonding diagrams, test programs, maskworks and test boards uniquely related to the Intersil products for which we provide packaging and test services are licensed to us only for use in providing those services. To the extent these licenses are not perpetual and irrevocable, we may be unable to utilize the technologies under these licenses if they are not extended or otherwise renewed or if any of these licenses are terminated by the licensor due to our uncured breach or bankruptcy. Alternatively, if we are able to renew these arrangements, we cannot assure you that they will be on the same terms as currently exist. Any failure to extend or renew these license arrangements could cause us to incur substantial liabilities and to suspend the packaging services and processes that utilized these technologies. The loss of our skilled technical, marketing and sales personnel or our key executive officers could have a material adverse effect on our research and development, marketing and sales efforts. Our competitiveness will depend in large part upon whether we can attract and retain skilled technical, marketing and sales personnel and can retain members of our executive team. Competition for skilled personnel is intense, and we may not be successful in attracting and retaining the technical personnel or executive managers we require to develop new and enhanced packaging and test services and to continue to grow and operate profitably. If we cannot attract or retain skilled personnel, we may not be able to operate successfully in the future. If we encounter future labor problems, we may fail to deliver our products in a timely manner which could adversely affect our revenues and profitability. Our employees at our Ichon, South Korea facility are represented by ChipPAC Korea Labor Union and are covered by collective bargaining and wage agreements. The collective bargaining agreement, which covers basic union activities, working conditions and welfare programs, among other things, is effective to May 1, 2003 and the wage agreement is effective to May 1, 2002. As of December 31, 2001, approximately 78% of our employees were represented by the ChipPAC Korea Labor Union. In addition, one of our Chinese subsidiaries experienced labor protests and a two-day work stoppage in July 1998 in connection with proposed work force reductions. We cannot assure you that issues with the labor union or other employees will be resolved favorably for us in the future, that we will not experience significant work stoppages in future years or that we will not record significant charges related to those work stoppages. In addition, potential efficiency enhancement efforts, including personnel reductions, following our recent acquisition of the Malaysian business may create the risk of labor problems in Malaysia or at other facilities. New laws and regulations, currency devaluation and political instability in foreign countries, particularly in China, Malaysia and South Korea could make it more difficult for us to operate successfully. For the nine months ended September 30, 2001 and the years ended December 31, 2000, 1999 and 1998, we generated approximately 10.7%, 16.7%, 11.3%, and 7.2% of total revenues, respectively, from international markets, primarily from customers in Southeast Asia and Europe. In addition, all of the facilities currently used to provide our packaging services are located in China, Malaysia and South Korea. Moreover, many of our customers' operations are located in countries outside of the United States. We cannot determine if our future operations and earnings will be affected by new laws, new regulations, a volatile political climate, changes in or new interpretations of existing laws or regulations or other consequences of doing business outside the U.S., particularly in China, Malaysia and South Korea. If future operations are negatively affected by these changes, our sales or profits may suffer. 16 Fluctuations in the exchange rate of the U.S. dollar and foreign currencies could have a material adverse effect on our financial performance and profitability. A portion of our costs are denominated in foreign currencies, like the South Korean Won, the Chinese Renminbi or RMB and the Malaysian Ringgit. As a result, changes in the exchange rates of these currencies or any other applicable currencies to the U.S. dollar will affect our costs of goods sold and operating margins and could result in exchange losses. We cannot fully predict the impact of future exchange rate fluctuations on our profitability. From time to time, we may engage in exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. However, we cannot assure you that any hedging technique we may implement will be effective. If it is not effective, we may experience reduced operating margins. We could suffer adverse tax and other financial consequences if U.S. or foreign taxing authorities do not agree with our interpretation of applicable tax laws. Our corporate structure is based, in part, on assumptions about the various tax laws, including withholding tax, and other relevant laws of applicable non-U.S. jurisdictions. We cannot assure you that foreign taxing authorities will agree with our interpretations or that they will reach the same conclusions. Our interpretations are not binding on any taxing authority and, if these foreign jurisdictions were to change or to modify the relevant laws, we could suffer adverse tax and other financial consequences or have the anticipated benefits of our corporate structure materially impaired. Because the Malaysian business previously operated as a subsidiary of Intersil, our future financial results may be significantly different from those experienced historically. Prior to our acquisition of our Malaysian business in 2000, it was operated as a subsidiary of Intersil. All the historical revenues of the Malaysian business represent intercompany sales to Intersil on terms determined by Intersil. Although we expect to retain this business pursuant to a five-year supply agreement with Intersil, volume, product mix and pricing may change in the future, and we cannot assure you that Intersil will perform under our supply agreement. We entered into supply contracts with Intersil in connection with our acquisition of our Malaysian business and with Fairchild Semiconductor following Fairchild's acquisition of Intersil's discrete power business, and any decrease in the purchase requirements of Intersil or Fairchild or the inability of Intersil or Fairchild to meet its contractual obligations could substantially reduce the financial performance of our Malaysian subsidiary. Historically, the Malaysian business generated all of its revenues from the sale of products and services to affiliated Intersil companies. The revenue of the Malaysian business for the first six months of 2000 prior to our acquisition of it and for all of 1999 was $41.9 million and $101.9 million, respectively. As a result of our acquisition of the Malaysian business, we have numerous arrangements with Intersil, including arrangements relating to packaging and test services as a vendor to affiliated Intersil companies and other services. Any material adverse change in the purchase requirements of Intersil or in its ability to fulfill its other contractual obligations could have a material adverse effect on our Malaysian subsidiary. Moreover, we may be unable to sell any products and services to affiliated Intersil companies beyond the term of our five-year supply agreement with Intersil. In connection with Fairchild Semiconductor's acquisition of Intersil's discrete power business, we entered into an assignment agreement that assigned Intersil's portion of the supply agreement relating to this business to Fairchild. We have also entered into a three-year IT services agreement with Intersil under which the Malaysian business will continue to obtain a number of these services from Intersil. We cannot assure you that Fairchild will perform under the supply agreement or that Intersil will perform under the supply and services agreements or that upon termination of these agreements we will be able to obtain similar services on comparable terms. 17 We may not be able to consummate future acquisitions, and consequences of those acquisitions which we do complete may adversely affect us. We plan to continue to pursue additional acquisitions of related businesses. The expense incurred in consummating the future acquisition of related businesses, or our failure to integrate those businesses successfully into our existing business, could result in our incurring unanticipated expenses and losses. We plan to continue to pursue additional acquisitions of related businesses in the future. We may be unable to identify or finance additional acquisitions or realize any anticipated benefits from those acquisitions. Should we successfully acquire another business, the process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of our existing operations. Possible future acquisitions could result in the incurrence of contingent liabilities and amortization expenses related to goodwill and other intangible assets, all of which could have a material adverse effect on our financial condition and operating results. In addition, we may finance future acquisitions with additional indebtedness. We have a substantial amount of outstanding indebtedness and will, subject to compliance with our debt instruments, have the ability to incur additional indebtedness. We will be required to generate cash flow from operations to service that indebtedness and there can be no assurance that we will generate sufficient cash flow to service that indebtedness. We may be required to refinance our indebtedness upon its maturity, and we cannot assure you that we will be able to refinance our indebtedness at all or on terms acceptable to us. Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of violence or war may affect the markets on which our securities trade, the markets in which we operate, our operations and our profitability. Terrorist attacks may negatively affect our operations and your investment. There can be no assurance that there will not be further terrorist attacks against the United States or United States businesses. These attacks or armed conflicts may directly impact our physical facilities or those of our suppliers or customers. Our current facilities include administrative, sales, and R&D facilities in the United States and manufacturing facilities in China, Malaysia and South Korea. Furthermore, these attacks may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately affect the sales of our products in the United States and overseas. Also as a result of terrorism, the United States may enter into an armed conflict which could have a further impact on our domestic and international sales, our supply chain, our production capability and our ability to deliver product to our customers. Political and economic instability in some regions of the world may also result and could negatively impact our business. The consequences of any of these armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business or your investment. A limited number of persons indirectly control us and may exercise their control in a manner adverse to your interests. At December 31, 2001, Citicorp Venture Capital, Ltd. and its affiliates owned or had the right to acquire 23,849,399 shares or approximately 34.4% of our outstanding Class A common stock. Upon the completion of this offering, Citicorp Venture Capital, Ltd. will own approximately 30.8% of our outstanding Class A common stock, assuming that the underwriters do not exercise their over-allotment option. At December 31, 2001, funds affiliated with Bain Capital, Inc. owned 16,303,749 shares or approximately 23.5% of our outstanding Class A common stock. Upon the completion of this offering, funds affiliated with Bain Capital, Inc. will own approximately 21.1% of our outstanding Class A common stock, assuming that the underwriters do not exercise their over-allotment option. By virtue of this stock ownership, these entities collectively have the power to direct 18 our affairs and will be able to determine the outcome of all matters required to be submitted to stockholders for approval, including the election of a majority of our directors, any merger, consolidation or sale of all or substantially all of our assets and amendment of our certificate of incorporation. Because a limited number of persons control us, transactions could be difficult or impossible to complete without the support of those persons. It is possible that these persons will exercise control over us in a manner adverse to your interests. If our relationship with Hynix Semiconductor, our previous owner, deteriorates, our business could be adversely affected. Our facilities in Ichon, South Korea occupy a portion of a building located on property owned by Hynix Semiconductor, a current stockholder and former majority owner. In addition, Hynix Semiconductor is one of our current customers. An unfavorable change in our relations with Hynix Semiconductor could adversely effect services we receive from them at this facility and the revenue we derive from the products and services we provide to them. Environmental, health and safety laws could require us to incur capital and operational costs to maintain compliance and could impose liability to remedy the effects of hazardous substance contamination. We are subject to liabilities and compliance obligations arising under environmental, health and safety laws. These laws impose various controls on the quality of our air and water discharges, on the storage, handling, discharge and disposal of chemicals the company uses, and on employee exposure to hazardous substances in the workplace. Environmental, health and safety laws could require us to incur capital and operational costs to maintain compliance and could impose liability to remedy the effects of hazardous substance contamination. We cannot assure you that applicable environmental, health and safety laws will not in the future impose the need for additional capital equipment or other process requirements upon the company, curtail its operations, or restrict its ability to expand its operations. The adoption of new environmental, health and safety laws, the failure to comply with new or existing laws, or issues relating to hazardous substance contamination could subject the company to future material liability. FORWARD-LOOKING STATEMENTS This prospectus and any prospectus supplement we may provide you, including the section entitled "Risk Factors," contains forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. These risks and other factors include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined under "Risk Factors." These factors may cause our actual results to differ materially from any forward-looking statement. 19 USE OF PROCEEDS The net proceeds from the sale of 8,000,000 shares of Class A common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses, based on an assumed offering price of $7.70 per share (the closing price of our Class A common stock on The Nasdaq National Market on January 15, 2002), are estimated to be approximately $58.0 million. We intend to use 50% and 25% of the net proceeds of this offering to pay down our term loans and revolving loans, respectively. Our term loans had a weighted average interest rate of 8.238% for the year ended December 31, 2001, have scheduled amortization payments each quarter and mature on July 31, 2005. Our revolving loans had a weighted average interest rate of 8.390% for the year ended December 31, 2001 and mature on July 31, 2005. We intend to use the remaining net proceeds of this offering for general corporate purposes, which may include working capital increases, acquisitions or capital expenditures. We expect from time to time to evaluate the acquisitions of businesses, products and technologies, for which a portion of the net proceeds may be used. Until we use the proceeds in this manner, we may temporarily use them to make short-term investments or reduce short-term borrowings. PRICE RANGE OF CLASS A COMMON STOCK Our Class A common stock is traded on The Nasdaq National Market under the symbol "CHPC." Public trading of our Class A common stock began on August 9, 2000. Prior to that, there was no public market for our common stock. The following table sets forth, for the periods indicated, the high and low last reported sale price per share of our Class A common stock as reported on the Nasdaq National Market. As of December 31, 2001, there were 97 stockholders of record of our Class A common stock. The last reported sale price of our Class A common stock on January 15, 2002 was $7.70.
High Low -------- -------- 2000 Third Quarter (commencing August 9, 2000 and ending on September 30, 2000).................................. $18.500 $11.875 Fourth Quarter......................................... 11.688 2.625 2001 First Quarter.......................................... 6.50 3.00 Second Quarter......................................... 10.44 3.80 Third Quarter.......................................... 11.55 1.88 Fourth Quarter......................................... 8.35 1.91 2002 First Quarter (through January 15, 2002)............... 9.38 7.54
DIVIDEND POLICY To date, we have not declared or paid cash dividends to our stockholders. We have no plans to declare or pay cash dividends in the near future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial conditions, capital requirements and contractual restrictions. 20 CAPITALIZATION The following table sets forth our actual capitalization as of September 30, 2001. It also sets forth our capitalization on an as adjusted basis for the sale of 8,000,000 shares of common stock by us at an assumed public offering price of $7.70 per share, less underwriting discounts and commissions and estimated offering expenses and the application of the estimated net proceeds from the offering. See "Use of Proceeds."
September 30, 2001 -------------------- Actual As Adjusted -------- ----------- (In thousands, except share and per share amounts) Cash and cash equivalents.......................................................... $ 25,908 $ 40,417 ======== ======== Long term debt (including current portion) and revolving loans: Revolving loans(1).............................................................. $ 28,367 $ 13,858 Term loans under senior credit facilities....................................... 118,627 89,610 12.75% Senior subordinated notes due 2009....................................... 165,000 165,000 8.0% Convertible subordinated notes due 2011.................................... 50,000 50,000 -------- -------- Total long term debt (including current portion) and revolving loans........ 361,994 318,468 -------- -------- Stockholders' equity: Common stock, Class A--par value $0.01; 250,000,000 shares authorized; 69,323,000 shares issued and outstanding actual; 77,323,000 shares issued and outstanding, as adjusted...................................................... 693 773 Common stock, Class B--par value $0.01; 250,000,000 shares authorized; no shares issued and outstanding actual; no shares issued and outstanding, as adjusted...................................................................... -- -- Additional paid-in capital...................................................... 110,024 167,979 Receivable from stockholders.................................................... (1,093) (1,093) Accumulated deficit............................................................. (82,032) (82,032) Accumulated other comprehensive income.......................................... 9,169 9,169 -------- -------- Total stockholders' equity.................................................. 36,761 94,796 -------- -------- Total capitalization..................................................... $398,755 $413,264 ======== ========
- -------- (1) Borrowings of up to $50.0 million under the revolving lines under our senior credit facilities are available for working capital and general corporate purposes. The table set forth above is based on shares of common stock outstanding as of September 30, 2001. This table excludes: . 1,437,006 shares issuable upon exercise of outstanding options under our 1999 Stock Option Plan at a weighted average exercise price of $6.89 per share; . 5,915,341 shares issuable upon exercise of outstanding options under our 2000 Equity Incentive Plan at a weighted average exercise price of $3.31 per share; and . 5,689,724 shares available for future grants or issuance under our 2000 Equity Incentive Plan. 21 DILUTION The net tangible book value of our Class A common stock as of September 30, 2001 was approximately $17.9 million, or $0.26 per share. Net tangible book value per share represents the amount of our total assets, excluding intangible assets, less our total liabilities, divided by the total number of shares of Class A common stock outstanding. Dilution in net tangible book value per share represents the difference between the amount per share paid by the investors in this offering and the net tangible book value of our Class A common stock immediately after the offering. After giving effect to the sale of the 8,000,000 shares of Class A common stock by us in this offering, at an assumed public offering price of $7.70 per share, less underwriting discounts and commissions and estimated offering expenses payable by us, the pro forma net tangible book value of our Class A common stock would have been $75.9 million, or $0.98 per share. This represents an immediate increase in net tangible book value of $0.72 per share to existing stockholders and an immediate dilution of $6.72 per share to new investors. The following table illustrates this per share dilution: Public offering price per share................................... $7.70 Net tangible book value per share as of September 30, 2001........ 0.26 Increase per share attributable to new investors.................. 0.72 ---- Pro forma net tangible book value per share after this offering... 0.98 ----- Dilution per share to new investors............................... $6.72 =====
The following table summarizes, on the pro forma basis described above, as of September 30, 2001, the difference between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by new investors purchasing shares in this offering. We used an assumed offering price of $7.70 per share, before deducting the underwriting discounts and commissions and estimated offering expenses.
Shares Purchased Total Consideration Average -------------------- ------------------------ Price Per Number Percentage Amount Percentage Share ---------- ---------- -------------- ---------- --------- (In thousands) Existing stockholders........ 69,323,000 90% $306,271 83% $4.42 New investors................ 8,000,000 10 61,600 17 7.70 ---------- --- -------- --- ----- Total..................... 77,323,000 100% $367,871 100% $4.76 ========== === ======== === =====
As of September 30, 2001, there were outstanding options to purchase a total of 7,352,347 shares of common stock at a weighted average exercise price of $4.01 per share. After September 30, 2001, we issued options to purchase 1,500 shares of common stock at a weighted average exercise price of $1.94 per share. To the extent these options are exercised, there will be further dilution to new investors. The foregoing table also assumes no exercise of the underwriters' over allotment option. See the section entitled "Underwriting." 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements included elsewhere in this prospectus and other documents incorporated by reference. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including but not limited to those discussed in the section entitled "Risk Factors" and elsewhere in this prospectus. Overview In 1997, we were incorporated as a distinct entity and established as the parent of a stand-alone worldwide business. Prior to this time, we operated as a separate division of Hyundai Electronics, or Hynix, one of the world's largest semiconductor manufacturers and a member of the Hyundai Group, the South Korean conglomerate. In 1999, as part of a recapitalization, a group of Equity Investors along with management obtained control of ChipPAC. Our revenues consist of fees charged to our customers for the assembly, testing, and distribution of their integrated circuits. From 1995 to 2000, net revenues increased from $179.2 million to $494.4 million, a cumulative annual growth rate of 22.5%, primarily from the growth of substrate, or BGA packaging, and, in 2000, from the growth of test revenue and the acquisition of our Malaysian business. The semiconductor industry is however inherently volatile, with sharp periodic downturns and slowdowns. These downturns have been characterized by, among other things, diminished product demand, excess production capacity and accelerated erosion of selling prices. The semiconductor industry is presently recovering from a downturn, and we expect conditions to improve in 2002. This downturn has been the worst that we have experienced and has had a significant impact on our net revenues and operating results. Our revenues for the nine-month period ended September 30, 2001 declined to $251.9 million or by 30.5% compared to the same period in 2000. We are one of the largest providers of outsourced BGA packaging services worldwide. The capital investments made by Hyundai Electronics from 1995 to 1997 totaled approximately $307.0 million and provided us with the capacity necessary to support this growth in advanced packaging services, along with providing capacity to support future growth. By 1998, we possessed the scale required to provide our services to a broad base of customers who required BGA packaging services. We also have a significant business in leaded packaging, driven by the significant capabilities of our China facility, which accounted for 35.0% and 29.1% of our sales in the years ended December 31, 2000 and 1999, respectively, and 40.2% of our sales for the nine-month period ended September 30, 2001. The following table describes the composition of revenue by product group and test services, as a percentage of total revenues:
Year Ended Nine Months December 31, Ended ------------------- September 30, 1998 1999 2000 2001 ----- ----- ----- ------------- Laminate.......................... 61.8% 68.1% 55.8% 46.5% Leaded............................ 35.5 29.1 35.0 40.2 Test.............................. 2.7 2.8 9.2 13.3 ----- ----- ----- ----- Total.......................... 100.0% 100.0% 100.0% 100.0% ===== ===== ===== =====
23 Quarterly Results (Unaudited) The following table describes our unaudited historical quarterly sales and gross profit in thousands of U.S. dollars:
1999 2000 ------------------------------------ ------------------------------------- Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 ------- ------- -------- -------- ------- -------- -------- -------- (In thousands) Revenues.................................... $85,548 $80,853 $101,270 $107,859 $97,469 $108,979 $155,795 $132,168 Gross Profit................................ 13,417 9,684 16,791 18,150 20,422 26,141 35,568 27,013 Gross Margin................................ 15.7% 12.0% 16.6% 16.8% 21.0% 24.0% 22.8% 20.4% Income (loss) before extraordinary item..... $ 1,804 $ 530 $ (4,171) $ (2,726) $ 2,160 $ 5,632 $ 3,944 $ 2,714 Income (loss) per share available to common stockholders before extraordinary item Basic..................................... $ 0.02 $ 0.01 $ (0.10) $ (0.14) $ (0.01) $ 0.06 $ 0.00 $ 0.04 Diluted................................... 0.02 0.01 (0.10) (0.14) (0.01) 0.05 0.00 0.04 Net income (loss)........................... $ 1,804 $ 530 $ (5,544) $ (4,099) $ 2,160 $ 5,632 $ 1,554 $ 2,714
2001 -------------------------- Q1 Q2 Q3 ------- ------- -------- Revenues.................................... $89,859 $87,373 $ 74,662 Gross Profit................................ 11,721 11,460 2,025 Gross Margin................................ 13.0% 13.1% 2.7% Income (loss) before extraordinary item..... $(9,667) $(7,513) $(16,441) Income (loss) per share available to common stockholders before extraordinary item Basic..................................... $ (0.14) $ (0.11) $ (0.24) Diluted................................... (0.14) (0.11) (0.24) Net income (loss)........................... $(9,667) $(7,513) $(16,441)
Results of Operations The following table describes our results of operations based on the percentage relationship of operating and other financial data to revenues during the periods shown:
Year Ended Nine Months Ended December 31, September 30, ------------------- --------------- 1998 1999 2000 2000 2001 ----- ----- ----- ------- ------- Historical Statement of Operations Data: Revenue..................................... 100.0% 100.0% 100.0% 100.0% 100.0 % Gross Margin................................ 19.1 15.5 22.1 22.7 10.0 Selling, general & administrative........... 4.5 5.7 7.0 6.6 9.0 Research & development...................... 2.3 3.3 2.4 2.2 4.2 Restructuring/Change of control expenses.... 0.2 3.2 -- -- 1.2 ----- ----- ----- ----- ----- Operating income............................ 12.1% 3.4% 12.6% 13.8% (4.4)% ===== ===== ===== ===== =====
Three and Nine Months Ended September 30, 2001 Compared to Three and Nine Months Ended September 30, 2000 Net Revenue. Net revenues were $74.7 million and $251.9 million in the three and nine months ended September 30, 2001, respectively, a decrease of 52.1% and 30.5% over the prior year periods, respectively. The drop in net revenue is a product of lower end-market demand for our customers' products. Gross Profit. Gross profit during the three months and nine months ended September 30, 2001 was $2.0 million and $25.2 million, respectively, and decreased 94.3% and 69.3%, respectively, over the comparable prior year periods. The majority of the decrease was caused by soft demand leading to lower equipment utilization and lower average selling prices in the three and nine months ended September 30, 2001 compared to the same periods in 2000. Equipment utilization was 48.0% in the three months ended September 30, 2001. Although reductions in force, furloughs, plant shutdown days and other cost saving methods were used in the three and nine months ended September 30, 2001, they were insufficient to offset the decline in revenue. Selling, General, and Administrative. Selling, general, and administrative expenses were $5.9 million and $25.6 million in the three and nine months ended September 30, 2001, respectively, a decrease of 39.2% from the three months ended September 30, 2000 and an increase of 6.6% over the nine month period ending 24 September 30, 2000. Total selling, general, and administrative expenses for the three months ended September 30, 2001 were lower by $1.6 million or 21.4% from the quarter ended June 30, 2001. In the second half of 2000 we hired new personnel at the management level to accommodate both our expanded operations and our transition to a public company. As a result, we incurred additional expenses associated with hiring and maintaining employees in the areas of administration, sales, and marketing which did not occur in the quarter ended September 30, 2001. In addition, we recorded expenses associated with reduction in force and furlough costs of $3.0 million, that occurred in the nine months ended September 30, 2001 or will occur in future 2001 periods with no comparable costs in 2000. Research and Development. Research and development expense increased to $3.3 million and $10.7 million in the three and nine months ended September 30, 2001. This represents a 17.4% and 33.9% increase, respectively, over the prior year periods. The increases were mainly due to expenses in the three and nine months ended September 30, 2001 on power packaging technology and processes that did not occur in the same period in 2000 plus additional spending on flip-chip technology development. Interest Expense. Total outstanding interest bearing debt increased to $362.0 million at September 30, 2001 compared to $320.1 million at September 30, 2000. The increase in debt was primarily due to purchases of capital equipment relating to business expansion offset by reductions due to debt pay down following our initial public offering in August 2000. Related interest expense was $9.4 million and $27.7 million for the three and nine months ended September 30, 2001, a decrease of 10.7% and 7.3% compared to the prior year periods. The reduction in interest expense was primarily due to reduced interest rates on our debt and lower average outstanding balance during the comparison periods. Foreign Currency Losses (Gains). Net foreign currency losses (gains) were $0.02 million and ($0.24) million during the three and nine months ended September 30, 2001, respectively, compared to net (gains) of ($0.11) million and ($0.80) million during the three and nine months ended September 30, 2000, respectively. The gains and losses are primarily due to the fluctuations between the exchange rate of the United States Dollar and the South Korean Won related to long-term pension benefits payable to our South Korean employees. Other (Income) and Expenses. Other (Income) and Expenses, net, was ($0.04) million and $7.9 million for the three months ended September 30, 2001 and 2000, respectively. Other Expenses for September 30, 2000 includes the one-time payment of $8.0 million, paid to Bain Capital and SXI Group in exchange for the termination of an advisory agreement which was entered into during our recapitalization in 1999. There were no equivalent expenditures related to this one-time payment in the three months or nine months period ended September 30, 2001. Accretion of Dividends and Recorded Value of the Intel Warrant. Accretion of dividends on preferred stock and recorded value of the Intel Warrant was $0 in the three and nine months ended September 30, 2001, a 100% decrease compared to $3.7 million and $9.2 million in the three and nine months ended September 30, 2000, respectively. All preferred stock was redeemed or converted to non-dividend bearing common shares subsequent to our initial public offering in August 2000. The Intel Warrant expired unexercised in February 2001. Income Taxes. Income tax expense (benefit) for the three months and nine months ended September 30, 2001 was approximately $0 million and ($4.3) million, respectively, compared to $1.0 million and $2.9 million for the same periods ended September 30, 2000, respectively, for effective tax rates of approximately 7.0% in the year 2001 and 20.0% in the year 2000. Concurrently with our recapitalization on August 5, 1999, the company was reorganized and as a result now has operations and earnings in jurisdictions with relatively low income tax rates, or where we enjoy tax holidays or other similar tax benefits. Income tax expenses (benefits) are recorded to the extent management believes they will be usable in the future. 25 Net (Loss) Income Available to Common Shareholders. As a result of the items above, net (loss) available to common stockholders increased to ($16.4) million and ($33.6) million in the three and nine months ended September 30, 2001 compared to net (loss) income of ($2.1) million and $0.2 million for the three months and nine months ended September 30, 2000, respectively. Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 Revenue. Net revenues in 2000 increased 31.7% to $494.4 million from $375.5 million in 1999. We experienced strong increases across all product lines. Laminate sales increased 7.9% over 1999. Leaded sales, not including those attributable to our acquisition of the Malaysian business, increased 32.2% over 1999, and test revenue increased 186.4% over 1999. Increases in revenues were broadly distributed across all of our end markets, but the communications segment showed an increase of 99.4%. During the last six months of 2000, the Malaysian business contributed $44.0 million in revenues. Gross Profit. Gross Profit increased to $109.1 million in 2000 from $58.0 million in 1999, resulting in a gross margin of 22.1% compared to 15.5% in 1999. Effective January 1, 2000 we re-evaluated the estimated useful lives of our property, plant and equipment. Based on an independent appraisal of the useful lives of this equipment and from our internal assessment, estimated useful lives of assembly and test product equipment and furniture and fixtures were, for accounting purposes, changed from five years to eight years. The net book values of assembly and test product equipment and furniture and fixtures already in use are now being depreciated over the remaining useful life, based on eight years from the date the assets were originally placed in service. This change resulted in depreciation expense for the year ended December 31, 2000 being $29.0 million lower than we would have recorded if we had continued to use five-year lives. The remaining increase in gross profit was attributable to improved materials procurement and greater efficiency due to high utilization rates partially offset by an increase in average labor costs, the effect of the Malaysian business acquisition, and the strengthening of the South Korean Won against the U.S. Dollar in 2000 versus the prior year. Selling, General, and Administrative. Selling, general and administrative expenses increased to $34.8 million in 2000 from $21.2 million in 1999. As a percentage of revenues, these expenses increased to 7.0% from 5.7%. In 2000 we hired new personnel at the management level to accommodate both our expanded operations and our transition to a public company. As a result, we incurred additional expenses associated with hiring in the areas of administration, sales, and marketing. Research and Development. Research and development expenses decreased to $12.0 million in 2000 from $12.4 million in 1999. As a percentage of revenues, these expenses decreased to 2.4% from 3.3%. The decrease as a percentage of revenues was mainly caused by the additional revenue from the Malaysia business that did not require as high research and development expenditures in 2000 as the required intellectual property and process technology for the Malaysian business was acquired in the purchase. Change of Control Expense. As a result of our recapitalization, we were contractually required to make a one-time change of control payment to our unionized South Korean employees of approximately $11.8 million. The payment was recorded as an operating expense during the year ended December 31, 1999. This expense did not reoccur in 2000. Interest Income. Interest income decreased to $0.8 million in 2000 compared to $2.8 million in 1999. The average cash balance maintained in 2000 was significantly lower than in 1999 due to the working capital and fixed asset investments needed to support our growth. Interest Expense. Interest expense for 2000 increased 85.8% to $39.4 million in 2000 from $21.2 million in 1999. This is primarily due to 12 months of interest expense on the debt incurred as part of the recapitalization compared to five months of interest payments in 1999. In addition, we incurred interest expense on the debt incurred to complete the Malaysian acquisition. 26 Foreign Currency Gains. The foreign currency gain was $2.2 million in 2000 compared to $1.2 million in the prior year period. The exposure to foreign currency gains and losses has been significantly mitigated by two related factors. First, we negotiated with the large majority of our material and equipment suppliers to denominate purchase transactions in U.S. Dollars. Second, on October 1, 1999, we changed our functional currency to the U.S. Dollar from the local currencies of the South Korean and Chinese subsidiaries. Other Income/Expense. Other expense increased $7.9 million in 2000 compared to other income of $0.7 million in 1999. This was primarily due to the one time charge of $8.0 million to end the management services agreements with Bain Capital and SXI group. Income Taxes. Income tax expense was $3.6 million in 2000 compared to $1.9 million in 1999. Our effective tax rate was 20.0% in 2000 compared to negative 48.5% in 1999. Our effective tax rate during 1999 was adversely affected by losses of the operations in China, for which no tax benefit was realized. The recapitalization also changed the tax structure and overall effective tax rate compared to 1999. Extraordinary Loss. We incurred an extraordinary loss of $2.4 million, net of tax benefit, related to the early repayment of our senior term debt that was used in the acquisition of Intersil's Malaysian business that was subsequently repaid using proceeds from our initial public offering. Net Income. As a result of the items described above, our net income increased to $12.1 million in 2000 compared to a net loss of $7.3 million in 1999. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Revenues. Net revenues in 1999 increased 12.4% to $375.5 million compared with $334.1 million in 1998. This increase came primarily from sales growth in BGA packaging services, which increased by 23.6% from $206.9 million to $255.8 million. This increase was partially offset by a decline in revenues from leaded packages services from $127.2 million to $109.3 million. The strong growth in BGA revenues was driven primarily by higher volumes of BGA packaging services sold to Intel, our leading customer, partially offset by lower average selling prices. Additionally, we started to ship BGA packages to new customers including nVIDIA, IBM, Lucent and Level One during 1999. The decline in leaded product revenues was driven by the continuing soft market conditions in the semiconductor industry present during the second half of 1998, and has been partially offset by strengthened market conditions during 1999. Gross Profit. Gross profit decreased to $58.0 million in 1999 from $63.7 million in 1998, resulting in gross margin of 15.5% in 1999 compared to 19.1% for 1998. The gross profit experienced during the 1998 was significantly higher than usual due to the large depreciation of the South Korean Won which averaged 1,372.1 Won per U.S. Dollar during 1998 compared to an average exchange rate of 1,189.3 Won per U.S. Dollar during 1999. This exchange rate resulted in lower costs for overhead and labor in South Korea in 1998. Selling, General and Administrative. Selling, general and administrative expenses increased 40.8% to $21.2 million in 1999 compared to $15.1 million during 1998. As a percentage of sales, these expenses increased from 4.5% to 5.7% of sales during the same period. This increase was due to the additional expenses associated with hiring new personnel in the areas of administration, sales and marketing necessary to strengthen our worldwide infrastructure. Research and Development. Research and development expenses increased to $12.4 million in 1999 compared to $7.7 million in 1998. As a percentage of sales, these expenses increased to 3.3% of sales in 1999 as compared to 2.3% of sales in 1998. The increase in the level of research and development expenses was due to the establishment of a prototype development center in Santa Clara, California at the end of 1998. Expenses of the prototype development center increased by $1.7 million during 1999 over 1998. 27 Change of Control Expense. As a result of the recapitalization, we were contractually required to make a one-time change of control payment to our unionized South Korean employees of approximately $11.8 million. The payment was recorded as an operating expense during the quarter ended September 30, 1999. Interest Income. For 1999, interest income increased to $2.8 million from $1.3 million for 1998. Most of the interest income was earned from cash invested in time deposits. During 1999, we maintained an average cash balance of $51.0 million. During 1998, we did not have a significant cash balance as substantially all cash was transferred to Hyundai, the then sole stockholder, at its request. ChipPAC was a wholly owned subsidiary at the time of the transfer. ChipPAC does not expect to maintain significant cash balances going forward. Interest Expense. Interest expense for 1999 increased 59.2% to $21.2 million from $13.3 million for 1998. This is primarily due to interest expense on the debt raised as part of the recapitalization. Foreign Currency (Gains) Losses. During 1998, we incurred a net non-cash foreign currency gain of $24.7 million, which arose from ChipPAC Korea's holding of U.S. Dollar-denominated liabilities in excess of U.S. Dollar monetary assets and from an appreciation in the value of the Won. During 1999, ChipPAC incurred a non-cash foreign currency gain of $1.2 million. Other Income (Expense). Other expense increased from $0.2 million in 1998 to income of $0.6 million in 1999. The increase in other income arose principally from an increase in the gains from the sale of excess production equipment and scrap material. Income Taxes. Income tax expense was $1.9 million in 1999 compared to $20.6 million expense for 1998. The effective tax rate was approximately negative 48.5% in 1999 versus the historic effective tax rate of approximately 38.9% in 1998. The effective tax rates during both periods were adversely affected by losses by our operations in China, for which no tax benefit was realized. Extraordinary Loss. We incurred an extraordinary loss of $1.4 million, net of tax benefit, related to the early retirement of debt upon the recapitalization of the company. Net Income (Loss). As a result of the items described above, we showed a net loss of $7.3 million for 1999 compared to net income of $32.3 million in 1998. Liquidity and Capital Resources At September 30, 2001 we continued to have a borrowing capacity of $50.0 million for working capital and general corporate purposes under the revolving credit line portion of our senior credit facilities. The revolving credit line under our senior credit facilities matures on July 31, 2005. Our ongoing primary cash needs are for operations and equipment purchases. As of September 30, 2001, we had borrowings of $28.4 million on our revolving line of credit. We have spent $8.1 million on capital expenditures during the three months ended September 30, 2001. We spent $24.7 million in capital expenditures during the three months ended September 30, 2000. We anticipate spending $30.0 million in capital expenditures in 2002. We also have the ability to buy out our operating leases. Under the terms of the agreement relating to our acquisition of the Malaysian business, during the period from June 1, 2000 to June 30, 2003, Intersil is entitled to receive additional contingent incentive payments based upon the achievement of milestones relating to the transfer of business currently subcontracted by Intersil to a third party. In the event that Intersil were to achieve all the milestones, we would pay Intersil an additional sum of approximately $17.9 million in the aggregate. As of September 30, 2001, we have paid Intersil $4.7 million and accrued an additional $1.5 million of payments under this arrangement. 28 In June 2001, we issued $50.0 million of convertible subordinated notes and $15.0 million of senior subordinated notes in a private placement. A majority of these funds were used to pay down our term loans and revolving loans. As of September 30, 2001, our debt consisted of $362.0 million of borrowings, which was comprised of $28.4 million of revolving loans, $118.6 million in term loans, $165.0 million of senior subordinated notes and $50.0 million of convertible subordinated notes. Our debt instruments require that we meet specified financial tests, including, without limitation, a maximum leverage ratio, a minimum interest coverage ratio, minimum fixed charge coverage ratio, a maximum senior leverage ratio and, for 2002 only, a minimum consolidated adjusted EBITDA amount. In conjunction with our $65.0 million private placement in June 2001, the lenders of our senior credit facilities amended the financial tests for the period July 1, 2001 through December 31, 2004. These debt instruments also contain covenants restricting our operations. There were no violations of these covenants through September 30, 2001. The weakness in demand in 2001 for packaging and test services has and is expected to continue to adversely affect our cash flow from operations. We believe that our existing cash balances, cash flows from operations, available equipment lease financing and available borrowings under our senior credit facilities provide sufficient cash resources to meet our projected operating and other cash requirements for the next twelve months. Derivative Financial Instruments Since October 1998, we have entered into foreign forward contracts to mitigate the effect of foreign currency movements on the cost of materials and equipment. The contracts entered into require the purchase of South Korean Won or Japanese Yen, and the delivery of U.S. Dollars, and generally have maturities which do not exceed three months. Because the contracts entered into to date do not qualify as hedges under generally accepted accounting principles in the United States of America, the gains and losses from these contracts have been recorded as foreign currency gains and losses. We had no gain or loss in 2000 and a net loss of $0.8 million in 1999 arising from forward foreign currency contracts. As of September 30, 2001, we had no foreign currency contracts outstanding. Recent Accounting Pronouncements In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133." SFAS 137 amends Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," to defer its effective date to all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS 133 establishes accounting and reporting standards for derivative instruments including standalone instruments, such as forward currency exchange contracts and interest rate swaps or embedded derivatives and requires that these instruments be marked-to-market on an ongoing basis. These market value adjustments are to be included either in the income statement or stockholders' equity, depending on the nature of the transaction. We were required to adopt SFAS 133 in the first quarter of fiscal year 2001 and the impact of SFAS 133 had no material effect on our financial statements. In July 2001, FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting. The use of the pooling-of-interest method of accounting is no longer allowed. SFAS No. 142 requires that goodwill and other intangible assets will no longer be amortized but shall be reviewed and tested annually for impairment. SFAS No. 142 will be effective for fiscal years beginning after December 15, 2001, and early adoption is permitted for companies with a fiscal year beginning after March 15, 2001. We expect that the adoption of SFAS No.141 and 142 on January 1, 2002, will not have a material effect on its financial statements. 29 In October 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of" and the accounting and reporting provision of Accounting Principles Board ("APB") No. 30, "Reporting the Results of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 addresses financial accounting and reporting for impairment or disposal of long-lived assets including amortizable intangibles and is effective for fiscal years beginning December 15, 2001 as well as interim periods within those fiscal years. SFAS No. 144 will address the impairment of goodwill and non-amortizable intangibles. We are currently reviewing this statement to determine its effect on our financial position and results of operations. Quantitative and Qualitative Disclosures about Market Risk We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. We have no derivative financial instruments. We have long-term debt that carries fixed and variable interest rates. A fluctuation in interest rates of 1% would increase our annual interest charge by approximately $2.9 million. The exposure to foreign currency gains and losses has been significantly mitigated by two related factors. First, we negotiated with the large majority of our material and equipment suppliers to denominate purchase transactions in U.S. Dollars. Second, on October 1, 1999, we changed our functional currency to the U.S. Dollar from the local currencies of our South Korean and Chinese subsidiaries. For the nine months ended September 30, 2001, we generated approximately 10.7% of total revenues from international markets, primarily from customers in South Korea and France. For 2000, 1999, and 1998, we generated approximately 16.7%, 11.3%, and 7.2% of total revenues, respectively, from international markets, primarily from customers in South Korea and Japan. In addition, all of the facilities currently used to provide packaging services are located in China, Malaysia and South Korea. Moreover, many of our customers' operations are located in countries outside of the United States of America. We cannot determine if our future operations and earnings will be affected by new laws, new regulations, a volatile political climate, changes in or new interpretations of existing laws or regulations or other consequences of doing business outside the United States of America particularly in China, Malaysia and South Korea. If future operations are negatively affected by these changes, sales or profits may suffer. Investment Risk All of our investments are at fixed rates; therefore, the fair value of these instruments is affected by changes in market interest rates. We believe that the market risk arising from our holdings of investments is minimal as all of our investments mature within one year. Foreign Currency Risk Based on the our overall currency rate exposure at December 31, 2000, a near term 10% appreciation or depreciation in the value of the U.S. dollar would have an insignificant effect on our financial position, results of operations and cash flows over the next fiscal year. There can be no assurance, however, that there will not be a material impact further in the future. A portion of our costs is denominated in foreign currencies, like the Chinese Renminbi, the Malaysian Ringgit and the South Korean Won. As a result, changes in the exchange rates of these currencies or any other applicable currencies to the U.S. dollar will affect the cost of goods sold and operating margins and could result in exchange losses. We cannot fully predict the impact of future exchange rate fluctuations on our profitability. From time to time, we may have engaged in, and may continue to engage in, exchange rate hedging activities in an effort to mitigate the impact of exchange rate fluctuations. However, we cannot assure that any hedging technique we implement will be effective. If it is not effective, we may experience reduced operating margins. 30 BUSINESS Overview We are one of the world's largest independent providers of semiconductor packaging, test and distribution services. We offer one of the broadest portfolios of leaded and laminate packages for integrated circuits, including those used for power functions. We supply packaging solutions to the leading semiconductor companies that service the computing, communications and multi-application end markets. We are a leader in providing high end packaging solutions, including ball grid array packages, or BGA packages, the most advanced mass produced type of package. In addition to providing assembly and test services on a global basis, we are the largest semiconductor packaging and test service provider in mainland China. As consumers demand smaller electronic devices with more functionality, there is a greater requirement for power regulation and generation, which we expect to drive demand for our power packages. We are the leader in high-volume assembly, test and distribution of discrete and analog power packages. We also are one of the leading providers of advanced packaging products that address the needs of semiconductors used in wireless LAN and handset applications, including chip-scale, stacked die and flip-chip technologies. Our online design and characterization process, referred to as SmartDESIGN(TM), is a proprietary web-based design collaboration system that provides a higher rate of product qualification, improved technical performance and shorter time-to-market service for our customers. This system enables us to link to our customers via the Internet to perform package design, electrical, thermal and mechanical analysis and to model end system performance. Outsourcing of packaging and test services to independent packagers like ChipPAC continues to expand due to several factors, including time-to-market pressures, cost reduction, resource allocation, equipment utilization, the increased technological complexity of packaging and the growth of fabless semiconductor manufacturers. Historically, outsourced semiconductor manufacturing services have grown faster than the semiconductor market as a whole. Management believes that the lack of investments in assembly and test capacity by semiconductor manufacturers during the recent downturn in the semiconductor industry will position outsourced providers well to capture enhanced volume levels during the next upturn in the cycle. According to Electronic Trend Publications, outsourcing for high-end package solutions such as BGA and chip-scale packages, or CSP, is forecasted to grow at a compound annual rate of 38.8% from 2000 to 2005. The semiconductor industry has historically experienced volatility, with sharp periodic downturns and slowdowns. These downturns have been characterized by, among other things, diminished product demand, excess production capacity and accelerated erosion of selling prices. The semiconductor industry is presently recovering from a downturn, and we expect conditions to improve in 2002. This downturn has been the worst that we have experienced and has had a significant impact on our net sales and operating results. Our headquarters are located in Fremont, California and our manufacturing facilities are strategically located in China, Malaysia and South Korea to address the needs of our customers. We also have design centers in Arizona and South Korea to provide 24-hour support to our customers. The packaging and test industry is highly fragmented, and we compete against a number of established independent packaging houses and with the internal capabilities of many of our largest customers. We believe however, that the following business strengths differentiate us from our competitors: . High End Technology Expertise--We are one of the world's largest providers of outsourced BGA packages, which accounted for approximately 61.0% of our packaging revenues for the twelve months ended December 31, 2000, and 46.5% for the nine months ended September 30, 2001. Our BGA packages are used for most high-end applications such as providing non-microprocessor packaging requirements for computing and communications devices, including graphics for nVIDIA, personal computer chipset for Intel, CDMA chipsets for Qualcomm and flash for wireless handsets. Our advanced 31 package portfolio also includes next generation flip-chip technology for system on a chip, or SOC, which is used in network servers and telecom switching devices, as well as multi-die packaging for digital signal processors, or DSPs, and other wireless chipsets. In addition, we have critical expertise for testing RF devices. We believe that our advanced technology expertise and our commitment to research and development will enable us to continue to drive the development of solutions for next generation semiconductor packages. . Leader in Growing Power Segment--We are the leader in high-volume semiconductor assembly and test services focused on discrete, analog, RF and mixed-signal technologies for power products. Power products manage the electricity requirements for multiple components, ensuring an accurate and efficient flow of voltage so electronic devices run longer and more efficiently. Our Malaysian business supports a number of the world's major power and analog semiconductor manufacturers, including Fairchild, NEC, Siliconix, STMicroelectronics and Vishay. As electronics become increasingly global, portable, complex and performance-driven, the demand for power regulation increases exponentially. A broad and fast-growing range of end markets, including portable devices, household appliances, automotive systems and telecommunications, will continue to drive power semiconductor usage and the demand for our power products. . Strategic Geographic Diversification--We are strategically located to take advantage of industry outsourcing trends. Cahners In-Stat predicts that within the next ten years, China will be the second largest market in the world for semiconductors. Our Shanghai facility, which was established in 1994, makes us the largest packaging and test provider in China, and we are the first independent provider of chip-scale BGA packages in that country. In addition, we provide local content for products sold into the Chinese market, including cellular telephones and portable devices where local content requirements are being driven by the Chinese government. Our high-volume packaging site for advanced BGA packages is in Ichon, South Korea which is significant for its proximity to semiconductor manufacturers entering the wafer foundry business, large semiconductor customers and an available pool of highly-skilled research and development and technical staff. Our Malaysian facility in Kuala Lumpur positions us to benefit from the growth in fabless manufacturing taking place in Southeast Asia. Our headquarters in Silicon Valley and state-of-the-art research and development facilities in California, Arizona and South Korea are located near our customers and provide us with the distinct ability to work closely with our customers in the design process and in supply chain management. . New and Diversifying Customer Base--We continue to diversify our customer base and end markets. In 2001, we provided services to over 70 customers worldwide. We increased our customer diversification by adding 27 new customers in 2000 and 16 in 2001, including Fairchild, Linfinity Microelectronics, Siliconix, STMicroelectronics, Texas Instruments and Vishay. In particular, we added eight new customers in the power semiconductor segments. Excluding the effect of our largest customer in the computing segment, the total revenues from the rest of our customer base grew at a compound rate of 36.9% from 1999 to 2001. . Long-Term Partnership with Key Customers--We received approximately 66.3% of our revenue for the nine months ended September 30, 2001 under long-term agreements. These agreements provide a competitive advantage during cycles as price incentives and volume terms ensure a leading outsourced position with that customer. We have entered into a supply agreement with Qualcomm under which we will provide packaging and test services for their CDMA chipsets and RF components. We have a supply agreement with Fairchild to supply discrete power products for silicon-based power devices for the computer, communications, industrial, automotive and space and defense end-user markets. We also have an agreement with Intersil to assemble and test its PRISM(R) wireless LAN chipsets as well as its other analog and mixed signal semiconductors. Lastly, we support LSI Logic's flip-chip technology through a license and supply agreement. . Among the Leaders in Growing Test Services--Through our long-term partnerships and existing customer base, we are well positioned to capitalize on the rapid growth of outsourced testing by semiconductor producers. This growth in outsourced testing is driven by the increasing demand for mixed-signal and 32 high performance logic devices that require greater capital expenditures on testing equipment. We have made significant capital expenditures on testing equipment that provides us with the capability to test mixed-signal, digital logic, memory, power and RF devices. By increasing our emphasis on our test business and adding capacity, we have significantly increased our test revenues over the most recent four quarters, and we expect this growth to continue. Our test business revenue grew to $45.5 million in 2001, an increase of $35.0 million from $10.5 million in 1999. Business Strategy Our business strategy is to utilize our core strengths in manufacturing and our leadership in technology to take advantage of our outsourcing relationships with semiconductor manufacturers and fabless semiconductor manufacturers. To achieve these goals, we will: . continue to implement long term partnership agreements to further strengthen our technology partnerships with key blue chip customers and to expand our customer base; . expand our testing business to capitalize on the growing trend for outsourced testing services; . utilize our product breadth, technology and geographic locations to secure relationships with new and existing semiconductor foundries that are servicing the fabless semiconductor manufacturers; . pursue strategic acquisitions in the fragmented packaging and test industry, including acquisitions of facilities owned by semiconductor manufacturers; and . develop new packaging and testing technologies that will attract new customers and allow us to become early stage partners with our customers in new semiconductor designs. Our Services We offer semiconductor packaging and test services to the semiconductor industry, with products and service offerings in communications, computing and multi-applications end markets. Approximately 90.8% and 9.2% of our revenues during 2000 and approximately 86.7% and 13.3% of our revenues during the nine months ended September 30, 2001 were derived from packaging and test services, respectively. Since customers require their suppliers to pass a lengthy and rigorous qualification process that can be costly to the customers, we believe they generally prefer to conduct business with a few suppliers. Because our services are considered part of the customer's manufacturing infrastructure, we must have dedicated resources and systems to provide flexible manufacturing, quick-turns and real-time information transfers. Packaging We have provided semiconductor packaging and test services since 1984, and offer a broad range of packaging formats for a wide variety of electronics applications. Based on the pro forma results for the acquisition of the Malaysian business, our two types of packaging services, leaded and substrate, or BGA, contributed approximately 38.4% and 53.6%, and 35.0% and 55.8% of revenue, respectively, for the years ended December 31, 1999 and 2000. Leaded and substrate contributed approximately 40.2% and 46.5%, respectively, of revenue for the nine months ended September 30, 2001. Leaded Packaging. Leaded packaging is the most widely used packaging type and is used in almost every electronics application, including automobiles, household appliances, desktop and notebook computers, and telecommunications. Leaded packages have been in existence since semiconductors were first produced. Leaded packages are characterized by a semiconductor die encapsulated in a plastic mold compound with metal leads surrounding the perimeter of the package. With leaded packages, the die is attached to a leadframe (a flat lattice of wires). The die is then encapsulated in a plastic or ceramic package, with the ends of the leadframe wires protruding from the edges of the package to enable connection to a printed circuit board. This packaging type has 33 evolved from packages designed to be plugged into a printed circuit board by inserting the leads into holes on the printed circuit board to the more modern surface-mount design, in which the leads or pins are soldered to the surface of the printed circuit board. Specific packaging customization and improvements are continually being engineered to improve electrical and thermal performance, shrink package sizes and enable multi-chip capability. We offer a wide range of lead counts and body sizes within this packaging group to satisfy customer die size variations. Our traditional leaded packages are at least three millimeters in thickness and include PDIP, PLCC, and SOIC. Our advanced leaded packages are thinner than our traditional leaded packages, approximately 1.4 millimeters in thickness, and have a finer pitch because the leads are closer together, allowing for a higher pin count and greater functionality in a smaller package size. Our advanced leaded packages include LFCSP, MQFP, TQFP, iQUAD, TSSOP and SSOP. Our acquisition of the Malaysian business added power packages to our portfolio. Leaded Package Profile [GRAPHIC] GRAPHIC2 MOLDING [PHOTO] PHOTO2 CHIPPAC Power Packaging. Power semiconductors are used in a variety of end-markets, including telecommunications and networking systems, computers and computer peripherals, consumer electronics, electronic office equipment, automotive systems and industrial products. These fast-growing end markets increasingly depend upon power regulation in the trend toward smaller devices and longer operating times. Packaging manufacturers are left to contend with shrinking die geometries owing to continued emphasis upon greater mobility and portability. Power semiconductors typically involve higher current and voltage levels than IC's such as memory, logic and microprocessor devices. The high current involved with switching on/off high voltages and the phase control of AC signals results in considerable power dissipated internally that produces heat. Thus our power packages are designed in such a way as to conduct the resultant heat away from the chip as power is dissipated, preventing the power device from being destroyed. Power package assembly is quite different from non-power IC assembly as it often employs special solder alloys requiring different semiconductor bonding machines and heavy-duty machines. Higher current levels of power semiconductors likewise require larger diameter aluminum and gold wire than non-power IC's to carry the load. Our Malaysian facility maintains a vast array of these special machines needed for power semiconductor assembly and test. With a capacity of over 25 million units per week, we are the industry leader in power package assembly supporting a number of the world's major power semiconductor manufacturers, including Intersil, Fairchild, NEC, Siliconix, STMicroelectronics and Vishay, whose products are designed into power supplies, battery chargers, ignition modules, voltage regulators and motor controllers. 34 Power Package Profile [PHOTO] PHOTO CHIPPAC BGA Packaging. Substrate packaging, or BGA, represents the newest and fastest growing area in the packaging industry and is used primarily in high-growth end markets, including computing platforms and networks, hand held consumer products including wireless communications devices, personal digital assistants and video cameras, and home electronic devices such as DVDs and home video game machines. BGA technology was first introduced as a solution to problems associated with the increasingly high lead counts required for advanced semiconductors. As the number of leads surrounding the integrated circuit increased, high lead count packages experienced significant electrical shorting problems. The BGA methodology solved this problem by effectively creating leads on the bottom surface of the package in the form of small bumps or solder balls. In a typical BGA package, the semiconductor die is placed on top of a plastic or tape laminate substrate rather than a leadframe. The die is connected to the circuitry in the substrate by a series of fine gold wires that are bonded to the top of the substrate near its edges. On the bottom of the substrate is a grid of metal balls that connect the packaged device to a printed circuit board. Benefits of BGA packaging over leaded packaging include: . smaller size; . greater pin count, or number of connections to the printed circuit board; . greater reliability; . better electrical signal integrity; and . easier attachment to a printed circuit board. We supply our customers with substantially the entire family of BGA packaging services offered in the marketplace today, including: . Standard BGA. Standard BGA packaging has a grid array of balls on the underside of the integrated circuit, and is used in high-performance applications, like personal computer chipsets, graphic controllers and DSPs. A standard BGA package generally has greater than 100 pins. Standard BGA packages have better thermal and electrical performance than leaded packages. They also feature more advanced surface mount technology, allowing for easier handling in the packaging process. Standard BGA packaging services accounted for all of our BGA packaging revenues in 1998. Standard BGA Packaging Services accounted for 93.5%, 79.3%, and 73.9% of our BGA Packaging revenues in 1999, 2000, and the nine months ended September 30, 2001, respectively. . Chip-Scale BGA. Chip-scale BGA packaging includes all packages where the package is less than 1.2 times the size of the silicon die. Chip-scale BGA is a substrate-based package that is designed for memory devices and other medium pin count semiconductors and requires dense ball arrays in very small package sizes, like wireless telephones and personal digital assistants, video cameras, digital cameras and pagers. 35 We are continually developing new BGA technologies and BGA packaging techniques. One of our research and development facilities is working to develop prototypes of flip-chip BGA packaging in which the silicon die is directly attached to the substrate using bumps or solder balls rather than wire bonds. This is expected to improve heat dissipation and the electrical performance of the chip. Flip-chip BGA technology can be used in a wide array of applications ranging from consumer products to highly sophisticated application specific integrated circuits, referred to as ASIC, microprocessors and memory packages. While we believe that flip-chip BGA represents the next generation of BGA packaging technology, we believe that standard BGA and chip-scale BGA packaging will experience long life cycles as have many of our leaded packaging solutions. BGA Package Profile [GRAPHIC] GRAPHIC MOLDING [PHOTO] PHOTO2 CHIPPAC The following chart summarizes the packaging services we offer. Packaging revenues are for the nine months ended September 30, 2001. The full names of each packaging type are provided in the Glossary accompanying our registration statement on Form S-1 (Registration Number 333-39428).
Nine Months Ended September 30, 2001 --------------------- Revenue ($ million) Percentage Packaging Types Application Pin Count ----------- ---------- -------------------------------------------- ------------------------------ --------- Leaded $79.9 31.7% Traditional: PDIP, PLCC, SOIC, SOJ, Telecommunications, 8-304 SSOP, SIP, DPAK and automobiles, household D/2/PAK, Power, Hermetic and appliances, and desktop and Mov. notebook computers $21.3 8.5% Advanced: TQFP, TSOP, QFP, Personal computers and 32-176 LQFP TSSOP, TO5, telecommunications iQUAD(TM) and MQFP BGA $86.7 34.4% Standard BGA: PBGA, M/2/BGA(TM), Personal computer chipsets, 119-371 TBGA and EBGA graphic controllers $30.2 12.0% Chip-Scale BGA: EconoCSP(TM), Micro BGA(TM), Wireless telephones, personal 36-280 M/2/CSP(TM) and FBGA-T digital assistants, video cameras and wireless pagers $0.1 0.1% Flip-Chip BGA: FlipPAC(TM) and FlipChipCSP High-end network servers 36-1732 products, application specific integrated circuits, microprocessors and memory packages
Test Services We also provide our customers with semiconductor test services for a number of device types, including mixed-signal, digital logic, memory, power and RF devices. Semiconductor testing measures and ensures the performance, functionality and reliability of a packaged device, and requires knowledge of the specific applications and functions of the devices being tested. In order to enable semiconductor companies to improve 36 their time-to-market, streamline their operations and reduce costs, there has been an increasing trend toward outsourcing both packaging and test services. We have capitalized on this trend by enhancing our test service capabilities. We operate 282 testers, and achieved 251% year-over-year growth in 2000. As of September 30, 2001, we operated 289 testers. The Malaysian business expanded our mixed-signal testers and provides us with critical expertise for testing RF devices, one of the fastest growth areas for test outsourcing. In order to test the capability of a semiconductor device, a semiconductor company will provide us with its proprietary test program and specify the test equipment to run that program. In the alternative, however, our customers may consign their test equipment to us. Our test operators place devices to be tested on a socketed, custom load board and insert the load board into the test equipment which then tests the devices using software programs developed and supplied by our customers. The cost of any specific test and the time, usually measured in seconds, to run a test vary depending on the complexity of the semiconductor device and the customer's test program. In addition to final test services, we also provide "burn in" test services. Through "burn in," a semiconductor is inserted into a socket and subjected to extreme hot and cold temperatures over a period of time. "Burn in" tests are typically conducted to determine overall reliability of a semiconductor under extreme conditions. Other Services We also provide a full range of other value-added services, including: . Design and Characterization Services. We offer design and characterization services at our Chandler, Arizona and Ichon, South Korea facilities. Our design engineers at these facilities select, design and develop the appropriate package, leadframe or substrate for that device by simulating the semiconductor's performance and end-use environment. . Dry Pack Services. In order to prevent the failure of any semiconductors due to exposure to moisture during shipping, we "dry pack" most of our packaged integrated circuits in specially sealed, environmentally secure containers. . Tape and Reel Services. Many electronic assembly lines utilize "tape and reel" methods in which semiconductors are attached to a tape to enable faster attachment to the printed circuit board. We offer a service in which we ship packaged and tested devices on a tape and reel mechanism rather than on a tray, to facilitate the assembly process. . Drop Shipment. In order to enable semiconductor companies to improve their time-to-market and reduce supply chain and handling costs, we offer drop shipment services in which we ship packaged semiconductor devices directly to those companies that purchase devices from our customers. . Wafer Probe. We offer a wafer sort operation where an electrical test is performed on die while still in wafer form. This process establishes which die on each wafer are suitable to be assembled into a final package. Customers In 2001, we provided packaging and test services to over 70 customers worldwide. We increased our customer diversification by adding 27 new customers in 2000 and 16 in 2001 including Fairchild, Linfinity Microelectronics, Siliconix, STMicroelectronics, Texas Instruments and Vishay. Our customers also include Agere Systems Inc., Atmel, IBM, Intel, Intersil, LSI Logic, nVIDIA, Qualcomm and Samsung Semiconductor. All of these customers are representative of our various services offered. For the nine months ended September 30, 2001, sales to our top five customers in the aggregate accounted for approximately 73.2% of total net revenues. During this same period, our three largest customers, Intersil, 37 Intel and LSI Logic, respectively, produced 21.2%, 18.8% and 14.5% of our sales revenues. During the years ended December 31, 2000 and 1999, approximately 71.5%, and 83.4%, respectively, of our revenues were derived from our top five customers. We anticipate that this customer concentration will decrease as we add new customers for which we have already become qualified and customers with which we are undergoing qualification. Our customers are located around the world, but principally in the United States, Asia and Europe. The following table details the percentage of total revenue we received from each of these principal geographic locations:
Year Ended December 31, Nine Months Ended ----------- September 30, 1999 2000 2001 ---- ---- ----------------- United States..................... 89% 83% 89% Asia.............................. 9 14 8 Europe............................ 2 3 3 --- --- --- Total.......................... 100% 100% 100% === === ===
In general, our customers principally rely on at least two independent packagers. A packaging company must pass a lengthy and rigorous qualification process that can take a minimum of three months for a typical leaded package and can take more than six months for a typical BGA package and, in each case, can cost the customer approximately $0.25 million to $0.3 million. Once a primary packager has been selected, that packager gains insight into its customer's business operations and an understanding of its products as part of the overall working relationship. These factors, combined with the pressures of a semiconductor company to meet the time-to-market demands of its customers, result in high switching costs for semiconductor companies, making them adverse to changing or adding additional suppliers. We have been successful in attracting new customers because we are one of a few independent packaging and test companies that offers packaging, test and distribution services for a full portfolio of packages. Marketing, Sales and Customer Support We provide sales support to our customers through an international network of offices located in: . the United States: . Fremont, California (our worldwide headquarters), . San Diego, California, . Chandler, Arizona, . Boston, Massachusetts, . Dallas, Texas, . Palm Bay, Florida, . Kampen, The Netherlands, . Tokyo, Japan, . Shanghai, China, . Ichon, South Korea, . Singapore and . Kuala Lumpur, Malaysia Our account managers, applications engineers, customer service representatives and sales support personnel form teams that focus on a specific customer or geographic region. 38 As is industry practice, we operate with essentially no order backlog due to our quick cycle times. Customers deliver near-term forecasts and release production die to us in daily or weekly increments for packaging, test and distribution. These near-term forecasts guide us as to anticipated volumes, but provide no meaningful backlog statistics. Because substantially all of our materials inventory is purchased based on customer forecasts, we carry small quantities of inventory and we have relatively low finished goods inventory. Our marketing efforts focus on creating a brand awareness and familiarity with our advanced device packaging technologies and an understanding of our end-user market applications in wireless handset and PDA graphics, PC chipsets, wireless LAN, memory, storage and networking. We market our leadership in advanced packaging, test technology, and distribution and our ability to supply a broad line of packaging and test services to the semiconductor industry. We target engineers and executive level decision makers through the delivery of "white papers" at industry conferences, quarterly mailings of technical brochures and newsletters, advertisements in trade journals and our website. Suppliers Our packaging operations depend upon obtaining adequate supplies of materials on a timely basis. The principal materials used in our packaging process are lead frames, rigid and flexible substrates, gold wire and molding compound. We purchase materials based on the demand forecasts of our customers. Our customers are responsible for the costs of any unique materials that we purchase but do not use, particularly those lead frames and substrates that are ordered on the basis of customer-supplied forecasts. We work closely with our primary materials suppliers to ensure the timely availability of materials supplies, and we are not dependent on any one supplier for a substantial portion of our materials requirements. We do not see the need for long-term supply contracts and therefore have no significant agreements with materials suppliers. The materials we procure are readily available and we are able to meet our production requirements from multiple sources through periodic negotiation and placement of written purchase orders. We combine our global requirements into centrally negotiated blank purchase orders to gain economies of scale in procurement and more significant volume discounts. Approximately 65% of our substrate costs in 2000 and approximately 82% of our substrate costs in the nine months ended September 30, 2001, were incurred from the purchase of materials from South Korea, with the balance coming primarily from Japan and Taiwan. We expect that in the next several years, an increasing portion of our materials will be supplied from sources in China, Taiwan, and Southeast Asia. Our packaging operations and expansion plans also depend on obtaining adequate quantities of equipment on a timely basis. To that end, we work closely with our major equipment suppliers to insure that equipment deliveries are on time and the equipment meets our stringent performance specifications. Facilities Our operations are conducted through seven operating facilities. Our corporate headquarters are located in Fremont, California, and we provide all packaging, test and distribution services through facilities in Ichon and Chungju, South Korea, Shanghai, China and Kuala Lumpur, Malaysia. The Chungju facility provides electroplating services on leadframes from the Ichon facility. The Chungju facility was founded in 1983 and is both ISO-9002 and QS-9000 certified. The Ichon facility was founded in 1985 and is both ISO-9002 and QS-9000 certified. The Shanghai facility was founded in 1994 and is also ISO-9002 certified and QS-9000 certified. The Kuala Lumpur facility is ISO-9002, QS-9000 and ISO-14001 certified. 39 The following chart summarizes the information about our facilities:
Principal Packaging or Service Facility Location Leased/Owned Sq. Ft. Functions/Services Provided or Being Developed - ----------------- ------------ ------- ----------------------------- ------------------------------ Fremont, California Leased 56,320 Executive Offices, Sales, Marketing, Research and Development, Administration and Sales, Marketing and Design Review Services Administration Pleasanton, California Leased 1,800 Sales, Marketing and Sales, Marketing and Administration Administration Services Chandler, Arizona Leased 5,000 Research and Development, Design and Sales and Marketing Characterization Services Shanghai, China Owned (1) 442,000 Packaging and Test Services, Leaded IC, Chip-Scale Warehousing Services Packaging, Test and Distribution Services Ichon, South Korea Leased 474,000 Packaging and Test Services, Advanced Leaded, BGA Research and Development, Packaging, Chip-Scale, Warehousing Services Test and Distribution Services Chungju, South Korea Leased 129,000 Electroplating Leadframes for Electroplated Leadframes Ichon, South Korea Kuala Lumpur, Malaysia Owned (1) 524,000 Packaging and Test Services, Discrete Power, Leaded Warehousing Services IC, Test and Distribution Services
- -------- (1) Building and improvements are owned by ChipPAC but upon the termination of the existing long-term lease revert to the lessor. Competition The packaging and test industry is highly fragmented. Our principal competitors and their primary locations are as follows: . Advanced Semiconductor Engineering, Inc.--Taiwan . Amkor Technology, Inc.--South Korea and the Philippines . ASAT, Ltd.--Hong Kong . ASE Test Limited--Taiwan and Malaysia . Shinko Electric Industries Co., Ltd.--Japan . Siliconware Precision Industries Co., Ltd.--Taiwan . ST Assembly Test Services Limited--Singapore Amkor Technology is our main competitor. Other than Amkor, the listed companies only compete with us in some package types or for some test services. Each of these companies has significant packaging capacity, financial resources, research and development operations, marketing and other capabilities, and has some degree of operating experience. These companies also have established relationships with many large semiconductor companies which are current or potential customers of ours. We also compete with the internal packaging and testing capabilities of many of our largest customers. We believe the principal elements of competition in the independent semiconductor 40 packaging market include time-to-market, breadth of packaging services, technical competence, design services, quality, yield, customer service and price. We believe that we generally compete favorably in these areas. Due in significant part to the lengthy and costly process of qualifying a supplier, most semiconductor manufacturers generally have two or more sources of packaging services. Research and Development Our research and development efforts are focused on developing new packages, assembly and test technologies and on improving the efficiency and capabilities of our existing packaging and test services. Technology development is a basic competence of ChipPAC and a key competitive factor in the packaging industry. We have invested considerable resources and we are among the leaders in new product and technology development. During the past two years, we have introduced the following new package families: . FlipChipCSP . EconoCSP/TM/ . M/2/CSP/TM/ . MicroBGA . LFCSP/TM/ . EconoLGA/TM/ . M/2/BGA/TM/ . FlipPAC/TM/ . TBGA-I . TBGA-II . TEBGA Materials engineering plays a critical role in advanced packaging and has enabled us to develop environmentally friendly lead free and halogen free packaging already required by several of our customers. We have established three design centers where new packages are designed and fully characterized for performance and tested both for package and system level reliability to meet end customer needs. As of September 30, 2001, we employed approximately 113 full-time research and development personnel. During 2000 and 1999, we spent approximately $12.0 and $12.4 million, respectively, on research and development. We spent $10.7 million on research and development during the nine months ended September 30, 2001. Employees As of December 31, 2001, we employed 5,445 full-time employees, of whom approximately 109 were employed in research, and development, 5,039 in packaging and test services and 297 in marketing, sales, customer service and administration. Approximately 1,400 of our employees at our South Korean facility are represented by ChipPAC Korea Labor Union and are covered by collective bargaining and wage agreements. The collective bargaining agreement, which covers basic union activities, working conditions and welfare programs, among other things, is effective to May 1, 2003 and the wage agreement is effective to May 1, 2002. We believe that we have good relationships with our employees and unions. 41 Intellectual Property Our ability to develop and provide advanced packaging technologies and designs for our customers depends in part on our proprietary know-how, trade secrets and other non-patented, confidential technologies, which we either own or license from third parties. We have licenses to use numerous third party patents, patent applications and other technology rights, as well as trademark rights, in the operation of our business. Under the patent and technology license agreement that we entered into with Hynix Semiconductor, which we refer to as the Hynix Semiconductor License, we obtained a non-exclusive license to use intellectual property in connection with our packaging activities. Following expiration of its initial term on December 31, 2003, the Hynix Semiconductor License may be extended by us from year to year upon payment of a nominal annual license fee. Hyundai Electronics may terminate the Hynix Semiconductor License prior to December 31, 2003 if we breach the Hynix Semiconductor License and do not cure that breach within the applicable time period, or in the event of our bankruptcy or similar event, or if a force majeure event prevents performance of the agreement. We have entered into a License Agreement with Tessera, Inc. which we refer to as the Tessera License, under which we have obtained a worldwide, royalty-bearing, non-exclusive license under specified Tessera patents, technical information and trademarks relating to Tessera's proprietary IC packages, most significantly its mBGA(TM), or MicroBGA, packages. The Tessera License will run until the expiration of the last Tessera patent licensed under the Tessera License. Accordingly, the expiration of the Tessera License will not occur until sometime after February, 2018, which is the earliest date that all patents licensed under the Tessera License may expire. In connection with our recapitalization, we obtained a non-exclusive sublicense from Hynix Semiconductor under patents owned by Motorola for use in connection with our BGA packaging process. The initial term of our sublicense under the Motorola patents will expire on December 31, 2002. This sublicense requires Hynix Semiconductor to use commercially reasonable efforts to extend or renew its license from Motorola prior to its expiration on December 31, 2002 and obtain from Motorola the right to grant us a sublicense on the same terms and conditions as those of any extended or renewed license. We have entered into two license agreements with LSI Logic. Under the first license, which we refer to as the LSI flip-chip license, we have received a worldwide, non-exclusive, royalty-bearing license to use LSI packaging technology and technical information to manufacture, use and sell flip-chip semiconductor devices having at least 200 solder balls. Our rights under the LSI flip-chip license will become perpetual and irrevocable upon our payment of fees or January 1, 2004, whichever occurs first. LSI Logic may terminate the LSI flip-chip license if, before our rights have become perpetual and irrevocable, we breach the LSI flip-chip license and do not cure that breach within the applicable time period, or in the event of our bankruptcy or similar event. Our second license from LSI Logic, which we refer to as the LSI CSP license, grants us a worldwide, non-exclusive license under LSI packaging technology and technical information to manufacture, use and sell semiconductor device assemblies having an overall height of less than 1.2 millimeter. Our rights under the LSI CSP license are perpetual but LSI Logic may terminate the LSI CSP license if we breach the LSI CSP license and do not cure that breach within the applicable time period, or in the event of our bankruptcy or similar event. In connection with our acquisition of the Malaysian business, we acquired ownership of all Intersil patents, technical information and copyrights used exclusively in or associated exclusively with the Malaysian business and, additionally, Intersil granted us a worldwide, non-exclusive, royalty-free license under other Intersil patents, copyrights and technical information which are also used in or related to the operation of the Malaysian business. This Intersil license is perpetual and irrevocable. Our primary registered trademark and trade name is "ChipPAC(R)." We own or are licensed to use other secondary trademarks. 42 MANAGEMENT The following table provides information about our directors and senior management as of December 31, 2001.
Name Age Position - ---- --- -------- Dennis P. McKenna....... 52 Chairman of the Board, President and Chief Executive Officer Richard M. Freeman...... 52 Senior Vice President and Chief Operating Officer Robert Krakauer......... 35 Senior Vice President and Chief Financial Officer Patricia H. McCall...... 47 Senior Vice President Administration, General Counsel and Secretary Marcos Karnezos......... 57 Vice President, Technology Jeffrey Braden.......... 49 Vice President, Product Line Management S.W. Woo................ 44 President, ChipPAC Assembly and Test (Shanghai) Company Ltd. B.K. Sohn............... 54 President, ChipPAC Korea Company, Ltd. C.B. Teh................ 54 President, ChipPAC (Malaysia) Sdn. Bhd. Edward Conard........... 45 Director Michael A. Delaney...... 47 Director Marshall Haines......... 34 Director Chong Sup Park.......... 54 Director Paul C. Schorr, IV...... 34 Director
Dennis P. McKenna has been Chairman of the Board of directors since April 2001 and President and Chief Executive officer since October 1997, when ChipPAC was incorporated. From October 1995 to October 1997, he served as Senior Vice President of the Components group for Hyundai Electronics, and from January 1993 to October 1995 was Vice President and General Manager of Hyundai's Semiconductor Group. Richard M. Freeman has been Senior Vice President and Chief Operating Officer since November 2000. Mr. Freeman served as Senior Vice President of Manufacturing for Cypress Semiconductor from April 1999 to November 2000. Prior to joining Cypress, from 1974 he was at National Semiconductor Corporation, most recently as Vice President of Worldwide Wafer Fabs. Robert Krakauer has been Senior Vice President and Chief Financial Officer since November 1999. Mr. Krakauer served as Vice President, Finance and Chief Financial Officer at Allied Signal Electronic Materials from May 1998 to November 1999. From June 1996 to May 1998, he was Corporate Controller at Altera Corporation, and from June 1993 to June 1996, he was Vice President, Finance and Chief Financial Officer at Alphatec Electronics, USA. Patricia H. McCall has been Senior Vice President Administration, General Counsel and Secretary since November 2000. From November 1995 to November 2000, Ms. McCall was at National Semiconductor Corporation, most recently as Associate General Counsel. Prior to that, she was a partner at the law firm of Pillsbury, Madison & Sutro, and a Barrister in England. Marcos Karnezos has been Vice President, Technology since October 1998. Dr. Karnezos served as Vice President Technology at Signetics KP from December 1996 to October 1998. From November 1992 to December 1996, he was Vice President at ASAT, Ltd. 43 Jeffrey Braden has been Vice President, Product Line Management since February 2001. Prior to that, he was named Vice President Assembly, Leadframes in September 2000 and started with ChipPAC in June 1999 as the Business Director, Leadframe Products. Mr. Braden served as Vice President and General Manager at Olin Interconnect Technologies from 1993 to 1998. S.W. Woo was appointed as President, ChipPAC Assembly and Test (Shanghai) Company Ltd. in July 2001. Before joining ChipPAC, Mr. Woo was the Vice President, Operations with Advanced Interconnect Technologies from 2000 to 2001. Prior to that position, he was elected to the Directorship of Hana Technologies Ltd (Hong Kong). While the company was known as Hana Technologies Ltd., Mr. Woo held the positions of Vice President, Corporate Engineering from 1996 to 1999. B.K. Sohn joined ChipPAC Korea Company, Ltd. in January 2000 as Executive Vice President, Manufacturing/Operations and has been its President since January 2001. Prior to joining ChipPAC Korea, from 1973 to 1999, Mr. Sohn worked for Anam Semiconductor, Inc. most recently as Corporate Vice President, QR&E Division. C.B. Teh joined us in June 2000 as President, ChipPAC (Malaysia) Sdn. Bhd. upon the consummation of the acquisition of the Malaysian business. He served as the Vice President, Manufacturing of Intersil Technology Sdn. Bhd. from January 1997 to June 2000. Prior to this he was the Director Manufacturing at Intersil Technology from January 1991 to December 1996. From September 1987 to December 1990, he served as Director Manufacturing for General Electronic/Harris Semiconductor in Singapore. From January 1981 to August 1987, he was the Manufacturing Operations Manager for RCA in Kuala Lumpur. Edward Conard has been Managing Director of Bain Capital, Inc. since 1993. Mr. Conard is a director of Waters Corporation, Dynamic Details, Inc., Medical Specialties Group, Inc., Alliance Commercial Laundries, Inc., U.S. Synthetics, Inc. and Broder Brothers Inc. Michael A. Delaney has been Managing Director of Citicorp Venture Capital, Ltd. since 1995 and a Vice President for more than the past five years. Mr. Delaney is Vice President and Managing Director of Court Square. Mr. Delaney is a director of JAC Holdings, SC Processing, Inc., Delco Remy International, Inc., MSX International, Inc., Trianon Corp., Strategic Industries Inc., Great Lakes Dredge & Dock Corporation, GVC Holdings and International Knife and Saw Inc. Marshall Haines has been Principal of Bain Capital since 2000. Mr. Haines joined Bain Capital in 1993 as an associate. Mr. Haines is a director of TravelCLICK, Inc. Chong Sup Park has been Chairman and Chief Executive Officer of Hynix Semiconductor, Inc. (formerly Hyundai Electronics Industries Co. Ltd.) since April 2000. Dr. Park joined Hyundai Electronics in 1983, and served as President and Chief Executive Officer of Hyundai Electronics America, Inc. from September 1996 to October 1999 and Chairman since November 1999. From February 1995 to September 1996, he was President and Chief Executive Officer of Maxtor Corporation. Dr. Park is a director of Maxtor Corporation, Dot Hill Systems Corporation and Viador, Inc. Paul C. Schorr, IV has been Managing Director of Citicorp Venture Capital, Ltd. since January 2000. Mr. Schorr joined Citicorp Venture Capital in 1996. From 1993 to 1996, he was an associate and then an engagement manager with McKinsey & Company, Inc. Mr. Schorr is a director of KEMET Corporation, Fairchild Semiconductor International, Inc., Paper-Pak Products, Inc. and AMI Semiconductor. 44 DESCRIPTION OF CAPITAL STOCK General Matters The total amount of our authorized capital stock consists of 250,000,000 shares of Class A common stock and 250,000,000 shares of Class B common stock. As of December 31, 2001, we had 69,403,370 shares of Class A common stock and no shares of Class B common stock outstanding. Also as of December 31, 2001, we had 97 stockholders of record of our Class A common stock. After giving effect to this offering we expect to have 77,403,370 shares of Class A common stock outstanding, assuming that the underwriters do not exercise their over-allotment option. The following summary of provisions of our capital stock describes all material provisions of, but does not purport to be complete and is subject to, and qualified in its entirety by, our certificate of incorporation and our by-laws, which are included as exhibits to documents which are incorporated by reference into this prospectus, and by the provisions of applicable law. We urge you to read our certificate of incorporation and by-laws because they, and not this description, will define your rights as a holder of the Class A common stock. You may request copies of these documents at our address provided under "Where You Can Find More Information." The certificate of incorporation and by-laws contain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the board of directors and which may have the effect of delaying, deferring or preventing a future takeover or change in control of the company unless the takeover or change in control is approved by our board of directors. Class A Common Stock Subject to the prior rights of the holders of any series of preferred stock, the holders of outstanding shares of Class A common stock are entitled to receive dividends out of assets legally available therefor at that time and in amounts as the board of directors may from time to time determine. Holders of Class A common stock have no preemptive or subscription rights to purchase any of our securities. A holder of Class A common stock will, at its option, be able to convert its shares of Class A common stock into shares of Class B common stock on a share-for-share basis at any time. Upon liquidation, dissolution or winding up of ChipPAC, the holders of Class A common stock are entitled to receive pro rata, together with holders of our Class B common stock, our assets which are legally available for distribution, after payment of all debts and other liabilities and subject to the prior rights of any holders of any series of preferred stock then outstanding. Each outstanding share of Class A common stock is entitled to one vote on all matters submitted to a vote of stockholders. There is no cumulative voting. Except as otherwise required by law or the certificate of incorporation, the holders of Class A common stock and the holders of Class A convertible preferred stock vote together as a single class on all matters submitted to a vote of stockholders. Our Class A common stock is listed on the Nasdaq National Market under the symbol "CHPC." Class B Common Stock We have authorized 250,000,000 shares of class of Class B common stock. The holders of Class B common stock are entitled to the same rights, privileges, benefits and notices as the holders of Class A common stock, except that the holders of Class B common stock are: . not entitled to vote, except as required by law; and . able to convert their shares into Class A common stock on a share-for-share basis at any time. Preferred Stock Our board of directors may, without further action by our stockholders, from time to time, direct the issuance of shares of preferred stock in a series and may, at the time of issuance, determine the rights, 45 preferences and limitations of each series. Satisfaction of any dividend preferences of outstanding shares of preferred stock would reduce the amount of funds available for the payment of dividends on shares of common stock. Holders of shares of preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of our company before any payment is made to the holders of shares of common stock. The issuance of shares of preferred stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our securities or the removal of incumbent management. Upon the affirmative vote of a majority of the total number of directors then in office, the board of directors, without stockholder approval, may issue shares of preferred stock with voting and conversion rights which could adversely affect the holders of shares of common stock. Upon completion of this offering and after the application of the net proceeds from this offering, there will be no shares of preferred stock outstanding. Other Provisions of the Certificate of Incorporation and By-laws The certificate of incorporation provides that stockholder action can be taken only at an annual or special meeting of stockholders and cannot be taken by written consent in lieu of a meeting. The certificate of incorporation and the by-laws provide that, except as otherwise required by law, special meetings of stockholders can only be called through a resolution adopted by a majority of the board of directors or by our chief executive officer. Stockholders will not be permitted to call a special meeting or to require the board to call a special meeting. The by-laws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to the board. Stockholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given to our secretary written notice no later than 60 days and no more than 90 days before the meeting, in proper form, of the stockholder's intention to bring that business before the meeting. Although the by-laws do not give the board the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, the by-laws may have the effect of precluding the conduct of business at a meeting if the proper procedures are not followed or may discourage or defer a potential acquiror from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of ChipPAC. Our certificate of incorporation and by-laws provide that the affirmative vote of holders of at least 66 2/3% of the total votes eligible to be cast in the election of directors is required to amend, alter, change or repeal some of their provisions, unless the amendment or change has been approved by a majority of the directors not affiliated or associated with any person or entity holding 20% or more of the voting power of our outstanding capital stock, other than the funds affiliated with Bain Capital and Citicorp Venture Capital, Ltd. and their affiliates. This requirement of a super-majority vote to approve amendments to the certificate of incorporation and by-laws could enable a minority of our stockholders to exercise veto power over any amendments. Provisions of Delaware Law Governing Business Combinations We are not subject to the provisions of Section 203 of the General Corporation Law of Delaware regulating takeovers. Section 203 generally makes it more difficult for a third party to take control of a company by prohibiting a third party owning more than 15% of the company's stock from entering into transactions with the company unless the board of directors or stockholders unaffiliated with the third party approve either the third party or the transaction at issue, before the third party becomes a 15% owner or the third party acquires at least 85% of the company's stock. 46 Limitations on Liability and Indemnification of Officers and Directors The certificate of incorporation limits the liability of directors to the fullest extent permitted by the Delaware General Corporation Law. In addition, the certificate of incorporation provides that we will indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. We expect to enter into indemnification agreements with our current directors and executive officers prior to the completion of the offering and expect to enter into a similar agreement with any new directors or executive officers. Registration Rights Our company, Bain Capital, Inc. and Citicorp Venture Capital, Ltd. and their affiliates, Hynix Semiconductor, Inc., Intersil Corporation and Qualcomm Corporation have entered into registration agreements which provides for "demand" registration rights to cause us to register under the Securities Act all or part of the shares of our stock held by them, as well as "piggyback" registration rights. Currently, approximately 46,463,489 shares of our Class A common stock have restrictions on resale and are subject to these registration rights. We believe that all of the other shares of our Class A common stock are freely tradable. Specifically, the registration agreement provides that: . the holders of a majority of our registrable securities originally held by Bain Capital and Citicorp Venture Capital and their affiliates may require us, at our expense, to register any or all of the stock held by them on a "long-form" registration statement or, if available, a "short-form" registration statement; . with specified exceptions, (a) at any time, the holders of a majority of the registrable securities held by Hynix Semiconductor may require one "long form" or "short form" registration at our expense and (b) before August 14, 2007, the holders of a majority of the registrable securities held by Qualcomm may also require one "long form" or "short form" registration at our expense; and . all holders of registrable securities may request that their eligible stock be included whenever we register any of our securities under the Securities Act with specified exceptions. In connection with those registrations, we have agreed to indemnify all holders of registrable securities against liabilities set forth in the registration agreement, including liabilities under the Securities Act. Transfer Agent and Registrar The transfer agent and registrar for our Class A common stock is U.S. Bank, N.A. 47 SHARES ELIGIBLE FOR FUTURE SALE We can make no predictions as to the effect, if any, that sales of shares in this offering or the availability of the shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of significant amounts of our Class A common stock in the public market, or the perception that those sales may occur, could adversely affect prevailing market prices. Sale of Restricted Shares Upon completion of this offering, we will have approximately 77,403,370 shares of Class A common stock outstanding. In addition, of the approximately 7,352,000 shares of Class A common stock issuable upon the exercise of stock options outstanding, approximately 898,584 will be exercisable immediately after this offering. The public market for our Class A common stock includes 11,500,000 shares of our Class A common stock that we sold in our initial public offering and, after giving effect to this offering, will include an additional 8,000,000 shares of Class A common stock, assuming that the underwriters do not exercise their over-allotment option. An aggregate of approximately 50,476,296 shares of Class A common stock held by our existing stockholders upon completion of the offering will be "restricted securities," as that phrase is defined in Rule 144 promulgated under the Securities Act, and may not be resold in the absence of registration under the Securities Act or under an exemption from registration under the Securities Act, including among others, the exemptions provided by Rule 144. Of the total number of shares that are restricted securities, approximately 46,416,214 are held by our affiliates and approximately 46,463,489 are held by shareholders who have registration rights. In general, under Rule 144 as currently in effect, the holders of the restricted securities, including an "affiliate," is entitled to sell in the public market a number of shares within any three-month period that does not exceed the greater of 1% of the then outstanding shares of the common stock or the average weekly reported volume of trading of the common stock on the Nasdaq National Market during the four calendar weeks preceding the sale. The holder may only sell those shares through "brokers' transactions" or in transactions directly with a "market maker," as those terms are defined in Rule 144. Sales under Rule 144 are also subject to requirements regarding providing notice of those sales and the availability of current public information concerning us. Affiliates may sell shares not constituting restricted securities subject to the foregoing volume limitations and other requirements but without regard to the one-year holding period. Under Rule 144(k), if a period of at least two years has elapsed between the later of the date restricted securities were acquired from us or the date they were acquired from an affiliate, as applicable, a holder of those restricted securities who is not an affiliate at the time of the sale and has not been an affiliate for at least three months prior to the sale would be entitled to sell the shares in the public market without regard to the volume limitations and other restrictions described above. Options Shares issued upon the exercise of stock options are eligible for resale in the public market without restriction, subject to Rule 144 limitations applicable to affiliates and the lock-up agreements described below. Lock-Up Agreements Our officers and directors, and various other holders of our Class A common stock have agreed that they will not, except in limited circumstances, offer, sell, contract to sell, pledge or otherwise dispose of any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether the transaction is to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or enter into any 48 aforementioned transaction, swap, hedge or other arrangement, without, in each case the prior written consent of Credit Suisse First Boston Corporation for a period of 90 days after the date of this prospectus. Registration Agreement Some of our stockholders existing prior to our initial public offering are parties to agreements with us that provide for demand registration rights to cause us to register under the Securities Act all or part of their shares of our Class A common stock, as well as piggyback registration rights. Currently, approximately 46,463,489 shares of our Class A common stock have restrictions on resale and are subject to these registration rights. In connection with those registrations, we have agreed to indemnify all holders of registrable securities against liabilities set forth in the registration agreement, including liabilities under the Securities Act. All of our stockholders who have piggy-back registration rights have waived those rights and will not sell any shares in connection with this offering. See "Description of Capital Stock--Registration Rights." 49 MATERIAL UNITED STATES TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS The following is a general discussion of the material United States federal income and estate tax consequences as of the date of this prospectus of the ownership and disposition of our common stock applicable to Non-United States Holders of our common stock. A "Non-United States Holder" is any holder that for United States federal income tax purposes is not a United States person. For purposes of this discussion, the term "United States person" means: (i) a citizen or resident of the United States; (ii) a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States or of any political subdivision of the United States; (iii) an estate the income of which is included in gross income for United States federal income tax purposes regardless of its source; or (iv) a trust if its administration is subject to the primary supervision of a United States court and one or more United States persons have the authority to control all substantial decisions of the trust. If a partnership holds our common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If a Non-United States Holder is a partner of a partnership holding our common stock, such Non-United States Holder should consult its tax advisor. This discussion does not address all aspects of United States federal income and estate taxation that may be relevant in light of a Non-United States Holder's particular facts and circumstances, including being a U.S. expatriate, the tax consequences for the stockholders or beneficiaries of a Non-United States Holder, special tax rules that may apply to some Non-United States Holders, including banks, tax-exempt organizations, insurance companies, dealers in securities and traders in securities who elect to apply a mark-to-market method of accounting or special tax rules that may apply to a Non-United States Holder that holds our common stock as part of a "straddle," "hedge" or "conversion transaction," and, further, does not address any tax consequences arising under the laws of any state, local or non-United States taxing jurisdiction. This summary only addresses investors who purchase our common stock pursuant to this offering and who hold such common stock as a capital asset. Furthermore, the following discussion is based on current provisions of the U.S. Internal Revenue Code of 1986, as amended, applicable Treasury regulations and administrative and judicial interpretations of the Internal Revenue Code, all as in effect as of the date of this prospectus, and all of which are subject to change, possibly with retroactive effect. We have not and will not seek a ruling from the Internal Revenue Service with respect to the United States federal income and estate tax consequences described below, and as a result, there can be no assurance that the IRS will not disagree with or challenge any of the conclusions set forth in this discussion. Dividends We have never paid, and do not anticipate that we will pay, cash dividends on our common stock. Should we ever pay a cash dividend, any dividend paid to a Non-United States Holder of common stock generally would be subject to United States withholding tax at the then-effective U.S. withholding tax rate, currently 30% of the gross amount of the dividend, or a lower rate as may be specified by an applicable tax treaty (provided appropriate certification requirements are complied with in order to claim such lower rate). Dividends received by a Non-United States Holder that are effectively connected with a United States trade or business conducted by that Non-United States Holder or, if a tax treaty applies, attributable to a permanent establishment or a "fixed base" in the United States, as provided in that treaty, which we refer to as U.S. trade or business income, would be exempt from the withholding tax, provided that Non-United States Holder complies with applicable certification and disclosure requirements. However, any U.S. trade or business income, net of deductions and credits, would be taxed at the same graduated U.S. federal income tax rates that apply to United States persons. Any U.S. trade or business income received by a Non-United States Holder that is a corporation may also, under some circumstances, be subject to an additional "branch profits tax" at a 30% rate or a lower rate as specified by an applicable income tax treaty. 50 Dividends may be subject to backup withholding at the rate of 30% (with scheduled reductions through 2006 and a scheduled increase to 31% in 2011) of the gross amount unless the Non-United States Holder certifies to required information or otherwise establishes an exemption as specified in United States Treasury Regulations applicable to withholding and information reporting. Backup withholding, if applied, is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the IRS. Generally, we must report annually to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. Under tax treaties or other agreements, the IRS may make those reports available to tax authorities in the recipient's country of residence. Investors should consult their own tax advisors concerning information reporting requirements and backup withholding on dividends paid on our common stock and their qualification, if any, for an exemption from backup withholding. Gain on Disposition of Common Stock A Non-United States Holder generally will not be subject to United States federal income tax on any gain realized upon the sale or other disposition of its common stock unless: (i) that gain is U.S. trade or business income referred to above under "Dividends", in which case all or a portion of that gain will be subject to regular graduated U.S. federal income tax rates, and, in the case of a corporate Non-United States Holder, may also be subject to the branch profits tax at the rate of 30% or lower treaty rate, if applicable, (ii) the Non-United States Holder is an individual who holds the common stock as a capital asset within the meaning of Section 1221 of the Internal Revenue Code and who is present in the United States for a period or periods aggregating 183 days or more during the taxable year in which the sale or disposition occurs and other conditions are met; or (iii) we are or have been a "United States real property holding corporation" for United States federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or that Non-United States Holder's holding period of its common stock. We have determined that we are not and do not believe that we are likely to become a "United States real property holding corporation" for United States federal income tax purposes. However, no assurance can be provided that we will not become a United States real property holding corporation. If we were to become a United States real property holding corporation, gains realized by a Non-United States Holder which did not directly or indirectly own more than 5% of our common stock at any time during the shorter of the five-year period preceding the disposition or that Holder's holding period generally would not be subject to United Stated federal income tax as a result of the status of our company as a United States real property holding corporation, provided that our common stock was regularly traded on an established securities market. The payment of the proceeds of a sale of common stock to or through the United States office of a broker is currently subject to both information reporting and backup withholding at the rate of 30% (with scheduled reductions through 2006 and a scheduled increase to 31% in 2011) of the gross amount unless the Non-United States Holder certifies its non-United States status under penalties of perjury or otherwise establishes an exemption. Generally, the payment of proceeds of a disposition by a Non-United States Holder of common stock outside the United States to or through a foreign office of a broker will not be subject to backup withholding. However, those payments will be subject to information reporting if the broker has certain connections to the U.S., unless certain other conditions are met or the Non-United States Holder establishes an exemption as specified in the United States Treasury Regulations regarding withholding and information reporting. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will generally be allowed as a refund or a credit against the U.S. federal income tax liability of the Non-United States Holder, if any, provided the required information is furnished to the IRS. 51 Investors should consult their own tax advisors concerning information reporting requirements and backup withholding on a sale of their common stock and their qualification, if any, for an exemption from backup withholding. Estate Tax Common stock owned or treated as owned at the time of death by an individual who is not a citizen or resident of the United States for federal estate tax purposes will be included in that individual's estate for United States federal estate tax purposes, unless an applicable estate tax or other treaty provides otherwise, and therefore, may be subject to United States federal estate tax. The foregoing discussion is a general summary of the principal United States federal income and estate tax consequences of the ownership, sale or other disposition of our common stock by Non-United States Holders and does not address all the tax consequences that may be relevant to Non-United States Holders in their particular circumstances. Accordingly, investors are urged to consult their own tax advisors with respect to the income and estate tax consequences to them in their particular circumstances of the ownership and disposition of our common stock, including the application and effect of the laws of any state, local, foreign or other taxing jurisdiction. 52 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement, dated January , 2002, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as representatives, the following respective numbers of shares of Class A common stock:
Number of Underwriter Shares ----------- --------- Credit Suisse First Boston Corporation.......................................... Merrill Lynch, Pierce, Fenner & Smith Incorporated.............................. Thomas Weisel Partners LLC...................................................... --------- Total........................................................................ 8,000,000 =========
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of Class A common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering of Class A common stock may be terminated. We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to 1,200,000 additional shares at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of Class A common stock. The underwriters propose to offer the shares of Class A common stock initially at the public offering price on the cover page of this prospectus, and to selling group members at that price less a concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering, the representatives may change the public offering price and concession and discount to broker/dealers. The following table summarizes the compensation and estimated expenses we will pay:
Per Share Total ---------------------------- ---------------------------- Without Over- With Without Over- With Allotment Over-Allotment Allotment Over-Allotment ------------- -------------- ------------- -------------- Underwriting Discounts and Commissions paid by us........................... $ $ $ $ Expenses payable by us................. $ $ $ $
The offering is being made in compliance with the requirements of Rule 2720 of the National Association of Securities Dealers, Inc. Conduct Rules. The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 relating to, any shares of common stock or securities convertible into or exchangeable or exercisable for any of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston Corporation for a period of 90 days after the date of this prospectus. Our officers and directors, and various other holders of our Class A common stock have agreed that they will not, except in limited circumstances, offer, sell, contract to sell, pledge or otherwise dispose of any shares of 53 our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether the transaction is to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or enter into any aforementioned transaction, swap, hedge or other arrangement, without, in each case the prior written consent of Credit Suisse First Boston Corporation for a period of 90 days after the date of this prospectus. We have agreed to indemnify the underwriters against liabilities under the Securities Act of 1933, or contribute to payments which the underwriters may be required to make in that respect. Our Class A common stock is listed on The Nasdaq Stock Market's National Market under the symbol "CHPC." Credit Suisse First Boston, New York branch, an affiliate of Credit Suisse First Boston Corporation, is a lender and the administrative agent under our senior credit facilities. An affiliate of Credit Suisse First Boston Corporation owns 235,083 shares of our Class A common stock. Certain funds affiliated with Merrill Lynch, Pierce, Fenner & Smith Incorporated are also lenders under our senior credit facilities. Several of the underwriters and their affiliates have provided and will continue to provide investment banking and other financial services, including the provision of credit facilities and financial advisory services for us and certain of our affiliates in the ordinary course of business for which they have received and will receive customary compensation. In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions, penalty bids and passive market making in accordance with Regulation M under the Securities Exchange Act of 1934. . Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. . Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market. . Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. . Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. . In passive market making, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of our common stock until the time, if any, at which a stabilizing bid is made. 54 These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters participating in this offering. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters that will make internet distributions on the same basis as other allocations. Credit Suisse First Boston Corporation may effect an on-line distribution through its affiliate, CSFBdirect Inc., an on-line broker dealer, as a selling group member. Merrill Lynch, Pierce, Fenner & Smith Incorporated may effect an on-line distribution of shares in the offering. 55 NOTICE TO CANADIAN RESIDENTS Resale Restrictions The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are made. Any resale of the common stock in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. Representations of Purchasers By purchasing common stock in Canada and accepting a purchase confirmation a purchaser is representing to us and the dealer from whom the purchase confirmation is received that: . the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under those securities laws, . where required by law, that the purchaser is purchasing as principal and not as agent, and . the purchaser has reviewed the text above under Resale Restrictions. Rights of Action--Ontario Purchasers Only Under Ontario securities legislation, a purchaser who purchases a security offered by this prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the shares, for rescission against us in the event that this prospectus contains a misrepresentation. A purchaser will be deemed to have relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the shares. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the shares. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us. In no case will the amount recoverable in any action exceed the price at which the shares were offered to the purchaser and if the purchaser is shown to have purchased the securities with knowledge of the misrepresentation, we will have no liability. In the case of an action for damages, we will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of the shares as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions. Enforcement of Legal Rights All of our directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada. Taxation and Eligibility for Investment Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and about the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation. 56 LEGAL MATTERS Some of the legal matters in connection with the validity of the Class A common stock will be passed upon for ChipPAC by Kirkland & Ellis, Los Angeles, California. Partners of Kirkland & Ellis are partners in Randolph Street Partners, which acquired less than 1.0% of our Class A common stock in connection with the closing of our 1999 recapitalization. The underwriters have been represented by Cravath, Swaine & Moore, New York, New York. Kirkland & Ellis has, from time to time, represented, and may continue to represent, some of the underwriters and some of their affiliates in connection with various legal matters, and Bain Capital and some of its affiliates (including the Company and our direct and indirect subsidiaries) in connection with various legal matters. EXPERTS The financial statements incorporated in this prospectus by reference to our Annual Report on Form 10-K for the year ended December 31, 2000, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of that firm as experts in auditing and accounting. 57 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and current reports, proxy statements and other information with the SEC. You can inspect, read and copy these reports, proxy statements and other information at the public reference facilities maintained by the SEC at: . Room 1024, 450 Fifth Street N.W., Judiciary Plaza, Washington, D.C. 20549; and . Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511. You can also obtain copies of these materials from the public reference facilities of the SEC at prescribed rates. You can obtain information on the operation of the public reference facilities by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that makes available reports, proxy statements and other information regarding issuers that file electronically with it. INCORPORATION BY REFERENCE The SEC allows us to "incorporate by reference" into this prospectus the information we filed with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus, and information in documents that we file later with the SEC will automatically update and supersede information in this prospectus. We incorporate by reference the documents listed below into this prospectus, and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, until our offering is complete. The documents we incorporate by reference are: . Our Annual Report on Form 10-K for the year ended December 31, 2000 filed on April 2, 2001. . Our Proxy Statements on Form 14A filed with the SEC on February 22, 2001 and April 30, 2001. . Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 filed on May 15, 2001. . Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 filed on August 14, 2001. . Our Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 filed on November 14, 2001. . Our Current Report on Form 8-K dated December 31, 2001 filed on January 10, 2002. You may request a copy of these filings at no cost, by writing or telephoning us at the following address: ChipPAC, Inc. 47400 Kato Road Fremont, California 94538 Attention: Corporate Secretary Telephone: (510) 979-8000 58 [LOGO] ChipPAC PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the estimated fees and expenses to be incurred in connection with the registration and distribution of the securities being registered hereunder, other than underwriting discounts and commissions. All such fees and expenses shall be borne by the company. Commission Registration Fee..................................... $ 19,504 Legal Fees and Expenses......................................... 200,000 Transfer Agent and Registrar Fees and Expenses.................. 10,000 Accounting Fees and Expenses.................................... 150,000 Printing, Engraving and Mailing Expenses........................ 50,000 Blue Sky Fees................................................... 5,000 NASD Fees....................................................... 8,660 Nasdaq Fees..................................................... 35,000 Miscellaneous................................................... 11,836 -------- Total........................................................ $490,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS ChipPAC, Inc. ChipPAC is incorporated under the laws of the State of Delaware. Section 145 ("Section 145") of the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (the "General Corporation Law"), inter alia, provides that a Delaware corporation may indemnify any persons who were, are or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amount paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was illegal. A Delaware corporation may indemnify any persons who are, were or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reasons of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), actually and reasonably incurred by such person in connection with the defense of any action referred to above, the corporation must indemnify him against the expenses which such officer or director has actually and reasonably incurred. Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by him in any such capacity, arising out of his status as such, whether or not the corporation would otherwise have the power to indemnify him under Section 145. ChipPAC's Certificate of Incorporation and By-laws provide for the indemnification of officers and directors to the fullest extent permitted by the General Corporation Law. ChipPAC maintains a policy of directors and officers liability insurance covering certain liabilities incurred by its directors and officers in connection with the performance of their duties. II-1 ITEM 16. EXHIBITS
Number Description - ------ ----------- 1.1 Form of Underwriting Agreement. 2.1 Amended and Restated Agreement and Plan of Merger of ChipPAC, Inc., a California corporation, and ChipPAC, Inc., a Delaware corporation.** 2.2 Agreement and Plan of Recapitalization and Merger, dated as of March 13, 1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp.* 2.3 First Amendment to Agreement and Plan of Recapitalization and Merger, dated as of June 16, 1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp.* 2.4 Second Amendment to Agreement and Plan of Recapitalization and Merger, dated as of August 5, 1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp.* 4.1 Specimen certificate for ChipPAC, Inc. Class A common stock.** 5.1 Opinion of Kirkland & Ellis.*** 10.1 Credit Agreement, dated as of August 5, 1999, as amended and restated as of June 30, 2000, by and among ChipPAC International Company Limited, ChipPAC, Inc., the Lenders listed therein and Credit Suisse First Boston, as Administrative Agent, Sole Lead Manager and Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company's registration statement on Form S-4 (No. 333-91641)). 10.2 Guaranty, dated as of August 5, 1999, by and among ChipPAC, Inc. and certain subsidiaries of ChipPAC, Inc., in favor of Credit Suisse First Boston (incorporated by reference to Exhibit 10.2 to the Company's registration statement on Form S-4 (No. 333-91641)). 10.3 Amendment No. 1 to Amended and Restated Credit Agreement, dated as of March 13, 2001 by and among ChipPAC International Company Limited, ChipPAC, Inc., the Lenders listed therein and Credit Suisse First Boston, as Administrative Agent, Sole Lead Manager and Collateral Agent(incorporated by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the period ended June 30, 2001 (No. 000-31173)). 10.4 Amendment No. 2 to Amended and Restated Credit Agreement, as amended, dated as of December 31, 2001 by and among ChipPAC International Company Limited, ChipPAC, Inc., the Lenders listed therein and Credit Suisse First Boston, as Administrative Agent, Sole Lead Manager and Collateral Agent(incorporated by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the period ended June 30, 2001 (No. 000-31173)). 10.5 Amendment No. 3 to Amended and Restated Credit Agreement, as amended, dated as of December 31, 2001 by and among ChipPAC International Company Limited, ChipPAC, Inc., the Lenders listed therein and Credit Suisse First Boston, as Administrative Agent, Sole Lead Manager and Collateral Agent(incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K (No. 000-31173)). 10.6 Indenture, dated as of July 29, 1999, by and among ChipPAC International Limited, ChipPAC Merger Corp. and Firstar Bank of Minnesota, N.A., as trustee(incorporated by reference to Exhibit 10.28 to the Company's registration statement on Form S-4 (No. 333-91641)). 10.7 First Supplemental Indenture, dated as of August 5, 1999, by and among ChipPAC International Company Limited, ChipPAC, Inc. and Firstar Bank of Minnesota, N.A., as trustee (incorporated by reference to Exhibit 10.29 to the Company's registration statement on Form S-4 (No. 333-91641)).
II-2
Number Description - ------ ----------- 10.8 Subsidiary Guaranty Agreement, dated as of August 5, 1999, by and among ChipPAC Korea Company Ltd., ChipPAC Limited, ChipPAC (Barbados) Ltd., ChipPAC Luxembourg S.a.R.L., ChipPAC Liquidity Management Hungary Limited Liability Company and ChipPAC International Company Limited, in favor of Firstar Bank of Minnesota, N.A. (incorporated by reference to Exhibit 10.3 to the Company's registration statement on Form S-4 (No. 333-91641)). 23.1 Consent of Kirkland & Ellis (included in Exhibit 5.1).*** 23.2 Consent of PricewaterhouseCoopers LLP. 24.1 Powers of Attorney.***
- -------- * Incorporated by reference to the Company's registration statement on Form S-4 (No. 333-91641). ** Incorporated by reference to the Company's registration statement on Form S-1 (No. 333-39428). *** Previously filed. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, ChipPAC, Inc. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on January 16, 2002. CHIPPAC, INC. By: /s/ DENNIS P. MCKENNA ----------------------------------- Dennis P. McKenna Chairman of the Board, President and Chief Executive Officer * * * * POWER OF ATTORNEY Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the registration statement has been signed by the following persons in the indicated capacities on January 16, 2002. Signatures Capacity ---------- -------- /s/ Dennis P. McKenna Chairman of the Board, President and - ----------------------------- Chief Executive Officer Dennis P. McKenna (Principal Executive Officer) * Chief Financial Officer - ----------------------------- (Principal Financial Officer) Robert Krakauer * Corporate Controller - ----------------------------- (Principal Accounting Officer) Michael G. Potter * Director - ----------------------------- Edward Conard * Director - ----------------------------- Marshall Haines * Director - ----------------------------- Michael A. Delaney II-4 Signatures Capacity ---------- -------- * Director ----------------------------- Paul C. Schorr IV * Director ----------------------------- Chong Sup Park * The undersigned, by signing his name hereto, does hereby sign and execute this Amendment No. 1 to the registration statement on behalf of the above named directors of ChipPAC, Inc. pursuant to the Power of Attorney executed by such directors and filed previously. /s/ DENNIS P. MCKENNA - ---------------------------------- Dennis P. McKenna Attorney-in-Fact II-5 EXHIBIT INDEX
Number Description - ------ ----------- 1.1 Form of Underwriting Agreement. 2.1 Amended and Restated Agreement and Plan of Merger of ChipPAC, Inc., a California corporation, and ChipPAC, Inc., a Delaware corporation.** 2.2 Agreement and Plan of Recapitalization and Merger, dated as of March 13, 1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp.* 2.3 First Amendment to Agreement and Plan of Recapitalization and Merger, dated as of June 16, 1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp.* 2.4 Second Amendment to Agreement and Plan of Recapitalization and Merger, dated as of August 5, 1999, by and among Hyundai Electronics Industries Co., Ltd., Hyundai Electronics America, ChipPAC, Inc. and ChipPAC Merger Corp.* 4.1 Specimen certificate for ChipPAC, Inc. Class A common stock.** 5.1 Opinion of Kirkland & Ellis.*** 10.1 Credit Agreement, dated as of August 5, 1999, as amended and restated as of June 30, 2000, by and among ChipPAC International Company Limited, ChipPAC, Inc., the Lenders listed therein and Credit Suisse First Boston, as Administrative Agent, Sole Lead Manager and Collateral Agent (incorporated by reference to Exhibit 10.1 to the Company's registration statement on Form S-4 (No. 333-91641)). 10.2 Guaranty, dated as of August 5, 1999, by and among ChipPAC, Inc. and certain subsidiaries of ChipPAC, Inc., in favor of Credit Suisse First Boston (incorporated by reference to Exhibit 10.2 to the Company's registration statement on Form S-4 (No. 333-91641)). 10.3 Amendment No. 1 to Amended and Restated Credit Agreement, dated as of March 13, 2001 by and among ChipPAC International Company Limited, ChipPAC, Inc., the Lenders listed therein and Credit Suisse First Boston, as Administrative Agent, Sole Lead Manager and Collateral Agent(incorporated by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the period ended June 30, 2001 (No. 000-31173)). 10.4 Amendment No. 2 to Amended and Restated Credit Agreement, as amended, dated as of December 31, 2001 by and among ChipPAC International Company Limited, ChipPAC, Inc., the Lenders listed therein and Credit Suisse First Boston, as Administrative Agent, Sole Lead Manager and Collateral Agent(incorporated by reference to Exhibit 10.1 to the Company's quarterly report on Form 10-Q for the period ended June 30, 2001 (No. 000-31173)). 10.5 Amendment No. 3 to Amended and Restated Credit Agreement, as amended, dated as of December 31, 2001 by and among ChipPAC International Company Limited, ChipPAC, Inc., the Lenders listed therein and Credit Suisse First Boston, as Administrative Agent, Sole Lead Manager and Collateral Agent(incorporated by reference to Exhibit 10.1 to the Company's current report on Form 8-K (No. 000-31173)). 10.6 Indenture, dated as of July 29, 1999, by and among ChipPAC International Limited, ChipPAC Merger Corp. and Firstar Bank of Minnesota, N.A., as trustee(incorporated by reference to Exhibit 10.28 to the Company's registration statement on Form S-4 (No. 333-91641)). 10.7 First Supplemental Indenture, dated as of August 5, 1999, by and among ChipPAC International Company Limited, ChipPAC, Inc. and Firstar Bank of Minnesota, N.A., as trustee (incorporated by reference to Exhibit 10.29 to the Company's registration statement on Form S-4 (No. 333-91641)).
II-6
Number Description - ------ ----------- 10.8 Subsidiary Guaranty Agreement, dated as of August 5, 1999, by and among ChipPAC Korea Company Ltd., ChipPAC Limited, ChipPAC (Barbados) Ltd., ChipPAC Luxembourg S.a.R.L., ChipPAC Liquidity Management Hungary Limited Liability Company and ChipPAC International Company Limited, in favor of Firstar Bank of Minnesota, N.A. (incorporated by reference to Exhibit 10.3 to the Company's registration statement on Form S-4 (No. 333-91641)). 23.1 Consent of Kirkland & Ellis (included in Exhibit 5.1).*** 23.2 Consent of PricewaterhouseCoopers LLP. 24.1 Powers of Attorney (included on the signature page hereto).
- -------- * Incorporated by reference to the Company's registration statement on Form S-4 (No. 333-91641). ** Incorporated by reference to the Company's registration statement on Form S-1 (No. 333-39428). *** Previously filed. II-7 EX-1.1 3 dex11.txt FORM OF UNDERWRITING AGREEMENT Exhibit 1.1 8,000,000 Shares ChipPAC, Inc. Class A Common Stock UNDERWRITING AGREEMENT ---------------------- January [ ], 2002 CREDIT SUISSE FIRST BOSTON CORPORATION MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED THOMAS WEISEL PARTNERS LLC, As Representatives of the Several Underwriters, c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, N.Y. 10010-3629 Dear Sirs: 1. Introductory. ChipPAC, Inc., a Delaware corporation ("Company"), proposes to issue and sell 8,000,000 shares ("Firm Securities") of its Class A common stock ("Securities") and also proposes to issue and sell to the Underwriters, at the option of the Underwriters, an aggregate of not more than 1,200,000 additional shares ("Optional Securities") of its Securities as set forth below. The Firm Securities and the Optional Securities are herein collectively called the "Offered Securities". The Company hereby agrees with the several Underwriters named in Schedule A hereto ("Underwriters") as follows: 2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the several Underwriters that: (a) A registration statement (No. 333-76554) relating to the Offered Securities, including a form of prospectus, has been filed with the Securities and Exchange Commission ("Commission") and either (i) has been declared effective under the Securities Act of 1933 ("Act") and is not proposed to be amended or (ii) is proposed to be amended by amendment or post-effective amendment. If such registration statement ("initial registration statement") has been declared effective, either (i) an additional registration statement ("additional registration statement") relating to the Offered Securities may have been filed with the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act and, if so filed, has become effective upon filing pursuant to such Rule and the Offered Securities all have been duly registered under the Act pursuant to the initial registration statement and, if applicable, the additional registration statement or (ii) such an additional registration statement is proposed to be filed with the Commission pursuant to Rule 462(b) and will become effective upon filing pursuant to such Rule and upon such filing the Offered Securities will all have been duly registered under the Act pursuant to the initial registration statement and such additional registration statement. If the Company does not propose to amend the initial registration statement or if an additional registration statement has been filed and the Company does not propose to amend it, and if any post-effective amendment to either such registration statement has been filed with the Commission prior to the execution and delivery of this Agreement, the most recent amendment (if any) to each such registration statement has been declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the case of the additional registration statement, Rule 462(b). For purposes of this Agreement, "Effective Time" with respect to the initial registration statement or, if filed prior to the execution and delivery of this Agreement, the additional registration statement means (i) if the Company has advised the Representatives that it does not propose to amend such registration statement, the date and time as of which such registration statement, or the most recent post-effective amendment thereto (if any) filed prior to the execution and delivery of this Agreement, was declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c), or (ii) if the Company has advised the Representatives that it proposes to file an amendment or post-effective amendment to such registration statement, the date and time as of which such registration statement, as amended by such amendment or post-effective amendment, as the case may be, is declared effective by the Commission. If an additional registration statement has not been filed prior to the execution and delivery of this Agreement but the Company has advised the Representatives that it proposes to file one, "Effective Time" with respect to such additional registration statement means the date and time as of which such registration statement is filed and becomes effective pursuant to Rule 462(b). "Effective Date" with respect to the initial registration statement or the additional registration statement (if any) means the date of the Effective Time thereof. The initial registration statement, as amended at its Effective Time, including all information contained in the additional registration statement (if any) and deemed to be a part of the initial registration statement as of the Effective Time of the additional registration statement pursuant to the General Instructions of the Form on which it is filed and including all information (if any) deemed to be a part of the initial registration statement as of its Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the Act, is hereinafter referred to as the "Initial Registration Statement". The additional registration statement, as amended at its Effective Time, including the contents of the initial registration statement incorporated by reference therein and including all information (if any) deemed to be a part of the additional registration statement as of its Effective Time pursuant to Rule 430A(b), is hereinafter referred to as the "Additional Registration Statement". The Initial Registration Statement and the Additional Registration Statement are herein referred to collectively as the "Registration Statements" and individually as a "Registration Statement". The form of prospectus relating to the Offered Securities, as first filed with the Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is required) as included in a Registration Statement, is hereinafter referred to as the "Prospectus". No document has been or will be prepared or distributed in reliance on Rule 434 under the Act. (b) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement: (i) on the Effective Date of the Initial Registration Statement, the Initial Registration Statement conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission ("Rules and Regulations") and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) on the Effective Date of the Additional Registration Statement (if any), each Registration Statement conformed, or will conform, in all material respects to the requirements of the Act and the Rules and Regulations and did not include, or will not include, any untrue statement of a material fact and did not omit, or will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) on the date of this Agreement, the 2 Initial Registration Statement and, if the Effective Time of the Additional Registration Statement is prior to the execution and delivery of this Agreement, the Additional Registration Statement each conforms, and at the time of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Date of the Additional Registration Statement in which the Prospectus is included, each Registration Statement and the Prospectus will conform, in all material respects to the requirements of the Act and the Rules and Regulations, and neither of such documents includes, or will include, any untrue statement of a material fact or omits, or will omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading. If the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement: on the Effective Date of the Initial Registration Statement, the Initial Registration Statement and the Prospectus will conform in all material respects to the requirements of the Act and the Rules and Regulations, neither of such documents will include any untrue statement of a material fact or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and no Additional Registration Statement has been or will be filed. The two preceding sentences do not apply to statements in or omissions from a Registration Statement or the Prospectus based upon written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b) hereof. (c) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified and in good standing would not reasonably be expected to individually or in the aggregate (x) result in a material adverse effect on the properties, business, results of operations, financial condition or prospects of the Company and its subsidiaries taken as a whole, (y) interfere with or adversely affect the issuance or marketability of the Offered Securities or (z) in any manner draw into question the validity of this Agreement, the Registration Statements or the Prospectus (any of the events set forth in clauses (x), (y) or (z), a "Material Adverse Effect"). (d) Each subsidiary of the Company has been duly incorporated and is an existing corporation in good standing (to the extent such a concept exists in such jurisdiction) under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and each subsidiary of the Company is duly qualified to do business as a foreign corporation in good standing (to the extent such a concept exists in such jurisdiction) in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified and in good standing could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and except for pledges in favor of Credit Suisse First Boston Corporation ("CSFBC"), as collateral agent, under the Credit Agreement, dated as of August 5, 1999, as amended and restated as of June 30, 2000, as amended, by and among ChipPAC International 3 Company Limited, the Company, the lenders listed therein and CSFBC, as administrative agent, ("Credit Agreement") the capital stock of each subsidiary owned by the Company, directly or through subsidiaries, is owned free from liens, encumbrances and defects. (e) The Offered Securities and all other outstanding shares of capital stock of the Company have been duly authorized; all outstanding shares of capital stock of the Company are, and, when the Offered Securities have been delivered and paid for in accordance with this Agreement on each Closing Date (as defined below), such Offered Securities will have been, validly issued, fully paid and nonassessable and will conform in all material respects to the description thereof contained in the Prospectus; and the stockholders of the Company have no preemptive rights with respect to the Securities. (f) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings between the Company or its subsidiaries and any person that would give rise to a valid claim against the Company or its subsidiaries or any Underwriter for a brokerage commission, finder's fee or other like payment in connection with this offering. (g) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to a Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act, other than (i) the Amended and Restated Registration Agreement, dated as of August 5, 1999, among the Company, affiliates of Bain Capital, Inc. and SXI Group LLC and their designees, Hynix Semiconductor America (f/k/a Hyundai Electronics America) and Intel Corporation, as amended by Amendment No. 1 and Amendment No. 2 thereto ("Amended and Restated Registration Agreement"), provided that each of the parties to the Amended and Restated Registration Agreement have waived any rights arising under such agreement in respect of the Registration Statements, (ii) the Registration Rights Agreement, dated as of June 22, 2001, by and between the Company and Citicorp Capital Mezzanine III, L.P. ("Convertible Notes Registration Agreement") and (iii) the Registration Rights Agreement, dated June 22, 2001, by and between ChipPAC International Company Limited and Citicorp Capital Investors Limited ("Subordinated Notes Registration Agreement"), provided that none of the parties to the Convertible Notes Registration Agreement or the Subordinated Notes Registration Agreement have any rights arising under such agreements in respect of the Registration Statements. (h) The Offered Securities have been approved for listing on The NASDAQ Stock Market's National Market subject to notice of issuance. (i) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance and sale of the Offered Securities by the Company, except such as have been obtained and made under the Act and the rules and regulations of the Commission thereunder, the rules and regulations of the National Association of Securities Dealers, Inc. ("NASD"), the rules and regulations of The NASDAQ Stock Market's National Market and such as may be required under state securities laws. 4 (j) The execution, delivery and performance of this Agreement, and the issuance and sale of the Offered Securities will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, (i) any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or (ii) any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or (iii) the charter or by-laws of the Company or any such subsidiary, except (A) in each case, that any rights to indemnity and contribution may be limited by federal and state securities laws and public policy considerations and (B) in the case of clauses (i) and (ii) for such breaches, violations or defaults as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement. (k) This Agreement has been duly authorized, executed and delivered by the Company. (l) Except as disclosed in the Prospectus, the Company and its subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them that are material to the Company and its subsidiaries taken as a whole, in each case free from liens, encumbrances and defects that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and except as disclosed in the Prospectus, the Company and its subsidiaries hold any leased real or personal property that is material to the Company and its subsidiaries taken as a whole under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them. (m) The Company and its subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or any of its subsidiaries, would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (n) No labor strike, slowdown, stoppage or dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent, that would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. None of the Company or any of its subsidiaries has violated (A) any federal, state or local law or foreign law relating to discrimination in hiring, promotion or pay of employees, (B) any applicable wage or hour laws of, or (C) any provision of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the rules and regulations thereunder, except those violations that could not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (o) The Company and its subsidiaries own, possess, have the right to use or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "Intellectual Property Rights") necessary to conduct the business now operated by them, or presently employed by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any 5 Intellectual Property Rights that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. (p) Except as disclosed in the Prospectus, neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "Environmental Laws"), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws, in each case, which violation, contamination, liability or claim would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and the Company is not aware of any pending investigation which might lead to such a claim which would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. (q) Except as disclosed in the Prospectus, there are no pending actions, suits or proceedings against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, or would materially and adversely affect the ability of the Company or any of its subsidiaries to perform their respective obligations under this Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings are threatened or, to the Company's knowledge, contemplated which would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, or would materially and adversely affect the ability of the Company or any of its subsidiaries to perform their respective obligations under this Agreement, or which are otherwise material in the context of the sale of the Offered Securities. (r) The financial statements included or incorporated by reference in each Registration Statement and the Prospectus present fairly the financial position of the Company and its consolidated or combined subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis and the schedules included or incorporated by reference in each Registration Statement present fairly the information required to be stated therein. (s) Except as disclosed or incorporated by reference in the Prospectus, since the date of the latest audited financial statements included in the Prospectus there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole, and, except as disclosed in or contemplated by the Prospectus, there has been no dividend or distribution of any kind declared, paid or made by the Company or any of its subsidiaries on any class of capital stock owned by any of them. (t) The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" as defined in the Investment Company Act of 1940. (u) None of the Company or any of its subsidiaries or, to the best knowledge of the Company and its subsidiaries, any director, officer, agent, employee or other person associated with or acting on behalf of the Company or its subsidiaries has (i) used any 6 corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. 3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters, and the Underwriters agree, severally and not jointly, to purchase from the Company, at a purchase price of $[ ] per share, the respective numbers of shares of Firm Securities set forth opposite the names of the Underwriters in Schedule A hereto. The Company will deliver the Firm Securities to the Representatives for the accounts of the Underwriters, against payment of the purchase price in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to the order of the Company at the office of Cravath, Swaine & Moore, at 9:00 A.M., New York time, on [ ] 2002, or at such other time not later than seven full business days thereafter as CSFBC and the Company determine, such time being herein referred to as the "First Closing Date". For purposes of Rule 15c6-1 under the Securities Exchange Act of 1934, the First Closing Date (if later than the otherwise applicable settlement date) shall be the settlement date for payment of funds and delivery of securities for all the Offered Securities sold pursuant to the offering. The certificates for the Firm Securities so to be delivered will be in definitive form, in such denominations and registered in such names as CSFBC requests and will be made available for checking and packaging at the above office of Cravath, Swaine & Moore at least 24 hours prior to the First Closing Date. In addition, upon written notice from CSFBC given to the Company from time to time not more than 30 days subsequent to the date of the Prospectus, the Underwriters may purchase all or less than all of the Optional Securities at the purchase price per Security to be paid for the Firm Securities. The Company agrees to sell to the Underwriters the number of shares of Optional Securities specified in such notice and the Underwriters agree, severally and not jointly, to purchase such Optional Securities. Such Optional Securities shall be purchased for the account of each Underwriter in the same proportion as the number of shares of Firm Securities set forth opposite such Underwriter's name bears to the total number of shares of Firm Securities (subject to adjustment by CSFBC to eliminate fractions) and may be purchased by the Underwriters only for the purpose of covering over-allotments made in connection with the sale of the Firm Securities. No Optional Securities shall be sold or delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. The right to purchase the Optional Securities or any portion thereof may be exercised from time to time and to the extent not previously exercised may be surrendered and terminated at any time upon notice by CSFBC to the Company. Each time for the delivery of and payment for the Optional Securities, being herein referred to as an "Optional Closing Date", which may be the First Closing Date (the First Closing Date and each Optional Closing Date, if any, being sometimes referred to as a "Closing Date"), shall be determined by CSFBC but shall be not later than five full business days after written notice of election to purchase Optional Securities is given. The Company will deliver the Optional Securities being purchased on each Optional Closing Date to the Representatives for the accounts of the several Underwriters, against payment of the purchase price therefor in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to CSFBC drawn to the order of the Company, at the above office of Cravath, Swaine & Moore. The certificates for the Optional Securities being purchased on 7 each Optional Closing Date will be in definitive form, in such denominations and registered in such names as CSFBC requests upon reasonable notice prior to such Optional Closing Date and will be made available for checking and packaging at the above office of Cravath, Swaine & Moore at a reasonable time in advance of such Optional Closing Date. 4. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Offered Securities for sale to the public as set forth in the Prospectus. 5. Certain Agreements of the Company. The Company agrees with the several Underwriters that: (a) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Company will file the Prospectus with the Commission pursuant to and in accordance with subparagraph (1) (or, if applicable and if consented to by CSFBC, subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the second business day following the execution and delivery of this Agreement or (B) the fifteenth business day after the Effective Date of the Initial Registration Statement. The Company will advise CSFBC promptly of any such filing pursuant to Rule 424(b). If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement and an additional registration statement is necessary to register a portion of the Offered Securities under the Act but the Effective Time thereof has not occurred as of such execution and delivery, the Company will file the additional registration statement or, if filed, will file a post-effective amendment thereto with the Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on the date of this Agreement or, if earlier, on or prior to the time the Prospectus is printed and distributed to any Underwriter, or will make such filing at such later date as shall have been consented to by CSFBC. (b) The Company will advise CSFBC promptly of any proposal to amend or supplement the initial or any additional registration statement as filed or the related prospectus or the Initial Registration Statement, the Additional Registration Statement (if any) or the Prospectus and will not effect such amendment or supplementation without CSFBC's consent; and the Company will also advise CSFBC promptly of the effectiveness of each Registration Statement (if its Effective Time is subsequent to the execution and delivery of this Agreement) and of any amendment or supplementation of a Registration Statement or the Prospectus and of the institution by the Commission of any stop order proceedings in respect of a Registration Statement and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued. (c) If, at any time when a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will promptly notify CSFBC of such event and will promptly prepare and file with the Commission, at its own expense, an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. 8 (d) As soon as practicable, but not later than the Availability Date (as defined below), the Company will make generally available to its securityholders an earnings statement covering a period of at least 12 months beginning after the Effective Date of the Initial Registration Statement (or, if later, the Effective Date of the Additional Registration Statement) which will satisfy the provisions of Section 11(a) of the Act. For the purpose of the preceding sentence, "Availability Date" means the 45th day after the end of the fourth fiscal quarter following the fiscal quarter that includes such Effective Date, except that, if such fourth fiscal quarter is the last quarter of the Company's fiscal year, "Availability Date" means the 90th day after the end of such fourth fiscal quarter. (e) The Company will furnish to the Representatives copies of each Registration Statement (6 of which will be signed and will include all exhibits), each related preliminary prospectus, and, so long as a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, the Prospectus and all amendments and supplements to such documents, in each case in such quantities as CSFBC requests. The Prospectus shall be so furnished on or prior to 3:00 P.M., New York time, on the business day following the later of the execution and delivery of this Agreement or the Effective Time of the Initial Registration Statement. All other documents shall be so furnished as soon as available. The Company will pay the expenses of printing and distributing to the Underwriters all such documents. (f) The Company will arrange for the qualification of the Offered Securities for sale under the laws of such jurisdictions as CSFBC designates and will continue such qualifications in effect so long as required for the distribution, provided that the Company will not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction. (g) The Company will pay (i) all expenses incident to the performance of its obligations under this Agreement, (ii) for any filing fees and other expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities for sale under the laws of such jurisdictions as CSFBC designates and the printing of memoranda relating thereto, (iii) for the filing fee incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by the NASD of the Offered Securities, (iv) for any travel expenses of the Company's officers and employees and any other expenses of the Company in connection with attending or hosting meetings with prospective purchasers of the Offered Securities and (v) for expenses incurred in distributing preliminary prospectuses and the Prospectus (including any amendments and supplements thereto) to the Underwriters. (h) For a period of 90 days after the date of the initial public offering of the Offered Securities, the Company will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Act relating to, any additional shares of its Securities or securities convertible into or exchangeable or exercisable for any shares of its Securities, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of CSFBC, except for the filing of amendments to Registration Statement No. 333-73674 and the performance of any other of the Company's obligations under the Convertible Notes Registration Agreement. 6. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Firm 9 Securities on the First Closing Date and the Optional Securities to be purchased on each Optional Closing Date will be subject to the accuracy of the representations and warranties on the part of the Company herein, to the accuracy of the statements of Company officers made pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions precedent: (a) The Representatives shall have received a letter, dated the date of delivery thereof (which, if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the registration statement to be filed shortly prior to such Effective Time), of PricewaterhouseCoopers LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating to the effect that: (i) in their opinion the financial statements and schedules examined by them and included or incorporated by reference in the Registration Statements comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; (ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, on the unaudited financial statements included or incorporated by reference in the Registration Statements; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements included or incorporated by reference in the Registration Statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles; (B) the unaudited consolidated revenue, net income and net income per share amounts for the nine-month period ended September 30, 2001 included in the Prospectus do not agree with the amounts set forth in the unaudited consolidated financial statements for that same period or were not determined on a basis substantially consistent with that of the corresponding amounts in the audited statements of income; (C) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than three business days prior to the date of this Agreement, there was any change in the capital stock or any increase in short-term indebtedness or long-term debt of the Company and its consolidated subsidiaries or, at the date of the latest 10 available balance sheet read by such accountants, there was any decrease in consolidated net current assets, as compared with amounts shown on the latest balance sheet included or incorporated by reference in the Prospectus; or (D) for the period from the closing date of the latest income statement included or incorporated by reference in the Prospectus to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year, in consolidated revenue, operating income or in the total or per share amounts of consolidated net income, except in all cases set forth in clauses (C) and (D) above for changes, increases or decreases which the Prospectus discloses have occurred or which are described in such letter; (iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Registration Statements (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. For purposes of this subsection, (i) if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, "Registration Statements" shall mean the initial registration statement as proposed to be amended by the amendment or post-effective amendment to be filed shortly prior to its Effective Time, (ii) if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement but the Effective Time of the Additional Registration is subsequent to such execution and delivery, "Registration Statements" shall mean the Initial Registration Statement and the additional registration statement as proposed to be filed or as proposed to be amended by the post-effective amendment to be filed shortly prior to its Effective Time, and (iii) "Prospectus" shall mean the prospectus included in the Registration Statements. (b) If the Effective Time of the Initial Registration Statement is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or such later date as shall have been consented to by CSFBC. If the Effective Time of the Additional Registration Statement (if any) is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or, if earlier, the time the Prospectus is printed and distributed to any Underwriter, or shall have occurred at such later date as shall have been consented to by CSFBC. If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Prospectus shall have been filed with the Commission in accordance with the Rules and Regulations and Section 5(a) of this Agreement. Prior to such Closing Date, no stop order suspending the effectiveness of a Registration Statement shall have been issued and 11 no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or the Representatives, shall be contemplated by the Commission. (c) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as one enterprise which, in the reasonable judgment of a majority in interest of the Underwriters including the Representatives, is material and adverse and makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities; (ii) any downgrading in the rating of any debt securities of the Company by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (iii) any change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls as would, in the judgment of a majority in interest of the Underwriters including the Representatives, be likely to prejudice materially the success ofthe proposed issue, sale or distribution of the Offered Securities, whether in the primary market or in respect of dealings in the secondary market; (iv) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange or The NASDAQ Stock Market's National Market, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (v) any banking moratorium declared by U.S.Federal or New York authorities; (vi) any major disruption of settlements of securities or clearance services in the United States or (vii) any attack on, outbreak or escalation of hostilities or act of terrorism involving the United States, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Underwriters including the Representatives, the effect of any such attack, outbreak, escalation, act, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities. (d) The Representatives shall have received an opinion, dated such Closing Date, of Kirkland & Ellis, counsel for the Company, to the effect that: (i) The Company has been duly incorporated and is a corporation existing and in good standing under the General Corporation Law of the State of Delaware. The Company is qualified to do business and is in good standing in each jurisdiction listed on Schedule B hereto. (ii) The Company has all requisite corporate power and corporate authority to own and lease its properties and to conduct its business as described in the Prospectus. (iii) This Agreement has been duly authorized, executed and delivered by the Company. (iv) The issuance of the Offered Securities to be sold on the date hereof pursuant to this Agreement has been duly authorized, and when appropriate certificates representing those Offered Securities are duly countersigned by the 12 Company's transfer agent/registrar and delivered against payment of the agreed consideration therefor in accordance with this Agreement, those Offered Securities will be validly issued, fully paid and nonassessable. The issuance of those Offered Securities is not subject to any preemptive rights under the terms of the statute under which the Company is incorporated, under the Company's Certificate of Incorporation or under any contractual provision of which we have knowledge. (v) The Company's authorized capital stock conforms in all material respects to the description of the terms thereof contained under the heading "Description of Capital Stock" in the Prospectus. (vi) The Company's execution and delivery of this Agreement, the Company's performance of its obligations in this Agreement and the Company's issuance and sale of the Offered Securities to you in accordance with this Agreement will not (i) require any consent, approval, authorization or order of, or filing with, any governmental agency or body or any court of the United States or the State of New York, except such as have been obtained and may be required under the Act or the Securities Exchange Act of 1934, as amended or as may be required under state securities (or "blue sky") laws or regulations, (ii) violate the Certificate of Incorporation or Bylaws, (iii) constitute a violation by the Company of any applicable provision of any New York or Federal law, statute or regulation (except that we express no opinion in this paragraph as to compliance with any disclosure requirement or any prohibition against fraud or misrepresentation or as to whether performance of the indemnification or contribution provisions in this Agreement would be permitted) or (iv) constitute a breach of, or conflict with, or result in a default under, any existing obligation of the Company under any of the agreements filed as any of the exhibits to the Registration Statement. (vii) A member of the Commission's staff advised such counsel by telephone that the Commission's Division of Corporation Finance, pursuant to authority delegated to it by the Commission, entered an order declaring the Registration Statement effective under the Act on the Effective Date, and such counsel has no knowledge that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose have been instituted, are pending before, or overtly threatened by, the Commission. (viii) To such counsel's knowledge, there are no contracts, agreements or understandings between the Company and any third party granting such third party the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such third party or to require the Company to 13 include such securities in the securities registered pursuant to a Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act, other than the Amended and Restated Registration Agreement, the Convertible Notes Registration Agreement and the Subordinated Notes Registration Agreement. (ix) The information in the Registration Statement and the Prospectus under the headings "Business--Intellectual Property," "Description of Capital Stock," "Shares Eligible for Future Sale" and "Material United States Tax Considerations for Non-United States Holders" to the extent that it summarizes laws, governmental rules or regulations or documents is correct in all material respects. (x) Such counsel shall also state that the purpose of such counsel's professional engagement was not to establish factual matters, and preparation of the Registration Statement involved many determinations of a wholly or partially nonlegal character. Such counsel need make no representation that it has independently verified the accuracy, completeness or fairness of the Prospectus or Registration Statement or that the actions taken in connection with the preparation of the Registration Statement or Prospectus (including the actions described below) were sufficient to cause the Prospectus or Registration Statement to be accurate, complete or fair. Such counsel need not pass upon and need not assume any responsibility for the accuracy, completeness or fairness of the Prospectus or the Registration Statement except to the extent otherwise explicitly indicated in numbered paragraphs (v) and (ix) above. Such counsel shall however confirm that it has participated in conferences with representatives of the Company, representatives of the Underwriters, counsel for the Underwriters and representatives of the independent accountants for the Company during which disclosures in the Registration Statement and Prospectus and related matters were discussed. In addition, such counsel has reviewed certain corporate records furnished to it by the Company. Based upon such counsel's participation in the conferences and such counsel's document review identified above, such counsel's understanding of the applicable law and the experience such counsel has gained in such counsel's practice thereunder and relying to a large extent upon the opinions and statements of officers of the Company, such counsel can, however, advise the Representatives that nothing has come to such counsel's attention that has caused such counsel to conclude that the Registration Statement at its Effective Date contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) the Prospectus at the date it bears or as of such Closing Date contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (iii) as of the Effective Date, the Registration Statement complied as to form in all material respects to the requirements of Form S-3 or (iv) as of the Effective Date or as of such Closing Date, the Prospectus complied as to form in all material respects to the requirements of Form S-3. (e) The Representatives shall have received an opinion, dated such Closing Date, of Patricia H. McCall, Senior Vice President Administration, General Counsel and Secretary, to the effect that: 14 (i) All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable. (ii) There is no governmental proceeding that is pending or threatened against the Company that has caused such counsel to conclude that such proceeding is required by Item 103 of Regulation S-K to be described in the Prospectus but is not so described. There is no contract or other document to which the Company is a party or to which any of its property is subject that has caused such counsel to conclude that such contract is required to be described in the Registration Statement or the Prospectus but is not so described or is required to be filed as an exhibit to the Registration Statement but has not been so filed. (f) The Representatives shall have received from Cravath, Swaine & Moore, counsel for the Underwriters, such opinion or opinions, dated such Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities delivered on such Closing Date, the Registration Statements, the Prospectus and other related matters as the Representatives may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (g) The Representatives shall have received a certificate, dated such Closing Date, of the President or any Vice President and a principal financial or accounting officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that: the representations and warranties of the Company in this Agreement are true and correct; the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date; no stop order suspending the effectiveness of any Registration Statement has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission; the Additional Registration Statement (if any) satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of the applicable filing fee in accordance with Rule 111(a) or (b) under the Act, prior to the time the Prospectus was printed and distributed to any Underwriter; and, subsequent to the date of the most recent financial statements in the Prospectus, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a whole except as set forth in or contemplated by the Prospectus or as described in such certificate. (h) The Representatives shall have received a letter, dated such Closing Date, of PricewaterhouseCoopers LLP which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three days prior to such Closing Date for the purposes of this subsection. (i) On or prior to the date of this Agreement, the Representatives shall have received lockup letters from each of the executive officers and directors of the Company and stockholders listed on Schedule C hereto. (j) On or prior to the date of this Agreement, the Representatives shall have received waivers from each of the parties to the Amended and Restated Registration Agreement waiving any rights arising under such agreement in respect of the Registration Statements. (k) On or prior to the date of this Agreement, the Representatives shall have received fully-executed copies of Amendment No. 3, dated as of December 31, 2001, to the Credit Agreement. The Company will furnish the Representatives with such conformed copies of such opinions, certificates, letters and documents as the Representatives reasonably request. CSFBC may in its sole discretion waive on behalf of the Underwriters compliance with any conditions to the obligations of the Underwriters hereunder, whether in respect of an Optional Closing Date or otherwise. 15 7. Indemnification and Contribution. (a) The Company will indemnify and hold harmless each Underwriter, its partners, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (b) below; and provided, further, that with respect to any untrue statement or alleged untrue statement in or omission or alleged omission from any preliminary prospectus the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Underwriter from whom the person asserting any such losses, claims, damages or liabilities purchased the Offered Securities concerned, to the extent that a prospectus relating to such Offered Securities was required to be delivered by such Underwriter under the Act in connection with such purchase and any such loss, claim, damage or liability of such Underwriter results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Offered Securities to such person, a copy of the Prospectus if the Company had previously furnished copies thereof to such Underwriter. (b) Each Underwriter will severally and not jointly indemnify and hold harmless the Company, its directors and officers and each person, if any who controls the Company within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the fourth paragraph, the second sentence of the sixth paragraph, the second sentence of the eleventh paragraph, the thirteenth paragraph and the second, third, fourth and fifth sentences of the fourteenth paragraph under the caption "Underwriting". 16 (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section, as the case may be, for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of an indemnified party. (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall 17 be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company under this Section shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each director of the Company, to each officer of the Company who has signed a Registration Statement and to each person, if any, who controls the Company within the meaning of the Act. 8. Default of Underwriters. If any Underwriter or Underwriters default in their obligations to purchase Offered Securities hereunder on either the First or any Optional Closing Date and the aggregate number of shares of Offered Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date, CSFBC may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Underwriters, but if no such arrangements are made by such Closing Date, the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of shares of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date and arrangements satisfactory to CSFBC and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company, except as provided in Section 9 (provided that if such default occurs with respect to Optional Securities after the First Closing Date, this Agreement will not terminate as to the Firm Securities or any Optional Securities purchased prior to such termination). As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Underwriters is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5 and the respective obligations of the Company and the Underwriters pursuant to Section 7 shall remain in effect, and if any Offered Securities have been purchased hereunder the representations and warranties in Section 2 and all obligations under Section 5 shall also remain in effect. If the purchase of the Offered Securities by the Underwriters is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in clause (iii), (iv), (v), (vi) or (vii) of Section 6(c), the Company will reimburse the Underwriters for all out-of-pocket expenses (including 18 fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 10. Notices. All communications hereunder will be in writing and, if sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed to the Representatives c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Transactions Advisory Group, or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at ChipPAC, Inc., 47400 Kato Road, Fremont, California 94538, Attention: Robert Krakauer, with a copy to Kirkland & Ellis, 777 South Figueroa Street, Suite 3400, Los Angeles, California 90017, Attention: Eva H. Davis; provided, however, that any notice to an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Underwriter. 11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder. 12. Representation of Underwriters. The Representatives will act for the several Underwriters in connection with this financing, and any action under this Agreement taken by the Representatives jointly or by CSFBC will be binding upon all the Underwriters. 13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 14. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws. The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 19 If the foregoing is in accordance with the Representatives' understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement between the Company and the several Underwriters in accordance with its terms. Very truly yours, CHIPPAC, INC. By ----------------------------------- Name: Dennis P. McKenna Title: President and Chief Executive Officer The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED THOMAS WEISEL PARTNERS LLC Acting on behalf of themselves and as the Representatives of the several Underwriters. BY CREDIT SUISSE FIRST BOSTON CORPORATION By ------------------------------------ Name: Title: 20 SCHEDULE A
Number of Underwriter Firm Securities ----------- --------------- Credit Suisse First Boston Corporation.............................. [ Merrill Lynch, Pierce, Fenner & Smith Incorporated.................. Thomas Weisel Partners LLC.......................................... ] --------------- Total............................................................ 8,000,000 ===============
21 SCHEDULE B [Arizona California Delaware] 22 SCHEDULE C Dennis P. McKenna Richard M. Freeman Robert Krakauer Patricia H. McCall Marcos Karnezos Jeffrey Braden S.W. Woo B.K. Sohn Chin Bin Teh Edward Conard Bain Capital Fund VI, L.P. BCIP Associates II BCIP Associates II-B BCIP Associates II-C BCIP Trust Associates II BCIP Trust Associates II-B PEP Investments PTY Ltd. Sankaty High Yield Asset Partners, L.P. Michael A. Delaney Marshall Haines Chong Sup Park Paul C. Schorr, IV BG Partners LLP Citicorp Venture Capital LTD. Hynix Semiconductor America (f/k/a Hyundai Electronics of America) Intersil Holding Corporation Qualcomm Incorporated 23 EX-23.2 4 dex232.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our reports dated January 25, 2001 relating to the financial statements and the financial statement schedule, which appear in ChipPAC's Annual Report on Form 10-K for the year ended December 31, 2000. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP San Jose, California January 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----